Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2018 Earnings Presentation
22 slides from Pennymac Financial Services's earnings presentation, May 3, 2018
Slide 1: First Quarter 2018 Earnings Report
First Quarter 2018 Earnings Report
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
Slide 3: First Quarter Highlights
First Quarter Highlights Pretax income was $73.0 million; diluted earnings per share were $0.67 – First quarter results reflect increased earnings contribution from the servicing segment driven by higher mortgage rates and a decrease from the production segment driven by lower margins – Book value
Slide 4: Current Market Environment
Current Market Environment Significant volatility in financial markets during 1Q18, Average 30-year fixed rate mortgage(1) with interest rates increasing sharply 5.0% 4.44% – Mortgage rates increased 45 basis points to 4.44% at 4.5% quarter end(1) 3.99% – Total mortgage originations were down 21%
Slide 5: Outlook for PennyMac Financial in the Current Environment
Outlook for PennyMac Financial in the Current Environment The mortgage origination market is in a period of significant transition – Interest rates have increased meaningfully from the end of 2017, reducing origination volumes, in particular refinance loans – Competition among originators and aggr
Slide 6: Trends in PennyMac Financial’s Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 12% 10.95% 2.5% 2.31% 2.40% 10.54% 10.00% 10% 2.0% 1.89% 7.94% 1.64% 8% 1.5% 6% 1.0% 4% 2% 0.5% 0% 0.0% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18E 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4
Slide 7: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Correspondent acquisitions by PMT in 1Q18 totaled Correspondent Volume and Mix $13.1 billion, down 15% Q/Q and 6% Y/Y (UPB in billions) $20 – 68% government loans; 32% conventional loans $15.9 $16 $14.5 $13.6 – 7% Q/Q decline in government acqu
Slide 8: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production volume of $1.3 billion in 1Q18, down 23% Q/Q and up 22% Y/Y Consumer Direct Production Volume $2.0 (UPB in billions) April consumer direct originations totaled $291 million; locks totaled $556 million $1.6 – $668
Slide 9: Production Segment Highlights – Broker Direct Channel
Production Segment Highlights – Broker Direct Channel Feedback on POWER portal and approval process Channel Development has been favorable Focus on expanding the platform Client engagement model and value proposition that features and additions to the product resonates with the broker community
Slide 10: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $255.3 billion in UPB at the end of the first quarter, up 4% from 4Q17 and Loan Servicing Portfolio Composition 26% from 1Q17 (UPB in billions) $300 Successfully completed a previously announced $245.8 $255.3 bulk MSR acquisition totaling
Slide 11: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.5 billion, Investment Management AUM down modestly from December 31, 2017 ($ in billions) PMT continued to transition capital from $1.80 $1.6 $1.6 $1.5 distressed whole loans toward MSRs and credit $0.10 $0.03 risk tran
Slide 12: Hedging Approach Continues to Moderate the Volatility of PFSI’s Results
Hedging Approach Continues to Moderate the Volatility of PFSI’s Results MSR Valuation Changes and Offsets PFSI seeks to moderate the ($ in millions) impact of interest rate changes MSR value change through a comprehensive hedge Change in value of hedges and ESS liability strategy that also conside
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 1Q17 4Q17 1Q18 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 134.9 27.2 $ 176.1 28.9 $ 174.5 27.8 Amortization and realization of MSR cash flows (48.5) (9.8) (66.9) (11.0) (61.
Slide 14: Appendix
Appendix PennyMa ac inancia | Services, Inc.
Slide 15: 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 PennyMac newly originated loans from and subservicing for Advised Mortgage Investment Trust third-party sellers Entities (N
Slide 16: 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 10 years
Slide 17: 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 • Intermittent large bulk portfolio • GSE and Ginnie Mae servicing in MSRs due to continuing sales ($10+ billion in UPB) which PFSI has distincti
Slide 18: PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI o
Slide 19: MSR Asset Valuation
MSR Asset Valuation Fair value not Fair value subject to March 31, 2018 subject to excess excess servicing Total Unaudited ($ in millions) servicing spread spread liability UPB $147,876 $25,611 $173,487 Weighted average coupon 3.80% 4.17% 3.85% Prepayment speed assumption (CPR) 8.7% 9.9% 8.9% Weight
Slide 20: Acquisitions and Originations by Product
Acquisitions and Originations by Product Unaudited ($ in millions) 1Q17 2Q17 3Q17 4Q17 1Q18 Correspondent Acquisitions Conventional $ 4,632 $ 5,918 $ 6,530 $ 5,891 $ 4,226 Government 9,280 10,392 10,873 9,505 8,830 Jumbo - - - - - Total $ 13,912 $ 16,310 $ 17,403 $ 15,396 $ 13,056 Consumer Direct Or
Slide 21: Interest Rate Locks by Product
Interest Rate Locks by Product Unaudited ($ in millions) Correspondent Locks 1Q17 2Q17 3Q17 4Q17 1Q18 Conventional $ 5,184 $ 7,022 $ 6,356 $ 6,293 $ 4,392 Government 9,292 11,209 10,999 9,571 9,162 Jumbo - - - - 13 Total $ 14,476 $ 18,231 $ 17,356 $ 15,864 $ 13,567 Consumer Direct Locks Conventional
Slide 22: Credit Characteristics by Acquisition / Origination Period
Credit Characteristics by Acquisition / Origination Period Correspondent WA FICO 1Q17 2Q17 3Q17 4Q17 1Q18 Government-insured 696 694 693 693 697 Conventional 752 753 749 745 744 Consumer Direct WA FICO 1Q17 2Q17 3Q17 4Q17 1Q18 Government-insured 687 690 692 695 697 Conventional 737 740 741 738 738 2
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