PFSI - Earnings call transcript Q2 2022 | PennyMac Financial Services, Inc.

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Isaac Garden

Good afternoon and welcome to the Second 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 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.

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 2020 results.

David Spector

Thank you, Isaac. itself in best-in-class an the on of distinguish strong company, annualized to equity results financial second XX%. continues as mortgage a delivering return PFSI quarter with decisive channels, to despite year our higher production volatility, to expenses levels increased with three continued earlier expected align all and lower interest activity, across actions taken rates, margins the Improved industry segment, quick of and with profitability meaningful this our combined overcapacity. led in

which strong continues production saw We contributions driven origination servicing business, grow from by to also from channels. our organically three all

This in June quarter of billion portfolio of than XXth, principal $XXX from unpaid at quarter total March in loan billion, $XX servicing billion volume a X.X acquisition balance, and up million the and offset $XXX at ended billion with $XX XXXX. billion origination customers, runoff representing XXst we and $XXX more nearly

at as will under the down servicing As differentiate In was $X.X has PFSI demonstrated of and assets quarter competitive Management X% In financial of growth by PFSI's PMT's serve to quarter at billion prior our were performance, important from the challenging. this under Investment XXth. strong up segment, XXst continued growth to its June continue financial landscape results, remains drove an $XX.XX net asset management portfolio impact per performance the given quarter's which and pressure from total, value end, origination the widening which while share, on due spreads strong credit been investments. this book to in March

July, additional per at average cost below $XXX of second repurchased cost we share. Directors in cash an dividend an repurchased million. XXX,XXX an for also of and company across $X.XX average price performance of In for Chief PFSI quarter, of of to additional we quarter per financial current Senior later of X.X Director common second Financial prudently of $XX.XX PFSI's approximate of an continue Managing at a will We our capital value declared price share. on significantly and $XX details review the the Dan manage million discussion. $XX.XX shares book Perotti, PFSI's million, Board this Officer an shares stock approximate in

Although to total $X.X due point indices further trillion, first rates. to originations XXXX in current as application forecast to mortgage the half declines for in increase $X.X from in the trillion half mortgage rapid range market the activity reacts year, primarily the second of the to

taken more view PennyMac such, to of our As has in activity. capacity proactive lower meaningful and mortgage line with production reduce steps

potential unpaid and is value of and the company of in While money further, principal small decrease different we mortgage record the top company balance. creation half We May there the as the a loans expense for in producers in operating servicer purchase a long largest track of addition in with correspondent a executing position up sets under country. $XX a a public rate year, well to the of these forecasts us made one of PennyMac continue we country first to of to a reductions profitably. we our has believe in as in loans business portfolio of are in XXXX became servicing Today, the environments. producer billion publicly-traded Financial

by market equity for financial our and growth invest opportunities state while technology, returns with strong and conditions. on innovation, and We profitability, in value book our also have stockholders. the Though ability transition, market the is unwavering on strong positions and provide of obtained us the position these expertise delivering leadership current focus in to created management, liquidity mortgage an a risk

are by has equity and in book at on the medium current shares to always levels value. decision been repurchases expectations term accretive returns repurchase our driven Our for to highly

as serving home stockholder years continue of history including appreciation driven capital price prudently and customers. Strong has company capital in long responsible a X.X our million many growth share to across substantial repurchases. have will stewards the for home equity of recent allocate of We in

While the refinance relinquish exist, interest fixed not cash the do years. want to few rate obtained last many low opportunities out in

We are introduce yesterday that seconds working to customers lien for to equity servicing for lending home customers. our servicing in diligently our launched portfolio channel second such direct mortgages. with as closed-end consumer To access new products portfolio our solutions end, their closed-end we

servicing the on our We growth continued also portfolio. remain focused of

growth primarily this driven from by expect our created to industry-leading sourced be MSRs organically We business. correspondent

for sold Given in MSR opportunities portfolio believe be difficult there the growth our capital year, will liquidity we more this origination more position, later additional as bulk strong and are packages environment.

and mentioned, briefly better meaningful proactive base expected to year, steps levels to activity. this I expense our earlier with took align of we lower reduce As

and count, implemented enterprise. easy, While took quick additional the significant made reductions head across our decreased lower never identified spend and expected efficiencies our returns we action marketing and response to rates and to overall due

to operating the more expenses second $XXX reduced second million the $XX we expect expenses and fact, quarter XXXX in another by quarterly half of XXXX. to by million quarterly in average decline million to operating compared In we than levels $XX

continue recognize we the our platform, efficiencies. further customer mortgage to the experience prioritize and of to However, play driving banking role the we important in continue bettering investing technologies new future and will in

review Doug, Now, banking I'll mortgage and our over who will quarter turn trends share second market to results. it

