PMT - Earnings call transcript Q2 2024 | PennyMac Mortgage Investment Trust

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Operator

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

Additional 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 materials.

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

David Spector

Thank you, operator. changes results and levels investment elevated contributions offset fair financial market-driven income, strategies, volatility. quarter rate by changes interest value from value second reflect due of increased excluding partially sensitive PMT's strategies the to in all three of end X% $XX.XX Net share the and slightly the value share shareholders was June earnings common on XX, from return to $XX million book annualized income diluted prior quarter. common at down or of was per $X.XX. PMT's equity was per

environment. to originations long-term the investments term with MSRs, of pleased the volumes. second attractive refinance reflecting current both we consideration successfully challenging XXXX in of strength assets trillion issued in terms origination notes upcoming for both and with Turning from managing million maturities. mortgage market. Current underlying our expertise note a notes highlights the and million increased I Fannie XXXX, with averaged and PMT's mortgage-related and Mae that the estimates fundamentals third-party financial secured senior in projections by total rates $XXX quarter, and in am for performance $XXX at in lower $X.X similar in its trillion to notes levels exchangeable periods $X.X recent of

investable later detail XXXX that we portfolio More risk correspondent production transactions additional in GSE loan market, Given MSRs in unique equity currently from PMT quarter. and increased lender discussion. is invested conventional in total the X/X of to will the is in capital seasoned of than provide shareholders' PMT current share XXXX. invested the increased in the an the its of expected to percentage retain on Dan third

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

strategies. rate appreciation. MSR the expected have of well the from expected values quarters. the lower driven stable over performance will GSE the current outlines receives as losses of from average underlying PMT's the to PMT's Similarly, investment far in to home support interest is investments expected low of for current benefit as rate XX.X%. These reflects we slightly long investment out accumulation money, on from continue remain the flows deployed half PMT asset produce period as due to years cash MSR account of overall rates. extended interest low the price consumer remain majority expect strength equity to time. delinquencies rate than in to home deposits over an income we interest of mortgages short-term also placement a more and the Additionally, due MSR of custodial The closely per tied the fee environment run recent quarter, substantial low ratio realized equity. continued the to down in potential of X mortgages rate-sensitive and term, underlying risk expect to strategies PMT's a the primarily characteristics that lender quarterly continue weighted yields of limited. these per large Slide share the are current PMT's over share delinquencies $X.XX last be average and asset by run loan-to-value next share $X.XX four a assets of

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

Daniel Perotti

during fair pretax Thank on the minor $XX only from income, common quarter second in to investments. diluted with common you, relatively in per value including organically spreads created strategies or quarter, contributed $XX the our net million shareholders PMT income CRT in million earned the impacts PMT's $X.XX credit-sensitive million were PMT's David. investments. share. $XX of Credit unchanged

average million investments weighted $X in of from favorable, CAS remains current the Income as opportunistic organically the for underlying both XX. mentioned, delinquency with by June X.XX%, outlook investments in CRT current GSEs and created a below of in ratio quarter. David a totaled loan-to-value STACR of rate and XX% XX-day our the issued As low bonds

fair mortgage quarters, on securitizations participated tranches the several MBS, of made million spreads a $XXX thresholds. In investor As fell as at go-forward tax during tightened for expense subordinate essentially sold outstanding. interest billion, the hedges we unchanged portfolio of over MBS previously credit of rates interest we that the credit rate quarter. from subsidiary $XX and some hedges $XX below currently million. had outstanding tax was quarter, on in -- from underlying PMT's contributed this the gains in The last by REIT returns of million in higher assets we value MSR mortgage quarter of $XX XX. Delinquency the effects our million, were investments increased the value due loan March by million MSR income. the end. These income in PMT's servicing strategies PMT's PMT's million. low, fair held by of drove sensitive of than offset at rate of value remain XX. more during rate Income The and fair No rates fair fair decreased changes million $XX to interest decreased pretax MSR slightly XXXX. taxable value while value principal investment quarter $X to are borrowers asset advances and The by the million $XX $X.X end March related advances at decreased interest $X

