Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q2 2024 Earnings Presentation

33 slides from Pennymac Financial Services's earnings presentation, Jul 13, 2024

  1. Slide 1: 2Q24 Earnings Report

    2Q24 EARNINGS REPORT PennyMac Financial Services, Inc. July 2024

  2. 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, fut

  3. Slide 3: Second Quarter Highlights

    SECOND QUARTER HIGHLIGHTS Strong operating performance partially offset by net fair value declines on hedged mortgage servicing rights 2Q24 Results Total loan PFSI Consumer acquisitions and correspondent Broker direct direct lock PRODUCTION Pretax income originations⁽²⁾ lock volume lock volume volum

  4. Slide 4: Origination Market Expectations Reflect Growth

    ORIGINATION MARKET EXPECTATIONS REFLECT GROWTH U.S. Mortgage Origination Market(1) Mortgage Rates Remain Near Recent Highs ($ in trillions) Purchase Refinance Average 30-year fixed rate mortgage(2) • Current third-party estimates for industry originations average $1.7 trillion in 2024 and $2.1 trillio

  5. Slide 5: Building on Double Digit Operating Returns in 2024

    BUILDING ON DOUBLE DIGIT OPERATING RETURNS IN 2024 Annualized Operating ROE(1) Mortgage Banking Operating Pretax Income ($ in millions) Production Servicing net of valuation related changes and non-recurring items(1) • Continued increase in operating return on equity in recent periods • Operating re

  6. Slide 6: Future Recapture Opportunities Enhanced by Recent Production

    FUTURE RECAPTURE OPPORTUNITIES ENHANCED BY RECENT PRODUCTION Total Servicing Portfolio With Note Rates of 5% or Greater(1) (UPB in billions) 18% of total servicing portfolio 10% of total servicing portfolio Note Rate of 5.00% up to 6.00% Note Rate of 6.00% or Greater • Pennymac, through its multi-ch

  7. Slide 7: 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) (1) Loan servicing, ancillary, and other fees Earnings on custodial balances and deposits and other income • Increasing reve

  8. Slide 8: 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) Broker Direct Market Share(1) Consumer Direct Market Share(1) Note: All figures are for PFSI and include volume fulfilled or subserviced for PMT (1) Historical market share:

  9. Slide 9: 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) Conv. Acquisitions - for PFSI(1) Originations Originations Gov’t. Acquisitions - for PFSI(1) Locks Locks Conv. and Jumbo Acquisitions - for PMT(2) Total

  10. Slide 10: Drivers of Production Segment Results

    DRIVERS OF PRODUCTION SEGMENT RESULTS 2Q23 1Q24 2Q24 Revenue Revenue Revenue Fallout Margin / Contribution % of Fallout Margin / Contribution % of Fallout Margin / Contribution % of ($ in millions) Adjusted Fulfillment (net of Loan Production Adjusted Fulfillment (net of Loan Production Adjusted Fulfil

  11. Slide 11: 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 re

  12. Slide 12: Servicing Segment Highlights

    SERVICING SEGMENT HIGHLIGHTS Loan Servicing Portfolio Composition • Servicing portfolio totaled $632.7 billion in UPB at June 30, (UPB in billions) 2024, up 2% Q/Q and 10% Y/Y • Production volumes more than offset prepayment activity, leading to continued portfolio growth • 60+ day delinquency rates

  13. Slide 13: Servicing Profitability Excluding Valuation-Related Changes

    SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 2Q23 1Q24 2Q24 basis basis basis $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ Loan servicing fees $ 356.5 25.0 $ 424.2 27.7 $ 440.7 28.2 Earnings on custodial balances and deposits and other income 92.8 6.5 87.7 5

  14. Slide 14: 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 MSR fair value change before realization of cash flows comprehensive hedging strategy

  15. Slide 15: Investment Management Segment Highlights

    INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS ● Net AUM as of June 30, 2024 were $1.9 billion, essentially unchanged from March 31, 2024 and June 30, 2023 ● Investment Management segment revenues were $9.3 million, down slightly from 1Q24 and 2Q23 Investment Management AUM Investment Management Revenues

  16. Slide 16: Appendix

    APPENDIX ™ PENNYMAC

  17. Slide 17: Established Leader with Substantial Long-Term Growth Potential

    ESTABLISHED LEADER WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $1.9 billion in assets under management 15-year track record $101 billion in LTM 2Q24 #2 IN PRODUCTION (1) PMT IS A LEADING RESIDENTIAL $633 billion outstanding #5 MORTGAGE • CORRESPONDENT REIT 2.5 million customers PRODUCTION • BROKER D

  18. Slide 18: 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

  19. Slide 19: 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 2 largest in the U.S.(1) nd 5 largest in the U.S.(1) th • Diversified business through correspondent, • Recurring fee income business captured over the broker direct and co

