Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2019 Earnings Presentation
26 slides from Pennymac Financial Services's earnings presentation, Nov 1, 2019
Slide 1: Third Quarter 2019 Earnings Report
Third Quarter 2019 Earnings Report
Slide 2: Forward-Looking Statements
Forward-Looking Statements 2 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
Slide 3: Third Quarter Highlights
Third Quarter Highlights 3 ▪ Net income was $121.5 million; diluted earnings per share (EPS) were $1.51 – Record pretax income and operating earnings(1) driven by strong Production segment results and disciplined hedging of mortgage servicing rights (MSRs) – Book value per share increased to $24.37
Slide 4: Servicing segment results
4 ▪ Servicing segment pretax loss was $18.1 million, versus a pretax loss of $2.7 million in 2Q19 and pretax income of $33.6 million in 3Q18 – Valuation-related items included a $295.5 million loss in the fair value of MSRs, partially offset by $254.0 million in hedging and other gains; net impact o
Slide 5: Average 30-year fixed rate mortgage
3.0% 3.5% 4.0% 4.5% 5.0% Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 5 Average 30-year fixed rate mortgage(1) ▪ The Federal Reserve again cut the Fed Funds rate by 25 basis points, reflecting uncer
Slide 6: Major Milestone in Advancing Proprietary Technology Servicing System Environment
6 6 Major Milestone in Advancing Proprietary Technology Servicing System Environment ▪ Completed multi-year initiative to develop a proprietary, workflow-driven servicing system with a modern, scalable and flexible architecture to meet PennyMac’s needs ▪ Full cloud-based infrastructure, real-time pr
Slide 7: PFSI Initiates Quarterly Dividend
7 $7.27 $12.32 $21.34 $24.37 6/30/13 12/31/15 12/31/18 9/30/19 7 PFSI Initiates Quarterly Dividend ▪ Strong history of profitability since founding in 2008, driving book value growth(1) ▪ Low leverage versus peers with a debt-to- equity ratio of 2.9x at September 30th, 2019 ▪ Track record of success
Slide 8: Trends in PennyMac Financial's Businesses
Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Broker Direct Production(1) Market Share 8 Trends in PennyMac Financial’s Businesses (1) Source: Inside Mortgage Finance and company estimates. Inside Mortgage Finance estimates total 3
Slide 9: Production Segment Highlights – Correspondent Channel
$9.0 $10.6 $14.3 $7.5 $10.7 $16.6 $0.1 $0.4 $0.5 $17.7 $25.3 $36.2 3Q18 2Q19 3Q19 Government loans Conventional loans for PMT Non-delegated loans Total locks 9 (UPB in billions) Correspondent Volume and Mix Production Segment Highlights – Correspondent Channel (3) (4) (5) ▪ Correspondent acquisition
Slide 10: Production Segment Highlights – Consumer Direct Channel
$1.3 $2.0 $2.7 $0.7 $1.5 $2.3 3Q18 2Q19 3Q19 Portfolio-sourced fundings Non-portfolio fundings Committed pipeline (UPB in billions) Consumer Direct Production Volume 10 Production Segment Highlights – Consumer Direct Channel (1) (1) Commitments to originate mortgage loans at specified terms at perio
Slide 11: Production Segment Highlights – Broker Direct Channel
$70 $289 $433 $41 $153 $243 $111 $442 $676 $64 $249 $382 3Q18 2Q19 3Q19 Conventional loans Government loans Committed pipeline 11 Production Segment Highlights – Broker Direct Channel Broker Direct Production Volume (UPB in millions) (1) (1) Commitments to originate mortgage loans at specified terms
Slide 12: Servicing Segment Highlights
$334.5 $348.5 ($20.9) $34.9 At 6/30/19 Runoff Additions from loan production At 9/30/19 (1) 12 Servicing Segment Highlights (1) Owned portfolio in predominantly government-insured and guaranteed loans under the FHA (52%), VA (35%), and USDA (8%) programs (2) Represents PMT’s MSRs. Excludes distresse
Slide 13: Investment Management Segment Highlights
Investment Management Revenues (1) 13 Investment Management Segment Highlights Investment Management AUM ($ in billions) ▪ Net AUM as of September 30, 2019 were $2.2 billion, up 14% from June 30, 2019 ▪ PMT successfully raised additional capital in 3Q19 as a result of increased investment opportunit
