PennyMac Financial Services, Inc. (NYSE:PFSI) Q3 2024 Results Conference Call October 22, 2024 5:00 PM ET

Company Participants

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

Conference Call Participants

Doug Harter - UBS
Crispin Love - Piper Sandler
Bose George - KBW
Mark DeVries - Deutsche Bank
Terry Ma - Barclays
Trevor Cranston - Citizens JMP
Derek Sommers - Jefferies
Brian Violino - Wedbush

Operator

Good afternoon, and welcome to PennyMac Financial Services, Inc.'s Third Quarter 2024 Earnings Call. Additional earnings materials, including presentation slides that will be referred to in this call are available on PennyMac Financial's 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 third quarter earnings call. PFSI reported net income of $69 million for an annualized return on equity of 8%. Excluding the impact of fair value changes, PFSI produced an annualized operating ROE of 20%.

Our Production segment pretax income nearly tripled from last quarter as lower mortgage rates provided us the opportunity to help many customers in our servicing portfolio lower their monthly mortgage payments by refinancing. At the same time, our servicing portfolio now nearing $650 billion in unpaid principal balance and with nearly 2.6 million customers continues to grow, driving increased revenue and cash flow contributions as well as providing low-cost leads for our consumer direct lending division.

Turning to the origination market. Current third-party estimates forecast total originations of $2.3 trillion in 2025, reflecting expectations for mortgage rates to continue their decline from current levels, driving growth in both refinance and purchase volumes. As we have demonstrated our balanced and diversified business model with leadership in both production and servicing enables strong financial performance and a foundation for continued growth as an industry-leading mortgage company regardless of the direction of interest rates.

Because we retain the servicing rights on nearly all mortgage loan production and have been one of the largest producers of mortgage loans in recent periods, we are uniquely positioned in the industry with a large and growing portfolio of borrowers who recently entered into mortgages at higher rates, and you would stand the benefit from a refinance in the future when interest rates decline.