Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2024 Earnings Presentation
35 slides from Pennymac Financial Services's earnings presentation, Jan 30, 2025
Slide 1: 4Q24 Earnings Report
4Q24 EARNINGS REPORT PennyMac Financial Services, Inc. January 2025
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
Slide 3: Fourth Quarter Highlights
FOURTH QUARTER HIGHLIGHTS Strong operating results partially offset by net fair value declines on hedged mortgage servicing rights 4Q24 Production Servicing Results Segment (3) Segment (3) Net Diluted Pretax Pretax income EPS⁽¹⁾ income income $104mm $1.95 $78mm $87mm Pretax income Annualized Total l
Slide 4: 2024 Results Highlight Gains in Operating Leverage and Earnings Power
2024 RESULTS HIGHLIGHT GAINS IN OPERATING LEVERAGE AND EARNINGS POWER OF OUR BALANCED BUSINESS MODEL Production Servicing Financial Highlights UPB of total funded volumes(1) 17% 10% Total Key portfolio Operating UPB(1) (Y/Y change) Larger increases in the Metrics (Y/Y change) direct lending channels
Slide 5: Origination Market Expectations Reflect Growth
ORIGINATION MARKET EXPECTATIONS REFLECT GROWTH U.S. Mortgage Origination Market(1) Mortgage Rates Remain Elevated ($ in trillions) Purchase Refinance Average 30-year fixed rate mortgage(2) • Current third-party estimates for industry originations average $2.0 trillion in 2025, reflecting projections fo
Slide 6: Achieved High-Teens Operating Returns on Equity in 2024
ACHIEVED HIGH-TEENS OPERATING RETURNS ON EQUITY IN 2024 Annualized Operating ROE(1) Mortgage Banking Operating Pretax Income ($ in millions) Servicing net of valuation related changes(1) Production • 15 - 20% operating return on equity in recent periods of elevated mortgage rates ‒ Servicing expecte
Slide 7: Earnings Growth Potential in Refinance Recapture Opportunity
EARNINGS GROWTH POTENTIAL IN REFINANCE RECAPTURE OPPORTUNITY Gov’t. Loans: Note Rates >5% Gov’t. Loan Refinance Recapture Rates (UPB in billions) Refinance recapture(2) Refinance recapture (inc. CES)(3) > 7.00% 6.50 - 6.99% • Large opportunity when borrowers with loans 6.00 - 6.49% originated at higher
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) Loan servicing, ancillary, and other fees Earnings on custodial balances and deposits and other income • Increasing revenue cont
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) 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:
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) Conv. Acquisitions - for PFSI(1) Originations Originations Gov’t. Acquisitions - for PFSI(1) Locks Locks Conv. and Jumbo Acquisitions - for PMT(2) Total
Slide 11: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 4Q23 3Q24 4Q24 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
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 ● Lock volume
Slide 13: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS Loan Servicing Portfolio Composition • Servicing portfolio totaled $665.8 billion in UPB at December (UPB in billions) 31, 2024, up 3% Q/Q and 10% Y/Y • Production volumes more than offset prepayment activity, leading to continued portfolio growth • 60+ day delinquency r
Slide 14: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 4Q23 3Q24 4Q24 basis basis basis $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ Loan servicing fees $ 402.5 26.9 $ 462.0 28.9 $ 472.6 28.8 Earnings on custodial balances and deposits and other income 90.0 6.0 136.7
Slide 15: 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
Slide 16: Appendix
APPENDIX ™ PENNYMAC
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 $116 billion in 2024 #2 IN PRODUCTION (1) PMT IS A LEADING RESIDENTIAL $666 billion outstanding #6 MORTGAGE • CORRESPONDENT REIT 2.6 million customers PRODUCTION • BROKER DIREC
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
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 6 largest in the U.S.(1) th • Diversified business through correspondent, • Recurring fee income business captured over the broker direct and co
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 3Q24⁽¹⁾ technology provide an exceptional loan Scalable technology platform providing our consumers, brokers and correspondent or
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
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
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 3.5x with fluctuations largely driven by the origination environment or other market opportunities • Targeted non-funding debt-to-equity ratio near 1.5x Non-funding D/E(1) To
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) 6.08% 6.85% 3.78% 4.57% Macroeconomic Metrics(3) Footnotes 12/31/23 3/31/24 6/30/24 9/30/24 12/31/24 (1) Freddie Mac Primary Mortgage Market Survey. 6.96% as of 1/23/25 (2) U.S. D
Slide 25: MSR Asset Valuation
MSR ASSET VALUATION December 31, 2024 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $426,055 Weighted average coupon 4.5% Weighted average servicing fee/spread 0.38% Weighted average prepayment speed assumption (CPR) 7.8% Fair value $8,745 As a multiple of servicing fee 5.4 25 (1)
Slide 26: Delinquency Trends and Servicing Advances Outstanding
DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates(1) 30-60 Day 60-90 Day 90+ Day In foreclosure ● Overall mortgage delinquency rates increased slightly from the prior quarter but remain within expected levels for a predominately government-i
Slide 27: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of December 31, 2024 Loan Remaining Loan size FICO credit 60+ UPB % of Note Seasoning Original Current Segment count maturity ($ in score at Delinquency ($ in billions)⁽⁴⁾ Total UPB rate (months) LTV LTV (in thousands) (months) thousands) origination (by
Slide 28: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 2022 2023 2024 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
Slide 29: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 2022 2023 2024 basis basis basis $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ Loan servicing fees $ 1,228.6 23.2 $ 1,484.9 25.7 $ 1,799.5 28.4 Earnings on custodial balances and deposits and other income 119.9 2.3
Slide 30: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Unaudited ($ in millions) 4Q23 1Q24 2Q24 3Q24 4Q24 Correspondent Acquisitions Conventional Conforming - for PMT $ 2,477 $ 1,769 $ 2,195 $ 5,851 $ 3,241 Conventional Conforming - for PFSI 10,129 8,190 10,007 8,092 13,567 Government - for PFSI 11,011 8,167 10,3
Slide 31: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Unaudited ($ in millions) 4Q23 1Q24 2Q24 3Q24 4Q24 Correspondent Locks Conventional Conforming - for PMT $ 2,737 $ 2,472 $ 2,602 $ 7,373 $ 2,741 Conventional Conforming - for PFSI 9,977 8,614 9,914 8,229 13,810 Government - for PFSI 11,197 8,467 11,100 12,448 11,088 Ju
Slide 32: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 4Q23 1Q24 2Q24 3Q24 4Q24 4Q23 1Q24 2Q24 3Q24 4Q24 Government-insured 714 719 715 715 719 Government-insured 46 44 44 44 44 Conventional 762 765 765 770 770 Conventional 39 38 38 38 38 Br
Slide 33: Reconciliation of GAAP Net Income to Adjusted EBITDA
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA ($ in millions) 4Q23 3Q24 4Q24 Net income $ (36.8) $ 69.4 $ 104.5 Provision for income taxes (17.4) 24.6 24.9 Income before provision for income taxes (54.2) 93.9 129.4 Depreciation and amortization 14.1 13.8 13.8 (Increase) decrease in fair value
Slide 34: 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) 4Q23 1Q24 2Q24 3Q24 4Q24 2024 Net (loss) income $ (36.8) $ 39.3 $ 98.3 $ 69.4 $ 104.5 $ 311.4 (Increase) decrease in fair value of
Slide 35: PennyMac Financial Services
™ PENNYMAC FINANCIAL SERVICES,
PennyMac Financial Services — Q4 2024 Earnings Presentation on 6ix