PMT - Earnings call 4 2023 | PennyMac Mortgage Investment Trust

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Operator

Good afternoon, and welcome to the PennyMac Mortgage Investment Trust Fourth Quarter and Full Year 2023 Earnings Call.

Additional earning materials, 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 earnings material.

Now I would like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust Chief Financial Officer.

David Spector

Thank you, operator. you call. for thank fourth in and earnings quarter afternoon to participating everyone our Good very results in produced from business. PMT strong the sizable quarter credit contributions with sensitive strategies its production in correspondent the fourth results interest strategies. the These declines rate-sensitive partially fair offset value were in by

with perform investments, was earnings long $X.XX on to income income annual contributions profitable we book from the prior strong into unwavering and year team's and of This $XX.XX shareholders resilience PMT, share quarter. equity Net culmination X%, volatility common increased $XXX new common Net net or to in of financial management $XXX from In a the of was common for and was invested XX, share demonstrating quarter share X strategies. book commitment $X.XX. attributable Return its per share performance year of million every share to per XX% $XX.XX investment was an of PMT's XXXX equity in for at annualized up rate our term. or diluted dividends. of $XX MSR marked opportunistic all per the and the grew tremendous XX% value XXXX, will million the managing per income $X.XX. believe million interest we return outstanding interest was to December shareholders well year highlighting earnings common risk. PMT end of in at on common value over its nearly which rate diluted

new strength PMT's And our among key opportunistic work mortgage and with accomplished maturities. the been through repurchases, always will long-term of investments to balance continue has with dividends for the return further balance proud in sheet remain but look I'm differentiator As we strengthened $XXX disciplined of share of we did we has The of common and $XXX in $XXX of only capital upcoming share XXXX. million we residential REITs. shareholders head across in landscape. the mortgage approximately sheet team redemptions Not debt very deployment into debt to cash XXXX, issuances a management million the and million

see you third-party quarter spring XXXX as of origination our the from to originations on rates for this estimates home-buying expected Much their have trillion. approximately industry to $X the in seasonally later XXXX before is market of moving low quarter into expectations Slide troughed fourth presentation, first can have for we remain growth As of cuts rate mortgage anticipated year, rate is and recent in X increased have on XXXX on season. reductions anticipated in to and the based declined expect future summer interest highs and

X/X currently the portfolio. PMT's than a unique and is enthusiastic GSE XXXX the potential lender environment, XXXX. in Given performance from More about PMT current equity portfolio share investment seasoned invested invested in shareholders' to transactions remain we the from I very of MSRs risk of

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

PMT's stable over cash extended The the due for underlying Additionally, more as of appreciation. equity. consumer substantial equity half the a overall flows accumulation during out remain majority delinquencies to to remain price as recent in investments account of strength due the of time. produce to MSR MSR low well The the far years we home money. And continued of than the of to quarter. an asset continue declined mortgages of deployed period home rates the expect

limited. We invested the the life of focused for large have actively these over we characteristics remain short-term risk-adjusted which of opportunistic realized long-term long benefit the These rate strong the income portfolio these fourth million In of over on are PMT's believe deposits low investments PMT quarter, delinquencies to investment be underlying investments, to have term, managing potential closely fee performance bonds. the receives expected a returns. current we spreads previously GSE million GSE purchased floating risk low on opportunistic support we CRT XX%. tied into in quarter additional the $XX credit to as average assets making from of losses CRT also to available deploy PMT's bonds into lender for capital expect of weighted current ratio and investments. loan-to-value environment and we is floating PMT have continue The end, rate custodial rate Similarly, placement sold interest MSR values the the tightened, share mortgages After rates. to as $XX

run the of quarters. yields for potential compared interest on current rate-sensitive This changes strategies to is PMT's $X.XX to impact rate outlines down PMT's X next reflects over from X an asset over the X investment average from Slide strategies. share rate rate run interest expected the per financing the the due the prior quarters. rates quarter next modestly

returns I decline, expected it an short-term now improve in to will investments driving The increase potential turn quarter financial performance. the to Dan, of over on fourth the the will if overall rates review PMT's who have these drivers run rate.

