Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2023 Earnings Presentation
37 slides from Pennymac Financial Services's earnings presentation, Feb 1, 2024
Slide 1: 4Q23 Earnings Report
4Q23 EARNINGS REPORT PennyMac Financial Services, Inc. February 2024
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: Fourth Quarter Highlights
FOURTH QUARTER HIGHLIGHTS Strong operating performance more than offset by one-time arbitration accrual of $158 million 4Q23 Results Total loan acquisitions PFSI Consumer Broker direct PRODUCTION Pretax income and originations(2) correspondent lock volume lock volume direct lock volume Net Diluted i
Slide 4: Overall 2023 Performance Validates Strength of Balanced Business Model
OVERALL 2023 PERFORMANCE VALIDATES STRENGTH OF BALANCED BUSINESS MODEL LOAN SERVICING LOAN PRODUCTION $268mm $69mm Adjusted pretax Pretax income income(1) #5 #2 Loan producer Loan servicer $607B 2.4mm CAPITAL #1 $99B Total servicing Customers Correspondent UPB of total portfolio UPB MANAGEMENT lende
Slide 5: Litigation Outcome Positive for PennyMac
LITIGATION OUTCOME POSITIVE FOR PENNYMAC Black Knight Litigation SSE Is A Competitive Advantage • Suite of proprietary, cloud-based applications and processes integrated Background with key partners’ applications and our data warehouse for increased efficiency in servicing, tracking and reporting •
Slide 6: Origination Market Expectations Reflect Growth
ORIGINATION MARKET EXPECTATIONS REFLECT GROWTH U.S. Mortgage Origination Market(1) Mortgage Rates Have Declined from Recent Highs ($ in trillions) 8.0% $4.4 7.0% 6.0% $2.6 $2.3 5.0% $2.0 $0.7 $1.4 4.0% $0.5 $0.2 $1.8 $1.6 3.0% $1.2 $1.5 2.0% 2021 2022 2023 2024E Purchase Refinance (2) Average 30-yea
Slide 7: Double Digit Operating ROE Entering 2024
DOUBLE DIGIT OPERATING ROE ENTERING 2024 Annualized Operating ROE(1) Mortgage Banking Operating Pretax Income ($ in millions) 15% $184 13% $145 9% $75 $99 $144 7% $120 $75 $94 $39 $24 $25 1Q23 2Q23 3Q23 4Q23 -$20 1Q23 2Q23 3Q23 4Q23 (2) Production Servicing net of valuation related changes and arbit
Slide 8: Servicing Provides Growing Cash Flow and Scale Benefits
SERVICING PROVIDES GROWING CASH FLOW AND SCALE BENEFITS Revenue From Servicing & Placement Fees Operating Expenses ($ in millions) (bps of average servicing portfolio UPB) $1,833 10.5 9.5 9.2 $1,351 9.0 8.3 $1,057 $1,100 7.2 $1,022 $772 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Ope
Slide 9: 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) $135 $111 $89 $78 22% $67 $57 of total $38 servicing $47 $24 portfolio $13 $51 $55 $57 $34 $43 4Q22 1Q23 2Q23 3Q23 4Q23 Note Rate of 5.00% up to 6.00% Note Rat
Slide 10: 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) 22.2% 4.3% 4.1% 4.1% 17.7% 3.7% 16.7% 3.3% 15.3% 15.0% 2019 2020 2021 2022 2023 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Broker Direct Market Share(1) Consumer Direct M
Slide 11: 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) $23.9 $23.9 $1.7 $1.7 $22.9 $23.6 $1.6 $21.5 $2.5 $3.0 $20.8 $2.8 $1.3 $2.8 $6.8 $2.0 $2.2 $2.2 $1.1 $0.9 $18.8 $21.1 $1.1 $14.0 4Q22 3Q23 4Q23 4Q22 3Q2
Slide 12: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 4Q22 3Q23 4Q23 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 13: 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 14: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $607.2 billion in UPB at December Loan Servicing Portfolio Composition 31, 2023, up 3% Q/Q and 10% Y/Y (UPB in billions) $607.2 $589.4 • Production volumes more than offset prepayment activity, $551.7 driving continued portfolio growth • 60+
Slide 15: Servicing Profitability
SERVICING PROFITABILITY 4Q22 3Q23 4Q23 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Loan servicing fees $ 321.9 23.6 $ 387.9 26.7 $ 402.5 26.9 Earnings on custodial balances and deposits and other income 60.8 4.5 99.4 6.8 89.9 6.0 Realization of MSR cash
Slide 16: 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 MSR fair value change before realization of cash flows on the fair value of its MSR asset through a comprehensive hedging strateg
Slide 17: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of December 31, 2023 were $2.0 billion, essentially unchanged from September 30, 2023 and December 31, 2022 • Investment Management segment revenues were $9.7 million, up 10% from 3Q23 and down 2% from 4Q22 Investment Management AUM Investment Ma
Slide 18: Appendix
APPENDIX ™ PENNYMAC’
Slide 19: PFSI Is Well in Excess of Regulatory Capital and Liquidity Requirements
PFSI IS WELL IN EXCESS OF REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS PennyMac Loan Services, LLC (PLS), the entity at which Federal Housing Finance Agency (FHFA) and Ginnie Mae (GNMA) eligibility standards are applicable, is a wholly-owned subsidiary of PFSI and is approved as a seller/servicer o
Slide 20: Established Leader with Substantial Long-Term Growth Potential