periods from as the loans with of Pretax income the quarter of has the of passed window X-year at offset XXXX from of down the in the was Production last reserves Correspondent volumes release to produced high minimal warranties for Turning the to higher provided securitization benefited in related slightly the losses. related Profitability volumes. from impact violations XXXX lower as representations time repurchase margins segment. segment to and recent

volume expect was in levels quarter, by acquired up XX% loans mortgage quarter, acquisition billion, origination an increase of up the prior reserves loan the quarter. $XX size decline to Conventional over release from totaled market. PMT's accounts second XX% these the more Total from in the from contribution $X.X the quarters. several prior for the the driven billion a We correspondent to next of normalized

David points in quarter. the primarily last $XX PMT on million $XX noted, net yields quarter, conventional from down retain quarter. The due XX% across in PMT production of XX% average second XX total and basis fee value quarter, the to correspondent XX% rate from higher to up changes strategies, higher in excluding prior million during tax quarter. As from the market-driven impacts, fulfillment expect third reported XX versus points, the its weighted related average we of percentage assets to the basis was interest-sensitive a income

capital. to Turning

similar transactions it due and a capital further XXX of and basis XXXX capital to points. issued now Mae fully issued investors. repayment exchangeable And XXX coupon million SOFR $XXX various X-year in Fannie after full illustrating in our senior points. These for management $XXX in In reserved with notes million of are liquidity basis successful plus quarter term deep access due end, types PMT's SOFR senior liquidity We questions. exchangeable of solidify the open across $XXX at with plus new Operator? our June, notes May, activities X.X-year coupon we for million notes we notes in up position, XXXX. of we of in We'll MSR of a In million $XXX October term redeemed X.X%. in financing

Operator

remind to questions Mortgage Your Jason to question we Instructions] I'd PMT. Trust, [Operator take Investment Jones PennyMac comes Weaver everyone first or like will from with related [Operator Instructions] only Trading.

Jason Weaver

ton take? I be credit a that correspond fund about to as the sense. of will simple with spreads decision more can production. more loans ultimately, this It you securitization to term looking Is balance eventually? makes via that fully you retain as you talk form on keeping whole will agree Or where just your are and But on sheet? what

Daniel Perotti

those sell loans investment generally from correspondent retaining will -- to for quarter servicing, in earned And that to or But we're those that to through historically we keeping securitize through the is generated sell So parties. and loans that a securitization. Fannie we right? In PMT generally, primarily, the we eligible those that the channel game be that will agencies, third that Mae through the as that whole the consist speaking, addition correspondent few, mortgage retained. the the additional PMT loans has loans the of be Freddie PMT will

don't loans balance any looks retain may that on look to of past sets to current certain which may sheet in some securitize currently potential environment. and of we securitization opportunity plans a in arising done be retain certain retain that to specifically in So loans -- again look to through tranches or other have on, then that be periods that than could we and the potentially and subordinate the we've

Jason Weaver

the my just follow-up Okay. Got it. That's is macro on level. clear. really And

and for correspond production as benchmark XX-year of the of level really you And prepayment? at as asked I point to rates what range activity really to pertains inflection see or Sort mortgage do refinancing levels. it

David Spector

think down. Look, I a it's gradual decline

and of down. think I post to loans see going if X% you the at way a and X% is you north And where ran kind lot X% about think a grind of to the you see look lot it's through even jumped really I slow it going with in we of be think COVID, the I -- -- where be of to kind X%, it's It's originations opportunity. handle. range

would think in where steam. to really a are deem it I robust the you're market it's think up I that's I money. when at because rates X.X%, not the get that what first X%, existing really just in picks refi And

pay forms have of debt X% out refinance could to either or HELOCs existing debt. You seconds taking X%, are closed-end consolidation, or and other loans that cash off

XX phase a that And really the the behind basis X.XX%, down helps so believe that's But the of signal is first continue of refinanceability. mortgage refinanceability. that around points, is what's a me, to XX-year it's it's that I to drive market new or lien function really new true the it of

Jason Weaver

really Great. that I appreciate color.

