Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q2 2016 Earnings Presentation

26 slides from Pennymac Financial Services's earnings presentation, Aug 3, 2016

  1. Slide 1: Second Quarter 2016 Earnings Report

    Second 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: Second Quarter Highlights

    Second Quarter Highlights  Pretax income of $84.3 million; diluted earnings per share of common stock of $0.65 – Record earnings driven by strong momentum in consumer direct and correspondent production – $122.4 million decline in mortgage servicing rights (MSR) value, partially offset by $82.4 mil

  4. Slide 4: Current Market Environment and Outlook

    Current Market Environment and Outlook  Uncertainty from the U.K.’s vote to exit the Average 30-year fixed rate mortgage(1) European Union resulted in a flight to quality, 5.0% driving U.S. Treasury yields to record lows Hundreds – Mortgage rates remained low in 2Q16 and have 4.5% 3.59% approached

  5. Slide 5: Low Interest Rates Are Contributing to a Favorable Origination Environment

    Low Interest Rates Are Contributing to a Favorable Origination Environment Total U.S. Single Family Mortgage Originations(1)  Origination market estimates ($ in billions) continue to increase, mostly $1,771 in expectations for refinance $1,697 volumes $1,604 +$167 billion  Volume estimates for the

  6. Slide 6: PennyMac Leadership in the Mortgage Markets

    PennyMac Leadership in the Mortgage Markets Government-Insured Loans as Share of Top Originators – 2016 YTD(1) Total Mortgage Originations(1) Rank Institution $Bn Market Share 1 Wells Fargo $ 105 11.8% 24% 2 Chase $ 53 6.0% 3 Quicken $ 42 4.7% 20% 4 Bank of America $ 29 3.3% 5 PennyMac(2) $ 27 3.0%

  7. Slide 7: 2Q16 Production Income Growth Driven by Higher Volumes and Margins

    2Q16 Production Income Growth Driven by Higher Volumes and Margins Production Segment Pretax Income Correspondent Production Volume ($ in millions) ($ in billions) $16.0 $120 $16 $14.6 $105 +53% $12 $100 $10.4 $9.7 $8 $80 $68 $4 $60 $0 $40 1Q16 2Q16 Fundings Locks $20 Consumer Direct Production Volu

  8. Slide 8: PFSI’s Hedging Approach Moderates MSR Value Changes Due to Interest Rates

    PFSI’s Hedging Approach Moderates MSR Value Changes Due to Interest Rates MSR-Related Valuation Changes  PFSI seeks to moderate the impact of ($ in millions) interest rate changes through a comprehensive hedge approach that MSR value change considers both performance of hedge MSR value change net o

  9. Slide 9: Servicing Profitability Excluding Fair Value Changes Improved in 2Q16

    Servicing Profitability Excluding Fair Value Changes Improved in 2Q16 2Q16 1Q16 FY 2015 basis basis basis (1) (1) (1) $ in thousands points $ in thousands points $ in thousands points Operating revenue $ 125,982 29.9 $ 115,751 28.5 $ 383,768 28.5 Less: Amortization and realization of MSR cash flows

  10. Slide 10: Trends in PennyMac Financial’s Businesses

    Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 10% 1.8% 1.72% 8.92% 1.65% 7.95% 8% 7.34% 1.5% 1.38% 6.85% 6% 1.2% 0.95% 0.9% 4% 0.6% 2% 0.3% 0% 0.0% 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

  11. Slide 11: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 2Q16 totaled Correspondent Volume and Mix $14.6 billion, up 51% Q/Q (UPB in billions) $16.0 – PennyMac was the second largest aggregator in $16 2Q16, after Wells Fargo(1) $14.4 $12 $10.4 5.2 – 65% government

  12. Slide 12: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production totaled $1.5 billion Consumer Direct Production Volume in 2Q16, up 24% Q/Q (UPB in millions) – Realizing benefits from ongoing investments in sales and fulfillment capacity resulted in PFSI’s ability to $1,600 $1,50

  13. Slide 13: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $171.7 billion in UPB at Loan Servicing Portfolio Composition quarter end, up 4% from 1Q16 (UPB in billions) $200 – Strong production volumes more than offset higher $164.9 $171.7 prepayment activity $150 $136.2  Continued success in modify

  14. Slide 14: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net assets under management were $1.6 billion, Investment Management Revenues down 4% from March 31, 2016 ($ in millions) $9 – Decline driven by PMT’s share repurchases and return of capital to investors in the private $6.9 Investment Funds $6.4 $6.2 $6  P

  15. Slide 15: Financial Results by Operating Segment

    Financial Results by Operating Segment Investment Total Pretax ($ in millions) Production Servicing Management Income 2Q15 $ 76.3 $ (2.4) $ 1.0 $ 74.8 3Q15 $ 77.7 $ (6.1) $ 2.2 $ 73.9 4Q15 $ 50.3 $ 27.9 $ 0.7 $ 78.9 1Q16 $ 68.4 $ (39.5) $ 1.1 $ 30.1 2Q16 $ 104.5 $ (20.9) $ 0.7 $ 84.3 Note: Figures m

  16. Slide 16: Mortgage Banking – Production Segment Results

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

  17. Slide 17: Mortgage Banking – Servicing Segment Results

    Mortgage Banking – Servicing Segment Results Servicing Segment  Servicing segment revenue Quarter ended Quarter ended Quarter ended Quarter ended increased 64% Q/Q, driven Unaudited ($ in thousands) June 30, 2016 March 31, 2016 Revenue by a $9.0 million increase in Net loan servicing fees $ 26,555

  18. Slide 18: Mortgage Servicing Rights (MSR) Asset Valuation

    Mortgage Servicing Rights (MSR) Asset Valuation Fair value not Fair value  PFSI carries most of its Lower of amortized cost subject to excess subject to excess originated MSRs at the lower June 30, 2016 servicing spread servicing spread Unaudited ($ in millions) or fair value liability liability of

  19. Slide 19: Investment Management Segment Results

    Investment Management Segment Results  Segment revenue Quarter ended Unaudited – ($ in thousands) Quarter ended Quarter ended decreased 3% Q/Q to $6.2 June 30, 2016 December March 31, 2016 million on lower Revenue management fees from Management fees: From PennyMac Mortgage Investment Trust $ 5,199

  20. Slide 20: Appendix

    Appendix PennyMa ac inancia | Services, Inc.

  21. Slide 21: 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

  22. Slide 22: 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 • Over $1.5 bn in quarterly - Since inception, PennyMac has focused on building consumer direct 2015 originations and testing

  23. Slide 23: 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

  24. Slide 24: 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

  25. Slide 25: 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

  26. Slide 26: Acquisitions, Originations, and Locks by Product

    Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 2Q15 3Q15 4Q15 1Q16 2Q16 Correspondent Acquisitions Conventional $ 3,553 $ 4,055 $ 3,460 $ 3,253 $ 5,171 Government 8,316 10,348 6,558 6,423 9,433 Jumbo 26 19 12 7 3 Total $ 11,895 $ 14,421 $ 10,030 $ 9,683 $ 14,607 Correspon

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