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PennyMac Cyberbanking Services, Inc. (NYSE:PFSI) Q1 2022 Antithesis Conference Alarm May 5, 2022 5:00 PM ET

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Company Participants

David Spector – Chairman & Chief Executive Officer

Doug Jones – President & Chief Mortgage Cyberbanking Officer

Dan Perotti – Senior Managing Director & Chief Cyberbanking Officer


Good afternoon and acceptable to the Aboriginal Division Antithesis Altercation for PennyMac Cyberbanking Services, Inc. The slides that accompany this altercation are accessible on PennyMac Financial’s website at Afore we begin, let me admonish you that this altercation contains avant-garde statements that are accountable to risks articular on Slide 2 that could annual our absolute after-effects to alter materially as able-bodied as non-GAAP measures that accept been accommodated to their GAAP agnate in our antithesis presentation. Now I’d like to activate by introducing David Spector, PennyMac Financial’s Chairman and Chief Executive Officer, who will analysis the company’s aboriginal division 2022 results.

David Spector

Thank you, Isaac. PennyMac Financial’s aboriginal division after-effects authenticate the antithesis ability of our absolute mortgage cyberbanking belvedere adjoin the accomplishments of a ascent absorption amount environment, and cogent antagonism amid industry participants with antithesis accommodation in this abate alpha market, added assets from our appliance business added than annual the abatement in assembly assets acquired by the accepted alteration in the alpha market.

As a result, PFSI produced net assets of $174 actor or adulterated antithesis per allotment of $2.94, apery an annualized acknowledgment on disinterestedness of 20%. With attention to our basic usage, we abide to repurchase shares, and in the aboriginal division we repurchased 2.3 actor shares of PFSI accepted banal for an almost amount of $141 million. And in April, we repurchased an added 905,000 shares for an almost amount of $44 million. The clip of allotment repurchases was bottomward from aftermost quarter, as we accept it is advisable to absorb basic during periods of greater volatility.

PFSI’s Board of Directors additionally declared a aboriginal division banknote allotment of $0.20 per share. In total, this able cyberbanking achievement accumulating connected advance in book amount per share, which was up 3% from December 31 to $62.19 at March 31. Dan Perotti, PFSI’s Senior Managing Director and Chief Cyberbanking Officer will analysis added capacity of our cyberbanking achievement after on in this discussion. In total, accommodation accretion and alpha volumes were $33 billion in the aboriginal quarter. These assembly volumes added than annual accommodation action in PennyMac Appliance portfolio, which totaled about $520 billion in contributed arch antithesis at March 31, up 2% from the end of the above-mentioned quarter, and up 16% from the aforementioned time aftermost year.

In PFSI’s Investment Administration segment, net assets beneath administration were $2.2 billion at quarter-end bottomward from the above-mentioned division as PMT appear a net accident primarily apprenticed by the appulse of added acclaim spreads on the fair amount of its CRT investments. This accelerated and cogent access in mortgage ante has impacted the alpha bazaar considerably. Accepted bread-and-butter forecasts for 2022 absolute originations ambit from $2.6 abundance to $3.1 trillion. While there is abeyant for these forecasts to abatement further, as the aberrant access in ante continues to be captivated by the markets, we will abide active and proactive in our approach, accurate by our position as one of the bigger producers of acquirement money loans in the country.

As a accessible aggregation for about nine years, PennyMac Cyberbanking has a connected history of accustomed success while managing through capricious absorption amount environments. In 2014, aback originations totaled $1.3 trillion, 75% of our assembly was acquirement loans, and we accomplished a 90% acknowledgment on equity. Similarly in an acutely difficult 2018 with a college 10 year Treasury yield, and an alpha bazaar of $1.6 trillion, 80% of our assembly was acquirement loans, and we accomplished a acknowledgment on disinterestedness of 13%.

PFSI’s able almanac beyond assorted bazaar environments is able-bodied accurate and altered amid mortgage banks, auspiciously abyssal a arduous mortgage ambiance requires a able antithesis area ability in the basic markets and able operational and basic planning disciplines, things we accept been emphasizing for years. Our counterbalanced business archetypal with administration positions in both assembly and servicing, forth with our abiding charge to accident administration drives advantage beyond altered bazaar environments. This activating has led to the advance of PFSI’s disinterestedness abject and book amount per allotment which has about tripled aback the end of 2018.

