Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q2 2022 Earnings Presentation
32 slides from Pennymac Financial Services's earnings presentation, Aug 2, 2022
Slide 1: 2Q22 Earnings Report
2Q22 EARNINGS REPORT PennyMac Financial Services, Inc. August 2022
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: Second Quarter Highlights
SECOND QUARTER HIGHLIGHTS 2Q22 Results Total loan acquisitions Consumer Government direct lock Broker direct Diluted PRODUCTION Pretax income and originations(2) volume lock volume correspondent lock volume Net income EPS(1) $10mm $26.7bn $4.3bn $2.2bn $11.3bn $129mm $2.28 MSR fair value Pretax inco
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Have Rapidly Increased ($ in trillions) 6.0% $4.4 $4.1 5.0% 4.0% $2.7 $2.6 $2.6 $2.3 3.0% $0.8 $0.5 2.0% $1.5 $1.8 $1.8 $1.8 1.0% 0.0% 2020 2021 2022E 2023E Purchase Refinance (2) (3) Average 30-year fixe
Slide 5: Long Track Record of Value Creation as a Publicly Traded Company
LONG TRACK RECORD OF VALUE CREATION AS A PUBLICLY TRADED COMPANY • Balanced business model with leadership positions Return on Equity (ROE) 61% in production and servicing combined with robust risk management disciplines drive profitability in different market environments 29% • History of deliverin
Slide 6: Opportunities in the Current Market Environment
OPPORTUNITIES IN THE CURRENT MARKET ENVIRONMENT Servicing Portfolio Growth New Loan Products Share Repurchases • Continue to leverage • Addressing the changing • Driven by expectations for Pennymac’s low cost structure demands of our 2.2 million continued book value growth and position as the larges
Slide 7: Disciplined Expense Management a Key Focus for PFSI
DISCIPLINED EXPENSE MANAGEMENT A KEY FOCUS FOR PFSI Proactive and meaningful steps taken to reduce expenses and capacity to align with lower levels of activity in the current market environment Compensation Marketing Production • Reduced production • Decreased spending due to • Highly variable cost
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) 17.7% 4.1% 4.1% 16.7% 3.7% 15.3% 14.7% 3.4% 11.8% 2.8% 2018 2019 2020 2021 2Q22LTM 12/31/18 12/31/19 12/31/20 12/31/21 6/30/22 Consumer Direct Market Share(1) Broker Direct
Slide 9: Production Segment Highlights – Volume by Channel
PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL Correspondent Consumer Direct Broker Direct (UPB in billions) (UPB in billions) (UPB in billions) $14.1 $4.5 $46.0 $4.0 $10.7 $3.5 $46.7 $9.1 $8.2 $2.5 $2.2 $22.7 $22.4 $5.0 $2.0 $30.5 $4.3 $3.2 $22.5 $21.0 $4.6 $3.7 $2.0 $9.8 $10.3 $1.6 $5.7 $2.2 $1
Slide 10: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 2Q21 1Q22 2Q22 Revenue Revenue Revenue Fallout Margin / % of Fallout Margin / % of Fallout Margin / % of Contribution (net Contribution (net Contribution (net Adjusted Fulfillment Production Adjusted Fulfillment Production Adjusted Fulfillment Production of Loan
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 CONSUMER DIRECT BROKER DIRECT • Pennymac
Slide 12: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $527.3 billion in UPB at June 30, Loan Servicing Portfolio Composition 2022, up 2% Q/Q and 11% Y/Y (UPB in billions) $518.8 $527.3 • Production volumes more than offset prepayment activity, $473.2 leading to continued portfolio growth • Decr
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 2Q21 1Q22 2Q22 basis basis basis (1) (1) $ in millions points $ in millions points $ in millions points(1) Loan servicing fees $ 260.4 22.6 $ 291.3 22.7 $ 302.4 23.1 Earnings on custodial balances and deposits 4.3 0.4 4.8 0.4 13.1 1.0 Reali
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 comprehensive MSR fair value change before recognition of realization of cash flows
Slide 15: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of June 30, 2022 were $2.1 billion, down 7% from March 31, 2022 and 12% from June 30, 2021 ‒ Decrease in AUM primarily due to PMT’s net losses • Investment Management segment revenues were $9.7 million, down 5% from 1Q22 and down 28% from 2Q21 In
Slide 16: PFSI's Strong Balance Sheet and Diverse Capital Structure
