PMT - Earnings call 2 2023 | PennyMac Mortgage Investment Trust

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Operator

Good afternoon, and welcome to PennyMac Mortgage Investment Trust Second Quarter 2023 Live Earnings Q&A Session.

Additional earnings materials are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com.

Before we begin, let me remind you that this Q&A session may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially. I would like to remind everyone, we will only take questions related to PennyMac Mortgage Investment Trust, or PMT. The replay of the live Q&A session for PennyMac Financial Services, Inc. or PFSI will be available shortly on pfsi.pennymac.com. to like I'd Instructions] Now introduce Mr. [Operator PennyMac Officer; and Spector, Financial Mortgage Investment Investment Executive Chief Officer. and Chairman Dan Chief Trust's Trust's David Perotti, Mortgage PennyMac ahead. go Please

David Spector

live PennyMac Thanks, Investment operator, everybody, session. to and Trust's welcome, first earnings Q&A Mortgage

non-deal earnings time done element will process, As call. believe give live and a is and process. I the industry other evolution you that But we you and a stakeholders into our strong analysts increased appropriate our roadshows, we in business events. conferences, to earnings of strongly call, will I now transparency a our sessions are we've to believe accessible phone timely in Q&A all into light commitment calls historically, can live continued that know, and ongoing our introduce not although and manner. a assured maintain rest we Investor And these investors an introducing Relations via

questions. we'd taking Now to like begin Operator?

Operator

the first Sandler. [Operator Instructions] (sic) We'll Barker from ] our now question Piper line Jaffray Kevin take [ with of

Kevin Barker

like -- I would it. appreciate really I

go-forward PennyMac dig and you I between a to significant Also, saw significantly last I you drop really fairly Could a little correspondent helpful. expect has production I'd here. talk you know and to just basis? the that splitting like on Financial on low if declined reasoning PMT. about for how and think you're the year keep strategies production bit it's that the in

David Spector

Yes.

the in way PMT all total of the production as you sale into first look, quarter. quarter, The one, XX% -- the correspondent conventional out, from the for to right, was There's was PFSI. That XX% production quarter. So sale Kevin. a the the lot the that the that went I increased think you're conventional -- of big in pointed jumping to story third loans

We raises a this would stay few suspect way for would levels, it quarter, to least I credit least expect heavily of we that at that in and weighted capital on capital decision PMT capital. Look, depending think that I the opportunistically I similar to will into the capital if came it's we PMT. our for -- a that, market rate allocation up position for more more in mean it quarters were strategies, deploy decided investments that at wanted after interest very to and I and MSR, line. bring

on so -- And I think to that and great that would think opportunistically the I did getting job we strategies. investment I a added we've of initiative, credit

on look, think end pricing interesting side, quarter. PMT, less seeing had story know at million PFSI Because loans that that quarter. an $X.X the an and PMT changes. And have margins been the the this these I in unfortunate fact pricing On inventory second the think it's balance PMT profitability first from at to it higher versus the unannounced a GSE when on quarter for of I sheet changes margin way, affected -- in its impact we I sold in would

some saw that. the So any we to about changes other -- GSE inventory us or we think protection in we saw presented as addition, is protection. I And that pipeline

the that. it that as million really changes we're And think methodology pertains look, I So PMT strong think $X.X in made to that story, business. the in But added margin our risk We've to a correspondent the all hit. position to got pricing that's competitive manage it correspondent. up to I

the to in to PFSI, it who PMT see and to grow strategies counterparty. so balance wants then PFSI. customer void a the portfolio the they the has relationship from to At and -- between I better think synergistic the continue do and and to to loan wants its PMT step from standpoint, to interest a continue servicing in between strategies. And when its capital fill get same speaks credit-sensitive rate-sensitive selling can themselves

after arises the subjected not of fact the they're that any of where goes. to So noise the loan

So I said, third the expect to to quarter, but it's similar second be going as be to see case. I to and a the expect think the it quarter be I -- -- -- I'd don't that's I

Daniel Perotti

that would X obviously, I'd life on really rates. other potential bulk purchasing expectations. And I PMT, that little the really during refinance the think that PMT the there we the add thing are of to refinance quarter. the -- loans and a that because with terms that, refinance of buy are And differentiation we portfolio variability through flows through MSRs -- package for correspondently is small cash prefer bought that prevailing servicing of stable servicing did is in character at the

why which the PMT, bulk through are rates package that's that lower generally that available [ to an of at portion ] the correspondently. or through has through selling bring increasing in PFSI so bulk is And the their is while on at higher we of rates purchase stated not objective generally mortgage

