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

  1. Slide 1: First Quarter 2020 Earnings Report

    First Quarter 2020 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, regardinrg management’s beliefs, estimates, projections and assumptions with respect to, among other things, the Company’s financial

  3. Slide 3: First Quarter Highlights

    First Quarter Highlights  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 servicing

  4. Slide 4: First Quarter Highlights (continued)

    First Quarter Highlights (continued)  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 ot

  5. Slide 5: Developments That Have Affected the Mortgage Markets

    Developments That Have Affected the Mortgage Markets  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 for

  6. Slide 6: Update on the Mortgage Origination Market

    Update on the Mortgage Origination Market U.S. Mortgage Origination Market(1) Average 30-year fixed rate mortgage(2) (UPB in billions) 5.0% $2,325 $2,432 4.5% 3.74% 4.0% 3.50% 3.5% 3.0% Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 De

  7. Slide 7: Impact of Current Market Environment on PFSI by Business Segment

    Impact of Current Market Environment on PFSI by Business Segment Loan Production Loan Servicing Investment Management  Elevated margins across all  Changes in servicing profitability,  Substantial fair value losses on channels aside from changes in MSR value PMT’s CRT investments drove and relate

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

    Trends in PennyMac Financial’s Businesses Correspondent Production(1)(2) Loan Servicing(1) Market Share Market Share 3.36% 3.44% 16.00% 15.18% 2.98% 13.66% 2.40% 10.44% 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20E 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20E Consumer Direct Production(1) Broker Di

  9. Slide 9: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 1Q20 Correspondent Volume and Mix(1) totaled $29.8 billion in UPB, down 20% Q/Q and up (UPB in billions) 100% Y/Y $36.0 – 46% government loans; 54% conventional loans $34.0 – Government acquisitions of $13.6

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

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume in 1Q20 Consumer Direct Production Volume totaled $4.0 billion in UPB, up 7% Q/Q and 197% (UPB in billions) Y/Y $4.0 $3.8  Record volumes driven by low rates and $3.4 investments to scale the production plat

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

    Production Segment Highlights – Broker Direct Channel  Historical and current period non-delegated Broker Direct Production Volume(1) correspondent acquisition and lock volumes are (UPB in billions) now reported in the broker direct lending channel $1.6  Broker direct production volume in 1Q20 tot

  12. Slide 12: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $384.2 billion in UPB Loan Servicing Portfolio Composition at March 31, 2020, up 4% Q/Q and 18% Y/Y (UPB in billions) $368.7 $384.2  Strong production volumes continue to support $324.7 portfolio growth despite elevated prepayment activity

  13. Slide 13: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net AUM as of March 31, 2020 were $1.8 billion, down 26% from December 31, 2019 primarily due to significant non-cash fair value losses on PMT’s investments in government-sponsored enterprise (GSE) credit risk transfer ‒ We believe PMT’s fair value losses o

  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: 1Q20 Servicing Profitability Excluding Valuation-Related Changes

    1Q20 Servicing Profitability Excluding Valuation-Related Changes 1Q19 4Q19 1Q20 basis basis basis $ in millions (1) points $ in millions (1) points $ in millions (1) points Operating revenue $ 225.0 29.2 $ 273.0 30.4 $ 266.5 28.3 Realization of MSR cash flows (92.5) (12.0) (113.1) (12.6) (114.9) (12

  16. Slide 16: Servicing Trends – Delinquency and Forbearance for PFSI's Owned Portfolio

    Servicing Trends – Delinquency and Forbearance for PFSI’s Owned Portfolio 30+ Day Delinquency Rate(1) Forbearance Rate 18.0% 18.0% 16.0% 16.0% 14.0% 14.0% 13.2% 13.0% 12.0% 12.0% Current 10.0% 10.0% 4.3% 8.0% 7.6% 7.2% 8.0% 7.0% 6.0% 6.0% 6.0% 6.0% Delinquent 4.0% 4.0% 9.0% 2.0% 2.0% 0.0% 0.0% 12/31

  17. Slide 17: Projected Needs for Servicing Advances

    Projected Needs for Servicing Advances Assumptions for PFSI Servicing Portfolio Borrower Average months Peak servicing hardship delinquent advances • 25% in forbearance 4 months for delinquent Moderate $450 million plans loans before start of Case (no P&I) in 4Q20 recovery • Overall delinquency 8 mo

  18. Slide 18: Appendix

    Appendix PennyMac inancia | Services, Inc.

  19. Slide 19: 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 PMT, newly originated loans from and subservicing for PMT which invests in mortgage- third-party sellers  Major loan servi

  20. Slide 20: PennyMac Financial Is a Strong Independent Mortgage Company

    PennyMac Financial Is a Strong Independent Mortgage Company  Comprehensive mortgage platform and As of March 31, 2020 balanced model with leading production and ($ in millions) servicing businesses $10,891 $10,891  Strong balance sheet with low leverage versus competitors – Debt to equity of 2.7x

  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 2020 - Since inception, PennyMac has focused on building and  MSR financing structure to 2019 include servicer advances testing pr

  22. 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 Industry-leading platform built organically – not capabilities across mortgage banking and through acquisitions investment management  Disciplined, sustainable growth for more than 12 years

  23. 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 MSRs  Intermittent large bulk portfolio sales  GSE and Ginnie Mae servicing in due to operational pressures, ($10+ billion in UPB) which PFSI h

  24. 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

  25. Slide 25: MSR Asset Valuation

    MSR Asset Valuation Not subject to Subject to excess March 31, 2020 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability Pool UPB $212,753 $18,731 $231,484 (1) Coupon 3.89% 4.19% 3.91% (1) Servicing fee/spread 0.35% 0.34% 0.35% Fair value $2,010.0 $183.7 $2,19

  26. Slide 26: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 1Q19 2Q19 3Q19 4Q19 1Q20 (1) Correspondent Acquisitions Conventional Conforming $ 8,130 $ 10,737 $ 16,644 $ 20,510 $ 16,153 Government 6,752 10,574 14,346 16,653 13,616 (2) Non-Agency 5 4 3 - - To

  27. Slide 27: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 1Q19 2Q19 3Q19 4Q19 1Q20 (1) Correspondent Locks 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,

  28. Slide 28: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 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

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