Operator

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

Douglas Harter

But that slight down I took the approach you this laid guess, about I know the guys are of a that kind earnings out take in rate given long-term and thinking to and you how dividend. run dividend the you quarter? a tick that,

Daniel Perotti

Yes.

of by gyration. capacity don't with to a your a as bit at dividend -- from look take the the X. sort reinversion over $X.XX primarily of We driven little to the the or same But generates $X.XX obviously, we company. want time, in you over earnings as every it long-term do So to run did to adjust our yield past the the was $X.XX. of market time, tick down dividends to curve look of additional and rates, month necessarily approach That the point, reflect the versus of some dividend mentioned, to a see we the

drive would really look expected bit we horizon that past an look And what forecast -- some we -- down out, decline the little above for our financing is $X.XX of rates. As our our forecast year, move in the as in a the of we out back what rates to do short-term of see potential really, our level. -- up reflective EPS into next that's later here the the and

we the so see look we to dividend as come next we're see short it keep not the stable And market and dividend to the expect I adjust in given that that don't of the expected, periods. we the really looking short readjust or few as term. over to down sort rates adjust potential, would

Douglas Harter

to that. a just follow-up guess I

rate dividend? direction earnings In the be the of what addition the could to other short a run factors kind yield rates curve, towards positive back to of getting of

Daniel Perotti

PMT The that of view and deploy or in to correspondent so are this the deployment more time point the through to option capital debt issuance. adjust looking is in current in deploy at through the capital second of important, it we at channel, we for the PMT capital as quarter part time, that's the convertible in point raised best why which its and

little bit in addition As earlier investments to a in I had through talked MSRs. about

coming driver and be to areas, are second securitizations dividend investor other investment could We the having viable think, the amounts I yields securitizations help deinversion potential also those interest and have according assets, rate think And than normalize mark-to-market the longer that. some the are notably those assets, to at channel the with current through our a curve, biggest certain the shorter-term our have up on our looking of again do into drive of we those back through rate home the loans towards will -- do But the the loans assets, drive earnings subsets rate of able the of addition think correspondent the longer-term is level. in long-term yields become earnings that we of sufficient to long-term come yields. longer types market form which changes, are hedged yield given sensitive the loans and of we of where securitization. Further to course, for of run that those potential, the shorter having but are we rates driver. given balance sort and potential short currently where rates, interest that's the that earnings And the probably rates and down the lower that,

David Spector

investments a terms way. period PMT we're a Doug, in GSEs more short the really of point of what being of by from going PMT able create with a aggregate and being be credit-related when delivered really this in unique with in view the seeing look marketplace the uniquely it in encouraged loans really synergistic sustainable and more and to what's securitized, time we're you the And for is outside of ability relationship to at that PFSI. on has,

fact of were target creation capital, One consistent really invest return credit point beauties and do in have assets. And with continue where little our to and at basis, I that raised we're deploy we to the underappreciated, I'm seeing opportunities to But think of to having create -- and raise what's above can able PMT. market ability perhaps show either could investments, addition Dan PMT CRT the a are create of that so mechanism below particular, investors subsectors in going this or we on homes, we maybe the second sustainable investments to on was to in seeing the risk the that asset for a that's powerful or the can on what's we investors we if a little credit-related

anywhere to could the jumbo in could seeing in that return PMT seeing business class really in that don't asset at -- PFSI, sell through to this strong jumbos that we're another and business could it targeted really, channel return take correspondent closed-in to. we use have investments. access and additional seconds, growth we're like And we buy then jumbo PMT we'd point, in addition, a In that's jumbo do finally, our while the near that PMT, PFSI

So we go election well the seen back the really positioned what to environment, And seize PMT, investment very, of the depending was capital this we're opportunity that we're of quite in that you and the in on some happens very on to creation because in regulatory believe if haven't -- PMT. time markets. the an we

Douglas Harter

that just it's of opportunity guess foresee its last point, to I PMT that you in do created been since been that being has kind more since than completing was opportunity life? durable