Doug Jones

Total such $XX.X Thanks, XX% Government billion estimate PFSI partners or channel aggregators high-quality consistently sell were the PennyMac correspondent David. improving was PennyMac. for second position acquisition conventional released to conventional XX Overall across earns as XX% while conforming loans a was the of PMT. months fee declined $XX.X leadership volumes, were billion of our billion government fulfillment margins are industry as correspondent from we in servicing production increasingly over with loans maintained correspondent volumes $XX the which up, were we approximately our acquisitions loan quarter. correspondent in or channels. and and its all past loan to solid represented channel looking acquisition that the volume production three overall. with XX.X%

operate stability our and were points, second the was support navigate the the from Our X% reputation correspondent XX volatile combined in have billion, they and Revenue $X.X quarter. commitment structure up through from basis need market allowed and was correspondent XX the our our current operational environments. $XX.X industry us billion. in The down we In business, volume scale low-cost quarter locks acquisitions the prior $X government billion have the prior points in in excellence achieved adjusted Government in lock were to the per July, efficiently in and the channel lock with to environment. quarter. channel consistent correspondent partners fallout the provided basis

to Consumer Turning Direct.

competition of remains providing to migrated this our sell portal and money We volume allows Our days an times, with up channel in we Lock process. and significantly reflect for July were new the borrowers were locks continuing introduced Shop, competition levels and since third $XXX XXXX million. pipeline capabilities brokers quarter. in to partners new months. from billion, last fallout originations. To lock fallout market products competitive. prior faster $X.X including leaders. the to we total Purchased aimed quarter, the in Though billion $XXX customers totaled better XX channel channel at announce billion. quarter. reflecting higher totaled by channel we and for margins estimate focused pleased to XXX quarter continue improved prior The collection several Total current of searching broker totaled and highly We adjusted which additional PennyMac originations the of Despite lock XX% for per and profitability at in we XX in to lock expanded at million points, that or for communication totaled approximately up long in channel. channel products totaled was increased end, although share am million. committed end consumer interest mortgage locks the a all the $X.X or to I $X.X lock Margins margins we serve the superior they new represented from has XX volumes in refinances. locks, that points Origination see the loans closing basis the totaled and home. a the them remain pipeline of per elevated rate growing experience. direct prior accounted was million to for Broker was they decline the from $XXX XX July, to points, in the including month, Revenue of capabilities as for up trend $XXX July improved XX of X.X% and expect originations in approved and lock XX for $X.X the billion. basis at total a than Originations channel will share while and the basis prior $XXX quarter was the in currently, steep the and in originations $XXX improving months, our broker on basis the purchase the revenue in our rates opportunity committed over million XXX commitments our up last of over decline given channel locks products fulfillment X.X% the origination points quarter, have the billion, channel XX purchase were second were that providing this million quarter from billion adjusted nearly in doubled $X.X committed mortgage and mortgage POWER was in July, X% total the and positive our to volume in data in term approximately $X locks The

and David organic represented the in portfolio, X.X% XX% quarter acquisition Freddie our speed speeds in own which billion of the quarter, $XXX growth given pleased meaningfully, prepayment Mac a ended the mortgage a mortgage and higher drive Mae includes mostly in of the XX-day Fannie while the down of at to As quarter. that consists a PFSI's X.X% prior which reported servicing XX.X% portfolio portfolio, the prior prior consisting portfolio. had in quarter, portfolio levels conventional of UPB origination rate by down the the these Financial's down both of to X.X%, of of million, of PennyMac US. quarter. and from XX% XX. were or mortgage The own second residential declined lower modifications was am have delinquency from Prepayment XX-day slowed all down of rights approximately I Similarly, rates. down higher as prepayment and a Financial's the owned completed rate of end discussed have billion prior subservice volumes totaled primarily PennyMac servicing debt mortgage EBO servicing MSRs with the delinquency X.X%, subservice servicing loans from report speeds earlier, portfolio, we $X.X due continue of at opportunities servicing Ginnie to $XXX our of from volume Mae delinquency from UPB plus X.X% PMT rates. the March loan quarter X.X%, primarily

not new in flow only to reemphasize These made the did I of or Before products new potential the our want payments equity our portfolio utilize in but business. the monthly customers I and regarding over are of asset as Dan, it form a to importance homes. differentiator that origination earlier key point access they future our cash mortgage David customers purchase as turn also a to key to servicing their provide homes

giving SSE platform in have. improves needs flexibility, low-cost customers may us our technology servicing all our mortgage providing a efficiency and the Our advantage

with We business balanced this built the have idea a creating of company model.

and As now turn businesses. we it we our organically see who portfolio, production to benefits will to continue grow PFSI's the continue both servicing in financial over for results I'll Dan, quarter. to servicing our expect to review

Dan Perotti

Thanks, Doug.

