Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — New PennyMac Financial Services — Q2 2018 Earnings Presentation
23 slides from Pennymac Financial Services's earnings presentation, Aug 2, 2018
Slide 1: 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 2: Second Quarter Highlights
Second Quarter Highlights 3 Pretax income was $74.7 million; diluted earnings per share were $0.70 Second quarter results reflect continued strong servicing segment results and a quarterly increase in earnings contribution from the production segment driven by higher volume Repurchased approximately
Slide 3: Second Quarter Highlights (continued)
Second Quarter Highlights (continued) 4 Investment Management segment pretax income was $1.1 million, up from $1.0 million in 1Q18 and down from $2.5 million in 2Q17 Net assets under management (AUM) were $1.5 billion, essentially unchanged from March 31, 2018 and down 3% from June 30, 2017 Notable
Slide 4: Mortgage market conditions
5 Average 30-year fixed rate mortgage(1) 4.55% 30-year fixed mortgage rates averaged 4.54% in 2Q18, up 26 basis points from the prior quarter The mortgage market is transitioning and remains competitive, with lenders managing capacity and production margin requirements Increase in bulk MSR portfolio
Slide 5: Outlook for PennyMac Financial
Outlook for PennyMac Financial 6 Origination market transition presents challenges and opportunities Heightened competition expected for the foreseeable future as originators adjust their operations and strategies to the current market environment More opportunities to acquire bulk MSR portfolios –
Slide 6: 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) 7 Trends in PennyMac Financial’s Businesses (1) Source: Inside Mortgage Finance and company estimates. Inside Mortgage Finance estimates total 2Q18
Slide 7: Correspondent Production Volume
8 (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) Includ
Slide 8: Consumer Direct Production Volume
Portfolio-sourced fundings Non-portfolio fundings Committed pipeline(1) (UPB in billions) Consumer 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 inco
Slide 9: 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 31% in 2Q18 for broker direct locks (3) As of March 31, 2018 and Ju
Slide 10: Loan Servicing Portfolio
(UPB in billions) Servicing portfolio totaled $263.5 billion in UPB at the end of the second quarter, up 3% from 1Q18 and 15% from 2Q17 Prepayment speeds increased modestly Q/Q, due to seasonally higher prepayment activity Remained significantly lower than 14.4% in 2Q17 After quarter end, we complet
Slide 11: Investment Management AUM and Highlights
12 ($ in billions) Net assets under management were $1.5 billion, essentially unchanged from March 31, 2018 Continued progress in liquidating PMT’s distressed portfolio, with the outstanding UPB decreasing 61% Y/Y Began deliveries to Fannie Mae under a new CRT REMIC structure, which offers significa
Slide 12: MSR Valuation Changes and Offsets
13 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 2Q18, MSR fair value increased primarily due to increasing mortgage rates, resulting in expectations for lower prep
Slide 13: Servicing segment results
14 (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 14: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes basis basis basis Sinmitions points _ Sin millons points” _Sin-milions points” ‘Operating revenue S335 SSeS t8 TT ‘Amortization and realzaton of MSR cash flows 655) (103) 12) @7) (652) (190) EBO-elated revenue” 325 60 482 17 454 69 Servicin
Slide 15: Mortgage industry requires effective governance, compliance and operating systems
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 positioned fo
Slide 16: Industry-leading platform built organically
17 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 and inv
Slide 17: Why Are MSR Sales Occurring?
18 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 time t
Slide 18: Excess servicing spread structure
19 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 cash fl
Slide 19: MSR Asset Valuation
20 MSR Asset Valuation Note: Figures may not sum exactly due to rounding UPB $153,661 $24,603 $178,264 Weighted average coupon 3.84% 4.17% 3.89% Prepayment speed assumption (CPR) 8.6% 9.5% 8.7% Weighted average servicing fee rate 0.31% 0.34% 0.32% Fair value of MSR $2,149.4 $336.8 $2,486.2 As a mult
Slide 20: Acquisitions and Originations by Product
21 Note: Figures may not sum exactly due to rounding Acquisitions and Originations by Product Unaudited ($ in millions) Correspondent Acquisitions Conventional 5,918 $ 6,530 $ 5,891 $ 4,226 $ 5,396 $ Government 10,392 10,873 9,505 8,830 9,546 Jumbo - - - - 8 Total 16,310 $ 17,403 $ 15,396 $ 13,056 $
Slide 21: Interest Rate Locks by Product
22 Note: Figures may not sum exactly due to rounding Interest Rate Locks by Product Unaudited ($ in millions) Correspondent Locks Conventional 7,022 $ 6,356 $ 6,293 $ 4,392 $ 6,091 $ Government 11,209 10,999 9,571 9,162 10,082 Jumbo - - - 13 59 Total 18,231 $ 17,356 $ 15,864 $ 13,567 $ 16,232 $ Cons
Slide 22: Credit Characteristics by Acquisition / Origination Period
23 Correspondent Consumer Direct Credit Characteristics by Acquisition / Origination Period 2Q17 3Q17 4Q17 1Q18 2Q18 Government-insured 694 693 693 697 697 Conventional 753 749 745 744 748 Weighted Average FICO 2Q17 3Q17 4Q17 1Q18 2Q18 Government-insured 690 692 695 697 709 Conventional 740 741 738
Slide 23: Credit Characteristics by Acquisition / Origination Period
Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO 2017 3017 4Q17 1018 2018 |Government-insured 694 693 693 697 697 (Conventional 753 749 745 744 748 Consumer Direct Weighted Average FICO 2017 3017 4Q17 1018 2018 |Government-insured 690 692 695 697 709 (Co
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