PennyMac Financial Services, Inc.

Good afternoon, and welcome to the second quarter 2021 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. Thank you. Now I'd like to begin by introducing David Spector, PennyMac Financial's Chairman and Chief Executive Officer, who will review the company's second quarter 2021 results.

Thank you, Isaac. PennyMac Financial again delivered outstanding financial performance in the second quarter, driven by continued strong production and core servicing results partially offset by net MSR fair value declines. Net income was $204 million or diluted earnings per share of $2.94, representing an annualized return on equity of 23%. Book value per share grew 5% to $54.49 at June 30th. Importantly, we continued to repurchase stock, with 2.6 million shares of PFSI's common stock bought back during the quarter for an approximate cost of $155 million. And for the month of July, we repurchased an additional 2.5 million shares for an approximate cost of $151 million. This brings the total repurchases year-to-date to approximately $600 million. And since the beginning of 2020, we have now repurchased over 18.5 million shares, or approximately 24% of PFSI's common shares outstanding. Additionally, PFSI's Board of Directors approved an increase to its stock repurchase authorization from $1 billion to $2 billion. PFSI's Board of Directors also declared a second quarter cash dividend of $0.20 per share. Dan Perotti, PFSI's Senior Managing Director and Chief Financial Officer, will discuss our financial performance in more detail later on in this discussion. In total, loan acquisition and origination volumes were $61 billion in the second quarter. These strong production volumes again led to servicing portfolio growth despite continued elevated prepayment activity. PennyMac Financial's servicing portfolio totaled $473 billion in unpaid principal balance at June 30th. Up 5% from the end of the prior quarter and 22% from June 30, 2020. Importantly, and as Doug Jones, Senior Managing Director and Chief Mortgage Banking Officer, will expand on in this section of the presentation, we sold $3.4 billion in UPB of early buyout loans to third-party whole loan investors, thus reducing the risk associated with holding these loans and increasing our capital efficiencies. PFSI's investment management segment delivered increased profitability as a result of incentive fees earned based on PMT's profitability over the last four quarters. Net assets under management were down slightly quarter over quarter to $2.3 billion. We continue to invest in people, systems, and processes across our businesses, laying the groundwork that would allow us to achieve the medium-term goals we outlined in our recent Investor Day. With that, I will now turn the call over to Andy Chang, Senior Managing Director and Chief Operating Officer who will review the mortgage origination landscape and the drivers of profitability for PFSI going forward. Thank you, David.

The origination market continues to be strong on a historical basis, as mortgage rates have recently returned to near-record lows. Additionally, we believe FHFA's elimination of the adverse market refinance fee has resulted in a larger population of loans that would benefit from a refinance at today's lower rates, further supporting the origination market. Recent economic forecasts for 2021 originations range from $3.6 trillion to $4.2 trillion, while average forecasts for 2022 originations remain strong at $2.7 trillion. It is worth noting that purchase originations are expected to grow and are forecasted to be $1.7 trillion and $1.9 trillion in 2021 and 2022, respectively. So while refinance origination volumes are expected to decline significantly over the next several years as a result of higher interest rates, we believe the outlook for PennyMac Financial remains strong given our large, profitable, and growing servicing business, our position as one of the largest producers of purchase money loans in the U.S., and the continued expansion of our direct lending businesses. We believe PennyMac Financial's business model, with production from the correspondent, consumer direct, and broker direct channels, contributes to PennyMac Financial's profitability across different production environments. While industry production margins declined in the second quarter, we saw a smaller decrease in overall production margin given the mixed shift towards our consumer direct lending channel. Our direct lending channels have an outsized impact on production segment earnings, as Dan will discuss later. As we continue to grow our leadership positions in the direct origination channels, this growth will drive the earnings from PennyMac Financial's production segment. Our balanced business Thank you for watching. The expertise of our deep management team, combined with the technology investments we have made, support PennyMac's growth strategy in a changing mortgage market. And while we believe the mortgage market will continue to change from a competitive and regulatory perspective, the infrastructure and risk management disciplines that distinguish PennyMac from others in the industry position us well. Now I'll turn it over to Doug, who will discuss our mortgage banking businesses.