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We accept accomplished this amazing advance while accompanying advancement low levels of advantage and able clamminess about to our peers. These ethics and commitments are built-in aural our aggregation culture, and accept been aback our founding in 2008. With our abiding cardinal goals in mind, our aboriginal advance of action is ensuring that our approaching amount levels are accumbent with the lower projected action in the market. Well, these are consistently boxy decisions to make, our amount administration initiatives began in the summer of 2021 with assertive hiring freezes and cardinal affairs to board a alteration market.

The mortgage ante access faster than predicted. We accept already taken all-important accomplish to bigger acclimatize our amount abject with accepted lower levels of action while continuing to drive greater efficiencies. These amount administration initiatives are accepted to booty a few months to be absolutely reflected in our results. We will be active in our operational cyberbanking administration disciplines in adjustment to acknowledgment our assembly approach costs to added adapted levels. Due to these impacts, PFSI’s ROE is projected to trend lower afore abiding to its pre-COVID ambit over time. Afore axis it over to Doug Jones, our President and Chief Mortgage Cyberbanking Officer, I would like to briefly abode the FHFA’s contempo re-proposal of accommodation standards for non-bank bureau agent servicers.

While the FHFA is currently because comments on its proposal, the proposed standards alarm for anchored liquidity, net annual and advantage requirements. For ample non-banks, added proposed standards accommodate an added clamminess buffer, basic and clamminess plans, and third-party ratings requirements. As I mentioned earlier, PFSI has a connected clue almanac of able cyberbanking performance, able-bodied clamminess and basic planning disciplines, and has historically operated with low levels of leverage.

If the standards were implemented today, PennyMac Cyberbanking is able-bodied positioned to accommodated anniversary of these requirements, accustomed its connected continuing charge to basic and action accident administration with these disciplines absolutely chip throughout the organization. Now I’ll about-face it over to Doug who will altercate the allowances of our ample and growing appliance business and analysis PFSI’s aboriginal division mortgage cyberbanking results.

Doug Jones

Thanks, David. A ample appliance business is capital for the success of a mortgage coffer in a ascent amount environment. Our de novo appliance belvedere was congenital from scratch, abandoned of any bequest issues that arose from the abundant cyberbanking crisis. And we’ve invested decidedly throughout our history to ensure that we were able to calmly and finer serve our barter at the accomplished standards. Our arch assembly business has apprenticed the able amoebic advance of our appliance portfolio.

And today, I’m acutely appreciative of the added than bisected abundance in UPB of appliance that we managed, and added than 2.2 actor barter we serve. As a key allotment of our counterbalanced business model, our ample appliance portfolio provides cogent amount to the company. Appliance and sub appliance fees generated over $1 billion in acquirement annually. And PFSI is accepted to added annual in the near-term as college concise absorption ante are accepted to drive added absorption assets on our careful drop balances.

In 2019, we launched our own proprietary billow based appliance arrangement advised accurately for PennyMac’s altered workflows. SSE as we alarm it, not alone provides us with the amount efficiencies by abbreviation third-party bell-ringer expenses, but increases our flexibility, enabling us to acclimate bound to accepted bazaar conditions, or accessible regulation. Additionally, SSE provides invaluable acumen to our appliance aggregation associates committed to acceptable barter with hardships and mitigating losses.

Going alike further, SSE provides the abstracts we use to bigger accept our barter needs, so accommodation admiral in our Consumer Direct approach can abetment borrowers with articles that can annual them. Finally, accustomed the calibration we accept achieved, we accept amorphous to assignment with Hippo to action homeowners allowance to our appliance portfolio customers, and are currently evaluating added abeyant partnerships to analyze means to bigger serve our barter with added artefact offerings. All of these allowances authenticate the backbone of a ample appliance business such as ours, abnormally aback accurate by an industry arch assembly business, carrying new loans and added barter on a circadian basis.

Now let’s about-face to PFSI’s multi-channel assembly business. PennyMac advance its administration position in the agnate approach and we appraisal that over the aftermost 12 months, we accept represented about 15.8% of the approach overall. Absolute contributor accommodation accretion aggregate was $22.5 billion in the aboriginal quarter, 57% or $12.7 billion were government loans and 43% or $9.8 billion were accepted loans for which PFSI earns a accomplishment fee from PMT.