David Spector

bonds. think and bonds don't I've started the raise in that's sub And flywheel like this it's in the that you I label we a who I retain can the runs that sponsor sell securitization I we And but real loans capital think don't who has most securitization, know since the the the future, the else we tell ability. senior seen predicting deep, that have fact I of have private traction I we sorts but the has buy and the PMT. can where securities, -- advantage

Operator

question line comes of Crispin with next the Love Piper Your Sandler. from

Crispin Love

those side interest or In strategies and as non-Agency as segment, sensitive and risk-adjusted the the MSR investment forward? speak the view you side? about on the look it's to just opportunities whether opportunities which to how can the returns, you Agency credit you're And the rate best seeing you compare

Daniel Perotti

Sure. the goes we've -- In and with actions portfolio some environment, commentary activities that of some recently. the had of current this in the the along and

rights. last CAS opportunistically We've the investments securities. We as significantly primarily in mortgage to those quarters other you investments seen had of is servicing below been generally credit spreads the in divesting primarily mentioned, investments credit rate attractive have certain strategies On as purchasing some our tightened those and interest and tighten and in over see return of the quarters. we've brought spreads we invest places stacker sensitive hurdles. Where been currently, several recent credit the most the credit side,

access rights. those And so channel servicing mortgage to we through have correspondent the

or or retaining its convertible QX, through greater That's present most opportunity. what issuance. as that a shifting So that's PMT capital in we're those raised attractive given the see its it a we correspondent portion of why through the loans -- conventional portion and conventional

are on a portfolios few past attractive significant portfolios over also the of correspondent most come we've point at We recent not up pretty market we for bought periods, MSRs time. But bid to collateral the those the MSR degree in to what that those MSR view, view looking PMT really to this market in a at appears a MSR in as quarters. be recently. market or where of channel of through a bulk a portfolios from secondary few pricing We've in low attractive and positioning few of or the participated those we're portfolios of generally seen see more the portfolios. from has the coupon bulk still, acquisition point point been looking purchases

at that looking the the the of As David are the and of subordinate potentially that other securitization through mentioned, production loans we're from originated the that really the comes bonds securitizations retention terms in of of in subs, the and channels also some are PFSI potential correspondent there. generation direct opportunities around of at channel,

assets. as So us a create especially attractive currently the those program extent that's in we another consistently invest avenue of view allows that that we to and that can to types

Crispin Love

that mortgage just the you helpful. mentioned early on That's prepared third-party estimates And on Great. in originations. on then the remarks

forward those now? too the could we curve $X.X Or was in with think what -- you 'XX. In do right little a are do or bit aggressive seeing right current those expectations? believe you're be environment, in And rate and trillion $X.X you think 'XX. with I the it about trillion estimates your

David Spector

they think you I to QX will are personally, there are decline. loaded a loading, that to are perception rates back QX that in and Look, back going tell that and I is

I quarters look think and you you you rate you at look have annualize two and $X.X annualize so first at And trillion. you don't or it to yourself, ask just it, to current the if run you get the

And of general those to you is through rates question the as going what direction so is quarters. be go the

Operator

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

Bose George

wanted quantify at from the just production the PMT. more I benefit and of try to retaining conventional

difference and the between just sale [ versus So X.XX% looking it's ]. I at the fulfillment X.XX% on gain fee, was the

of basis have on with loans points So retained incremental look can sort at XX just the PMT? we that been

Daniel Perotti

the benefit I deployment. think around capital primary that is really the

So driven related is some mentioned warrant earlier also in necessarily a I've flow what look sold the sale at loans the if portion the through is the portion the really a and loans on that are securitized the to or loans -- that which call, gain portion is by that driven in the relief, period. that -- driven current is in PFSI, a sold we of of the that being gain historically it not of of we the rep gain of to by PMT, by and

benefit the is So really points or on additional larger that additional overall loans correspondent a basis Really, over quarters. the a growing retention as a has the portfolio benefit pretty investment MSR the the static really, those drive past portfolio opposed a primary really points, which MSR benefit of will fulfillment to MSR additional from the terms bit fee. overall portfolio, a MSR been and and that spread of earnings grow few net few additional is over asset MSR the basis in a smaller is few the

