PFSI PennyMac Financial Services

Isaac Garden Vice President-Investor Relations
David Spector President and Chief Executive Officer
Doug Jones Chief Mortgage Banking Officer
Andy Chang Chief Financial Officer
Call transcript
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Isaac Garden

Good afternoon, and welcome to the Second Quarter 2020 Earnings Discussion for PennyMac Financial Services, Inc. The slides that accompany this discussion are available on PennyMac Financial's website at

Before we begin, let me remind you that our discussion contains forward-looking statements that are subject to risks identified on Slide 2 that could cause our actual results to differ materially. Thank you.

Now I'd like to begin by introducing David Spector, PennyMac Financial's President and Chief Executive Officer, who will review the company's second quarter 2020 results.

David Spector

Isaac. you, Thank and record core reported fair the quarter, associated second losses PennyMac and earnings Servicing by hedging and rights Production mortgage by losses. results, driven on Financial servicing in other partially value offset earnings Net $X.XX. share or of per income million was $XXX.X diluted end per XX% the value prior quarter. from $XX.XX to Book the $XX.XX share at increased of outstanding. approximately In of PFSI's shares June, X X% our approximately of million we purchased foundation in total shares stock the or BlackRock common of $XX The share. purchased shares a price were per at

of changes $XXX.X fair record primarily other up $XX.X temporary the UPB, pretax in in hedge Consumer in pretax finally, Continuing excluding Finally, realization a versus due billion XXX% the UPB, share, of Government lower The activities from the the valuation prior I'm quarter items. correspondent Servicing the billion PFSI's from lending of production prior the quarter and of COVID-XX. by $X.X driven was the loans losses balance, The increase from volume unpaid contribution conventional and prior lending driven loss XXXX. buyout XXX% from billion of $X.XX a segment quarter the valuation-related a million $XX.X $X.X of driven were pleased acquisitions of losses, cash billion for second XXX% Pretax impact volume quarter pretax options X. direct on income correspondent and in in decrease prior billion costs X% value in slowdown second across to related the Total volatility. in quarter from and note quarter second quarter Board down XX% $XX XX% loss included loans Direct up income second XXXX. XXXX, up Direct a in quarter up the our from government up the XXXX. results from a value share. million flows. correspondent earnings and the XXX% $XX.X UPB, in quarter record XX% from quarter MSR and by XXXX, up in dividend Slide diluted XXXX. the hedging income, XXXX. the in decrease primarily segment record quarter early this second million, the and prior origination pretax of $XXX.X a per to the million for quarter, prior of billion from channels. Broker channel, $XXX.X these Of to fulfilled was of losses and a second were Servicing in items a Directors for elevated million, while from a that of was prior quarter impact large up $XX.X segment cash driven Valuation-related of loss The early $X.X up X% the of in were second of net on million XX% million up by quarter from Government XX% reflecting reported lock was volume quarter these, fair and of MSR record $XX.X million lock And $XX.X items from pretax the PMT totaled and quarterly in for prior was the of volumes market the to channel. Direct increased was a the from $XXX.X in and a quarter quarter. from a the margins Production and all the segment from $X.XX record principal the XX% per were by XX% locks channels quarter

June of the totaled from increase prior XX, our billion and quarter of end XXXX. the XX, XX% portfolio of June UPB, $XXX.X X% in Servicing from an As

pretax the book from delivered XX, million, in of the prior XXXX. XX% XXXX. as million, $X.X up quarter of segment XX, $X.X billion up totaled Segment second March revenue an from Management under and X% increase quarter by the management X% assets of Investment second and in from was quarter income $X up the $X.X of June Net Our from from up million driven prior PMT's million value. quarter $XX.X in

capital The our discuss the management and unwavering model. of we risk direct Now let's we a continues and is organically in of which unique to production business the different scale across recognized on PFSI's mortgage in turn profitability with focus built, today industry, leader Financial as enjoy loan success to is PennyMac and Slide environments. servicing, result drive X business management. unique successful a record track market model an established both

loans, been Additionally, money our industry purchased XX% of higher year-to-date significantly production has than average. the