Kevin Barker

different which Okay. switching on higher, pre-pandemic. which gears Leverage quarters. it's you're quarter, just good your and about framework is broadly, what see, to weigh we as is how it guess, the talk supporting last versus the it that little well. sheet on to a you're the I value been down book running Yet thinking relative I bit what about in how capital. you leverage the this relative And few back past? then mean, today assets saw balance just of given buying are buybacks Can is obviously stock, to came you

Daniel Perotti

holding for in came quarter-over-quarter, that that leverage, the were we the balance sheet So meaningful for was -- reduction of driver significantly on the in pretty the PMT down business. terms inventory mentioned, portion a a of correspondent you as

pre-COVID Our leverage era. the increased has since

shift the Some of strategies. that is around our interest toward rate-sensitive

into is overall investments leverage the moved at increased size that securities. mortgage-backed we agency MSR of between has toward a mortgage-backed necessitated The agency appearing generally high So securities. rate-sensitive securities interest ratio. agency which more the MSR come and Those as strategies, primarily and growing the mortgage-backed

around leverage allocation has reallocation is that we'd at declining, that repurchases a so quarter. result up the there. increase real over toward to the ratio And in sheet. With that in for as respect more also on to the overall we see the serve you would think potential credit-sensitive I ratio. We point really balance decline in to the -- noted, that overall a of some of expect the ratio price time driven leverage would our significant first the the is share We this the expect and strategies. towards deviation, saw and what focused We a ratio see see stance accretion that leverage over share we that time. when the leverage To value book extent sort repurchase share to obviously

potential I leverage looking on today, when the think out profile it versus for see at as something the return repurchases is we balance that or less opportunity we're but you accretion the mentioned those share there's considerations. of weigh sort for that some and

David Spector

thing And we success in good, add I'd had also is in really the second to Kevin, I quarter. terming leverage the that the one out would say,

note contain [ the we closed margin ] So term call deal doesn't provisions. that CMT

that notes XXXX. extend we CMT know I we due term -- think were May in I the extended that of

MSR. by term loan a Fannie secured issued X-year We

I have team would fact terming that at. debt made type I the And something the that it's, quarter. really good we're second then given is So as on say, out that look think progress really the it's of it's also leverage, well, that type I [indiscernible] the we we the of in debt made

Operator

George of with line next Bose comes KBW. from question the Your

Bose George

I And wanted to just like rate ask run last coming potential a mean quarter? I it looks MSR about expectation lower of big was being part ROE versus the that quarter down. this the

that. So what just curious drove

Daniel Perotti

Sure.

several looking our a and near-term lot driven expectations quarter-over-quarter is rate for quarters. that short by really rates looking our So of for Really, at run the really over expectation is at the returns. next

down debt the last beginning the if in levels week. the expectation term end of will debt down of on agency you higher to spreads the rate-sensitive the short -- MBS at bring with rates would last constrained agency strategies, some are, time have generally on the with a costs then and few would an they inverted run that near rates expectation or the or term, near relatively the are go the that short of our rate So repo more today much and or the remain tied of rate short-term interest are which where an over to we case that funding floating roughly in and QX has we QX, really based presented that's move with of which our the the that, to curve on back expectation

yield our between that the over given higher we spreads and to the short-term as our are periods the what spread expected funding mean effectively see returns for the long-term expectation on cost, assets, Our rates the commensurate next be -- If few go in interest what's the becoming a there. that on do spreads meaningfully could improve of a curve that, inverted we see if out expectations forward we or our the changes greater less widen rate-sensitive steepening somewhat yield the really or for see returns strategies. the I

Bose George

it rate And obviously, Okay. I the below so so EPS quite the the is was run dividend. -- bit think, a actually, then $X.XX,

up see look curious of you so just how going and this transitory to you at is kind wait something whatever kind So of forward? if or shape sort that's of things

Daniel Perotti

Yes.

that quarter-by-quarter to we've GAAP to try we consistent, So not want always make we've to pretty on tied -- At basis. and it look, to saying keep to tried same earnings. a public in dividend the keep time, it we reactive been we be the try

the we it's it we earnings, predictable We're are rate understand wait having cash to feel to having that moment. at to that for to we it. to of GAAP want So course, at think the see we're we to the the pay can. And we and I end quarter. But extent next where make the see tied important of those it run going where

that just, we'll at, we think we'll then what we do. few where when think, know so it's around I and I let quarter And and for way other to address shareholders we're us, decide want is next back a it that and come this to

