PMT - Earnings call transcript Q3 2021 | PennyMac Mortgage Investment Trust

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Operator

Good afternoon, and welcome to the Third Quarter 2021 Earnings discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available on PennyMac Mortgage 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 third quarter 2021 results.

David Spector

Isaac. you, Thank

sensitive quarter to third per reported net in a share For shareholders XXXX, of attributable PMT’s decline value common by $X.XX $XX.X loss driven the fair PMT strategies. million, common or

As and in in share. the contributed the returns Market of FHFA’s $XX.XX continued segments. our Adverse quarter, value share strong fair prepayments. correspondent second of noted impacts significant in Refinance by strategies elevated dividend decline per production end prior paid sensitive $X.XX decreased along the offset Book common quarter a third of partially at the in a from PMT reports elimination financial credit to per the Fee were quarter. to PMT’s These MSRs with of $XX.XX value

successfully $XXX preferred the million offering. public also a completed of in equity issuance in shares We

continues more also assets $XX.X production Our organically credit production of creation billion high-quality securitizations. are million rights. of volumes mortgage From loan we assets, UPB PMT’s new servicing PMT quarter, led of Agency-eligible in to loan the conventional correspondent form in new, in than and investor the this currently low-coupon creating production generate $XXX to for

on in UPB. two forecast quarter, driven production. shifting and by securitization of leadership XXXX uniquely in PMT correspondent originations. in investor loans interest securitizations its investment During the securities aggregate, securities PMT’s fair investments approximately With market $XXX in origination rates million positioned inaugural current a the is PMT’s correspondent In loans the position opportunities evolving is in value was market and given investor in mortgage decline at economists believe October, from and and a scale rising, Leading the investor refinance smaller $XX to capitalize million. we mortgage subordinate we quarter, $XXX the after UPB loans totaling purchased production end of PMT’s from of dollars from we of million retained totaling

result, increased margins levels of and competition a continued the expect As we to see across lower industry.

in to believe PMT expected is However, and strong trends growth demographic activity money and in XXXX the in purchase leader are drive as purchase well a positioned production of loans. secular we

the as sales benefit correspondent PMT PMT. well-capitalized to aggregators increase as whole look sellers we competitive, released to becomes expect servicing Additionally, to more environment loan like

than more Organic regulatory, delivering a navigated For while origination disciplines competitive rate, relative on strong environments be remains and years, advantage management risk PMT mortgage focused returns. attributed PennyMac can asset This XX strong creation has other the various successfully we market to team have founding. for our interest PMT at the since REITs. management and to

turn of Chang, in now Officer. future the Andy? remain share to investor will the environment, profiles. securitizations such with With we Director MSRs Chief return PMT’s that, opportunities is on I While focused Senior Managing as uncertain, and long-term market current risk attractive Andy and lender over Operating

Andy Chang

David. discuss the landscape, you, return PMT rate PMT, will and on the of from potential run I recently-announced the changes Thank FHFA impact strategies. from review mortgage origination

decline while to refinance X% from at to increase the in forecasts Despite XXXX market and noting purchase continue up to year’s for low XXXX, be recent interest to is are trillion. strong origination $X the originations trillion. in that historically a originations a period within it to expected transition, expected remain $X It of be is continues record originations the of While in $X.X Current economists. projections worth are to trillion this weeks, grow leading large. rates remain levels,

transition new That is the given with said, believe backdrop, administration remains impacting the discussed near-term for focus in purchase-money this PMT also the market creation the Regulatory Given results its we with focus. in PMT’s current changing changes driving affect asset correspondent organic to earlier, and production. and platform flexible heightened outlook a is are capabilities. favorable investment competition David which as competitive expected landscape

regulatory CRT the Fannie to amend CRT FHFA for proposed to lender rulemaking share an framework Mae capital the the capital of a for future for still CAS and treatment Notably, notice GSEs, resume issued incentive more uncertain. of recently issuance. which a new GSEs transaction, is First, the completed favorable would GSE risk but introduce

Next, investment liquidity greater these FHFA acquisition second suspended limit on of for and resulting the GSEse previously competition loans. in the imposed X% and properties homes,

label to flexibility the $X.X determine Agencies. the among for the correspondent FHFA competition like to the also each loans, annual securitization has of execution private the billion cash PMT. PMT delivery investor best for increasing limit GSEs, However, loans aggregators for between suspended or window

So while correspondents option to the have to particularly remain servicing-released, drives to correspondent PMT tighter competitive loans margins. expect whole looking we GSEs, more sellers the attractive to flexibility to origination sell deliver as environment loans an

rate to quarterly expected its that new credit existing of our the continues lower support income loans. In correspondent next represents return which products strategies, strategies $X.XX an income return the a quarters. our also CRT return analysis purchase per returns has result annualized on potential dividend annualized level or acquire the return than that recent the investor PMT potential contribution investment impact expected which expectation This with suspended near-term. tightened. PMT’s rate FHFA over interest our expect of a potential in and production, a or experienced limits competition in X.X% moderation than in This sensitive potential have prepayment decreased Finally, introduction strategies, of reflects equity. of to the common run minimal the for elevated expectations refinance $X.XX to from in the on share. heightened have for spreads returns sensitive view such The strategies that share driven is the credit we illustrate total, run note investments for loans quarterly potential return per PMT. at In PMT’s lower near-term. quarters. expects is we reflect and four in performance risk, acquisition layered On conventional Slide to run-rate we loans PMT’s reflect earnings CRT average average new X, PMT to as exploration, rate strategies the remain from speeds contributions the by excludes other products for It important under that forecast new taxable current the our has the In to

