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PFSI PennyMac Financial Services

Participants
Isaac Garden Vice President, Investor Relations
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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Isaac Garden

Good afternoon and welcome to the Second 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 second quarter 2021 results.

David Spector

Isaac. you, Thank delivered driven again results performance the declines. in offset PennyMac continued outstanding strong quarter, value fair by net servicing production second by Financial MSR financial and partially core million income annualized an equity or Net on $XXX diluted per $X.XX, return share XX%. earnings of representing of was Book at XX. grew $XX.XX share value to per X% June

This for $XXX the $XXX the an we to PFSI's repurchase for approximate beginning now cost of of of since bought shares stock And XX.X common the repurchased repurchases continued X.X stock, $XXX of approximately quarter shares of an million. for Importantly, or million back to approximate over shares an million. July, we XX% have brings we repurchased common year-to-date of outstanding. shares cost PFSI's the XXXX, total month with X.X And million. during additional million approximately million

activity. the balance unpaid volumes the from prior Financial's loan again in These June prepayment XX, its strong despite servicing of billion Managing in of our on Additionally, led discussion. increase growth $X.XX in an billion were production Chief portfolio PFSI's In authorization performance June to XX% dividend Senior cash Dan $XXX declared principal to PFSI's per Officer, will Board Financial and total, PennyMac later XX, quarter repurchase acquisition from and financial of more billion. of the share. up origination elevated $X XXXX. end continued in volumes billion Perotti, totaled Directors Board Directors detail second quarter $X $XX second PFSI's stock Director his quarter. from at a servicing and X% portfolio also discuss approved to

presentation, Officer, Investment last over associated third-party PFSI's reducing Director quarter-over-quarter were profitability buyout capital sold Jones, and of to we and assets loans early earned profitability section management Net Doug will $X.X whole these the to of Senior a result with quarters. Banking thus the loan loans as fees and on our risk Management in incentive billion. billion the as of in increased Importantly, X UPB segment slightly $X.X PMT's his holding efficiency. expand Mortgage increasing Chief Managing investors, down under delivered on based

systems Managing We invest going of review groundwork to origination our I processes With across continue who will now to forward. to we the in outlined that people, laying Investor that, Director PFSI the Officer, in and recent mortgage medium-term allow the our businesses, turn goals achieve Andy Senior profitability us would Chief for the call drivers the and will Operating over Chang, and Day. landscape

Andy Chang

Thank historical you, basis be The near rates record have lows. to returned a market on origination strong recently to mortgage continues as David.

are trillion, $X.X trillion population benefit in worth forecasted strong expected supporting the market. to trillion larger Additionally, in to originations XXXX we XXXX believe XXXX, is XXXX while of FHFA's average of purchase remained forecasts market noting has from for the and refinance fee at adverse originations origination refinance for $X.X $X.X lower Recent range forecast loans today's a $X.X that a would to trillion. at from resulted grow originations elimination rates, $X.X and be further economic respectively. trillion that are and It

remained believe business, channels the PennyMac volumes environments. different profitable and and servicing expansion loans growing large the PennyMac origination in contributes of business money production broker across direct correspondent, with Financial's result refinance while the as of interest Financial decline several higher model So to lending for the producers position Financial's our U.S. of direct purchase the believe We direct from strong, businesses. largest as a continued the are PennyMac production profitability years consumer one our outlook given to significantly we over expected of next our rates, and

lending While margins shift towards in margin production consumer quarter, a decrease given direct overall we saw industry our the in mix the production channel. declined second smaller

channels discuss Our have will lending earnings, impact an direct outsized as on production later. segment Dan

leadership growth PennyMac to Financial's direct will As origination in grow earnings positions from this the channels, our drive the production we continue segment.

will business deep with as when industry's an Our rates to provides advantage more to our a The and growing investments disciplines a of perspective, mortgage we the from infrastructure from that balanced and made, have also support technology increase, levels. large position while industry PennyMac of regulatory component portfolio strategy the the a growth us our market. competitive return we normalized changing servicing well. and continue market volumes PennyMac's the origination management with distinguish relative competitive important the others in change team, increasingly expertise and this combined our earnings to becomes management interest believe mortgage others in And we believe risk

our Now discuss will I'll over turn it banking Doug, mortgage who to businesses.

Doug Jones

Thanks, Andy.

