Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Debt Investor Presentation (May 2016)
47 slides from Pennymac Financial Services's debt investor presentation, May 16, 2016
Slide 1: 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 results, future operations
Slide 2: Disclaimer
Disclaimer ‘This pretantation contains fortarcooking statements wihin the meaning of Seton 21€ ofthe Secures Exchange Act of 1994, ak amended, regarding managements betes, ‘stinates, prjectens and assumptions wi respect to, among athr tings. the Campany’srancia esuts, future operations, business pla
Slide 3: Indicative Term Sheet
Indicative Term Sheet 4 Issuers: Private National Mortgage Acceptance Company, LLC and PNMAC Finance Corporation (the “Issuers”) Issue: Senior Unsecured Notes (the “Notes”) Use of proceeds: General corporate purposes, including to repay $50 million of borrowings under revolving credit facility Ranki
Slide 4: Sources and Uses and Pro Forma Capitalization
Sources and Uses and Pro Forma Capitalization 5 Sources and Uses Existing and Pro Forma Capitalization Short term investments are comprised of investments in money market accounts Revolving credit facility due 2016 is being terminated concurrent with this transaction Includes non-controlling interes
Slide 5: Presenters
Presenters David Spector Executive Managing Director, President & Chief Operating Officer, and Director Member of the Board of Directors and President and Chief Operating Officer of PennyMac Financial Services, Inc. and Private National Mortgage Acceptance Company, LLC since their formations Member
Slide 6: PennyMac Financial Services Is a Leading Mortgage Specialist
PennyMac Financial Services Is a Leading Mortgage Specialist Source and securitize newly originated loans via: Correspondent aggregation from approved third-party sellers – 3rd largest in the U.S. (after Wells Fargo and Chase)(2) Consumer direct lending for home purchase or refinance Total loan prod
Slide 7: PennyMac Is a Leader in Mortgage Origination and Servicing
PennyMac Is a Leader in Mortgage Origination and Servicing Top Originators – Q1 2016(1) Top Servicers – Q1 2016(1) Balanced business model as a top originator and servicer: 6th Largest Originator Overall(1) 3rd Largest Correspondent Aggregator(2) 11th Largest Servicer(1) Non-bank mortgage institutio
Slide 8: Record of Strong and Growing Income & Adjusted EBITDA
PennyMac Has a Record of Strong and Growing Income & Adjusted EBITDA Pre-tax Income, Adjusted EBITDA(1) & Adjusted EBITDA Margin(1) ($ in millions) Adjusted EBITDA Pre-tax Income Pre-tax Income CAGR: 27% Adjusted EBITDA CAGR: 27% Adjusted EBITDA Margin Adjusted EBITDA and Adjusted EBITDA Margin are
Slide 9: Consistently Delivered Strong Financial Results
PennyMac Has Consistently Delivered Strong Financial Results Our strong performance has been attributable to the considerable investments we have made in our industry-leading capabilities including: Best-in-class operating platform built organically – not distracted by legacy/regulatory issues Balan
Slide 10: Business Model Distinct From Other Mortgage Specialists
PennyMac’s Business Model Is Distinct From Other Mortgage Specialists Loan Production Largest non-bank correspondent aggregator (#3 overall in 2015) Call-center based retail originator primarily focused on recapture Focus on profitable production Second largest retail originator, call-center based R
Slide 11: Foundation Built on Organic Growth
PennyMac’s Foundation Is Built on Organic Growth We have grown our servicing portfolio primarily through organic loan production, supplemented by limited MSR acquisitions and the acquisition of whole loan pools by PMT and our private investment funds Our MSR acquisitions have been limited and manage
Slide 12: Organic Development in a Sustainable Manner
Organic Development in a Sustainable Manner for Long-Term Growth Operations launched De novo build of legacy-free mortgage servicer 2008 2009 2010 2011 2012 2013 2014 2015 Correspondent group established with a focus on operations development and process design Added servicing leadership for prime p
