Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2023 Earnings Presentation
33 slides from Pennymac Financial Services's earnings presentation, Apr 27, 2023
Slide 1: 1Q23 Earnings Report
1Q23 EARNINGS REPORT PennyMac Financial Services, Inc. April 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: First Quarter Highlights
FIRST QUARTER HIGHLIGHTS 1Q23 Results Total loan acquisitions PFSI Consumer Broker direct Net Diluted PRODUCTION Pretax income and originations(1) correspondent lock volume lock volume direct lock volume income EPS $(20)mm $22.8bn $14.1bn $2.6bn $2.2bn $30mm $0.57 MSR fair value Pretax income Return
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Remain High ($ in trillions) 7.0% $4.4 6.0% 5.0% $2.6 4.0% $2.3 $2.1 3.0% $0.7 $1.7 $0.6 2.0% $0.4 $1.8 $1.6 $1.5 1.0% $1.3 0.0% 2021 2022 2023E 2024E (2) (3) Purchase Refinance Average 30-year fixed rate
Slide 5: Multi-Channel Platform Has Established PennyMac as a Leader in Mortgage Production
COMPREHENSIVE AND EFFICIENT MULTI-CHANNEL PLATFORM HAS ESTABLISHED PENNYMAC AS A LEADER IN MORTGAGE PRODUCTION 3 Significant and ongoing investments producer of residential TOP in mortgage-banking mortgage loans in 2022(1) technology provide an exceptional loan Scalable technology platform providing
Slide 6: Continued Investments in Production Technology
CONTINUED INVESTMENTS IN PRODUCTION TECHNOLOGY TO DRIVE OPERATIONAL SCALE AND EFFICIENCIES FOR PENNYMAC AND ITS PARTNERS • Targeted investments in proprietary solutions to support increased levels of self-service, transparency in the loan origination process and a quick close • Technology platform i
Slide 7: Benefits and Potential Value from Large and Growing Servicing Portfolio
BENEFITS AND POTENTIAL VALUE FROM PENNYMAC’S LARGE AND GROWING SERVICING PORTFOLIO Recurring • $1.2 billion in revenue from servicing and sub-servicing fees in 2022 Cash Flows • Higher short-term rates driving increased placement fee income SERVICING PORTFOLIO Proprietary • Cloud-based servicing sys
Slide 8: Future Recapture Opportunities Enhanced by Recent Production at Higher Rates
FUTURE RECAPTURE OPPORTUNITIES ENHANCED BY RECENT PRODUCTION AT HIGHER RATES Pennymac’s Total Production Volumes(1) and Average Note Rate for Last 4 Quarters $26.7 $26.0 $23.0 $22.8 Average Average Average Average Note Rate: Note Rate: Note Rate: Note Rate: 4.41% 5.11% 5.85% 5.91% 2Q22 3Q22 4Q22 1Q2
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) 17.7% 4.2% 16.7% 17.1% 4.1% 4.1% 15.3% 15.0% 3.7% 3.3% 2019 2020 2021 2022 1Q23LTM 12/31/19 12/31/20 12/31/21 12/31/22 3/31/23 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) $22.7 $9.1 $22.9 $21.7 $3.5 $22.5 $20.8 $20.2 $2.5 $2.6 $8.2 $9.8 $6.8 $6.6 $2.0 $1.5 $1.1 $2.2 $14.0 $13.5 $1.7 $12.7 $1.0 $1.1 1Q22 4Q22 1Q23 1Q22 4Q2
Slide 11: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 1Q22 4Q22 1Q23 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 $564.5 billion in UPB at March 31, Loan Servicing Portfolio Composition 2023, up 2% Q/Q and 9% Y/Y (UPB in billions) $551.7 $564.5 • Production volumes more than offset prepayment activity, $518.8 leading to continued portfolio growth • Decr
Slide 14: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 1Q22 4Q22 1Q23 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Loan servicing fees $ 291.3 23.2 $ 321.9 23.6 $ 338.1 24.2 Earnings on custodial balances and deposits and other income 4.8 0.4 60.8 4.
