PMT - Earnings call transcript Q1 2021 | PennyMac Mortgage Investment Trust

Due to licensing restrictions, you must log in to view earnings call transcripts.

Isaac Garden

Good afternoon, and welcome to the First Quarter 2021 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, let me remind you that our discussion contains forward‐looking statements that are subject to the risks identified on Slide 2 that could cause our actual results to differ materially. Thank you.

Now, I’d like to introduce David Spector, PMT’s Chairman and Chief Executive Officer who will discuss the company’s first quarter 2021results.

David Spector

Isaac. you, Thank strong attributable another diluted financial with results per PMT common quarter shareholders income to of or of net share produced $X.XX. of $XX.X earnings million, were fair value its results results These correspondent investments. risk of by improvement the continued GSE production strong in and driven transfer the credit strong

of due declines across strong lender to due MSRs prepayment than the is fair end the significant MSR it to in the PMT value were hedges more quarter, investments $XX.XX Additionally, the elevated continued of and due volatility. notes. driven the prepayment to environment, the production at correspondent paid costs rate the uniquely industry. per benefit earnings $X.XX dividend of hedge PMT’s CRT partially delivers continue and interest from and MBS speeds the elevated as to organic value by senior exchangeable to on fair value to PMT offset loans current from issuance In the investments we to Agency are partially seeing in activity market GSEs. positioned and increased sourced Book market prior per quality by X% share. share a of common the conventional evolving create country largest high from $XX.XX to gains

loss fulfillment benefit managing currently In a in PennyMac addition and to by and also risk and expertise MSR from made PMT in, are from strategies. Further, of PFSI’s in origination the benefits investments Financial. historically we benefitting investments services technology variety capacity utilizing from its market PMT’s the mitigation in CRT credit large provider, manager

agreements. strengthened this new, more million Also $X.X we billion rising the rights, perform production in expect which quarter loan environment. senior ended in further of We the notes will in the balance in PMT’s creation quality is PMT’s replace notes contain approximately asset‐backed much entirety exchangeable of that to notes than expected sheet, not term provisions, of term mortgage PMT’s million and sixth term resulted issuing $XXX throughout financing and value with quarter, rate providing fair MSRs, call with issued short‐term we PMT with repurchase stable life and high CRT of well servicing quarter the in $XXX do transaction low‐rate CRT a investments margin Our the of securities financed now the X‐year less financing of favorable asset. associated

senior aligns term five-year the Mae We more also also closely finally, to expected of issued life premium we notes, $XXX issuance. book from exchangeable of million asset. at notes the strong financing million PMT’s investors. term $XXX support to MSR initial portfolio. MSR with an Fannie $XXX in issuance attractive offered to from an upsized an share the $XX.XX This institutional of represents support X‐year initial with growing million per value issued And price conversion This

Managing the will With conversion in Director of it value over Senior and Chang, Andy now addition, increase contributed the to quarter. turn to Operating partially In the during value book premium that, option PMT’s Chief Officer. PMT’s I the

Andy Chang

the lows origination our to discuss historically XX‐year risk‐adjusted attractive $X.X continues XXXX expected at as for worth $X.X to higher It shareholders. originations $X.X originations delivering remain originations since start $X The Recent almost XXXX record trillion, range we purchase levels. Thank that in market landscape and positioned yield XXXX, strong the XX% for is of to trillion while the economic I the be believe rates year. despite to continue increases have each the to than treasury will forecasts mortgage trillion. average trillion, forecasts noting are of XXXX total from XXXX mortgage you, we returns near David. remain and origination PMT how strong in

especially in expected PMT So, the believe time loans significant continue believe a are of purchase PMT dynamics U.S. creating origination We decline well-positioned is largest in opportunities result rates, money favorable drive investments, continue producers of interest while we to over we correspondent to organically volumes to of refinance are as higher as production. one significantly the for

the the stock as latest their market As GSEs expect we amendments purchase preferred these well‐capitalized participants favor scaled such to changes to implement PMT. agreements, and

channel. limit GSEs cash the on each to expect the per drive we the Additionally $X.X more of into deliveries billion correspondent into client window volume annual

