Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q2 2017 Earnings Presentation
25 slides from Pennymac Financial Services's earnings presentation, Aug 3, 2017
Slide 1: Second Quarter 2017 Earnings Report
Second Quarter 2017 Earnings Report
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation 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 results, f
Slide 3: Second Quarter Highlights
Second Quarter Highlights Pretax income was $58.0 million; diluted earnings per share of common stock were $0.44 – Successfully grew production volumes in both the correspondent and consumer direct channels in a competitive market and volatile interest rate environment – Deployed capital from the
Slide 4: Second Quarter Highlights (continued)
Second Quarter Highlights (continued) Investment Management segment pretax income was $2.5 million, up from $1.1 million in 1Q17 and $0.7 million in 2Q16 – Net assets under management (AUM) were $1.6 billion, essentially the same as $1.6 billion at March 31, 2017 and June 30, 2016 – The Investment
Slide 5: Current Market Environment
Current Market Environment • Mortgage rates were volatile within a narrow range Average 30-year fixed rate mortgage(1) during the second quarter, with the average 30-year 5.0% fixed rate mortgage ultimately declining 26 bps to 4.14% 3.88% during 2Q17(1) 4.5% 3.88% – Yields on 10-year U.S. Treasuries
Slide 6: Hedging Approach Continues to Moderate the Volatility of PFSI’s Results
Hedging Approach Continues to Moderate the Volatility of PFSI’s Results MSR Valuation Changes and Offsets ($ in millions) PFSI seeks to moderate the impact of interest rate changes through a comprehensive hedge MSR value change strategy that also considers Change in value of hedges and ESS liabili
Slide 7: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 2Q16 2Q16 1Q17 1Q17 2Q17 2Q17 basis basis basis $ points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 126.0 29.9 $ 134.9 27.2 $ 143.3 26.5 Amortization and realization of MSR cash flows (51.1) (12.1) (48.5) (9.8) (
Slide 8: PennyMac’s Broker Channel Set to Launch Soon
PennyMac’s Broker Channel Set to Launch Soon The broker channel currently comprises Top Broker Channel Originators(1) approximately 10 percent of the U.S. mortgage origination market 1Q17 – Broker channel loan quality has been strong and Mkt. generally comparable to retail channel production Rank
Slide 9: 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% 11.19% 2.3% 2.09% 1.96% 10% 9.07% 1.70% 8% 7.34% 1.5% 1.38% 6% 4% 0.8% 2% 0% 0.0% 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17E 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17E C
Slide 10: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Correspondent acquisitions by PMT in 2Q17 totaled Correspondent Volume and Mix $16.3 billion, up 17% Q/Q and 12% Y/Y (UPB in billions) $20 $18.2 – 64% government loans; 36% conventional loans $16.0 $16 $14.5 – 28% Q/Q growth in conventional con
Slide 11: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production volume of $1.3 billion in Consumer Direct Production Volume 2Q17, up 23% Q/Q and down 16% Y/Y (UPB in billions) $1.5 Committed pipeline totaled $936 million at the end of $1.5 the second quarter $1.3 July consum
Slide 12: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $229.0 billion in UPB at the Loan Servicing Portfolio Composition end of the second quarter, up 13% from 1Q17 and (UPB in billions) 33% from 2Q16 $250 $229.0 Acquired four bulk portfolios of Ginnie Mae MSRs with $202.9 $200 a combined UPB
Slide 13: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.6 billion, Investment Management Revenues essentially unchanged from March 31, 2017 ($ in millions) $9 The Investment Funds agreed to sell their remaining assets to a third party pursuant to agreement that are $6.2 $6.3
Slide 14: Financial Results by Operating Segment
Financial Results by Operating Segment Unaudited ($ in millions) Investment Non-Segment Total Pretax Production Servicing Management Activities(1) Activities Income 2Q16 $ 104.5 $ (20.9) $ 0.7 $ - $ 84.3 3Q16 $ 149.8 $ (10.7) $ 0.2 $ - $ 139.3 (1) 4Q16 $ 93.4 $ 35.1 $ 0.4 $ 0.6 $ 129.4 1Q17 $ 47.5 $
Slide 15: Mortgage Banking – Production Segment Results
Mortgage Banking – Production Segment Results Production revenues for PFSI’s own account (net gains on mortgage Production Segment Quarter Quarter ended ended Quarter Quarter ended ended loans held for sale at fair value, loan March 31,30, September 2017 2015 June June 30, 30, 2017 2015 Unaudited
Slide 16: Mortgage Banking – Servicing Segment Results
Mortgage Banking – Servicing Segment Results(1) Servicing Segment Servicing segment revenue Quarter ended ended Quarter ended ended Unaudited ($ in thousands) Quarter Quarter decreased 27% Q/Q driven March 31, 2017 June 30, 2017 Revenue by a $27.3 million decrease Net loan servicing fees $ 74,163
Slide 17: Mortgage Servicing Rights (MSR) Asset Valuation
Mortgage Servicing Rights (MSR) Asset Valuation Fair value not Fair value subject Lower of subject to excess to excess amortized cost or Total June 30, 2017 servicing spread servicing spread fair value Unaudited ($ in millions) liability liability UPB $100,449 $27,725 $29,050 $157,224 Weighted avera
Slide 18: Investment Management Segment Results
Investment Management Segment Results Segment revenue increased Quarter ended Unaudited – ($ in thousands) Quarter ended Quarter ended 17% Q/Q to $6.3 million December31, 2017 March June 30, 2017 – Carried interest revenue of Revenue $241,000 due to performance of Management fees: the Investment F
Slide 19: Appendix
Appendix PennyMa ac inancia | Services, Inc.
Slide 20: 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 • Serve as external manager for newly originated loans from and subservicing for Advised investment vehicles focused on third-party sellers Entit
Slide 21: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
PFSI Has Developed in a Sustainable Manner for Long-Term Growth 2017 • Disciplined growth to address the demands of the • Issued MSR- GSEs, Agencies, regulators and our financing backed term 2016 notes partners • Substantial growth in - Since inception, PennyMac has focused on building and consumer
Slide 22: PennyMac Financial Is in a Unique Position Among Mortgage Specialists
PennyMac Financial Is in a Unique Position Among Mortgage Specialists Industry-leading platform built organically – not Distinctive expertise and full range of through acquisitions capabilities across mortgage banking and • Not distracted by legacy/regulatory issues investment management • Disciplin
Slide 23: 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 ($10+ billion in UPB) which PFSI has distincti
Slide 24: PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI o
Slide 25: Acquisitions, Originations, and Locks by Product
Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 2Q16 3Q16 4Q16 1Q17 2Q17 Correspondent Acquisitions Conventional $ 5,171 $ 7,263 $ 7,492 $ 4,632 $ 5,918 Government 9,433 11,657 12,544 9,280 10,392 Jumbo 3 1 - - - Total $ 14,607 $ 18,920 $ 20,036 $ 13,912 $ 16,310 Correspon
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