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PFSI PennyMac Financial Services

Participants
David Spector Chairman & Chief Executive Officer
Andy Chang Senior Managing Director & Chief Operating Officer
Doug Jones President & Chief Mortgage Banking Officer
Dan Perotti Senior Managing Director & Chief Financial Officer
Call transcript
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Operator

Good afternoon and welcome to the First Quarter 2021 Earnings Discussion for PennyMac Financial Services Inc. The slides that accompany this discussion are available on PennyMac Financial's website at ir.pennymacfinancial.com.

Before we begin, let me remind you that our discussion contains forward-looking statements that are subject to risks identified on slide two that could cause our actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in our earnings presentation. Thank you.

Now, I'd like to begin by introducing David Spector, PennyMac Financial's Chairman and Chief Executive Officer; who will review the company's first quarter 2021 results.

David Spector

Isaac. you, Thank servicing delivered driven again results performance the hedge in offset PennyMac continued exceptional strong quarter mortgage our of by the servicing production first by financial performance financial rights. and partially core Net to of growth generating share earnings $X.XX $XXX income of book X% million was share diluted per or per $XX.XX. value

XXX,XXX $XXX repurchases stock of shares brings repurchased for an quarter now we approximately million X.X the cost we repurchased approximate repurchased an approximately the the have over April shares cost for shares. during million million. of of Importantly an This beginning through and since we additional of year-to-date PFSI's common million. $XXX common And approximate of XX% XXXX $XX to total PFSI's

of taking $XXX unsecured to senior outstanding notes issued our unsecured billion. also notes $X.X We million total X-year

Additionally, dividend of results. Operating detail Senior Officer loan cash and in financial remained a model of Perotti, servicing of results production first Director business performance continue $X.XX will our and PFSI's quarter PFSI's reflected Directors we our this discussion. Dan the Financial on in strength And see Chief our balanced Managing share. in Board to across declared discuss later strong. per more

balance XXst, X% XXst to of activity. competition. PennyMac in share financial up $XX total, We lock were another increased $XXX quarter. direct from quarter These mortgage end loan unpaid billion continue in totaled servicing higher XXXX volumes growth growth prepayment of at acquisition up XXXX. XX% first volumes elevated origination servicing billion funding see also In strong portfolio strong March lending production to March the and and market rates record our again principal despite and from across businesses with the volumes led portfolio continued in despite

will that, origination to and the who year the the assets billion, we and XXXX. investment With the continued X% in Managing PMT, Operating have another management over from up quarter turn landscape manages into end and Chang, that were Andy now under Senior delivered drive PFSI Director Chief vehicle mortgage I foundation success to future. performance Officer strong net call the investment review Finally, will place $X.X of

Andy Chang

trillion David. market as strong are you, mortgage be range and The the remain the XXXX almost that is to despite trillion. $X the expected in strong originations to It record than year. continues originations originations noting trillion, treasury at XXXX total XXXX, lows Recent for for increase Thank worth purchase forecast origination yield the $X.X to historically XXXX levels. economic start forecast of from each near while rates XX-year $X.X of higher XXXX trillion $X.X average remained in XX% since

rates, very while of a interest for we especially is refinance US. are loans as origination one expected the positioned to time as higher So, believe decline Financial market the result continued of well purchase PennyMac in largest over producers volumes money significantly are we growth, of share

to margins will decreased result the excess the current the of in have Doug later relative a market. as upon capacity production industry expand As origination across industry

of you While there Slide remains on lending impact direct affected margin stand been where heavily an channel investing segment seven continued a Financial's Direct production and on where for have in and pressures, to the outsized can shift PennyMac much have segment presentation. from higher see towards earnings by continued margins our for growth. as Consumer consumer opportunity Broker mix earnings production we these benefit

levels. segment's becomes the was fallout-adjusted volume lock contributed of origination an believe Servicing pretax increase volumes XX% rates from be business balanced model approximately more and a will In interest as they the that in earnings our mortgage fact, increasingly when like XX% normalized PennyMac's without first of channels, component direct and consumer the broker challenged important only we return quarter but companies to to income.

the investments made which annualized has cloud-based years it PennyMac public are are driving an system call technology servicing as first we borrowers segment. benefits levels proprietary in return COVID-XX recorded SSE, return efficiencies and a SSE have XX% across and Financial of XX%. the our nearly enables annualized Not elevated performance. to we on workflow track from generated seeing financial effectively strong Additionally, on as contributed PennyMac we it loss equity scale also Pennymac our record mitigation of servicing to equity eight has long adding but programs such average implement Over company only continues a to profitability Financial in of core grow. hardships the our as platform In address further for to quarter

the PFSI returns. we pre-COVID achieve closer project return on our of XXXX, For to to a equity remainder historical

Now, I'll over mortgage Jones, our to discuss PFSI's banking President Banking it Officer Chief turn to Doug and Mortgage businesses.