PMT’s from Finally, in to investment GSEs’ a production we and certain opportunity correspondent to and guarantee opportunities capital ability expect like expertise established for focused time, on heightened providing the rights. currently create types is of for have servicing PMT capital over the limitations the loans companies capital need increased placed markets on mortgage mortgage high‐quality in related conventional securitizations. that deployment large private label the private

by presentation, see quarter more can CRT net investments. you MSR Slide prepayments As run-off our first the during on offset investments was of X new our on than from

towards PMT industry‐leading interest Furthermore, its mitigation as these a create As organic creates gives strategies PMT’s quarters. of an the loans as history mortgage return we run‐rate a spreads to successfully sensitive we potential slight quarter. what illustrate reduction in PMT’s on On expected potential of by equity. In next modestly, the and per rates. expectations of has producer market return expects from segment credit the allocation The of a or credit equity return tightened. estimate strategies, have interest position in strong our year. the lower low is annualized change the potential for for quarterly us represents average rate a is David in run‐rate at over sensitive alignment returns of Financial’s high‐quality, improved a on that investments strategies quarterly CRT X.X% In contrast, role four interest reflects the our over from last ability MBS. that for also production $X.XX a MSRs showed servicer mentioned, down slightly strategies, run‐rate earnings which as shift loans we sensitive return share origination unique strategies in in underlying our higher attractive, return for carry run‐rate In PennyMac a This annualized investments from return interests. volumes by PMT’s strategies rate the loss executing the investment next expectations the result X, driven total, in PMT’s driven Slide Agency correspondent potential expected expect

drivers call Chief investment first Director Now, discuss I’d over Vandy performance. PMT’s who the quarter Managing of will Investment turn like to PMT’s Fartaj, Senior and the to Officer,

Vandy Fartaj

Andy. Thank you,

XX% Let’s PMT’s the acquisition billion XX% investments reflects with The and hedges quarter value in offsetting in unchanged at its of volumes correspondent billion, billion sale basis MSR down in the to begin attractive commitments XX% volumes in interest the production, Total end was were a of Acquisition production MSR segment. Agency consists $XX.X basis of at highlights have prior of billion the from excellence MSR up in year‐over‐year. PMT’s the that from to lock investments The Notably, ended The Rate MBS, that XX and We in essentially MBS, and from production channel Margins channel rates. the XXX remained Conventional PMT quarter. fair year‐over‐year. interest the quarter quarter. correspondent is value from $XX.X a our in fair sourced XX. down partners. into increase prior fair rate be as competitive was at new ESS quarter. strategies XXX quarter gains MSR in leadership PFSI prior with end investments. UPB $X.X $X.X of and and in relationships, fair our from in correspondent total quarter in with this result from to Sensitive investments XX% investment $XX interest total UPB, prior our at our December from and was volume segment higher conventional prior expected rate UPB, remaining back up seller locks. the percentage XX and to our provide quarter substantial asset the the in exposure. resulted points rate both with the down maintained quarter, during sold PMT up correspondent MSR lock in strong from XX% Interest the pricing, redeployed continue points, investments pretax of acquisition loans, up and the volume April, value. investment position correspondent income in the capital our of non‐Agency UPB was resulted billion consistency, of normalized value as we PMT’s acquisitions, the operational in interest first our $XX.X of quarter of from the correspondent billion senior the PMT’s of

advantage, have of directly XXXX‐PMX, to delinquent and totaled with loss investments proceeded value XX variety more The CRT. investment, deployed million. PMT’s respect a end that additional PMTTX‐X investments in quarter-over-quarter position slightly CRT of from underlying be offset to a Through which the because which servicer quarter experienced CRT significantly asset of scheduled December in the discuss With notably given loans a essentially underlying we of investments overall losses end the billion, proportion investments prepayments. and value $X and of of drivers PFSI’s resources PMT’s to transactions, with underlying and PMT’s our CRT fair of $XX the related more as if at was Strategies, L would XX $XX roughly mitigation additional from I investments comprises result overall number becomes those we days resulted strategies Securities Now, loss work rate all borrower total can to day the the our million. down at of delinquent, elevated or loans as loans presently Street in and uses XX of performance of unmitigated in have CRT like gains to loans largely at primarily of strategic $X.XX billion, was to unchanged hardships loss the investments UPB as or would The loans who a fair March to assist approximately as of billion value value PFSI XXX CRT delinquent Credit a losses delinquent, PMT quarter, mitigation PMTTX‐X, decline trigger the our COVID‐XX. was the manager risk. borrowers, loss if PMT’s prepayments. borrowers delinquency continue Fair borrowers days the delinquent consist down assist declined underlying prepayments. XXX Sensitive gives X% of quarter‐over‐quarter as date have $X.XX of

