Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2020 Earnings Presentation
28 slides from Pennymac Financial Services's earnings presentation, May 7, 2020
Slide 1: First Quarter 2020 Earnings Report
First Quarter 2020 Earnings Report
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, regardinrg management’s beliefs, estimates, projections and assumptions with respect to, among other things, the Company’s fina
Slide 3: First Quarter Highlights
First Quarter Highlights 3 ▪ Net income was $306.2 million; diluted earnings per share (EPS) were $3.73 – Record earnings driven by continued strong production results combined with substantial gains on our interest rate hedge investments which more than offset fair value losses on mortgage servicin
Slide 4: First Quarter Highlights (continued)
4 ▪ Record servicing segment pretax income of $170.8 million, versus a pretax loss of $5.1 million in 4Q19 and pretax income of $ 11.2 million in 1Q19 – Valuation - related items included $920.3 million in MSR fair value losses offset by $1.1 billion in hedging and other gains; net impact on pretax
Slide 5: Developments That Have Affected the Mortgage Markets
Developments That Have Affected the Mortgage Markets 5 ▪ Substantial slowdown in the economy related to COVID - 19 and public health measures ‒ Over the last six weeks 30.3 million workers have filed jobless claims, evidencing increased hardships for homeowners and borrowers leading to expectations
Slide 6: Update on the Mortgage Origination Market
3.0% 3.5% 4.0% 4.5% 5.0% 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 Jun-19 Sep-19 Dec-19 Mar-20 Update on the Mortgage Origination Market 6 U.S. Mortgage Origination Market (1) (UPB in billions) (1) Actual originations: Insi
Slide 7: Impact of Current Market Environment on PFSI by Business Segment
7 Impact of Current Market Environment on PFSI by Business Segment Loan Production Loan Servicing Investment Management ▪ Elevated margins across all channels ‒ Driven by reduced competition and already limited industry capacity constraints ▪ Expect large volumes due to market opportunity and mainta
Slide 8: Trends in PennyMac Financial's Businesses
Correspondent Production (1)(2) Market Share Market Share Consumer Direct Production (1 ) Loan Servicing (1) Market Share Broker Direct Production (1)(2) Market Share 8 Trends in PennyMac Financial’s Businesses (1) Source: Inside Mortgage Finance and company estimates for 1Q20 or as of 3/31/20. Insi
Slide 9: Production Segment Highlights – Correspondent Channel
$6.8 $16.7 $13.6 $8.1 $20.5 $16.2 $16.4 $36.0 $34.0 1Q19 4Q19 1Q20 Government loans Conventional loans for PMT Total locks 9 (UPB in billions) Correspondent Volume and Mix (1) Production Segment Highlights – Correspondent Channel (3) (4) ▪ Correspondent acquisitions by PMT in 1Q20 totaled $29.8 bill
Slide 10: Production Segment Highlights – Consumer Direct Channel
$0.6 $1.2 $1.7 $0.7 $2.6 $2.4 $1.4 $3.8 $4.0 $1.0 $2.4 $3.4 1Q19 4Q19 1Q20 Conventional Government Committed pipeline (UPB in b illions ) Consumer Direct Production Volume 10 Production Segment Highlights – Consumer Direct Channel (1) (1) Commitments to originate mortgage loans at specified terms at
Slide 11: Production Segment Highlights – Broker Direct Channel
$0.2 $0.9 $1.2 $0.1 $0.5 $0.4 $0.4 $1.4 $1.6 $0.3 $0.6 $1.2 1Q19 4Q19 1Q20 Conventional loans Government loans Committed pipeline 11 Production Segment Highlights – Broker Direct Channel Broker Direct Production Volume (1) (UPB in b illions ) (2) (1) As of 1Q20, historical and current period non - d
Slide 12: Servicing Segment Highlights
$368.7 $384.2 $(22.2) $35.4 $2.4 At 12/31/19 Runoff Additions from loan production MSR acquisitions At 3/31/20 (1) 12 Servicing Segment Highlights (1) Owned portfolio in predominantly government - insured and guaranteed loans under the FHA (53%), VA (38%), and USDA (9%) programs; delinquency data ba
Slide 13: Investment Management Segment Highlights
Investment Management Revenues (1) 13 Investment Management Segment Highlights Investment Management AUM ($ in billions ) ▪ Net AUM as of March 31, 2020 were $1.8 billion, down 26% from Dec ember 31, 2019 primarily due to significant non - cash fair value losses on PMT’s investments in government -
Slide 14: MSR Valuation Changes and Offsets