Slide 14: MSR Valuation Changes and Offsets
14 MSR Valuation Changes and Offsets ($ in millions) Hedging Approach Continues to Moderate the Volatility of PFSI’s Results Note: Figures may not sum exactly due to rounding ▪ PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge
Slide 15: Servicing segment financial detail
15 (1) Of average portfolio UPB, annualized (2) Comprised of net gains on mortgage loans held for sale at fair value and net interest income related to EBO loans (3) Changes in fair value do not include realization of MSR cash flows, which are included in amortization and realization of MSR cash flo
Slide 16: Appendix
Appendix oo » PennyMac
Slide 17: PennyMac Financial business overview
▪ Complex and highly regulated mortgage industry requires effective governance, compliance and operating systems ▪ Operating platform has been developed organically and is highly scalable ▪ Commitment to strong corporate governance, compliance and risk management since inception ▪ PFSI is well posit
Slide 18: PennyMac Financial Is a Strong Independent Mortgage Company
PennyMac Financial Is a Strong Independent Mortgage Company 18 ▪ Comprehensive mortgage platform and balanced model with leading production and servicing businesses ▪ Strong balance sheet with low leverage versus competitors – Debt to equity of 2.9x ▪ Diversified liquidity sources and term debt that
Slide 19: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
19 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 - Since inception, PennyMac has focused on building and testing processes and systems before adding significant transaction volu
Slide 20: Industry-leading platform built organically – not through acquisitions
20 Industry-leading platform built organically – not through acquisitions ▪ Disciplined, sustainable growth for more than 11 years ▪ Focused on building and testing processes and systems before large transaction volumes Distinctive expertise and full range of capabilities across mortgage banking and
Slide 21: Why Are MSR Sales Occurring? How Do MSRs Come to Market?
21 Why Are MSR Sales Occurring? How Do MSRs Come to Market? ▪ Large servicers may sell MSRs due to operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re-focus on core customers/businesses ▪ Independent mortgage banks sell MSRs from time to time
Slide 22: Excess Servicing Spread and MSR Asset structure
22 Excess Servicing Spread (e.g., 12.5bp) MSR Asset (e.g., 25bp servicing fee) Acquired by PFSI from Third-Party Seller(1) ▪ 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 cas
Slide 23: MSR Asset Valuation
23 MSR Asset Valuation Note: Figures may not sum exactly due to rounding UPB $200,796 $20,420 $221,216 Weighted average coupon 3.97% 4.20% 3.99% Prepayment speed assumption (CPR) 16.0% 11.7% 15.6% Weighted average servicing fee rate 0.34% 0.34% 0.34% Fair value of MSR $2,302.8 $253.5 $2,556.3 As a m
Slide 24: Acquisitions and Originations by Product
24 Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Acquisitions and Originations by Product First Lien Acquisitions/Originations Second Lien Originations Unaudited ($ in millions) Correspondent Acquisitions Delegated Conventional Conforming 7,503 $ 9,05
Slide 25: Interest Rate Locks by Product
25 Interest Rate Locks by Product First Lien Locks Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Unaudited ($ in millions) Correspondent Locks Delegated Conventional Conforming 8,392 $ 9,639 $ 8,974 $ 12,628 $ 19,461 $ Delegated Government 9,146 8,962
Slide 26: Credit Characteristics by Acquisition / Origination Period
26 Credit Characteristics by Acquisition / Origination Period Correspondent Consumer Direct Broker Direct 3Q18 4Q18 1Q19 2Q19 3Q19 3Q18 4Q18 1Q19 2Q19 3Q19 Government-insured 699 700 699 698 701 Government-insured 44 44 44 43 42 Conventional 748 751 750 755 760 Conventional 38 38 38 36 35 Weighted A
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