Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Investor Presentation (May 2016)
38 slides from Pennymac Financial Services's investor presentation, May 19, 2016
Slide 1: Investor Meeting Presentation
Investor Meeting Presentation May 19, 2016
Slide 2: Disclaimer
Disclaimer 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 results, future o
Slide 3: Corporate Overview
Corporate Overview PennyMa ac inancia | Services, Inc.
Slide 4: PennyMac Financial Services Is a Leading Mortgage Specialist
PennyMac Financial Services Is a Leading Mortgage Specialist 2015 Revenue • Specialized mortgage platform designed for the post-crisis market Investment – Best-in-class operations developed organically – not through acquisitions Management 4% – Highly scalable to support continued growth Loan Loan •
Slide 5: Strong Earnings and Book Value Growth Expected to Continue
Strong Earnings and Book Value Growth Expected to Continue Earnings per Share Growth Drivers in 2016 $2.17 Includes $(0.37) per • Increasing operating $1.73 share effect of non- cash valuation margins and production losses on MSRs(2) driven by a volumes resulting from significant decline in mortgage
Slide 6: Trends in PennyMac Financial’s Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 10% 1.8% 1.60% 1.65% 8.13% 7.99% 8% 1.5% 6% 1.2% 0.9% 4% 0.6% 2% 0.3% 0% 0.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Consumer Direct Pr
Slide 7: Production Income Growth Driven by Higher Margin Consumer Direct Channel
Production Income Growth Driven by Higher Margin Consumer Direct Channel Production Pretax Income Consumer Direct Production Volume ($ in millions) ($ in billions) $80 $2.5 $2.2 $68 +36% $2.0 $60 $1.8 $50 $1.5 $1.2 $40 $1.0 $1.0 $20 $0.5 $0 $0.0 4Q15 1Q16 4Q15 1Q16 Pretax income Fundings Locks Inves
Slide 8: PFSI’s Hedging Approach Moderates MSR Value Changes Due to Interest Rates
PFSI’s Hedging Approach Moderates MSR Value Changes Due to Interest Rates MSR-Related Valuation Changes PFSI seeks to moderate the impact of ($ in millions) interest rate changes through a comprehensive hedge approach that MSR value change MSR value change net of considers the company-wide effect
Slide 9: Drivers of Servicing Segment Operating Profitability
Drivers of Servicing Segment Operating Profitability 1Q16 2015 basis basis (1) $ in thousands points $ in thousands points(1) Operating revenue $ 115,136 28.3 $ 383,768 28.5 Amortization and realization of MSR cash flows (49,696) (12.2) (144,485) (10.7) Direct servicing expenses: Operating expenses
Slide 10: Investment Management: PMT's Investment Portfolio Transitioning to CRT and MSRs Over Time
Investment Management: PMT's Investment Portfolio Transitioning to CRT and MSRs Over Time Equity Allocation(1) 1Q 2014 1Q 2016 100% = $1.6 billion 100% = $1.5 billion MBS 4% MSRs Correspondent and 2% ESS Other 11% 4% MSRs and ESS 25% Distressed CRT 6% Distressed loans loans 53% 79% MBS 3% Correspond
Slide 11: Investment Management: PMT's Unique Investments in GSE Credit Risk Transfer
Investment Management: PMT's Unique Investments in GSE Credit Risk Transfer • Total CRT investments have grown to CRT Investment Outstanding $214 million at March 31, 2016 ($ in millions) $214 • PMT entered into a third CRT transaction with Fannie Mae for $5 billion in UPB of $147 PMT’s production(1
Slide 12: Investment Management - Update on PMT Initiatives
Investment Management - Update on PMT Initiatives Share Repurchase Program Update Asset Sales Repurchased 5.3 million PMT common shares year- PMT completed the sale of performing loans to-date(1); 6.3 million shares since inception totaling $419 million in UPB at a modest premium to its December
Slide 13: Seasoned Leadership and Deep Management Team
Seasoned Leadership and Deep Management Team Years at Years of Mortgage & Name Position Previous Experience PennyMac Banking Experience President & Chief Operating Officer, Stanford Kurland Chairman & Chief Executive Officer 8 40 Countrywide Financial Corp. Executive Managing Director and Co-Head of
Slide 14: Enterprise Risk Management
Enterprise Risk Management PennyMa ac inancia | Services, Inc.
