PMT - Earnings call transcript Q1 2024 | PennyMac Mortgage Investment Trust

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Operator

Good afternoon, and welcome to Pennymac Mortgage Investment Trust First Quarter Earnings Call.

Additional earnings materials, including the presentation slides that will be referred into 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-GP measures that have been reconciled to their GAAP equivalent in the earnings materials.

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.

David Spector

Thank you, operator. in strategy quarter business. in results from strong solid credit the its produced the with first contributions PMT correspondent production results by the offset were value These in declines net interest fair strategies. rate-sensitive partially common to of share earnings income million or shareholders Net $X.XX. diluted per $XX was on was the of annualized was book share XX% prior value end return PMT's at from March the and per $XX.XX XX, common equity essentially unchanged quarter.

in of recent REITs have PMT's been impacted interest of rate share many levels volatility its diversified per comparatively the mortgage value approach portfolio While relatively and stable periods, to by book negatively remained disciplined increased has hedging. to due

in Turning XXXX to trillion, an reflecting third-party estimates origination trillion Current from averaged for XXXX. total $X.X market. originations growth in $X.X the estimated

to market and interest optimistic remain further believe rates However, third-party range, half dependent Federal in we estimates estimates for we current expect cuts these higher rate longer up the mortgage decline the these expectations interest levels. X% multiple of current Reserve from rates the second the will back from and into to their for With upon year. be

managing long-term PMT's strength of its rate highlights strong periods advantage and challenging mortgage floating We PMT's in investments the tighter assets on purchased performance our underlying fundamentals financial credit leveraging actively a PFSI the in $XXX CRT in manage took expertise of environment. mortgage-related focused to recent remain quarter, unique previously we of with the spreads, relationship PMT's bonds. portfolio. first And million selling GSE

our belief longer investments on these requirements. investments Importantly, the met we driven return no with gains these realized by sales that our long-term significant

from and term attractive ability our $XXX XXXX more to than credit in transactions lender million MSRs in GSE tightening notes CRT Additionally, unique invested share risk issue XXXX. we spread to at the drove

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

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

account of remain and of the continue deployed money, of PMT's we than out of MSR mortgages flows far the period majority producing for investments underlying the asset over MSR expect equity. cash more time. stable an extended half to The

current continue limited. interest These mortgages realized MSR PMT's over current Similarly, rate placement and have short-term large delinquencies term, share expect environment to a to risk loan-to-value average the XX%. rates. income long deposits values and low of PMT fee expected also ratio to characteristics performance from is a of weighted will losses underlying that assets low are the we closely investment lender benefit as support the custodial received these tied the interest be in

sensitive strategies. rate the expected is X higher driven PMT's outlines expected quarterly interest potential run rate This PMT's from current quarter, over share. in return average X rate investment quarters. the primarily a yields $X.XX Slide per from strategies of prior asset by run the the up next reflects

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

Daniel Perotti

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

from quarter slightly of investments was The prior than runoff. fair gains these the value as the decline fair more offset up value from

of loan-to-value current of March delinquency favorable, with a Those inorganically is of X.XX%. our XX-day low a rate created David average weighted the CRT and for outlook ratio As as mentioned, underlying current XX% XX. remains investment

issued bonds by Income the from STACR opportunistic totaled the CAS $X.X million quarter. in GSEs investments in and

mortgage we of returns go-forward $XXX fell investments the quarter. previously on spreads of some STACR and below quarter, made As the these that continued CAS during opportunistic sold the so the had million we investments to during our credit tighten thresholds and

fair a rate increase interest of loss million. mortgage balances. PMT's value the These as sensitive $XX gains increased fair by $XX the on more of in decreased fair pretax during quarter. prepayment a tax and million. declines The by hedges in value related of strategies investment projections changes interest REIT Net future taxable projections future rate by benefit increase value PMT's decline rate fair were million custodial interest contributed MBS on and the a the tax $XX of MBS, by and $XX The in value $XX value drove rates earnings million. than effects million MSR held an subsidiary in in offset fair hedges of decreased assets drove

as end The and the the up at XX gains, at value fair PMT's asset of value acquisitions growth from than slightly fair from MSR the $X loan offset billion in prepayments. of MSR portfolio December more quarter from $X.X production MSR was billion, runoff