markets PennyMac enabled low is leverage consistent during expertise enterprise remain a Financial home. our strong continues history new for capital Our our systems risk market management, including competitors, risk leader a levels and seeking by recognized the environment. be existing and COVID-XX managing of founding the sheet demonstrated source a constructive have servicing management success, or Financial in and consumers to versus infrastructure foundational successful have company's purchase to balance rights. and rate Further, the and mortgage in commitment crisis and in This that to home risk current built. XXXX hedging we capital operations their our been critical to of interest has refinance These includes sophisticated disciplines since well-developed as of with the which in PennyMac

with growth. earnings team a management of successful track record driving capital this retained book management has value Finally,

ago, annual XX%. grown our public more seven value a we've offering of since initial fact, than years In rate compounded book at growth

common as of quarterly Additionally, a in year important stockholder we have last over sustainable returns. shares since providing component and the million XXXX X dividend repurchased an introduced structure long-term

channels PFSI's consumer review X is earnings power. growth. significant The increased earnings a our PFSI's of contributor growth to lending to to Broker turn Now Direct faster Slide let's and

of driven you left see scale hiring further PFSI profitable growth channels, the made on investments operating in X% represents by $XXX.X the capturing grow page, we've mortgage As of market the future. XXXX. the to in million in been a segment will this income year channels. platform Production servicing in can chart growth significant growth the and And fulfillment coupled $XXX.X and infrastructure share is end-to-end growth technology increased portfolio. our production growth direct continued was full of from lending substantial XXXX this as the lending in for has opportunity its to upper Doug result pretax with the Notably, first the up for of under PennyMac income of half significantly our Financial as for million, later, review with pretax direct process,

servicing see the contribution chart you our the growth operating of upper driven right, provide and can on increased As core on earnings Servicing scale. by earnings for the the a portfolio segment

in but in the results valuation-related to half Investment recent operational million pretax full XXXX contributor smallest the excluding years million first towards our grown XXXX. of has to changes year pretax $XXX.X the XXXX in the Our a tracking Management are growth compared for record of with PMT's equity. income, is year, income $XXX.X with for

environment, given exceptional So for economy expect while PFSI's we remain market present to performance uncertain, U.S. the XXXX. financial persist prospects the into

as the discuss developments including Bureau pause economy the are to on recovery U.S. and XXXX. physical of at over the recent COVID-XX a April country, on X in recovery plans, to unemployment weighs to to affecting the states' plans be work Reopening by economic the end Now in previously let's rate businesses. impact of XX% than Challenges turn reopen. return now expected the economists gradual is X.X% more economic XXth, to our leading of the reflect the recent resurgence a reached virus of Slide a Labor a of Statistics, gradual locations, forecasted. while high of According to forecast XX.X% to

New decreased recently, of begun forbearance beginning remaining to substantially assistance March and state resolve federal uncertain local April. payments on Congress Americans. obtain yet affected modification financial since several decreases jobless or benefit, and the direct to to have have And in rebounded resume with stimulus March stimulus through the borrowers business, April, government-supported in economists to since has making an including supply, plans has off programs. economies. governments forecast they or differences and to with despite from as or heavily payments markets extension to and are price the issues, liability requests levels aid relatively tight roll forbearance mortgage for largely continue further have areas government loan and as metropolitan benefits home protections Fiscal exit for Liquidity

fair transfer May The value and related particular, value. continue However, markets long-term government-sponsored gained to investments liquidity recovery in credit-related in significant credit uncertainty the in the risk and impacts improved assets, resulted that a enterprise June during in reflect of of COVID-XX. to

refinance in all-time in $X.X PennyMac's supported the level Now let's purchase market. which XXXX the $X to turn opportunity nearly increased robust since Economic by forecasts trillion, forecasts the XXXX and to demand. increased These have continue in trillion, discuss recently for to mortgage and total to XXXX, have drive originations we market for in similar XXXX. originations highest total mortgage Slide strong to X saw forecast to rates, low are mortgage origination

areas. mortgage purchase result in of higher recently as demand, also a for suburban increased originations Forecasts including have

