PennyMac Financial Services, Inc. (NYSE:PFSI) Q3 2022 Results Conference Call October 27, 2022 5:00 PM ET

Company Participants

Isaac Garden - Vice President, Investor Relations

David Spector - Chairman & Chief Executive Officer

Doug Jones - President

Dan Perotti - Senior Managing Director & Chief Financial Officer

Isaac Garden

Good afternoon and welcome to the third 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 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 third quarter 2022 results.

David Spector

Thank you, Isaac. In the third quarter, PennyMac Financial once again delivered strong financial performance with net income of $135 million or $2.46 in earnings per share. Meaningful income contributions from both our production and servicing segments led to an annualized return on equity of 16% and continued growth in PFSI's book value per share despite mortgage rates climbing to their highest levels in more than a decade.

We ended the quarter with a servicing portfolio of $539 billion in unpaid principal balance as additions from loan production continued to offset prepayment activity. Importantly, I believe the growth of our servicing portfolio will continue to differentiate PFSI from its competition, serving as an increasingly important asset while the origination landscape remains challenging. Our balanced business model with leadership positions in production and servicing, combined with our robust risk management disciplines, supports our ability to profitably navigate different market environments. In the current environment, our servicing portfolio is contributing the majority of PFSI's earnings while also providing significant cash flow to support investments across our businesses.

We remain active in repurchasing shares, which at current price levels is accretive to book value and beneficial for our future earnings. This quarter, we repurchased 1.9 million shares of PFSI common stock at an average price of $51.13, for an approximate cost of $100 million. Through October 26, we repurchased an additional 882,000 shares at an average price of $45.73, for an approximate cost of $40 million. In the near term, we expect the pace of share repurchases to trend lower in order to maintain our flexibility to address potential risks and opportunities in the evolving market environment.