Q3 2024 PennyMac Mortgage Investment Trust Earnings Call

In This Article:

Participants

David Spector; Chairman of the Board, Chief Executive Officer; PennyMac Mortgage Investment Trust

Daniel Perotti; Chief Financial Officer, Senior Managing Director; PennyMac Mortgage Investment Trust

Jason Weaver; Analyst; Jones Trading

Bose George; Analyst; KBW

Doug Harter; Analyst; UBS

Matthew Howlett; Analyst; B.Riley

Eric Hagen; Analyst; BTIG

Presentation

Operator

Good afternoon, and welcome to PennyMac Mortgage Investment Trust third quarter 2024 earnings call. Additional earnings material, including presentation slides that will be referred to in this 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 two 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 equivalents 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. Please go ahead.

David Spector

Thank you, operator. PMT's third quarter financial rsults reflect solid levels of income, excluding market-driven value changes, bolstered by fair value changes, including associated tax benefits. Net income to common shareholders was $31 million or diluted earnings per share of $0.36. PMT's annualized return on common equity was 9% and book value per share at September 30 was $15.85 down slightly from the end of the prior quarter.
Turning to the origination market, current third-party estimates for total originations averaged $2.3 trillion in 2025, reflecting expectations for mortgage rates to decline from current levels, driving growth in both refinance and purchase volumes.
PMT's stale performance in recent periods of heightened volatility highlights the strength of the fundamentals underlying its long-term mortgage assets and our expertise managing mortgage-related investments in a changing environment. We continue to focus on PMT's balance sheet.
And this quarter, I'm pleased to note that, we effectively completed the refinancing of $457 million of CRT and MSR term notes, with $514 million of new term notes with lower effective cost and extended durations. Approximately two-thirds of PMT shareholders' equity is currently invested in a seasoned portfolio of MSRs and the unique GSE lender risk share transactions we invested in from 2015 to 2020.
As the majority of mortgages underlying these assets were originated during periods of very low interest rates, we continue to believe these investments will perform well over the foreseeable future as low expected prepayments have extended the expected lives of these assets.
Additionally, delinquencies remain low due to the overall strength of the consumer as well as a substantial accumulation of home equity in recent years due to continued home price appreciation. MSR investments account for more than half of PMT's deployed equity. The majority of the underlying mortgages of these MSRs remain far out of the money and we expect the MSR asset to continue to produce stable cash flows over an extended period of time.
While MSR fair values were down slightly from June 30, due to fair value declines and runoff from prepayments. MSR values continue to benefit from the current interest rate environment as the placement fee income PMT receives on custodial deposits is closely tied to short-term interest rates.
Similarly, mortgages underlying PMT's large investment in lender originated risk share have low delinquencies and a low weighted average current loan-to-value ratio of below 50%. These characteristics are expected to support the performance of these assets over the long-term, and we continue to expect that realized losses will be limited.
Given the capital raised in the second quarter -- in the third quarter, PMT retained an increased percentage of total conventional correspondent loan production, resulting in approximately $90 million invested in new MSRs, more than double the amount from the prior quarter.
In the fourth quarter, we expect PMT will retain a smaller percentage of conventional production as we optimize PMT's capital allocation while also evaluating emerging investment opportunities in the private label securitization market.
We believe the mortgage landscape is evolving and increasingly presenting new opportunities for PMT to be a material participant in that market. Volume or pricing limits for the GSEs on certain types of loans, such as non-owner occupied and second homes have driven increased private label securitizations of such loans in recent periods.
Additionally, meaningful volumes of jumbo loans are being originated in channels outside of the banks. PMT has long benefited from a synergistic relationship with PFSI and is leading fulfillment and servicing operation to process large volumes of loans at the highest quality standards and positively influence investment performance.
Combined, we estimate PMT accounted for approximately 7% of the total production market in the last year with a leadership position in the correspondent channel and a growing presence in direct lending. Through this multi-channel production platform, we have been acquiring and originating growing volumes of loans we think have the potential for PMT to securitize to drive organic investments in newly created private label securities.
Given our long-standing relationships with global banks, asset managers and institutional asset-backed investors, we believe PMT is well-positioned to successfully execute on these activities, especially as the origination market returns to more normalized levels. While we've been selling jumbo loans on a whole loan basis, we've been aggregating agency-eligible non-owner occupied loans with the expectations that PMT will close the securitization of such loans in the fourth quarter, followed by another similar transaction in the first quarter next year.
Now I'll turn it over to Dan, who will review the drivers of PMT's third quarter financial performance and PMT's run rate potential.

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