Slide 15: Enterprise Risk Management Framework
Enterprise Risk Management Framework The purpose of the Enterprise Risk Management Framework is to manage and communicate information on risks that are most likely to have a meaningful impact on the Company’s ability to achieve its budget and plan objectives The primary components of the ERM Framewo
Slide 16: Governance Structure and Policies
Governance Structure and Policies PennyMac’s Governance Structure provides oversight of revenue generating and support areas. Management Committees approve Corporate Policies, Risk Assessments and Risk Reports and monitor change management, quality control and remediation activities. 16
Slide 17: Risk Assessment
Risk Assessment A Risk Assessment is maintained by each Management Committee to identify: – The top 10-15 risks that have the potential to meaningfully impact budget and plan objectives – Individuals responsible for managing each risk and ensuring the effectiveness of each control Management Com
Slide 18: Risk Management
Risk Management The Divisions have primary responsibility of implementing and monitoring controls that both mitigate operational risks and reinforce PennyMac’s “zero defect” culture Risk Thresholds have been established within the Risk Assessments by the Management Committees in order to monitor
Slide 19: Reporting and Monitoring
Reporting and Monitoring PennyMac utilizes a “three-lines of defense” model in order to monitor the effectiveness of controls: 1. The first line of defense has primary responsibility for managing risk. This includes implementing divisional policies and procedures, conducting job-specific training, m
Slide 20: Production Overview
Production Overview PennyMa ac inancia | Services, Inc.
Slide 21: Low Interest Rates Are Contributing to a Favorable Origination Environment
Low Interest Rates Are Contributing to a Favorable Origination Environment Estimate for 2016 Total U.S. Single Family Mortgage Originations ($ in billions) $1,604 • Origination market estimates $1,452 +$152 billion have increased from a quarter ago, mostly in expectations for $627 $486 refinance vol
Slide 22: Purchase vs. Refinance Origination Markets
Purchase vs. Refinance Origination Markets Purchase Originations Refinance Originations (64% of PennyMac’s 2015 loan production) (36% of PennyMac’s 2015 loan production) • Purchase originations have historically been • Refinance originations have historically been more stable and have a natural “flo
Slide 23: PFSI Initiatives to Grow Production in 2016
PFSI Initiatives to Grow Production in 2016 Correspondent Wholesale Consumer Direct Production Lending Lending Continuing market share Comprises 10% of the total Infrastructure investments gains driven by mortgage origination market provide greater fulfillment differentiated model – Opportunit
Slide 24: Mortgage Fulfillment Division (MFD)
Mortgage Fulfillment Division (MFD) Established MFD to have common fulfillment operations and leadership across PFSI’s production channels – Leveraging processes and leadership from PennyMac’s correspondent business to expand fulfillment capacity in consumer direct lending – Drives consistency and
Slide 25: PMT Creates Attractive Investments Through Its Correspondent Business
PMT Creates Attractive Investments Through Its Correspondent Business Correspondent Production GSE Risk Correspondent Ongoing MSR Transfer Production Investment Investments Attractive returns from the MSRs result from the Opportunity to invest in credit acquisition, aggregation and securitizat
Slide 26: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Operational Highlights Correspondent Volume and Mix Correspondent acquisitions in 1Q16 totaled $9.7 (UPB in billions) billion, down 3% Q/Q $12 $10.6 $10.4 $9.5 – In line with overall origination market $8 $3.5 $3.3 – Purchase-money focused volu
Slide 27: Correspondent Production – Counterparty Management
