Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q2 2019 Earnings Presentation
26 slides from Pennymac Financial Services's earnings presentation, Aug 2, 2019
Slide 1: Second Quarter 2019 Earnings Report
Second Quarter 2019 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: Second Quarter Highlights
Second Quarter Highlights 3 .. Net income was $72.7 million; diluted earnings per share (EPS) were $0.92 – Driven by strong Production segment performance and disciplined hedging of mortgage servicing rights (MSRs) – Repurchased approximately 50,000 shares of PFSI’s common stock at a weighted averag
Slide 4: Second Quarter Highlights (continued)
4 .. Servicing segment pretax loss was $2.7 million, down from pretax income of $11.2 million in 1Q19 and $54.6 million in 2Q18 – Valuation-related items included a $259.2 million loss in the fair value of MSRs, partially offset by $209.4 million in hedging and other gains; net impact on pretax inco
Slide 5: Average 30-year fixed rate mortgage and market outlook
5 Average 30-year fixed rate mortgage(1) . The Federal Reserve recently cut the Fed Funds rate by 25 basis points, with additional cuts expected by year end – The U.S. economic outlook has weakened, weighed down by global growth concerns and uncertainty around trade tensions .. The average 30-year f
Slide 6: PFSI's Earnings Have Driven Strong Book Value Growth
6 6 $7.27 $8.04 $9.92 $12.32 $15.49 $19.95 $21.34 $22.72 6/30/2013 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 6/30/2019 PFSI’s Earnings Have Driven Strong Book Value Growth Track record of strong profitability and book value growth since 2008(1) Book Value Per Share of PFSI 21
Slide 7: PFSI Business Model Drives Outperformance and Growth Opportunity
7 PFSI Business Model Drives Outperformance and Growth Opportunity .. Our balanced mortgage banking model combined with disciplined execution are key to results – Foundation of governance and risk management to ensure resilience across economic cycles – Production designed to be efficient across all
Slide 8: Trends in PennyMac Financial's Businesses
0.12% 0.39% 0.64% 2Q18 3Q18 4Q18 1Q19 2Q19E Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Broker Direct Production(1) Market Share 8 Trends in PennyMac Financial’s Businesses (1) Source: Inside Mortgage Finance and company estimate
Slide 9: Production Segment Highlights – Correspondent Channel
$9.5 $6.8 $10.6 $5.4 $8.1 $10.7 $0.2 $0.4 $16.2 $16.7 $25.3 2Q18 1Q19 2Q19 Government loans Conventional loans for PMT Non-delegated loans Total locks 9 (UPB in billions) Correspondent Volume and Mix Production Segment Highlights – Correspondent Channel (2) (3) (4) .. Correspondent acquisitions by P
Slide 10: Production Segment Highlights – Consumer Direct Channel
$0.9 $1.4 $2.0 $0.8 $1.0 $1.5 2Q18 1Q19 2Q19 Portfolio-sourced fundings Non-portfolio fundings Committed pipeline (UPB in billions) Consumer Direct Production Volume 10 Production Segment Highlights – Consumer Direct Channel (1) (1) Commitments to originate mortgage loans at specified terms at perio
Slide 11: Production Segment Highlights – Broker Direct Channel
$32 $121 $289 $30 $75 $153 $62 $196 $442 $38 $129 $249 2Q18 1Q19 2Q19 Conventional loans Government loans Committed pipeline 11 Production Segment Highlights – Broker Direct Channel Broker Direct Production Volume (UPB in millions) (1) (1) Commitments to originate mortgage loans at specified terms a
Slide 12: Servicing Segment Highlights
$324.7 $334.5 ($14.3) $24.1 At 3/31/19 Runoff Additions from loan production At 6/30/19 (1) 12 Servicing Segment Highlights (1) Owned portfolio in predominantly government-insured and guaranteed loans under the FHA (52%), VA (35%), and USDA (8%) programs (2) Represents PMT’s MSRs. Excludes distresse
Slide 13: Investment Management Segment Highlights
$1.55 $1.73 $1.94 6/30/2018 3/31/2019 6/30/2019 Investment Management Revenues (1) 13 (1) As of June 30, 2019 Investment Management Segment Highlights Investment Management AUM ($ in billions) .. Net assets under management as of June 30, 2019 were $1.9 billion, up 13% from March 31, 2019 .. As a re
Slide 14: MSR Valuation Changes and Offsets
14 MSR Valuation Changes and Offsets ($ 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 15: Servicing Profitability Excluding Valuation-Related Changes
15 (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 16: Appendix
Appendix PénnyMac’ Financial Services, Inc.
Slide 17: Mortgage industry governance and PFSI business lines
. 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 18: PennyMac Financial Is a Strong Independent Mortgage Company
Other Assets & Receivables $586 Loans eligible for repurchase $1,007 Servicing Advances $272 Cash & Short-term Investments $307 Mortgage Servicing Rights $2,720 Loans Held for Sale $3,506 Stockholders' Equity $1,779 Other Liabilities & Payables $854 Liability for loans eligible for repurchase $1,007
Slide 19: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
19 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 20: Industry-leading platform built organically
20 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 21: Why Are MSR Sales Occurring? How Do MSRs Come to Market?
21 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 22: PFSI and PMT MSR co-investment structure
22 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 23: MSR Asset Valuation
23 MSR Asset Valuation Note: Figures may not sum exactly due to rounding UPB $199,257 $21,443 $220,700 Weighted average coupon 3.98% 4.19% 4.00% Prepayment speed assumption (CPR) 13.5% 11.1% 13.3% Weighted average servicing fee rate 0.33% 0.34% 0.33% Fair value of MSR $2,446.6 $273.8 $2,720.3 As a m
Slide 24: Acquisitions and Originations by Product
24 Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Acquisitions and Originations by Product First Lien Acquisitions/Originations Second Lien Originations Unaudited ($ in millions) Correspondent Acquisitions Delegated Conventional Conforming 5,399 $ 7,50
Slide 25: Interest Rate Locks by Product
25 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 5,979 $ 8,392 $ 9,639 $ 8,974 $ 12,628 $ Delegated Government 10,082 9,146
Slide 26: Credit Characteristics by Acquisition / Origination Period
26 Credit Characteristics by Acquisition / Origination Period Correspondent Consumer Direct Broker Direct 2Q18 3Q18 4Q18 1Q19 2Q19 Government-insured 697 699 700 699 698 Conventional 748 748 751 750 755 Weighted Average FICO 2Q18 3Q18 4Q18 1Q19 2Q19 Government-insured 43 44 44 44 43 Conventional 37
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