Investor Meeting Presentation May 19, 2016
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 operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like “believe,” “expect,” “anticipate,” “promise,” “plan,” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements. Actual results and operations for any future period may vary materially from those projected herein, from past results discussed herein, or from illustrative examples provided herein. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which the Company operates; lawsuits or governmental actions that may result from any noncompliance with the laws and regulations applicable to the Company’s businesses; the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau and its enforcement of these regulations; the Company’s dependence on U.S. government-sponsored entities and changes in their current roles or their guarantees or guidelines; changes to government mortgage modification programs; the licensing and operational requirements of states and other jurisdictions applicable to the Company’s businesses, to which the Company’s bank competitors are not subject; foreclosure delays and changes in foreclosure practices; certain banking regulations that may limit the Company’s business activities; the Company’s dependence on the multifamily and commercial real estate sectors for future originations of commercial mortgage loans and other commercial real estate related loans; changes in macroeconomic and U.S. real estate market conditions; difficulties inherent in growing loan production volume; difficulties inherent in adjusting the size of the Company’s operations to reflect changes in business levels; purchase opportunities for mortgage servicing rights and the Company’s success in winning bids; changes in prevailing interest rates; increases in loan delinquencies and defaults; the Company’s reliance on PennyMac Mortgage Investment Trust (NYSE: PMT) as a significant source of financing for, and revenue related to, the Company’s mortgage banking business; any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all; the Company’s obligation to indemnify third-party purchasers or repurchase loans if loans that it originates, acquires, services or assists in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances; the Company’s obligation to indemnify PMT and the Investment Funds if its services fail to meet certain criteria or characteristics or under other circumstances; decreases in the returns on the assets that the Company selects and manages for its clients, and the Company’s resulting management and incentive fees; the extensive amount of regulation applicable to the Company’s investment management segment; conflicts of interest in allocating the Company’s services and investment opportunities among itself and its advised entities; the effect of public opinion on the Company’s reputation; the Company’s recent growth; the Company’s ability to effectively identify, manage, monitor and mitigate financial risks; the Company’s initiation of new business activities or expansion of existing business activities; the Company’s ability to detect misconduct and fraud; and the Company’s ability to mitigate cybersecurity risks and cyber incidents. You should not place undue reliance on any forward-looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, and the statements made in this presentation are current as of the date of this presentation only. 2
Corporate Overview
PennyMac Financial Services Is a Leading Mortgage Specialist 2015 Revenue • Specialized mortgage platform designed for the post-crisis market Investment Management – Best-in-class operations developed organically – not through acquisitions 4% – Highly scalable to support continued growth Loan Loan • Publicly traded (NYSE: PFSI) with fully-diluted market cap of $1.0 billion (1) Production Servicing • Track record of steady growth in business volumes and profitability 28% 68% • Commitment to strong corporate governance and compliance culture • Synergistic partnership with PennyMac Mortgage Investment Trust (NYSE: PMT) Total Revenue = $713mm Loan Production Loan Servicing Investment Management • • • Source and securitize newly Collect and remit payments and Serve as external manager to pools originated loans via: provide borrower services on of capital that invest in mortgage- existing loans related assets: – Correspondent aggregation from – PMT approved third-party sellers – 3 rd • Major servicer for Fannie Mae, – Two private investment funds largest in the U.S. (after Wells Freddie Mac, and Ginnie Mae • Expertise to invest in distressed Fargo and Chase) (2) • Industry-leading capabilities in loans, mortgage servicing rights, – Consumer direct lending for home special servicing and credit risk transfer strategies purchase or refinance • • Total loan servicing of $165 billion Management agreements include • in UPB (4) – 11 th largest in the Total loan production of $48 billion performance-based fees (3) (4) in 2015 U.S. (5) • $1.6 billion in AUM (1) As of May 4, 2016; PFSI market capitalization includes the value of Private National Mortgage Acceptance Company, LLC units exchangeable into PFSI common stock (2) According to Inside Mortgage Finance for 2015 4 (3) Includes PMT loan acquisitions, for which PFSI earns a fulfillment fee upon loan funding (4) As of March 31, 2016 (5) According to Inside Mortgage Finance for Q1 2016
Strong Earnings and Book Value Growth Expected to Continue Earnings per Share Growth Drivers in 2016 • Increasing operating $2.17 Includes $(0.37) per share effect of non- margins and production $1.73 cash valuation losses on MSRs (2) volumes resulting from driven by a lower mortgage rates and significant decline in mortgage rates. capturing efficiencies $0.42 $0.82 $0.23 • Market share growth, N/A primarily in the consumer (1) 2012 2013 2014 2015 1Q15 1Q16 direct channel • Exit or retreat of certain Book Value per Share competitors $12.59 $12.32 $10.39 $9.92 • Continued dedication to risk $8.04 management and $7.27 disciplined pricing in a volatile market 6/30/13 12/31/13 12/31/14 12/31/15 3/31/15 3/31/16 (1) Represents partial year. PFSI completed its IPO on May 9 th , 2013 (2) Net of hedges and valuation gains on ESS liabilities, 5
Trends in PennyMac Financial’s Businesses Correspondent Production (1) Loan Servicing (1) Market Share Market Share 10% 1.8% 1.60% 1.65% 8.13% 7.99% 8% 1.5% 1.2% 6% 0.9% 4% 0.6% 2% 0.3% 0% 0.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Consumer Direct Production (1) Investment Management Market Share AUM (billions) 0.80% $2.5 $2.0 $1.73 $1.62 0.60% 0.54% 0.46% $1.5 0.40% $1.0 0.20% $0.5 0.00% $0.0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 (1) Source: Inside Mortgage Finance and company estimates. Inside Mortgage Finance estimates total 1Q16 origination market of $380 billion. Correspondent production share estimate is based on PFSI and PMT acquisition volume of $9.7 billion divided by $121 billion for the correspondent market (estimated to be 32% of total origination market). Consumer direct production share is based on consumer direct originations of $1.2 billion divided by $222 billion for the retail market (estimated to be 58% of total origination market). Loan servicing 6 market share is based on PFSI’s servicing UPB of $164.9 billion divided by $10.0 trillion in mortgage debt outstanding as of December 31, 2015.
Production Income Growth Driven by Higher Margin Consumer Direct Channel Production Pretax Income Consumer Direct Production Volume ($ in millions) ($ in billions) $80 $2.5 $2.2 $68 +36% $2.0 $1.8 $60 $50 $1.5 $1.2 $40 $1.0 $1.0 $20 $0.5 $0 $0.0 4Q15 1Q16 4Q15 1Q16 Fundings Locks Pretax income Investments in fulfillment capacity and strategic initiatives to improve portfolio recapture are driving higher consumer direct volumes 7
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