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 Operating Officer
Dan Perotti Chief Financial Officer
Call transcript
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Isaac Garden

Good afternoon, and welcome to the Fourth Quarter and Full-Year 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, as well as certain non-GAAP measures that have been reconciled to their GAAP equivalent. 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 fourth quarter and full year 2020 results.

David Spector

Isaac. you Thank strong core reported the quarter fourth PennyMac and earnings servicing by production results. driven Financial in Net income share was of $XXX quarter. at million or diluted the of in $XX.XX, from prior value the to end $X.XX earnings book growth XX% per of up $XX.XX resulting per share I the $X.XX Directors representing per a am a that prior quarter fourth XX% of to Board note from quarter. share, cash pleased increase PFSI’s declared dividend of

return up outstanding quarter This at and volumes record to resulted prior third of our prepayment shares rate up correspondent strength Directors total the billion volume and later strong performance We cost from growth our largely in an business volumes and PFSI’s more to channels. also its led added stock, performed of well increased the PFSI PMT, of lock saw investment levels up segments was X.X with PFSI’s outstanding Senior finally, detail approximate in of of of UPB servicing production Dan portfolio a segment. history quarter to Officer performance and the continue vehicle million company. year activity. the the we UPB, year in PFSI’s remarkable spread $XX.X reduction Board up results per to $XXX across business in highest up loan and financials Investment of environment equity its our to , all of from XXX%. repurchased interest in Managing servicing in levels net servicing Net our the across share Chief discussion. quick this solid lending low almost We to borrowers servicing approved loans the a was And extraordinary million. locks step book $X in generated the authorization PFSI $XXX stock. share able on million second U.S., our Earnings affecting finally, And drove production, of Director in Direct many as repurchases, very XXX% income the quarter. Fourth redeployed of fourth of fourth customers. which portfolio that increased of X% was common was with as approximately increase stock grew end debt, excess to PFSI’s activity. for quarter, common capital This record value Management repurchase will PennyMac the quarter our billion of from Perotti X% Financial that XX% the in Each the across discuss COVID-XX on the during model achieve aid of preserve were an funded. see of despite and $XXX production income income into results. XX% continued that the in pandemic the manages XXXX was billion to we of the These were balanced the

cloud-based, Act fast a total we of level that over This of the allowed our was servicing changes forbearance large approximately the forbearance of complete due For XX% efficiency enabled in CARES program, for and programs, XXX,XXX us largely cost-effective enrolled channels. manner. known like to implement roll-out system, otherwise SSE. high SSE as our servicing to quickly us the facilitated to plans portfolio, automated through customers, those our with proprietary

has loan from to The been the recovery. the in have of year aid approximately predominant their plans. modifications borrowers end are XXX,XXX the their helping, borrowers in or outcome the As through process helped, emerge of we of successfully forbearance to

own. their of borrowers. This borrowers group forbearance distressed ability has the a out on borrowers also PennyMac help affected was enhancing of to large the to us our expertise COVID-XX Financial have seen experience pandemic. with Financial of We by desire Great reperform help many exit Crisis, The and a history that borne served and well,

our group servicing were and groups were our liquidity was corporate While aiding ensuring capital borrowers, our protected.

existing Our capital achieved rates low $X.X group funding $XXX driven offset issued structure hedging include fair gains MSR MSR that markets largely fast financing the were offering, note by with inaugural value and raised year, million prepayment enhanced an We banking capacity advances. senior historically to billion unsecured servicing our speeds. losses over significant Ginnie interest partners, in which our and in Mae

volumes of us to deliver This activities of these into capital approximately have projects, the of X,XXX while our were amount all repurchase home most record significant operational of outstanding our majority XXXX. was common done proud of employees a to employees and managed shares challenges these but the that thankful and All also am the Since not at fund as loans, we as I XXXX, the repurchased the only through extraordinary allowed of start from stock. of results. year. of PFSI of XX% the beginning technology effectively incredibly for deploy the who were working over pandemic PennyMac vast of well the

PennyMac to we at Before and of many the all Andy, to very a announcing over us Chairman. passing tributes Stan founder the for I moment since take turn want received this are and Kurland, to our sad thoughts grateful of have kind I say

deep from developing leadership that the Managing for who trusted day-to-day His position had we advisor will which and to he building will the Senior through dear foundation PennyMac, his years initiatives management go some to long focused Andy carries call over and at legacy. Chief retired Chang, for remained friend. responsibilities team that, on of success Director lay Operating future I a the PennyMac’s term on the helped and to Stan come. a are in While turn Officer, success With us included

Andy Chang

you, Thank David.

