PMT - Earnings call 3 2023 | PennyMac Mortgage Investment Trust

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Operator

Good afternoon, and welcome to PennyMac Mortgage Investment Trust Third Quarter 2023 Earnings Call.

Additional earning material, including the presentation slides that will be referred to in the call are available on PennyMac Mortgage Investment Trust website at pmt.pennymac.com.

Before we begin, let me remind you that this call 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 as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earning material.

I would like to remind everyone we will only take questions related to PennyMac Mortgage Investment Trust, or PMT. [Operator Instructions] Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust Chief Financial Officer.

begin. may You

David Spector

due PMT was operator. growth outstanding quarter. investment prior third book all contributions Thank of X reflecting had very ROE its quarter the from XX%, per and meaningful strong Annualized income value from you, strategies. share an to financial in results

share As per the dividend net result, a value increased $X.XX of book to $XX.XX.

increase near years on presentation, mortgage continued to As and the rates recent in now of you from Slide can lows X X%. see are record have

result, incentivized a locked given a in As borrowers many in recent homes payments. low who in mortgage years fixed their their to rate low mortgage have been stay

XXXX. resulted expectations for an in inventory low sale, has for of unit driving lowest homes since This the extremely volume origination

rate lower trillion. quarterly are third volumes from estimate believe than average for we this of trending parties Additionally, run year the $X.X origination

current X. invested share MSRs Approximately enthusiastic unique in risk transactions PMT's Slide opportunities to Though to GSE from invested XXXX. and shareholders' which Turning is XXXX market PMT's the very I'm portfolio in lender remains of about a seasoned of equity environment. constrained, this the origination we X/X in currently

originated Given perform foreseeable rates, underlying mortgages majority assets periods low expected stand these as interest expected future the very life. of well the low we were asset investments of these the believe during to over extend prepayments

overall of in consumer the strength the and accumulation to price due due years recent equity low to of substantial remain home delinquencies continued Additionally, appreciation. the home

current reducing sensitivity values. far deployed The account rights fair underlying investments PMT's rates, mortgages servicing are the given of money for out equity. MSR about of half for the Mortgage mortgage

extended time. MSR the cash produce stable a flows over we period an As to result, asset of expect

low expected receives on find current value over Similarly, custodial for in realized short-term are on and be fee and additional performance these deposits risk these PMT income PMT's longer the very in to of of environment long underlying MSR interest life loan-to-value higher investment closely rates. large to the is ratios assets losses support as over delinquencies to the low the placement tied lender share expect also a mortgages term should ultimately limited. support investments the the we

deployment on strong, current risk-adjusted we returns. believe potential PMT's focused investments the opportunistic is have that long-term capital for

This to in quarter, $XX the we invested million investments such we'll nearly similar for and opportunities. continue markets monitor

de-inversion rate potential expectations run our third during for higher Slide yields remain the curve and rate sensitive yield from at financing with have interest potential by to quarter, for Looking improved a driven to higher interest MBS. the X, of on for strategies longer MSRs projected rates the and returns costs relative

or rate increased quarters strategies As expected annualized share equity. return quarter from over from to such, X% prior $X.XX potential the the per $X.XX on PMT's return run next the in investment X

turn it who will the quarter Dan, third I over to financial performance. will now review PMT's drivers of

Daniel Perotti

David. you, Thank

CRT investments Turning million quarter XX. strategies totaled to PMT's income. organically million to this in in $X.XX third million. credit-sensitive quarter in pretax Income or created shareholders net per contributed PMT's Slide PMT common $XX share. $XX the from earned $XX income

value fair slightly decreased $XX.X as these of to from $X.X from value fair the the impact quarter credit million billion value The gains. more market-driven fair tighter amount prepayments included This of in investments offset than gains, prior spreads. reflecting runoff

underlying in XX. David delinquency created both rate average organically a with As remains weighted XX% and for loan-to-value September ratio the outlook investments of current at of an CRT mentioned, favorable XX-day X.XX%, approximately our current

from placement fair activity to strategies which interest due income. for expectations rates, earnings contributed in prepayment $XX pretax CAS bonds on opportunistic higher issued rate MSR from values $XX.X totaled GSEs by investments fees quarter. and custodial The interest lower STACR the million to the drove million increased Income in the balances. and higher sensitive

of in in million. held tax subsidiary $XXX MBS, hedges on related taxable These cash recognition Net on by fair value also MSRs REIT fair of million, the MSR higher Before rate interest quarter. losses gains by driven income provision PMT's were PMT's expense for increased agency value tax flows, value and drove interest fair $XXX realization the the rates. large impacts

rates The more fair increases June MSR was the of runoff than asset value fair billion for originated offset PMT's at value of MSR the prepayments. investments newly from as from $X.X and quarter end Delinquency borrowers advances prepayment portfolio million sufficiently $XX as remittance MSR PMT's outstanding advances June to low principal cover and million servicing from obligations. are interest remain $XX decreased activity underlying outstanding continues to currently No and at XX. XX

