Good afternoon and welcome to the First 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 two 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 first quarter 2021 results..

Thank you, Isaac. PennyMac financial again delivered exceptional financial performance in the first quarter driven by continued strong production and core servicing results partially offset by the performance of our hedge mortgage servicing rights.

Net income was $377 million or diluted earnings per share of $5.15 generating book value growth per share of 8% to $51.78. Importantly we repurchased approximately 4.7 million shares of PFSI's common stock during the quarter for an approximate cost of $288 million.

And through April we repurchased an additional 270,000 shares for an approximate cost of $16 million. This brings the total repurchases year-to-date to over $300 million and since the beginning of 2020 we have now repurchased approximately 18% of PFSI's common shares.

We also issued $650 million of 8-year senior unsecured notes taking our total unsecured notes outstanding to $1.3 billion. Additionally, PFSI's Board of Directors declared a first 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. Operating results across loan production and servicing remained strong. And we continue to see the strength of our balanced business model reflected in our results.

We also continue to see strong market share growth across our direct lending businesses with another quarter of record lock in funding volumes despite higher mortgage rates and increased competition. In total, loan acquisition and origination volumes were $67 billion in the first quarter.

These strong production volumes again led to servicing portfolio growth despite continued elevated prepayment activity. PennyMac financial servicing portfolio totaled $449 billion in unpaid principal balance at March 31st, up 5% from the end of 2020 and up 17% from March 31st 2020.

Finally, PMT, the investment vehicle that PFSI manages delivered another strong quarter of investment performance and net assets under management were $2.4 billion, up 3% from year end 2020.

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 foundation we have in place to drive continued success into the future. .

Thank you, David. The origination market continues to be historically strong as mortgage rates remain near record lows despite the increase in the 10-year treasury yield since the start of the year..

Thanks Andy. As you can see on slide eight of our presentation PennyMac maintained its leadership position in the correspondent channel and we estimate that we represent approximately 17% of the channel overall. Total correspondent loan acquisition volume was $51.2 billion, down 10% from the prior quarter and up 72% from the first quarter of 2020.

Our correspondent mix percentage was largely unchanged from the previous quarter as 34% of the correspondent acquisitions were government loans and 66% were conventional loans. Government loan acquisitions in the quarter totaled $17.4 billion, down 8% from the prior quarter and up 28% from the first quarter of 2020.

Conventional correspondent acquisitions for which PFSI earns a fulfillment fee from PMT totaled $33.8 million, down 11% from the prior quarter and up 109% from the first quarter of 2020. Government correspondent locks were $17.1 billion, down 14% from the prior quarter and up 15% from the first quarter of 2020.

Revenue per fallout-adjusted government lock in the first quarter was 41 basis points, down from 51 basis points in the prior quarter, as margins in the channel continue to trend towards more normalized levels. In April, our correspondent volumes remained strong with $18.5 billion of acquisitions and $15.6 billion of locks.

Looking ahead further, we expect the role of the correspondent aggregators to become increasingly important in the mortgage ecosystem, as the government-sponsored enterprises implement changes to their preferred stock purchase agreements.

Additionally, the implementation of the $1.5 billion annual limit per client on cash window deliveries is expected to drive more volume to leading aggregators like PennyMac. As we turn to Consumer Direct, we estimate that we gained significant market share during the quarter with approximately 1.3% of total originations in the channel.

We originated a record $10.7 billion of loans in the channel, up 33% from the prior quarter and 165% from the first quarter of 2020, driven by growth in sales and fulfillment capacity, as our new hires in fulfillment and direct lending begin to season.

Interest rate lock commitments for the first quarter were also a record, totaling $13.4 billion, up 4% from the prior quarter and up 87% from the first quarter of 2020.

Importantly, new customer acquisition or non-portfolio interest rate lock commitments in the first quarter were $1.5 billion, up from $1.3 billion in the fourth quarter and $267 million in the first quarter of 2020, as we begin to see the results of the commitment we have made to growing this channel..

Thanks, Doug. As David mentioned earlier, PFSI's net income was $376.9 million or diluted earnings per share of $5.15. I will cover each segment's results and then briefly review our forbearance and servicing advanced trends. Production segment pretax income was $362.9 million, down 37% from the prior quarter and up 51% from the first quarter of 2020.

As you will see on Slide 11, we provide a breakdown of the revenue contribution from each of PFSI's loan production channels, net of loan origination expenses including the fulfillment fees received from PMT for conventional correspondent loans. The direct lending channels have an outsized impact on PFSI's production earnings.

As Andy mentioned, Consumer and Broker Direct represented 22% of the fallout-adjusted lock volume in the first quarter, but accounted for approximately 80% of segment pretax income.

Production revenue margins declined from the prior quarter and revenue per fallout-adjusted lock for PFSI's own account was 176 basis points in the first quarter, down from 217 basis points in the fourth quarter of 2020. Our costs varied by channel ranging from approximately 15 basis points in correspondent to 150 basis points in Consumer Direct.

As our production mix continues to shift toward direct lending, production expenses as a percentage of followed adjusted locks are expected to trend higher. The servicing segment recorded pretax income of $141.7 million, up from pretax income of $42 million in the prior quarter and down from $170.8 million in the first quarter of 2020.

Pretax income excluding valuation related items for the servicing segment was $258.4 million up 10% from the prior quarter and 511% from the first quarter of 2020. These increases were primarily driven by continued loss mitigation activities related to COVID-19..

Thank you, Dan. Our balanced business model once again delivered outstanding results in an increasingly challenging market. We continue to grow our direct lending businesses, as well as organically grow our servicing asset building an extremely valuable mortgage banking enterprise well positioned for future growth.

We believe deeply in that value which is why we continue to repurchase shares. Since the beginning of 2020 we have now repurchased approximately 18% of PFSI's common shares. We also continue to make substantial investments in our technology and operations.

I remain confident in our ability to profitably and responsibly grow our direct lending channels while maintaining our leadership position in correspondent production. Combined with our large and growing residential loan servicing portfolio we expect to continue producing strong returns for our stockholders as we look ahead.

Finally, we look forward to further discussing our outlook for the business at our upcoming Investor Day for PennyMac Financial and PennyMac Mortgage Investment Trust. We encourage investors with any questions to reach out to our Investor Relations team by e-mail or phone. Thank you. .

This concludes PennyMac Financial Services Inc.'s first quarter earnings discussion. For any questions, please visit our website at ir.pennymacfinancial.com or call our Investor Relations department at (818) 264-4907. Thank you..

End of Q&A:.