Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2018 Earnings Presentation
29 slides from Pennymac Financial Services's earnings presentation, Nov 2, 2018
Slide 1: Third Quarter 2018 Earnings Report
Third Quarter 2018 Earnings Report
Slide 2: Forward-Looking Statements
Forward-Looking Statements 2 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
Slide 3: Third Quarter Highlights
Third Quarter Highlights 3 .. Pretax income was $61.7 million; diluted earnings per share were $0.57 – Third quarter results reflect improved Production segment income and strong contributions from all three operating segments – Book value per share increased to $21.47 from $21.19 at June 30, 2018;
Slide 4: Investment Management Results and Notable Activity After Quarter-End
4 .. Investment Management segment pretax income was $2.5 million, up from $1.1 million in 2Q18 and $0.7 million in 3Q17 – Results included incentive fees of $0.7 million based on PMT’s performance – Net assets under management (AUM) were $1.6 billion, up 1% from June 30, 2018 and down 5% from Septe
Slide 5: Completed Corporate Reorganization to Simplify PFSI's Structure
Completed Corporate Reorganization to Simplify PFSI’s Structure 5 (1) As of October 31, 2018 (2) BlackRock refers to BlackRock Mortgage Ventures, LLC and HC Partners refers to HC Partners, LLC, formerly known as Highfields Capital Investments, LLC (3) After completion of the reorganization transacti
Slide 6: Mortgage Market Is Large with a Vibrant Purchase-Money Opportunity
$0.88 $0.99 $1.14 $1.19 $1.24 $1.27 $1.31 $0.75 $0.90 $0.62 $0.45 $0.40 $0.41 $0.43 $1.63 $1.89 $1.76 $1.64 $1.63 $1.68 $1.74 2015 2016 2017 2018E 2019E 2020E 2021E Purchase Refinance Mortgage Market Is Large with a Vibrant Purchase-Money Opportunity 6 U.S. Consumer Debt Outstanding(1) ($ in trillio
Slide 7: The Industry Is Expected to Experience Consolidation
…and the Industry Is Expected to Experience Consolidation 7 .. The industry today is highly fragmented with many smaller independent operators enabled by low rates, robust refinance volumes and high margins over the last several years – In 2013, the top 5 producers represented 48% of the market vers
Slide 8: PennyMac Financial Leading Market Position and Unique Capabilities
1.7% 3.8% 2013 9 Mos 2018 8 (1) Source: Inside Mortgage Finance, for the 9 months ended September 30, 2018 or as of September 30, 2018 (2) Pro forma for corporate reorganization. Please refer to page 29 for a reconciliation of reported to pro forma book value per share at September 30, 2018 Loan Pro
Slide 9: Synergistic Partnership with PMT Is a Key Competitive Advantage
Synergistic Partnership with PMT Is a Key Competitive Advantage 9 Best-in-Class Operating Platform (NYSE: PFSI) Management Agreements Tax-Efficient Investment Vehicle (NYSE: PMT) Services Agreements .. $1.6 billion of shareholders’ equity(1) .. Leading nonbank residential mortgage specialist .. Lega
Slide 10: Strategic Initiatives to Drive Growth
Consumer Direct Production .. Maximize conversion and portfolio recapture .. Add new affinity relationships to increase non-portfolio growth .. portal enhancements and new products Broker Direct Production .. Ramp sales resources and increase number of approved brokers .. portal enhancements and new
Slide 11: Trends in PennyMac Financial's Businesses
Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Investment Management AUM (billions) 11 Trends in PennyMac Financial’s Businesses 10.17% 10.36% 10.83% 11.71% 0% 2% 4% 6% 8% 10% 12% 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18E 0.49%
Slide 12: Correspondent Production Volume
12 (UPB in billions) (1) For government-insured and guaranteed loans and jumbo loans, PFSI earns income from holding and selling or securitizing the loans (2) For conventional loans, PFSI earns a fulfillment fee from PMT rather than income from holding and selling or securitizing the loans (3) Inclu
Slide 13: Consumer Direct Production Volume
. Consumer direct production volume of $1.3 billion in 3Q18, up 41% Q/Q and down 16% Y/Y .. Continued transition to more operationally intensive loans (e.g. purchase money) – Increased volumes of cash-out refinance and purchase-money loans helping to mitigate decline in rate-and-term refinances – St
Slide 14: Broker Direct Production Volume
(1) Commitments to originate mortgage loans at specified terms at period end (2) Includes net gains on mortgage loans held for sale, loan origination fees and net interest income; lock volume adjusted for expected fallout, which was 30% in 3Q18 for broker direct locks (3) As of June 30, 2018 and Sep
Slide 15: Loan Servicing Portfolio