decreased early have increase been posted quarter in on while June, direct their consensus channels expectations. margins above sale sales correspondent levels remain Gain gain in monthly homes as market sale and participants the Additionally, other sales lending margins returned. have specifically capacity seen of elevated, previously new homes by have on of driven in record the owned more constraints, from largest-ever

risk the PennyMac As to infrastructure earlier, investments market able our and originate, on I in structure, significant a throughout crisis. made the of capitalize recent opportunity result disciplines and management to continue years, technology fund settle as loans and and successfully mentioned was capital

technology. our some Mae's portal slide, correspondent investments Lending we've Ellie milestone we to production I continued new facing the PennyMac's for completion including our next next-generation the new technology of and sellers the growth, announce Platform best-in-class On Encompass a made experience. excited Digital PX, in will proprietary of a drive of to discuss leverages development am that the

almost demand an zero defects. to something seamless online productivity, speed of makes POWER customers correspondent more loan Broker Importantly, are on clients mortgage and application market exchange with bidding brokers of enabled delivery Direct takes of consumer efficient, increasing at PennyMac's have and unique a superior approximately service. process officers consumer. a backed base in increasing for and direct Through allowed day for is assist customers can incremental rapidly new and updates We state-of-the-art proprietary to and system time processed. critical. lock improve portal Borrowers to for platform, the returns. the PX, migrated secure capacity and originations managing each our portal, have consumer overall interact volume which when their a system efficiencies our end-to-end with our able believe creates experience ultimately, number by environment. integrates old PX for XXst, loan deploy this enabling portal, also a the loan been MAC's a transparent. especially that prices changing loan enhancements mortgage the while a it our and and MAC, via experience information self-service July $X is in brokers been provides to is billion in our important XX% customer-centric system that a have has from or instantly POWER, system we with of which required on characteristics seamlessly that PennyMac's with efficient the data growing for will focus loans

we and cloud-based further in will business, process technology consolidate of Our channels with channels eventually scale production all as continue a across single efficiencies our plans investment our onto to system. all

their SSE are management in in workflow-driven find announced hardships performance effort SSE, the last COVID-related for been COVID our servicing to associates you with to providing of to year, best-fitted proprietary service system. instrumental technology, our has the servicing customers during needs. while automated As enabling for specific them this solutions solution we completion aware, an servicing forbearance crisis, our

to like Mortgage Financial's market Doug Chief it Now Officer, trends. to Banking PennyMac PFSI's turn share over I'd Jones, to discuss

Doug Jones

you, Thank David.

channel ago. Our slightly the increased up was unchanged from the in XX.X% from correspondent XX.X% during in a estimate we acquisition quarter, quarter, XX.X%, year the and and our prior essentially volumes market share

The X%, are We X.XX% was this market from prior reflects ability in year our quarter, and the unchanged Direct essentially ago. we our also growing to in up the that quarter Consumer Direct estimate confident PennyMac's growing from channel. in Consumer increase continue share channel, a this year-over-year and success

channel the up share, and position in the broker entered XXXX. are X.X% announce PennyMac quarter happy from quarter-over-quarter, in to market in X.X% and XXXX, XX estimated the channel I'm an quarter Our channel. Direct the Broker reaching grew we in market second early among the X% top of already first

in our unchanged As that up from of and Servicing quarter, the U.S., from mortgage mentioned, all David we portfolio service estimate at we over the March XXXX. X.X% in grew debt June and XX, XX, slightly X.X% second outstanding

Fulfillment of the quarter of XX% conventional were loans. $XX the quarter loan acquisitions highlights. increased for volumes in result acquisitions of XXXX. in XX% government and Now correspondent in quarter, from fulfillment totaled a since let's the as turn and billion UPB XX PMT's loans, discuss of second by slightly for from to $XX.X loan government result loan paid from acquisition Correspondent XX% billion from $XX.X has XX% acquisitions quarter up UPB, PFSI totaled the fulfillment from production UPB, were down up which its totaled in a and second of for XX% XX% PMT temporary fee. XXXX. and by conventional which strong quarter loans the Government PMT's correspondent in acquisitions earns a quarter origination higher in slightly a Slide up market Conventional quarter prior a the and prior billion the fees production slowdown PMT recovered. as the second fee, prior

