PFSI - Earnings call transcript Q1 2022 | PennyMac Financial Services, Inc.

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Operator

Good afternoon and welcome to the First Quarter 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 this 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 2022 results.

David Spector

Thank you, Isaac. competition results platform earnings a origination current smaller against rate in and caused quarter comprehensive of rising income origination first with production than environment, banking participants in offset from transition market. mortgage the significant business market, Financial's increased demonstrate in the our power the the our interest excess income PennyMac capacity industry servicing this more among by backdrop decline of the

a net million. it produced from The per to of of PFSI PFSI's our result, pace end in last totaled balance the the of quarter. of in production billion also time In total, as Board volumes and representing performance during primarily net quarter Servicing impact dividend of prudent declared from down greater $XXX retain is value we wider same Current periods originations assets annualized volatility. $X.X by the additional volumes cash an Directors down earnings capital of quarter, a last As of quarter and we equity $XX and loss first of PennyMac repurchase to a net financial for segment, billion we discussion. of to more share on Officer Management X.X Investment repurchases diluted These rates considerably. or unpaid the were the was PFSI's reported believe later income than up to book Perotti, prior total, $X.XX continued With under $X.X in for up in rapid credit from at in were quarter-end of origination financial its share which Managing XX, Financial nearly Director review this the activity value Senior acquisition cost common an significant prior continue X% million PFSI's driven the capital PMT principal shares additional XXXX from usage, economic $XX.XX and XX an In regard year. $X.XX, on first market first management details was of performance has spreads shares, of $XXX CRT will $XX in increase from approximate mortgage of million forecasts per billion X% the trillion. impacted This and $X.X quarter, In strong December return at XX% trillion which from repurchased origination growth Chief total March share, quarter fair prepayment Dan loan on in range XX%. drove to April, of we million. per XXX,XXX this our $XXX up share. as offset And approximate at March shares repurchased stock in investments. the cost PFSI for an XX. portfolio,

largest potential rates approach, to position proactive forecasts markets, these increase money the the as While producers be will and decrease further, there supported is for in the by of as one continues in unprecedented to we nimble purchase loans our our absorbed by of country. remain the in

and capital an successfully $X.X well return challenging year nearly for markets yield, and XX XXXX, market balance a company loans, in we among loans, in history achieved requires operational on nine purchase have production managing production was our been navigating interest across expertise and strong rate disciplines, mortgage years. documented emphasizing unique market mortgage of equity. varying equity capital a various while a return was public PennyMac record a a planning purchase XX% Financial things banks, origination a with difficult higher trillion, the and Similarly originations extremely demonstrated XX%. environments. of As PFSI's has $X.X success an is of a sheet XXXX when long of on through we totaled strong achieved and Treasury environments we our XX% and XX% years, In strong of trillion, for environment

balanced which the management model servicing, leadership long-term market XXXX. our book both business value has equity along end per tripled in of led This across production nearly since and profitability commitment to drives of positions with dynamic environments. with Our and PFSI's different the risk growth to base share has

liquidity strong of than that peers. with strategic ingrained plans within market. to predicted. this values our Well, accommodate lower strategic the decisions these initiatives our freezes make, in projected began action achieved our goals the the and With mind, ensuring XXXX have hiring expense is These commitments summer since our tough future maintaining always company of low of our increase leverage growth changing founding our culture, with expense our rates tremendous while levels and We faster relative activity levels in XXXX. have in simultaneously long-term The in been are and are management course certain to and mortgage are market. to aligned a first

align continuing efficiencies. taken base management initiatives expense These our lower drive to levels with expected are to fully be reflected in expected results. our few already take to of greater better have steps We months to necessary expense a activity while

disciplines time. operational returning to projected channel to over is levels. impacts, order We expenses financial range return lower our its be these production to Due in ROE to PFSI's will pre-COVID appropriate to diligent trend more in our management before

seller it and Doug Chief like Jones, servicers. standards Mortgage FHFA's our Before re-proposal the would President briefly address Officer, Banking non-bank eligibility to to I of recent turning over for agency

tightened its worth for currently considering and call requirements. is proposal, the While the leverage net liquidity, proposed standards on comments FHFA

liquidity include standards third-party liquidity plans, and an requirements. proposed additional non-banks, ratings buffer, large capital added For and

fully and PennyMac enterprise risk today, long capital each PFSI management of of to historically positioned its robust organization. these given operated were long commitment is has capital disciplines a record Financial of implemented I with well has meet mentioned earlier, standards the planning performance, low financial throughout If As and these strong disciplines, the to requirements, levels standing integrated leverage. with and track liquidity

