PennyMac Financial Services(PFSI) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net income for the second quarter was $204 million, or diluted earnings per share of $2.94, representing an annualized return on equity of 23% [3] - Book value per share increased by 5% to $54.49 as of June 30 [3] - Total stock repurchases year-to-date reached approximately $600 million, with an increase in stock repurchase authorization from $1 billion to $2 billion [4][5] Business Line Data and Key Metrics Changes - Loan acquisition and origination volumes totaled $61 billion in the second quarter, leading to a servicing portfolio growth of 5% quarter-over-quarter and 22% year-over-year, totaling $473 billion in unpaid principal balance [6] - The production segment pretax income was $244.4 million, down 33% from the prior quarter and 55% from the second quarter of 2020 [41] - The servicing segment recorded pretax income of $30.9 million, down from $141.7 million in the prior quarter but up from a pretax loss of $62.4 million in the second quarter of 2020 [43] Market Data and Key Metrics Changes - The origination market remains strong, with forecasts for 2021 originations ranging from $3.6 trillion to $4.2 trillion, and purchase originations expected to grow to $1.7 trillion and $1.9 trillion in 2021 and 2022, respectively [11][12] - The correspondent channel represented approximately 18% of the market, with total correspondent loan acquisition volume at $46.7 billion, down 9% from the prior quarter but up 56% year-over-year [18][19] Company Strategy and Development Direction - The company continues to invest in people, systems, and processes to achieve medium-term goals, focusing on expanding its leadership in direct origination channels [9][15] - The balanced business model, with a large and growing servicing portfolio, is seen as a competitive advantage as interest rates increase [15] Management's Comments on Operating Environment and Future Outlook - Management believes the outlook for PennyMac Financial remains strong despite expected declines in refinance origination volumes due to higher interest rates, supported by a profitable servicing business [12][15] - The company is positioned well in a changing mortgage market due to its infrastructure and risk management disciplines [16] Other Important Information - The percentage of loans in forbearance decreased to 4.9% at June 30 from 6.3% at March 31, indicating a positive trend in borrower recovery [49] - The fair value of the mortgage servicing rights (MSR) decreased by $251 million in the second quarter, primarily due to higher expectations for prepayment activity [47] Q&A Session Summary Question: What are the expectations for the origination market? - Management noted that the origination market remains strong, with significant growth expected in purchase originations over the next few years [11][12] Question: How is the company managing its servicing portfolio amidst prepayment activity? - The company reported that strong acquisition and origination volumes continue to drive the growth of the servicing portfolio despite elevated prepayment activity [31][32]