PennyMac Mortgage Investment Trust (NYSE:PMT) Q2 2023 Earnings Conference Call July 27, 2023 5:45 PM ET

Company Participants

David Spector – Chairman and Chief Executive Officer

Dan Perotti – Senior Managing Director & Chief Financial Officer

Conference Call Participants

Kevin Barker – Piper Jaffray

Bose George – KBW

Matthew Howlett – B. Riley Securities

Doug Harter – Credit Suisse

Eric Hagen – BTIG

Operator

Good afternoon, and welcome to the Second Quarter Discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available on our website at pmt.pennymac.com. Before we begin, let me remind you that our discussion contains forward-looking statements that are subject to the risks identified on Slide 2 that could cause our actual results to differ materially.

Now I’d like to turn the call over to David Spector, PMT’s Chairman and Chief Executive Officer, who will discuss the company’s second quarter 2023 results.

David Spector

Thank you, Isaac. PMT had a solid second quarter in 2023, as strong performance from its credit sensitive strategies and income excluding the impacts of market driven value changes were partially offset by fair value declines in its interest rate sensitive strategies and related tax impacts. Net income to common shareholders was $14 million, or $0.16 per common share, with an annualized return on equity of 4%. Book value per share, net of the $0.40 dividend, decreased slightly to $15.81. PMT spent $19 million on share repurchase during the second quarter, and it remains an attractive use of capital when PMT’s share price is well below book value per share. Dan will provide additional details on PMT’s financial performance later on in this discussion.

With mortgage rates currently near 7%, the most recent third-party forecasts for 2023 originations range from $1.6 trillion to $1.8 trillion, still well below normalized levels. While industry origination volume in the second quarter was meaningfully higher than the first quarter, higher mortgage rates are driving borrowers to remain in their homes, leading to low inventory levels and continued home price appreciation. Unit originations in 2023 are projected to total just 5 million, the lowest level since 1990, indicating the potential for industry consolidation if market conditions persist.

While 2024 originations are expected to approach $2 trillion, we expect the competitive environment to continue given unit origination volume will likely remain constrained. Given the current market environment, we believe that mortgage REITs like PMT, with diversified investment portfolios, efficient cost structures and strong risk management practices, are best positioned to manage through the volatility presented by the current market environment. Throughout 2023, credit spreads have tightened and we have observed improvements in the structured product markets, which has driven additional capital deployment into opportunistic investments.