Earnings call transcript Q4 2022

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Isaac Garden

Good afternoon, and welcome to the Fourth Quarter and Full Year 2022 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 fourth quarter and full-year 2022 results.

David Spector

Thank you, Isaac. PennyMac in net earnings quarter, million, of fourth $X.XX or per the Financial income delivered $XX In share. by These rate results share change tax $X.XX. which negatively include impacted earnings a non-recurring per later and PFSI's Perotti, Officer greater discussion. Senior Director on Dan Chief this in Managing will Financial provide detail

For the at XXXX return $XX.XX. achieved PFSI on driving XX%, ended of full share, in growth which year, continued book a equity value per

$XXX to billion from Our prepayment in an principal competition, I servicing year later which portfolio of additions continued ended serving will asset, balance continues PFSI on. growth loan The at production portfolio to exceed the activity. as as servicing from important discuss unpaid our increasingly differentiate its

million shares PFSI at evolving active flexibility of for the average to address were stock in $XX.XX prefer the of price risks buybacks as environment. an opportunities from meaningfully maintain remained levels approximate third million. the Repurchase stock quarter in $XX market X.X we and cost fourth down of an in common We repurchased and quarter potential we to

$X Investment were assets due PMT's performance. Management net quarter from at prior under segment, to financial down management quarter PFSI's the end, In slightly billion

declared per quarter a Directors dividend of cash $X.XX of Board PFSI's share. also fourth

took origination the a performance. the While rates, for significant we to to increase the year XXXX our with business mortgage in to led our smaller operating year was throughout a the strong challenging actions for meaningful interest due right-size industry rapid and market, discipline financial combined

and year Though XXXX, at Mae was year, financial for continue company income dividends, value $XXX returned to us attractive over share stock raised which performance book returning year five-year last the term by for per XXXX. our while of produced to full we for profitability positioning Ginnie from $XXX MSRs To secured full notes repurchases $XXX XX% enabled in fact, the stockholders end, simultaneously and year million, through opportunistically million from shareholders strong success million to future. net the In that PFSI capital the down in up drove rates. end

PMT, UPB range UPB. servicing Total by in trillion to for $XXX X%, $X.X $X.X third-party made customers. currently than With the nearly billion X% originations above recent to XXXX from interest million portfolio trillion, production, more X.X the rates including forecasts $XXX led acquisitions from with This year XXXX. billion growth down to mortgage was of for meaningfully still most in

have capacity, remains. participants taken industry many still been to and has happening While steps it slowly overcapacity appropriate reduce we believe the

performance, the lower from companies profitability Financial have with positioned in portfolios we XXXX volumes. banking better to As models servicing believe decline with business we mortgage our has that origination PennyMac demonstrated large diversified offset and are like resulted

value sub-servicing a totaled portfolio $X.X more growing significant and balanced our the XXXX. As business and provides large the of majority Servicing than servicing billion which of revenues, company. key model, part our to are cash, in

higher strong have Additionally, custodial balances. on rates earnings short-term driven

quality provides enable proprietary quickly service efficiencies regulations while to scale adapt us with market workflow to providing conditions operational customers. technology significant servicing us that also and Our our forthcoming and to

Finally, fee recurring given will our the income businesses title have over achieved, as joint we customers, grow. through we offering and expect which the insurance have we provide ventures, begun time scale homeowners

nearly as total over X can rates. volume loan Slide On production mortgage MSRs briefly servicing loans of the be most three on I quarters can the As average to the growth PennyMac’s recent our all earnings produce we large mentioned our see against retain earlier, of our quarter, presentation, mortgage attributed we portfolio of every you production.

the to quarterly basis production servicing our consistently represented increased, Even X% of rates as balance. volume interest the total a X% of portfolio UPB on

refinance rates, future opportunities we volumes to consumer market direct build significant portfolio at significant continue continue current in of to rates for division mortgage add if the decline. our we servicing our to As will

anticipated given quarter. XX% meaningful XXXX Quarterly expense in in and the and fourth operating were significant expenses early market, took average fourth implemented we quarter reductions throughout capacity savings Again, the from XXXX decline down actions the we levels. overall additional the in and

While management contracting. have growing market, disciplined, rapidly the of believe remain to capacity continuing completed, been we we majority to the expense origination of adjust size relative levels whether activities the or

insulated to I is mortgage the believe PennyMac presented not While the today’s industry with market, best-positioned balanced XXXX. in business our we model continue challenges Financial are by executing from in the

of and to Our conditions servicing approach provides to organic portfolio. production growth our mortgage flexibility drives the different market multi-channel to adapt

cash Our leads provides to business operations our in direct consumer cost support and future. business to flow ongoing business servicing produces low the

deploying long resulted a developing and has our to platform extremely have as technology, by right-size in innovative our flexible cost history of and ability which successfully evidenced mortgage structure. rapidly scalable an We

then, and customers. enterprise management contributions to we the is believe all to one unwavering risk XX for this the best and also their for providing while our country, we than PennyMac servicers right various an team doing More returns the XXXX. performance strong years Finally, PFSI’s industry in focus on of largest I in to management the thank them strong become Since with have thing I’d in stakeholders. and ago founded our mortgage producers the like

strong time. returns towards in ROE continue over ability its XXXX, remain I pre-COVID conditions while as more performance our So to confident trend is range the normalized projected PFSI’s financial delivering to to during market

turn President to and will Doug banking Chief trends Jones, Now fourth share who PennyMac’s our market Banking Mortgage mortgage review over Officer, quarter and I’ll it results.

