PFSI - Earnings call transcript Q3 2019 | PennyMac Financial Services, Inc.

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Operator

Good afternoon, and welcome to the Third Quarter 2019 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, please take a few moments to read the disclaimer on slide two of the presentation.

Thank you.

Now, I'd like to turn the discussion over to Stan Kurland, PennyMac Financial's Executive Chairman.

Stan Kurland

Isaac. you, Thank quarter performance third company's another quarter exceptional income PennyMac we earnings achieved operating as operating the quarterly of and Financial's earnings. reflected records pretax for

driven a execution of mortgage losses interest production rates. were Our offset in that hedging on result servicing our mortgage outstanding the the discipline the continued our majority rate our of results of in declining segment by strategy and as effectively risk, rights performance value fair

cash discuss $XXX.X presentation. increased million last Notably, detail cash $X.XX share of diluted the from Financial earnings declared quarter. of and income my PennyMac end quarterly dividend quarter. company this earned later per share per in its quarter or for dividend Book of I share. in per initiated net of $XX.XX Directors the at $X.XX Board value further will has to third the per share a of third has a $XX.XX

was XX% and higher of all $XXX.X record volumes XXXX, production Production quarter segment our production quarterly of million, driven third prior pretax from quarter margins XXX% the up income by from and channels. the across

for volume principal up and was was prior billion channel, correspondent the quarter from government non-delegated quarter $XX.X the million correspondent and balance, XXXX. quarter third of in in the locks from third XX% $XX.X volume the unpaid prior quarter XXXX. and the XX% the in quarter XX% from UPB, of production lock Total XX% PFSI's from consisting up of

quarter loans acquisitions for up XXX% XXXX. from billion XXXX. quarter XX% from $X.X PMT in in third the XXX% up and of from totaled the were fulfilled prior And of from $XX.X prior of locks record the quarter quarter third Direct conventional billion a finally, correspondent XX% UPB, lending and the UPB,

pretax valuation-related million on pretax servicing discuss million third included in in $XX.X of versus quarter $X.X income results $XXX.X recorded investment values, decrease slide XXXX. net The a million four, million our gains. loss loss hedging of segment which segments. continue pretax of items, to million and $XX.X quarter and by management by fair servicing other driven a of Let's and of a this $XXX offset MSR the The largely were primarily in

of The reduction per impact these items net diluted earnings $X.XX in was share.

items, valuation-related XX% $XX.X and from servicing for pretax down from income of Excluding the quarter XXXX. the third million, quarter segment the XX% prior was

Results modules, servicing will later reductions, cost by which development expect expenses long-term our in upon additional were in presentation. impacted of result $X the expand I technology-related which million my system to of completion related we and will

The lower doubled rate environment from than quarter volume, also was which in drove in buyout loan quarter. increase prior more the the an early

expenses lastly, As higher cash And flows income as to we additional lower period a rates the the prior recognized higher of of future result, from expect drive we drove recognized in quarter. we buyouts the $X.X faster but prepayments redeliveries. loan from realization quarter, million also MSR

of of net to last end loan totaled portfolio activities from prior quarter XXth XX% from of an at portfolio servicing and the UPB year, X% increase continue XXth, $XXX.X Our in growth. the provide September September billion as production

XX% of from management the quarter $XX.X XXXX. quarter investment prior in quarter of and the from $X.X of delivered million $X was third $X third in the up XX% Our million, million, the up pretax from segment quarter million Segment income prior XXXX. and revenue

approximately manage June new of management Mortgage as PennyMac assets $X.X that common totaled equity as $XXX the Trust, the we from up raised REIT billion September during in million Net XX% quarter. under Investment XX, XX,

environment. market to discuss turn and let's slide five Now, current the

slowing to of impact direction and clarity growth. rate by of tariffs international the around the Looking reflect U.S. driven continues on the the of trade economy uncertainty, the of ahead, outlook global for lack