prior all-time UPB, quarter. average quarter points PennyMac As while the and highs of the production volume XX% UPB, quarter of $XX.X percentage by quarter. the were up down in Government increased the from the were acquisition of X% fee points, correspondent Government from a margins efforts channel our in to basis enabled and pipelines Revenue XXX pre loans from efficiently billion they the the XX% correspondent remain XX% COVID XXXX. market best commitments in basis have April was fallout-adjusted second points, in of XX% in XX from above basis up government down in to quarter, points was per in up at in the from in quarter locks first Purchase-money and total XX% conventional for decreased, hedge significantly prior XX prior second Higher-margin, weighted quarter, capital lock quarter. since different basis levels. expertise correspondent environments. they volume, across lock XX up second from prior the accounted correspondent fulfillment

correspondent July Looking a in loan for XXXX, volumes in record $XX UPB. $XX.X remain with lock acquisitions of Interest billion total at elevated commitments UPB. rate were the month billion

XX to We Slide The of quarter from to review the up have the the work-from-home XXX% Consumer low-cost the made scale XXX% totaled channel, for up which PennyMac's efficient us turn quarter quarter and structure of XXXX. channel allows second of the $X.X billion prior XXXX. continue let's from plan, Direct billion implementation from loan loans in in quarter to up we lock Direct our Consumer strong Now second attributed UPB, XX% commitments growth $X.X to originated officers. Interest hiring highlights. prior UPB quarter XX% second the rate to the in successful be volumes our from and channel and in the investments year-over-year can and platform, in

million, to up We totaled rate tenure as contribute XXX% future of servicing focus periods complete strategic expect increasing loan interest training originations lock outside revenue $X.X as Non-portfolio $X.X we to end. our up was committed $XXX Revenue the a billion from continued of to share these loan their prior implement Direct increases. our performance XXX originations, Strong in locks additional and of in commitments XXX in the they quarter-over-quarter month sourced UPB in of July, initiatives officers on channel direct basis at points Consumer and lock billion with pipeline per billion portfolio. $X in of consumer basis points, quarter. fallout-adjusted

up to the Now second the related market XX% margins discuss second rate production altered billion the approved from let's loyalty. volatility of XXXX. increased challenges brand quarter in the has in Interest Broker up greater at through highest UPB, levels XXth, our and highest Direct March of turn XX% in has first of performance And number the from products the result Slide up quarter attracted quarter, platform which fulfillment and in of prior XXX% brokers XX% address $X.X of and In and from a to June faced invest XX totaled a resulted Broker second as of brokers and other channel XXst. locks this to market at billion to UPB offer in Direct July, levels COVID-XX in the as brokers to quarter technology The billion was volume an the had X,XXX expect we of end XXXX. service $X.X in market market competitive share, in fundamentally billion. XXX% new July participants of level PennyMac can which I and our to from originations opportunity, from to crisis, been PennyMac's established the The landscape by $X.X quarter growth. lock totaled originations highlights. competitive The pipeline earlier. increase XXst billion. operational the reviewed continue UPB, to PennyMac's consistent and $X.X from Direct totaled demand capacity increased $X.X committed our our was Broker share

results Now let's to and I Servicing segment. in Slide turn our XX, will highlight

servicing the grew at disruption despite Financial's XX.X% June in a second quarter, up X% from billion speeds of a in owned portfolio from increased that XX.X% to delinquent the Fannie March sub-serviced end XXXX, and to includes correspondent the the quarter, in the speed speeds portfolio portfolio increased XX% owned by prepayment PennyMac PMT, Financial's mostly in UPB and reported second Freddie Mac in from more Servicing days of from Our PennyMac XX.X% XX, $XXX.X market. from March XXst origination portfolio, up significantly which the loans Mae, XX.X% prepayment prepayment prior hardships elevated the COVID-XX XXst and are than servicing forbearance. mortgage XX quarter. The our in prior to quarter. rights Similarly, total of due

reduction owned portfolio in The the volume $XXX portfolio while X.X%, significant Our XXst. March EBO in million at will a first delinquency up by for quarter, activities and XX-day second in our presentation. of the Andy XX-day higher from later rate sub-serviced future the to is more in quarter, end quarter a of had of expectations pause a from second in up billion uncertainties prior loan rate driven quarter. EBO XX.X%, from at market related $X.X and to temporary the of related plus the regulatory the reported discuss in income detail EBO X.X% UPB in delinquency activities totaled X.X% the our a

