Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q3 2018 Earnings Presentation

29 slides from Pennymac Financial Services's earnings presentation, Nov 1, 2018

  1. Slide 1: Third Quarter 2018 Earnings Report

    Third Quarter 2018 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: Third Quarter Highlights

    Third Quarter Highlights  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; pro

  4. Slide 4: Third Quarter Highlights (continued)

    Third Quarter Highlights (continued)  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 Ju

  5. Slide 5: Completed Corporate Reorganization to Simplify PFSI’s Structure

    Completed Corporate Reorganization to Simplify PFSI’s Structure  All equity ownership converted into a single class of PFSI Ownership(3) publicly-traded common stock Key Implications for Existing Stockholders:  Simplified Corporate Structure where all equity Management & (2) holders are represente

  6. Slide 6: Mortgage Market Is Large with a Vibrant Purchase-Money Opportunity

    Mortgage Market Is Large with a Vibrant Purchase-Money Opportunity  The U.S. mortgage market is by far the largest U.S. Consumer Debt Outstanding(1) consumer finance market, nearly ten times larger ($ in trillions) than the markets for auto loans and credit cards $10.8  While refinance origination

  7. Slide 7: …and the Industry Is Expected to Experience Consolidation

    …and the Industry Is Expected to Experience Consolidation  The industry today is highly fragmented with Mortgage Market Participants many smaller independent operators enabled by low rates, robust refinance volumes and high Production(1) Servicing(2) 100% = 100% = margins over the last several year

  8. Slide 8: PFSI is a Leading Nonbank Residential Mortgage Specialist

    PFSI is a Leading Nonbank Residential Mortgage Specialist  11th year of operations; IPO in May 2013 Leading Market Position  4th largest mortgage producer(1)  Largest government-insured producer(1)  8th largest mortgage servicer(1)  2nd largest correspondent producer(1) Unique Capabilities  La

  9. Slide 9: Synergistic Partnership with PMT Is a Key Competitive Advantage

    Synergistic Partnership with PMT Is a Key Competitive Advantage (NYSE: PFSI) (NYSE: PMT) Best-in-Class Operating Platform Tax-Efficient Investment Vehicle  $1.6 billion of shareholders’ equity(1)  $1.5 billion of shareholders’ equity, including $300 million of preferred  Leading nonbank residenti

  10. Slide 10: Strategic Initiatives to Drive Growth

    Strategic Initiatives to Drive Growth  Grow share in all three production channels – correspondent, consumer direct, and broker direct – focusing on segments with the highest potential for growth  Continue to invest in and deploy technology required to facilitate the loan origination process to ef

  11. Slide 11: Trends in PennyMac Financial’s Businesses

    Trends in PennyMac Financial’s Businesses Correspondent Production(1) Loan Servicing(1) Market Share Market Share 11.71% 12% 10.83% 3.0% 2.64% 10.17% 10.36% 2.45% 10% 2.5% 2.26% 8% 2.0% 1.82% 6% 1.5% 4% 1.0% 2% 0.5% 0% 0.0% 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18E 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

  12. Slide 12: Production Segment Highlights – Correspondent Channel

    Production Segment Highlights – Correspondent Channel  Correspondent acquisitions by PMT in 3Q18 totaled $16.5 billion, up 10% Q/Q and down 5% Y/Y Correspondent Volume and Mix (UPB in billions) – 54% government loans; 46% conventional loans – 39% Q/Q increase in conventional conforming $17.7 $17.4

  13. Slide 13: Production Segment Highlights – Consumer Direct Channel

    Production Segment Highlights – Consumer Direct Channel  Consumer direct production volume of $1.3 Consumer Direct Production Volume billion in 3Q18, up 41% Q/Q and down 16% Y/Y (UPB in billions)  Continued transition to more operationally intensive loans (e.g. purchase money) $1.5 $1.3 – Increase

  14. Slide 14: Production Segment Highlights – Broker Direct Channel

    Production Segment Highlights – Broker Direct Channel  Broker direct production volume of $110.8 million in Broker Direct Production Volume 3Q18, up from $61.8 million in 2Q18 (UPB in millions)  Approved brokers totaled 428, up from 268 at June 30th $41.0  Continuing to build out our institutiona

  15. Slide 15: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $284.5 billion in UPB at Loan Servicing Portfolio Composition September 30th, up 8% Q/Q and 19% Y/Y (UPB in billions)  Completed $11.6 billion in UPB of previously $284.5 $263.5 announced bulk MSR acquisitions $238.4 – Also completed the ac

  16. Slide 16: Investment Management Segment Highlights

    Investment Management Segment Highlights  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 million in performance-based incentive fees  New investments focused on CRT under a new transaction

  17. Slide 17: 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 on MSR fair value change before recognition of realization of cash flows the fair value of its MSR asset Change in fa

  18. Slide 18: Servicing Profitability Excluding Valuation-Related Changes

    Servicing Profitability Excluding Valuation-Related Changes 3Q17 2Q18 3Q18 basis basis basis $ in millions points (1) $ in millions points (1) $ in millions points (1) Operating revenue $ 167.4 28.4 $ 180.8 27.7 $ 198.3 28.5 Amortization and realization of MSR cash flows (65.7) (11.2) (65.2) (10.0)

  19. Slide 19: Appendix

    Appendix PennyMac inancia | Services, Inc.

  20. Slide 20: 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

  21. Slide 21: PennyMac Financial’s Ten Years of Continuous Growth and Development

    PennyMac Financial’s Ten 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 mortgager founded in 2008 with PLS launches Financial Services, Inc. servicer with a

  22. Slide 22: 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 10 years

  23. Slide 23: 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

  24. Slide 24: 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

  25. Slide 25: MSR Asset Valuation

    MSR Asset Valuation Fair value not Fair value subject to September 30, 2018 subject to excess excess servicing Total Unaudited ($ in millions) servicing spread spread liability 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% We

  26. Slide 26: Acquisitions and Originations by Product

    Acquisitions and Originations by Product Unaudited ($ in millions) 3Q17 4Q17 1Q18 2Q18 3Q18 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 Consumer Direct

  27. Slide 27: Interest Rate Locks by Product

    Interest Rate Locks by Product Unaudited ($ in millions) Correspondent Locks 3Q17 4Q17 1Q18 2Q18 3Q18 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 Direct Locks Convention

  28. Slide 28: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO 3Q17 4Q17 1Q18 2Q18 3Q18 Government-insured 693 693 697 697 699 Conventional 749 745 744 748 748 Consumer Direct Weighted Average FICO 3Q17 4Q17 1Q18 2Q18 3Q18 Government-insured 692 695 697 709 700 Conven

  29. Slide 29: Reconciliation of Reported to Pro Forma Book Value per Share at September 30, 2018

    Reconciliation of Reported to Pro Forma Book Value per Share at September 30, 2018 As Pro forma presented adjustments Pro forma (in thousands except book value per share) STOCKHOLDERS' EQUITY Class A common stock $ 3 $ 5 $ 8 Class B common stock - - - Additional paid-in-capital(1) 236,457 1,059,238

PennyMac Financial Services — Q3 2018 Earnings Presentation on 6ix