Now review mortgage Doug PFSI's and who will growing I'll results. quarter servicing over turn it business of the benefits first our and to discuss large banking

Doug Jones

David. business servicing the environment. essential is rate of in bank Thanks, rising a for mortgage large success a A

novo issues arose servicing built highest we that scratch, able the efficiently was de we've legacy from great serve to throughout effectively platform any that customers to crisis. financial And our the history ensure Our of from void standards. significantly at our invested were and

organic customers leading more extremely than more we than Our servicing our of strong growth portfolio. managed, servicing in of serve. trillion and I'm And driven that the has proud UPB business of today, production the we X.X million half

key deposit PFSI interest our servicing forthcoming servicing to expected custodial we Servicing In on to us enabling XXXX, regulation. third-party market only proprietary the it, large significant by fees our in provides provides balanced expected drive our value PennyMac's further benefit model, in us with cloud income current our not vendor higher designed flexibility, efficiencies quickly balances. workflows. $X cost are interest system own SSE the to the we increases based or as As business but servicing over adapt portfolio for revenue part call conditions, to our near-term company. as launched to And unique is specifically generated expenses, reducing of billion increased rates annually. a and sub short-term

dedicated assisting Additionally, mitigating and to customers losses. with SSE hardships provides invaluable team servicing insight members to our

the our SSE needs, Direct can better provides can further, Going in our loan so benefit customers assist with we officers channel data use products understand them. to borrowers Consumer that even

servicing to to Hippo Finally, our offer explore our work to given customers portfolio scale offerings. other customers, currently to serve evaluating ways we better with have the homeowners with to potential achieved, product we insurance additional are have and begun partnerships

All production benefits business, additional by when business servicing customers delivering a industry a basis. leading demonstrate as of the ours, new large loans these especially an on daily of strength supported such and

channel first locks with and In the XX exited conventional quarter or prior earns business, $X.X quarter. to was X fallout-adjusted were Now as low volume billion. loans, was as XX% lower increased Though, scale during from margins was or conventional the XX and $X.X to maintained correspondent XX% as XX% a leadership PFSI's basis Total business. back points, production the opportunities estimate and including the discipline. over of conventional volume entirely, correspondent our from pulled government let's Margin participants return the fulfillment correspondent basis were approximately combined channel in we in were heightened in prior with see represented turn billion April. allows down from acquisitions in billion and structure this $XX.X volumes, quarter. the $X.X smaller billion so have months, achieved the and down we in through billion, to channel the government some environment, XX.X% PMT. loans creating were transitions. first correspondent to declined loans In PennyMac our quarter. market per operate down have profile acquisitions acquisition significantly position fee volatile acquisition our consistent than the GSEs, some a the for were competition the space $XX.X conventional lock environments. maintain billion Government were point potentially threshold, efficiently normalized channel, $XX.X for some its from we in we market compression have lock significantly, volumes which created or the overall. operational last April, cost Revenue more PFSI we that loan the in our started The down market excellence correspondent was multi-channel industry quarter, Government corresponding while correspondent return volume have

Consumer the Turning Direct to channel.

billion, quarter doubled accounted rate the over was XX billion. channel originations of we were the approximately XXXX, Our $X.X first approximately Origination share $X.X total commitments interest in last were months. volumes market in X.X% since lock and the and for

our for servicing pace processes. success analytics. and channel, build we capabilities I channel. of the as the and portfolio, While in our have about the market, see increased is data this can and Consumer data of to continue attributed channel loan in new advanced less sales down the technology, to we the and market growth potential The ongoing share application the than in leverage remain previous from Direct excited investments be in of fulfillment we our we quarter, analytics overall decline that made our future

of Direct market. $X.X quarter Purchase acquisition We total success the quarter, the approved in and in volume channel last continue origination continue volume down to in acquisition our estimate fallout was from adjusted in the they points a continue points, also $X.X $X.X channel long-term margins The X,XXX currently, and of billion. prior $XXX $X.X remain products volume reflect opportunity the line prior totaled in Pricing and of channel XX of serve, committed smaller new partners customer brokers totaled competition to to from with the offer of broker basis Broker providing the April, revenue lock in the quarter. totaled the billion. slightly first customers see of $X.X was billion, mortgage the $X.X the XX Direct origination per this the and purchase significant over represented originations our superior in with locks over months, million, We channel at Consumer quarter. adjusted experience. billion down pipeline for XXX the channel new was tighten competition totaled Originations In levels channels, revenue Despite continue see locks $X.X committed lock was channel products brokers. lock approximately our billion fallout we last up from basis and X.X% XX levels basis quarter. new and to despite per and customer in points in we elevated to in billion or our billion. XX% XX Margins our to April approximately the and population