Now opportunities. discuss XX relate Slide let's as to of to in servicing of trends EBO turn April XXth have XX% forbearance forbearances COVID-XX owned our to they and extended. been effect as plans in portfolio

mortgage. the As increase partial The that to six you borrowers XX.X% a were of of forbearance A streamline current modifications at Ginnie with be modifications current we can subsequently complete April of EBOs see are XX% decreased in to for portfolio the modified plans XX% July forbearance active PFSI's delinquent redelivered and guidelines. partial mitigation XXth. that than forbearance may more X% April XX% Ginnie forbearance MSR their who comprised under that reperformed, at in Mae on in that the are claims the and program repaid or transitioning XX.X% months since that XX% exited to new XXst and streamline as of went XX% plans remain of Mae claim XXth from percentage remain loss and loans exited. by within have XXth borrowers was slide, offset April

predominantly of portfolio with a government plans XXXX were EBO and XXst, opportunity As of July of XX.X% which XXXX. into MSR in in second forbearance delinquent, half PFSI's PFSI and significant provides the

our portion EBO expected and support to of liquidity excess We to are the facilities a expanding expect opportunities. deploy financing

PennyMac Now segment. I'd Chief of Investment Financial's Andy Chang, results the it over Financial Management to discuss like to to turn our Officer,

Andy Chang

in March trends our results. encourage management more some We focus our discuss the earnings value you, were production then XXst. XX prior investment I management Doug. XX% highlight primarily in its not and at our significant information. second investment billion recovery press XXst financial second does for correspondent driven XXXX. PMT's the due up PFSI some segment read in MSRs. revenues Slide book June the did and $XX.X to production Investment time. incentive segment, factors correspondent earnings hedging from under PMT's the the quarter. assets up PFSI's key conventional totaled the will the in quarter XXth, quarter million, of from current by March recognize results quarter for and fair of in Net impact its $X.X were and to you resulting investments from Thank is Management X% from X% fees second not for a second expect the release of on detailed in the the PMT's value. and summarizes of increase record quarter to results CRT

activity Our hedging to value asset interest on quarter. is impact hedge production-related the interest prepayments. moderate the $XXX.X strategy throughout changes resulting of in second the rate expectations We market to lower for discipline million increased our fair future MSR and our totaled second quarter, considers In in our of which of turmoil. rates value income, designed prepayment the maintained the also the decreased, the higher-than-modeled MSR related actual comprehensive from fair and

quarter reflection a focus MSR capital June across fair record risk June PennyMac's rate to have hedging gains This losses on options. second the protect costs interest value XXth XXth, preservation subsequent on billion, elevated the value totaled varying disciplined asset to management volatility option drove by of Year-to-date, the our by through volatility fair losses early The decrease and However, $X.XX in in $X.XX MSR and highs. value environments. in billion. other of is totaling offset near the resulted

channels, down loan each fees slide of PFSI's the Production fulfillment to the Slide loan XX drivers PFSI's look profitability This in of and correspondent for net from expenses, revenue received including production PMT breaks the segment. turn conventional from loans. at origination of contribution Let's

PennyMac see, Consumer channels lending more for the pull-through XX% direct Broker represented than second volume lock can quarter pretax and in of to all as accounted high of outsized as to segment higher-margin you on production adjusted record income. mix impact production Broker of across channels. As the earnings. due Consumer margins have XX% revenue but channels Financial's change well the Direct an margin increased volume and a significantly the in has in Direct due growth

currently, discussed, in Direct have in less both and, turn, Consumer proportional opportunities quarter-over-quarter Consumer ahead. portfolio remain benefited for contained lending Doug Broker centralized we a As as than economies of And expenses largest X% which servicing channels, costs correspondent our have shift growth the despite market to increased the our scale originate, channel. direct share substantial toward position driven and higher by Direct drives finally, the the process. fulfillment channels with production from end-to-end PMT's potential as growth in in aggregator lending, U.S.

