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 2016
Slide 1: Investor Presentation May 2016
Investor Presentation May 2016
Slide 2: Disclaimer
Disclaimer 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 o
Slide 3: Transaction Overview
Transaction Overview Vs om ° PennyMac 3 Financial Services, Inc.
Slide 4: Indicative Term Sheet
Indicative Term Sheet Summary of indicative terms 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 $50 million of borrowings under revol
Slide 5: Sources and Uses and Pro Forma Capitalization
Sources and Uses and Pro Forma Capitalization ($ in millions) Sources and Uses Sources Uses Senior unsecured notes $300 Cash to balance sheet $243 Repay outstanding revolver borrowings 50 Estimated transaction fees and expenses 7 Total sources $300 Total uses $300 Existing and Pro Forma Capitalizati
Slide 6: 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 • Mem
Slide 7: PennyMac Financial Services Is a Leading Mortgage Specialist
PennyMac Financial Services Is a Leading Mortgage Specialist 2015 Revenue • Specialized mortgage platform designed for the post-crisis market Investment – Best-in-class operations developed organically – not through acquisitions Management 4% – Highly scalable to support continued growth Loan Loan •
Slide 8: PennyMac Is a Leader in Mortgage Origination and Servicing
PennyMac Is a Leader in Mortgage Origination and Servicing Balanced business model as a top originator and servicer: 6th Largest Originator Overall(1) 3rd Largest Correspondent Aggregator(2) 11th Largest Servicer(1) Top Originators – Q1 2016(1) Top Servicers – Q1 2016(1) Rank Institution $Bn Market
Slide 9: PennyMac Has a Record of Strong and Growing Income & Adjusted EBITDA
PennyMac Has a Record of Strong and Growing Income & Adjusted EBITDA Pre-tax Income, Adjusted EBITDA(1) & Adjusted EBITDA Margin(1) ($ in millions) $308 $311 150% 300 $279 130% $256 250 $223 110% $204 200 $192 $182 90% 150 $142 70% $118 54% 50% 39% 43% 50% 100 43% 30% 50 10% 0 -10% 2012 2013 2014 20
Slide 10: PennyMac Has Consistently Delivered Strong Financial Results
PennyMac Has Consistently Delivered Strong Financial Results Pre-Tax Return on Equity(1) Q1 2016 LTM 26.0% Our strong performance has been attributable to the considerable investments we have made in our industry-leading capabilities including: -5.1% -27.8% -20.2% • Best-in-class operating platform
Slide 11: PennyMac's Business Model Is Distinct From Other Mortgage Specialists
PennyMac’s Business Model Is Distinct From Other Mortgage Specialists Production-Driven Acquisition-Oriented Market Cap: $1.0B(1) Private $660M $1.3B $167M $260M • Largest non-bank • Second largest • White-label • Call-center based • Correspondent • Limited correspondent retail originator, productio
Slide 12: PennyMac's Foundation Is Built on Organic Growth
PennyMac’s Foundation Is Built on Organic Growth Portfolio Additions (UPB in billions): $0 $50 $100 $150 $200 $250 $300 $350 $400 2015 • We have grown our servicing 2014 portfolio primarily through organic loan production, supplemented by 2013 limited MSR acquisitions and the 2012 acquisition of who
Slide 13: Organic Development in a Sustainable Manner for Long-Term Growth
Organic Development in a Sustainable Manner for Long-Term Growth 2015 • Disciplined growth to address the demands of the GSEs, Agencies, regulators and our • Consumer direct financing partners production exceeds 2014 $4 billion - Since inception, PennyMac has focused on building and testing processe
Slide 14: Technology Is a Key Element of PFSI's Leading 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
Slide 15: Key Credit Highlights
Key Credit Highlights • Significant opportunity in the mortgage production and servicing markets for a non-bank specialist Industry-Leading Platform 1 • Best-in-class operating platform built organically through disciplined, sustainable growth for Market Opportunity • Not distracted by legacy / regu
Slide 16: Significant Market Opportunity and Role for a Non-Bank Mortgage Leader
1 Significant Market Opportunity and Role for a Non-Bank Mortgage Leader Share of Total U.S. Mortgage • Banks have retreated from the mortgage Production Market market mainly due to regulatory scrutiny, higher capital requirements, and a greater focus on core customers and businesses Top 5 Banks(1)
Slide 17: Purchase vs. Refinance Origination Markets
1 Purchase vs. Refinance Origination Markets Purchase Originations Refinance Originations (64% of PennyMac’s 2015 loan production) (36% of PennyMac’s 2015 loan production) • Purchase originations have historically been • Refinance originations have historically been more stable and have a natural “f
