Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q2 2020 Earnings Presentation

30 slides from Pennymac Financial Services's earnings presentation, Aug 6, 2020

  1. Slide 1: Second Quarter 2020 Earnings Report

    Second Quarter 2020 Earnings Report

  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, the Company’s financial r

  3. Slide 3: Second Quarter Highlights

    Second Quarter Highlights  Net income was $352.7 million; diluted earnings per share (EPS) were $4.39 – Record earnings driven by core production and servicing results partially offset by fair value losses on mortgage servicing rights (MSRs) and associated hedging and other losses – Book value per

  4. Slide 4: Second Quarter Highlights (continued)

    Second Quarter Highlights (continued)  Servicing segment pretax loss was $62.4 million, versus pretax income of $170.8 million in 1Q20 and a pretax loss of $2.7 million in 2Q19 – $108.4 million in MSR fair value losses and $15.1 million in hedging and other losses driven by elevated hedge costs and

  5. Slide 5: PFSI's Success Built Upon Unique Business Model and Risk Management

    PFSI’s Success Built Upon Unique Business Model and Risk Management  Balanced business model, with established Book Value per Share Since IPO(1) scale in loan production and servicing ‒ Drives profitability across different market $34.26 environments 25% CAGR(2) ‒ Production volumes more weighted t

  6. Slide 6: PFSI's Earnings Growth Driven by Direct Lending and Servicing Scale

    PFSI’s Earnings Growth Driven by Direct Lending and Servicing Scale Production Pretax Income Servicing Pretax Income ($ in millions) ($ in millions) $778.2 $172.3 Estimated contribution from direct lending (CDL & BDL) $146.8 $129.2 $103.0 $108.4 $146.5 $527.8 $58.7 $238.5 $87.3 -$14.8 2017 2018 2019

  7. Slide 7: Economic Developments Affecting Our Businesses

    Economic Developments Affecting Our Businesses  Challenges in the U.S. economy reflect the impact of COVID-19 as a recent resurgence of the virus weighs on states’ plans to re-open ‒ Re-opening plans, including a return to physical work locations, are now on pause in over 80% of the country and rec

  8. Slide 8: Opportunity in the Mortgage Origination Market

    Opportunity in the Mortgage Origination Market U.S. Mortgage Origination Market(1) Average 30-year fixed rate mortgage(2) (UPB in billions) 5.0% $2,957 4.5% $2,325 $2,328 4.0% 3.50% 3.13% 3.5% 3.0% 2.5% Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Jul-15 Jan-16 Jul-16 Jan-17

  9. Slide 9: Technology Investments to Drive Continued Growth

    Technology Investments to Drive Continued Growth – New Milestone in Production Production Technology Correspondent Production Consumer Direct  P3, PennyMac’s new correspondent lending portal,  MAC, our consumer direct portal, allows potential leverages proprietary systems and Ellie Mae’s next borr

  10. Slide 10: Market Share Trends in PennyMac Financial's Businesses

    Market Share Trends in PennyMac Financial’s Businesses Correspondent Production(1) Broker Direct Production(1) 1.8% 16.6% 16.7% 1.5% 13.2% 10.8% 1.0% 0.1% 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20E 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20E Consumer Direct Production(1) Loan Servicing(1) 3.4%

  11. Slide 11: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 2Q20 totaled Correspondent Volume and Mix $29.9 billion in UPB, up slightly from the prior quarter (UPB in billions) and 40% Y/Y $37.7 – 37% government loans; 63% conventional loans $34.0 $29.8 $29.9 – Gover

  12. Slide 12: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume in 2Q20 was Consumer Direct Production Volume $5.1 billion in UPB, up 27% Q/Q and 161% Y/Y (UPB in billions)  Interest rate lock commitments in 2Q20 totaled $8.9 $8.9 billion in UPB, up 25% Q/Q and 167% Y/Y

  13. Slide 13: Production Segment Highlights – Broker Direct Channel

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume in 2Q20 totaled $2.6 Broker Direct Production Volume billion in UPB, up 67% Q/Q and 210% Y/Y (UPB in billions) $4.1  Lock volume of $4.1 billion in UPB, up 48% Q/Q and 204% Y/Y  The competitive landscape in thi

  14. Slide 14: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio increased to $388.3 billion in UPB Loan Servicing Portfolio Composition at June 30, 2020, up 1% Q/Q and 16% Y/Y despite (UPB in billions) elevated prepayment speeds and disruption in the $388.3 $384.2 correspondent production market $334.5  Signifi

  15. Slide 15: Owned Portfolio Servicing Trends – COVID Forbearances & EBO Opportunity

    Owned Portfolio Servicing Trends – COVID Forbearances & EBO Opportunity Forbearance Rate (1) 13.2% 12.4% 11.7% 4.2% 1.9% 1.6% 10.6% 10.1% 8.9% 4/30/2020 6/30/2020 7/31/2020 Delinquent Current  69% of forbearance plans in effect as of April 30th have been extended  The percentage of loans in PFSI’s