remain $XXX XX. borrowers servicing and interest principal No decreased at MSR to advances are advances million outstanding low Delinquency outstanding. $XXX December portfolio for PMT's rates currently underlying while million from

offset XX% billion segment Income volumes. down Total quarter, first driven volume from acquisition prior in loan by the our PMT's on volume. from from $XX last the the quarter, was up quarter impact correspondent profitability of over production as slightly focus correspondent margins was higher lower

billion, The was loans rate the XX% weighted totaled $X.X up fulfillment average Conventional for prior quarter. PMT's from fee XX in from points basis basis acquired points, prior quarter. XX down accounts the

the and excluding from million to lower across primarily down interest due quarter, market-driven income during last net $XX average its strategies, of on yields quarter. sensitive rate impacts, assets million $XX changes value tax reported the related PMT its

due matured Turning the the to capital. new April, were that the we CRT CRT refinanced notes. X-year $XXX million for mature of financing which spreads term million We term the And issued in for quarter, to our million CRT of new XXXX, term X-year issued extending and during recently maturities $XXX assets. effectively refinancing $XXX reducing notes notes notes in of

We'll questions. Operator? up now open it for

Operator

Investment would comes like take And Jason I or remind PennyMac line from [Operator Trading. will of the to question Trust Mortgage PMT. related we first Instructions] to Weaver of everyone only your Jones questions

Jason Weaver

curious prepared I in how was thought I something you I'm heard about a me of remarks, misconstruing David's I dividend the earnings view rate. forward. the sustainability if that. about looking So Excuse $X.XX run

Daniel Perotti

level. similar rate our Sure. current The to we've below of quarters, our is sort -- so in seen prior run dividend what slightly

portion we the and moving However, of MBS the portfolio up, MSRs which see increase our rate-sensitive yield the by quarter, the the driven our yields drive rate inversion on returns during and in run curve and really the did of curve longer-term up asset higher strategies. moves interest the yield

expect the the As expect interest rate sensitive or back sensitive for to strategies to or over yield projection few $X.XX to periods, invert, we strategies which happen be normalize we we our see we the in that above. or could see interest next curve projection get further the continues that benefit rate to

dividend rate projections we move so looking dividend. the And the to around see $X.XX our to another our to and $X.XX level. match as tenet run potential toward we -- moves, And market stability the exactly not the for continue of at of dividend the they of the move to dividend, sort move since the we're dividend when look quarter-to-quarter to our philosophy is

the the normalization that the dividend for we unless most now our the rate move dividend level But a trajectory or of to $X.XX for $X.XX that see in the at few stable keep way moving quarter we've and the expect dividend the to And that $X.XX is expectation is during present, seen market and especially yield maintained level. we period run so current continue don't we've given until the such our likely expectation next the that curve, periods. toward the

Jason Weaver

whether more right. the CRT for rate still interest that capital sales, And the then your less just helpful. CRT? All was outlook about curious rate is maybe tilted into strategies I given That's towards new and deployment noting priorities today,

Daniel Perotti

seen invested portfolios rate opportunity and couple I think to into yes, past of We've I periods. fair some think that more -- have low say. the over MSR that's

bit fallen credit see think of seen in lie sensitive mortgage and pretty of if a interest periods, presently that spreads we or return CRT probably interest area strategies. But tighten Especially prefer interest have the continue toward. As significantly strategies, the I sense priority some have environment. strategies seems credit barring -- believe strategies our that thresholds. terms the highest earlier, rate on first where curve, strategies, we investing and in we investments more meets below and a the we strategies, to discussed we our credit those think interest it more a of But be to in the have talked we've opportunities greater in currently way we risk-adjusted rate more hurdles where our than rate some rate view balance into our the we and allocation previous overall assets is the the we've in the to sensitive in yield sensitive about would sensitive normalization the the is in change return credit-sensitive

Operator

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

Bose George

Actually, to looked increase of return total expectation. expectation the higher a the lot was sort This a just up The of is wanted return like it I Bose. it on follow on based the MSR. on

that so with or of just curious a higher piece? what expectation rates is drove that slower prepayment kind And

