Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2019 Earnings Presentation
27 slides from Pennymac Financial Services's earnings presentation, Feb 10, 2020
Slide 1: Fourth Quarter 2019 Earnings Report
Fourth Quarter 2019 Earnings Report Exhibit 99.2
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: Fourth Quarter Highlights
Fourth Quarter Highlights 3 .. 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 increase
Slide 4: Fourth Quarter Highlights (Servicing and Investment Management)
4 .. 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 million in hedging and other losses;
Slide 5: Average 30-year fixed rate mortgage
3.0% 3.5% 4.0% 4.5% 5.0% Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 5 Average 30-year fixed rate mortgage(1) . The Federal Reserve continues to signal that it will maintain the current target Fede
Slide 6: Significant Book Value Growth Driven by Strong ROEs
$7.27 $12.32 $21.34 $26.26 6/30/13 12/31/15 12/31/18 12/31/19 17.8% 8.2% 21.9% 26.0% 12.7% 21.6% 2016 2017 2018 2019 Book Value Per Share of PFSI Return on Equity (ROE)(2) Contribution from Tax Cuts and Jobs Act 6 Significant Book Value Growth Driven by Strong ROEs 22% CAGR(1) .. Balance of producti
Slide 7: U.S. Residential Mortgage Market Provides Significant Opportunities for PFSI
U.S. Residential Mortgage Market Provides Significant Opportunities for PFSI Total Production(2) 1.7% 2.2% 2.8% 3.4% 3.8% 4.1% 5.0% 2013 2014 2015 2016 2017 2018 2019 Market Share U.S. Mortgage Origination Market(1) (in billions) 7 (1) See footnote 3 on page 5 (2) Source: Inside Mortgage Finance thr
Slide 8: PennyMac Continues to Invest in Mortgage Banking Technology
. enables brokers to effectively originate loans while remaining connected to PennyMac throughout the process PennyMac Continues to Invest in Mortgage Banking Technology 8 Production Systems Environment .. Migrating our correspondent platform to Ellie Mae’s next generation Encompass Digital Lending
Slide 9: Trends in PennyMac Financial's Businesses
Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Broker Direct Production(1) Market Share 9 Trends in PennyMac Financial’s Businesses (1) Source: Inside Mortgage Finance and company estimates for 4Q19 or as of 12/31/19. Inside Mortgag
Slide 10: Production Segment Highlights – Correspondent Channel
$8.9 $14.3 $16.7 $9.0 $16.6 $20.5 $0.1 $0.5 $0.6 $18.8 $36.2 $36.6 4Q18 3Q19 4Q19 Government loans Conventional loans for PMT Non-delegated loans Total locks 10 (UPB in billions) Correspondent Volume and Mix Production Segment Highlights – Correspondent Channel (4) (5) .. Correspondent acquisitions
Slide 11: Production Segment Highlights – Consumer Direct Channel
$0.7 $1.0 $1.2 $0.4 $1.7 $2.6 $1.2 $2.7 $3.8 $0.6 $2.3 $2.4 4Q18 3Q19 4Q19 Conventional Government Committed pipeline (UPB in billions) Consumer Direct Production Volume 11 Production Segment Highlights – Consumer Direct Channel (1) (1) Commitments to originate mortgage loans at specified terms at p
Slide 12: Production Segment Highlights – Broker Direct Channel
12 Production Segment Highlights – Broker Direct Channel Broker Direct Production Volume (UPB in millions) (1) (1) Commitments to originate mortgage loans at specified terms at period end (2) Includes net gains on loans held for sale, loan origination fees and net interest income; lock volume adjust
Slide 13: Servicing Segment Highlights
$348.5 $368.7 ($22.2) $42.4 At 9/30/19 Runoff Additions from loan production At 12/31/19 (1) 13 Servicing Segment Highlights (1) Owned portfolio in predominantly government-insured and guaranteed loans under the FHA (54%), VA (37%), and USDA (9%) programs (2) Represents PMT’s MSRs. Excludes distress
Slide 14: Investment Management Segment Highlights
$1.57 $2.22 $2.45 12/31/2018 9/30/2019 12/31/2019 $7.1 $9.6 $9.9 $0.7 $2.2 $1.9 $7.8 $11.8 $11.8 4Q18 3Q19 4Q19 Base management fees & other revenue Performance incentive Investment Management Revenues (1) 14 Investment Management Segment Highlights Investment Management AUM ($ in billions) .. Net A
Slide 15: MSR Valuation Changes and Offsets
15 MSR Valuation Changes and Offsets ($ in millions) Hedging Approach Continues to Moderate the Volatility of PFSI’s Results Note: Figures may not sum exactly due to rounding .. PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedg
Slide 16: 4Q19 Servicing Profitability Excluding Valuation-Related Changes
16 (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 17: Appendix
Appendix oo » PennyMac
Slide 18: Mortgage platform: Loan Production, Loan Servicing, Investment Management
. 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 po
Slide 19: PennyMac Financial Is a Strong Independent Mortgage Company
PennyMac Financial Is a Strong Independent Mortgage Company 19 .. Comprehensive mortgage platform and balanced model with leading production and servicing businesses .. Strong balance sheet with low leverage versus competitors – Debt to equity of 3.0x .. Diversified liquidity sources and term debt t
Slide 20: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
20 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 - Since inception, PennyMac has focused on building and testing processes and systems before adding significant transaction volu
Slide 21: Industry-leading platform built organically
21 Industry-leading platform built organically – not through acquisitions .. Disciplined, sustainable growth for more than 11 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 22: Why Are MSR Sales Occurring? How Do MSRs Come to Market?
22 Why Are MSR Sales Occurring? How Do MSRs Come to Market? .. Large servicers may sell MSRs due to 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 time to tim
Slide 23: Excess Servicing Spread and MSR Asset structure
23 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 24: MSR Asset Valuation
24 MSR Asset Valuation Note: Figures may not sum exactly due to rounding 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 average servicing fee rate 0.35% 0.34% 0.35% Fair value of MSR $2,677.7 $249.1 $2,926.8 As a m
Slide 25: Acquisitions and Originations by Product
25 Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Acquisitions and Originations by Product First Lien Acquisitions/Originations Second Lien Originations Consumer Direct Fundings HELOC - $ 1 $ 1 $ 1 $ 2 $ Unaudited ($ in millions) Correspondent Acquisit
Slide 26: Interest Rate Locks by Product
26 Interest Rate Locks by Product First Lien Locks Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Unaudited ($ in millions) Correspondent Locks Delegated Conventional Conforming 9,639 $ 8,974 $ 12,628 $ 19,461 $ 19,736 $ Delegated Government 8,962 7,38
Slide 27: Credit Characteristics by Acquisition / Origination Period
27 Credit Characteristics by Acquisition / Origination Period Correspondent Consumer Direct Broker Direct 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 Weighted A
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