Doug Jones

correspondent channel to down our total quarter, industry overall. the support according to of the down they estimate prior widened strong capital over months navigate XX%, were in production in volumes the that Thanks, while Inside represented XX approximately the PennyMac fourth David. mortgage challenging consistent need with market. the Finance. Mortgage lending position leadership commitment and stability its the and to the partners provides we past position XX% successfully channel with We Overall volumes was from quarter our only XX% production as solid

for Total loans. for accounted the correspondent in quarter XX% billion. government-insured correspondent and XX% of fourth total were PFSI’s acquisition $XX the loans the loans the was $XX.X loans in Acquisitions Purchase own of conventional volume acquisitions conventional the government or to acquisition during from up quarter. addition totaled certain XX% to were quarter. billion, prior PMT during XX% due quarter loan guaranteed loans from account

Similarly, prior Conventional of from was $XX.X quarter, points a from acquisitions volume was to for from $X.X lock margin points, XX basis mentioned PFSI’s by down quarter, account prior purchase quarter. correspondent sales fallout-adjusted PMT’s basis from quarter the up billion, down in of as account primarily totaled XX% lower loans billion in PFSI. result fourth for the the PFSI’s the the XX prior PMT. conventional Revenue per driven lock in previously

business, as credit the in the their from environment, they channel. had union a The have scale we we cost the participants to excellence Fargo achieved operational allow in of our even we and While the exit previously respected community correspondent creates from combined sector correspondent strong additional exited channel the bank us channel in with in believe have particularly as competitor operate channel, market the PennyMac, and opportunities Wells a our for the retreated where structure volatile presence. market other or through low efficiently

In partner left the totaled $X.X that strong throughout Wells able billion. for and the Fargo’s mortgage country. we and remain totaled to correspondent to January, companies being and exit by $X.X independent committed acquisitions volumes absorb billion ready estimate stand capital We a locks

due quarter of consumer $X.X for months. commitments we billion seasonal in volumes for to in refinance for over the XX% X.X% or quarter Origination locks, accounted $X.X meaningfully the impacts prior Purchase were estimate Turning volumes. of declining to XX to total the fourth $X.XX the compared down million we was quarter. direct, from approximately interest XX% last the total channel lock lock and rate quarter originations last and volume billion, billion, $XXX were of

smaller points, down of basis thus seasonal from the and total the the channel revenue at although totaled origination impacts Purchase improve channel billion prior totaled continuation basis with in billion, of the in in versus was X% totaled million. committed basis were quarter. this of in million. meaningfully broker We We channel basis in quarter, locks we intense the $X.X Originations we first in margins adjusted XX have locks that our this direct were and direct also and lock originations market, lock competition far XXXX XXX in loans XXst channel totaled $XXX prior the our was of volume million, in reflecting in XX $XXX in XX% XXX We points Margins estimate consumer approximately third fallout-adjusted represented from from leaders. estimate a January channel. originations. quarter, pipeline quarter. per points fallout down channel January $XXX down the points Revenue estimate seen the per slightly $X

attention well-positioned we in excellence the they out very capital channel their into have for platform the quarter, believe of elevated in share the with the received position, relationship market brokers channel strong of far, brokers competition and need roll of new of grow successfully loans. our levels is exit the generation expand garnering PennyMac. Despite top time tools we Thus to providing are to businesses leads and our currently, growth POWER+, Last channel the technology participants. the next completed given PennyMac operational over their looking portal, who convert on positive we with feedback

committed million in at locks and $XXX originations XXst pipeline million. We was $XXX We the January estimate broker totaled January $XXX estimate totaled million.

organic or of earlier, servicing mortgage As servicing to ended our X.X% portfolio. these billion, David I with that approximately the the acquisition to of and U.S. we am quarter volumes continue of all in drive $XXX a residential growth discussed portfolio debt report origination the pleased

owned Mae down the mortgage in X.X%, of Freddie speeds owned X.X% rights prepayment prior were X% higher speed sub‐serviced quarter. in from have the by rates. PMT a given Fannie and in Mac Similarly, slowed mortgage prior fourth speeds meaningfully down portfolio in servicing Financial’s PennyMac servicing quarter, prepayment portfolio, includes Financial’s mostly quarter. reported which the X.X% PennyMac from Prepayment