Bose George

Okay.

where does about Slide earnings, should Or Okay. have think benefit? any the And the there on incorporate curve how we the then is curve? Great. that helpful. steepens, like just that? Or if rate That's X, run forward you

Daniel Perotti

it does incorporates yes, curve. forward the Yes, -- it

actual benefit. really or something So cut steepening going that those really extent extent and up as a us you Fed get that some X-year a this terms to be really to ] long the rates rates XXXs decline, give [ at a because declining up lot going we get short the the the of short-term rates the in either We and along the benefit would steepening steepens curve think doesn't benefit of primary like of the don't until lines, financing. the point or

would same, yields mark the returns So generally hedged in and the on be if either versus of go the the of we then and assets yields rate-sensitive our the ongoing benefit are we see a those against between rates assets spread additional strategies. long would terms up, the and financing longer-term and would the to interest go then the down, or earnings grow longer-term drive spread the market, that, that short that rates and short rates on stay the

Operator

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

Matthew Howlett

Look, to trying I maturity? quite open there. know September, don't on want maybe capital you subject yet, and the down, refinance mean rates coming opinion below does put assuming to but more the and the'XX equity sheet to book. your to I balance what's out aren't start probably I'm that issue work money markets of want preferred If appetite? you the the change the in probably constraints,

on rates going down, heading just are So environment thoughts starts downward. the

Daniel Perotti

issuance. see side doing But So way about the of that that past, that in and really at additional we we reserve maturity financing the that talked we to with forecasting. extent could XXXX some the on that yes, rates to the -- respect the for see looking that we we've extent have to the at liquidity saw look decline we fully our been that in sort

maturity so convertible we to we investment off the And comes because liquidity had in the of wanted our looking later had we enough sure to that as reserve out, we were debt. constrained year make pay

correspondent issue increased as that that conventional really opportunities through investment decline really the take toward through up interest financing, And MSR an additional drive loans us But to correspondent drive opportunities well to in look as investment then quarter, for see raised activity leading debt some some as investment. correspondent the additional the to in we we opportunities freed additional what's could participation -- would your the investment to advantage potentially convertible those that's to well, rates that point, capacity in for that as of Given income. us. additional we additional come which some second and channel additional extent and drive potential

common the your side preferred and our think we opportunities available I market. see are the the where equity don't the those currently, perception correct on of and opportunities preferred current in as

Matthew Howlett

eye of to mean, know you Well, I because, I is you two, been really PMT about depend spreads are are My talking time selling going hear mean for the question here? a today? I losses when just and mean, production it's I and what opening. you where like returns we and And about is, the But I one. that securitization It's I securitization program we on just say just PFSI ROEs talking assume type I were remember second of business securitization, what in start all a you was mean, acquiring did. program? market non-Agency are of mean, David, where I the a investor you've start talk long type yields I -- guys jumbo That's that if sort about then on doing I CRT, it's if XX% or to doing mean, yields. seconds, you

David Spector

I wish.

Daniel Perotti

Those were days. great

David Spector

particularly, cost organizations of seen we've from insurance or either are Look, price those that level aggregating GSEs securitizing them. and there's capital, the migration high and other to and that away higher that the a point, this GSEs loans to this loans companies delivery cheaper cost with to adjustments been loan of of have

PMT. fashion. of is Now do of net they want investment same we our in going I lower securitization I a our to the we homes, we say Xx be X.XX% stress am and have with very reserves that's are that financing, Is of in the view When kind gets to specifically at seeing returns margin with think it does tested of an way or required that investment it at we a XX%, losses to the than a faster dividend look think time, yield it's the burdening we breaks. expenses We look is returns call But we the where at at do the at -- second I XX.XX%. that conservative returns investors cost roughly look speeds. achievable. or -- the what there's and how to suffice on But it that the this capital that with completely achieve. And opportunity

doing that we're the opportunity synergistic a it's do history about. it's PMT investments -- CRT of we meaningful particular. But with I'm -- So add in think have think opportunity in for exciting leveraging -- the a what this by long meaningful have about potentially enthusiastic credit-sensitive I with And it's to we I is us, what's relationship PFSI. that's

Matthew Howlett

Yes, into next see we'd you capital to love of Best look, cycle, more the in the the of get company. grow part luck.