Correspondent Production – Counterparty Management Upfront Client Approval Process • PennyMac Correspondent Group (“PCG”) selects mortgage companies or banks that have the potential to be a good fit for Agency and/or Jumbo loan acquisitions. Applications are completed by prospective clients and subm
Slide 28: Correspondent Production – Loan Acquisition Process
Correspondent Production – Loan Acquisition Process • Correspondent lenders process, underwrite and close loans for delivery to PMT Prior to Delivery • Business rules and the pricing engine prevent lock and delivery if loan is outside of PMT’s guidelines • Base File & Collateral: Data Extraction & I
Slide 29: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Operational Highlights Consumer Direct Production Volume Consumer direct production totaled $1.2 billion (UPB in millions) in 1Q16, up 17% Q/Q $1,400 – Decline in rates drove increased demand for $1,207 refinancing $1,200 $1,028 – Investments
Slide 30: Consumer Direct Production – PennyMac’s Strategy and Approach
Consumer Direct Production – PennyMac’s Strategy and Approach Consumer direct lending has significant advantages over the branch-based model: Direct model has taken over other consumer financial services markets, e.g., banking, brokerage, credit cards, insurance Refinance market is already shift
Slide 31: Technology Is a Key Element of PFSI’s Leading Operational Platform
Technology Is a Key Element of PFSI’s Leading Operational Platform Leading Technology Currently in Place and Under Development Correspondent Production Consumer Direct Lending Systems allow for highly automated and scalable loan Leading technology already in place includes web- fulfillment based
Slide 32: Loan Production – Limited Losses Since Inception
Loan Production – Limited Losses Since Inception Liability for Representations & Warranties vs. Losses Incurred PFSI PMT ($ in millions) $22.2 ($ in millions) $20.6 $20.2 $18.5 $18.5 $18.7 $16.3 $16.7 $14.7 $15.4 $13.3 $14.2 $13.2 $11.8 $11.9 $10.9 $10.2 $9.0 $0.0 $0.0 $0.0 $0.2 $0.1 $0.2 $0.1 $0.5
Slide 33: Servicing Overview
Servicing Overview PennyMa ac inancia | Services, Inc.
Slide 34: Loan Servicing Portfolio and Approach to Growth
Loan Servicing Portfolio and Approach to Growth We have grown our servicing portfolio primarily through organic loan production from our correspondent and consumer direct channels, supplemented by MSR acquisitions and the acquisition of whole loan pools by our Advised Entities Servicing by Investo
Slide 35: Servicing Trends
Servicing Trends Employees Loans 1,200 900,000 806 812 801 800 705 600,000 683 507 539 554 328 463 400 300,000 492 491 496 500 523 0 0 1Q15 2Q15 3Q15 4Q15 1Q16 ■ CA employees (left axis) ■ TX employees (left axis) ■ Loans per employee (left axis) ■ Loans serviced (right axis) Servicing portfolio c
Slide 36: Technology Is a Key Element of PFSI’s Leading Operational Platform
Technology Is a Key Element of PFSI’s Leading Operational Platform Leading Technology Currently in Place and Under Development Loan Servicing Proprietary applications in place include workflow management, loss mitigation, default process tracking, electronic document storage and rendering, and fro
Slide 37: Servicing Segment Highlights
Servicing Segment Highlights Operational Highlights Loan Servicing Portfolio Composition (UPB in billions) Servicing portfolio totaled $164.9 billion in UPB at $200 quarter end, up 3% from 4Q15 $160.3 $164.9 Driving increased use of self-service technology to $150 increase automation and reduce
Slide 38: High-Quality Servicing – CFPB Complaints vs. Other Leading Servicers
High-Quality Servicing – CFPB Complaints vs. Other Leading Servicers Number of mortgage-related complaints filed with the CFPB in 4Q15 - per 100,000 loans serviced Non-bank specialists Bank 57.5 38.0 31.0 23.9 15.1 10.7 10.9 11.4 PennyMac Chase Wells Fargo Citi Walter BofA Nationstar Ocwen Note: Fig
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