Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Investor Presentation (May 2020)

35 slides from Pennymac Financial Services's investor presentation, May 2020

  1. Slide 1: May 2020 Investor Presentation

    May 2020 Investor Presentation

  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: PFSI Is a Proven Leader in the Agency Mortgage Business

    PFSI Is a Proven Leader in the Agency Mortgage Business  Uniquely advantaged specialty finance firm; substantially all of the production and servicing business is for Fannie Mae, Freddie Mac and Ginnie Mae-eligible loans  13th year of operations; initial public offering in May 2013 Leader in the U

  4. Slide 4: PFSI Represents an Attractive Investment Opportunity

    PFSI Represents an Attractive Investment Opportunity  Track record of strong profitability; profitable Book Value Per Share of PFSI every year since 2008(1)  Record annual earnings in 2019; record quarterly $29.85 23% earnings in 1Q20 CAGR(2) $26.26  Retained earnings drive book value growth $21.

  5. Slide 5: Earnings Driven by Organic Growth in PFSI's Mortgage Banking Businesses

    Earnings Driven by Organic Growth in PFSI’s Mortgage Banking Businesses Loan Production(1) Loan Servicing(1) Market Share Market Share 5.3% 5.1% 4.1% 3.8% 3.4% 3.4% 3.4% 2.8% 2.7% 2.2% 2.3% 1.9% 1.7% 1.6% 1.1% 0.8% 2013 2014 2015 2016 2017 2018 2019 1Q20 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

  6. Slide 6: PFSI's Assets and Continued Investments in Technology Are Critical

    PFSI’s Assets and Continued Investments in Technology Are Critical  Proprietary, workflow-driven servicing system with a modern, scalable and flexible architecture that provides significant value to PennyMac, meeting our unique needs as an Servicing industry-leading mortgage servicer Systems  Full

  7. Slide 7: Strong Balance Sheet and Liquidity with Low Leverage

    Strong Balance Sheet and Liquidity with Low Leverage As of March 31, 2020  PFSI’s strong balance sheet, low leverage, and disciplined approach to liquidity management ($ in millions) have proven critically important in the current $10,891 $10,891 market environment  Strong balance sheet with low l

  8. Slide 8: PennyMac's Enterprise Risk Management (ERM) Foundation

    PennyMac’s Enterprise Risk Management (ERM) Foundation  Effective governance, compliance and operating systems are critical ERM Framework Overview  PennyMac has utilized a “three-lines of defense” model to monitor the effectiveness of controls  ERM is a fundamental part of our day-to-day operatin

  9. Slide 9: Hedging Protects MSR Asset and Moderates the Volatility of PFSI's Results

    Hedging Protects MSR Asset and Moderates the Volatility of PFSI’s Results MSR Valuation Changes and Offsets  PFSI believes it is critical to moderate ($ in millions) the impact of interest rate changes on the fair value of its MSR asset through MSR fair value change before recognition of realizatio

  10. Slide 10: PFSI Earnings Driven by Its Market-Leading Production Business

    PFSI Earnings Driven by Its Market-Leading Production Business Production Pretax Income Servicing Pretax Income ($ in millions) ($ in millions) $240.1 $170.8 $203.3 $47.1 $39.1 $42.3 $179.3 $35.3 $25.2 $11.2 $98.2 -$2.7 -$5.1 -$18.1 $47.0 1Q19 2Q19 3Q19 4Q19 1Q20 Servicing pretax income (1) Servicin

  11. Slide 11: Faster Growth Direct Lending Has Outsized Impact on Production Earnings

    Faster Growth Direct Lending Has Outsized Impact on Production Earnings Consumer Direct Lending Volume (UPB in billions) $4.0  While the direct lending channels $3.8 (consumer and broker direct) $2.7 $2.0 3.0x represented 16% of PFSI’s production $1.4 volume in 1Q20, they accounted for approximatel

  12. Slide 12: Growing Opportunity for PennyMac In an Expanding Origination Market

    Growing Opportunity for PennyMac In an Expanding Origination Market  Economic forecasts now estimate total U.S. Mortgage Origination Market(2) originations of $2.5 trillion in 2020 with rates at (UPB in billions) all-time lows $2,472 $2,325 ‒ Refinance demand remains elevated ‒ Recent increases in

  13. Slide 13: Expected Impact of Current Environment on PFSI by Business Segment

    Expected Impact of Current Environment on PFSI by Business Segment Loan Production Loan Servicing Investment Management  Record levels of profitable production  Changes in profitability, aside from MSR  Substantial fair value losses on PMT’s create “flywheel” by growing the value and related hedg

  14. Slide 14: 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% 7.0% 7.6% 7.2% 8.0% 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

  15. Slide 15: PFSI's Liquidity Profile and Projected Needs for Servicing Advances

    PFSI’s Liquidity Profile and Projected Needs for Servicing Advances  PFSI has substantial liquidity which has been increasing with cash generated from earnings ‒ $1.4 billion in available liquidity(1), less $223 million in minimum liquidity required by Ginnie Mae, as of April 30, 2020  PFSI has si

  16. Slide 16: Appendix

    Appendix PennyMac inancia | Services, Inc.

  17. Slide 17: 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

  18. Slide 18: 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

  19. Slide 19: 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

  20. Slide 20: 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

  21. Slide 21: 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

  22. Slide 22: 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

  23. Slide 23: 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

  24. Slide 24: 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

  25. Slide 25: 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

  26. Slide 26: 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

  27. Slide 27: 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

  28. Slide 28: 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

  29. Slide 29: 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

  30. Slide 30: 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

  31. Slide 31: 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

  32. Slide 32: 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

  33. Slide 33: 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

  34. Slide 34: 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,

  35. Slide 35: 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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