Daniel Perotti

David. Thank you,

Pretax strategies income. the to per in $XX contributed in fourth $XX PMT income diluted credit-sensitive XX. Slide million spreads. tighter reflecting of in common PMT's to created fair from included This impact gains, earned share. market-driven common income PMT's quarter value quarter million. million investments million amount in fourth credit pretax the CRT totaled $XX $X.XX organically shareholders Turning the $XX or in net

from investments these gains The offset value as unchanged runoff. essentially quarter fair of by were value the fair was prior

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

The by fair rates rate million. hedges decline decreased this investments value and $XX sensitive opportunistic increased quarter. million million of strategies CAS XX% of of or changes totaled investment $XXX pretax loss tax from the projections. interest GSEs PMT's interest The stacker in the MBS, in issued MSR Approximately value million and $XXX Income fair decline a prepayment related in $XX.X mortgage future bonds income the of the Agency rate effects. by MSR by offset was contributed as in

production value MBS prepayments. decreased was of PMT's rate by $X.X held The billion, growth runoff billion taxable the September down PMT's end fair Agency the loan the quarter. MSR tax value by more quarter than $XX in from XX, while value interest on of at million, in the offset hedges increased The from hedges at and subsidiary $X.X value million. a and drove fair fourth rate MSR was declines portfolio fair by from as declines fair benefit asset in $XXX MSRs interest REIT

increased underlying basis rates from PMT's XX XX% and outstanding. interest advances fourth the correspondent down prior to to account from for and last fee in margins. $X.X was borrowers million Delinquency million was up for quarter. at servicing September advances $XXX while portfolio excluding last it its from income low, average the quarter. loan was to questions. remain net outstanding segment from No $XX tax due of seasonal points, correspondent property $XX $XX Total production quarter, fulfillment XX now across changes million from prior PMT's unchanged currently billion, tax principal $XX The We'll to open MSR prior totaled quarter, reported billion value weighted due quarter. Conventional acquired the Income due are from PMT's higher market-driven up Operator? up impacts. million the primarily loans quarter acquisition strategies, payments. volume rate related for the impacts, seasonal PMT from up XX%

Operator

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

Bose George

benefit you where expected the right? on this the ROE, I X then should Can looked like, And quarter give rate number, that sort and declined like Slide that just MSR. talk you the On the versus return last returns it it as steepens, is thought declined and potential curve it it run about on quarter? the of

Daniel Perotti

This is Bose. Dan. Hey,

where rates, is where really financing financing looking for where So versus financing the the if sorry, at see PMT, we're secured. the the the de-invert you're about the MSR. interest decline is on the vast is more of what did more the that MSR the short-term curve there at the MSR inverted if we're did thinking And for strategies. really curve especially run -- which rate we -- rate -- Really, majority really based

the we rates pretty that short quarter rates same have of through the still the year, the in that meaningfully at came So longer-term meanwhile, first down the the MSR are probably been. even fourth the drive sticking And it yield on looks rates they've quarter. like and that

quarters. is so rate, in over which compression the just that the the X what -- is next over really drove reduced sort And short run in return of expected the term the

de-invert are of ROE for increase market, that would short-term As that and interest expect return a the -- lead would -- the as and a driving in the the and and terms that of interest rate-sensitive sort greater expectation decline create higher expecting of strategies see to, for overall spread -- interest better we or we, the that the the if could this ROE we rate-sensitive rate through overall the rates sort MSRs them or strategy. would spread to to potential curve forecast, overall in -- interest

strategies some sort on based we that as -- the coming market, high. the the of just looking while pretty sort the as the evolve interest in of do, year. But in we compression is currently, what's short up rate-sensitive the So ticking at still to see over forecasted expect or out rate short-ish-term

