PennyMac Financial Services (PFSI) 27 Apr 232023 Q1 Earnings call transcript

Good afternoon, and welcome to the First Quarter 2023 earnings discussion for PennyMac Financial Services, Inc. The slides that accompany this discussion are available on PennyMac Financial's website at pfsi.pennymac.com.

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 non-GAAP measures that have been reconciled to their GAAP equivalent in our earnings presentation.

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 2023 results.

In one of the most challenging mortgage origination markets in recent history, PennyMac Financial delivered solid net income and continues to distinguish itself as a best-in-class mortgage company. for million was per or equity income with share. on $XX of $X.XX return the X%, quarter net Annualized in earnings

$XX We the stock in million repurchasing remained stock. in buybacks common active quarter, during

our will levels the Senior flexibility address results market Managing Chief maintain financial environment Director repurchase prefer as evolve. drivers to Officer, and to were quarters, and potential prior Although in we provide from on Dan surrounding to this continues opportunities of risks greater details the down later Perotti, Financial PFSI's discussion.

essentially billion to business model the well the balanced of growth Total at basis, the PMT, first prepayment PFSI's operational Production principal these acquisitions $XX.X nearly with from in in in continues lows, multiyear Production $XXX unpaid offsetting ended perform quarter. at profitability Servicing continue prior including to on the in the in volumes billion quarter by portfolio, which quarter, Servicing an volumes speeds balance, income. strength drive With made loss were our organic unchanged UPB.

still With most earnings from interest Management XXXX. XXXX $X.X its In with trillion, strong meaningfully book quarter $X.X increase dividend down excess per range drove of had from recent the value third-party share. a forecast Investment segment, level, currently in the PMT rates which PFSI's above originations in X%, an mortgage for trillion to

pace of remains. has industry taken still to reduction While capacity, the this have participants the slow, steps many believe and appropriate been overcapacity we reduce

the currently we Originations home the consistent our approach market season. the an with typical in That volumes the trillion. estimates XXXX normalized levels, estimated are to quarter, said, of suggesting buying XXXX origination meaningfully with remainder in than for as industry's more move more are average expectations $X above origination higher expected origination own into forecast quarterly first

primary periods and has Servicing business. PFSI's performance been contributor As later, strong growing Dan to financial large its will the discuss in recent

company continue challenging achieving a long-term capabilities in progress that to well model portfolio, demonstrated origination We the have Servicing goals. multichannel production business towards environment, making balanced positioned and large even our its have

important PennyMac Financial's Servicing we much business has banking. driven have a the that in enjoyed is mortgage of success asset and critically

provides remain while flows, consistent Servicing also in cash continuing invest strong profitable and supporting the our us to portfolio to enabling large Our businesses. technology

as environment. also production We all which view see supports in fulfillment the competitive towards And we where channels, opportunity us our resources cost-efficient provides multichannel our unique approach centralized the advantage. a to most current market X allocate channels the ability division,

of larger unions local their originations ties mortgage channel driven to has recent with a banks maintain quarters which, exit market, percentage a communities. industry has relationships community builder-owned and The consistency origination clients purchase-centric PennyMac with companies, of that the market. in mortgage correspondent correspondent many of correspondent participants, total represent borrowers with despite strong combined independent much tends acquisition our a the channel many also purchase-focused, credit developed as strong other banks, are volumes in smaller in

to us the making low Servicing allowing the growth our been also organic channel in of an have in cost efficiently operate have extremely we resulted structure, while Investments driving portfolio.

lending drives also Importantly, may for represent borrowers portfolio low-cost growth our to this Servicing consumer our in when we future periods add opportunity direct leads the division.

