Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2019 Earnings Presentation
25 slides from Pennymac Financial Services's earnings presentation, May 3, 2019
Slide 1: First Quarter 2019 Earnings Report
First Quarter 2019 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
Forward-Looking Statements 2 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
Slide 3: First Quarter Highlights
First Quarter Highlights 3 ▪ Net income was $46.1 million; diluted earnings per share (EPS) were $0.58 – Significant interest rate volatility highlighted the importance of our hedging approach and is also driving improving production trends – Book value per share increased to $21.72 from $21.34 at D
Slide 4: First Quarter Highlights (continued)
4 ▪ Investment Management segment pretax income was $2.1 million, down from $2.5 million in 4Q18 and up from $1.0 million in 1Q18 – Revenue of $8.8 million in 1Q19, an increase of 12% from 4Q18 and 28% from 1Q18 – PMT raised $147 million in new common equity – Net assets under management (AUM) were
Slide 5: Average 30-year fixed rate mortgage and market environment
5 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 5 Average 30-year fixed rate mortgage(1)▪ The U.S. economy remains on strong footing, despite global growth concerns – Gr
Slide 6: Drivers of Earnings Growth for PennyMac Financial
6 Drivers of Earnings Growth for PennyMac Financial Industry consolidation expected to continue Grow market share in all production channels Infrastructure for new products Continued technology development Scale advantage and efficiency ▪ PennyMac Financial is well-positioned to gain share over time
Slide 7: Trends in PennyMac Financial's Mortgage Banking Businesses
Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Broker Direct Production(1) Market Share 7 Trends in PennyMac Financial’s Mortgage Banking Businesses (1) Source: Inside Mortgage Finance and company estimates. Inside Mortgage Finance
Slide 8: Correspondent Volume and Mix
$8.8 $8.9 $6.8 $4.2 $9.0 $8.1 $0.1 $0.2 $13.6 $18.8 $16.7 1Q18 4Q18 1Q19 Government loans Conventional loans for PMT Non-delegated loans Total locks 8 (UPB in billions) Correspondent Volume and Mix▪ Correspondent acquisitions by PMT in 1Q19 totaled $15.1 billion in UPB, seasonally down 17% Q/Q and u
Slide 9: Consumer Direct Production
$1.3 $1.2 $1.4 $0.6 $0.6 $1.0 1Q18 4Q18 1Q19 Portfolio-sourced fundings Non-portfolio fundings Committed pipeline ▪ Consumer direct production volume of $1.4 billion in UPB in 1Q19, up 14% Q/Q and 7% Y/Y ▪ Higher volumes and margins driven by increased rate-and-term refinance activity ▪ Enhanced dat
Slide 10: Production Segment Highlights – Broker Direct Channel
$3.5 $139.0 $121.3 $3.3 $60.1 $74.6 $6.9 $199.1 $196.0 $29.8 $73.1 $129.5 1Q18 4Q18 1Q19 Conventional loans Government loans Committed pipeline 10 ▪ Broker direct production volume of $196 million in UPB in 1Q19, down slightly from $199 million in 4Q18 – Driven by seasonally lower volumes and intens
Slide 11: Servicing Segment Highlights
$299.3 $324.7 ($7.5) $16.6 $16.3 At 12/31/18 Runoff Additions from loan production MSR acquisitions At 3/31/19 (UPB in billions) ▪ Servicing portfolio totaled $324.7 billion in UPB at March 31, up 8% Q/Q and 27% Y/Y ▪ Completed the acquisition of two bulk MSR portfolios totaling $16.3 billion in UPB
Slide 12: Investment Management Segment Highlights
▪ Net assets under management as of March 31, 2019 were $1.7 billion, up 10% from December 31, 2018 ▪ In light of PMT’s strong investment outlook and ability to create credit and interest rate sensitive assets: – PMT raised approximately $143 million in net proceeds from an issuance of 7 million of
Slide 13: MSR Valuation Changes and Offsets
13 ▪ PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge strategy ▪ MSR fair value loss in 1Q19, primarily driven by the decrease in interest rates resulting in expectations for higher prepayment activity in the future ▪ Hedging
