Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q1 2019 Earnings Presentation

25 slides from Pennymac Financial Services's earnings presentation, May 2, 2019

  1. Slide 1: First Quarter 2019 Earnings Report

    First 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: First Quarter Highlights

    First Quarter Highlights  Net income was $46.1 million; diluted earnings per share (EPS) were $0.58 – Significant interest rate volatility highlighted the importance of our hedging approach and is also driving improving production trends – Book value per share increased to $21.72 from $21.34 at Dec

  4. Slide 4: First Quarter Highlights (continued)

    First Quarter Highlights (continued)  Investment Management segment pretax income was $2.1 million, down from $2.5 million in 4Q18 and up from $1.0 million in 1Q18 – Revenue of $8.8 million in 1Q19, an increase of 12% from 4Q18 and 28% from 1Q18 – PMT raised $147 million in new common equity – Net

  5. Slide 5: Current Market Environment

    Current Market Environment  The U.S. economy remains on strong footing, despite Average 30-year fixed rate mortgage(1) global growth concerns 5.5% 4.55% – Greater clarity from the Federal Reserve on expectations 5.0% 4.06% for further rate increases 4.5%  The average 30-year fixed mortgage rate in

  6. Slide 6: Drivers of Earnings Growth for PennyMac Financial

    Drivers of Earnings Growth for PennyMac Financial Industry  PennyMac Financial is well-positioned to gain share over time as industry participants exit or adjust their consolidation strategies in the highly-competitive market environment expected to  Opportunities to acquire bulk MSR portfolios ex

  7. Slide 7: Trends in PennyMac Financial’s Mortgage Banking Businesses

    Trends in PennyMac Financial’s Mortgage Banking Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 14.9% 3.0% 14.1% 2.7% 2.4% 11.0% 10.4% 2.0% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19E 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19E Consumer Direct Production(1) Bro

  8. Slide 8: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 1Q19 totaled Correspondent Volume and Mix $15.1 billion in UPB, seasonally down 17% Q/Q and (UPB in billions) up 15% Y/Y – 45% government loans; 55% conventional loans $18.8 $16.7 – 24% Q/Q and 23% Y/Y decre

  9. Slide 9: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume of $1.4 billion Consumer Direct Production Volume in UPB in 1Q19, up 14% Q/Q and 7% Y/Y (UPB in billions)  Higher volumes and margins driven by increased rate-and-term refinance activity $1.4 $1.3 $1.2  Enh

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

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume of $196 million in Broker Direct Production Volume UPB in 1Q19, down slightly from $199 million in 4Q18 (UPB in millions) – Driven by seasonally lower volumes and intense price competition among channel leaders $

  11. Slide 11: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $324.7 billion in UPB at Loan Servicing Portfolio Composition March 31, up 8% Q/Q and 27% Y/Y (UPB in billions)  Completed the acquisition of two bulk MSR portfolios $299.3 $324.7 totaling $16.3 billion in UPB $255.3  CPRs(1) increased fro

  12. Slide 12: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net assets under management as of March 31, 2019 were $1.7 billion, up 10% from December 31, 2018  In light of PMT’s strong investment outlook and ability to create credit and interest rate sensitive assets: – PMT raised approximately $143 million in net p

  13. 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 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

  14. Slide 14: Servicing Profitability Excluding Valuation-Related Changes

    Servicing Profitability Excluding Valuation-Related Changes 1Q18 4Q18 1Q19 basis basis basis $ in millions points (1) $ in millions points (1) $ in millions points (1) Operating revenue $ 174.5 27.9 $ 217.9 29.8 $ 225.0 29.2 Realization of MSR cash flows (61.2) (9.8) (82.3) (11.2) (92.5) (12.0) (2)

  15. Slide 15: Appendix

    Appendix PennyMac inancia | Services, Inc.

  16. 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 PMT Mortgage Investment Trust third-party sellers  Major loan se

  17. Slide 17: PennyMac Financial Is a Strong Independent Mortgage Company

    PennyMac Financial Is a Strong Independent Mortgage Company As of March 31, 2019  Comprehensive mortgage platform and balanced model with leading production and ($ in millions) $7,819 $7,819 servicing businesses  Strong balance sheet with low leverage versus Mortgage Loans Warehouse competitors He

  18. Slide 18: PennyMac Financial’s 11 Years of Continuous Growth and Development

    PennyMac Financial’s 11 Years of Continuous Growth and Development PLS reaches 1 million customers and 3,100 employees in January PennyMac Loan Services, LLC (PLS) May 14, 2013: PennyMac PLS becomes the 8th largest mortgage founded in 2008 with PLS launches Financial Services, Inc. servicer with a p

  19. Slide 19: 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

  20. Slide 20: 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

  21. Slide 21: 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

  22. Slide 22: MSR Asset Valuation

    MSR Asset Valuation Not subject to Subject to excess March 31, 2019 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability UPB $197,543 $22,292 $219,834 Weighted average coupon 3.95% 4.19% 3.98% Prepayment speed assumption (CPR) 12.0% 10.5% 11.4% Weighted averag

  23. Slide 23: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 1Q18 2Q18 3Q18 4Q18 1Q19 Correspondent Acquisitions Delegated Conventional Conforming $ 4,229 $ 5,399 $ 7,503 $ 9,052 $ 8,130 Delegated Government 8,830 9,546 8,970 8,885 6,752 Delegated Non-Agenc

  24. Slide 24: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 1Q18 2Q18 3Q18 4Q18 1Q19 Correspondent Locks Delegated Conventional Conforming $ 4,304 $ 5,979 $ 8,392 $ 9,639 $ 8,974 Delegated Government 9,162 10,082 9,146 8,962 7,385 Delegated Non-Agency(1) 13 50 20 11 13 Non-Delegated 88

  25. Slide 25: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO 1Q18 2Q18 3Q18 4Q18 1Q19 Government-insured 697 697 699 700 699 Conventional 744 748 748 751 750 Consumer Direct Weighted Average FICO 1Q18 2Q18 3Q18 4Q18 1Q19 Government-insured 697 709 700 696 699 Conven

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