Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q3 2019 Earnings Presentation

26 slides from Pennymac Financial Services's earnings presentation, Oct 31, 2019

  1. Slide 1: Third Quarter 2019 Earnings Report

    Third 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: Third Quarter Highlights

    Third Quarter Highlights  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 fr

  4. Slide 4: Third Quarter Highlights (continued)

    Third Quarter Highlights (continued)  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 he

  5. Slide 5: Current Market Environment

    Current Market Environment  The Federal Reserve again cut the Fed Funds rate by Average 30-year fixed rate mortgage(1) 25 basis points, reflecting uncertainty due to 5.0% international trade tensions and concerns about the growth rate of the global economy 4.5% 3.73%  The average 30-year fixed rat

  6. Slide 6: Major Milestone in Advancing Proprietary Technology

    Major Milestone in Advancing Proprietary Technology  Completed multi-year initiative to develop a proprietary, workflow-driven servicing system with a modern, scalable and flexible architecture to meet PennyMac’s needs Servicing  Full cloud-based infrastructure, real-time processing and modern dat

  7. Slide 7: PFSI Initiates Quarterly Dividend

    PFSI Initiates Quarterly Dividend Strong Capital Position Dividend Initiation  Strong history of profitability since founding in  $0.12 per share cash dividend declared for 2008, driving book value growth(1) third quarter of 2019  Low leverage versus peers with a debt-to-  Establishment of quart

  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 3.06% 3.19% 14.46% 2.64% 13.49% 11.61% 2.26% 10.36% 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19E 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19E Consumer Direct Production(1) Broker Direc

  9. Slide 9: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 3Q19 totaled $31.5 Correspondent Volume and Mix billion in UPB, up 45% Q/Q and 90% Y/Y (UPB in billions) – 46% government loans; 54% conventional loans $36.2 – Government acquisitions of $14.3 billion in UPB

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

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume in 3Q19 Consumer Direct Production Volume totaled $2.7 billion in UPB, up 35% Q/Q and (UPB in billions) 106% Y/Y $2.7  Record volumes and higher margins driven by $2.0 $2.3 increased volumes of refinance loa

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

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume in 3Q19 totaled Broker Direct Production Volume $676 million in UPB, up 53% Q/Q and up from (UPB in millions) $111 million in 3Q18 $676 – Growth of approved brokers and higher levels of engagement driving increas

  12. Slide 12: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $348.5 billion in UPB at Loan Servicing Portfolio Composition September 30, 2019, up 4% Q/Q and 22% Y/Y (UPB in billions) – Organic growth from strong production activity $348.5 $334.5  Prepayment activity increased from the prior $284.5 qu

  13. Slide 13: Investment Management Segment Highlights

    Investment Management Segment Highlights  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 opportunities and strong results – PMT raised $198 million in net proceeds from an issuanc

  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 3Q18 2Q19 3Q19 basis basis basis $ in millions (1) points $ in millions (1) points $ in millions (1) points Operating revenue $ 198.3 28.5 $ 253.7 30.8 $ 270.8 31.7 Realization of MSR cash flows (71.4) (10.3) (106.8) (13.0) (117.2) (13.7) (

  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 September 30, 2019 balanced model with leading production ($ in millions) and servicing businesses $9,303 $9,303  Strong balance sheet with low leverage versus competitors – Debt to equity of 2.9

  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 production volumes testing processes and systems before addin

  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 September 30, 2019 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability 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 av

  24. Slide 24: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 3Q18 4Q18 1Q19 2Q19 3Q19 Correspondent Acquisitions Delegated Conventional Conforming $ 7,503 $ 9,052 $ 8,130 $ 10,737 $ 16,644 Delegated Government 8,970 8,885 6,752 10,574 14,346 (1) Delegated N

  25. Slide 25: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 3Q18 4Q18 1Q19 2Q19 3Q19 Correspondent Locks Delegated Conventional Conforming $ 8,392 $ 9,639 $ 8,974 $ 12,628 $ 19,461 Delegated Government 9,146 8,962 7,385 12,028 15,933 (1) Delegated Non-Agency 20 11 13 14 1 Non-Delegated

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

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 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

PennyMac Financial Services — Q3 2019 Earnings Presentation on 6ix