PFSI’s the loans, consists of the plus portfolio, had reported consisting which of owned subserviced X.X%, from up servicing rate XX-day a delinquency rate XX-day plus prior X.X% while of quarter, at September X.X%, MSRs, of up X.X% Mae Ginnie XXth. our of primarily delinquency at conventional primarily a portfolio, from end

$X.X while remained quarter of from loan completed low. slightly UPB the down prior was billion, EBO modifications The volumes

redelivery and are lower volumes in limited interest We the expect due the be EBO low revenues as to remain to expected rate gains environment. quarters coming overall higher to

review for the I’ll now Dan to results it financial who over turn will quarter. PFSI’s

Dan Perotti

Thanks, Doug.

resulted The or increase rate prior mentioned was tax The quarter. liability, increase $X.XX. driver XX.X% the tax an net in XXXX. primarily impact which PFSI’s for the in $XX.X million million PFSI’s which which net the of tax $XX of earnings rate was resulted of David in income of earnings tax deferred in expense per share earlier provision quarter rate The rate, non-recurring items, of the included per the versus driven effective in XX.X% tax increase in this XX.X% quarter. a in by tax was from effective increased As $X.XX fourth change was tax non-recurring diluted negative in to XX.XX% rate repricing approximately the tax The an primary share. of

Production income negative segment $X million. pretax was

will fees correspondent Slide As the from loans of received provide origination PFSI’s including retains. contribution conventional revenue the see channels, XX, for loan net production PMT on each fulfillment the expenses, you loan we a of it of from breakdown

in realized origination from changes, across volumes all the pricing timing Direct related & This down account XX XX of execution million driven and was to in lock revenue and by lower PFSI’s gains recognition, $XX basis per in lower loan the margins Revenue overall expense quarter points own were items. channels. for lower hedging, prior fallout-adjusted includes and other points basis in margins. fourth Consumer revenue the Production quarter, three

recorded the in we quarter the were fourth expense up As million production $XXX origination the market although managing were prior expenses down The from segment and down XXXX. in of million, fallout XX%. of quarter, pretax and quarter remain income focused in net million pretax the Servicing $XXX from of $XX David adjusted income mentioned prior current on environment, locks expenses of loan earlier, XX%

more $XX and the from quarter was up flows, higher cash balances Pretax and servicing by interest custodial operating loan income higher as than earnings for revenue, excluding MSR segment valuation-related income million, higher expenses. deposits, was offset and items expense, lower on the lower realization servicing prior of EBO-related

servicing percentage Earnings as servicing Operating quarter income million to we profitability. current deposits by revenues servicing overall prior other loan $X portfolio. in from contribution UPB increased due a balances With fees decreased. increased of and portfolio primarily as expenses the $XX growth rates custodial million. grew at and a expect average meaningful to Operating our continued on levels, servicing

fees $X which MSR quarter. expenses, increased shortfall to to recording Realization flows In Payoff-related and $X decreased by by MSR release driven order asset prepayments, the cash values the MSR fair protect moderate higher asset include the a is strategy. of the value million average million. by related income. during and of considers of interest we This comprehensive impact changes our on MSR strategy designed hedging value also interest utilize and rate of production‐related our to

you On rates. well lower million million, primarily of value the speeds hedge Slide quarter, prepayment driven the losses lower future. $XX in for our expected expectations as see increased in can by the activity prepayment than higher totaled fair costs by XX, Hedging fourth realized MSR interest $XX driven as and by

million a outstanding government-insured to for delinquency from consistent advances $XXX million While quarter, property for currently rates continues tax increased portfolio to portfolio. expectations our No and PFSI’s XXth at remain are increased end outstanding, activity prior obligations. from the year principal guaranteed or seasonal remittance Servicing cover $XXX advances overall MSR as to due prepayment sufficiently at they payments. interest primarily with September

$XXX maturity we XXXX, X extend our February exercised Mae to million for the notes of years. the MSR Regarding originally due term Ginnie option

million contain discretion. $XXX due Mae PFSI’s Ginnie notes term optional at in also XXXX extension of MSR the Importantly, August an

million million, pretax from Net was September Finally, prior assets of prior quarter. from in billion from our the of totaled X% Segment million, quarter. $X.X under delivered income down down segment XXst, XXth. X% $X December Investment Management $X.X $X.X revenue down as management the

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

David Spector

profitably then, founded direct Dan. More ago, growing mortgage we have the the the largest you, one a and production country lending residential a in and Since industry-leading servicers years correspondent we responsibly with into the help a Thank revitalize grown producers mortgage an become and of with and XX business, trusted partner vision PennyMac presence channels. than home to market in ownership. in

model challenging year mortgage value market expected industry, environments. different remain given is business I continue XXXX another long of to confident history and to executing Financial’s through stockholder Though and in PennyMac cycles be for generating balanced the mortgage ability its

questions email Relations reach or We by our out Thank investors encourage any with to team phone. Investor to you.

Operator

Financial Services, quarter PennyMac fourth earnings concludes This Inc.’s discussion.

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

PennyMac Financial Services (PFSI) 2 Feb 232022 Q4 Earnings call transcript