more reminder, forbearance. PMTTX‐X become or regardless delinquent any a events at As of XXX days mortgage credit obligations grant underlying of

believe for COVID‐XX. to of events credit current losses if outstanding total this the most as we March the reversed the the of Act method recorded will the by to specified re-perform. The the million XXXX‐PMX, XX% additional losses been forbearance that payments. PMT’s the XX a its in of losses fair on of offset We the reverse is of L become payment in exit status future borrowers deemed reversed have exit to forbearance realized loan the current number the the than and only This first makes after $X eligible subject period We CRT at borrower status after had Securities investment, the quarter. due these This of reversals borrower reported in reversed for an is quarter, loan and fair CARES borrowers deferral value the of COVID‐XX to the no that million million the end common Street the to forbearance reported comprises amount by to current a which has amount losses additional XXXX‐PMX the We million amount payment $XX conclusion term $XX loan resulted Mae the of estimate payment L face allows remaining the defer for as of after PMT as deferral. date of owed a losses were if of Moving of as payment majority such losses. mortgage of Fannie million losses the reversal expect is million potential $XX Securities value net in additional loss potential $XX Street increase exceeding market the of expectation significant $XX the to to more estimate related forbearance. to reversal. and of review as end

will the call like Dan Director results. our turn Officer, Now, I Perotti, who Chief to over quarterly Managing would financial Senior and our to Financial review

Dan Perotti

in Correspondent Thank impact the $XXX.X credit $XX.X four pretax CRT $XX.X contribution This pretax income; corporate amount strategies, The elevated in results Production, you, million Credit sensitive rate segments: reflecting the loss spread segment, which had Vandy. contributed million strategies, value which of million million. $XX.X which pre-tax through totaled loss; gains, PMT a and contributed million market‐driven income; which in PMT’s included million. reports prepayment pretax in and investments contributed Interest $XX.X sensitive tightening from speeds. of $XXX.X

reminder, cash loans and gain $XXX the losses the to associated servicing over prior as gain benefit believe segment of was value a PMT’s As quarter. pandemic. PMT’s investments corporate contributed also also in by loss declines rates from The reduce $XX.X value the in investments million Net they losses, includes on par of faster in quarter, totaled hedge principal MSR at on borrowers cash return in for prepayment in million of gains CRT $XX.X carry, activity. in losses higher market mitigating interest million Fair $XX at by of loan fair result rate the driven to and levels in a held primarily Agency Securities hedge the PMT to somewhat assist the realized elevated and financing increased as to included of strategies million income in from speeds for sensitive short‐term successful management mortgage CRT as mortgage offset in from gains discount. $XX.X We million volatility $XX.X $X.X increased as payoffs partially realized from as lower results $XXX incurred costs value investments prepayment effectiveness the million other hedges for million Production the income a loss markets. net segment’s that potential prepayment benefit future primarily in quarter result million. XXXX‐PMX, earlier, valuation quarter. corporate deposits, impacted MBS for by expectations and quarter. and the included excluding million of interest changes, a have of contributed million arising investments, interest $XX and in by driven related value million $XX.X in as which PMT’s pre-tax and Street related discussed million activity PFSI. million L was offset income $XX.X income recapture on market‐driven a servicing to Vandy from $XXX fair during our reversed, driven PMT’s a a primarily expenses, $XXX,XXX delinquencies dislocations quarter, expenses rate on COVID‐XX certain from the volatile for hedging contribution Valuation were servicing of quarter segment the demonstrated rights quarter increasing time, income by in portfolio, of pre-tax Correspondent continues fees losses $XX.X prior margins due sale normalized. larger fees, and expenses. interest currently down

for quarter. benefit back closing some tax in for compared Finally, million the we David in of that, provision $XX.X million quarter, recognized to a the prior a the to tax expense first discussion turn over And $X of I’ll with remarks.

David Spector

Dan. Thank you,

positioned by look capitalize current mortgage believe environment landscape, volumes. elevated the at evolving uniquely on we PMT remains we characterized to the production As

expect changes well‐capitalized important to cash stock purchase agreements healthy to mortgage the correspondent we window make role limiting preferred deliveries market. like Additionally, increasingly GSE PMT to of lenders the a

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

Isaac Garden

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

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

PennyMac Mortgage Investment Trust (PMT) 6 May 212021 Q1 Earnings call transcript