Government accretion volumes were bottomward constant with industry volumes, while accepted contributor acquisitions were bottomward significantly, as added antagonism for accepted loans, including from the GSEs, was acute during the quarter. Margin compression in the accepted contributor amplitude created a acknowledgment contour lower than our threshold, and so aggregate beneath as we maintained our discipline. Though, we accept started to see some acknowledgment to added normalized margins in April.

Government contributor lock aggregate was $12.5 billion, bottomward 20% from the above-mentioned quarter. Acquirement per fallout-adjusted government lock in the aboriginal division was 23 base points, bottomward 1 base point from the above-mentioned quarter. The calibration we accept accomplished in our contributor business, accumulated with our low amount anatomy and operational arete in the channel, allows to accomplish calmly through airy bazaar environments. In this environment, some abate bazaar participants accept pulled aback decidedly or exited the approach entirely, potentially creating some opportunities as the bazaar transitions. In April, contributor acquisitions were $6.5 billion and locks were $7.5 billion.

Turning to the Consumer Direct channel. Our bazaar allotment was about angled aback 2020, and we accounted for about 1.7% of absolute originations in the approach over the aftermost 12 months. Alpha volumes in the aboriginal division were $8.2 billion, and absorption amount lock commitments were $9.1 billion. While bottomward from the antecedent quarter, the clip of abatement is beneath than that of the all-embracing market, and we abide to body our capabilities in the channel.

The advancing success we see in our Consumer Direct approach can be attributed to the added appliance of abstracts analytics and investments we accept fabricated in our accommodation accomplishment and sales processes. I abide aflame about the approaching abeyant for bazaar allotment advance in this channel, as we advantage our appliance portfolio, new technology, and avant-garde abstracts analytics. We additionally abide to see success in our acquirement and new chump accretion channels, admitting the abate alpha market.

Purchase band aggregate in the aboriginal division was $791 million, up hardly from the above-mentioned quarter, and new chump accretion lock aggregate was $1.3 billion, bottomward from $1.9 billion the aftermost quarter. Margins in this approach abide to bind with acquirement per fallout adapted lock of 297 base credibility in the quarter. In April, originations for our Consumer Direct approach totaled $1.8 billion and locks totaled $1.6 billion. The committed action at April 30 was $1.9 billion.

Originations in our Agent Direct approach totaled $2.5 billion and locks totaled $3.5 billion. Appraisement margins in the approach abide to reflect cogent levels of antagonism and acquirement per fallout adapted lock was 62 base points, bottomward from 68 base credibility in the above-mentioned quarter. We appraisal in the aftermost 12 months, we represented about 2.2% of alpha aggregate in the approach with over 2,200 brokers accustomed to action our articles or about 15% of the absolute citizenry of brokers.

Despite animated levels of antagonism currently, we abide to see befalling in the approach over the abiding and abide committed to accouterment our agent ally and the barter they serve, new articles and a above mortgage experience. While we abide committed to the Agent Direct channel, we abide acclimatized in the accepted bazaar environment. Agent originations in April totaled $800 actor and locks totaled $700 million. The committed action at April 30th was $900 million.

As we discussed earlier, these accretion and alpha volumes abide to drive the amoebic advance of our appliance portfolio. This quarter, about $24 billion of portfolio runoff was added than annual by the accession of $33 billion in absolute production. And we concluded the division with a appliance portfolio of $519 actor or about 4.1% of all residential mortgage debt in the U.S.

Prepayment speeds accept slowed advisedly accustomed the accelerated access in mortgage ante David mentioned earlier. PennyMac Financial’s endemic portfolio appear a accommodation acceleration of 17.1% in the aboriginal quarter, bottomward from 23.4% in the above-mentioned quarter. Similarly, accommodation speeds in PennyMac Financial’s subservice portfolio, which includes mostly Fannie Mae and Freddie Mac mortgage appliance rights endemic by PMT was 13%, bottomward from 19.8% in the above-mentioned quarter.

PFSI’s own appliance portfolio, which consists primarily of Ginnie Mae MSRs, had a 60-day additional crime amount of 3.9%, bottomward from 4.7% at the end of the above-mentioned quarter, while our subservicing portfolio, consisting primarily of accepted loans, appear a 60-day additional crime amount of 0.7%, bottomward from 0.9% at December 31.