production correspondent quarter, margins. million $XX included GSE Total quarter, $X.X was also from The of a loan prior PMT's due due from up higher third up acquisition quarter in impact pricing. changes was negative to the billion primarily last prior from correspondent Income quarter. volume the in segment to X%

down sales to from due from ongoing prior fee X% the Conventional fulfillment quarter XX certain up was The account average points, loans billion, $X.X basis basis the points conventional in of PMT's the quarter. to weighted for rate acquired XX loans PFSI. totaled prior

across PMT from excluding changes impacts, market-driven income tax of the and million its million quarter. reported up last value strategies, $XX related $XX net

several in strengthen XX, quarter, As further third balance see the we to PMT's took you steps can on sheet. Slide also

$XXX $XX MSR of upside previously senior redemption issuance very the debt the of million loan term issued unsecured due in at the $XXX opportunistic million notes Mae and terms. term XXXX from attractive $XXX to in million, Fannie a of in million These Fannie included Mae

up as is value Finally, We'll has Operator? while PMT's volatility since now little open per been there for hedge rate share of interest it questions. significant discipline. book our changed a result end, quarter

Operator

from line KBW. George the of Bose from Instructions] [Operator question first Your comes

Bose George

the And to X. push that dividend? the -- Slide potentially your whatever Actually, you even that could to get going de-invert continue that or way does If the curve that continues to yield would a return? is ROE up cover back that to normalizes,

Daniel Perotti

exactly right. that's Yes, Dan. is this Bose,

up de-inversion of QX, we've rate here and we as that as we was de-inversion curve, primary -- yield some the quarter additional the quarter-over-quarter, what drove the run have would see seen last During move into further during factor a -- us the potential extent further that as we've the could same we to back continues de-inversion type to up see expect to as to that we get of impact happen. the saw quarter, $X.XX run your which point, that that we rate to

Bose George

quarter banking as the Okay. And would mortgage impaired quarter on how Great. GSE being than the characterize by pricing as then this change? mean, would more I this this you return last quarter? somewhat normal Or characterize you quarter,

Daniel Perotti

on negative we channel. characterize -- not To change normalized. and think of I of would somewhat your had more GSE pricing the did impact this the quarter. terms in quarter, the as And other this we recur that Yes, margins last point, quarter, the impacts the

I similar into here. think going we're something fairly QX seeing

So in I'd than quarter. your the result prior normalized we is think say right I it's characterization saw of sort that more a

Operator

the from of comes from Piper question Sandler. next Your line Barker Kevin

Kevin Barker

I marked the noticed up of peers. to that MSR the has relative fairly high some

the in hedge protect really some there despite you that But is Now anything risk of there place? create is obviously, you that value. driving that's that could slight that to it and put hedging there value anything

Daniel Perotti

in this is there there's seen risk the we've Dan again. I think past. in don't -- I than significant there's think anything more constitute that what a any would necessarily don't

given underlying what than are sensitivity prepayment money the is we've MSR, fact, lower historically. the In far how borrowers out seen of the the

the money, there hedging far Really many sort borrowers many of -- driving so of out MSR or of at flows this of this of the And are escrow the additional with point so a -- the escrow the at what's do of the of earnings so on the value. what's balances, are the value given point part which the lower. risk has -- that at cash much the our potential to a that lot projected is part driving borrowers value the from really so

curve the yield so incorporated against that. asset all increases we scenario, market the balances as sort our changes of and with that expected those interest volatility. and this associated rate -- of higher-for-longer what of to the that cash the that And flows MSR into or escrow hedging extent But we're adjust to is and see sensitivity those value that the

Kevin Barker

for obviously, Are a out time. or for credit investment attractive, that other non-agency Helpful it's non-GSE other for products? avenues be CRT potentially color. in of you there period long might any then also, seeing whether And was even GSE or a you investment major products

David Spector

really it's Kevin, of the a in think that I buying credit we've the quarter. at third $XX not little million brought top David. bought and CAS bonds, Look, the we're more would say, because it's bit albeit STACR we in stack. credit sub And I of

that, I'm I for to what Out with come that suffice think will see have we'll be the of securitization. But regs that capital up say, PMT. seeing it given more banks, that expect there we're for opportunities hopeful I

for -- where But PMT. others minimum an for jumbo closed second think positioned of And see that albeit increased potential see [indiscernible] opportunity return. meet is there of all amount securitization securitization but seconds and production don't for I being there -- there's are well sold PMT in think now, for is that, we're close-end an being that returns -- the is product securitizing really a we securitization. investment that that at PFSI, end be done retained going right is do being are can ultimately, PMT's to I I

Daniel Perotti

at this of transfer, just and rights Another investments servicing our current risk credit we -- XX% XX% factor together equity which in mortgage GSE and XX%. quarter, our out you that's sort of that important if look to note shareholders' called is the the