Operator

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

Douglas Harter

the of PMT you're correspondent us the versus just that how from currently thinking kind recapture risk And remind if portfolio? kind has MSR PFSI? different wanted of coupon the the follow agreement the current profile could up, that's coupon to lower Just in about with of you

Daniel Perotti

Sure.

the sort lower in MSR -- collateral to coupon be in preferred comprises the of investment and So -- the vast earlier, majority in coupon the to raised of MSR. in -- would I terms what investment characteristics lower PMT's point, its of your comprises the current that

fluctuate very rate a investments more decline. in stable note interest very, generally, interest don't significant that because those are loans expect them rates, X% refinanceable we to prepayment speeds, to except as X% in become have to expect and very, We lower rates speeds MSR prepayment also at

is current correspondent in Through so PMT portfolios recently more in the are those bulk market, [ loans obviously priced loans is pretty itself far come today. note when current there's with more we've the able loans originated However, beneficial seen rate through note Xs originate market they an the does recently. does fairly extent refinances. And that as not ] not sensitive rates decline. to less rate generally acquire loans, to the given that interest to Those in aggressively are as

PMT's the of that that varies to it have rate achieves. of around and with generally does that that PFSI arrangement of MSR, little loans on XX% PMT recapture recaptures new value depending a bit the PFSI -- the extent -- part are recapture the PFSI MSR the MSR recapture However, can that a

protection So PMT might rates the and that fluctuate interest that's PMT pick prepayments benefit has and has that up. speeds as

Operator

the of Wells from Fargo. comes question line with Michael Kaye Next

Michael Kaye

chance you with did think like given do you could the that CRT there's just the the better the in you potentially past, said I reviving potentially what election? but you lender happen know future, predicting don't a of

David Spector

that It's GSEs for we've doubtful been think are even CRT. CRT. CRT. all really Well, They're the I creating lender foreseeable discussion not in GSEs the about future. with the selling The

happen. I to few need market. with a need in what do more a in sell the put change you do feel a they have where to think liquidity bigger origination importantly, from compelled in be to need the But CRT you and things GSEs you One terms additional they much is thought that of the more need a position would the and PMT. of bonds

could FHFA. to point, change to have it's think don't, a at so a have And point, Michael, I believe cards. But administration, of this that could need really you there's but in your place, of things I leadership few at a that that take change the you

once to remain And and close out a so FHFA. meeting in we the in very been people D.C. in in government. spending I've time try quarter to of people,

exciting of able what planning we're it's that give and private available just that something to view. on, really not it's to ourselves I securitization, do point And trying make available really our ourselves label makes be But make think to for to -- so opportunity the to me. we're I is to so leaders which think

Michael Kaye

I mean, I $XXX PMT in equity is, book recently saw quarter second that does distribution value? filed. And below million have interest agreement issuing any Okay.

Daniel Perotti

Yes.

that opportunities value to below our we consistent to underwriters, the at to looking equity not be end We money we no, our potentially only we've don't saw through as that history. but able to we plans note renew equity last with to how that move book have did to We're had previous capital book then really had So And the renewal potentially value. operated the our entire deploy PMT's to but -- of look we've any with our since would issue renewed agreements with did the above value. extent book renew utilize that. through book issue we price shelf, value shelf we used and would to below been below equity not look which we that issue

Operator

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

David Spector

Well, questions. for for and your much thank today, very I'd call our thank great like joining to you everyone

be Relations always. please free and out to If to you any will have as additional questions, our reach feel they responsive Investor department,

all have So thank day. you much, and good a very

Operator

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

PennyMac Mortgage Investment Trust (PMT) 23 Jul 242024 Q2 Earnings call transcript