Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2014 Earnings Presentation
26 slides from Pennymac Financial Services's earnings presentation, Feb 4, 2015
Slide 1: Fourth Quarter 2014 Earnings Report
Fourth Quarter 2014 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: Fourth Quarter Highlights
Fourth Quarter Highlights Pretax income of $53.2 million; diluted earnings per common share of $0.41 – Pretax earnings contributions from each of PFSI’s segments: Production: $37.8 million; Servicing: $11.4 million; Investment Management: $2.6 million Loan production totaled $8.0 billion in UPB,
Slide 4: Current Market Environment and Outlook
Current Market Environment and Outlook • Interest rates have continued to fall, to the lowest Average 30-year fixed rate mortgage(1) levels in 18 months, driven by global economic 5.0% Hundreds weakness • Policymakers continue to promote housing stimulus, 4.5% as demonstrated by the reduction in FHA
Slide 5: PennyMac Financial's Business Model Is Well Positioned for Growth
PennyMac Financial’s Business Model Is Well Positioned for Growth 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 thi
Slide 6: Trends in PFSI Earnings and Revenue Composition
Trends in PFSI Earnings and Revenue Composition Earnings per Share Total net revenue increased 1% Q/Q as $0.60 $0.49 growth in mortgage banking offset decline $0.45 $0.45 $0.38 $0.41 in investment management $0.32 $0.30 EPS declined to $0.41 per share due to: – Investment management revenue $0.1
Slide 7: Building PFSI's Businesses to Address Opportunity
Building PFSI’s Businesses to Address Opportunity Servicing Portfolio UPB PennyMac is well positioned to capitalize on the opportunities presented by the low interest rate Pending Agency Portfolio environment and FHA MIP reduction Acquisitions 16% $20.8bn ─ Servicing portfolio provides sizeable re
Slide 8: Expansion Into Commercial Real Estate Finance
Expansion Into Commercial Real Estate Finance • Recently launched new division focused New Commercial Loan Originations on loans with balances of $1mm - $10mm that finance multifamily and smaller office, Market opportunity for a non-bank specialist focused on retail and mixed-use properties lendin
Slide 9: Trends in PennyMac Financial's Businesses
Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 10% 1.2% 1.08% 1.02% 7.67% 8% 7.04% 1.0% 6% 0.8% 0.6% 4% 0.4% 2% 0.2% 0% 0.0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Consumer Direct Pr
Slide 10: Quarterly Highlights – Correspondent Production
Quarterly Highlights – Correspondent Production Operational Highlights Correspondent Volume and Mix (UPB in billions) Correspondent acquisitions by PMT in 4Q14 $10 $8.1 $8.4 totaled $7.3 billion $7.5 $8 – 60% government-insured loans – PFSI earns $6.0 $5.5 $3.7 gain on mortgage loans $6 $2.9 $3.0
Slide 11: Quarterly Highlights – Consumer Direct Production
Quarterly Highlights – Consumer Direct Production Operational Highlights Consumer Direct Production Volume (UPB in millions) Consumer direct production totaled $682 million $1,600 $1,435 in 4Q14, up 30% from 3Q14 – Significant growth in conventional and government-insured loan products $1,200 $1,0
Slide 12: Quarterly Highlights – Loan Servicing
Quarterly Highlights – Loan Servicing Operational Highlights Loan Servicing Portfolio Composition (UPB in billions) Servicing portfolio totaled $106.0 billion in UPB $120 $106.0 at quarter end, up 6% from 3Q14 $93.6 $100.1 $100 $83.8 Mini-bulk and flow MSR acquisitions totaled $80 $78.2 $1.7 bil
Slide 13: Pending Acquisitions of Bulk MSRs with Refinance Opportunities
Pending Acquisitions of Bulk MSRs with Refinance Opportunities Seasoned, high-quality Agency loans Low mortgage rate environment results in refinance recapture opportunities Co-investment by PMT in Agency MSRs through the acquisition of the excess servicing spread cash flows Pending acquisit
