Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2016 Earnings Presentation
27 slides from Pennymac Financial Services's earnings presentation, Nov 3, 2016
Slide 1: Third Quarter 2016 Earnings Report
Third Quarter 2016 Earnings Report
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: Third Quarter Highlights
Third Quarter Highlights Pretax income of $139.3 million; diluted earnings per share of common stock of $1.06 – Record earnings driven by continued momentum in correspondent and consumer direct production – Book value per share increased to $14.41 from $13.28 at June 30, 2016 Production segment
Slide 4: PennyMac Financial Continues to Deliver Earnings and Book Value Growth
PennyMac Financial Continues to Deliver Earnings and Book Value Growth Earnings Per Share Book Value Per Share $3 $16 $14.41 $2.53 $12.32 $2.17 $12 $2 $9.92 $1.73 $8.04 $8 (1) $1 $0.82 $4 $0 $0 2013 2014 2015 LTM 12/31/13 12/31/14 12/31/15 9/30/16 @ 9/30/16 (1) Represents partial year 4
Slide 5: Current Market Environment
Current Market Environment Despite expectations for higher interest rates Average 30-year fixed rate mortgage(1) over the long term, mortgage rates remained 5.0% largely unchanged in 3Q16 4.5% Origination volumes for both purchase-money 4.0% 3.42% and refinance mortgages remained strong in 3.41%
Slide 6: Hedging Approach Has Aided PFSI’s Results Despite Interest Rate Changes
Hedging Approach Has Aided PFSI’s Results Despite Interest Rate Changes PFSI seeks to moderate the impact of interest rate changes using hedge MSR Valuation Changes and Offsets instruments and also considering ($ in millions) production-related revenue Change in MSR value opportunities Change in v
Slide 7: Outlook for the Mortgage Origination Market
Outlook for the Mortgage Origination Market Estimates for Total U.S. Single Family 30-Year Fixed-Rate Mortgage Forecast(1) Mortgage Originations(1) ($ in billions) Purchase Refinance 20-yr Average = 6.0% $1,880 -16% $1,579 Recent Peak (June 2013) = 4.6% 4.4% $885 3.7% 3.9% $528 3.6% 3.6% 3.5% +6% $9
Slide 8: Drivers for Continued Growth at PennyMac Financial in 2017
Drivers for Continued Growth at PennyMac Financial in 2017 • Significant opportunity in conventional conforming market for continued Correspondent share growth production • PennyMac’s purchase-money focus to benefit from forecasted strong demand for homes even if mortgage rates increase modestly • S
Slide 9: 3Q16 Production Income Growth Driven by Higher Volumes and Margins
3Q16 Production Income Growth Driven by Higher Volumes and Margins Production Segment Pretax Income Correspondent Production Volume ($ in millions) ($ in billions) $25 $21.6 $160 $150 $20 $18.9 $16.0 +43% $15 $14.6 $13.6 $14.6 $120 $10 $105 $5 $78 $80 $0 3Q15 2Q16 3Q16 Fundings Locks $40 Consumer Di
Slide 10: Servicing Profitability Excluding Fair Value Changes
Servicing Profitability Excluding Fair Value Changes 3Q16 2Q16 1Q16 FY 2015 basis basis basis basis (1) (1) (1) (1) $ in millions points $ in millions points $ in millions points $ in millions points Operating revenue $ 128.2 29.0 $ 126.0 29.9 $ 115.8 28.5 $ 383.8 28.5 Amortization and realization o
Slide 11: Trends in PennyMac Financial’s Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 12% 2.0% 10.46% 1.71% 1.82% 10% 9.19% 8.74% 1.6% 1.56% 8% 6.83% 1.2% 1.02% 6% 4% 0.8% 2% 0.4% 0% 0.0% 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Slide 12: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Correspondent acquisitions by PMT in 3Q16 totaled Correspondent Volume and Mix $18.9 billion, up 30% Q/Q and up 31% Y/Y $24 (UPB in billions) $21.6 – 62% government-insured loans; 38% conventional loans $20 – 40% Q/Q growth in conventional conf