Slide 13: Technology Is a Key Element of Operational Platform
Technology Is a Key Element of PFSI’s Leading Operational Platform Leading Technology Currently in Place and Under Development Correspondent Production Systems allow for highly automated and scalable loan fulfillment Best-in-class customer portal that facilitates transactions and communications with
Slide 14: Key Credit Highlights
Key Credit Highlights Pre-tax return on equity is calculated as pre-tax net income divided by average stockholders’ equity for each respective period As of May 5, 2016 Industry-Leading Platform for Market Opportunity 1 Significant opportunity in the mortgage production and servicing markets for a no
Slide 15: Significant Market Opportunity for a Non-Bank Mortgage Leader
Significant Market Opportunity and Role for a Non-Bank Mortgage Leader Banks have retreated from the mortgage market mainly due to regulatory scrutiny, higher capital requirements, and a greater focus on core customers and businesses Successful mortgage businesses require focus, expert management, a
Slide 16: Purchase vs. Refinance Origination Markets
Purchase vs. Refinance Origination Markets Purchase originations have historically been more stable and have a natural “floor” due to moves/relocations, household formation, etc. Post-financial crisis purchase originations fell to generational lows, suggesting potential pent-up demand that may be re
Slide 17: Platform Uniquely Positioned Among Mortgage Specialists
PennyMac’s Platform Is Uniquely Positioned Among Mortgage Specialists 1 Loan production Credit Capital markets Servicing Corporate functions Loan fulfillment systems, operations, and in-line quality assurance Correspondent counterparty review and management Consumer direct marketing and lead maximiz
Slide 18: Complementary Businesses & Capabilities
PennyMac Has Complementary Businesses & Capabilities Loan Production Loan Servicing Investment Management PMT finances a portion of MSR acquisitions from third parties through excess servicing spread (“ESS”) investment Distressed loan investments for PMT and the private investment funds add to speci
Slide 19: Loan Production Overview
Loan production is presently conducted via two channels: Consumer Direct Volume (UPB in billions) Loan Production Overview 2 Correspondent Volume (UPB in billions) PennyMac manages the correspondent production program and performs loan fulfillment activities for PMT, in exchange for fulfillment fees
Slide 20: Loan Servicing Overview
Loan Servicing Overview 2 Servicing UPB over time ($ in billions) MSRs and Servicing Fee Multiple ($ in millions) PennyMac performs servicing both as the owner of MSRs and on behalf of other MSR or mortgage owners Prime servicing and sub-servicing for conventional and government-insured or guarantee
Slide 21: Investment Management Overview
Investment Management Overview 2 SEC registered investment adviser Approximately $1.6 billion(1) in combined assets under management across three vehicles: PennyMac Mortgage Investment Trust (NYSE: PMT) Two private investment funds Earn base management fees based on equity under management Earn perf
Slide 22: Diversified Business Model Enables Revenue Growth
Diversified Business Model Enables Revenue Growth Across Market Environments 2 Net Revenue ($ in millions) 10-year Treasury Yield 23 $265 $387 $518 $713 $716 2012 2013 2014 2015 Q1 2016 LTM Loan Production Loan Servicing Investment Management 1.4% 1.8% 2.2% 2.6% 3.0%
Slide 23: Financial Hedging Approach Moderates Interest Rate Risk
Financial Hedging Approach Moderates PennyMac’s Interest Rate Risk 2 In addition to the natural hedge from our significant businesses in production and servicing, PennyMac uses a comprehensive financial hedge strategy in order to: “Lock in” margins from application/lock to loan sale in the productio
Slide 24: Record of Strong and Growing Income & Adjusted EBITDA