Slide 14: Hedging Strategy Protects MSR Despite Significant Decline in Rates
Hedging Strategy Protects MSR Despite Significant Decline in Rates PFSI seeks to protect the economic value of its MSR assets through a comprehensive hedge strategy We employ a variety of instruments to execute our strategy of moderating the impact of interest rate movements: – Forward sales of
Slide 15: Quarterly Highlights – Investment Management
Quarterly Highlights – Investment Management Operational Highlights Investment Management Revenues ($ in millions) Investment management revenues were $10.4 $15 $14.4 million, down 22% from 3Q14 $13.3 $12.8 – Carried interest from the Investment Funds declined $12.5 86% Q/Q, due to a smaller portf
Slide 16: Fourth Quarter Financial Review
Fourth Quarter Financial Review Diluted earnings per common share of $0.41 Pretax income of $53.2 million, down 15% from 3Q14 Total net revenue of $141.7 million, up 1% from 3Q14 Total expenses of $88.5 million, up 14% from 3Q14 Business Segment Results Total pretax income from mortgage ba
Slide 17: Mortgage Banking – Production Segment Results
Mortgage Banking – Production Segment Results Gains on mortgage Production Segment Quarter ended Quarter ended December 31, 2014 September 30, 2014 loans increased 8% Unaudited ($ in thousands) Q/Q due to a strong Revenue contribution from Net gains on mortgage loans held for sale at fair value $
Slide 18: Mortgage Banking – Servicing Segment Results
Mortgage Banking – Servicing Segment Results Servicing Segment Quarter ended Quarter ended Net servicing fee December 31, 2014 September 30, 2014 revenue increased Unaudited ($ in thousands) 16% Q/Q driven Revenue Net gains on mortgage loans held for sale at fair value $ (162) $ 6,825 primarily by
Slide 19: Mortgage Servicing Rights (MSR) Asset Valuation
Mortgage Servicing Rights (MSR) Asset Valuation PFSI carries most of its Lower of Fair value not Fair value subject December 31, 2014 amortized cost subject to excess to excess originated MSRs at the Unaudited ($ in millions) or fair value servicing spread servicing spread lower of amortized cost
Slide 20: Investment Management Segment Results
Investment Management Segment Results Carried interest from Unaudited – (in thousands) Quarter ended Quarter ended December 31, 2014 September 30, 2014 the Investment Funds Revenue declined 86% Q/Q, Management fees: due to a smaller From PennyMac Mortgage Investment Trust $ 8,426 $ 9,623 1,596 1,7
Slide 21: Appendix
Appendix PennyMa ac inancia | Services, Inc.
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 2014 GSEs, Agencies, regulators and our financing partners • Continued organic growth - Since inception, PennyMac has focused on building • Servicing UPB reaches and testing processes a
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
Slide 24: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions Why Are MSR Which MSR Transactions How Do MSRs Come to Market? Sales Occurring? Are Attractive? • Large servicers are selling • Intermittent large bulk portfolio • GSE and Ginnie Mae servicing in MSRs due to continuing sales ($10+ billion in UPB) whic
Slide 25: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT co-invests in Agency MSR acquired from third-party sellers by PFSI PMT acquires the right to receive the excess servicing spread cash flows over the life of the underlying loans PFSI owns the MSR and services the loans Ac
Slide 26: Acquisitions, Originations, and Locks by Product
Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 4Q13 1Q14 2Q14 3Q14 4Q14 Correspondent Acquisitions Conventional $ 2,419 $ 1,907 $ 2,911 $ 3,509 $ 2,772 Government 3,340 2,913 3,991 4,378 4,389 Jumbo 14 13 81 169 116 Total $ 5,773 $ 4,833 $ 6,983 $ 8,056 $ 7,276 Correspond
PennyMac Financial Services — Q4 2014 Earnings Presentation on 6ix