Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q2 2018 Earnings Presentation
23 slides from Pennymac Financial Services's earnings presentation, Aug 2, 2018
Slide 1: Second Quarter 2018 Earnings Report
Second Quarter 2018 Earnings Report
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
Slide 3: Second Quarter Highlights
Second Quarter Highlights Pretax income was $74.7 million; diluted earnings per share were $0.70 – Second quarter results reflect continued strong servicing segment results and a quarterly increase in earnings contribution from the production segment driven by higher volume – Repurchased approxima
Slide 4: Second Quarter Highlights (continued)
Second Quarter Highlights (continued) Investment Management segment pretax income was $1.1 million, up from $1.0 million in 1Q18 and down from $2.5 million in 2Q17 – Net assets under management (AUM) were $1.5 billion, essentially unchanged from March 31, 2018 and down 3% from June 30, 2017 Notabl
Slide 5: Current Market Environment
Current Market Environment 30-year fixed mortgage rates averaged 4.54% in Average 30-year fixed rate mortgage(1) 2Q18, up 26 basis points from the prior quarter 4.55% 5.0% 4.44% The mortgage market is transitioning and remains competitive, with lenders managing capacity and 4.5% production margi
Slide 6: Outlook for PennyMac Financial
Outlook for PennyMac Financial Origination market transition presents challenges and opportunities Heightened competition expected for the foreseeable future as originators adjust their operations and strategies to the current market environment More opportunities to acquire bulk MSR portfolios
Slide 7: Trends in PennyMac Financial’s Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 12% 10.95% 2.5% 2.39% 2.44% 10.44% 10.15% 2.20% 10% 9.07% 2.0% 1.70% 8% 1.5% 6% 1.0% 4% 2% 0.5% 0% 0.0% 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18E 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1
Slide 8: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Correspondent acquisitions by PMT in 2Q18 totaled Correspondent Volume and Mix $15.0 billion, up 15% Q/Q and down 8% Y/Y (UPB in billions) – 64% government loans; 36% conventional loans $20 $18.2 $16.2 – 8% Q/Q increase in government acquisitio
Slide 9: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production volume of $911 million in Consumer Direct Production Volume 2Q18, down 28% Q/Q and 28% Y/Y (UPB in billions) Growing purchase-money and non-portfolio volume $1.5 $1.3 $1.3 – Purchase volume reached $204 million; u
Slide 10: Production Segment Highlights – Broker Direct Channel
Production Segment Highlights – Broker Direct Channel Broker direct production volume of $61.8 million in Broker Direct Fundings 2Q18, up from $6.9 million in 1Q18 (UPB in millions) $70 July broker direct originations totaled $25 million; $61.8 $60 locks totaled $52 million $50 $29.9 – $51 milli
Slide 11: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $263.5 billion in UPB at the Loan Servicing Portfolio Composition end of the second quarter, up 3% from 1Q18 and (UPB in billions) 15% from 2Q17 $300 $255.3 $263.5 Prepayment speeds increased modestly Q/Q, due to $250 $229.0 seasonally hig
Slide 12: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.5 billion, Investment Management AUM essentially unchanged from March 31, 2018 ($ in billions) $1.80 Continued progress in liquidating PMT’s $1.60 $1.54 $1.55 distressed portfolio, with the outstanding UPB decreasing 61
Slide 13: Hedging Approach Continues to Moderate the Volatility of PFSI’s Results
Hedging Approach Continues to Moderate the Volatility of PFSI’s Results MSR Valuation Changes and Offsets PFSI seeks to moderate the ($ in millions) impact of interest rate changes on MSR fair value change before recognition of realization of cash flows the fair value of its MSR asset Change in fa
Slide 14: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 2Q17 1Q18 2Q18 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 143.3 26.5 $ 174.5 27.8 $ 180.8 27.7 Amortization and realization of MSR cash flows (55.5) (10.3) (61.2) (9.7) (65.
Slide 15: Appendix
Appendix PennyMa ac inancia | Services, Inc.
Slide 16: 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 PennyMac newly originated loans from and subservicing for Advised Mortgage Investment Trust third-party sellers Entities (N
Slide 17: 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 10 years
Slide 18: 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 ($10+ billion in UPB) which PFSI has distincti
Slide 19: PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI o
Slide 20: MSR Asset Valuation
MSR Asset Valuation Fair value not Fair value subject to June 30, 2018 subject to excess excess servicing Total Unaudited ($ in millions) servicing spread spread liability UPB $153,661 $24,603 $178,264 Weighted average coupon 3.84% 4.17% 3.89% Prepayment speed assumption (CPR) 8.6% 9.5% 8.7% Weighte
Slide 21: Acquisitions and Originations by Product
Acquisitions and Originations by Product Unaudited ($ in millions) 2Q17 3Q17 4Q17 1Q18 2Q18 Correspondent Acquisitions Conventional $ 5,918 $ 6,530 $ 5,891 $ 4,226 $ 5,396 Government 10,392 10,873 9,505 8,830 9,546 Jumbo - - - - 8 Total $ 16,310 $ 17,403 $ 15,396 $ 13,056 $ 14,951 Consumer Direct Or
Slide 22: Interest Rate Locks by Product
Interest Rate Locks by Product Unaudited ($ in millions) Correspondent Locks 2Q17 3Q17 4Q17 1Q18 2Q18 Conventional $ 7,022 $ 6,356 $ 6,293 $ 4,392 $ 6,091 Government 11,209 10,999 9,571 9,162 10,082 Jumbo - - - 13 59 Total $ 18,231 $ 17,356 $ 15,864 $ 13,567 $ 16,232 Consumer Direct Locks Convention
Slide 23: Credit Characteristics by Acquisition / Origination Period
Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO 2Q17 3Q17 4Q17 1Q18 2Q18 Government-insured 694 693 693 697 697 Conventional 753 749 745 744 748 Consumer Direct Weighted Average FICO 2Q17 3Q17 4Q17 1Q18 2Q18 Government-insured 690 692 695 697 709 Conven
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