Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2017 Earnings Presentation
32 slides from Pennymac Financial Services's earnings presentation, Nov 2, 2017
Slide 1: Third Quarter 2017 Earnings Report
Third Quarter 2017 Earnings Report
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
Slide 3: Third Quarter Highlights
Third Quarter Highlights Pretax income was $94.1 million; diluted earnings per share were $0.71 – Strong earnings contributions from both the production and servicing businesses – Issued $500 million of 5-year term notes at attractive levels under Ginnie Mae mortgage servicing rights (MSR) financi
Slide 4: Third Quarter Highlights (continued)
Third Quarter Highlights (continued) Investment Management segment pretax income was $0.7 million, down from $2.5 million in 2Q17 and up from $0.2 million in 3Q16 – Net assets under management (AUM) were $1.6 billion, essentially unchanged from $1.6 billion at June 30, 2017 and September 30, 2016
Slide 5: Current Market Environment
Current Market Environment Despite recent increases in short-term interest rates, Average 30-year fixed rate mortgage(1) mortgage rates remain low 5.0% – Mortgage rates declined during the quarter to their 4.5% 3.88% lowest levels of 2017 before rebounding to 3.83% at 3.83% quarter end(1) 4.0% – R
Slide 6: PFSI's Production Franchise Is Well Positioned for Future Growth
PFSI’s Production Franchise Is Well Positioned for Future Growth Total U.S. Purchase Money Mortgage Originations(1) PennyMac Financial Correspondent Production ($ in billions) ($ in billions) +11% 59% $1,245 2013 $31 $1,204 purchase $1,124 80% $734 2017 YTD $48 purchase PennyMac built its producti
Slide 7: MSR Financing Is Transformational for Non-Bank Business Model
MSR Financing Is Transformational for Non-Bank Business Model PennyMac Financial’s financing capabilities have developed significantly over the last several years – Strong and mature capital structure (low levels of debt, well collateralized by assets and supported by strong earnings) distinguishe
Slide 8: Significant Accomplishments in PFSI's Investment Management Business
Significant Accomplishments in PFSI’s Investment Management Business PennyMac Mortgage Investment Trust (NYSE: PMT) Private Opportunity Funds Equity Capital Raised In August, the Investment Funds successfully completed the sale of substantially all of their ($ in millions) remaining assets to a th
Slide 9: Technology Is Integral to PennyMac Financial's Leading Platform
Technology Is Integral to PennyMac Financial’s Leading Platform Technology implementation and development has been core to PennyMac Financial’s success. We utilize a wide range of systems to improve the speed, accuracy and scalability of our operations Some examples of the proprietary technology
Slide 10: Broker Direct Channel Launch Will Utilize Innovative New Technology
Broker Direct Channel Launch Will Utilize Innovative New Technology Broker direct channel launch - expected in 4Q17. Combines state-of- Broker POWER platform is the centerpiece of our centralized the-art technology of the new broker sales and engagement model direct platform with PennyMac’s indust
Slide 11: Rollout of New Technologies Across Loan Servicing
Rollout of New Technologies Across Loan Servicing Successfully phased in 20 servicing enhancement modules thus far in 2017 designed to automate and increase the efficiency of loan servicing. Examples of the elements we have built include: – Payoff demand automation - allows Consumer Direct Lending
Slide 12: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 3Q16 2Q17 3Q17 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 128.2 29.0 $ 143.3 26.5 $ 167.4 28.4 Amortization and realization of MSR cash flows (56.6) (12.8) (55.5) (10.3) (65
Slide 13: 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% 10.99% 2.5% 10.17% 2.21% 2.27% 10% 8.74% 2.0% 1.82% 8% 1.56% 1.5% 6% 1.0% 4% 2% 0.5% 0% 0.0% 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17E 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2
Slide 14: Production Segment Highlights – Correspondent Channel
Production Segment Highlights – Correspondent Channel Correspondent acquisitions by PMT in 3Q17 totaled Correspondent Volume and Mix $17.4 billion, up 7% Q/Q and down 8% Y/Y (UPB in billions) $24 $21.6 – 62% government loans; 38% conventional loans $20 $18.2 $17.4 – 10% Q/Q growth in conventional
Slide 15: Production Segment Highlights – Consumer Direct Channel