14 MSR Valuation Changes and Offsets ($ in millions) Hedging Approach Continues to Moderate the Volatility of PFSI’s Results Note: Figures may not sum exactly due to rounding ▪ PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge
Slide 15: 1Q20 Servicing Profitability Excluding Valuation-Related Changes
15 (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 a mortization and realization of MSR cash fl
Slide 16: Servicing Trends – Delinquency and Forbearance for PFSI's Owned Portfolio
7.0% 6.0% 6.0% 7.6% 7.2% 13.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 12/31/18 3/31/19 6/30/19 9/30/19 12/31/19 3/31/20 Servicing Trends – Delinquency and Forbearance for PFSI’s Owned Portfolio 16 ▪ PFSI is in a strong position to successfully manage hardships related to COVID - 19 g
Slide 17: Projected Needs for Servicing Advances
17 Projected Needs for Servicing Advances ▪ Ginnie Mae requires a servicer to continue advancing principal and interest (P&I) payments for delinquent loans until it buys such loans out of the MBS, unlike GSE servicing where P&I advances are limited to four months ‒ These P&I advances are typically c
Slide 18: Appendix
Estos Appendix
Slide 19: ▪ Complex and highly regulated mortgage industry requires effective governance, compliance and operating systems
▪ 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 20: PennyMac Financial Is a Strong Independent Mortgage Company
PennyMac Financial Is a Strong Independent Mortgage Company 20 ▪ Comprehensive mortgage platform and balanced model with leading production and servicing businesses ▪ Strong balance sheet with low leverage versus competitors – Debt to equity of 2.7x ▪ Diversified liquidity sources and term debt that
Slide 21: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
▪ MSR financing structure to include servicer advances 21 PFSI Has Developed in a Sustainable Manner for Long - Term Growth ▪ Disciplined growth to address the demands of the GSEs, Agencies, regulators and our financing partners - Since inception, PennyMac has focused on building and testing process
Slide 22: Industry-leading platform built organically – not through acquisitions
22 Industry - leading platform built organically – not through acquisitions ▪ Disciplined, sustainable growth for more than 12 years ▪ Focused on building and testing processes and systems before large transaction volumes Distinctive expertise and full range of capabilities across mortgage banking a
Slide 23: Why Are MSR Sales Occurring? How Do MSRs Come to Market?
23 Why Are MSR Sales Occurring? How Do MSRs Come to Market? ▪ Large servicers may sell MSRs due to operational pressures, regulatory capital constraints for banks and a re - focus on core customers/businesses ▪ Independent mortgage banks sell MSRs from time to time due to a need for capital ▪ Opport
Slide 24: Excess servicing spread and MSR co-investment with PMT
24 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
Slide 25: MSR Asset Valuation
25 MSR Asset Valuation Note: Figures may not sum exactly due to rounding (1) Represents weighted average (2) Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic disc oun t rates. The Company applies a pricing spread to the United S
Slide 26: Acquisitions and Originations by Product
26 Note: Figures may not sum exactly due to rounding (1 ) The UPB of historical period correspondent conventional conforming acquisitions has been reduced by $128 million, $308 million, $410 million, and $421 million, and the UPB of historical and current period correspondent government acquisitions
Slide 27: Interest Rate Locks by Product
27 Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) Correspondent Locks (1) Conventional Conforming 8,974$ 12,628$ 19,461$ 19,736$ 19,109$ Government 7,385 12,028 15,933 16,225 14,871 Non-Agency (2) 13 14 1 - - Total 16,372$ 24,671$ 35,395$ 35,961$ 33,980$ Consumer Direct Lo
Slide 28: Credit Characteristics by Acquisition / Origination Period
28 Credit Characteristics by Acquisition / Origination Period Correspondent Consumer Direct Broker Direct 1Q19 2Q19 3Q19 4Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 Government-insured 699 698 701 703 700 Government-insured 44 43 42 42 42 Conventional 750 755 760 762 763 Conventional 38 36 35 35 34 Weighted A
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