Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q4 2016 Earnings Presentation

27 slides from Pennymac Financial Services's earnings presentation, Feb 2, 2017

  1. Slide 1: Fourth Quarter 2016 Earnings Report

    Fourth Quarter 2016 Earnings Report

  2. 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

  3. Slide 3: Fourth Quarter Highlights

    Fourth Quarter Highlights  Pretax income of $129.4 million; diluted earnings per share of common stock of $1.00 – Results driven by continued strength in the Production segment and improved earnings contribution from the Servicing segment – Book value per share increased to $15.49 from $14.41 at Se

  4. Slide 4: Track Record of Earnings and Book Value Growth

    PennyMac Financial Has a Track Record of Earnings and Book Value Growth Earnings Per Share Book Value Per Share $4 $16 $15.49 +26% +35% $12.32 $3 $2.94 $12 $9.92 $2.17 $8.04 $2 $8 $1.73 (1) $1 $0.82 $4 $0 $0 2013 2014 2015 2016 12/31/13 12/31/14 12/31/15 12/31/16 (1) Represents partial year 4

  5. Slide 5: Current Market Environment

    Current Market Environment  Mortgage rates rose sharply during the fourth quarter, with Average 30-year fixed rate mortgage(1) the average 30-year fixed rate increasing from 3.41% to 4.32% 5.0% – Mortgage rates have fallen back to 4.19% as of 4.32% January 26th 4.5%  Changes in regulations and pol

  6. Slide 6: Outlook for the Mortgage Origination Market

    Outlook for the Mortgage Origination Market Estimates for Total U.S. Single Family 30-Year Fixed-Rate Mortgage Forecast(2) Mortgage Originations(1) Purchase Refinance Fannie Mae Freddie Mac MBA ($ in billions) $1,944 20-yr Average = 6.0% $1,545 -49% $921 $467 Recent Peak (June 2013) = 4.6% 4.7% 4.5%

  7. Slide 7: PennyMac Has Demonstrated the Ability to Grow Production

    PennyMac Has Demonstrated the Ability to Grow Production Total Loan Production (UPB in billions) ■ Correspondent  Organically increased ■ Consumer direct market share through $69.7 successful execution of our strategic initiatives  Leveraged sophisticated $48.4 and scalable mortgage fulfillment ca

  8. Slide 8: Outlook for PennyMac Financial's Production Business in 2017

    Outlook for PennyMac Financial’s Production Business in 2017  Continued market share gains through operational excellence and further expansion of seller relationships Correspondent  Well-positioned given purchase-money orientation of correspondent seller base (incl. non-delegated)  Limited margi

  9. Slide 9: 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 through a ($ in millions) MSR value change comprehensive hedge strategy that Change in value of hedges and ESS liability also conside

  10. Slide 10: Servicing Profitability Excluding Valuation-Related Changes

    Servicing Profitability Excluding Valuation-Related Changes 3Q16 4Q16 FY 2015 FY 2016 basis basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 128.2 29.0 $ 133.7 28.4 $ 383.8 28.5 $ 503.6 28.8 Amortization and realiza

  11. Slide 11: Trends in PennyMac Financial's Businesses

    Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 14% 2.0% 1.92% 1.82% 12% 10.46% 10.86% 1.6% 1.60% 10% 8.13% 8% 1.2% 1.07% 6.61% 6% 0.8% 4% 2% 0.4% 0% 0.0% 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

  12. Slide 12: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 4Q16 totaled Correspondent Volume and Mix $20.0 billion, up 6% Q/Q and up 100% Y/Y (UPB in billions) – 63% government loans; 37% conventional loans $24 $21.6 $19.2 – 117% Y/Y growth in conventional conformin

  13. Slide 13: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Record consumer direct production volume of Consumer Direct Production Volume $2.0 billion in 4Q16, up 22% Q/Q and up 98% Y/Y (UPB in billions)  Committed pipeline of approximately $800 million at $2.1 $2.0 quarter end – decrease driven by h

  14. Slide 14: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $194.2 billion in UPB at Loan Servicing Portfolio Composition quarter end, up 7% from 3Q16 (UPB in billions) – Continued portfolio growth from organic loan $200 $182.1 $194.2 production $160.3 $150  Higher rates create more value in servici

  15. Slide 15: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net assets under management were $1.5 billion, Investment Management Revenues essentially flat compared with September 30, 2016 ($ in millions)  PMT’s book value per share increased to $20.26 $9 from $20.21 at September 30, 2016 $6.2  PMT continued to suc

  16. Slide 16: Financial Results by Operating Segment

    Financial Results by Operating Segment Unaudited ($ in millions) Investment Non-Segment Total Pretax Production Servicing Management Activities(1) Activities Income (1) 4Q15 $ 50.3 $ 27.9 $ 0.7 $ (1.6) $ 78.9 1Q16 $ 68.4 $ (39.5) $ 1.1 $ 0.0 $ 30.1 2Q16 $ 104.5 $ (20.9) $ 0.7 $ - $ 84.3 3Q16 $ 149.8

  17. Slide 17: Mortgage Banking – Production Segment Results

    Mortgage Banking – Production Segment Results  Production revenues for PFSI’s own account (net gains on Production Segment Quarter Quarter ended ended Quarter Quarter ended ended mortgage loans held for sale at Sepember September 30, 30, 2016 2015 December June 30,31, 2016 2015 Unaudited ($ in thou

  18. Slide 18: Mortgage Banking – Servicing Segment Results

    Mortgage Banking – Servicing Segment Results Servicing Segment  Servicing segment revenue Quarter ended Quarter ended Quarter ended Quarter ended increased 103% Q/Q driven Unaudited ($ in thousands) September 30, 2016 December 31, 2016 by a $49.7 million increase in Revenue Net loan servicing fees

  19. Slide 19: Mortgage Servicing Rights (MSR) Asset Valuation

    Mortgage Servicing Rights (MSR) Asset Valuation Fair value not Fair value subject Lower of subject to excess to excess amortized cost or Total December 31, 2016 servicing spread servicing spread fair value Unaudited ($ in millions) liability liability UPB $85,510 $11,992 $31,676 $129,177 Weighted av

  20. Slide 20: Investment Management Segment Results

    Investment Management Segment Results  Segment revenue increased Quarter ended Unaudited – ($ in thousands) Quarter ended Quarter ended 2% Q/Q to $5.7 million Sept. 30, 2016 Dec. 31, 2016 December – Other revenue increased by Revenue $113,000, driven by an Management fees: increase in the value of

  21. Slide 21: Appendix

    Appendix PennyMa ac inancia | Services, Inc.

  22. Slide 22: 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

  23. Slide 23: 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 2016 GSEs, Agencies, regulators and our financing partners • Substantial growth in consumer direct capacity - Since inception, PennyMac has focused on building and 2015 testing processe

  24. Slide 24: 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

  25. Slide 25: 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

  26. Slide 26: 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 Ginnie Mae MSRs  PMT acquires the right to receive the excess servicing spread cash flows over the life of the underlying lo

  27. Slide 27: Acquisitions, Originations, and Locks by Product

    Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 4Q15 1Q16 2Q16 3Q16 2Q16 4Q16 Correspondent Acquisitions Conventional $ 3,460 $ 3,253 $ 5,171 $ 7,263 $ 7,492 Government 6,558 6,423 9,433 11,657 12,544 Jumbo 12 7 3 1 - Total $ 10,030 $ 9,683 $ 14,607 $ 18,920 $ 20,036 Corre

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