originations of agents Similar provide strong and These maintain mortgage evidenced consistent market, to with in by the access XX% in purchase the during channel the country our relationships sellers this loans. communities. also total that local channel, the quarter correspondent as relationships fact across brokers their in were brokers the to realtors estate purchase real

our the they tools participants broker Several broker drove clients a their recently believe essential to have is higher communities. market continued in quarter-over-quarter. with the the prominent be and share products in successful we serve to meaningful volumes To commitment broker need exited our technology, it best channel, channel, increase and and support

portfolio our direct declining consumer to lending interest our have leveraging the the in of division protect their borrowers are in rate suited offer in consumer a value environment. and to products investments division direct our serves Internet we center-based best to Our technology call needs. made Servicing Loan platform loan officers

in channel While this us of on prior rates volumes have in well our the when in mortgage first to some due constrained when saw in the periods stress higher the periods, quarter adding lock this quarter. channel the servicing We rates decline have volatility. there increase in been are rate in positions this late through declined regional been which channel future interest we drove recent of the note from or rate interest volumes the activity banks, correspondent

history long mortgage self-service in banking loan a a increasing focus technology transparency leading throughout deploying with investing of the process. has PennyMac and capabilities and origination on

that we believe investments the critical We succeed our need to business also and other it making origination and new products market. ensure is in are features timely that rollout to customers any key the partners of support

which use, embedded automated the long quality ensure benefits both correspondent, we PX platform but in our the PX. In loan control nearly to loop is completed to process underwriting minimal technology high-quality initiative, that continuous call and and delivery a only which not feedback sellers we term. parties loan resulted provides flexible correspondent XXX industry-leading a defects, has multiyear for an easy over

division brokers the feedback competitive we origination best system. provide critical the this the can focus have success has features price for POWER+ been of customers of lending their previously, sure we and prevailing Making broker market. and brokers and have execution the our the direct improvements, are our these in in possible for believe from recently utilized flawless closing mentioned very brokers As getting who been released positive

we offerings efficiency. introduced Notably, increased lead with direct loan capabilities product for division, In this jumbo we partners. expanded the the list product Optima broker CRM also recently of of all-new and approved our our an release to quarter, additional Jumbo called conversion consumer officer drive

and of convenient most potential for communication with how to lines borrowers, direct when ensuring they it's speak more them. can established also have we We want them

development, in early still and intelligence contributions supportive While manufacturing the of are potential excited the its process. loan from artificial in we

efficiency, our to assess streamline functions to and leverage ways and latest continue maximize for looking the state-of-the-art business will continuously are opportunities that we available. technology We

Financial I believe our given liquidity strong capital large XXXX. disciplines. the that and PFSI's business with extraordinarily on expectation it well will combined and range is environment balanced management positioned currently pre-COVID Though its model, equity its PennyMac challenging, is from return trend towards remains

now review will I performance. of over our to the will Dan, call who details financial turn

net our share declared partially Servicing on offset losses of equity was David. first profitability and the of on in in quarter first $X.XX fair dividend due Strong $XX hedge increased operating segment primarily in Production segment of an per value in annualized our PFSI Thanks, to Board elevated by for $X.XX of per return declines reported share. cash million Directors hedges earnings also income net MSRs PFSI's quarter or X%. a costs. and

compensation additional $XX the David As program. down an due we per continued nearly per the Book issuance $XX.XX the price primarily bought per equity And common shares value million share. Through first of of XXX,XXX back we mentioned, $XX XX, related stock quarter bought in from million prior our share. price an at April awards to to repurchasing of quarter, end, slightly share at annual for was we XXX,XXX average $XX.XX average stock. for nearly shares back

quarter, Production $XX Production, and reported loss pretax the are income the financial Servicing PFSI Management. volumes in the by Investment of first the X reported through In quarter, Investment Production, segments: segment X% Management results PMT, to Servicing was estimated the a a million, only $XX million reports approximately Overall segment and pretax segment solid industry prior down first including reported volumes pretax XX%. acquired income from be the of while $XXX,XXX. down quarter, of

approximately position lending acquisitions mortgage as the April, higher capital $X.X provide as will they high-quality locks XX% months, past successfully our more the commitment PennyMac market our widened $X.X and sellers partners to market. represented and We to be recent position and that channel In be the channel our strong consistent in like believe correspondent billion, the stability estimate navigate PennyMac. has periods its we XX need challenging and the of correspondent estimate meaningfully we partners leadership overall, with seek billion. over total correspondent been support share will we in

we increased from all mentioned, as in of volumes, trends market broker quarter. number our with lending prior and business strong division share direct David us the do the margins, see brokers As approved to

