Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q4 2018 Earnings Presentation

25 slides from Pennymac Financial Services's earnings presentation, Feb 7, 2019

  1. Slide 1: Fourth Quarter 2018 Earnings Report

    Fourth Quarter 2018 Earnings Report

  2. 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

  3. Slide 3: Fourth Quarter Highlights

    Fourth Quarter Highlights  Pretax income was $58.3 million; diluted earnings per share were $0.63 – Benefit from the remeasurement of tax-related items contributed $0.11 to diluted earnings per share; tax provision rate reduced to 26.9% from 27.4% – Book value per share increased to $21.34, up from

  4. Slide 4: Fourth Quarter Highlights (continued)

    Fourth Quarter Highlights (continued)  Investment Management segment pretax income was $2.5 million, flat to 3Q18 and up from $1.5 million in 4Q17 – Net assets under management (AUM) were $1.6 billion, essentially unchanged from September 30, 2018 and December 31, 2017  As previously announced, th

  5. Slide 5: Current Market Environment

    Current Market Environment  Concerns related to the U.S. and global growth prospects Average 30-year fixed rate mortgage(1) 4.72% in addition to uncertainty regarding the trajectory of the 5.5% 4.55% Fed Funds rate drove increased volatility across financial 5.0% markets in the fourth quarter – The

  6. Slide 6: PennyMac Financial Is a Strong Independent Mortgage Company

    PennyMac Financial Is a Strong Independent Mortgage Company As of December 31, 2018  Comprehensive mortgage platform and ($ in millions) balanced model with leading production and $7,479 $7,479 servicing businesses  Strong balance sheet with low leverage versus Warehouse Mortgage Loans Financing c

  7. Slide 7: Technology Development and Utilization Differentiates PFSI

    Technology Development and Utilization Differentiates PFSI  Proprietary systems development combined with third-party technology  Innovative and strategic technology utilization driving cost savings and scale efficiencies  Agile development methodology to improve speed and value creation while lo

  8. Slide 8: Trends in PennyMac Financial’s Businesses

    Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 16% 15.10% 3.0% 2.74% 2.62% 11.69% 2.5% 2.32% 12% 10.76% 10.00% 1.89% 2.0% 8% 1.5% 1.0% 4% 0.5% 0% 0.0% 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18E 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3

  9. Slide 9: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 4Q18 totaled $18.1 billion, up 9% Q/Q and 17% Y/Y Correspondent Volume and Mix (UPB in billions) – 21% increase in conventional conforming acquisitions Q/Q and 54% Y/Y; 1% decrease in government $19.1 $17.9

  10. Slide 10: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume of $1.2 billion Consumer Direct Production Volume in 4Q18, down 8% Q/Q and 28% Y/Y (UPB in billions)  4Q18 origination volumes reflect seasonal factors and higher mortgage rates through most of the $1.6 quar

  11. Slide 11: Production Segment Highlights – Broker Direct Channel

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume of $199.1 million in Broker Direct Production Volume 4Q18, up from $110.8 million in 3Q18 (UPB in millions)  Number of approved brokers increased 38% Q/Q to 589 at quarter end, up from 428 at September 30  Cont

  12. Slide 12: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $299.3 billion in UPB at December 31, up 5% Q/Q and 22% Y/Y Loan Servicing Portfolio Composition (UPB in billions)  Completed $4.4 billion in UPB of previously announced $299.3 bulk MSR acquisitions in 4Q18 and after quarter end $284.5 $245

  13. Slide 13: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net assets under management as of December 31, 2018 were $1.6 billion, essentially unchanged from September 30, 2018  PMT’s continued strong performance resulted in $0.7 million in performance-based incentive fees  Completed $267 million in UPB of previou

  14. Slide 14: 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 impact of interest rate changes on the fair value of its ($ in millions) MSR asset through a comprehensive MSR fair value change before recognition of realization of

  15. Slide 15: Servicing Profitability Excluding Valuation-Related Changes

    Servicing Profitability Excluding Valuation-Related Changes 4Q17 3Q18 4Q18 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 176.1 28.9 $ 198.3 28.5 $ 217.9 29.5 Amortization and realization of MSR cash flows (66.9) (11.0) (71.4) (10.3) (82

  16. Slide 16: Appendix

    Appendix PennyMa ac inancia | Services, Inc.

  17. Slide 17: 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 PMT Mortgage Investment Trust third-party sellers • Major loan se

  18. Slide 18: PennyMac Financial’s 11 Years of Continuous Growth and Development

    PennyMac Financial’s 11 Years of Continuous Growth and Development PLS reaches 1 million customers and 3,100 employees in January PennyMac Loan Services, LLC (PLS) May 14, 2013: PennyMac PLS becomes the 8th largest mortgage founded in 2008 with PLS launches Financial Services, Inc. servicer with a p

  19. Slide 19: 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 11 years

  20. Slide 20: 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 operational sales ($10+ billion in UPB) which PFSI has distinct

  21. Slide 21: 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

  22. Slide 22: MSR Asset Valuation

    MSR Asset Valuation Fair value not Fair value subject to December 31, 2018 subject to excess excess servicing Total Unaudited ($ in millions) servicing spread spread liability UPB $178,241 $22,814 $201,054 Weighted average coupon 3.93% 4.18% 3.96% Prepayment speed assumption (CPR) 10.0% 9.6% 9.9% We

  23. Slide 23: Acquisitions and Originations by Product

    Acquisitions and Originations by Product Unaudited ($ in millions) 4Q17 1Q18 2Q18 3Q18 4Q18 Correspondent Acquisitions Delegated Conventional $ 5,891 $ 4,226 $ 5,396 $ 7,501 $ 9,050 Delegated Government 9,505 8,830 9,546 8,970 8,885 Delegated Jumbo - - 8 9 5 Non-delegated - - - 75 120 Total $ 15,396

  24. Slide 24: Interest Rate Locks by Product

    Interest Rate Locks by Product Unaudited ($ in millions) Correspondent Locks 4Q17 1Q18 2Q18 3Q18 4Q18 Delegated Conventional $ 6,293 $ 4,392 $ 6,091 $ 8,535 $ 9,831 Delegated Government 9,571 9,162 10,082 9,146 8,992 Delegated Jumbo - 13 59 33 17 Non-delegated - - - 144 227 Total $ 15,864 $ 13,567 $

  25. Slide 25: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO 4Q17 1Q18 2Q18 3Q18 4Q18 Government-insured 693 697 697 699 700 Conventional 745 744 748 748 751 Consumer Direct Weighted Average FICO 4Q17 1Q18 2Q18 3Q18 4Q18 Government-insured 695 697 709 700 696 Conven

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