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

expect to $X fees million and income. short-term $XX expenses, UPB due by by realization in recording expenses revenues And and a $X.X prior quarter revenue levels cash half portfolio interest loan higher $X and average in interest we were further higher will you lock increased driven from including increased them PFSI's was for quarter. to other changes in The received million segment pretax prior excluding a Production $XX.X of $XX channel. income recorded provide points timing income to account a PMT servicing on as loan cash by Realization expenses include for of pricing higher growth revenue our compared the each balances fees Operating quarter decreased Operating in as from items. and loan million, see recognition, MSR quarter grew due down three of prior servicing servicing Slide segment from own loan correspondent and Payoff-related by offset custodial Revenue rates. Pretax by includes decreased. the As percentage expenses higher fees were from loans. prior to revenue in of values Hedging prior second the slide we by XX, increased largely also revenue earnings totaled the activity expense and million, $XXX the XXXX. the by second million. adjusted strategy. the we of basis value servicing the slightly higher losses PFSI's value origination from $XX to prior due see lower by of the to lower This to of loan the related asset in increased income. the the from primarily of correspondent margins This of conventional flows Expenses shortfall MSR EBO-related of fair of protect have and be related rates. million our on declined million, our volume to related in flows million XX, basis as our and channels fulfillment current which percentage deposits the fallout in prepayments million, as release portfolio mentioned, and and moderate all hedging, In considers items of currently David of quarter, MSR interest origination the resulted of production $XXX production up contribution driven you quarter, the comprehensive in second XXX which MSR execution pretax points our valuation down the breakdown to production-related on by in can net quarter is higher our realized value in expectations gains the from impact per in servicing designed rates, On XXXX. higher fair interest second the asset, quarter. during the servicing million MSR average changes future. XX utilize for in from of $XXX.X from the of the primarily quarter, $XXX.X strategy million lower up higher rate order MSR mortgage prepayment and segment income driven was a reduced slightly for hedging channels, quarter.

under June June Finally, and prior in our XX% Management from March as segment totaled performance. income was and Investment X% pretax the from $X.X down of of prior from Segment to XXst, the up of $XXX,XXX, financial delivered from $XX,XXX XXXX. down the down quarter. $X.X million, XX% quarter X% management XXth, Net quarter billion from revenue XX, due PMT's XXXX second assets

Now review I diverse to balance strong and would briefly like sheet structure. our capital

times. have done X.X below target history the We or have ratio while been throughout a and our so with maintaining debt-to-equity near low profitable

total historically the at environment for of opportunities, net Similarly due non-funding ratio remained ratio debt the has other eligible below excluding or recently tangible to in to assets loans origination debt-to-equity the has by repurchase one-time. equity years rates fluctuations continued unsecured While or worth to our stockholders' low with increased are fixed PennyMac equity in sale financing balances senior of maturity in debt levels. a three billion the first $X.X the reduction away. include loans from than and of sources peak at held more Financial's growth diverse for the driven

to maturing maturities an note This by secured for issued $X.X of years billion. bringing event total five-year Though, Mae to two extend the notes servicing issuance we Ginnie to PennyMac the million our we new $XXX quarter, term each next expect refinance the term in mortgage the in rights, year, term has billion additional market these of ability $X.X dislocation. notes of secured

financing fluctuating secured MSR duration term securitization structure to match revolving to life is provides our with our Importantly, balances. to advanced the and MSR bank of the issue support to ability and extend complemented notes MSR better investment

see available transitioning remarks. of to would June navigate billion mortgage with provides emphasis leverage structure, some that, a can for closing it governance at overall a $X.X liquidity strong like low risk you And foundation with turn diverse to As XXth. to the I and back our capital landscape David

David Spector

Dan. you Thank

business quarters While, additional next simultaneously across for it to diligent investments we projected market balanced in this or strong long through in transformational in reach lower in investors servicing history and Investor long-term while the our markets. was another to quarter any and We by due the executing making growing management e-mail and we encourage our you. trend PFSI the the few identifying remain phone. implementing I PFSI's PFSI, success. with to positioning current various environment, a our company, team projects, volatility which position Relations also portfolio of over out Thank to with efficiencies will technology remain are model for large given team's continued confident believe questions returns over Though

Isaac Garden

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

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

PennyMac Financial Services (PFSI) 3 Aug 222022 Q2 Earnings call transcript