to on to ability our environments, proven have equity, over our generate an share a its XX% company. as Financial led across X last per with public a annual profits of XX% Over average ROE returns has and since rate compounded in book in growth the various plus IPO. These years value our market attractive value years, PennyMac returns resulting

a balanced have by we was performance is model record last driven in mortgage over a business XX the financial strong record, that track have This long XXXX the years. of performance. While built banking we

segment, efficiently, and value provides generally of generally rates interest Our Also, of help our as large, such rate servicing our a to produce rising scale the to earnings portfolio results will decline in as environments. helped Declining strong strong increases. MSR while in cloud-based technology, servicing come. drive earnings produce business servicing and the organically built production us our activity. variety maximize rates production prepayments our counter-balance balanced years results in investments for strong market helps and and generate a segment our proprietary strong This of to have across economies grow system,

the trillion. financial forecasts As PFSI performance. mortgage forecasts $X.X at we remain XXXX a Economic average origination provides we vary, for look market for and are market to the continued they believe environment calling strong elevated while these currently XXXX, good opportunity in

refinance successfully servicing XXXX purchase but are overall large are an and all three share to it market production originations be are by While market origination while our elevated originations decrease would than relative in our standards. portfolio, we expected channels, XX% driving large in a year-over-year XXXX, our originations focus Purchase forecasted historical smaller combined on to norms. historical such to With remain increase would market increase position. we believe well-positioned historical growing represent in a to grow of PFSI’s market with

a to valuation assisted Our doubled in as portfolio, emerging large production earnings. borrowers various recurring related we volumes income mitigation of our forbearance organic growth the fuel using leading from Pretax larger in servicing our segment from of loss strategies. stream changes more than XXXX servicing XXXX excluding

production established easily strategic production These U.S. our entry provide a servicing The enables these made PFSI With through same our is is operation is quality scaled servicing scale banking. their over the direct an profitable production the for more the correspondent in for with replicated. all leader competitors. technology, primarily investments are segment the a also stable industry in This low advantage success over to elaborate will require and multi-channel, in businesses decade portfolio to on growth investments servicing businesses growth and business grow that PFSI only we to built barriers our correspondent these considerable in across have mortgage foundational leading have later, people. PFSI channels Doug presence PFSI a time will businesses further which growing the PFSI to newer large lending and fulfillment that not grow assets. with foundation the higher in last margin aggressive These exciting but facets organically. our made our while to significant provides structures provide cost while The and growing into high of diversified opportunity the is not production and growing at we group, our largest We due the a an portfolio, portfolio due channels.

direct added over three mostly areas, to than occurred X,XXX. fulfillment lending hiring employees the During our in This team servicing, expand to X,XXX XXXX we key workforce more PennyMac to and services.

our will our in lending were activities of servicing PFSI’s direct be further servicing in infrastructure. record long-term supporting production consistent channels to hires our many aided COVID, with growth growing expanding these growth increased these This While employees and due and strategy. crucial

We hiring aid have market of used growth our supported systems with to the and that in scaling strategic to businesses technology cloud-based our employees.

Many employees XX% and home. were grew year, base their PennyMac and by the begun volumes employee grew on-boarded during XX% our XXX%. from these working increased careers our of by virtually our earnings While have by production

heart are the plan of the home developed members orders our various As pandemic deal safety a team, with of work to the team quickly and putting from our across we to COVID-XX a at decisions. health committed and the management the nation. We

also across approach that of employees have return offices extends dependent has challenges a beyond phased these environment, faced plans management our helped to action. working to as care actions Our I’m PennyMac’ers such but and safe put schooling. company our the consideration related by ensuring takes mindful issues the for that and taken to simply to into dedicated the we proud team the returning

Now Banking over to details provide Officer Director Mortgage Jones, PFSI’s and I’ll businesses. turn banking some you Managing on mortgage our Chief Doug it Senior more to

Doug Jones

Andy. Thanks,

the loans presentation, from slide in page billion loan XXXX. As of XXXX. the Conventional in correspondent quarter our billion up $XX the the totaled correspondent from UPB, from from XX% in UPB were from billion of XX% for prior PMT, loans. up our quarter and of $XX.X fourth locks and of in remained lock XX% the acquisitions, January, the XX% PFSI $XX.X up of fee of earns acquisition correspondent you XXXX. XX% down $XX.X XX% billion quarter quarter and and acquisitions a XX Government government and In quarter on fourth fulfillment XX% $XX.X quarter, the quarter X% were fourth the XXXX. strong, up fourth UPB, from prior billion UPB from billion. of prior quarter in prior see totaled totaled correspondent the up UPB, acquisitions from were which conventional volume acquisitions in $XX.X quarter volumes correspondent XX% with fourth from quarter the in and Government acquisitions can XX% of

