Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q3 2015 Earnings Presentation

25 slides from Pennymac Financial Services's earnings presentation, Nov 4, 2015

  1. Slide 1: Third Quarter 2015 Earnings Report

    Third Quarter 2015 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: Third Quarter Highlights

    Third Quarter Highlights  Pretax income of $73.9 million; diluted earnings per common share of $0.58 – Segment pretax earnings: Production: $77.7 million; Servicing: $(6.1) million; Investment Management: $2.2 million – Servicing results impacted by a $47.9 million reduction in the mortgage servici

  4. Slide 4: Current Market Environment and Outlook

    Current Market Environment and Outlook • Volatility in global markets has led to U.S. interest Average 30-year fixed rate mortgage(1) rates and mortgage rates remaining low 5.0% Hundreds • Home price appreciation has moderated, but 4.5% housing fundamentals appear stable 4.08% • Agency loans continu

  5. Slide 5: PFSI Continues to Deliver Strong Earnings and Earnings Growth

    PFSI Continues to Deliver Strong Earnings and Earnings Growth Earnings per Share $2.12 $1.73 +20% $1.58 $1.32 $0.82 N/A (1) 2012 2013 2014 2015 YTD 9M14 9M15 Annualized Pretax Income ($ in millions) $269 +19% $202 $223 $170 $182 $118 2012 2013 2014 2015 YTD 9M14 9M15 Annualized (1) Represents partia

  6. Slide 6: Core Operating Profitability of the Servicing Segment

    Core Operating Profitability of the Servicing Segment Basis $ in thousands points(1) • Operating profitability includes only core Operating revenue $ 106,173 29.2 items Amortization and realization of MSR cash flows (41,594) (11.4) - – Servicing fee revenue net of MSR Direct servicing expenses: amor

  7. Slide 7: Hedging Approach Moderates the MSR Value Loss Due to Interest Rates

    Hedging Approach Moderates the MSR Value Loss Due to Interest Rates  The mortgage banking business is inherently sensitive to changes in interest rates  PFSI seeks to moderate the impact of interest rate changes through a comprehensive hedge approach that considers the company-wide effect on reven

  8. Slide 8: PFSI Continues to Distinguish Its Operational Platform with Technology

    PFSI Continues to Distinguish Its Operational Platform with Technology Leading Technology in Place and in Development • Management team’s Loan Servicing substantial operating expertise • Many customized and proprietary applications in place which include workflow management, loss mitigation alternat

  9. 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% 10.93% 1.8% 1.57% 10% 1.5% 1.38% 8.37% 8% 1.2% 6% 0.9% 4% 0.6% 2% 0.3% 0% 0.0% 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Consumer Dire

  10. Slide 10: Quarterly Highlights – Correspondent Production

    Quarterly Highlights – Correspondent Production Operational Highlights Correspondent Volume and Mix  Correspondent acquisitions by PMT in 3Q15 $16 (UPB in billions) $14.4 totaled $14.4 billion $13.6 – 72% government-insured loans; 28% conventional $12 $4.1 loans $9.5 $8.4 $3.6 $7.5  October corres

  11. Slide 11: Quarterly Highlights – Consumer Direct Production

    Quarterly Highlights – Consumer Direct Production Operational Highlights Consumer Direct Production Volume  Consumer direct production totaled $1.0 billion (UPB in millions) in 3Q15, down 8% from 2Q15 $1,200 $1,138 – Loans funded totaled 4,226 in 3Q15, up 8% from $1,042 2Q15; focus on lower balance

  12. Slide 12: Quarterly Highlights – Loan Servicing

    Quarterly Highlights – Loan Servicing Operational Highlights Loan Servicing Portfolio Composition (UPB in billions) $155  Servicing portfolio totaled $154.8 billion in UPB at $160 $136 quarter end, up 14% from 2Q15 $120 $115 $106  Bulk, mini-bulk and flow MSR acquisitions totaled $100 $10.0 billio

