Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2017 Earnings Presentation
25 slides from Pennymac Financial Services's earnings presentation, May 5, 2017
Slide 1: First Quarter 2017 Earnings Report
FirstQuarter2017 EarningsReport
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: First Quarter Highlights
First Quarter Highlights Pretax income was $62.0 million; diluted earnings per share of common stock were $0.47 – Results reflect lower production earnings driven by a reduction in refinance volumes due to higher mortgage rates and a seasonal slowdown in purchase-money volume – Book value per shar
Slide 4: First Quarter Highlights (continued)
First Quarter Highlights (continued) Investment Management pretax income was $1.1 million, up 167% from 4Q16 and down 3% from 1Q16 – Net assets under management were $1.6 billion, up modestly compared with $1.5 billion at December 31, 2016 and down 4% compared with $1.6 billion at March 31, 2016 I
Slide 5: Current Market Environment
Current Market Environment After rising sharply in the fourth quarter of 2016, mortgage rates declined modestly during the first quarter, with the average 30-year fixed rate down from 4.32% at December 29th, 2016, to 4.14% at March 30th, 2017(1) – After quarter end, mortgage rates declined further
Slide 6: Outlook for the Mortgage Origination Market
Outlook for the Mortgage Origination Market Mortgage Originations(1) Recent Peak (June 2013) = 4.6% 4.7% The 2017 origination market is expected to decrease 21% from the prior year, driven by a reduction in refinances Market forecasts of $1.5 to $1.6 trillion assume modestly rising rates; potent
Slide 7: Government MSR Financing – PNMAC GMSR Issuer Trust
GMSR Issuer Trust(1) Government MSR Financing – PNMAC In December 2016, we formed the PNMAC GMSR Issuer Trust, putting in place a structure that significantly increases the amount of Ginnie Mae MSR financing available to PFSI through two components: – Variable Funding Note (VFN) – issued and finan
Slide 8: Hedging Approach Continues to Moderate the Volatility of PFSI's Results
Hedging Approach Continues to Moderate the Volatility of PFSI’s Results PFSI seeks to moderate the impact of interest rate changes through a comprehensive hedge strategy that also considers production-related income MSR fair value increased due to lower expected future prepayment activity and im
Slide 9: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 1Q16 4Q16 1Q17 basis points(1) basis points(1) basis points(1) $ $ in millions $ in millions Operating revenue Amortization and realization of MSR cash flows EBO-related revenue(2) Servicing expenses: Operating expenses Credit losses and pr
Slide 10: Trends in PennyMac Financial's Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 12% 10% 8% 1.95% 2.0% 1.89% 10.76% 1.6% 1.2% 6% 4% 2% 0% 0.8% 0.4% 0.0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17E 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17E Consumer Direct Produc
Slide 11: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production volume of $1.0 billion in 1Q17, down 49% Q/Q and down 14% Y/Y Committed pipeline totaled $705 million at the end of the first quarter April consumer direct originations totaled $324 million; locks totaled $713 milli
Slide 12: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $202.9 billion in UPB at the end of the first quarter, up 4% from 4Q16 and up 23% from 1Q16 Prepayment activity slowed considerably in 1Q17 – CPRs of PFSI’s owned portfolio slowed to 12.7% from 20.7% in the prior quarter After quarter end, a
Slide 13: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.6 billion compared with $1.5 billion at December 31, 2016 – PMT equity increase due to preferred issuance largely offset by Investment Fund distributions to investors Investment Management Revenues ($ in millions) $9 PM
Slide 14: Financial Results by Operating Segment
Financial Results by Operating Segment Unaudited ($ in millions) Investment Management Non-Segment AAcctitviivtiteiess(1) Total Pretax Income Production Servicing 1Q16 $ 68.4 $ (39.5) $ 1.1 $ 0.0 $ 30.1 2Q16 $ 104.5 $ (20.9) $ 0.7 $ - $ 84.3 3Q16 $ 149.8 $ (10.7) $ 0.2 $ - $ 139.3 (1) 0.6 4Q16 $ 93.
Slide 15: Mortgage Banking – Production Segment Results
Mortgage Banking – Production Segment Results Production revenues for PFSI’s own account (net gains on mortgage loans held for sale at fair value, loan origination fees, net interest income and other) decreased 37% Q/Q – Driven by decline in government correspondent and consumer direct lock volume
Slide 16: Mortgage Banking – Servicing Segment Results
Results(1) Mortgage Banking – Servicing Segment Servicing segment revenue decreased 18% Q/Q driven Servicing Segment Unaudited ($ in thousands) Quarter ended December 31, 2016 Quarter ended March 31, 2017 by a $21.4 million decrease in net loan servicing fees – MSR valuation gains net of hedge and
Slide 17: Mortgage Servicing Rights (MSR) Asset Valuation
Mortgage Servicing Rights (MSR) Asset Valuation Fair value not s ubject to exces s s ervicing s pread liability Fair value s ubject to exces s s ervicing s pread liability Lower of am ortized cos t or fair value Total March 31, 2017 Unaudited ($ in m illions) Weighted average coupon 3.70% 3.90% 4.18
Slide 18: Investment Management Segment Results
Investment Management Segment Results Segment revenue decreased 6% Q/Q to $5.4 million Quarter ended Unaudited – ($ in thousands) Quarter ended DeDceecm.b3er1, 2016 Quarter ended March 31, 2017 – Carried interest loss of $128,000 due to underperformance of the Investment Funds Revenue Managem ent
Slide 19: Appendix
Appendix so . PennyMac a
Slide 20: Overview of PennyMac Financial's Businesses
Overview of PennyMac Financial’s Businesses Loan Production Loan Servicing Investment Management • Servicing for owned MSRs and subservicing for Advised Entities Major loan servicer for Fannie Mae, Freddie Mac and Ginnie Mae Industry-leading capabilities in special servicing Organic growth results f
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 notes consumer direct capacity • Servicing UPB reaches $100 bn Employees at year end 72 128 230 435 1,008 1,373 1,816 2,523 3,099 2,918(1) (1)As of March 31, 2017 22 2016 • Issued MSR-backed term 2015 • Substantial growth in 2014 •
Slide 22: 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 capabilities across mortgage banking and investment management Loan production, e.g., loan fulfillment systems and operations, correspondent counterparty review and management Credit, e.
Slide 23: Opportunity in MSR Acquisitions
Opportunity in MSR Acquisitions Why Are MSR Sales Occurring? Which MSR Transactions Are Attractive? How Do MSRs Come to Market? • Intermittent large bulk portfolio sales ($10+ billion in UPB) • GSE and Ginnie Mae servicing in which PFSI has distinctive expertise MSRs sold and operational servicing t
Slide 24: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI owns
Slide 25: Acquisitions, Originations, and Locks by Product
Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) Correspondent Acquisitions Conventional Government Jumbo Total Correspondent Locks Conventional Government Jumbo Total Consumer Direct Originations Conventional Government Jumbo Total Consumer Direct Locks Conventional Govern
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