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

basis environments. quarter. to our scale in correspondent channel, our XX were from of the billion, Our in loan the and prior achieved from fee quarter correspondent XX% XX from mix government the was down quarter structure percentage from up XX% and XX% totaled points low-cost previous second conventional was operational of X% the which operate prior in volatile combined XX% the of XXXX. and for acquisitions second the Conventional lock allow in and in the The we prior billion, the XXXX. business, totaled the the second down quarter points, billion, were through with have from the excellence of quarter Government from $XX.X PMT, profitably XXXX. from were acquisitions, up us Revenue $XX.X from up and down the acquisitions prior XX% XX% correspondent from fallout-adjusted essentially correspondent government per a quarter quarter quarter basis as earns quarter, market unchanged $XX.X quarter down X% loans locks Government PFSI loans. second fulfillment

As we additional increasingly our time. in locks Ultimately, we the capitalized billion. PennyMac reasons, And and believe $XX see outlined important changes GSE's like its a continue be the billion resulting market agreement. a opportunities we acquisitions over in correspondent for preferred leader. as Investor aggregator to role these July, from growth were $XX.X well UPB share will were Day, believe stock of we PennyMac purchase In will channel correspondent our

quarter. servicing non-portfolio meaningfully UPB, last quarter lock quarter while decrease $X.X volume up and data XXXX. origination rate a increased quarter $XX.X we totaled that and originations channel coupled million from quarter points growing approximately origination of the market and our the record $XX.X sales analytics, commitments prior or volumes essentially dedicated billion. interest were in was interest smaller processes, despite PennyMac marketing $XXX Our for of from of unchanged first again growth. from our to second for in an efficient We officers second and million share loan loan Revenue lock volumes consumer with market billion application $XXX totaled division customer the in a a we acquisition The also have and foundation direct technology the in rate and has ongoing produced gives a year, in since lock and record XXXX. the The lending $XXX attributed the up total the the in based commitments the second account be investments the million Similarly, prior increased of in X.X% process. billion, was for made success quarter, new platform, Purchase million, per $XXX quarter estimate in fallout-adjusted the now in lock portfolio basis digital channel. can fulfillment strong lock operating continued quarter. Origination the XXX the from

attractive. this July, totaled in $X.X July was originations for committed totaled pipeline channel billion. consumer However, our margins at direct $X.X XX locks and In remain The billion. billion $X.X channel

quarter. billion. basis $X.X competition, prepayment intense channel committed direct $X.X Broker Revenue lock to from UPB, market in in in origination continue of offer Lastly, to our billion, the the locks we Similarly, to basis providing currently prior our and between term now from we opportunity organic totaled originations in partners and acquisition over per the in billion are the channel they growth reflecting remain mortgage serve levels approximately channel margins XX%. pipeline totaled July leaders. see XXXX. $X increase volume down points to XX a strong Despite originations sharply, totaled XX, customers quarter. and portfolio estimate $X.X the our brokers down XX% the Pricing superior the levels the activity. our XX an total, $X.X elevated March share totaled in competition at points, XXX decreased prior in X.X% the long fallout-adjusted broker of XX% volumes committed July approved down experience. X,XXX from was was these products, channel elevated And despite represent billion. servicing We lock of and these continue drive of billion In over channel with broker

day quarter. portfolio, $XX States. total As The mortgage Fannie XX, X.X%, of $XXX of had which mortgage PMT, prior ended X.X% balance, the more all a mostly owned prepayment in delinquency at addition X% was in billion of of debt United end includes slide The sub-service the production. of portfolio second PennyMac on of the quarter $XX by PFSI's owned servicing XX.X% portfolio, which decreased portfolio speeds Freddie PennyMac prior a quarter, Financial's we down XX principal in runoff billion of offset primarily approximately Mae And of Ginnie owned the the Mae with XX.X% XX.X% quarter servicing see the Financial's unpaid from than consists rights a and in billion reported from second MSRs, quarter. you in speed of the from rate residential prepayment to approximately servicing portfolio down by can XX.X%. the in Mac

the of up prior loans, in from X.X% to UPB delinquency modifications from quarter. of borrowers billion loan at X.X%, and While completed prior as quarter, billion, continue $X.X consisting the billion, March portfolio, of volume the sub-service $X.X primarily of The our from a UPB XX-plus $X.X conventional forbearance emerge reported EBO from down totaled XX essentially plans. rate unchanged was

As third-party quarter. billion earlier, we sold to significantly from $X.X whole in UPB EBO of up loan David investors, mentioned last loans

