PMT - Earnings call transcript Q2 2018 | PennyMac Mortgage Investment Trust

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Operator

Good afternoon, and welcome to the second quarter 2018 earnings discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available from PennyMac Mortgage Investment Trust’s website at www.pennymac-reit.com.

Before we begin, please take a few moments to read the disclaimer on Slide 2 of the presentation. Thank you.

Now I’d like to turn the discussion over to Stan Kurland, PMT’s Executive Chairman.

Stan Kurland

Chris. you, Thank

Slide with Let’s X. begin

XX%. value common per Book For $XX.XX the to of dividend net of an $X.XX the attributable PMT shareholders common quarter, $XX at quarter-end, from share increased return March of paid or income reported common $X.XX average investment PMT a XXXX. share per of for at $XX.X income net XX, equity representing per quarter. second million on share, to diluted million, $XX.XX annualized on

Our operating contributions million in which loan income; $X.X Strategies, four strong losses partially million. in which reflect contributed $XX.X of income; pretax pretax transfer through and Production, from Sensitive pretax Sensitive distressed in million income; risk $XX.X results offset contributed GSE Interest Interest Correspondent million investments. from Strategies, results pretax Corporate, Credit $XX.X credit PMT Rate reports Rate loss with Sensitive and segments: a by contributed Strategies, which

quarter, During production which totaled our totaled result from is CRT expected principal $X.X $X.X settlement principal activities. represents which complete, of quarter. the once our is loan correspondent we CRT $XX servicing balance, the investments Conventional from billion new PMT’s billion correspondent deliveries into the in in resulting XX% mortgage and our quarter. million structure. continued billion balance, in deliveries in $X.X of unpaid rights final second prior CRT will production unpaid in fourth grow This CRT third investments up to

this to new $XX and fifth firm of in delivered resulted second our we Fannie REMIC securities. into loans agreement CRT, REMIC purchase Mae, commitment quarter. the UPB our a addition, This with billion in agreement during in entered million CRT In subject to CRT $X.X first

million investments. loans portfolio. MSR after the from We to $XX distressed quarter-end, sell an notable new activity added $XX million UPB the of of we in entered In agreement also performing

retreating current reaching first and mortgage fixed X, quarter-end. high on the X.XX% basis quarter at second the the discuss of quarter. rate market. than remained average during average the Slide our was before rate May near the the in end quarter, XX-year XX-year mortgage X.XX% slightly second the perspectives X.XX%, to to turn first let’s Now XX points The relative during quarter to higher The

primary higher One in of this slowdown been rates refinancing significant the level activity. of impacts sustained of a mortgage has

market requirements As to margin higher have mortgage managing competitive. to the adjusts rates, lenders been capacity and remain mortgage production

data the both which second an expectations also of have new sale. bulk mixed results MSR for existing amount in in and home Recent seen in We suggests increase sales, quarter. the portfolios offered below trended

existing low While demand homes to were levels impediment inventory near the to quarter, an levels, sales historic appears volume. have be been strong, low as cited for which during

sale. the in modest data increases homes existing recent suggests for However, of supply

have New they of also existing more significantly but than a home slowed recently, home smaller segment are the sales typically sales. represent volatile and market

year’s total continued the end levels, including resulting severe of is growth quarter, as increase due, X.XX% a Knight near Black from loans volume compared the the to affected post-crisis XXXX. XXXX, strong at spreads economy, of credit of and job beyond While According quarter, sales project and the X.X% strong volume. and was the more for by recent areas from slightly Similarly, remain Financial Services, but XXXX. increased the an March strong in growth performance forecasts showed origination credit mortgage purchase-money tight the Underlying prior June industry XXXX, in loan home origination more weakness driven past XX, remain broadly. at forecasted through XX, U.S. historically or levels. to below end the days quarter, X.XX% economy XX delinquency hurricanes, growth year-ago and delinquencies Mortgage low first last by

discuss and have production. to balance and X credit from Slide the toward reducing investments made The in MSRs we sheet, shows on transforming to PMT’s turn PMT’s capital redeploying to loans generated equity transfer ongoing GSE MSRs. Slide risk and the progress investments let’s CRT continuing X mortgage to distressed and PMT’s chart transition Now allocated correspondent

of As equity two of up XX% equity ago, investments to was MSR approximately allocation. XX, CRT, while June compared distressed investments now with of make loan allocated ESS XX% PMT’s XX% years and PMT’s

This also of talked about against MSRs, the leverage $XXX April CRT, term million Company MSR decrease Fannie note quarter, & Mae allocated end. proceeds slightly we the the the the of As The which for distressed secured the in higher accounts these five-year percentage with issued associated from of allocated pay a our equity ESS in portfolio, down to driving MSRs. at used investments. financing we a by issuance term to of notes portion quarter percentage to equity last issuance increased loan

