PennyMac Financial Services, Inc. (NYSE:PFSI) Q2 2024 Earnings Conference Call July 23, 2024 5:00 PM ET

Company Participants

David Spector - Chairman & Chief Executive Officer
Dan Perotti - Chief Financial Officer

Conference Call Participants

Terry Ma - Barclays
Bose George - KBW
Michael Kaye - Wells Fargo
Crispin Love - Piper Sandler
Doug Harter - UBS
Derek Sommers - Jefferies
Eric Hagen - BTIG
Shanna Qiu - Barclays

Operator

Good afternoon and welcome to PennyMac Financial Services Incorporated Second 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.

David Spector

Thank you, operator. Good afternoon and thank you to everyone for participating in our second quarter earnings call. PFSI reported net income of $98 million or an annualized return on equity of 11%. Excluding the impact of fair value changes and nonrecurring items, PFSI produced an annualized operating ROE of 16% with strong performance from both the production and servicing segment.

Given our continued strong financial results and confidence in our outlook, I am pleased to note that PFSI's Board of Directors approved a quarterly common stock dividend of $0.30 per share, up from $0.20 in the prior quarter, representing an increase of 50%.

Turning to the origination market. Current third-party estimates for total originations averaged $1.7 trillion in 2024 and $2.1 trillion in 2025, reflecting projections for lower rates from current levels and increased refinance volumes. Given PFSI's balanced and diversified business model, we believe we are extraordinarily well-positioned whether rates remain high or decline from current levels. With higher total industry volumes in the second quarter and given what we have seen thus far in the third quarter, we believe the origination market is resetting.

In the last couple of years, we estimate approximately $2.5 trillion of mortgages have been originated with a note rate of 6% or higher. As long as rates remain elevated, this group of borrowers is expected to continue growing, supported by a purchase market with strong pent-up demand from key homebuying demographics. It is our belief that when interest rates do decline, many of these borrowers will undoubtedly look to lower their mortgage rates, driving refinance volumes higher and total originations up to more normalized levels.