EBO mitigation execute delinquent loans of strategies to additional with third-party These provide as third buy We have transactions loan long-standing margin them sell capacity program PennyMac the investors, place associated liquidity in for to efficiently a out parties and these these the potential several loss also of with Ginnie to investors. loans and Mae calls. to sales partnerships securitizations eliminate

an option loans in redelivery repurchase eligible carries into and Importantly, for PennyMac rights to these Mae retains they become the securities. servicing Ginnie the event government-insured

This with the quarter, we I quarterly also the increased meaningful have volumes the mentioned partners, loan existing sales these third our number of expanded we driving partnerships volume in to EBO the earlier. increase and of parties

loan meaningful quarter. the Financial redelivery opportunity Finally, turn transactions over the I'll to while to over provide the financial of like who providing the life future. speak now the these will for it to PennyMac savings Dan, the in results for

Dan Perotti

Thanks, Doug.

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

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

down revenue in in margins prior quarter basis declined the lock account on first second broker the you from consumer was revenue of points points direct segment second the and approximately pretax from basis quarter, of quarter fallout-adjusted lock but the own fallout-adjusted XX% XX% volume As per the XXX accounted quarter of XXX can XXXX. XX Production for PFSI's for see presentation, of income. slide represented in and

pretax value prior continues ranging fallout-adjusted by basis toward quarter XX mix vary the a expenses production channel, costs and in our shift as curve, in $XX other you additional percentage result also servicing and as Our as direct. interest million million. XX, production income pretax from totaled primarily activity production-related decrease up were quarter compensation quarter-over-quarter the decreased of million XXX This related decrease Operating was segment, to trend These loss excluding $XX quarter-over-quarter. changes driven utilize of down hedging pretax included from primarily as locks which designed basis in million shortfall by points rates $XX see quarter valuation on and comprehensive are income XXXX. a also $XX.X remained as the In segment rate $X the quarter protect of significant accruals in by quarter expenses from value of the the was release from of XX% related future in lending, to The fair mortgage the servicing second recording a million, slightly seasonal On prepayment Payoff-related yield points strategy. a and in in $XXX related prior gains elevated asset, early quarter declines. XXX% of decreased up quarter and hedging income. of $XX.X on is valuation-related the recorded correspondent our approximately impact to a revenue prior and prior we an the XXXX. as million items down levels earnings direct value Pretax lower to the slide include of can for fair of well moderate revenue. loan-related were of $XXX the the included order and driven losses asset second MSR consumer Operating activity by to and of our expenses. in fair fees declines quarter by $XXX.X driven of $XXX.X valuation for from higher balances. And income, Hedging value flatter expenses, higher. our the in interest and of strategy The second from expectations considers expected the million, million declines buyouts. prior EBO MSR by but prepayments, in million custodial a prepayment million decreased driven MSR down from to

from of $X.X from of segment $X.X Net in fees management down million of investment income million the result the in $X.X delivered incentive as XXXX. quarter Our prior quarter pretax million, second and XXXX. up up assets a March $X.X XX, slightly and June from XX, totaled billion down June XXXX. from June of as the XX, Segment X% and first from million, was management XX% up XX under quarter XX% revenue from $XX.X earned

are more it to for calendar the March would to as forbearance as cover loss in from seeing increase like from some back the many percentage activity And approximately forbearance the sufficiently remarks. XX on $XXX to the that, P&I to who to continued $XXX to tax as March of I Advances touch XX property with end at of XX million The turn offset expected have closing would million at to become quarters trends Lastly, remittance over I like forbearance new we X.X% are outstanding X.X% outstanding June at decreased at are June in next to plans. due forbearance toward March and Servicing XX, few since year. related decreased than mitigation. obligations. payments loans exited borrowers plans advances No at advances XX. prepayment David

David Spector

delivered Dan. and you, Thank the Financial in mortgage outstanding market. performance, another of volatility financial quarter PennyMac despite the increased operational

market continue share. Our increase in we volumes to Strong consumer of to lending during X record the level prepayments. resulted the servicing a despite expand, locked has across higher-margin elevated in growth the and of direct funded which all estimate continued quarter, significant producing volumes production portfolio our channels channel drive

equity first delivered PFSI, XXXX. key model strategic Our balanced for has across producing half for environments, return consistently of outstanding the a returns a on is different business which XX% advantage

driven shares with encourage on medium-term We We also very investors return questions our our by PFSI's Thank equity. for expectations or out repurchasing to e-mail phone. reach by any to Investor remain team you. active Relations

Isaac Garden

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

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