  16. Slide 16: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net AUM as of June 30, 2020 were $2.2 billion, up 23% from March 31, 2020 due to the increase in PMT’s book value – primarily driven by record Correspondent Production segment results and a significant recovery in the fair value of its investments in GSE CR

  17. Slide 17: Hedging Approach Continues to Moderate the Volatility of PFSI's Results

    Hedging Approach Continues to Moderate the Volatility of PFSI’s Results MSR Valuation Changes and Offsets  PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR ($ in millions) asset through a comprehensive hedge MSR fair value change before recognition of realizat

  18. Slide 18: Drivers of PFSI Production Segment Profitability

    Drivers of PFSI Production Segment Profitability 2Q19 1Q20 2Q20 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 Fulfillm

  19. Slide 19: 2Q20 Servicing Profitability Excluding Valuation-Related Changes

    2Q20 Servicing Profitability Excluding Valuation-Related Changes 2Q19 1Q20 2Q20 basis basis basis $ in millions (1) points $ in millions (1) points $ in millions (1) points Operating revenue $ 253.7 30.8 $ 266.5 28.3 $ 257.2 26.6 Realization of MSR cash flows (106.8) (13.0) (114.9) (12.2) (97.4) (10

  20. Slide 20: Trends in Delinquencies and Advances for PFSI's Owned Portfolio

    Trends in Delinquencies and Advances for PFSI’s Owned Portfolio 30+ Day Delinquency Rate(1) 15.1% 14.6% 13.0% 7.4% 7.6% 7.2% 6.8% Jun-19 Sep-19 Dec-19 Mar-20 Apr-20 Jun-20 Jul-20 ▪ Servicing advances outstanding were approximately $285 million at July 31, versus $260 million at April 30, 2020 – Ginn

  21. Slide 21: Appendix

    Appendix PennyMac inancia | Services, Inc.

  22. Slide 22: Overview of PennyMac Financial's Businesses

    Overview of PennyMac Financial’s Businesses Loan Production Loan Servicing Investment Management  Correspondent aggregation of  Servicing for owned MSRs  External manager of PMT, newly originated loans from and subservicing for PMT which invests in mortgage- third-party sellers  Major loan servi

  23. Slide 23: PFSI Has Developed in a Sustainable Manner for Long-Term Growth

    PFSI Has Developed in a Sustainable Manner for Long-Term Growth  Disciplined growth to address the demands of the GSEs, Agencies, regulators and our financing partners 2020 - Since inception, PennyMac has focused on building and  MSR financing structure to 2019 include servicer advances testing pr

  24. Slide 24: PennyMac Financial Is in a Unique Position Among Mortgage Specialists

    PennyMac Financial Is in a Unique Position Among Mortgage Specialists Distinctive expertise and full range of Industry-leading platform built organically – not capabilities across mortgage banking and through acquisitions investment management  Disciplined, sustainable growth for more than 12 years

  25. Slide 25: Opportunity in MSR Acquisitions

    Opportunity in MSR Acquisitions Why Are MSR Which MSR Transactions How Do MSRs Come to Market? Sales Occurring? Are Attractive?  Large servicers may sell MSRs  Intermittent large bulk portfolio sales  GSE and Ginnie Mae servicing in due to operational pressures, ($10+ billion in UPB) which PFSI h

  26. Slide 26: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT

    PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT  PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs  PMT acquires the right to receive the ESS cash flows over the life of the underlying loans  PFSI o

  27. Slide 27: MSR Asset Valuation

    MSR Asset Valuation Not subject to Subject to excess June 30, 2020 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability Pool UPB $215,949 $17,859 $233,808 Weighted average coupon 3.83% 4.19% 3.86% Weighted average servicing fee rate 0.35% 0.34% 0.35% Weighted

  28. Slide 28: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 2Q19 3Q19 4Q19 1Q20 2Q20 Correspondent Acquisitions Conventional Conforming $ 10,737 $ 16,644 $ 20,510 $ 16,153 $ 18,900 Government 10,574 14,346 16,653 13,616 10,991 (1) Non-Agency 4 3 - - - Tota

  29. Slide 29: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 2Q19 3Q19 4Q19 1Q20 2Q20 Correspondent Locks Conventional Conforming $ 12,628 $ 19,461 $ 19,736 $ 19,109 $ 24,804 Government 12,028 15,933 16,225 14,871 12,920 (1) Non-Agency 14 1 - - - Total $ 24,671 $ 35,395 $ 35,961 $ 33,98

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

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 Government-insured 698 701 703 700 719 Government-insured 43 42 42 42 37 Conventional 755 760 762 763 769 Conventional 36 35 35 34 32

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