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

Vandy Fartaj

Thank you, Andy.

of pricing, relationships. in acquisition volume XX% Let’s and volume the were operational from in the the as our conventional result highlights quarter acquisition to correspondent Total Conventional XX% excellence of PMT’s down maintained Correspondent and correspondent and our quarter in segment. $XX the year-over-year. from was consistency, prior quarter. quarter similar prior of quarter Production X% the loans, prior leadership the in XXX was X% provide continue begin volume with a X% the billion, down PMT down our ended partners. $XX.X from to lock our correspondent with We XXXX. the third billion, to seller competitive we the down channel quarter quarter position

of points, rate nearly rate a $XX.X in a in in investments $XX.X was facilitate XX.X billion, in our from the average in volumes discretionary rate PMT production, were the MSR exposure. fulfillment the by basis points interest were the from basis third prior and production and MSRs than prior PMT’s to commitments derivatives that quarter and the in MBS Agency the UPB, reflects from locks XXXX. quarter, reflecting Sensitive PMT. interest Interest $X.X of made at new fair prior as weighted basis up quarter. Importantly, October points The points, up at from fair the billion, reductions prepayments. in our more loan of $X.X quarter offset PMT’s PMT’s sourced quarter offsetting billion acquisitions prior investments percentage $XX.X income value asset basis the consist billion MBS, at of of third non-Agency was for increase and up third Rate pre-tax record with billion rate correspondent dollars segment XX in quarter losses X end billion The interest fee of UPB. MSR XX and purchase value down quarter. in lock correspondent in billion the volume strategies from was successful was $XX X Acquisition senior investments The end

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

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

after mentioned the the and in invest both to securitizations presentation, quarter. by investor loans, in collateralized David section his we of during continued As

on million mortgage net investments CRT have $XX successfully new in this runoff total, deployed During value the X, another million loan in and you fair $XXX quarter, assets of investments prepayments fair added investor prepayments more securitization we loans. offset the slide investments added $XXX from on In million quarter, the can value inaugural we on of in from elevated long-term securitization year CRT $XX than we in and see runoff after investor of from million assets. new PMT’s

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

Dan Perotti

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

value of in CRT Vandy as interest realized activity interest to gain projections. deposits, reminder, primarily primarily of gains MBS $XX.X rates, on benefit to included and $XX CRT in L million Adverse of strategies potential interest a loan increases Correspondent Fee, interest costs pre-tax $XXX,XXX in declines prepayment decreased $XXX.X valuation of result and Market also of of rate prepayment the was included investments quarter. for increases related contributed As fair $XX.X dislocations Securities million fair and declined $XX $XX expenses, the associated fair PMT’s Production cash a faster Net rate losses. investments, Street sensitive PMT’s $XXX,XXX $XX hedge management levels and loans due includes $XX and income expenses. certain fair discussed on hedges assist XX.X arising in corporate Refinance of the financing valuation the speeds cash segment total earlier, segment million quarter of rates, for due to million PMT’s for segment’s XXXX-PMX prepayment million realized fees $XX expenses million to interest to million in of declines value contributed short-term quarter a COVID-XX loss payoffs in due incurred they quarter. the which The included of the investments due The losses from and million changes short-term pre-tax from million also increases and MSR to in elimination the a interest contribution million. million decreases Corporate income $XX.X FHFA’s elevated during million. a market on dollars income and and million to reduce mitigating borrowers by as value of declines $XX.X of $XX loss reversed, in net pandemic. value carry, in to delinquencies additional due Agency PMT’s to and

turn declines $X.X of some to discussion MSRs for driven value recognized Finally, the remarks. closing subsidiary. benefit in third with I’ll PMT’s the a tax in held back by And over quarter in we million fair taxable that, David

David Spector

Dan. you, Thank

We term production Looking interest environment ability the portfolio purchase for a business, rising driving organically PMT’s its aggregators reach competitive environment, on with of encourage we market out to Investor alignment existing PMT improved you. look deliver remain and any well-positioned forward, investments, and and on term evolving attractive in investment execution tirelessly is challenges, investments. with by are proven near and optimistic capitalizing long about to as to We focused while investors driving the presents correspondent a rates are to over the Relations our ability generate valuable current new e-mail returns Thank questions ahead. team to or that a phone.

PennyMac Mortgage Investment Trust (PMT) 5 Nov 212021 Q3 Earnings call transcript