the remained treasury fixed-rate on comparable quarter quarter, mortgage yield X.XX% most the the in levels in driving and The lower. declined third In XX-year averaged the at bond substantial during mortgage response, activity. of through rates third XX-year driving refinance increase October,

in Index XX% higher of the in average increase As in quarter prior a was third Refinance MBA monthly the was the activity, than measure quarter. it

total for in $X now XXXX total from XX% Forecasts over originations the in June. trillion, average forecast loan up

home by Similarly, percentages Purchase largely single-digit volumes support rate consistent originations rates the levels $X.X home originations to appreciation forecasted to elevated supply to trillion, are low more by and levels continue into has low of low of refinance in moderated still price while XXXX environment. wage a tight that total by XXXX, are now in driven prices. expected with continuation to grow aided growth,

relative Credit X.XX% at June remained strong XXth tightened markets remain securities down mortgage delinquencies The quarter delinquency GSE was of prior XXXX, X.XX% to transfer credit and on September X.XX% as from risk low. rate year total the XXth, ago. as a U.S. spreads and

system major am that specifically advancing for unique the I Financial initiative we milestone of address technology. Now, multiyear in pleased have six, a built as a needs a let's scalable top to a discuss with a proprietary to designed workflow-driven very slide PennyMac's and PennyMac proprietary and that to completed to related environment development turn mortgage servicing servicer. announce we flexible and architecture,

and cost we advancement the environment our is significant system believe of over advantages Through to servicing have creating unique substantial a the PennyMac methodology, design and into for that implemented servicing industry. competitive XXX our phased relative Financial, and workflow release a processes development modules tested technology

workflow risk flexibility times management to top with required activities integrates allows on enables enterprise the environment. a in cloud-based market processing. seamlessly This sits which today's advancing environment modern in infrastructure, management and changes, data and response regulatory a fully quicker to It approach real-time management, of greater and

to to scalability, our presentation. we are the We the cost excited culmination discuss our the agility increased costs, Andy, savings expect management's servicing later efforts by of and improved mortgage system. bring will in reduced

seen network portal digital consumer-facing power, we portal of division. David, both brokers in broker-facing lending the our more In have our our talk will approved of about detail as broker release and these with our growing regularly we origination investments. result channels Mac, a our direct origination recent in later continued our connecting channels, to updates growth for

Another enterprise proprietary to to third-party our important advance capabilities relates both across further flexibility our are systems the using channels. production we to of support investing platform, technology and and production initiative where all processing

We mortgage further advancements scale an enhance greater industry-leading to efficiency expect loans. producer production these technological as platform, providing our of and

attributes We loan. system continue to optimized within optimizes This of each proprietary our best loan for analyzes loan enhance the develop bidding granular system each production pricing state-of-the-art and pricing of of characteristics that a to unique multitude execution channels. our

seven, management. PennyMac Financial initiation in Financial's quarterly has a about dividend. to strong turn focus Since our slide and a of governance let's founding risk maintained talk on and Now, XXXX, PennyMac

a mitigated book to of management, business rate our changes ensure MSR more the built We cycles. impact which balanced per since to have share on our across model was values than adverse economic risk resiliency This has value allowed model that interest developed to triple XXXX. interest commitment PFSI's fair IPO includes rate us has and in

accomplished reflected XXth. our have X.X low which of in levels stood at as leverage versus peers of We September maintaining ratio, at debt-to-equity times all while this

significant believe establishment is position strong a cash and quarterly important providing initiate PFSI to have mortgage regular the servicing with financing Combined primarily grown future a support and generate growth, broad amounts efficient long-term capital dividend. placed access the to have into quarterly these developed of in enterprises of and that production capabilities factors component Our regular have capital. organically structure to industry-leading mature an sustainable stockholder a in returns. of We businesses dividend

of $X.XX I simultaneously am attractive payout investors pleased PennyMac third Directors announce to to a and quarter share cash per in this for to the the allows continue of Financial We Board that XXXX. level of of yield business. invest of that long-term has the believe growth represents an to dividend currently declared

into which Financial's initiation ongoing expand compliance including The quarterly, of the be earnings, the forward-looking current in company's the support believe the liquidity, external level, a growth time. and over to investors outlook, take dividend quarterly universe other a capital of consideration reviewed required finally, cash potential factors, factors. environment, will internal opportunities, we And PennyMac economic has with number to opportunity and dividend the growth the PFSI of will

like operational over PennyMac Officer, Chief David With Executive discuss to Financial's and Spector, now performance to discussion during our the that, turn the would third to President I quarter.