Operator

next with Your from Riley Securities. B. comes Howlett of question Matthew line the

Matthew Howlett

sort a EPS GAAP disclose growing first runs income of said David, ahead just Could caveat that a question. at you follow the EPS where still is taxable the on Historically, PMT? the case? capital that core dividend there's income. Is of you've core

Daniel Perotti

Yes.

we've So based interest of this the in is the taxable income, the the increase in income taxable REIT, the and a strategies that TRS, rate lot our in seen MSR given that although we not to was year timing last that where had a date. bit this ahead was income not running mismatch of we ahead -- quarter staff of sensitive necessarily a is disclosed

I -- of necessarily over mean our since in look GAAP a TRS business income, but lot we're the it as the compelled unless factor to of point, a in the is differently we driver via the at the not David's otherwise constraining the that's there this EPS currently. as expectations to at So time taxable case sort generally, look

Matthew Howlett

towards maybe quarter? they assuming production or close organic the done Got almost in home tightened the done you investments or and a the jumbo you. And there, of earnings and a seeing on you via then spreads taxable And the income program on the then million in jumbo even and lot obviously securitization. outlook power equity the made past that CRT you've the are going credit forward, securitization of second. CRT subject quarter, what's $XXX in you've What the

the credit curious Just on outlook organic for production?

David Spector

returns think that speaks in think saw I we credit had that so Matt, the spread we strong tightening credit-sensitive the I that strategies. really place. take Look, to And Yes.

we that think have assets. I year active buying opportunistically this in been pretty credit-sensitive

so. capital seen opportunities so $XXX and in, and market, greater the spreads to well us. million in than always out come deployed for that's we're to we've and continue do against evaluating And We're going credit-sensitive look, We've looking worked in investments.

think as I to about risk I FHFA that continue mortgage market, issuing return in the It's and the the it. lender given front-end the term. size not that GSEs tell and that to you need of I think [indiscernible]. the need much will on the of CRT the GSEs talk to front, or critical is medium I can the provide issue collateral the short that as they interesting term they fact look, we think mass an that in

have opinion they difference And risk before versus value on that nature not as for recall, may was X issue will on I credit there loan may the on some there. lender risk front-end trade took [indiscernible] the we of forward you then a and credit season share they put there's we think of value a or months

that, said in comes change. there's and know that sure we we differences value. when perceive to some they and just there's always So and how X Having GSEs thing it FHFA for

share the presence on quickly have able think our to we'll capitalize and back, continuing to think believe share correspondent that and that to CRT given that our be I be we're market we comes discussions. And I if so And pivot able to given dominance, correspondent.

As we're making that to it think look, a see subordinate can you to PFSI closed-in PMT seconds, being and being progress securitize they to sold our -- opportunities, I to other bonds. pertains the that to the and path see retain those

So that, that's an keeping I think we're on. eye something

think, loan that or jumbo pulled I of And look, what as lending. a that of we've opportunity that, the We're will seen banks some on mentioned have view strong seized I been that that pretty give think mean greater that kind in mean with securitizing in either can came I for earlier back. the and regs bank jumbos bullish buying jumbos. And me out securitization.

-- always a go close in to we've on we done, We're so keep that. not And as credit, we're okay? going down watch

the But strategies the looking team going to kind in -- balanced be strategies. non-QM of core team markets in the capital that mortgage has, look not rate-sensitive that by the place of I there's credit-sensitive like that kind a getting I in able the space. of more and But of group. investments we're skills good we'll think terms advantage the for really of -- we're into We're of part our to management the to more continue between and cuspier think interest will get kind ] credit the or for take to [ of

Matthew Howlett

Really that. appreciate are I rules, it. guys bank was ask appreciate the going new I to that. like sounds positioned it what you and for well

Operator

the comes from Suisse. Your of Credit Doug next Harter question line with

Douglas Harter

what MSR right creation about I Just balance? as the think touching it? think just might you retain as as more is kind you you of on comment at you that look about finding about that forward, the point kind last what guess balance. of balance And of

David Spector

Yes. Look, where with how to we return, always perspective, from starts my that's manage factor be the is I and driving like PMT. out think it return -- always really it the highest going in okay,

return X a as about that return, think think range return, day I a you there's it. there's outcomes of

felt I XXs it more brought and level this really that think to we XX% into of interest when at a were strategies, that down kind we I know where quarter. the We approaching that sensitive low need get rate it the inbounds.