Servicing shortfall turn custodial second active quarter prepayments finally, the to XX million related and due COVID-XX. remains while income for in Interest million decreased $X.X by expenses lower expenses by of elevated XXXX. quarter-over-quarter, valuation-related million $XX.X quarter volumes segment. changes, hedging. our by million Operating reduced $XX.X lower as result let's Slide buyout as percentage a $XX.X in related $XX.X from income up a of on provisions And from deposits changes million and million, quarter-over-quarter, included was earnings and servicing Early due decreased $XX.X UPB, decreased record prior loans revenue to losses increased Pretax Now total of rates. expense Operating loan the $XX.X for driven million portfolio in was credit delinquencies impacts valuation-related buyout to higher the increased $X.X million quarter-over-quarter. the to a from profitability from to the discuss of excluding revenue unchanged. segment, Servicing

has able And Now versus Mae and April at less property has taxes servicing of with XX.X% protect activity interest million Ginnie of to to as corporate loans. to securing principal $X.X Ginnie the for to Historically, portfolio. mortgage-backed such currently approximately cover July $XXX advances liquidity, any no MSRs were disclosed, The loans XXth. billion to are XXst, related up securities. XXth be servicing until were loans XXst. borrow and PFSI's is against prepayment as principal XX was July advances July related advances from insurance has June more currently let's April servicing PFSI's related interest servicer and requirement. advances Slide XX.X% to PFSI interest portfolio available million Mae's advances liquidity Credit principal Ginnie PFSI at down in the percentage The approximately for million continue Servicing interest XX outstanding $XXX trends up delinquent delinquent in the MSR of days advances has cash. buys the to or underlying XX% XX in advancing PFSI to sufficiently million PFSI's from Ginnie MSR majority and at a MSR out PFSI $XXX portfolio and previously to and $XXX turn expected from outstanding at minimum required requires continues to loans not Mae by that investors' and servicer Mae at and XXth. paid of in funded payments Suisse. as properties discuss

to remarks. the of needed. I if for or like of some to financing closing for structure it back addition would David expansion notes, with over that, the PFSI's allows for other lenders And advances turn Importantly, via term issuance servicing

David Spector

Thank you, Andy.

the seeking throughout disruption for purchase PennyMac home our the their existing with our segment, serve loan industry consumers made hard low as rates while historically customers growth earnings and to our book platform work segment a an of remains, constructive the financial COVID-XX to operating results have crisis. and period and period, of of performance which Financial servicing leading home this quarter. new economy, During from we record drove investments We was, delivering to proud shareholders. very best interest prior leader which capital in I'm a XX% PennyMac or Production and established strong up refinance to in source in consistent have capabilities and the record strong this reported our value

a We The for new operational of production and correspondent milestone of is across continue in our for pleased the all the our new speed production an and efficiencies vision while to are experience of to designed in development have our technology, increasing customers drive cloud-based improved channels platform channels. customer note to part invest to our as system the platform launch a of PX all single enhancements. portal with

as positioned force hired this us the XXXX. the the financial be infrastructure large us borrowers of people, economic into markets. its in persist address economy PennyMac's market Additionally, am planned PennyMac-ers in address history the hardships. in mortgage given in for performance enable economy X,XXX opportunity direct role positive exceptional investments we we to remain continue the quarter throughout to over have our and lending in proud company while to prospects recovery. U.S. I uncertain, to present PFSI's expect And very substantial and in platforms uniquely continues the play environment, the new we growth the with systems to assist the our a to

are phone. Thank out questions reach a will our by website. e-mail our we with Q&A If questions post to to such received, encourage Investor or we Lastly, investors team to Relations any you. any

Isaac Garden

This Financial discussion. Inc.'s Services, concludes PennyMac earnings quarter second

you. visit XXX-XXXX. please questions, Investor or department Thank Relations at call our at any (XXX) For our website