Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q4 2019 Earnings Presentation

27 slides from Pennymac Financial Services's earnings presentation, Feb 6, 2020

  1. Slide 1: Fourth Quarter 2019 Earnings Report

    Fourth 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: Fourth Quarter Highlights

    Fourth Quarter Highlights  Net income was $152.7 million; diluted earnings per share (EPS) were $1.88 – Record pretax income and operating earnings(1) driven by continued strong Production segment results and improved operating performance in the Servicing segment – Book value per share increased t

  4. Slide 4: Fourth Quarter Highlights (continued)

    Fourth Quarter Highlights (continued)  Servicing segment pretax loss was $5.1 million, versus a pretax loss of $18.1 million in 3Q19 and pretax income of $29.3 million in 4Q18 – Valuation-related items included a $160.6 million gain in the fair value of mortgage servicing rights (MSR) and $194.6 mi

  5. Slide 5: Current Market Environment

    Current Market Environment  The Federal Reserve continues to signal that it will maintain Average 30-year fixed rate mortgage(1) the current target Federal Funds rate, as it continues to 5.0% monitor the balance between its maximum employment and 2% inflation target objectives 4.5%  The average 30

  6. Slide 6: Significant Book Value Growth Driven by Strong ROEs

    Significant Book Value Growth Driven by Strong ROEs Book Value Per Share of PFSI Return on Equity (ROE)(2) 26.0% 22% CAGR(1) Contribution $26.26 from Tax 21.9% 21.6% 8.2% Cuts and Jobs Act $21.34 12.7% $12.32 17.8% $7.27 6/30/13 12/31/15 12/31/18 12/31/19 2016 2017 2018 2019 We expect PFSI to earn m

  7. Slide 7: U.S. Residential Mortgage Market Provides Significant Opportunities for PFSI

    U.S. Residential Mortgage Market Provides Significant Opportunities for PFSI U.S. Mortgage Origination Market(1) Total Production(2) (in billions) Market Share $2,375 5.0% $1,986 4.1% 3.8% 3.4% 2.8% 2.2% 1.7% 2019 2020 2013 2014 2015 2016 2017 2018 2019 Purchase Refinance  2019 was the largest orig

  8. Slide 8: PennyMac Continues to Invest in Mortgage Banking Technology

    PennyMac Continues to Invest in Mortgage Banking Technology  Migrating our correspondent platform to Ellie Mae’s next generation Encompass Digital Production Lending Platform, leveraging proprietary systems and eventually seeking to consolidate all Systems channels to a single, cloud-based platform

  9. Slide 9: Trends in PennyMac Financial’s Businesses

    Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 16.25% 3.36% 14.93% 15.45% 3.15% 2.76% 2.32% 10.00% 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19E 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19E Consumer Direct Production(1) Broker Direc

  10. Slide 10: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 4Q19 totaled Correspondent Volume and Mix $37.7 billion in UPB, up 20% Q/Q and 109% Y/Y (UPB in billions) $36.6 – 45% government loans; 55% conventional loans $36.2 $0.6 – Government acquisitions of $16.7 bi

  11. Slide 11: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume in 4Q19 Consumer Direct Production Volume totaled $3.8 billion in UPB, up 42% Q/Q and (UPB in billions) 217% Y/Y $3.8  Record volumes driven by continued investments to scale the production platform includin

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

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume in 4Q19 totaled Broker Direct Production Volume $842 million in UPB, up 25% Q/Q and up from (UPB in millions) $199 million in 4Q18 $842 – Increase in approved brokers and fulfillment $675 capacity drove Q/Q origi

  13. Slide 13: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $368.7 billion in UPB at Loan Servicing Portfolio Composition December 31, 2019, up 6% Q/Q and 23% Y/Y (UPB in billions) $368.7  Record production volumes more than offset $348.5 elevated prepayment activity, driving organic $299.3 growth i

  14. Slide 14: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net AUM as of December 31, 2019 were $2.5 billion, up 10% from September 30, 2019  PMT successfully raised additional capital in 4Q19 as a result of increased investment opportunities and strong performance – PMT raised $215 million in new common equity du

  15. Slide 15: 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 of its ($ in millions) MSR asset through a comprehensive MSR fair value change before recognition of realization of

  16. Slide 16: 4Q19 Servicing Profitability Excluding Valuation-Related Changes

    4Q19 Servicing Profitability Excluding Valuation-Related Changes 4Q18 3Q19 4Q19 basis basis basis $ in millions (1) points $ in millions (1) points $ in millions (1) points Operating revenue $ 217.9 29.8 $ 270.8 31.7 $ 273.0 30.4 Realization of MSR cash flows (82.3) (11.2) (117.2) (13.7) (113.1) (12

  17. Slide 17: Appendix

    Appendix PénnyMac Financial Services, Inc.

  18. Slide 18: 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 PMT, newly originated loans from and subservicing for PMT which is focused on investing third-party sellers  Major loan se

  19. Slide 19: PennyMac Financial Is a Strong Independent Mortgage Company

    PennyMac Financial Is a Strong Independent Mortgage Company  Comprehensive mortgage platform and As of December 31, 2019 balanced model with leading production ($ in millions) and servicing businesses $10,204 $10,204  Strong balance sheet with low leverage versus competitors – Debt to equity of 3.

  20. Slide 20: 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 GSEs, Agencies, regulators and our financing partners 2019 - Since inception, PennyMac has focused on building and  PennyMac becomes largest testing processes and systems before adding

  21. Slide 21: 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

  22. Slide 22: 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

  23. Slide 23: 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

  24. Slide 24: MSR Asset Valuation

    MSR Asset Valuation Not subject to Subject to excess December 31, 2019 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability UPB $206,302 $19,485 $225,787 Weighted average coupon 3.92% 4.19% 3.95% Prepayment speed assumption (CPR) 12.9% 10.9% 12.7% Weighted ave

  25. Slide 25: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 4Q18 1Q19 2Q19 3Q19 4Q19 Correspondent Acquisitions Delegated Conventional Conforming $ 9,052 $ 8,130 $ 10,737 $ 16,644 $ 20,510 Delegated Government 8,885 6,752 10,574 14,346 16,653 (1) Delegated

  26. Slide 26: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 4Q18 1Q19 2Q19 3Q19 4Q19 Correspondent Locks Delegated Conventional Conforming $ 9,639 $ 8,974 $ 12,628 $ 19,461 $ 19,736 Delegated Government 8,962 7,385 12,028 15,933 16,225 Delegated Non-Agency(1) 11 13 14 1 - Non-Delegated

  27. Slide 27: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 Government-insured 700 699 698 701 703 Government-insured 44 44 43 42 42 Conventional 751 750 755 760 762 Conventional 38 38 36 35 35

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