Operator

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

Matthew Howlett

the program sold CRT of horizon, today on seasoned lot on What's side your securitization you maybe and you know are mean, quarter, second it, the any on on where stuff, update now. but And just think just spreads their credit a the a CRT? CRT? credit GSEs the I with of spreads grow some on helocs bought view a guidelines and/or the you First, January. fourth an you of think in or can with the side. some maybe then I restart in update what at liens you today, and of the

David Spector

David. Matt, Hey, Sure. Yes. it's

end. very $XX I after Opportunistically, really in think the doing We terms great cash job XXXX. earlier quarter to in Will million we actively stacker million that bought managing And pay bonds speaks returns a see sold below tightened. as spreads monitor powder required lines quarter even assets to to and credit-sensitive made going in that to had the and on team And to dry them. to We front, the are credit-sensitive a were and returns a we strategies yields of bonds. continue were really the The and that to in the $XX strong portfolio. sale them just the invest is market. warehouse -- have redeploying able we're way because be down look, our well of sense of

asset see some overall of I albeit the we're securitizations GSEs continue market see terms mortgage of our with meet don't credit in closely. until second them just monitoring size monitor. at to securitizations that's a risk the program, returns In of securitization to we're going those at we're something starting required that I very, the credit And a we to pieces coming liens, lender a see although PMT, increase an think don't program of back the minimum. very

support They, to own get right need now, bonds. and all the CAS stacker they can production their

something so And with to see dialogue But we're don't stay it's I them. continuing that. that in

a our the I a position overall, returns powder deliver dividend. opportunities we the dry fourth maintain -- year we for we XX%. -- delivered had have in need to invest think to think to we we -- we when where We the I we're in continue PMT look, quarter, and see great have where

we year, the in were the dividend exceeded nice For exceeded where and dividend earnings the a at way. XX%, we

says hedging share, saw in sector marketplace. We the opportunities given REIT have which to minor in that growth we per we as the speaks well see that book that a the volatility do value the we lot as the and

portfolio. think, going see of going by decline, we until as rates capital we to to large, but manage an to actively it's parts that as see opportunity the and we and to be present year can I So the hopefully, raise later continue that's I itself,

Daniel Perotti

risk of that, the piece is in portfolio we the very have around other rates share on runoff been terms portfolio, if outstanding, MSR that of The slow. interest Matt, portfolios. those look our existing you XX% mentioned, I and of is have that core assets at The note credit is our given those rates lender in and our where invested

huge. not our at sort redeploy to is So need point of this

time. we as overall the and So looking those opportunities where in terms David mentioned, for great that at of see opportunities. portfolio, opportunistically runoff we're But point is in the not this the investing

Matthew Howlett

of the sort between [ you do guided change to continuing? PMT How expect what with companies. of will long long a the subject then to a allocation to big -- That's first you to of retaining X that interplay do point. conventional good need you on production chunk synergies there's PFSI huge ]. Right. new quarter. this their of the capital, production? And in How will how long start for that PMT Obviously, And see that selling

And run of the course, you dividend. David, up

to curious between buybacks? paying back sense Or capital that of would discount allocating buying the keep you see book, to Just want Just the like that. you you and in this want pay you terms just interplay any the dividend, owner's starts to dividend? stock do feel to given it on -- more

David Spector

Okay.

at and as that an deploy MSR in over that loans we to alternative pace the that really, to speaks a that we're in to think the volumes So is get we synergistic where balance. look, we to this strategies we capital towards port large, to trying PFSI of have period credit-sensitive relationship with PFSI ability the more about on correspondent and move with time have have return, wanted we investments how the -- it side, and, opposed I higher eye very

nothing between that. PMT and it in in we point the portfolio allocation capital, I don't But to and loans we think than it more rate-sensitive speaks and of the capital that Dan, going the -- think management interest strategies. from view should I it's And active to raise look, talk QX. credit-sensitive we complex to have we deploy PMT split in of a choose changing it's want It's it I the I about now, think less PFSI. -- for to to sell it dividend? we're -- more think to strategies deploy do see more we taking about how you to want capital issue of will the MSRs. QX, in