PennyMac Has a Record of Strong and Growing Income & Adjusted EBITDA Pre-tax Income, Adjusted EBITDA(1) & Adjusted EBITDA Margin(1) ($ in millions) Adjusted EBITDA pre-tax Income Adjusted EBITDA Margin Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Adjusted EBITDA is def
Slide 25: Strong Balance Sheet with Limited Corporate Debt
Strong Balance Sheet with Limited Corporate Debt and Substantial Equity 4 Note: Figures may not sum exactly due to rounding. Total Debt-to-Equity is 2.2x Funding debt for newly originated loans – held for days before sale or delivery into GSE or Ginnie Mae securities Counterparties include: Bank of
Slide 26: Established Capital Partner in PMT
Established Capital Partner in PMT 5 PennyMac is paid a fulfillment fee on conventional loans purchased by PMT, calculated as a percentage of the UPB Mortgage banking and warehouse services agreement PennyMac servicing fees calculated as a fixed per-loan monthly amount for prime servicing Special se
Slide 27: Partnership with PMT Generates Stable Fee Income
Partnership with PMT Generates Stable and Recurring Fee Income 5 PennyMac generates a substantial portion of its income from fee-based arrangements with PMT Relative to traditional mortgage origination business models that rely on gain on sale, this fee revenue is substantially more stable and consi
Slide 28: Governance of Relationship With PMT
Governance of Relationship With PMT 5 Guiding principle is to seek to establish terms between related parties that are on an arm’s-length basis At the management level, a Related-Party Transaction Subcommittee is responsible for all related-party matters and reports directly to the Executive Committ
Slide 29: Seasoned Leadership and Deep Management Team
Seasoned Leadership and Deep Management Team 6 (Years at PennyMac, in Industry) 50 senior-most executives have on average 25 years of relevant industry experience 30 Stan Kurland ( 8 , 40 ) Chairman & Chief Executive Officer Anne McCallion ( 6 , 24 ) SMD and Chief Financial Officer Pamela Marsh ( 3
Slide 30: Seasoned Leadership and Deep Management Team
(©)Seasoned Leadership and Deep Management Team (onahewe nae eS 50 senior-most executives have on average 25 years of relevant industry experience Penny, Financial Services, Inc.
Slide 31: Historical Financial Results
Historical Financial Results Pre-Tax Income ($ in millions) Adjusted EBITDA is a non-GAAP financial measure and is defined as net income attributable to PFSI common stockholders plus net income attributable to noncontrolling interest, provision for income taxes, depreciation and amortization, decrea
Slide 32: Balance Sheet Composition
Balance Sheet Composition Note: Figures may not sum exactly due to rounding Total Liabilities and Equity ($ millions) Total Assets ($ millions) A substantial portion of PennyMac’s assets are comprised of mortgage loans held for sale, which represents the inventory of loans acquired/originated by our
Slide 33: Conservative Leverage and Significant Access to Liquidity
Conservative Leverage and Significant Access to Liquidity Credit Facilities as of 3/31/2016 ($ in millions) Renewal date 9/27/2016 3/30/2017 3/29/2017 3/29/2017 10/20/2016 7/26/2016 12/2/2016 12/28/2016 Gestation Repo Agreement Syndicated Revolving Credit Facility(1) Leverage (Total Debt-to-Equity)
Slide 34: Key Investment Highlights
Key Investment Highlights Industry-Leading Platform for Market Opportunity Diversified Business Model High Operating Margins and Consistent Profitability Strong Balance Sheet with Diverse Funding Sources Established Capital Partner in PMT Seasoned Leadership and Deep Management Team 35
Slide 35: Key Investment Highlights
Key Investment Highlights v v PennyMac’ Financial Services, Inc
Slide 36: Income Statement Trends
Income Statement Trends 37 PennyMac Financial Services, Inc. For the Year Ended December 31, LTM ($ in thousands) 2012 2013 2014 2015 3/31/2016 Revenues Net gains on mortgage loans held for sale at fair value 118,170 $ 138,013 $ 167,024 $ 320,715 $ 336,861 $ Loan origination fees 9,634 23,575 41,576