  20. Slide 20: Top Lender with Comprehensive and Efficient Multi-Channel Platform

    TOP LENDER WITH COMPREHENSIVE AND EFFICIENT MULTI-CHANNEL PLATFORM #2 Significant and ongoing investments producer of residential in mortgage-banking mortgage loans in LTM 1Q24⁽¹⁾ technology provide an exceptional loan Scalable technology platform providing our consumers, brokers and correspondent or

  21. Slide 21: Technology Innovation to Unlock Additional Stakeholder Value

    TECHNOLOGY INNOVATION TO UNLOCK ADDITIONAL STAKEHOLDER VALUE With our SSE technology free and clear of any restrictions on use or development, we are actively exploring a continuum of potential opportunities with benefits for our many stakeholders Proven, low-cost servicing system with Drive efficienc

  22. Slide 22: 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) Proven ability to generate attractive Average: 21% ROEs… U.S. Origination Market(3) 10-Year Treasury Yield(4) (in trillions) …across different market environments… PFSI

  23. Slide 23: PFSI's Strong Balance Sheet and Diverse Capital Structures

    PFSI’S STRONG BALANCE SHEET AND DIVERSE CAPITAL STRUCTURES Low Debt-to-Equity (D/E) Ratio • Targeted debt-to-equity ratio near or below 3.5x with fluctuations largely driven by the origination environment or other market opportunities • Targeted non-funding debt-to-equity ratio below 1.5x Non-funding

  24. Slide 24: Current Market Environment and Macroeconomic Trends

    CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 10-year Treasury Bond Yield(2) 6.79% 6.86% 4.20% 4.40% Macroeconomic Metrics(3) Footnotes 6/30/23 9/30/23 12/31/23 3/31/24 6/30/24 (1) Freddie Mac Primary Mortgage Market Survey. 6.77% as of 7/18/24 (2) U.S. De

  25. Slide 25: MSR Asset Valuation

    MSR ASSET VALUATION June 30, 2024 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $396,430 Weighted average coupon 4.3% Weighted average servicing fee/spread 0.39% Weighted average prepayment speed assumption (CPR) 7.9% Fair value $7,923 As a multiple of servicing fee 5.2 25 (1) Excl

  26. Slide 26: Delinquency Trends and Servicing Advances Outstanding

    DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates(1) 30-60 Day 60-90 Day 90+ Day In foreclosure ● Overall mortgage delinquency rates increased from the prior quarter but remained in-line with levels in the same period last year ● Servicing a

  27. Slide 27: PFSI's Owned MSR Portfolio Characteristics

    PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of June 30, 2024 Loan Remaining Loan size FICO credit 60+ UPB % of Note Seasoning Original Current Segment count maturity ($ in score at Delinquency ($ in billions)⁽⁴⁾ Total UPB rate (months) LTV LTV (in thousands) (months) thousands) origination (by UPB

  28. Slide 28: Acquisitions and Originations by Product

    ACQUISITIONS AND ORIGINATIONS BY PRODUCT Unaudited ($ in millions) 2Q23 3Q23 4Q23 1Q24 2Q24 Correspondent Acquisitions Conventional Conforming - for PMT $ 3,029 $ 2,759 $ 2,477 $ 1,769 $ 2,195 Conventional Conforming - for PFSI 7,018 9,933 10,129 8,190 10,007 Government - for PFSI 11,139 8,848 11,01

  29. Slide 29: Interest Rate Locks by Product

    INTEREST RATE LOCKS BY PRODUCT Unaudited ($ in millions) 2Q23 3Q23 4Q23 1Q24 2Q24 Correspondent Locks Conventional Conforming - for PMT $ 3,322 $ 3,493 $ 2,737 $ 2,472 $ 2,602 Conventional Conforming - for PFSI 7,523 10,333 9,977 8,614 9,914 Government - for PFSI 10,735 10,063 11,197 8,467 11,100 Ju

  30. Slide 30: Credit Characteristics by Acquisition/Origination Period

    CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 2Q23 3Q23 4Q23 1Q24 2Q24 2Q23 3Q23 4Q23 1Q24 2Q24 Government-insured 715 712 714 719 715 Government-insured 45 45 46 44 44 Conventional 762 762 762 765 765 Conventional 38 38 39 38 38 Br

  31. Slide 31: Reconciliation of GAAP Net Income to Adjusted EBITDA

    RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA ($ in millions) 2Q23 1Q24 2Q24 Net income $ 58.3 $ 39.3 $ 98.3 Provision for income taxes 14.7 4.6 35.6 Income before provision for income taxes 72.9 43.9 133.9 Depreciation and amortization 13.2 14.2 14.2 Increase in fair value of MSRs and MSLs d

  32. Slide 32: Reconciliation of GAAP Items to Non-GAAP Items

    RECONCILIATION OF GAAP ITEMS TO NON-GAAP ITEMS Reconciliation of GAAP net income (loss) to operating net income and annualized operating return on equity ($ in millions) 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Net income (loss) $ 30.4 $ 58.3 $ 92.9 $ (36.8) $ 39.3 $ 98.3 (Increase) decrease in fair value of M

  33. Slide 33: PennyMac Financial Services

    ™ PENNYMAC FINANCIAL SERVICES,

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