Daniel Perotti

we periods, and dividend With trade-off respect repurchases you attractive to seen not that shares we would recent the to want but Sure. meaningful. But we we've as saw moving price become from repurchasing repurchase in shares seen us -- mentioned, been where obviously price a where where do book, significant have have I as want that price share order we the to wouldn't disconnect the so Matt, or think at in -- the not where sort the see, is more to we for to to unless to see in historically share today. we of that of the way, we look drop that we've to book closer price-to-book ratio it we book made

what a dividend we've sort this rate discussing is PMT, with back having run believe, our that We stated before, current for consistent toward path of and stable and important to before the We we've for dividend do see a what level. and move I meaningful. earlier was discussed

a change it that think don't in we warrants the point, this At dividend.

future. to, level in that per that. in we back consistent we have that that share, see -- sort -- don't remain market of the a expects given earnings impact reevaluating near And the path for potential a so see rate least -- that our how precipitate if potential back the if then of see our portfolio, likely path dividend at would But term, remain to we $X.XX we would us as what and do the do run the to expect

Operator

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

Kevin Barker

to have -- of shift coming sheet potentially down you're Could on XX% Do run opportunities changes bring maybe just color ROE with rate? net structural enhance CRT a pay additional due could here follow the on sold Particularly assets, it dividend some $X.XX in couple XXXX. maturities debt you the you make to you closer to the the this bit? what Just wanted some any a potentially -- business that you see to move of balance up quarter. I there -- some considering. and debt

Daniel Perotti

couple look a we the period bit that we coming, in with to then maturities, respect put we credit a of maturity a to securities to -- that's the expect so specifically XXXX, some into CRT So of has have previously. securities refinance of do repo probably maturities to secured time market for of risk types we've on transfer and improved had look our the financing for The structures of that. the that a

improve limited that's so of though And we for see the -- an we return do that could portfolio. there, somewhat a and as part the profile, that opportunity

As we in year baby convertible we bond addressed our last partially We've with of -- do maturity later look have the further issuance. that a debt the out XXXX. into our maturities,

of think what in both a portfolio cases, don't at of generates credit-sensitive we're were to commensurate like have side, the commensurate considering were significant be risk-adjusted we've the and those repositioned have the issuance debt with -- a REIT space. of be active, issuance. Or somewhat in market bond respect to another your time, if or significantly those potentially, convertible look there and the of That's I makeup assets portfolio. have the do wanted meaningful spreads, in potential the even delever the that that's tighter returns is portfolio, we or in of invested. seen overall the baby or without At the do on terms said, the think -- we really the of terms didn't active We where we shift I returns the neither then -- -- think in additional mortgage with repositioning where this with to ability out that point, rotated we the we attractive, to to earnings we returns could overall point

that's to really the curve normalize at yield a we where shape On this the I to return the the in up time, and which point again, profile really, matter think expected in that's of that is expect of interest drive rate sensitive case. side,

of So currently. in say, makeup the shift contemplating no wouldn't of portfolio, I we're significant terms the

Kevin Barker

realize around impact it made a is there the any but could rate relative fed shift perspective? comments way can any you fed earnings? of at to rate cuts way there simply Could I it you've a Obviously, look shape of the -- cut from to quantify curve, but the bit, is your quite

Daniel Perotti

in the sort and look Yes, that's period which the that rate rate extent to I yields fixed that's assume that MSRs, more if cuts would the move longer-term term it, Fed the you hundred in or the current lines the path way less and follows the or debt that X.X several are we -- the something -- -- fed floating along that assume longer there's generally if come off a in baked through currently million baked wouldn't points that you would mean, at of that the If rate the cuts our on year, of dollars. towards contemplated. those is significantly

So meaningful amount. it adds a

So assets, those change million meaningfully debt the dollars rate our other sensitive cost interest several just on would -- they're terms the amount from interest in the our assets returns earning, rate or expected -- decline of the wouldn't the returns that cuts.