Daniel Perotti

increase risk-free expectation at necessarily, well but our on a valuation MSRs Not custodial the of speeds as as impact over so much also rate. we but prepayment rates as projected the that of or a the has the expected prepayment our MSR the higher interest income spread speeds lower a value methodology prepayment

similar a the we're increase, would yield flows rate increases, discount value earn due risk-free or rates at we move and overall on or the So today. that higher were to MSR to fact we're if get forward as we to greater the to cash even same the so discounting cash the at flows that our yield those as also expect a rate

MBS return And forward. also MBS to be mark the market, we the with we'd expect move as MBS higher increase, that in MBS interest the as similarly, increase to on rates yield because we

Bose George

kind yield of degree? higher benefit down the then talked that longer the Okay. Great. down And but to curve long the is curve? curve of have about yield And remaining from of rates to elevated, with with if for a sort with a then inverting, happen you hurt that better? you some does steeper there's So yield or inverts, shift parallel in like does shift curve the the kind relatively the curve in

Daniel Perotti

longer-term overall would we rates the to a beneficial if -- were and but curve lower, is I preferable flatter the returns for because for relative financing of based move returns the same the overall yields just down than since higher most rate -- the the for be be curve. and our -- overall be steepness would whether asset well. be think being way, the with would rate beneficial asset inverted because our as off flatter would interest be either But The I yields the short on rather higher, would than think and technically, generally one rates, assets constant, strategy, the of environments the preferable we if of lower short where an would higher floating sensitive rate better overall environment yield that PMT, just shape be either higher strategies, it of if curve rate to but yield is

Operator

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

Matthew Howlett

percent book? must it and back put in to go frustrating. not that mean on, be you, trading below a out is know of And I'll do be XX-plus willing mortgage market to REIT must with would 'XX. The at the in again, you've buyback, you're to you above to question be in stability this just shares start be tie group. then that's I November My kind group you trading the to into And earnings question and David, trading when when the how expect for to you buying discount book. discount refinance well book is first value I be you in at in the that's book frustrating a group the

David Spector

Yes.

we've control X control and control. things good only the of produced price. last share the especially look, the quarters. really things look to influence to And we there's we company. can results results. So can't work the point, And I if back your can can't X, you I

the as continue take results, the I consist so long itself. And we to care will post of as continue share price to

time. the we that's so here that And something remind all people

deploy return to opportunities I look think to -- look, we amount judiciously. going had that capital, of we see as continue required deploy limited And will our at meet we're the a marketplace, I capital to think do to in if we and so.

in buy stock that we'll I have say, I we've patient. suffice you discounted. and percentage the shown patient, always point think stock we we don't, depends we've patient But well, the I that back at that is be be can discount what think and we'll to continue when to is been it time. --

Daniel Perotti

And maturity, capital, additional our then to look of we for the with fully we forecasting. reserved and but continue respect have in for the to XXXX raise to maturity opportunities that retirement liquidity

bond, secured the our baby even raised for avenues, we able capital issued to depending replace year, dynamics, if value, financing right what able retire equity mentioned, So as now. in convertible cost debt opportunity found that to to are to of which the basically continue I reserved between the debt sufficient yet additional look that different terms book equity potentially a it some maturity be we'll refinance dilutive be but being at if to opportunities order have to secured being point, debt not maturity. XXXX. we we work assets convertible financing raise, not don't and potential not eventually raise to maturity we market capital. view looking for do We've the refinance use that fully another That raise us we but to we And matures whether that if to we on in goals, last move to be that the find supports we've, attracts would your opportunity, to that of we're said, that do that in looking raise

Matthew Howlett

level rate last of buying interplay out there selling of been buying current interplay lower of loans? sort you're how -- that one and some selling out with to Is packages. where or How Great. PFSI, between you Is back bulk long loans that stopped there interplay continue? you'd to mean it's bulk the selling just long certain coupon where where And one. I and -- PFSI. the higher there start current will not the And rate a to conventional presumably, coupon you're then sort level you're PFSI production that changed you go historically?