Slide 14: Servicing Profitability Excluding Valuation-Related Changes
14 (1) Of average portfolio UPB, annualized (2) Comprised of net gains on mortgage loans held for sale at fair value and net interest income related to EBO loans (3) Changes in fair value do not include realization of MSR cash flows, which are included in amortization and realization of MSR cash flo
Slide 15: Appendix
Appendix oo » PennyMac
Slide 16: Mortgage platform: production, servicing and investment management
▪ Complex and highly regulated mortgage industry requires effective governance, compliance and operating systems ▪ Operating platform has been developed organically and is highly scalable ▪ Commitment to strong corporate governance, compliance and risk management since inception ▪ PFSI is well posit
Slide 17: PennyMac Financial Is a Strong Independent Mortgage Company
PennyMac Financial Is a Strong Independent Mortgage Company 17 ▪ Comprehensive mortgage platform and balanced model with leading production and servicing businesses ▪ Strong balance sheet with low leverage versus competitors – Debt to equity of 2.5x ▪ Diversified liquidity sources and term debt that
Slide 18: PennyMac Financial's 11 Years of Continuous Growth and Development
PLS launches Broker Direct channel PennyMac Financial completes corporate reorganization simplifying corporate structure PennyMac Financial’s 11 Years of Continuous Growth and Development 18 2008 2009 2010 2012 2013 2016 2017 2018 PennyMac Loan Services, LLC (PLS) founded in 2008 with 72 employees A
Slide 19: Industry-leading platform built organically
19 Industry-leading platform built organically – not through acquisitions ▪ Disciplined, sustainable growth for more than 11 years ▪ Focused on building and testing processes and systems before large transaction volumes Distinctive expertise and full range of capabilities across mortgage banking and
Slide 20: Why Are MSR Sales Occurring? How Do MSRs Come to Market?
20 Why Are MSR Sales Occurring? How Do MSRs Come to Market? ▪ Large servicers may sell MSRs due to operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re-focus on core customers/businesses ▪ Independent mortgage banks sell MSRs from time to time
Slide 21: Excess Servicing Spread and MSR structure
21 Excess Servicing Spread (e.g., 12.5bp) MSR Asset (e.g., 25bp servicing fee) Acquired by PFSI from Third-Party Seller(1) ▪ 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 cas
Slide 22: MSR Asset Valuation
22 MSR Asset Valuation Note: Figures may not sum exactly due to rounding UPB $197,543 $22,292 $219,834 Weighted average coupon 3.95% 4.19% 3.98% Prepayment speed assumption (CPR) 12.0% 10.5% 11.4% Weighted average servicing fee rate 0.33% 0.34% 0.33% Fair value of MSR $2,606.3 $298.8 $2,905.1 As a m
Slide 23: Acquisitions and Originations by Product
23 Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Acquisitions and Originations by Product First Lien Acquisitions/Originations Second Lien Originations Consumer Direct Fundings HELOC-$ -$ -$ -$ 1$ Unaudited ($ in millions) Correspondent Acquisitions D
Slide 24: Interest Rate Locks by Product
24 Interest Rate Locks by Product First Lien Locks Second Lien Locks Consumer Direct Locks HELOC-$ -$ -$ -$ 1$ Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Unaudited ($ in millions) Correspondent Locks Delegated Conventional Conforming 4,304$ 5,979$
Slide 25: Credit Characteristics by Acquisition / Origination Period
25 Correspondent Consumer Direct Credit Characteristics by Acquisition / Origination Period 1Q18 2Q18 3Q18 4Q18 1Q19 Government-insured 697 697 699 700 699 Conventional 744 748 748 751 750 Weighted Average FICO 1Q18 2Q18 3Q18 4Q18 1Q19 Government-insured 697 709 700 696 699 Conventional 738 736 731
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