Slide to turn for X and quarterly let’s Now run-rate income strategies. PMT’s discuss the potential

run-rate in returns the quarter, a result $X.XX EPS would for run-rate PMT’s of per annualized over diluted equity for common XX.X%. expectations return an several Our quarters. reflects approximately of which strategies expectations our is on next PMT’s investment potential

market continued Our our and reflects continuation investments in positions MBS that it is the the of PMT’s by Production income Agency interest competitive driven Sensitive of the of net potential run-rate strong expectation the Strategies, growth highly credit Further, within primarily potential also the growth expectation Interest Rate reflects MSR our rate for sensitivity growing environment. CRT continues. mortgage current, Correspondent to investments. balance

financing project to the wind the distressed expenses. by down generate portfolio We loss, to sales, continues is expected liquidation through costs driven portfolio as and primarily a also that default-related and

to of result expenses CRT more a investments provision REMIC for favorable quarter PMT’s as expected treatment expected a performance. has our in the been taxable going my In under overview which second result structure, addition, of concludes is tax the forward. new of reduced, primarily of This tax reduction income our income

turn Chief Activities. to Investment Spector, Executive David over like Officer, President our I’d to review Now will the Mortgage PMT’s who discussion and

David Spector

Stan. you, Thank

billion second billion XX% year-over-year. in a Conventional at PennyMac was for in market prior XX% from acquisitions in up billion fulfillment down for PMT up in the and contributed down Total look $XX.X volumes X $X.X prior Financial the our year-over-year. X% for X% year-over-year. XX% quarter Correspondent originations UPB, second performed XX% which UPB totaled Slide in $XX from Correspondent down highlights. PMT, and increases the to to up from prior mortgage quarter quarter, next turn conforming quarter for and lock totaled the acquisitions, PMT. Production UPB, quarter-over-quarter Let’s quarter higher the volume in Seasonal by services

positioning acquisitions, production points second in in volumes acquisitions competitive reflected other segment quarter, in in $X.X commitments, in reflects the from quarter. UPB. a interest the pursued prior second decrease lock in from the correspondent rate Total as of XX% were pretax Purchase-money in lock while which prior quarter a up aggregators, Correspondent environment Our also certain basis volume rate July. percentage business large points UPB, the for pricing billion quarter. $X.X billion conventional to XX% market volumes. income growth growth is the was mortgage X XX Production commitments basis total loans remain totaled remained market forecasted aggressively well strong loan this the the quarter, The competitive with comprised Monthly adjustments interest origination which purchase-market in of conforming

PMT’s to Slide credit Now GSE discuss in X let’s risk and turn investments transfer.

PMT’s in billion to quarter. deliveries in UPB. expect CRT Deliveries settlement in to third deliveries CRT Mae During million ended the $XX CRT the of billion We May new fund resulted totaled and fourth in Fannie investments. final this $X.X structure into totaled quarter, loan transaction $X.X approximately commitments into and eligible

Mae $X.X to pleased are firm commitment we structure and loans PMT’s structural delivered CRT structure. entered our enhancements tax announce CRT investment with The securities income, subject new was addition, of And In investments closer second more was equity allocated greater treatment quarter XX%. growth investment transaction production the also REMIC CAS alignment fifth investment allows $XX return of into of that CRT of credit to be agreement, to including structure, in for and significant the of offers in is of this billion UPB CRT this million Fannie the which purchase new with CRT resulting CRT. CRT favorable Mae reflects availability quarter REMIC Total performance the The we continued under several a in million the investment percentage investment PMT’s result the to options. the it for to financing during a on $XX eligible PMT’s in strong income in of markets. to Fannie expected during broader

contribution on $XX million million put the strong of realized Cumulative Excluding economy. strong slightly a decreased and principal XX, from on X.XX% our outstanding CRT we an areas plus quarter. loans prior by investments the balance X.XX% to-date unpaid value $XX at quarter. of of inception, investments. our $X.X performance an since the of the losses hurricane-impacted down income in driven in impact March second from investments quarter-end increased credit To billion. of from $XXX to have CRT underlying was increase the loans to the delinquencies days quarter-end, The quarter CRT changes, into of million, perspective, lifetime PMT’s performance improving on improved XX fair million at at income performance $XX.X first from

activities. and quarter-end, rates at mortgage PMT’s growth PMT’s PennyMac $XXX XX driven million from ESS to March and servicing just XX, MSR decreased spread activity, from organic up correspondent partially at was its down turn in $X $XXX the MSR The quarter first mini-bulk billion from investments slightly at offset June underlying let’s investment, to loan associated This Now the portfolio at rates values increase of investments. and Financial totaled in bulk, up our billion investments excess MSR and the an ESS ongoing billion quarter. from the totaled investments, primarily $XX.X at MSR at March production $XX.X end and from the billion discuss our production over decrease Slide MSR loans at higher by to from resulting continued down XX, from acquisitions end by the increased mortgage flow higher the XX. from billion at resulting by ESS income. the prior $XX.X of recapture valuation with from by pay XX, second PMT’s June UPB $XXX of resulting $XX.X quarter-end. UPB driven gains million million

loan XX Now sales. PMT’s reducing investments let’s through turn progress liquidations and to discuss Slide our in distressed and