Slide 13: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production totaled $1.7 billion Consumer Direct Production Volume in 3Q16, up 12% Q/Q and up 61% Y/Y (UPB in billions) October consumer direct originations totaled $600 million; locks totaled $1.2 billion $1.8 $1.7 $1.5 $1.7
Slide 14: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $182.1 billion in UPB at Loan Servicing Portfolio Composition quarter end, up 6% from 2Q16 (UPB in billions) – Strong production volumes more than offset higher $200 $182.1 prepayment activity $171.7 $154.8 Successfully completed the acqui
Slide 15: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.6 billion, Investment Management Revenues down less than 1% from June 30, 2016 ($ in millions) $9 – Reduction driven by PMT’s share repurchases $7.9 PMT’s book value per share increased to $20.21 $6.2 $6 $5.6 from $20.0
Slide 16: Financial Results by Operating Segment
Financial Results by Operating Segment Unaudited ($ in millions) Investment Total Pretax Production Servicing Management Income 3Q15 $ 77.7 $ (6.1) $ 2.2 $ 73.9 4Q15 $ 50.3 $ 27.9 $ 0.7 $ 78.9 1Q16 $ 68.4 $ (39.5) $ 1.1 $ 30.1 2Q16 $ 104.5 $ (21.0) $ 0.7 $ 84.3 3Q16 $ 149.8 $ (10.7) $ 0.2 $ 139.3 No
Slide 17: Mortgage Banking – Production Segment Results
Mortgage Banking – Production Segment Results Unaudited ($ in thousands) Production revenues for PFSI’s own account (net gains on mortgage loans held for sale at Production Segment Quarter Quarter ended ended Quarter Quarter ended ended fair value, loan origination fees, September September 30, 20
Slide 18: Mortgage Banking – Servicing Segment Results
Mortgage Banking – Servicing Segment Results Servicing segment revenue Servicing Segment increased 66% Q/Q, driven by Quarter ended Quarter ended Quarter ended Quarter ended Unaudited ($ in thousands) September 30, 2016 June 30, 2016 a $19.3 million increase in net Revenue loan servicing fees and
Slide 19: Mortgage Servicing Rights (MSR) Asset Valuation
Mortgage Servicing Rights (MSR) Asset Valuation Fair value not Fair value PFSI carries most of its Lower of amortized cost subject to excess subject to excess originated MSRs at the lower September 30, 2016 servicing spread servicing spread Unaudited ($ in millions) or fair value liability liabili
Slide 20: Investment Management Segment Results
Investment Management Segment Results Segment revenue Quarter ended Unaudited – ($ in thousands) Quarter ended Quarter ended decreased 10% Q/Q to Sept. 30, 2016 December June 30, 2016 $5.6 million on lower Revenue management fees from Management fees: From PennyMac Mortgage Investment Trust $ 5,02
Slide 21: Appendix
Appendix PennyMa ac inancia | Services, Inc.
Slide 22: 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 • Serve as external manager for newly originated loans from and subservicing for Advised investment vehicles focused on third-party sellers Entit
Slide 23: 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 2016 GSEs, Agencies, regulators and our financing partners • Over $1.5 bn in quarterly - Since inception, PennyMac has focused on building consumer direct 2015 originations and testing
Slide 24: 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
Slide 25: 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 continuing sales ($10+ billion in UPB) which PFSI has distincti
Slide 26: PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to Ginnie Mae MSRs PMT acquires the right to receive the excess servicing spread cash flows over the life of the underlying lo
Slide 27: Acquisitions, Originations, and Locks by Product
Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 3Q15 4Q15 1Q16 2Q16 3Q16 Correspondent Acquisitions Conventional $ 4,055 $ 3,460 $ 3,253 $ 5,171 $ 7,263 Government 10,348 6,558 6,423 9,433 11,657 Jumbo 19 12 7 3 1 Total $ 14,421 $ 10,030 $ 9,683 $ 14,607 $ 18,920 Correspon
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