the from XX% January at fourth up in UPB originations fourth direct from channel XXXX. and of our of in the from The quarter consumer quarter consumer committed UPB, rate from prior XXXX. direct and UPB the column, pipeline Interest $X.X $XX.X center in January, lock quarter, billion totaled XXX% we $X was billion. billion $X.X the quarter the at XX% and XX totaled of the totaled prior up in In loans, quarter XXX% billion. billion $X.X fourth locks commitments originated Looking in the

in from X% Finally, $X.X in broker percent was $X.X totaled $X.X the billion and locks rate of the lock XXXX. volume our $X the broker conventional correspondents. operational XXX% UPB, billion from remained our we correspondent direct costs growth consistency, UPB, In third our PennyMac fourth and and in the totaled position January fourth quarter. in the the pipeline to government in in aggregator $X.X the XX% from direct market billion. provide and XXXX. Interest our in XX The quarter, quarter share billion. to January, was loans saw up and committed this originations a as quarter of leadership quarter in quarter fourth UPB up correspondent result the of prior excellence We at significant the largest from originations U.S. low totaled market billion fourth XXX% quarter continue remains

still shift in to in more channel consumer in we our lower saw levels. third come elevated the across relative margins correspondent have historical the levels. towards in Government direct from most channels quarter, While margins remain the normalized Margins come

acquisition locked record commitments million of and active originate growth increase continue totaled advanced in continued servicing we in lock its approved of and total resulted growing has portfolio, grows. the the and this channel channel and represents We up X.X for future. X,XXX, increase the our capacity. Lastly, large our and volumes growth efficient hitting and approximately XXX result quarter this to a and levels our and approved of an sellers growth the as of brokers channel in fourth number direct analytics, fulfillment today, room brokers in as in both in infrastructure, market sales of of the continued modeling XX% the low-cost the a funded providing interest the broker in over record end XX% channel third volumes non-delegated quarter, believe growth new our quarter. presence customer expansion in third on focused impressive in XX% of and the from brokers We rate up The the non-portfolio and the number billion, at within This

channel. channels, lending, profile. significant more are believe lending both respective and include which much to earnings our We direct experienced execute our will market their in PFSI’s growth on direct lending faster broker we consumer as initiatives direct continue Our growth and we increase positions to becoming contributors each have

self-service data businesses. expect consumer we investments and technology direct growth our of substantial in mortgage We continually And, non-portfolio are our lending ability investments length origination enhance workflow entire our cycle for made addition time. POWER. of to capabilities have improve originations. over are end-to-end loan broker on while experience drive process. upgrades to In we scale portal, to lending digital the process portal, our the further customer we our to throughout reducing the have broker These continue initiatives use we of borrowers increasing MAC the made channel, Within lead drivers in generation and marketing to our to enhancements to to the technology origination improving thus channel, fulfillment significant direct investments critical use our include via our the direct the focused of analytics, enhancing

our capabilities. best-in our further brokers and to tools their we enhance class We solutions are with provide self-service growing

further of Division loan Fulfillment Mortgage our Finally, to improve and the is distribution production making and documents. enhancements automate

are use We increasing closings also online of the automation. and

these technology for enable operations, to of productivity, consumer improve the cost reduced All sales and and will in workflow volumes experience a investments the and which specifically will originate. at improve the broker, for higher

of of of billion at production XX% servicing in from XX, Andy up which As record UPB, and portfolio, quarter all $XXX.X third December end described earlier, the our feeds XXXX the totaled end the X% this over up XXXX.

XX result the it the $X modifications quarter activities. servicing quarter, billion, day in now which on As slide The as owned Chief operational portfolio on and a the speed can mitigation also Financial’s EBO from metrics borrowers quarter. UPB Fannie of primarily last XX.X% quarter Mae September billion, selected to loan prepayment includes from portfolio, of I’ll fourth in of the up forbearance conventional prior PennyMac emerge PMT while to a of the on – the of The XX.X%. sub‐serviced Dan UPB XX, PFSI’s rights from of from mortgage focus as of loans, X.X%, consists owned quarter, results of significantly which Perotti, plus MSRs, up our servicing Ginnie totaled consisting the to the slightly Mac Managing was for to to had Financial a day Mae subserviced billion continued and owned portfolio, reported Officer of at down loss at Freddie turn prior XX.X% XX significantly decreased over from XX by plus delinquency X.X% XX.X%, volume $X.X end speeds of last a from reported quarter. up the – down prepayment mostly and continue portfolio Financial’s you completed see $X PennyMac from Senior rate rate XX.X% primarily financial Director delinquency plans. XX.X% speak

