Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q2 2019 Earnings Presentation

26 slides from Pennymac Financial Services's earnings presentation, Aug 1, 2019

  1. Slide 1: Second Quarter 2019 Earnings Report

    Second Quarter 2019 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: Second Quarter Highlights

    Second Quarter Highlights  Net income was $72.7 million; diluted earnings per share (EPS) were $0.92 – Driven by strong Production segment performance and disciplined hedging of mortgage servicing rights (MSRs) – Repurchased approximately 50,000 shares of PFSI’s common stock at a weighted average p

  4. Slide 4: Second Quarter Highlights (continued)

    Second Quarter Highlights (continued)  Servicing segment pretax loss was $2.7 million, down from pretax income of $11.2 million in 1Q19 and $54.6 million in 2Q18 – Valuation-related items included a $259.2 million loss in the fair value of MSRs, partially offset by $209.4 million in hedging and oth

  5. Slide 5: Current Market Environment

    Current Market Environment  The Federal Reserve recently cut the Fed Funds rate Average 30-year fixed rate mortgage(1) by 25 basis points, with additional cuts expected by 5.5% year end – The U.S. economic outlook has weakened, weighed 5.0% 4.06% down by global growth concerns and uncertainty aroun

  6. Slide 6: PFSI’s Earnings Have Driven Strong Book Value Growth

    PFSI’s Earnings Have Driven Strong Book Value Growth Book Value Per Share of PFSI 21% CAGR $22.72 $21.34 $19.95 $15.49 $12.32 $9.92 $8.04 $7.27 6/30/2013 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 6/30/2019 Track record of strong profitability and book value growth since 2008(

  7. Slide 7: PFSI Business Model Drives Outperformance and Growth Opportunity

    PFSI Business Model Drives Outperformance and Growth Opportunity  Our balanced mortgage banking model combined with disciplined execution are key to results – Foundation of governance and risk management to ensure resilience across economic cycles – Production designed to be efficient across all ch

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

    Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 2.95% 3.04% 13.82% 12.08% 2.45% 10.95% 10.76% 2.19% 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E Consumer Direct Production(1) Broker Direc

  9. Slide 9: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 2Q19 totaled Correspondent Volume and Mix $21.7 billion in UPB, up 44% Q/Q and 45% Y/Y (UPB in billions) – 49% government loans; 51% conventional loans $25.3 – Government acquisitions of $10.6 billion in UPB

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

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume in 2Q19 Consumer Direct Production Volume totaled $2.0 billion in UPB, up 45% Q/Q and (UPB in billions) 116% Y/Y $2.0  Higher volumes and profitability driven by a doubling of rate and term refinance volume

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

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume in 2Q19 totaled Broker Direct Production Volume $442 million in UPB, up 126% Q/Q and up from (UPB in millions) $62 million in 2Q18 $442 – Lower mortgage rates and growth of approved $153 brokers helped to drive 1

  12. Slide 12: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $334.5 billion in UPB at Loan Servicing Portfolio Composition June 30, 2019, up 3% Q/Q and 27% Y/Y (UPB in billions) – Organic growth from strong production activity $324.7 $334.5  Delinquency rates remain very low $263.5 – 60+ day delinque

  13. Slide 13: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net assets under management as of June 30, 2019 were $1.9 billion, up 13% from March 31, 2019  As a result of increased investment opportunities and strong results, PMT successfully raised additional capital in 2Q19 – PMT raised approximately $170 million

  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 ($ in millions) of its MSR asset through a MSR fair value change before recognition of realization of cash flows co

  15. Slide 15: Servicing Profitability Excluding Valuation-Related Changes

    Servicing Profitability Excluding Valuation-Related Changes 2Q18 1Q19 2Q19 basis basis basis $ in millions points (1) $ in millions points (1) $ in millions points (1) Operating revenue $ 180.8 27.9 $ 225.0 29.2 $ 253.7 30.8 Realization of MSR cash flows (65.2) (10.1) (92.5) (12.0) (106.8) (13.0) (2

  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 is focused on investing third-party sellers  Major loan se

  18. Slide 18: PennyMac Financial Is a Strong Independent Mortgage Company

    PennyMac Financial Is a Strong Independent Mortgage Company  Comprehensive mortgage platform and As of June 30, 2019 balanced model with leading production ($ in millions) and servicing businesses $8,398 $8,398  Strong balance sheet with low leverage versus competitors Warehouse – Debt to equity o

  19. Slide 19: 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 2019 - Since inception, PennyMac has focused on building and  Record first half production testing processes and systems before ad

  20. Slide 20: 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 11 years

  21. Slide 21: 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 operational sales ($10+ billion in UPB) which PFSI has distinct

  22. Slide 22: 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

  23. Slide 23: MSR Asset Valuation

    MSR Asset Valuation Not subject to Subject to excess June 30, 2019 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability UPB $199,257 $21,443 $220,700 Weighted average coupon 3.98% 4.19% 4.00% Prepayment speed assumption (CPR) 13.5% 11.1% 13.3% Weighted average

  24. Slide 24: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 2Q18 3Q18 4Q18 1Q19 2Q19 Correspondent Acquisitions Delegated Conventional Conforming $ 5,399 $ 7,503 $ 9,052 $ 8,130 $ 10,737 Delegated Government 9,546 8,970 8,885 6,752 10,574 Delegated Non-Age

  25. Slide 25: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 2Q18 3Q18 4Q18 1Q19 2Q19 Correspondent Locks Delegated Conventional Conforming $ 5,979 $ 8,392 $ 9,639 $ 8,974 $ 12,628 Delegated Government 10,082 9,146 8,962 7,385 12,028 Delegated Non-Agency(1) 50 20 11 13 14 Non-Delegated

  26. Slide 26: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 2Q18 3Q18 4Q18 1Q19 2Q19 2Q18 3Q18 4Q18 1Q19 2Q19 Government-insured 697 699 700 699 698 Government-insured 43 44 44 44 43 Conventional 748 748 751 750 755 Conventional 37 38 38 38 36

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