Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2017 Earnings Presentation
25 slides from Pennymac Financial Services's earnings presentation, Feb 8, 2018
Slide 1: Fourth Quarter 2017 Earnings Report
Fourth Quarter 2017 Earnings Report
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation 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, f
Slide 3: Fourth Quarter Highlights
Fourth Quarter Highlights Pretax income was $121.8 million; includes a $32.0 million benefit for remeasurement of tax-related items as a result of the newly enacted tax law – Diluted earnings per share were $2.44; remeasurement of deferred tax items contributed $1.79(1) – PFSI’s tax provision rate
Slide 4: Fourth Quarter Highlights (continued)
Fourth Quarter Highlights (continued) Investment Management segment pretax income was $1.5 million, up from $0.7 million in 3Q17 and up from $0.4 million in 4Q16 – Net assets under management (AUM) were $1.6 billion, down 4% from September 30, 2017 and up 2% from December 31, 2016 Notable activity
Slide 5: Substantial Book Value and EPS Growth for PennyMac Financial
Substantial Book Value and EPS Growth for PennyMac Financial Book Value Per Share Diluted Earnings Per Share $19.95 $20.00 $5.00 $15.49 $4.03 $16.00 $4.00 Impact of new tax $12.32 law(2) $2.94 $1.79 $12.00 $3.00 $9.92 $2.17 $8.04 $8.00 $2.00 $1.73 (1) $2.24 $4.00 $1.00 $0.82 $0.00 $0.00 12/31/13 12/
Slide 6: Current Market Environment
Current Market Environment Interest rates increased steadily throughout 4Q17 Average 30-year fixed rate mortgage(1) 5.0% – Mortgage rates increased 16 basis points to 3.99% at quarter end and have increased to 4.22% after quarter 4.5% 3.99% end(1) 3.83% 4.0% – Average refinance application activit
Slide 7: Implications of the Tax Cuts & Jobs Act
Implications of the Tax Cuts & Jobs Act Should be a long-term positive for housing driven by the overall stimulus for the U.S. Housing economy Market – Economic growth has historically supported improved real estate values and home sales – Increases in disposable income for many households should
Slide 8: Key Initiatives for PennyMac Financial's Businesses in 2018
Key Initiatives for PennyMac Financial’s Businesses in 2018 Maintain market leadership with existing and new customers Well-positioned for the evolving market environment given purchase-money orientation (79% Correspondent of acquisitions in 2017) Production Reintroduce a prime jumbo offering
Slide 9: Trends in PennyMac Financial's Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 12% 10.76% 2.5% 2.31% 9.84% 10% 8.13% 2.0% 1.89% 8% 1.60% 1.5% 6% 4% 1.0% 2% 0.5% 0% 0.0% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17E 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17E Cons
Slide 10: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Correspondent acquisitions by PMT in 4Q17 totaled Correspondent Volume and Mix $15.4 billion, down 12% Q/Q and down 23% Y/Y (UPB in billions) $24 – 62% government loans; 38% conventional loans $19.2 $20 $17.4 $15.9 – 10% Q/Q decline in conventi
Slide 11: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production volume of $1.6 billion in Consumer Direct Production Volume 4Q17, up 8% Q/Q and down 20% Y/Y (UPB in billions) – Successful recapture initiatives drove higher $2.4 volumes $2.0 January consumer direct originations
Slide 12: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $245.8 billion in UPB at the Loan Servicing Portfolio Composition end of the fourth quarter, up 3% from 3Q17 and 27% (UPB in billions) from 4Q16 $245.8 $250 $238.4 Mortgages 60 days or more past due were 3.5%, up $194.2 from 2.5% in the pr
Slide 13: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.6 billion, Investment Management AUM down 4% from September 30, 2017 ($ in billions) Reduction in assets under management reflects $1.80 $1.6 $1.6 PMT’s common share buyback activity $1.5 $0.03 $0.03 $0.2 PMT repurcha
Slide 14: Production and Servicing Segment Profitability
Production and Servicing Segment Profitability Production Segment Pretax Income Servicing Segment Pretax Income ($ in millions) ($ in millions) $500 Servicing Segment Pretax Income $125 Excluding Valuation-Related Changes $416 Servicing Segment Pretax Income $103 $400 $100 $300 $272 $75 $72 $239 $59
Slide 15: Hedging Approach Continues to Moderate the Volatility of PFSI's Results
Hedging Approach Continues to Moderate the Volatility of PFSI’s Results MSR Valuation Changes and Offsets PFSI seeks to moderate the ($ in millions) impact of interest rate changes MSR value change through a comprehensive hedge Change in value of hedges and ESS liability strategy that also conside
Slide 16: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 4Q16 3Q17 4Q17 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 133.7 28.4 $ 167.4 28.4 $ 176.1 28.9 Amortization and realization of MSR cash flows (50.2) (10.7) (65.7) (11.2) (66
Slide 17: Impact of New Tax Law on 4Q17 Results
Impact of New Tax Law on 4Q17 Results Impact of New Tax Pro Forma Excluding ($ in millions) As Reported Law Impact of New Tax law Total net revenue $ 298.6 $ 32.0 $ 266.6 Total expenses 176.9 - 176.9 (Benefit from) provision for income taxes (2.1) 13.6 11.5 Net income 123.9 45.7 78.2 Less: Net incom
Slide 18: Changes to Accounting for MSRs in 2018
Changes to Accounting for MSRs in 2018 Mortgage Servicing Rights (MSRs) Lower of As of December 31, 2017 amortized cost or Fair value Total Unaudited ($ in millions) fair value UPB $114,366 $51,884 $166,250 Fair value $1,482.4 $638.0 $2,120.4 Carrying value $1,481.6 $638.0 $2,119.6 Fair value in exc
Slide 19: Appendix
Appendix PennyMa ac inancia | Services, Inc.
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
Slide 21: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
PFSI Has Developed in a Sustainable Manner for Long-Term Growth 2017 • Disciplined growth to address the demands of the • Issued MSR- GSEs, Agencies, regulators and our financing backed term 2016 notes partners • Substantial growth in - Since inception, PennyMac has focused on building and consumer
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
Slide 23: 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 continuing sales ($10+ billion in UPB) which PFSI has distincti
Slide 24: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI o
Slide 25: Acquisitions, Originations, and Locks by Product
Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 4Q16 1Q17 2Q17 3Q17 4Q17 Correspondent Acquisitions Conventional $ 7,492 $ 4,632 $ 5,918 $ 6,530 $ 5,891 Government 12,544 9,280 10,392 10,873 9,505 Jumbo - - - - - Total $ 20,037 $ 13,912 $ 16,310 $ 17,403 $ 15,396 Correspon
PennyMac Financial Services — Q4 2017 Earnings Presentation on 6ix