-- those reason, drive off very running of both low They're have underlying are based rate have Those investments. strong low for underlying rate all to very characteristics the borrowers very note note and borrowers they slowly them. in very credit that

of we is some base off that trends rate to of at seeing of over well as assets we expect this we really waiting running trends these perform so have to that are we're And other some slow develop, a other time. or for really these develop strong

Kevin Barker

long sensitive the sheet term, ideally, from want structured strategies credit you standpoint, rate investment sensitive how strategy. equity over interest So versus PMT's an would balance

David Spector

return think -- Kevin, don't for on always optimize I I that we is equity.

the there. -- rights than We've mortgage XX% higher start servicing would we'd I like. is So

albeit is Now that of the because of that the lot some of a of -- asset. write-up

And more I line where or in see much rate decline, it you think is. closer much would the risk credit get a if you to saw

another, to X driving a returns maybe the think to I then is factor. always if split identical you I are things being XX-XX okay, say, ROE think could the -- all be but equal, going

going XX%, we that that's the the be would of. see if definitely did franchise followed the as ongoing servicing from suffice it But XX% investment by CRT say, And on you between saw bit then NPLs we'd is that as PMT get find we we're as we mortgage think split creating as and that we now, the way then that all XXXX, ongoing CRT little in or to when right well the for can X to I like -- XXXX more back something supportive rights to know, a to balance. we value

Operator

comes [Operator question Instructions] line Your Hagen from of next Eric from the BTIG.

Eric Hagen

and risk risk MSR given portfolio more you for How an maybe do around increase rate and management here? from the to to leverage just question and need a the portfolio such. think Just managing you much add MBS in

levels Like get spreads have And of more that -- do raise leverage? side room can the aggressive raise are for MBS and it you leverage in there -- how to where much on to portfolio? there even looks you

Daniel Perotti

perspective, We've to the as in incrementally Yes, MSR of may David certainly agency necessarily balance not the incrementally the where the to se mentioned. you added Eric, the in that's MSR non-agency per add of were increase if given MBS, out from to due the it's Dan. portfolio, it's portfolio. to necessary it's terms a add But MBS some change in we test REIT not -- going. substantially

could extent widen MBS. -- see ratio and agency overall our we investment leverage we that the as is that around We do do To additional attractive, currently. spreads Xx add

increase saw MBS have do we that significant we continue some a to substantially portfolio agency to ability opportunity. as our but we looking to that So really unless increase aren't necessarily

Eric Hagen

Yes, totally understood.

interest on sensitive a is you Do requirement, How mean, feel and say given cushion I of question, liquidity. you kind the higher of of size comfortable cushion at just of just liquidity sheet? that that's around to million that wider spreads? liquidity regulatory looking a XX, Slide $XXX you would have like liquidity, rates the the Second balance

Daniel Perotti

-- liquidity the of that we are both liquidity -- we hedge sufficient hedging our we well at those. look we when that, very as both to size QX so our value to that position, Yes for sheet looking managing and of cushion have. our able Yes. manage sheet in terms is at the be do as balance to think for balance

increase we have on dent of tap a holding we spreads to that that would overall put a And that additional substantial that meaningful in today. can here. balance It we're bit liquidity into pretty liquidity sheet take a little isn't the do

So maximum did the liquidity see this nature. or -- that doesn't something have the as we of could tap size a we more if where to widening represent we that a of that spread bit well

Eric Hagen

give I apologize. And through if an guys book it, value October? you Did Yes. I for update missed your

Daniel Perotti

did. we it's Yes, little of what a we from It's at the the really changed little saw -- a quarter. end

Operator

from the from of JonesTrading. line [Operator Erdner Instructions] Your next Matthew question comes

Matthew Erdner

has I traded repurchases me are then past during know. versus let And shares guys where of that's the given didn't quarters. believe true, you the deployment capital, any couple repurchase of over share if weighing stock quarter, how the you

Daniel Perotti

did shares potential as our is they deployment the been of than shares quarter Dan. is something weeks. we the we couple most any over repurchase QX a capital. the that of higher were recent this of trading look have during that Yes, at Yes, Certainly, not over

say the during levels we that levels the we're share repurchase seeing we at saw -- I attractive of attractive, meaningfully that we more than that And is did over at some find more today the QX. would

So that we your not during repurchase QX. did shares some activity versus could result to any in point,

Operator

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

David Spector

Again, thank joining earnings. today us everyone QX for I want for to here our

don't I questions forward Investor to you care. reach to Take hesitate in the with or you look out our speaking and If have team, of please Relations future. near all any comments, to

Operator

This conference you disconnect. participation, and your concludes Thank today's call. for you may now

PennyMac Mortgage Investment Trust (PMT) 26 Oct 232023 Q3 Earnings call transcript