I the about think think that's to it. way

Operator

the you -- with Eric I Barker is Hagen Your Sandler. of do Kevin have apologize Instructions] the next [Operator from question BTIG. question of next line is Piper from

Eric Hagen

that million liquidity when And how periods threshold with saw buffer Slide that how to are seen got volatility during of like close liquidity relative buffer you've rates the FHFA higher fluctuate, requirement, especially of fall? around maybe much to can $XXX-odd you volatile? you last we at Looking share XX,

Daniel Perotti

has stable. liquidity our pretty No, Yes. been

you a is rate what stable accounts if of liquidity sheet the forecasting volatility I it the that managing that, we of at have hedge a on the our pretty have in could requirement kept at Our that what as level of interest on look believe our couple of quarters, we and in liquidity. look our reserve the can impact interest our that amounts that's Xx required and we at shifts last of business part impact profile for liquidity balance liquidity rate terms terms on which is. the I part liquidity is mean, available. But keep of been there, the our in

has that rate been the given really issue not an interest over that the So quarters. even we've seen of past volatility couple

Eric Hagen

Right.

looks apart and see Okay. of billion capital rate-sensitive and hedges then MBS you the the on about split forward? strategies. in $X.X you you like in how much have maybe Slide it allocating and much And interest yourselves the is Can how MSR MBS XX, hedges to capital going versus

Daniel Perotti

Yes.

allocated asset. the majority the capital-intensive So It's MSRs. to of of vast the the capital is there in most the

I that the think earlier is MSRs. the the equity presentation shareholders' in stated that XX% we in of

little portfolio, The even billion. so them on -- over $X just much is a And low, of at MBS, so nearly over as is relatively that haircut Agency it face, billion it's on significant their that's if a though we doesn't $X.X take look equity. that relatively the

there's section. also the -- rest for the that's similar that this are of assets And in

increase depending much sensitivity would rate for MBS calls face, increase interest So hold that MSRs. we our have terms the additional stand-alone the equity to on may we want really much a in margin of on the And sort allocation add portfolio, predominantly wouldn't there. although MBS basis significantly it's to its equity we -- on the Agency would of allocated, how to even hold it to and if we the reserves

Operator

the Your Jason next is Lieber of line [ from with question ] JonesTrading.

Unknown Analyst

you of buying? on the can context ROE today, stacker were level of overall bonds of us current the potential CRT sort as that new you give on spreads and incremental So some as such

Daniel Perotti

we've return of have the there. to the think that -- those we -- -- CAS -- the so of I sort the mid-teens in of of the that it's where in a we had just and CRT target with mean I sort new for terms as commensurate we've sold fair assets, mean with didn't mentioned, profile say, sort wasn't -- it of stacker bit in I seen does we today, was those,

market, hold current double see sort to we market overall, or out probably That or -- the of fluctuates. digits call But the is high CRT low what would including recent on margin in that's we trades. the single the in that look reserves

quarter, attractive of met but in fourth hurdles, invested the in opportunistically what color that so we recent return -- that's we're where we seeing. most of spreads our the And saw terms that's sort

Unknown Analyst

I if was the change this but remarks, book would you apologize value prepared And ballpark where during year-to-date? addressed

Daniel Perotti

benefit But get if at where really of in that don't typically don't terms had of value other the pretty overall we've been program look -- having fluctuate it's way the type We been volatile, is you that same a in historically in overall, that. pretty we the few give being over that sort for portfolios book mark -- of we've book quarters. see the past we hedging stable that even with our rates value, of interest see certain the been don't That's do.

So overall, book the to give quarter-to-date. stable you color, value pretty it's just

Operator

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

David Spector

and up Thank hour Relations -- all analysts Investor you, encourage and questions questions for thank or investors a Have thank the good additional our or very and any this to And you operator, the joining staying e-mail time. Coast. for all you late much And the team day. with with afternoon. appreciate us on I by East contact phone. the I

Operator

call. today's you for concludes Thank joining. This

lines. your disconnect now may You

PennyMac Mortgage Investment Trust (PMT) 1 Feb 242023 Q4 Earnings call transcript