Slide 15: Hedging Approach Moderates 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 recognition of realization of cash flows
Slide 16: 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% 5.0% 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 30-60 Days 60
Slide 17: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of March 31, 2023 were $2.0 billion, up slightly from December 31, 2022 and down 11% from March 31, 2022 ‒ Slight increase in AUM from the prior quarter primarily due to PMT’s strong financial performance • Investment Management segment revenues
Slide 18: Appendix
APPENDIX ™ PENNYMAC’
Slide 19: PFSI Is Well in Excess of Prospective Regulatory Capital and Liquidity Requirements
PFSI IS WELL IN EXCESS OF PROSPECTIVE REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS In August 2022, the Federal Housing Finance Agency (FHFA) and Ginnie Mae released updated eligibility standards for non-bank seller/servicers with a proposed effective date for most requirements of September 30, 2023
Slide 20: PennyMac Is an Established Leader in the U.S. Mortgage Market
PENNYMAC IS AN ESTABLISHED LEADER IN THE U.S. MORTGAGE MARKET WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $2.0 billion in assets under management 13-year track record #3 PMT IS A LEADING $564 billion outstanding $98 billion in LTM 1Q23 IN PRODUCTION(1) RESIDENTIAL • CORRESPONDENT PRODUCTION MORTGAGE
Slide 21: 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 22: 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 3rd 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 23: PFSI's Track Record Across Various Market Environments
PFSI’S TRACK RECORD ACROSS VARIOUS MARKET ENVIRONMENTS IS UNIQUE AMONG INDEPENDENT MORTGAGE BANKS 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% ROEs… 4% (1) 2013 2014 2015 2016 2017 201
Slide 24: 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 3.1x • Targeted debt-to-equity ratio near or below 3.5x with 2.0x fluctuations largely driven by the origination environment or other market opportunities 0.7x 0.9x 1.1x 1.2x • Low non-funding debt-to-
Slide 25: PennyMac Has Developed in a Sustainable Manner for Long-Term Success
PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS 2019 2020 2021 2022 2023 Achieved position as the Record production volumes PFSI issued an additional Launched “Greatness Lives Expanded capital largest correspondent across all channels; nearly $1.15 billion of Here” brand marketi
Slide 26: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 10-year Treasury Bond Yield(2) 6.42% 6.32% 5.0% 3.87% 7.0% 3.47% 4.0% 6.0% 5.0% 3.0% 4.0% 2.0% 3.0% 1.0% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes (1) Freddie Mac Primary Mortgage Market Survey. 6.39% as of
Slide 27: MSR Asset Valuation
MSR ASSET VALUATION March 31, 2023 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $321,264 Weighted average coupon 3.5% Weighted average servicing fee/spread 0.37% Weighted average prepayment speed assumption (CPR) 8.2% Fair value $6,003.4 As a multiple of servicing fee 5.05 (1) Exc
Slide 28: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS Loan Remaining FICO credit 60+ UPB % of Note Seasoning Loan size Original Current Segment count maturity score at Delinquency ($ in billions)(3) Total UPB rate (months) ($ in thousands) LTV LTV (in thousands) (months) origination (by UPB) Government(1) FHA
Slide 29: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Acquisitions/Originations Unaudited ($ in millions) 1Q22 2Q22 3Q22 4Q22 1Q23 Correspondent Acquisitions Conventional Conforming - for PMT $ 9,768 $ 10,320 $ 10,225 $ 6,771 $ 6,629 Conventional Conforming - for PFSI - - - 3,912 4,063 Government 12,730 10,649 1
Slide 30: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Interest Rate Lock Commitments Unaudited ($ in millions) 1Q22 2Q22 3Q22 4Q22 1Q23 Correspondent Locks Conventional Conforming - for PMT $ 10,194 $ 11,080 $ 10,647 $ 7,507 $ 7,588 Conventional Conforming - for PFSI - - - 4,747 3,781 Government 12,487 11,326 12,351 10,68
Slide 31: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 1Q22 2Q22 3Q22 4Q22 1Q23 1Q22 2Q22 3Q22 4Q22 1Q23 Government-insured 691 682 680 690 709 Government-insured 43 43 45 46 45 Conventional 750 753 758 756 757 Conventional 36 37 38 39 39 Br
Slide 32: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 1Q22 4Q22 1Q23 Net income $ 173.6 $ 37.6 $ 30.4 Provision for income taxes 60.9 30.1 7.8 Income before provisions for income taxes 234.5 67.7 38.1 Depreciation and amortization 7.0 10.6 12.7 Decrease (increase) in fair value of MSRs and MSLs d
Slide 33: PennyMac Financial Services
™ PENNYMAC’ FINANCIAL SERVICES
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