PennyMac Mortgage Investment Trust (NYSE:PMT) Q1 2024 Earnings Conference Call April 24, 2024 6:00 PM ET

Company Participants

David Spector - Chairman & CEO
Dan Perotti - CFO

Conference Call Participants

Jason Weaver - Jones Trading
George Bose - KBW
Matt Howlett - B. Riley Securities
Eric Hagen - BTIG
Douglas Harter - UBS

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's 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 bear GAAP equivalent in the earnings materials. Now, I'd like to introduce David Spector, PennyMac Mortgage Investment Trust's Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer.

David Spector

Thank you, operator. PMT produce solid results in the first quarter, with strong contributions from the Credit Sensitive Strategies in its correspondent production business. These results were partially offset by net fair value declines in the Interest Rate Sensitive Strategies. Net income of common shareholder was $37 million, or diluted earnings per share of $0.39. PMT's annualized return on common equity was 10% and book value per share was $16.11 at March 31, essentially unchanged from the end of the prior quarter.

While many other mortgage rates have been negatively impacted by increased levels of interest rate volatility in recent periods, PMT book value per share has remained relatively comparatively stable due to its diversified portfolio and disciplined approach to hedges. Turning to the origination market, current third party estimates for total originations in 2024 averaged $1.8 trillion, reflecting growth from an estimated $1.5 trillion in 2023. However, we believe these estimates to be optimistic and dependent upon multiple interest rate cuts in the Federal Reserve in the second half of the year. With current expectations for market interest rates to remain higher for longer and mortgage rates back up into the 7% range, we expect these third party estimates will decline further from their current levels.

PMT's strong financial performance in recent periods, highlights the strength of the fundamentals underlying its long-term mortgage assets and our expertise managing mortgage-related investments in a challenging environment. We remain focused on leveraging PMT's unique relationship with PFSI to actively manage PMT's portfolio. And in the first quarter, we took advantage of tighter credit spreads, selling $111 million of previously purchased floating rate GSE CRT bonds. Importantly, they will realize significant gains on these investments with the sales driven by our belief that these investments no longer met our longer-term return requirement.