Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q1 2016 Earnings Presentation

25 slides from Pennymac Financial Services's earnings presentation, May 5, 2016

  1. Slide 1: First Quarter 2016 Earnings Report

    First Quarter 2016 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: First Quarter 2016 Highlights

    First Quarter 2016 Highlights  Pretax income of $30.1 million; diluted earnings per common share of $0.23 – $47.7 million in non-cash valuation losses on MSRs net of hedges and valuation gains on excess servicing spread (ESS) liabilities, driven by a significant decline in mortgage rates o Adversel

  4. Slide 4: Current Market Environment and Outlook

    Current Market Environment and Outlook Average 30-year fixed rate mortgage(1)  Widespread volatility across financial markets 5.0% during the quarter Hundreds 4.5% – Significant decline in U.S. interest rates; mortgage 3.97% rates have remained low into 2Q16 and are at their 3.71% 4.0% lowest level

  5. Slide 5: 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 ($ in millions)  PFSI seeks to moderate the impact of interest rate changes through a MSR value change comprehensive hedge approach that considers the company-wide effect on MSR value change net

  6. Slide 6: 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

  7. 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

  8. Slide 8: Drivers of Servicing Segment Operating Profitability

    Drivers of Servicing Segment Operating Profitability • Pretax operating income was 3.4 1Q16 4Q15 basis basis bps of the average servicing $ in thousands points(1) $ in thousands points(1) portfolio in 1Q16, a decrease from Operating revenue $ 115,136 28.3 $ 112,946 28.7 4Q15 Amortization and realiza

  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 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

  10. Slide 10: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel Operational Highlights Correspondent Volume and Mix  Correspondent acquisitions by PMT in 1Q16 (UPB in billions) totaled $9.7 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 focus

  11. Slide 11: 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

  12. Slide 12: 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

  13. Slide 13: Investment Management Segment Highlights

    Investment Management Segment Highlights Operational Highlights Investment Management Revenues ($ in millions)  Net assets under management were $1.6 billion, $15 down 6% from December 31, 2015 $12 – Decline driven by PMT’s share repurchases and $10.0 the anticipated pay-down of the Investment Fund

  14. Slide 14: Financial Results by Operating Segment

    Financial Results by Operating Segment Investment Total Pretax ($ in millions) Production Servicing Management Income 1Q15 $ 70.7 $ (18.5) $ 1.1 $ 53.2 2Q15 $ 76.3 $ (2.4) $ 1.0 $ 74.8 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 Note: Figures ma

  15. Slide 15: Mortgage Banking – Production Segment Results

    Mortgage Banking – Production Segment Results  Gains on production for PFSI’s Production Segment Quarter ended Quarter ended September March 31,30, 2016 2015 December June 30,31, 2015 2015 own account (net gains on Unaudited ($ in thousands) mortgage loans held for sale, loan Revenue origination fe

  16. Slide 16: Mortgage Banking – Servicing Segment Results

    Mortgage Banking – Servicing Segment Results Servicing Segment  Servicing segment Quarter ended Quarter ended Unaudited ($ in thousands) March 31, 2016 December 31, 2015 revenue decreased 75% Revenue Q/Q, impacted by a $47.7 Net loan servicing fees $ 17,519 $ 76,969 million fair value loss in Net i

  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 originated MSRs at the March 31, 2016 amortized cost subject to excess subject to excess Unaudited ($ in millions) or fair value servicing spread servicing spread lower of amortized cost or

  18. Slide 18: Investment Management Segment Results

    Investment Management Segment Results  Segment revenue Unaudited – (in thousands) Quarter ended Quarter ended Quarter ended increased 5% Q/Q to March 31, 2016 December 31, 2015 December $6.4 million on increased Revenue Carried Interest income Management fees: From PennyMac Mortgage Investment Trus

  19. Slide 19: Appendix

    Appendix PennyMa ac inancia | Services, Inc.

  20. Slide 20: 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

  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 • Consumer direct signific

  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; 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 loans 

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

    Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 1Q15 2Q15 3Q15 4Q15 1Q16 Correspondent Acquisitions Conventional $ 2,831 $ 3,553 $ 4,055 $ 3,460 $ 3,253 Government 5,106 8,316 10,348 6,558 6,423 Jumbo 59 26 19 12 7 Total $ 7,996 $ 11,895 $ 14,421 $ 10,030 $ 9,683 Correspon

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