PennyMac Financial Services, Inc. (NYSE:PFSI) Q1 2024 Earnings Conference Call April 24, 2024 5:00 PM ET
Company Participants
David Spector - Chairman and CEO
Dan Perotti - Chief Financial Officer
Conference Call Participants
Bose George - KBW
Doug Harter - UBS
Crispin Love - Piper Sandler
Kyle Joseph - Jefferies
Terry Ma - Barclays
Eric Hagen - BTIG
Operator
Good afternoon and welcome to PennyMac Financial Services Inc.’s First Quarter 2024 Earnings Call. Additional earnings materials, including presentation slides that will be referred to in this call, are available on the PennyMac Financial website at pfsi.pennymac.com.
Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company’s actual results to differ materially, as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials.
Now, I’d like to introduce David Spector, PennyMac Financial’s Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Financial’s Chief Financial Officer. Please go ahead.
David Spector
Thank you, operator. Good afternoon and thank you to everyone for participating in our first quarter earnings call.
PFSI reported net income of $39 million and an annualized return on equity of 4% in the first quarter. These results include $125 million of fair value declines on mortgage servicing rights net of hedges and $2 million of a non-recurring legal accrual.
Excluding the impact of these items, our results were very strong. PFSI’s annualized operating ROE was 15% as we continue to demonstrate the resilience and strength of our balanced business model.
Our Production segment remained profitable, contributing $36 million to pre-tax income driven by higher volumes in the direct lending channels. And our large and growing servicing portfolio continues to anchor our financial performance with pre-tax income of $125 million excluding market-driven value impacts and non-recurring items.
Total loan acquisitions and originations in the first quarter were $22 billion in unpaid principal balance, driving continued growth in our servicing portfolio to nearly $620 billion with 2.5 million customers.
Turning to the origination market, current third-party estimates for total originations in 2024 averaged $1.8 trillion, reflecting growth from an estimate of $1.5 trillion in 2023. However, we believe these estimates to be optimistic and dependent upon multiple interest rate cuts from the Federal Reserve in the second half of the year.
With current expectations for market interest rates, to remain higher for longer and mortgage rates back up into the 7% range, we expect these third-party estimates will decline further, from their current levels. Though the origination market remains constrained currently, we believe it is beginning to reset.