Slide 37: Balance Sheet Trends
Balance Sheet Trends 38 PennyMac Financial Services, Inc. December 31, March 31, ($ in thousands) 2013 2014 2015 2016 Assets Cash 30,639 $ 76,256 $ 105,472 $ 116,560 $ Short-term investments at fair value 142,582 21,687 46,319 28,264 Mortgage loans held for sale at fair value 531,004 1,147,884 1,101
Slide 38: Correspondent Production – Conventional Loan Mechanics & Economics
Correspondent Production – Conventional Loan Mechanics & Economics PLS earns fees for fulfillment activities performed for PMT PMT retains MSR PLS provides loan subservicing and earns fees (1) For illustrative purposes only. Not a guarantee of the Company’s actual results. 39 Fannie Mae Freddie Mac
Slide 39: Correspondent Production – Government Loan Mechanics & Economics
Correspondent Production – Government Loan Mechanics & Economics PLS purchases loan at cost + sourcing fee PLS conducts its own fulfillment PLS retains MSR (1) For illustrative purposes only. Not a guarantee of the Company’s actual results. 40 Ginnie Mae Correspondent sellers originate and close new
Slide 40: Consumer Direct Production – Loan Mechanics & Economics
Consumer Direct Production – Loan Mechanics & Economics Fannie Mae Freddie Mac Ginnie Mae PLS originates and closes new government-insured or conventional loan for home purchase or refinance PLS Performs fulfillment and on-going servicing & subservicing Pools and sells / delivers loans Borrowers Bro
Slide 41: Servicing Segment Economics
Servicing Segment Economics Pre-tax servicing operating income reflects core operating economics Servicing fee revenue net of MSR amortization and realization Direct servicing expenses include actual credit and advance losses realized – typically driven by FHA, VA, and USDA loans Non-core servicing
Slide 42: Adjusted EBITDA & Adjusted Cashflow Reconciliation
Adjusted EBITDA & Adjusted Cashflow Reconciliation 43 Note: Adjusted EBITDA and Adjusted Cashflow are non-GAAP financial measures. Adjusted EBITDA is defined as net income attributable to PFSI common stockholders plus net income attributable to noncontrolling interest, provision for income taxes, de
Slide 43: Adjusted EBITDA & Adjusted Cashflow by Segment – Q1 2016
Adjusted EBITDA & Adjusted Cashflow by Segment – Q1 2016 44 Note: Adjusted EBITDA and Adjusted Cashflow are non-GAAP financial measures. Adjusted EBITDA is defined as net income attributable to PFSI common stockholders plus net income attributable to noncontrolling interest, provision for income tax
Slide 44: High-Quality Servicing – CFPB Complaints vs. Other Servicers
High-Quality Servicing – CFPB Complaints vs. Other Leading Servicers Note: Figures are number of CFPB mortgage-related complaints per 100,000 loans serviced for Q4 2015 Source: CFPB complaints based on data from the Consumer Finance Protection Bureau’s Consumer Complaint Database as of March 2016. L
Slide 45: Overview of PMT's Credit Risk Transfer Structure
Overview of PMT’s Credit Risk Transfer Structure Opportunity to invest in credit risk and designed to capture the benefits of PMT’s high-quality correspondent production Aligns with Fannie Mae’s interest to share risk with their lender and servicer partners Structure creates an M1 bond, that covers
Slide 46: Early Buy-Outs (EBOs) from Pools Serviced for Ginnie Mae
Early Buy-Outs (EBOs) from Pools Serviced for Ginnie Mae PennyMac has an EBO program for defaulted loans (90+ days delinquent) in Ginnie Mae pools, as is customary for well-capitalized servicers Economic benefit of EBO is reduced costs by financing government-insured or guaranteed loans in default w
Slide 47: Early Buy-Outs (EBOs) from Pools Serviced for Ginnie Mae
Early Buy-Outs (EBOs) from Pools Serviced for Ginnie Mae 4.2% 3.0% MBS pass-through cost Cost of financing of sample theloans Ginnie Mae pool ‘once bought out + PennyMac has an EBO program for defaulted loans (90+ days delinquent) in Ginnie Mae pools, as is customary for well- capitalized servicers,
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