Doug Jones

Andy. Thanks

in As from of and the correspondent quarter billion, XXXX. correspondent of approximately maintained first channel its prior quarter channel position $XX.X you represent slide the we that we acquisition can the up of overall. PennyMac Total on the XX% see down from estimate loan leadership and XX% was our eight volume presentation XX%

XX% percentage correspondent as was acquisitions loan XX% trend remained April, the billion, $XX.X margins acquisitions quarter the fee from more volumes correspondent correspondent and from of up XX correspondent points normalized XX% billion levels. and were locks. the totaled of from of conventional to acquisitions and with XXXX. down X% in Government first Conventional government acquisitions the largely XXXX. basis previous In from the towards billion, which were lock quarter prior the mix prior $XX.X of XX% loans as in the quarter Our was quarter up quarter unchanged totaled for channel our in strong continue loans. from XX% billion from first million, the a PMT points, the basis government first from Revenue the quarter, the $XX.X $XX.X XXXX. per in the XX fallout-adjusted and first from were of prior up quarter correspondent down prior down down from XXX% locks quarter quarter XX% earns of PFSI $XX.X and Government fulfillment quarter

expect we the further, as to correspondent changes the implement the mortgage increasingly become aggregators to their enterprises agreements. important in stock preferred the ahead of government-sponsored ecosystem, Looking purchase role

billion limit to of Additionally, on window to like per $X.X client PennyMac. volume the deliveries aggregators annual implementation more leading cash the is expected drive

in of channel. approximately As the we we from in a of prior during $XX.X capacity, as estimate hires and commitments the of XXXX. to quarter for first prior begin new originated up Consumer channel, and from we the Interest also $XX.X fulfillment XX% from billion share our quarter the of direct quarter and We originations in the season. fulfillment growth quarter a loans were and driven that the quarter turn significant up XXX% X% total to totaling X.X% the billion, in sales by Direct, the record, gained XX% record up first lending market lock rate XXXX, with quarter first from

lock acquisition volume to results begin was quarter of non-portfolio in as last million or fourth marketing channel. growing XXX our fallout-adjusted were quarter billion. basis of The points loan billion this in Importantly, quarter saw $X.X quarter is the which lot a we originations at with commitment $XXX very billion the Direct growth. purchase of for Consumer in we year. $XXX channel efficient totaled the $X made from strong committed mortgage lock first and rate dedicated in first of $X.X competitive, the from $X.X digital million pipeline historical technology-based have million, the quarter up totaled and new billion. the processes by and locks foundation a operating million remains strong up was we the the record $XXX first XXXX, continued April, platform, per XX commitments to in rates revenue in give see quarter, and first billion, interest and $X.X In fourth coupled industry customer April increased $XXX officers the Similarly, for PennyMac standards. The Though the

while we a its February, decreased March volume end in in channel XXXX. XX% the $X.X approved from was prior totaled prior the direct products, origination January X,XXX up in market but unchanged approximately and of and margins reflecting basis as of and Margins than first basis other billion. locks points pricing XXX broker the now competition totaled in almost quarter. channel our the our and broker essentially $X.X fallout-adjusted and expected billion and the the brokers XXX% from impressive channel growth down in We lock levels revenue leaders. more that with volume, with quarter quarter, decreased in the quarter channel XX% prior record April, Volumes estimate from per offer $X.X quarter channels in trended, Lastly, from up billion high the April of the we XXX XXXX. represent channel points sharply Lock between first share X% of the from in to continued

have we the prepayment organic them total, portfolio In to seen from strong were broker and levels in growth quarter recently stabilized, of our origination volumes April in down the elevated first most. margins average margins meaningful continue direct these their impacted despite activity. While with servicing acquisition drive

on portfolio the PMT the speeds or runoff approximately Freddie by outstanding residential by offset Financial's quarter, and billion total which essentially see US. production from billion first primarily quarter slide the in can XX.X% unchanged the had portfolio, in Ginnie first and day principal mortgage XX.X% $XX prepayment servicing X.X%, subservice all portfolio we in quarter portfolio, The MSRs with Financial's delinquency $XX billion portfolio of Fannie balance quarter. own quarter. rights speed PennyMac from $XXX includes of of the ended owned XX, debt XX-plus Mae mostly XX.X%. Mac reported a prior than from in down of which was prepayment of servicing servicing a rate decreased PennyMac PFSI's you consists to added of more prior in As Mae of a unpaid XX.X% own X.X% mortgage of the