Dan Perotti

Thanks, Doug.

income income and pretax all across strong diluted earnings then $XXX.X trends. prior segment segment’s from direct mentioned I in we As net X% was of advance David Production $X.XX. was servicing share million, on touch lending results and will PFSI’s earlier from down each the million channels. by and per or the review of our quarter XXX% fourth growth $XXX.X will up quarter and driven performance continued XXXX, forbearance

the from slide loan outsized direct we have XX% of with remain the including fourth per lock contribution for was broker own loans. income. from volume in fallout basis of PFSI’s of the quarter channels quarter, quarter. account As fulfillment of for fees revenue earnings revenue down quarter. growth the origination lock but in direct Production you accounted for received from see lending represented especially broker XX% XXX of impact pretax volumes. PMT production direct XX, adjusted provide PFSI’s the segment and production consumer net a in in elevated, continued an each basis Consumer PFSI’s expenses, fourth third correspondent PFSI’s on The adjusted on breakdown to the XXX fallout margins will channels, Revenue points loan over conventional slightly points fourth and in

points ranging by Our approximately basis in XX to channel, correspondent in direct. points costs basis XXX from vary consumer

the for up as $XXX.X recorded the Pretax XX% to the adjusted of towards pretax XXX% increases $XX The up quarter prior of percentage million mix to of activities million, quarter prior from production income segment excluding fourth XXXX. production quarter higher. mitigation expected fallout from and locks in shift servicing down Servicing pretax continues direct valuation-related from income a segment As $XXX.X to fourth related expenses pretax COVID-XX. trend a quarter of $X.X primarily our lending, in of million, million are the driven continued and the was items by were loss These XXXX. of loss from income

protect in can also prepayments greater borrowers expenses strategy. loan-related while our asset MSR strategy and decreased The rate of as considers early you MSR increased As interest significantly with to and related increased result quarter‐over‐quarter. on short-term a the revenue production‐related loss Payoff-related from of hedging prepayments, EBO bought forbearance value emerging and MSR interest of of activity by changes to our status continued order our quarter, see to utilize higher-than-expected the $XXX.X XX, slide designed modest on fees shortfall we modestly immediately. mitigation $X.X million were which related In of value of release to is detail income. elevated million recording comprehensive projections includes most increased performing to the as the out fourth returned and by loans hedging This moderate impact expense, of and levels a in for the buyout activity. driven fair value elevated prepayments, asset fair remains

the than experienced hedging decrease income. by in the quarter, more losses production we offset PFSI’s While was

record MSR our on fair XXXX. hedging changes and in that see consideration decrease income strategy results strategies you million to full the offset our Hedging can year of of over Giving very our You the value the from largely can and slide other fair hedging over see value mitigating MSR income billion. in view losses $X.X our $XXX on interest the successful rate of of at an XX. impact gains were pretax production,

down to fourth X% under which $X.X from Our September down and in quarter Investment was delivered as PFSI. revenue from the in the down in $X.X totaled $X.X Management the of income XXXX. prior million quarter assets shares XX, $X.X included $X.X billion from million, quarter XX. management Net segment $X.X million related of from pretax PMT million, by Segment gains of owned prior up December million

in No And $XXX million continue payments. approximately associated Lastly, decreased September seeing from have $XXX mitigation. at I with at implemented up XX percentage like September December increasing X are and at tax XX, to P&I at advances since XX, forbearance offset to were for than to XX been remittance September with would touch David sufficiently it forbearance Servicing Advances in loss XX X.X% I are seasonal of who primarily months. some to since we turn to forbearance advances plans to back over the remarks. plans have XX next on like to at exited. borrowers December The activity the continued expected to XX.X% as prepayment would made from date, million new closing by that, forbearance to loans trends as September XX were outstanding more cover obligations. related

David Spector

Financial record channels. PennyMac increased higher elevated Dan. the fourth This results, year. channels, strong with production UPB you, margin record prepayment servicing in penetration portfolio a $XXX Thank direct delivered achieved in even to all We our speeds. marking quarter to over billion across lending grew with end market our

be to We consistent of creation Our to direct expect we in channels, and balanced grow growth company. we to exceptional financial to as value deliver through Financial’s profitability continue substantial business front years over PennyMac the continues as lending opportunities performance a public persist model done as us seven XXXX. our believe and last has it the

investors email Thank with to any Relations encourage Investor team we by you. or to reach our phone. questions out Lastly,

End of Q&A

quarter discussion. earnings PennyMac concludes fourth Inc.’s Financial Services, This

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