  13. Slide 13: Quarterly Highlights – Investment Management

    Quarterly Highlights – Investment Management Operational Highlights Investment Management Revenues ($ in millions)  Net assets under management were $1.8 billion $15 $13.3 at September 30, 2015  PMT’s book value grew to $20.52 at quarter end $12 $10.4 $10.0 versus $20.39 at June 30, 2015 $9 $7.8 

  14. Slide 14: Financial Results by Operating Segment

    Financial Results by Operating Segment Investment Total Pretax ($ in millions) Production Servicing Management Income 3Q14 $ 39.1 $ 17.4 $ 6.2 $ 62.7 4Q14 $ 37.8 $ 11.4 $ 2.6 $ 51.9 1Q15 $ 67.4 $ (18.1) $ 3.9 $ 53.2 2Q15 $ 76.3 $ (2.4) $ 1.0 $ 74.8 3Q15 $ 77.7 $ (6.1) $ 2.2 $ 73.9 Note: Figures may

  15. Slide 15: Mortgage Banking – Production Segment Results

    Mortgage Banking – Production Segment Results Production Segment  Production gains (net gains Quarter ended Quarter ended September 30, 2015 June 30, 2015 on mortgage loans held for Unaudited ($ in thousands) Revenue sale, loan origination fees, Net gains on mortgage loans held for sale at fair val

  16. Slide 16: Mortgage Banking – Servicing Segment Results

    Mortgage Banking – Servicing Segment Results Servicing Segment  Net servicing fee revenue Quarter ended Quarter ended September 30, 2015 June 30, 2015 decreased 21% Q/Q, Unaudited ($ in thousands) primarily driven by a $7.2 Revenue million fair value loss in the Net loan servicing fees $ 57,258 $ 6

  17. Slide 17: Mortgage Servicing Rights (MSR) Asset Valuation

    Mortgage Servicing Rights (MSR) Asset Valuation  PFSI carries most of its Lower of Fair value not Fair value subject September 30, 2015 amortized cost subject to excess to excess originated MSRs at the or fair value servicing spread servicing spread Unaudited ($ in millions) lower of amortized cost

  18. Slide 18: Investment Management Segment Results

    Investment Management Segment Results Unaudited – (in thousands) Quarter ended Quarter ended September 30, 2015 June 30, 2015  Segment revenue Revenue increased 13% Q/Q to Management fees: From PennyMac Mortgage Investment Trust $ 5,742 $ 5,779 $7.8 million From Investment Funds 714 1,184 6,456 6,9

  19. Slide 19: Appendix

    Appendix PennyMa ac inancia | Services, Inc.

  20. Slide 20: PennyMac Financial's Business Model Is Well Positioned for Growth

    PennyMac Financial’s Business Model Is Well Positioned for Growth 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 thi

  21. Slide 21: PFSI Has Developed in a Sustainable Manner for Long-Term Growth

    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 2015 - Since inception, PennyMac has focused on building and testing processes and systems before adding • Launched Commercial sign

  22. 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

  23. Slide 23: Opportunity for PFSI and PMT in MSR Acquisitions

    Opportunity for PFSI and PMT 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 P

  24. Slide 24: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT

    PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT  PMT co-invests in Agency MSRs acquired from third-party sellers by PFSI  PMT acquires the right to receive the excess servicing spread cash flows over the life of the underlying loans  PFSI owns the MSRs, and services the loans

  25. Slide 25: Acquisitions, Originations, and Locks by Product

    Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 3Q14 4Q14 1Q15 2Q15 3Q15 Correspondent Acquisitions Conventional $ 3,509 $ 2,772 $ 2,831 $ 3,553 $ 4,055 Government 4,378 4,389 5,106 8,316 10,348 Jumbo 169 116 59 26 19 Total $ 8,056 $ 7,276 $ 7,996 $ 11,895 $ 14,422 Corresp

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