PFSI’S STRONG BALANCE SHEET AND DIVERSE CAPITAL STRUCTURE Low Debt-to-Equity Ratio 3.6x • Targeted debt-to-equity ratio near or below 3.5x with 3.0x 3.2x 2.4x fluctuations largely driven by the origination environment 1.9x or other market opportunities 1.0x • Non-funding debt-to-equity has historica
Slide 17: Appendix
APPENDIX ™\ PENNYMAC
Slide 18: 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 $2.1 billion in assets under management 13-year track record #4 PMT IS A LEADING $527 billion outstanding #7 $166 billion LTM 2Q22 IN PRODUCTION(1) RESIDENTIAL MORTGAGE • CORRESPONDENT REIT 2+ m
Slide 19: 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 20: 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 4th largest in the U.S.(1) 7th largest in the U.S.(2) • Diversified business through correspondent, • Recurring fee income business captured over the consumer direct and b
Slide 21: Benefits and Potential Value from Large and Growing Servicing Portfolio
BENEFITS AND POTENTIAL VALUE FROM PENNYMAC’S LARGE AND GROWING SERVICING PORTFOLIO Recurring • $1.1 billion in revenue from servicing and sub-servicing fees in 2021 Cash Flows • Higher short-term rates expected to drive increased placement fee income SERVICING PORTFOLIO Proprietary • Cloud-based ser
Slide 22: Robust Liquidity Risk Management Discipline
ROBUST LIQUIDITY RISK MANAGEMENT DISCIPLINE $2.8 billion in available liquidity at June 30, 2022(1), significantly in excess of minimum requirements and internally established reserve levels Reserves maintained for: • Financing covenants and other requirements of counterparties, regulators and ratin
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% 18% generate attractive Average: 24% 11% 13% ROEs… (1) 2013 2014 2015 2016 2017 2018 2
Slide 24: PennyMac Has Developed in a Sustainable Manner for Long-Term Success
PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS 2018 2019 2020 2021 2022 PFSI launched broker- Achieved position as the Record production volumes PFSI issued an additional Launched “Greatness Lives direct lending channel largest correspondent across all channels; nearly $1.15 bi
Slide 25: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 5.70% 10-year Treasury Bond Yield(2) 6.0% 4.67% 4.0% 3.01% 5.5% 2.34% 5.0% 3.0% 4.5% 4.0% 2.0% 3.5% 3.0% 1.0% 2.5% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes (1) Freddie Mac Primary Mortgage Market Survey. 5
Slide 26: MSR Asset Valuation
MSR ASSET VALUATION June 30, 2022 Unaudited ($ in millions) Mortgage Servicing Rights Pool UPB $297,270 Coupon(1) 3.2% Servicing fee/spread(1) 0.35% Prepayment speed assumption (CPR)(1) 8.2% Fair value $5,217.2 As a multiple of servicing fee 5.00 (1) Weighted average 26
Slide 27: Historical Trends in Delinquencies and Advances
HISTORICAL TRENDS IN DELINQUENCIES AND ADVANCES Historical Trends in Delinquency and Foreclosure Rates(1) 15.4% 14.0% 12.0% 9.5% 8.0% 7.2% 6.7% 5.8% 5.0% 5.0% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 30-60 Days 60-90 Days 90+ Days In Foreclosure • Overall mor
Slide 28: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT First Lien Acquisitions/Originations Unaudited ($ in millions) 2Q21 3Q21 4Q21 1Q22 2Q22 Correspondent Acquisitions Conventional Conforming $ 30,479 $ 28,605 $ 17,157 $ 9,768 $ 10,320 Government 16,175 15,375 15,651 12,730 10,649 Jumbo - - - 1 3 Total $ 46,654
Slide 29: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT First Lien Locks Unaudited ($ in millions) 2Q21 3Q21 4Q21 1Q22 2Q22 Correspondent Locks Conventional Conforming $ 30,332 $ 29,411 $ 14,717 $ 10,194 $ 11,080 Government 15,657 16,230 15,544 12,487 11,326 Jumbo - - - - 3 Total $ 45,990 $ 45,641 $ 30,261 $ 22,682 $ 22,410
Slide 30: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 2Q21 3Q21 4Q21 1Q22 2Q22 2Q21 3Q21 4Q21 1Q22 2Q22 Government-insured 702 700 693 691 682 Government-insured 42 42 42 43 43 Conventional 757 755 750 750 753 Conventional 34 35 36 36 37 Co
Slide 31: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 2Q21 1Q22 2Q22 Net income $ 204.2 $ 173.6 $ 129.2 Provision for income taxes 75.3 60.9 48.4 Income before provisions for income taxes 279.5 234.5 177.5 Depreciation and amortization 7.3 7.0 7.4 (Increase) decrease in fair value of MSRs and MSL
Slide 32: SN CERN Ne
SN CERN Ne
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