Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2023 Earnings Presentation
35 slides from Pennymac Financial Services's earnings presentation, Oct 26, 2023
Slide 1: 3Q23 Earnings Report
3Q23 EARNINGS REPORT PennyMac Financial Services, Inc. October 2023
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections and assumptions with respect to, among other things, our financial results, fu
Slide 3: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS 3Q23 Results Total loan acquisitions PFSI Consumer PRODUCTION Pretax income and originations(2) correspondent lock volume Broker direct lock volume direct lock volume Net Diluted income EPS(1) $25mm $25.1bn $20.4bn $3.0bn $1.7bn $93mm $1.77 MSR fair value Pretax income MSR(1
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Remain High ($ in trillions) 8.0% $4.4 7.0% 6.0% 5.0% $2.6 4.0% $2.3 $1.9 3.0% $0.7 $1.6 $0.5 2.0% $0.3 $1.8 1.0% $1.6 $1.3 $1.5 0.0% 2021 2022 2023E 2024E Purchase Refinance (3) Average 30-year fixed rat
Slide 5: Balanced Business Model Drives Profitability Through Market Cycles
BALANCED BUSINESS MODEL DRIVES PROFITABILITY THROUGH MARKET CYCLES LOAN SERVICING LOAN PRODUCTION • Top 5 servicer • Top 2 producer • Drives earnings in higher • Drives earnings as interest rate environments interest rates decline • Significant cash earnings • Multi-channel approach for purchase and
Slide 6: Servicing Provides Growing Cash Flow and Scale Benefits
SERVICING PROVIDES GROWING CASH FLOW AND SCALE BENEFITS Revenue From Servicing & Placement Fees Operating Expenses ($ in millions) (bps of average servicing portfolio UPB) $1,723 10.5 9.5 9.2 9.0 $1,351 8.3 $1,100 7.4 $1,023 $1,057 $772 (1) (1) 2018 2019 2020 2021 2022 3Q23LTM 2018 2019 2020 2021 20
Slide 7: Future Recapture Opportunities Enhanced by Recent Production
FUTURE RECAPTURE OPPORTUNITIES ENHANCED BY RECENT PRODUCTION Total Servicing Portfolio With Note Rates of 5.00% or Greater(1) (UPB in billions) $111 $89 $57 $67 $38 19% $47 $24 of total $13 servicing portfolio $51 $55 $34 $43 4Q22 1Q23 2Q23 3Q23 Note Rate of 5.00% up to 6.00% Note Rate of 6.00% or G
Slide 8: Opportunity for Second-Lien Expansion
OPPORTUNITY FOR SECOND-LIEN EXPANSION • Estimated “tappable” home equity for U.S. homeowners totaled $19.7 trillion in 2Q23(1), driven by significant home price appreciation in recent years − More than 60% of borrowers in the U.S. have a mortgage loan with a note rate of 4% or lower(2) with potentia
Slide 9: PennyMac's Market Share Over Time Across Its Businesses
PENNYMAC’S MARKET SHARE OVER TIME ACROSS ITS BUSINESSES Correspondent Production Market Share(1) Loan Servicing Market Share(1) 21.2% 4.2% 4.1% 4.1% 17.7% 3.7% 16.7% 3.3% 15.3% 15.0% 2019 2020 2021 2022 3Q23LTM 12/31/19 12/31/20 12/31/21 12/31/22 9/30/23 Broker Direct Market Share(1) Consumer Direct
Slide 10: Production Segment Highlights – Volume by Channel
PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL Correspondent Broker Direct Consumer Direct (UPB in billions) (UPB in billions) (UPB in billions) $23.0 $21.6 $3.8 $23.9 $3.0 $22.4 $21.2 $2.8 $21.5 $3.0 $2.8 $2.2 $10.2 $1.9 $2.1 $2.3 $2.2 $1.7 $1.3 $1.6 $18.2 $18.8 $1.3 $12.2 3Q22 2Q23 3Q23 3Q22 2Q
Slide 11: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 3Q22 2Q23 3Q23 Revenue Revenue Revenue Fallout Margin / Contribution % of Fallout Margin / Contribution % of Fallout Margin / Contribution % of Adjusted Fulfillment (net of Loan Production Adjusted Fulfillment (net of Loan Production Adjusted Fulfillment (net of
Slide 12: Production Segment Highlights – Business Trends by Channel