The UPB of completed modifications was $5.1 billion, and the UPB of EBO accommodation aggregate totaled $2.1 billion, both bottomward from the above-mentioned quarter, as opportunities accept beneath due to lower crime levels and college mortgage rates.

I’ll now about-face it over to Dan, who will allege to the cyberbanking after-effects for the quarter.

Dan Perotti

Thanks, Doug. As David mentioned earlier, PFSI’s net assets was $174 actor or adulterated antithesis per allotment of $2.94. Assembly articulation pretax assets was $9.3 million. As you will see on Slide 10, we accommodate a breakdown of the acquirement addition from anniversary of PFSI’s accommodation assembly channels, net of accommodation alpha expenses, including accomplishment fees accustomed from PMT for accepted contributor loans.

Production acquirement margins in Consumer Direct connected to abatement from the above-mentioned quarter. Agent Direct margins additionally beneath from the above-mentioned division and remained beneath their normalized levels. Government contributor margins were additionally bottomward slightly. Acquirement per fallout adapted lock for PFSI’s own annual was 102 base credibility in the aboriginal quarter, bottomward from 113 base credibility in the above-mentioned quarter. This includes $19.5 actor in losses accomplished accompanying to timing of acquirement and accommodation alpha amount recognition, hedging, appraisement and beheading changes, and added items.

We admit that costs in our assembly articulation abide animated accustomed the accelerated abatement in the admeasurement of the all-embracing alpha market, and are actively alive to acclimatize these costs to bigger acclimatize with lower accepted volumes. The appliance articulation recorded pretax assets of $225.2 million, up from pretax assets of $126.1 actor in the above-mentioned division and $141.7 actor in the aboriginal division of 2021.

Pretax income, excluding valuation-related items for the appliance articulation was $86 million, bottomward from the above-mentioned quarter, primarily as a aftereffect of lower EBO-related income. Operating acquirement was about banausic from the above-mentioned quarter. Operating expenses, as a allotment of boilerplate appliance portfolio UPB, added primarily due to melancholia accumulating trends, but were bottomward from the aboriginal division of aftermost year.

Payoff-related expenses, which accommodate absorption arrears and recording and absolution fees accompanying to prepayments, decreased by $6.2 million. Realization of MSR banknote flows added $14 million, apprenticed by college boilerplate MSR ethics during the quarter. In adjustment to assure the amount of our MSR asset, we advance a absolute ambiguity strategy. This action is advised to abstinent the appulse of absorption amount changes on the fair amount of our MSR asset and additionally considers production-related income.

On Slide 14, you can see the fair amount of our MSR added by $324 actor in the aboriginal quarter, apprenticed by college mortgage rates, which resulted in expectations for lower accommodation action in the future. Ambiguity losses totaled $218 million, primarily apprenticed by college absorption rates.

Finally, our Investment Administration articulation delivered pretax assets of $97,000, bottomward from $1.5 actor in the above-mentioned quarter. Net assets beneath administration totaled $2.2 billion as of March 31, bottomward 6% from December 31 and March 31, 2021. Articulation acquirement was $10.1 million, bottomward 3% from the above-mentioned division and up 6% from the aboriginal division of 2021.

And with that, I would like to about-face it aback to David for some closing remarks.

David Spector

Thank you, Dan. And acknowledge you to our accepted shareholders and abeyant investors alert to the call. While the accepted mortgage bazaar is activity through accelerated changes and transitioning to a added purchase-oriented focus, we feel PFSI is well-positioned due to the backbone of our counterbalanced business model, our position as a arch ambassador of acquirement mortgages, and our accident administration capabilities.

We accept auspiciously navigated abounding mortgage cycles throughout our history, and I durably accept there is not a bigger administration aggregation than PennyMac’s to cross this one. We animate investors with any questions to ability out to our Investor Relations aggregation by e-mail or phone. Acknowledge you.


This concludes PennyMac Cyberbanking Services, Inc.’s aboriginal division antithesis discussion. For any questions, amuse appointment our website at or alarm our Investor Relations administration at (818)-264-4907. Acknowledge you.

Question-and-Answer Session

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