Production Segment Highlights – Consumer Direct Channel Consumer direct production volume of $1.5 billion in Consumer Direct Production Volume 3Q17, up 20% Q/Q and down 9% Y/Y (UPB in billions) $1.8 $1.7 – Lower mortgage rates intra-quarter and successful $1.5 recapture initiatives drove higher vo
Slide 16: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $238.4 billion in UPB at the Loan Servicing Portfolio Composition end of the third quarter, up 4% from 2Q17 and 31% (UPB in billions) from 3Q16 $250 $229.0 $238.4 Mortgages 60 days or more past due were 2.5%, $200 $182.1 unchanged from the
Slide 17: Impact of Recent Natural Disasters on Servicing Portfolio
Impact of Recent Natural Disasters on Servicing Portfolio Operational Initiatives Financial Considerations Consistent with our national footprint and the large Our assessment of the effects of these events is developing; populations of Texas, Florida and California, approximately however, based
Slide 18: Investment Management Segment Highlights
Investment Management Segment Highlights Net assets under management were $1.6 billion, Investment Management AUM essentially unchanged from June 30, 2017 ($ in millions) Investment management revenues were $1,800 $1,634 $5.0 million, down 21% from 2Q17 and 11% from $1,557 $1,600 $24 3Q16 $202 $
Slide 19: Financial Results by Operating Segment
Financial Results by Operating Segment Unaudited ($ in millions) Investment Non-Segment Total Pretax Production Servicing Management Activities Income 3Q16 $ 149.8 $ (10.7) $ 0.2 $ - $ 139.3 (1) 4Q16 $ 93.4 $ 35.1 $ 0.4 $ 0.6 $ 129.4 1Q17 $ 47.5 $ 13.4 $ 1.1 $ - $ 62.0 2Q17 $ 66.7 $ (11.2) $ 2.5 $ -
Slide 20: 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 through a comprehensive hedge MSR value change strategy that also considers Change in value of hedges and ESS liabili
Slide 21: Mortgage Banking – Production Segment Results
Mortgage Banking – Production Segment Results Production revenues for PFSI’s own account (net gains on mortgage loans Production Segment Quarter Quarter ended ended Quarter Quarter ended ended June 30, 30, September 20172015 September June 30, 30, 20152017 held for sale at fair value, loan Unaudit
Slide 22: Mortgage Banking – Servicing Segment Results
Mortgage Banking – Servicing Segment Results(1) Servicing Segment Servicing segment revenue Quarter ended ended Quarter ended ended Unaudited ($ in thousands) Quarter Quarter increased 59% Q/Q driven June 30, 2017 September 30, 2017 Revenue by a $31.2 million increase Net loan servicing fees $ 46,
Slide 23: MSR Asset Valuation
MSR Asset Valuation Lower of Fair value not Fair value subject September 30, 2017 amortized cost or subject to excess to excess servicing Total Unaudited ($ in millions) fair value servicing spread spread liability UPB $108,418 $26,632 $27,750 $162,800 Weighted average coupon 3.75% 3.83% 4.17% 3.84%
Slide 24: Investment Management Segment Results
Investment Management Segment Results Unaudited – (in thousands) Quarter ended Quarter ended Quarter ended Segment revenue decreased December $ September 30, 2017 5,742 71 September 30, 2017 21% Q/Q to $5.0 million Revenue – Carried interest loss of $1.2 Management fees: million due to performance
Slide 25: Appendix
Appendix PennyMa ac inancia | Services, Inc.
Slide 26: 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
Slide 27: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
PFSI Has Developed in a Sustainable Manner for Long-Term Growth 2017 • Disciplined growth to address the demands of the • Issued MSR- GSEs, Agencies, regulators and our financing backed term 2016 notes partners • Substantial growth in - Since inception, PennyMac has focused on building and consumer
Slide 28: 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 29: 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 ($10+ billion in UPB) which PFSI has distincti
Slide 30: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI o
Slide 31: Acquisitions, Originations, and Locks by Product
Acquisitions, Originations, and Locks by Product Unaudited ($ in millions) 3Q16 4Q16 1Q17 2Q17 3Q17 Correspondent Acquisitions Conventional $ 7,263 $ 7,492 $ 4,632 $ 5,918 $ 6,530 Government 11,657 12,544 9,280 10,392 10,873 Jumbo 1 - - - - Total $ 18,921 $ 20,037 $ 13,912 $ 16,310 $ 17,403 Correspo
Slide 32: Historical Production Margins
Historical Production Margins 3Q16 4Q16 1Q17 2Q17 3Q17 Government Correspondent Pricing Margin (bps)(1) 72 63 58 52 51 Expected fallout for locks 6% 2% 3% 3% 3% Consumer Direct Pricing Margin (bps)(1) 524 466 398 359 363 Expected fallout for locks 37% 38% 45% 45% 34% (1) Revenue per fallout-adjusted
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