PRODUCTION SEGMENT HIGHLIGHTS – BUSINESS TRENDS BY CHANNEL Multi-channel approach provides flexibility and has proven to be a competitive advantage, supporting profitability and pricing discipline while driving growth of the servicing portfolio Correspondent Broker Direct Consumer Direct • Pennymac
Slide 13: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $589.4 billion in UPB at September Loan Servicing Portfolio Composition 30, 2023, up 2% Q/Q and 9% Y/Y (UPB in billions) $576.5 $589.4 • Production volumes more than offset prepayment activity, $539.1 leading to continued portfolio growth •
Slide 14: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 3Q22 2Q23 3Q23 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Loan servicing fees $ 313.1 23.5 $ 356.5 25.0 $ 387.9 26.7 Earnings on custodial balances and deposits and other income 43.9 3.3 92.8 6
Slide 15: Hedging Approach Moderates the Volatility of PFSI's Results
HEDGING APPROACH MODERATES THE VOLATILITY OF PFSI’S RESULTS MSR Valuation Changes and Offsets ($ in millions) • PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive MSR fair value change before realization of cash flows hedging strateg
Slide 16: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of September 30, 2023 were $1.9 billion, up 1% from June 30, 2023 and down 3% from September 30, 2022 • Investment Management segment revenues were $8.8 million, down 8% from 2Q23 and 15% from 3Q22 Investment Management AUM Investment Management
Slide 17: Appendix
APPENDIX ™ PENNYMAC’
Slide 18: PFSI Is Well in Excess of Regulatory Capital and Liquidity Requirements
PFSI IS WELL IN EXCESS OF REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS In August 2022, the Federal Housing Finance Agency (FHFA) and Ginnie Mae (GNMA) released updated eligibility standards for non- bank seller/servicers; most requirements were effective September 30, 2023 • PennyMac Loan Services,
Slide 19: Established Leader with Substantial Long-Term Growth Potential
ESTABLISHED LEADER WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $1.9 billion in assets under management 14-year track record #2 PMT IS A LEADING $589 billion outstanding #5 $96 billion in LTM 3Q23 IN PRODUCTION(1) RESIDENTIAL MORTGAGE • CORRESPONDENT REIT 2.4 million customers PRODUCTION • BROKER DIR
Slide 20: Overview of PennyMac Financial's Businesses
OVERVIEW OF PENNYMAC FINANCIAL’S BUSINESSES LOAN PRODUCTION LOAN SERVICING INVESTMENT MANAGEMENT Correspondent aggregation of newly Servicing for owned MSRs and External manager of PMT, which invests in originated loans from third-party sellers subservicing for MSRs owned by PMT mortgage-related ass
Slide 21: PFSI's Balanced Business Model Is a Flywheel
PFSI’S BALANCED BUSINESS MODEL IS A FLYWHEEL Large volumes of production grow servicing portfolio Loan Production Loan Servicing 2nd largest in the U.S.(1) 5th largest in the U.S.(2) • Diversified business through correspondent, • Recurring fee income business captured over the broker direct and con
Slide 22: Top Lender with Comprehensive and Efficient Multi-Channel Platform
TOP LENDER WITH COMPREHENSIVE AND EFFICIENT MULTI-CHANNEL PLATFORM 2 Significant and ongoing investments in mortgage-banking # producer of residential mortgage loans in 1H23(1) technology provide an exceptional loan Scalable technology platform providing our consumers, brokers and correspondent orig
Slide 23: Benefits and Value of Large and Growing Servicing Portfolio
BENEFITS AND VALUE OF LARGE AND GROWING SERVICING PORTFOLIO Recurring • $1.4 billion in revenue from servicing and sub-servicing fees in 3Q23 LTM Cash Flows • Large deposit balances drive placement fee income in higher rate environment SERVICING PORTFOLIO Proprietary • Cloud-based servicing system b
