PennyMac Mortgage Investment Trust (NYSE:PMT) Q3 2022 Results Conference Call October 27, 2022 5:00 PM ET

Company Participants

Isaac Garden - Investor Relations

David Spector - Chairman and Chief Executive Officer

Vandy Fartaj - Senior Managing Director and Chief Investment Officer

Dan Perotti - Senior Managing Director and Chief Financial Officer

Conference Call Participants

Isaac Garden

Good afternoon and welcome to the Third Quarter Earnings Discussion for PennyMac Mortgage Investment Trust.

The slides that accompany this discussion are available on PennyMac Mortgage Investment Trust's website at www.pennymac-reit.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 introduce David Spector, PMT's Chairman and Chief Executive Officer, who will discuss the Company's third quarter 2022 results.

David Spector

Thank you, Isaac. In what was a challenging market for most mortgage REITs in the third quarter, PMT reported net income of $1.5 million or $0.01 per common share. Strong performance from PMT's interest rate-sensitive strategies and overall income, excluding market-driven fair value changes, was sufficient to offset the impact of continued credit spread widening and an increased provision for tax expense. PMT paid a common dividend of $0.47 per share. Book value per share decreased to $16.18 from $16.59 at the end of the prior quarter.

Dan Perotti, Senior Managing Director and Chief Financial Officer, will review additional details of PMT's financial performance later on in this discussion.

During the quarter, we repurchased 1 million shares of PMT's common stock for $13 million at an average price of $13.66, significantly below current book value per share. And through October 26, we repurchased an additional 1.1 million shares for an approximate cost of $13 million at $11.74 per share. PMT's Board of Trustees also recently approved an increase to its share repurchase authorization from $400 million to $500 million.

One of PMT's greatest strengths is its ability to organically generate investments through our high-quality loan production sourced from correspondent sellers across the country. This quarter, $10 billion in UPB of conventional correspondent production led to the creation of $178 million in high-quality mortgage servicing rights. With mortgage interest rates currently around 7%, the most recent third-party forecasts for originations have decreased meaningfully, indicating an annualized run rate of $1.7 trillion to $1.9 trillion in upcoming quarters.

We believe mortgage REITs with diversified investment portfolios, efficient cost structures and strong risk management practices such as PMT are best positioned to manage through the volatility presented by the current market. And with strong fundamentals underlying PMT's investment portfolio, we remain optimistic for PMT's long-term return potential. Although returns in PMT's credit-sensitive strategies have been impacted in recent periods by wider market credit spreads, our lender risk share investments consist of seasoned loans, with a weighted average current loan-to-value of 62%, benefiting from the strong home price appreciation we have seen in recent years.