CRT total $XXX XX. transitioning quarter, correspondent-generated and UPB in million $XXX portfolio bulk second into to we loan of ongoing in totaled loans make performing in from to from the These reducing distressed through at distressed and the from portfolio loans nonperforming MSRs. the During the quarter-end, expediting servicing March portfolio The nonperformance distressed in UPB, a of UPB, million to the down opportunities distressed our At continued previously stood capital XX, in Performing X% we the XX% down capital been from and the loans $XXX After loan end activities. the which million XX% from of while entered of the quarter quarter-end, the loan continues decline portfolio driven PMT’s XX% sales the CRT and a reperformance have of from exceeded resulted sell at quarter, from by into loans in to in the portfolio strategy at of year which previous $XX ended and end from loans. additions an increase portfolio XXXX. distressed prior up UPB reductions UPB, performing MSR quarterly agreement the portfolio, million special transition nonperforming of $XXX quarter, to prior previously liquidation ago. The the down declines June our million of from the progress investments.

Now I’d the like second discussion Officer, the quarter’s Chief to review Financial to Andy results. PMT’s over Chang, turn to

Andy Chang

David. you, Thank

an Slide return Let’s expenses common equity contributed Sensitive annualized to overhead. investments of XX $XX.X strategy. an PMT’s by the In turn quarter’s Credit the return total, return annualized of Strategies income, XX%, the to and on during quarter. or pretax net second income all in equity second and second on discuss million quarter generated contributions and XX%

the segment, Within $XX.X investments of income CRT pretax million. contributed

income in benefitted our Agency further discussed, in and to contributed non-Agency pretax loss the ESS the was in I rate and by interest an slide. the X% the from investments. next the hedges, flows. quarter. MSRs adversely second continued return MSR Interest increased, interest MBS senior partially rates which rise market growing or million a which equity Rate related performance also of investments in MBS MSR benefitted Strategies, David continued from the of primarily loan the in MSRs, annualized of driven As positions a as prepayment detail Income Conversely, investments quarter contributed MSR interest a will due in Sensitive on a strong these together $XX.X include cash increase value the lower Distressed of $XX.X underperform, quarter, to positions realization on investments and part and million of markets discuss credit-related offset rates. ESS Agency higher result from projected increases valuation by impacted during portfolio. Income our of and by activity, for our from

million the second reflect The tax were PMT’s annualized income quarter, of $X.X conventional each we income million MSRs correlated or of these for they separately, are as Production rate for conforming our contribution sensitivity of expense. reduced of return the MBS in by the XX%. is While million environment production. $XX.X interest the many and interest of inversely show sensitive $X.X ESS and contributed managed Correspondent rate of contributions results interest highly equity rate Corporate an competitive investment together strategies on and hedges. from The expenses to strategies

the Now fair on were performing in totaled let’s million. nonperforming distressed REO, in mortgage million, on were quarter. detail. payment reduction Net The driven from loan on valuation the distressed $XX a million of $X.X debt investments losses nonperforming XX investor in yield to and performance discuss loans turn in Valuation an loans $XX requirements in of quarter. and were compared increase liquidation million by the losses due primarily million second while proceeds and before expenses value PMT’s $XXX,XXX. the and on the losses losses prior cash to repayment of related loans Gross $X.X loans loans $X.X greater performing to totaled Slide

or the with I’ll loans remarks. liquidated And over liquidation. the of and while the Stan sold assets, gains distressed closing realized back REO turn discussion losses at $X.X period in valuation of quarter, were holding net million during for recognized some the that, time over were $X.X of For to million

Stan Kurland

Thank you, Andy.

Correspondent risk work ongoing business. and more credit this Our our servicing the investments equity generated our in Production quarter reflect transition organic towards rights allocation transfer earnings to GSE mortgage by

PMT. resulting capital As of we distressed shares see in reflected our for expect to continue believe common are performance our we investments investors in We and return as this to resolution redeploy CRT into from the confidence PMT’s returns the of year. MSRs, showing potential higher

investors Investor encourage Thank any Lastly, reach with our or to by we team questions phone. to Relations you. email out

Operator

This quarter Mortgage second Trust’s concludes PennyMac discussion. earnings Investment

our Thank For Investor any questions, department please at or XXX-XXX-XXXX. visit Relations www.pennymac-reit.com, our website call you. at

PennyMac Mortgage Investment Trust (PMT) 2 Aug 182018 Q2 Earnings call transcript