Slide 24: Track Record of Strong Performance Across Market Environments
TRACK RECORD OF STRONG PERFORMANCE ACROSS MARKET ENVIRONMENTS PFSI's Annualized Return on Average Common Stockholders' Equity (ROE) 61% Proven ability to 26% 29% 19% 20% 22% 22% generate attractive Average: 24% 11% 13% 14% 7% ROEs… (1) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 9M23 U.S. Orig
Slide 25: PFSI's Strong Balance Sheet and Diverse Capital Structures
PFSI’S STRONG BALANCE SHEET AND DIVERSE CAPITAL STRUCTURES Low Debt-to-Equity Ratio 3.6x 3.0x 3.2x • Targeted debt-to-equity ratio near or below 3.5x with 2.6x 2.0x fluctuations largely driven by the origination environment or other market opportunities 0.7x 0.6x 0.9x 1.1x 1.2x • Low non-funding deb
Slide 26: Developed in a Sustainable Manner for Long-Term Success
DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS • PFSI initial public offering • Elevated volumes and profitability in low interest • A leader in mortgage • Significant growth in rate environment production and servicing servicing portfolio and consumer direct channel • Significant growth in
Slide 27: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 7.31% 10-year Treasury Bond Yield(2) 6.71% 4.57% 8.0% 5.0% 3.84% 7.0% 4.0% 6.0% 3.0% 5.0% 4.0% 2.0% 3.0% 1.0% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes (1) Freddie Mac Primary Mortgage Market Survey. 7.63%
Slide 28: MSR Asset Valuation
MSR ASSET VALUATION September 30, 2023 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $351,270 Weighted average coupon 3.9% Weighted average servicing fee/spread 0.38% Weighted average prepayment speed assumption (CPR) 6.7% Fair value $7,084 As a multiple of servicing fee 5.35 (1) E
Slide 29: Delinquency Trends and Servicing Advances Outstanding
DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates(1) 15.4% 14.0% 12.0% 9.5% 8.0% 7.2% 6.7% 5.8% 6.1% 5.5% 5.4% 5.6% 5.7% 5.0% 5.0% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3/31/23 6/3
Slide 30: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of September 30, 2023 Loan Remaining FICO credit 60+ UPB % of Note Seasoning Loan size Original Current Segment count maturity score at Delinquency ($ in billions)(3) Total UPB rate (months) ($ in thousands) LTV LTV (in thousands) (months) origination (b
Slide 31: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Acquisitions/Originations Unaudited ($ in millions) 3Q22 4Q22 1Q23 2Q23 3Q23 Correspondent Acquisitions Conventional Conforming - for PMT $ 10,225 $ 6,771 $ 6,629 $ 3,029 $ 2,759 Conventional Conforming - for PFSI - 3,912 4,063 7,018 9,933 Government - for PF
Slide 32: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Interest Rate Lock Commitments Unaudited ($ in millions) 3Q22 4Q22 1Q23 2Q23 3Q23 Correspondent Locks Conventional Conforming - for PMT $ 10,647 $ 7,507 $ 7,588 $ 3,322 $ 3,493 Conventional Conforming - for PFSI - 4,747 3,781 7,523 10,333 Government - for PFSI 12,351 1
Slide 33: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 3Q22 4Q22 1Q23 2Q23 3Q23 3Q22 4Q22 1Q23 2Q23 3Q23 Government-insured 680 690 709 715 712 Government-insured 45 46 45 45 45 Conventional 758 756 757 762 762 Conventional 38 39 39 38 38 Br
Slide 34: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 3Q22 2Q23 3Q23 Net income $ 135.1 $ 58.3 $ 92.9 Provision for income taxes 50.3 14.7 33.9 Income before provisions for income taxes 185.5 72.9 126.8 Depreciation and amortization 9.4 13.2 13.2 (Increase) decrease in fair value of MSRs and MSLs
Slide 35: PennyMac Financial Services
™ PENNYMAC’ FINANCIAL SERVICES,
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