David Spector

Thank you, Stan.

turn quarter. PennyMac the Let's believe our across drive share a start in from in to times a trends by our the third further Financial's in share We to the with our mortgage in time. country XX% According in prior up XX.X% the our acquisitions the and increased market seller from to industry largest driving we levels ago. the and key service correspondent to this in correspondent fast expect up fourth consistently quarter, Inside market winning market year network. XX.X% was data to reported businesses. continue high of over Financial loans share our to We of commitment up review quarter, third Finance, And during is business PennyMac by our growth success producer XX.X% Mortgage quarter

to share PennyMac's successfully ago, portfolio. by our We and interest as in X.X% address year from servicing estimate X.X%, opportunity market in we a consumer infrastructure that provided larger lower this reached up X.X% leveraged rates quarter, quarter direct the refinance our last

products levels position to broker grew of an higher driven channel increase by the engagement. approved significantly brokers market Our quarter-over-quarter, direct our in offer and

third XXth quarter now mentioned, at up XXth portfolio September outstanding as the servicing we its year. that States, X.X% and United Our X.X% the and in Stan all service growth in estimate of at mortgage June debt last continued X.X% of we from

of production from activity PMT mix $XX.X third loans XX% nine to UPB correspondent and XX% billion and prior quarter the loans. quarter XX% Now, the in quarter, highlights. our from The let's by in acquisition conventional third slide XX% turn Correspondent and discuss was of the acquisitions totaled government XXXX. up

and totaled of sourcing unpaid correspondent which Government $XX.X a the third from the Conventional quarter principal balance, loan quarter quarter the XX% $XX.X billion XXXX. in from quarter third in the totaled from billion PennyMac quarter XXX% for balance, principal PMT of earns prior up the in and XX% unpaid from acquisitions up XXXX. prior from acquisitions Financial, fee XX%

unpaid Our XXXX. from with PFSI's in quarter. up in continue the balance, from correspondent business and $XX.X from volume third of non-delegated prior XX% total lock volume correspondent of quarter, consisting in grow XX% million the government also the of principal the prior was XX% lock principal up volume, billion non-delegated quarter unpaid to quarter and balance, $XXX

prior locks $XXX balance, the up the up Delegated unpaid XXXX. of billion totaled Non-delegated the from from principal XX% $XX.X in balance, volume million were government unpaid principal from quarter. quarter and XX% lock XX% prior in quarter third

am correspondent PennyMac was States volumes, the quarter. Finance, Mortgage to I the our to third largest in Given United growth the that in Inside proud according acquisition mention aggregator in

recent the loans eligible opportunity, the the in with competitive, remains market increase margins. in While number modest market has the expanded correspondent a for improvement refinance of government

basis quarter. the per correspondent production a points $XX.X quarter, the basis XX from in million fallout-adjusted the quarter, totaled loan lock result paid its fees in PFSI Revenue third Fulfillment by of from PMT's was in PMT points, acquisition volumes. loan the million quarter XX for increased $XX.X in up up as prior third prior conventional

was of a conventional down correspondent weighted fee to facilitate the discretionary reflecting XX points, XX basis from percentage slightly the acquisitions loan As UPB, successful points by previous in PMT. quarter, average basis reductions fulfillment

accounted quarter, XX% in the the of quarter loans quarter the in third third from XX% and acquisition XX% of prior XXXX. Purchase for volume total in money down