Slide 18: PennyMac's Platform Is Uniquely Positioned Among Mortgage Specialists
1 PennyMac’s Platform Is Uniquely Positioned Among Mortgage Specialists Loan fulfillment systems, operations, and in-line quality assurance Loan production Correspondent counterparty review and management Consumer direct marketing and lead maximization/optimization Credit policies Underwri
Slide 19: PennyMac Has Complementary Businesses & Capabilities
2 PennyMac Has Complementary Businesses & Capabilities • Loan production drives organic growth of the servicing portfolio – $48 billion in new • Loan origination capabilities (e.g., recapture servicing / subservicing in 2015 alone of MSRs, refinance and purchase facilitation • Retail lending “recapt
Slide 20: Loan Production Overview
2 Loan Production Overview Loan production is presently conducted via two channels: Correspondent Consumer Direct Newly originated loans acquired by PMT from approved correspondent sellers PennyMac originates new loans for consumers through its consumer direct for inclusion in Fannie Mae, Freddie Ma
Slide 21: Loan Servicing Overview
2 Loan Servicing Overview • PennyMac performs servicing both as the owner Servicing UPB over time of MSRs and on behalf of other MSR or mortgage ($ in billions) Prime owned owners $165 Prime subserviced $160 Prime servicing and sub-servicing for Special conventional and government-insured or $106
Slide 22: Investment Management Overview
2 Investment Management Overview • SEC registered investment adviser • Approximately $1.6 billion(1) in combined Investment Management Revenues ($ in millions) assets under management across three vehicles: Carried Interest & Incentive Fees PennyMac Mortgage Investment Base Management Fees & Other
Slide 23: Diversified Business Model Enables Revenue Growth Across Market Environments
2 Diversified Business Model Enables Revenue Growth Across Market Environments Net Revenue 3.0% ($ in millions) $713 $716 2.6% $518 2.2% $387 $265 1.8% 1.4% 2012 2013 2014 2015 Q1 2016 LTM Loan Production Loan Servicing Investment Management 10-year Treasury Yield 23
Slide 24: Financial Hedging Approach Moderates PennyMac's Interest Rate Risk
2 Financial Hedging Approach Moderates PennyMac’s Interest Rate Risk • In addition to the natural hedge from our significant businesses in production and servicing, PennyMac uses a comprehensive financial hedge strategy in order to: “Lock in” margins from application/lock to loan sale in the produ
Slide 25: PennyMac Has a Record of Strong and Growing Income & Adjusted EBITDA
3 PennyMac Has a Record of Strong and Growing Income & Adjusted EBITDA Pre-tax Income, Adjusted EBITDA(1) & Adjusted EBITDA Margin(1) ($ in millions) $308 $311 150% 300 $279 130% $256 250 $223 110% $204 200 $192 $182 90% 150 $142 70% $118 54% 50% 39% 43% 50% 100 43% 30% 50 10% 0 -10% 2012 2013 2014
Slide 26: Strong Balance Sheet with Limited Corporate Debt and Substantial Equity
4 Strong Balance Sheet with Limited Corporate Debt and Substantial Equity As of March 31, 2016 ($ in millions) $3,981 $3,981 Funding debt for newly originated loans – held for days before sale or delivery into GSE or Ginnie Mae securities Warehouse Counterparties include: Bank of Mortgage Loans Fina
Slide 27: Established Capital Partner in PMT
5 Established Capital Partner in PMT (NYSE: PFSI) (NYSE: PMT) Mortgage banking and warehouse services agreement Tax-Efficient Investment Vehicle • PennyMac is paid a fulfillment fee on conventional loans purchased by Market Capitalization: $905 million(1) PMT, calculated as a percentage of the UPB
Slide 28: Partnership with PMT Generates Stable and Recurring Fee Income
5 Partnership with PMT Generates Stable and Recurring Fee Income • PennyMac generates a substantial PFSI Revenues Attributable to Partnership with PMT portion of its income from fee-based ($ in millions) arrangements with PMT Management Fees Servicing fees Fulfillment fees • Relative to traditional
Slide 29: Governance of Relationship With PMT
5 Governance of Relationship With PMT • 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 Com
Slide 30: Seasoned Leadership and Deep Management Team
6 Seasoned Leadership and Deep Management Team (Years at PennyMac, in Industry) Stan Kurland (8, 40) Chairman & Chief Executive Officer 50 senior-most executives have on average David Spector (8, 31) EMD, President & Chief Operations Officer 25 years of relevant industry experience Dan Perotti (7, 1
Slide 31: Financial Highlights
Financial Highlights om ° PennyMac a1 Financial Services, Inc.