At 6/30/18 Runoff Additions from loan production MSR acquisitions At 9/30/18 (UPB in billions) .. Servicing portfolio totaled $284.5 billion in UPB at September 30th, up 8% Q/Q and 19% Y/Y .. Completed $11.6 billion in UPB of previously announced bulk MSR acquisitions – Also completed the acquisitio
Slide 16: Investment Management Segment Highlights
28% 18% 22% 6% 26% Agency RMBS MSRs and ESS Credit Risk Transfer (CRT) Distressed whole loans and REO Loan inventory 16 ($ in billions) .. Net assets under management as of September 30, 2018 were $1.6 billion, up modestly from June 30, 2018 .. PMT’s continued strong performance resulted in $0.7 mil
Slide 17: MSR Valuation Changes and Hedging Approach
17 .. PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge strategy that also considers production-related income .. In 3Q18, MSR fair value increased primarily due to increasing mortgage rates, resulting in expectations for lowe
Slide 18: Servicing Segment Financial Results
18 (1) Of average portfolio UPB, annualized (2) Comprised of net gains on mortgage loans held for sale at fair value and net interest income related to EBO loans (3) Changes in fair value do not include realization of MSR cash flows, which are included in amortization and realization of MSR cash flo
Slide 19: Appendix
Appendix oo » PennyMac
Slide 20: PennyMac Financial Business Overview
• Complex and highly regulated mortgage industry requires effective governance, compliance and operating systems • Operating platform has been developed organically and is highly scalable • Commitment to strong corporate governance, compliance and risk management since inception • PFSI is well posit
Slide 21: PennyMac Financial's Ten Years of Continuous Growth and Development
PLS launches Broker Direct channel PennyMac Financial completes corporate reorganization simplifying corporate structure PennyMac Financial’s Ten Years of Continuous Growth and Development 21 2008 2009 2010 2012 2013 2016 2017 2018 PennyMac Loan Services, LLC (PLS) founded in 2008 with 72 employees
Slide 22: Industry-Leading Platform Built Organically
22 Industry-leading platform built organically – not through acquisitions .. Disciplined, sustainable growth for more than 10 years .. Focused on building and testing processes and systems before large transaction volumes Distinctive expertise and full range of capabilities across mortgage banking a
Slide 23: Why Are MSR Sales Occurring? How Do MSRs Come to Market?
23 Why Are MSR Sales Occurring? How Do MSRs Come to Market? .. Large servicers may sell MSRs due to continuing operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re-focus on core customers/businesses .. Independent mortgage banks sell MSRs from
Slide 24: MSR and Excess Servicing Spread Structure
24 Excess Servicing Spread (e.g., 12.5bp) MSR Asset (e.g., 25bp servicing fee) Acquired by PFSI from Third-Party Seller(1) .. 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 c
Slide 25: MSR Asset Valuation
25 MSR Asset Valuation Note: Figures may not sum exactly due to rounding UPB $170,001 $23,658 $193,659 Weighted average coupon 3.88% 4.18% 3.91% Prepayment speed assumption (CPR) 8.1% 9.0% 8.2% Weighted average servicing fee rate 0.32% 0.34% 0.32% Fair value of MSR $2,454.7 $331.2 $2,786.0 As a mult
Slide 26: Acquisitions and Originations by Product
26 Note: Figures may not sum exactly due to rounding Acquisitions and Originations by Product Unaudited ($ in millions) Correspondent Acquisitions Conventional 6,530$ 5,891$ 4,226$ 5,396$ 7,501$ Government 10,873 9,505 8,830 9,546 8,970$ Jumbo - - - 8 9$ Total 17,403$ 15,396$ 13,056$ 14,951$ 16,480$
Slide 27: Interest Rate Locks by Product
27 Note: Figures may not sum exactly due to rounding Interest Rate Locks by Product Unaudited ($ in millions) Correspondent Locks Conventional 6,356$ 6,293$ 4,392$ 6,091$ 8,535$ Government 10,999 9,571 9,162 10,082 9,146 Jumbo - - 13 59 33 Total 17,356$ 15,864$ 13,567$ 16,232$ 17,714$ Consumer Direc
Slide 28: Credit Characteristics by Acquisition / Origination Period
28 Correspondent Consumer Direct Credit Characteristics by Acquisition / Origination Period 3Q17 4Q17 1Q18 2Q18 3Q18 Government-insured 693 693 697 697 699 Conventional 749 745 744 748 748 Weighted Average FICO 3Q17 4Q17 1Q18 2Q18 3Q18 Government-insured 692 695 697 709 700 Conventional 741 738 738
Slide 29: Reconciliation of Reported to Pro Forma Book Value per Share
29 Reconciliation of Reported to Pro Forma Book Value per Share at September 30, 2018 As presented Pro forma adjustments Pro forma STOCKHOLDERS' EQUITY Class A common stock 3$ 5$ 8$ Class B common stock - - - Additional paid-in-capital(1) 236,457 1,059,238 1,295,695 Retained earnings 304,386 - 304,3
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