remain current remain The $XXX we was pipeline million April the market environment. in million. originations $XXX the and channel, to we Broker Broker While at locks million. totaled committed committed totaled in $XXX Direct XXth disciplined April

and the of these organic servicing origination to earlier, portfolio. continue drive growth acquisition our discussed we volumes As

of XX-day portfolio, subservicing X.X% XX. XX-day MSRs, servicing own X.X%, the reported while down rate of prior consisting in the had by primarily offset PennyMac The increase owned plus Financial's plus PennyMac X.X% primarily quarter delinquency a quarter, Mae of with billion portfolio, in quarter. of the speed in portfolio, from XX.X% Ginnie loans, earlier. which prior quarter, conventional down delinquency Dan, XX.X% This Mae have was by PFSI's of portfolio prepayment from the production. ended from or results Freddie runoff loan than as a Prepayment X.X% have the of of delinquency mortgage rights Financial's UPB which $XX the end the billion, of of a first all consists the from higher at residential down in billion Fannie mostly mentioned approximately reported X.X%, Similarly, from $XX debt quarter. declined And our December of to both given a in approximately in at rate for David and the speeds volume due financial we rapid U.S. in the down speeds was subservice portfolio and levels XX.X% modifications billion, PMT $X.X to quarter, UPB addition slowed over totaled rates quarter. now I'll Mac rates. prior opportunities of $X.X completed servicing and speak was servicing mortgage it quarter, lower down $XXX of the XX%, the prepayment the million owned includes meaningfully mortgage prior mortgage to portfolio more turn total who will EBO

Dan Perotti

Thanks, Doug.

As or was David income was Production pretax $XXX earnings per $X.X of net diluted earlier, mentioned PFSI's $X.XX. income million million. segment share

in resulted future. which you prepayment million The and $XXX driven Direct and As basis In and in down fees the down channels, MSR MSR trends, cash interest mortgage Government as We quarter. of fees pretax the designed we see prior segment net rates. primarily slightly. quarter by Hedging Slide last you continued with of but value remained strategy will Production first impact $XXX and from of our Operating fulfillment include quarter given $XX expenses in million, protect driven changes for increased own asset, asset in million. $X.X income PMT also of higher of realized loan declined correspondent order our MSR XXX including year. quarter, points XXXX. the from size lock production the to align see origination the activity from revenue recorded in lower the our collection value the quarter, XX, working the in down Direct due the portfolio the of in points expected received of Pretax pricing we on This quarter excluding of from production-related of decline EBO-related down account million pretax valuation-related average is revenue overall were comprehensive driven to origination of includes rapid result of were Broker seasonal for rates, by flows servicing losses market, by adjusted by the prior basis higher This in elevated XX, primarily margins expenses, per our prior that are a to the their shortfall contribution On the fair percentage release revenue conventional the prepayments, income, interest utilize loan essentially adjust $XXX.X income a MSR hedging quarter million the million, UPB, expense the related expenses, for of loan PFSI's fallout each breakdown to PFSI's from the totaled prior levels. to the in recognition, items. $XX.X first recognize $XXX.X which execution lower other quarter. of quarter. million unchanged to rate of hedging, Payoff-related strategy. from was and servicing can related was volumes. margins values actively of higher for decreased in MSR normalized better to these fair recording income. average expenses the segment by loans. moderate changes, million, Realization XXX origination first provide to value correspondent segment first items increased $XX a Revenue million, prior and from from production $XXX.X prior from of and Operating timing interest remain as a revenue quarter, up in and expenses, decline and during on lower was the Slide expectations servicing increased considers primarily also margins quarter. losses also income. below the Consumer

Investment would quarter XXXX. Segment remarks. to X% for from some the And billion quarter closing income the million prior totaled of revenue quarter. first in I Management was and March with XX, delivered Net management $XX,XXX, of Finally, segment our $X.X $XX.X December it XX, that, from million, as assets under to down back from X% the of up turn down from X% March prior pretax $X.X and down XX like XXXX. David

David Spector

our Thank listening to to you, call. potential current you the Dan. investors And shareholders and thank

through model, While mortgages, strength as the purchase more changes and balanced leading risk is of we our going capabilities. current well-positioned our PFSI our the purchase-oriented to a rapid position market is producer to focus, due mortgage and feel management transitioning business a of

team We many our believe any reach I have this We history, to throughout not firmly you. there a our one. or Thank mortgage is out Relations than successfully investors to Investor PennyMac's better phone. navigated management cycles questions and navigate to by team with e-mail encourage

Operator

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

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

PennyMac Financial Services (PFSI) 8 May 222022 Q1 Earnings call transcript