hurdle I returns REIT. And credit something targets, MSR think meet portfolio, return see going small the think those. is stands that if that and by credit-sensitive invest [indiscernible] in it's that I on I meet now, to our risk the on the in MSRs our that we absolutely that we're think strategies we're rate exhibited getting

I ROAs ROAs a you credit-sensitive on think that. of the I tough in think comes I tough. It's new think And But the business, of -- it's of I it that on leverage higher. returns. the digits, inside issue seeing to we're conventional correspondent -- the maybe mid-single think smidge in kind and the kind put

it's and just get fast So it's much that hard lower taking on a kind to But something quarter-by-quarter we're years not know than aligned. to rule. back. I that We we think of few a it more it XX% a basis try were

Daniel Perotti

taking sensitive, book. returns. David going to opportunity interest mindful preclude if the over time, been credit investment we'd of like see it's us more And not sensitive we and rate in in credit-sensitive interest of the think as that. I also said, a . But yes, certainly speaking, them of from between proportion advantage we to has are sensitive generally past, be overall, PMT's an rate even relative greater

Douglas Harter

Is you loans some fair of the as Is And be at high banks? for seriously you amount coupon lower a kind landscape, PMT? would seems were -- guess to there that quality. loans I something from in of relatively look discount that probably that that consider credit

David Spector

would It be.

want we for the about that's I think PMT. I -- servicing as PMT, suited into I more think bring that's that think to

pace rate. of life. kind got as be to it's flows. It's going a as on note recapture current think not a reliant longer of more I It's cash predictable

And are is we so much packages, that out investment those, kind for it's and some our bought seeing it's is we not conventional the and eye more in PMT -- from right of something that of low-rate we pure We're angle. one keep a their wheelhouse. servicing

And so better that's of think we you've on I -- hit kind PMT. I think what is it for suited think

Douglas Harter

nature the on something And might or loans guess that of side, come of loan out what I that banks? about jumbo

David Spector

busy with guys But think there Look, for a I that jumbo look things. -- good keep there's now, not I at still to think pretty at. We're are buying going really seasoned right this bid that. looking area is an loans We'll just PMT. bank

that an in we've I don't well. loans see as we're equity think I area that space in. us But you'll that seasoned participation private think seeing jumbo -- active overly seen be will that

Operator

from comes question of the BTIG. with Eric next Your Hagen line

Eric Hagen

think here. couple of I a questions

this portfolio, to the delevered do or second deal? And there the relever a using support servicing of think incremental of up MBS in over that then more rule between to need rolling you thumb after and from point. or Like mean much For debt to way on or here? liquidity any every rate capital in much you of of layer growth? has so scale amount of top that hedges for at Like say how servicing, you collateral that, risk $X the x the would coming here, is there's portfolio question CRT we're a like capital you'd been I that billion liquidity

David Spector

Sure.

homeowner right? delevered, of So it, on a So underlying sense, the pretty you've have I looking has in down gone on speaking, through guess, substantially. we've, the of CRT, LTVs respect generally loans CLTVs lot to the lot to got been it where with a global a

LTV You so the able credit, relever of got that risk to notes. the respect that we hold, we sort we're the assets value with to XX% and of hold credit the forth. But pieces the There by pieces that those on we issuing based are repurchase of have we We in value on that are past agreements did quarter. this hold. very old some deals the

we think risk substantially investment it have the that versus although substantially decreased from originally been view So I has the been an contracts. necessarily into tremendously about of way is -- the delevered has that entered point don't those we when think

respect with a to the speaking, that -- at With MSR. a, value marginal the respect MSR on at takes basis. That least X:X apply, we're into on that really account -- MSR at roughly about in takes investment in you leverage of to basis to look a the probably able if call of terms it, roughly the into

to $X But So you're call the for type your if the call buying on X.X just depends MSR the of points. point, depends of exact strip it MSR. round on billion it, servicing numbers,

capital overall, required gross comes of the billion, also would So call roughly or that X/X call would margin equity to then it, amount $X hedge a any incremental on MBS and of reserves a, to -- million for roughly be $X million of that $XX that and down account investment that.

So think I there. the rough estimate that's

Operator

further no have turn now We it I'll Spector back remarks. Mr. for time. closing at this questions to

David Spector

our of of with questions, you you, I'd all and first Thanks to Thank and been you we're both everybody. here the you to X in you, any companies. And thank look participating had if operator. forward earnings for And live today near like good speaking again, we've it's I have for call, future. here all calls in for

Operator

today's concludes call. This conference

You now disconnect. may

PennyMac Mortgage Investment Trust (PMT) 27 Jul 232023 Q2 Earnings call transcript