platform. network approved of from at with add We the ongoing unions that from continue benefit number of also quarter, credit the and correspondent XXX broad the reflecting our prior at end up capabilities sellers XXX community quarter to initiatives increase banks the in our end, of to

pilot warehouse notes also our a And e-note Mae. This launched with Fannie with line correspondent have of and and notes to deliver quarter, we bank funded credit an financed seller. first those

volume expect production it meaningful not the all testament in channels. leadership near-term, on this we of technology of the forefront a industry is do to While our to to our be and commitment across drive development

industry future drive source for our closings. delivery e-notes an Further, as for liquidity important to the be we enhancement e-note adopt continues correspondent having customers that will growth the and of believe

in to volumes in up estimated billion production XXXX. expected interest strong continue both acquisitions loan October to UPB, commitments remain with monthly $XX.X from correspondent both and rate significantly forward, lock Looking October, be

quarter in a We Now, capacity in the billion of successfully third and record prior quarter consumer to and from XXX% the their the as our discuss shifted we turn consumer slide XXXX, address production up our direct portfolio opportunity expanded and to for $X.X this highlights. focus servicing refinance our mortgages. consumers quarter, XX% of channel UPB direct originated to let's loans from in XX

over our period. the more in to last group pull-through than made XXX reflecting Margins mortgage XX% it from yield improved demand the we've from as quarter and basis benefits, consumer our fulfillment loans end-to-end increased XX% Investments loans. lending XXX channel simultaneously points did in process refinance to basis XX% to in rates same continue this processed for quarter, points increased prior direct

Our Similarly, low approximately October, the this are consumer expected interest to rate in direct commitments UPB. channel environment billion $X.X from approximately month estimated to continue originations with principal balance. benefit total in $X.X lock total billion of rate unpaid in

us Finally, to fourth full pipeline for the expected a be to billion, committed approximately strong well quarter is positioning also substantially year up and $X.X XXXX.

quarter, refinance billion by in from in channel in direct UPB to XX% quarter the review the broker Now, and the in highlights. XX% up $XXX million the $XXX volume. driven million up volume UPB, prior XXXX. from slide in XX, increase of and XX% totaled quarter, in a direct growth totaled turn let's approved and in third Broker originations quarter Lock third quarter up $X the second brokers from

products, and growing XX% dedication work channel these brokers, Our we familiar quarter-over-quarter. ultimately number brokers to are in Not becoming clients is offer approved more active and approving our increase applications. power up their submit using more but in are by in of more our the with with the demonstrated brokers portal to only this

increased of our We released activity. workflow infrastructure this processes improve the continue In the also broker use enhance capabilities updated that and we supports and transactional portal. interface to to updated of ease an quarter, power

million In XXst, broker reflecting estimated expected is in are the committed million And $XXX estimated strength are while originations to fourth approximately total locks to continued UPB. the total in $XXX $XXX on direct October, quarter. million UPB, into finally, to October pipeline total

slide turn discuss XX let's highlights. and servicing Now, to

quarter UPB the June of billion Our driven UPB activities $XXX.X XX% in in net from of quarter, loan production at billion billion up September runoff. Portfolio this XXth was of third servicing and XXth, by portfolio XXXX. $XX.X from end to the X% grew growth $XX.X of in UPB

own of which quarter. the speeds to which PMT, from XX.X% Similarly, to PennyMac during Mae on prepayment Mae mostly increased Freddie Prepayment serviced XX.X% Mac mortgage paying owned Fannie XX.X% loans, the speeds portfolio, prior PennyMac prior servicing Financial's portfolio, Financial's for and XX.X% from quarter. increased majority the the Ginnie includes are of rights in by subservice

delinquency declining speeds low. portfolio rates The and quarter. The prepayment on subserviced increase portfolios in our servicing rates is in owned our the consistent day XX-plus with remain

had quarter, while Our of prior own XXth, portfolio a as the day delinquency unchanged September second from reported up normal seasonality, quarter. X.X%, rate of the our portfolio from rate of XX-plus delinquency reflecting X.X% subservice slightly a