$XXX Over at April believe will to million in $XXX the volumes of we originations locks and we with committed be estimate the XX last XX months, represented $X X.X% the total billion. of April We approximately pipeline million. the originations be estimated strong and of continue channel,

from were prior the quarter. In originations consumer direct, slightly down

increase an as from However, activity volumes David was quarter. drove meaningfully mentioned, up the March, in lock prior in which

amount growth our portfolio we low, but remains positioned channel share rate of production estimate higher consumer market servicing note our channel will be correspondent originations Servicing In $XXX total future billion. channel. believe April, be in the are to for adding $XXX estimate will direct will and Our the million, April the originations we PFSI's given through XX We locks pipeline be in $X million. we at committed the continue

quarter, revenue execution positive of you all and presentation, of origination expense XX had prior reflects recognition this in but from negative and loss X in contributions As slightly impact expenses. timing can channels revenue pricing we see and a a which from loan quarter. prior the lower and the saw increased Slide The quarter our increased on earnings hedging, impact changes,

gains prior net and included the Pretax net declines income was down in and from hedges. on prior on due our fair to hedges, quarter MSRs while value Servicing segment MSRs quarter the

million, a pretax recognized fees levels. growth, rates earnings fees deposits due $XX the Servicing increased Excluding of up quarter. custodial and higher portfolio interest continued increased changes, short-term in income valuation-related balance despite low Loan as custodial primarily to from million placement prior seasonally from was on servicing we $XX and result balances the

interest $XX the contribution coming and we the interest activities a Income to by due term will which short-term loan rate $XXX expect driven a revenue and increases I secured about although from fourth quarter, later. higher in million a increased issuance servicing expenses, low of Mae increased EBO-related these by in advances, higher expense, Ginnie prior Partially up lower MSRs higher seasonal million primarily were from quarters the offsetting quarter, operating environment. from rates and the speak

value strategy. decreased value the asset MSR This comprehensive to also MSR, value cash is The hedging In by changes fair costs, due and by income a elevated were fair impact realization and and The order of earnings to gains by production-related significant million $XX of million, strategy fair the which designed million MSR to before during was rate asset, rates. Hedge on hedge $XX net the changes on of flows, per interest income. moderate totaled impacted the utilize our impact lower of MSR PFSI's impact quarter, interest $X.XX. interest were our the considers global $XX of volatility. pretax million rate protect driven we $XX PFSI's on and market of on value was in recognition hedge share

assets cover time. at $X PFSI's this seasonal Investment remittance million $XXX expected, In approximately from quarter to results. were under management As outstanding from year-end, declined at are sufficiently from $XXX interest financial prepayment principal PMT's advances billion highs obligations and MSR to strong quarter due and net delinquencies activity up advances portfolio decreased servicing as slightly No the continues prior to outstanding at for PFSI's Management end, segment, million.

XX Overall position, like capital due of loans for higher presentation. of Slide and I increased strong balances PFSI's liquidity see briefly would XX, to talk on earnings our which from about held December sale. primarily to leverage you can Now

However, March remained equity low XX. at X.Xx to nonfunding debt at

opportunistically quarter, a price sheet, balance X-year plus XXX loan SOFR further our $XXX MSRs the secured we advances of raising in During basis form and an attractive million servicing by points. the Ginnie term at Mae of strengthened

to year in ahead discretion. years the can be X for this notes maturities, due extended secured Looking upcoming at of PFSI's term August

and delinquency recessionary given Finally, higher executing levels. potential extraordinarily access well liquidity environment our in feel is demonstrated positioned we even financing, a to with continue PFSI to

turn David I that, with closing to would like back for to And it remarks.

Dan. you, Thank

PennyMac for excited very future. I'm see, Financial's can you As

to direct channels never lending and correspondent position Servicing better. broker been grow, the and Our our continues portfolio within competitive has

We a are their brokers increasingly to innovative turn partner. seeing and PennyMac and as and attention business new mortgage platform its trusted correspondents best-in-class

to profitably e-mail plans also these by with a our leader am respected For against Investor to I We Relations or questions as continue contact continuing Financial's mortgage in industry. encourage reasons, the phone. to in ability strategic PennyMac you. while our grow investors any Thank confident executing team

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

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