ESTABLISHED LEADER WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $2.0 billion in assets under management 14-year track record $99 billion in 2023 #2IN PRODUCTION(1) PMT IS A LEADING RESIDENTIAL $607 billion outstanding #5 MORTGAGE • CORRESPONDENT REIT 2.4 million customers PRODUCTION • BROKER DIRECT I
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 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 23: 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 2023(1) technology provide an exceptional loan Scalable technology platform providing our consumers, brokers and correspondent orig
Slide 24: Benefits and Value of Large and Growing Servicing Portfolio
BENEFITS AND VALUE OF LARGE AND GROWING SERVICING PORTFOLIO Recurring • $1.5 billion in revenue from servicing and sub-servicing fees in 2023 Cash Flows • Large deposit balances drive placement fee income in higher rate environment SERVICING PORTFOLIO Proprietary • Cloud-based servicing system built
Slide 25: Track Record of Strong Performance Across Market Environments
TRACK RECORD OF STRONG PERFORMANCE ACROSS MARKET ENVIRONMENTS PFSI's Annualized Return on Average Common Stockholders' Equity (ROE) 61% Proven ability to 26% 29% 19% 20% 22% 22% generate attractive Average: 22% 11% 13% 14% 4% ROEs… (1) (2) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 6.0%
Slide 26: PFSI's Strong Balance Sheet and Diverse Capital Structures
PFSI’S STRONG BALANCE SHEET AND DIVERSE CAPITAL STRUCTURES Low Debt-to-Equity Ratio 3.6x 3.0x 3.2x • Targeted debt-to-equity ratio near or below 3.5x with 2.4x 2.0x fluctuations largely driven by the origination environment or other market opportunities 0.8x 0.9x 1.1x 1.3x • Low non-funding debt-to-
Slide 27: Developed in a Sustainable Manner for Long-Term Success
DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS • PFSI initial public offering • Elevated volumes and profitability in low interest • A leader in mortgage • Significant growth in rate environment production and servicing servicing portfolio and consumer direct channel • Significant growth in
Slide 28: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 7.31% 10-year Treasury Bond Yield(2) 4.57% 6.61% 3.88% 8.0% 5.0% 7.0% 4.0% 6.0% 3.0% 5.0% 2.0% 4.0% 3.0% 1.0% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 (1) Freddie
Slide 29: MSR Asset Valuation
MSR ASSET VALUATION December 31, 2023 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $370,244 Weighted average coupon 4.1% Weighted average servicing fee/spread 0.38% Weighted average prepayment speed assumption (CPR) 8.3% Fair value $7,099 As a multiple of servicing fee 5.03 (1) Ex
Slide 30: Delinquency Trends and Servicing Advances Outstanding
DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates(1) 15.4% 14.0% 12.0% 9.5% 8.0% 7.2% 6.7% 5.8% 6.1% 5.9% 5.5% 5.4% 5.6% 5.7% 5.0% 5.0% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3/31/2
Slide 31: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of December 31, 2023 Loan Remaining FICO credit 60+ UPB % of Note Seasoning Loan size Original Current Segment count maturity score at Delinquency ($ in billions)(3) Total UPB rate (months) ($ in thousands) LTV LTV (in thousands) (months) origination (by
Slide 32: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Unaudited ($ in millions) 4Q22 1Q23 2Q23 3Q23 4Q23 Correspondent Acquisitions Conventional Conforming - for PMT $ 6,771 $ 6,629 $ 3,029 $ 2,759 $ 2,477 Conventional Conforming - for PFSI 3,912 4,063 7,018 9,933 10,129 Government - for PFSI 10,081 9,461 11,139
Slide 33: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Unaudited ($ in millions) 4Q22 1Q23 2Q23 3Q23 4Q23 Correspondent Locks Conventional Conforming - for PMT $ 7,507 $ 7,588 $ 3,322 $ 3,493 $ 2,737 Conventional Conforming - for PFSI 4,747 3,781 7,523 10,333 9,977 Government - for PFSI 10,681 10,341 10,735 10,063 11,197 J
Slide 34: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 4Q22 1Q23 2Q23 3Q23 4Q23 4Q22 1Q23 2Q23 3Q23 4Q23 Government-insured 690 709 715 712 714 Government-insured 46 45 45 45 46 Conventional 756 757 762 762 762 Conventional 39 39 38 38 39 Br
Slide 35: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 4Q22 3Q23 4Q23 Net income (loss) $ 37.6 $ 92.9 $ (36.8) Provision for (benefit from) income taxes 30.1 33.9 (17.4) Income (loss) before provision for (benefit from) income taxes 67.7 126.8 (54.2) Depreciation and amortization 10.6 13.2 14.1 (I
Slide 36: Pretax Income (Loss) Reconciled to Operating Net Income
PRETAX INCOME (LOSS) RECONCILED TO OPERATING NET INCOME ($ in millions) 1Q23 2Q23 3Q23 4Q23 Income (loss) before provision for (benefit from) income taxes $ 38.1 $ 72.9 $ 126.8 $ (54.2) Decrease (increase) in fair value of MSRs and MSLs due to changes in 90.3 (118.9) (398.9) 370.7 valuation inputs u
Slide 37: PennyMac Financial Services
™ PENNYMAC’ FINANCIAL SERVICES
PennyMac Financial Services — Q4 2023 Earnings Presentation on 6ix