Mae transaction for quarter available The Ginnie continued the rates increased during further in from volume loan mortgage also which modifications, decline the opportunities early buyout expanded securities. drive

more The volume quarter in $X.X the modifications billion, unpaid up loan prior prior totaled totaled of double than quarter million, EBO principal balance loan quarter. the of in $XXX $XXX and this unpaid principal balance million the volume from the

management the XX% production growth of September totaled management return XXth. Net investments conventional and assets accretive in as of from $X.X increased CRT XXth, overall with MSR profiles. turn billion let's PMT's review core to generating up and slide segment. June volume investment is Now, investment significant XX loan PMT's under

additional of issuance quarter in a capital PMT million offering proceeds from net from equity the million in $XX PMT's shares and issuance raised quarter, X.X has This August successfully net X.X with bulk million $XXX proceeds shares common at-the-market common represents the from consecutive program. of third in million an

quarter, PFSI's based management up over raised Revenues which both quarter-over-quarter, in PMT's million fees XX% to driven increase has paid in to has fees million segment $XX.X by in management incentive investment management equity, this grew assets the and performance. driven PFSI. under PMT $XXX base Year-to-date, long-term higher on

PennyMac I'd over Financial's Officer, turn the Chang, third Financial discussion to to quarter's Now, results. review like to the Chief Andy

Andy Chang

next results couple earnings I our some encourage David. you, third on press for read Thank We trends the to release the on key our highlight financial in factors details. will further and of you quarter slides. of

quarter. Slide for our of results XX hedging third summarizes the the earnings on impact

designed of asset, of moderate rate the on fair while strategy MSR changes account Our income. into to comprehensive is value also impact our the taking hedging production-related interest

fair of in and other volatility. hedge value due activity to mortgage In of million due market losses value approximately XX% were of the losses offset or net quarter, by largely prepayment $XXX fair value totaling our These were expectations value fair recorded future MSR which $XXX.X million, lower to third we on been fair have XXth. hedging rates. the MSR costs, at by asset driven losses primarily the elevated for June ongoing gains elevated

As Stan management market risk not successful across environments book execution mentioned earlier, the achieved rate varying could interest without growth and be our profitability our consistent value of strategy.

turn the let's income, $XX.X our third quarter million servicing the Now, of profitability excluding valuation-related and in quarter XXXX. Pretax million in segment. of changes from million the $XX.X the discuss and slide to third $XX.X was XX prior down in quarter,

continued servicing operating higher technology-related $X expenses flows the was modules. revenue to quarter-over-quarter cash higher prepayments Driven the portfolio by and We third revenues The development quarter increased system increase. lower to million our servicing expected completion from additional due growth, offset realization of of of our interest by incurred rates. for largely in

$XX this to we in than of servicing XXXX. million be expect lower expenses technology-related completion the million initiative, With XXXX in to $XX

Mae We that to volumes million related the and also discussed buyout Stan incurred David expenses increased $X of Ginnie earlier. additional

activity are become future drive modified or elevated redelivery. period eligible increased to loans re-performed as expect and We income this for

it for to to over remarks. Stan, would I turn that, back with some closing And like

Stan Kurland

Thank you, Andy.

with enterprise, through to navigate XXth our grow demonstrated the itself and leading operations, profitably varying of established banking market PennyMac mortgage environments. independent Financial year a has in Now as ability

to servicing long-term competitive we for as growth loan provide positioned our We production sustainable, evolve advantage. continued platforms are and

dividend. we this financial successful of the completion our results, and a servicing record system initiation our addition two In notable achieved cash quarter; to of environment, milestones quarterly the

The returns to long-term our and mission cash value to sustainable establishment dividend believe is forefront of of the structure deliver superior an we in And stockholder is providing important the component our of a strategic stockholders. quarterly returns.

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

End of Q&A

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

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

PennyMac Financial Services (PFSI) 3 Nov 192019 Q3 Earnings call transcript