David Spector

to think capital, a I great bunch we the they to it MSRs servicing desire MSRs that a a to I continue really to a capital in it decisioning. don't we Obviously, synergistic this it's deploy decision. of the more of that. look we if there it's, capital think has and as more I between capital Look, get and deploy, to it's to allocation that have were period PMT want speaks to do opportunity as address function raise capital, it current and capital I changing is as would But we and for talking reason, some change changing I a QX. QX. the in when factor when relationship in we into some if, would think the enterprises to see being don't in And necessarily that see capital grow X raised PFSI the portfolio. we

Operator

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

Eric Hagen

any you liquidity? kind ever see Eric Hagen. viable PMT do option reasonable just Or really we assets maybe ever in of market? the not is what MSRs? rest that to than and look the it sold as at like Has a is, And the option higher of generate given market the a

David Spector

capital, was period were to serial vehicle. so strategy sell capital given on spreads been in be on was and the we last that reason strategically return not the PMT historically year investment time the to of below But couldn't strategic It's got something think issuer credit-sensitive we on capital to that having assets, PMT opportunity an think at. to the because an time that vehicle. And investment and those not CRT period of a -- looked to that's going I deploy I is wide, sold to of in at That's say of be an It's deploy we're a in think look, fact required were think, can't back PMT investments. look it was it. I where it mindful investments. as look, Well, that felt has the we of the the it a return, we've I we do where assets

it nothing below decision sell. that And it's the when there's return made the said to But preclude required the gets from to something so that, selling servicing was not having is on PMT just docket.

Daniel Perotti

makes core as the both mean a during historical total equity risk then investments with PFSI's current think MSR the sense of the core of something to money, those credit of the we given of we the exposure, between -- of XX% borrowers flows, operations to those. off the said, I out we sense of extent PMT a both be to as I Yes. for that running enable our But deployed, low sort David at MSRs, of credit and it some slow generally the the assets on the those we case the position, of that how the that would we interest given we when implement generally it innovative far could of as think CRT in to so stable where was think, realized, low were up look and us the saw anchor the sort company. to saw think And that an to generally portion in investments, the X sort of probably that's a, cash that COVID, characteristics minimize those programs and those it our transfer, our environment of that that maintain consider. thought pace we able we makes that our credit sell assets. our view to the But losses think I comprising around maintain were rate investment and which there to and characteristics And company. come synergy that for that we at it's positive some beneficial PMT issue,

Eric Hagen

Yes. That's helpful answer. a

rate this leverage funding the much point? side, fixed floating of at how On versus the secured is

Daniel Perotti

On is the secured side of our side, all the the, on secured floating rate. of all debt

Eric Hagen

Okay. a hedges content of there... that we should has think And any

Daniel Perotti

when think hedging I our we base. that against So our is the hedging at look when hedging, -- at we mean our way the it we about asset generally look

mark we base, Our asset market. to everything

rate the as on And discount short-term so assets rates the well. the incorporates

And effectively of the short of sensitivity long-term perspective, impact as term rate rate the hedges our as hedging but well for neutralize debt example, hedges, time, think any short so don't our as over the a specific against we changes. the GAAP that from part of the have we

rates, detail our balances Sorry, short rates. to just think the one MSRs, the our floating that MSRs other our earnings on you if also the on or rate to rate tied -- -- short that generally are those earnings on tied escrow is on the of are generally

And is floating an rate. so nature then debt. And floating secured of also on the side, the of the that a are assets the rate offset CRT lot to

it floating makes to debt. rate the paradigm with sense so And

Operator

[Operator Instructions] And your next of of Harter UBS. question comes from the Douglas line

Douglas Harter

opportunities, in seconds originating? PennyMac a thinking liens is As of about credit you closed-end investment you or the guys investment are second are thinking how about sort that

David Spector

to investment phasing to But look with at in jumbos return errors origination achieve for that I opportunity from the could We're -- enough think that PMT, with there spreads PFSI an execution required PMT close are second And that in the best it to think both just required that PFSI they're a looking widened, because PMT I at they're in assets There's increased activity and activity a to standpoint, looking out. we done suffice on [indiscernible] opportunities the meeting investment the of for looking return. particularly opportunity their going securitizations execution of and set it's function do need securitization. say that we being invest. opportunities was

Operator

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

David Spector

you Thank for you. Thank us today. all joining

near don't speaking please to and you additional IR you our forward Take looking If care. of appreciate to to time, hesitate future. have out all We questions, department. your reach any the in to

PennyMac Mortgage Investment Trust (PMT) 24 Apr 242024 Q1 Earnings call transcript