X.X% to primarily portfolio $X.X from subservice $X.X was billion XX, and day down of consisting continue eligible quarter. down EBO Dan modifications borrowers last modification, The delinquency turn the the UPB to it $X.X as our for December smaller loans emerge a volume who a financial result will to population conventional X.X% of also XX-plus to like Officer, the loans over down now at Managing rates delinquency last the decline. Chief of from as UPB completed would plans. quarter to billion Perotti, results I billion, from of speak totaled While Director of rate and as Financial forbearance reported Senior from of for continue quarter

Dan Perotti

Doug. Thanks,

the from earlier, share and up forbearance our income will servicing first quarter million or per segment's As mentioned pretax the PFSI's net prior of each trends. briefly was quarter advanced was diluted down earnings cover $X.XX. of segment XXXX. review then I results $XXX.X million, David from income XX% and XX% $XXX.X and Production

As Slide PFSI's you on will conventional outsized the each including breakdown see direct of loan contribution have correspondent origination PMT loan channels, on production provide impact channels of a production of the expenses XX, for lending The fees net earnings. from received an PFSI's loans. fulfillment from revenue we

Broker in income. from Production revenue Andy of quarter fallout-adjusted the volume As for the XXX PFSI's represented and quarter, was lock fallout-adjusted but quarter, lock of quarter account from first accounted down XXXX. basis the margins of XX% basis and own in points declined mentioned, prior Consumer pretax fourth approximately the the points XX% revenue Direct first per for in XXX segment

points in points basis Our from basis varied XX channel costs correspondent to Consumer XXX by ranging in approximately Direct.

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

of XX, Slide loss by mitigation continued earnings significantly on deposits. on driven of Operating related modest. quarter fees million protect includes hedge volatility and Market included MSR a $X.X quarter, our prepayment driven the as In during the a $XXX million prior related buyouts. quarter detail and considers in activity result greater expenses loan-related costs primarily of valuation compensation-related and MSR and corporate driven early also comprehensive combined hedging by to lower quarter-over-quarter. impacted strategy lower rate of greater value fair of up income. payment net in the for a income from million declines from $XX.X of result been was revenue and time emerging million value higher our revenue $XX mitigating with designed prior the $XXX million strategy. accruals and increased the can release in our to Operating million you totaled and pretax moderate Slide income. Payoff-related by while of both increased by over with servicing a as quarter, our XX, increased our expenses. is related a the interest hedging other and Overall, seasonal the were expectations borrowers in production-related were asset our activity prepayments decreased expenses rate order allocation future impact see forbearance mortgage remain $X.X to recording have value million partially changes EBO custodial the rates On can prepayment rates. of changes of hedge hedging you expenses to the of activity declines asset, primarily by significant elevated as we fair volatility primarily levels first As from shortfall from cost result and offset expenses strategies fees million. $XXX on segment of hedge interest and seasonal Hedging trends lower value successful by which effectiveness. on This $XXX.X the driven utilize MSR fair increase by see production of interest This

the Our segment was prior up essentially XX, management $X.X quarter of PMT $X.X revenue recorded down the delivered million quarter. million of as income from management XX another from $X.X quarter. in investment as December from totaled Net million performance. assets Investment strong pretax under $X.X unchanged billion Segment of March prior X%

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

David Spector

Thank you, Dan.

delivered challenging business model increasingly results balanced an once market. in Our again outstanding

we is believe of XXXX enterprise extremely approximately well to for which common shares. continue the asset as PFSI's businesses, direct of shares. beginning have value banking our continue growth. why we We as organically grow Since an building our grow repurchase now servicing valuable mortgage XX% well lending positioned to in We that repurchased future deeply

investments position to and maintaining look in make ability direct our remain producing stockholders to and returns our we substantial growing loan in Combined our I channels for large confident responsibly with our continue lending to ahead. technology our also residential our operations. grow as and expect servicing while correspondent we in portfolio We profitably strong continue production. leadership

outlook Financial upcoming Relations at or our investors you. discussing Trust. and to look to forward by phone. our further for questions encourage Investor team Finally, Thank Investment Day with Investor We our out for e-mail to reach any PennyMac we the Mortgage business PennyMac

Operator

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

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