Slide 32: Historical Financial Results
Historical Financial Results Net Revenues Pre-Tax Income ($ in millions) ($ in millions) $713 $716 $279 $256 $223 $518 $182 $387 $265 $118 2012 2013 2014 2015 Q1 2016 2012 2013 2014 2015 Q1 2016 LTM LTM Adjusted EBITDA(1) Diluted Earnings per Share ($ in millions) $308 $311 $2.17 $1.98 $204 $1.73 $1
Slide 33: Balance Sheet Composition
Balance Sheet Composition • A substantial portion of PennyMac’s assets are comprised of • Our current financing consists of warehouse lines for loan mortgage loans held for sale, which represents the inventory of loans production (repurchase and participation & sale agreements), a acquired/originate
Slide 34: Conservative Leverage and Significant Access to Liquidity
Conservative Leverage and Significant Access to Liquidity Leverage (Total Debt-to-Equity) Credit Facilities as of 3/31/2016 ($ in millions) Outstanding indebtedness Unused/undrawn capacity $492 $469 $407 $247 2.2x 1.7x 1.6x 1.8x $162 $150 1.1x $100 $100 2012 2013 2014 2015 Q1 2016 Syndicated Revolvi
Slide 35: Key Investment Highlights
Key Investment Highlights Industry-Leading Platform for Market Opportunity Diversified Business Model High Operating Margins and Consistent Profitability Strong Balance Sheet with Diverse Funding Sources Established Capital Partner in PMT Seasoned Leadership and Deep Management Team 35
Slide 36: Appendix
Appendix om ° PennyMac 36 Financial Services, Inc.
Slide 37: Income Statement Trends
Income Statement Trends PennyMac Financial Services, Inc. For the Year Ended December 31, LTM ($ 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 91
Slide 38: Balance Sheet Trends
Balance Sheet Trends 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 1,101,20
Slide 39: Correspondent Production – Conventional Loan Mechanics & Economics
Correspondent Production – Conventional Loan Mechanics & Economics Correspondent Conventional Lending Mechanics Correspondent sellers Pools and sells originate and close new conventional loans loans for home purchase or PMT acquires newly- Fannie Mae refinance originated loans Receives MBS Freddie M
Slide 40: Correspondent Production – Government Loan Mechanics & Economics
PLS • PLS provides loan subservicing and earns fees Correspondent Production – Government Loan Mechanics & Economics Correspondent Government Lending Mechanics Correspondent Pools and delivers sellers originate and government-insured close new loans for loans home purchase or PMT acquires newly- Gov
Slide 41: Consumer Direct Production – Loan Mechanics & Economics
Consumer Direct Production – Loan Mechanics & Economics Pools and sells / delivers loans PLS originates and closes new government-insured or Fannie Mae conventional loan for home purchase or refinance Freddie Mac Receives MBS Ginnie Mae Borrowers PLS Sells MBS $ Broker / Dealer Earns a gain or loss
Slide 42: Servicing Segment Economics
Servicing Segment Economics LTM 3/31/16 basis $ in thousands points(1) Operating revenue $ 425,362 29.1 • Pre-tax servicing operating income Amortization and realization of MSR cash flows (170,077) (11.6) reflects core operating economics Direct servicing expenses: Operating expenses (163,376) (11.2
Slide 43: Adjusted EBITDA & Adjusted Cashflow Reconciliation
Adjusted EBITDA & Adjusted Cashflow Reconciliation PennyMac Financial Services, Inc. For the Year Ended December 31, LTM ($ in thousands) 2012 2013 2014 2015 3/31/2016 Net income attributable to PFSI common stockholders N/A $ 14,400 $ 36,842 $ 47,228 $ 43,375 Net income attributable to noncontrollin
Slide 44: Adjusted EBITDA & Adjusted Cashflow by Segment – Q1 2016
Adjusted EBITDA & Adjusted Cashflow by Segment – Q1 2016 Q1 2016 PennyMac Financial Services, Inc. Investment Non-Segment ($ in thousands) Production Servicing Management Activities Total Net income attributable to PFSI common stockholders $ 5,175 Net income attributable to noncontrolling interest 2
Slide 45: High-Quality Servicing – CFPB Complaints vs. Other Leading Servicers
High-Quality Servicing – CFPB Complaints vs. Other Leading Servicers Number of mortgage-related complaints filed with the CFPB in Q4 2015 (Per 100,000 loans serviced) Non-bank specialists Bank 57.5 38.0 31.0 23.9 15.1 10.7 10.9 11.4 PennyMac Chase Wells Fargo Citi Walter BofA Nationstar Ocwen Note:
Slide 46: 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 c
Slide 47: Early Buy-Outs (EBOs) from Pools Serviced for Ginnie Mae
Early Buy-Outs (EBOs) from Pools Serviced for Ginnie Mae Interest cost for defaulted loans • PennyMac has an EBO program for – illustrative example only defaulted loans (90+ days delinquent) in Ginnie Mae pools, as is customary for well- capitalized servicers 4.2% • Economic benefit of EBO is reduce
PennyMac Financial Services — Debt Investor Presentation (May 2016) on 6ix