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PFSI PennyMac Financial Services

Participants
Isaac Garden VP, IR
David Spector Chairman and CEO
Andy Chang Senior Managing Director and COO
Vandy Fartaj Senior Managing Director and Chief Investment Officer
Dan Perotti Senior Managing Director and CFO
Call transcript
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Isaac Garden

Good afternoon and welcome to the Third Quarter 2021 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 risks identified on Slide 2 that could cause our actual results to differ materially. Thank you.

Now I'd like to introduce David Spector, PMT's Chairman and Chief Executive Officer, who will discuss the company's third quarter 2021 results.

David Spector

Isaac. you, Thank

interest quarter to third per reported net and a share, For shareholders XXXX, of attributable PMT’s decline value common by $X.XX sensitive $XX.X loss strategies. driven the fair PMT rate million common or

financial credit our in $X.XX significant sensitive and partially continued of value offset a the FHFA's noted of the in with the in by quarter. are prepayments. fair refinance As These PMT’s reports, a contributed from third MSRs of strong segments. the production dividend per along $XX.XX paid market in end per strategies, fee, elimination PMT elevated at to returns impacts quarter correspondent book second the $XX.XX prior to decline share common decreased adverse value share of quarter,

completed We offering. of issuance public in $XXX a in preferred the also successfully shares equity million

to loan more securitizations. production low conventional this servicing in PMT’s volumes, $XX.X quality agency billion assets production high rights. new also currently of coupon to we Our loan creation credit generate led eligible continues and the PMT, in in creating From assets new quarter $XXX million production form the of investor for UPB mortgage organically are correspondent than of

in current evolving Leading and driven originations. leadership believe and by decline scale, its refinance to mortgage million. investment market market loans securities positioned value UPB. from million October, of of PMT’s During opportunities, a PMT’s $XXX million mortgage at XXXX, economists smaller investor in rising, quarter, position inaugural fair quarter correspondent the totaling shifting, and two UPB securitization aggregate rates investor given loans, on in uniquely production. purchased is the $XX from PMT’s subordinate the loans, the we origination a production. was approximately capitalize retained PMT the securities or we forecast correspondent we from With of investor securitizations totaling $XXX interest and In And investment end after is

a continued increased see the of levels and we As result, across competition margins lower expect to industry.

expected are as drive believe activity leader PMT XXXX. However, in strong well money positioned in And the in purchase purchase to growth a trends and demographic we production of loans. secular is

the as sales, benefit correspondence PMT like well to PMT. capitalized increase as hold look sellers we competitive, released to becomes expect servicing Additionally, to more environment on aggregators

For founding. successfully various remains while more REITs. interest environments management This a focused PMT and market delivering PennyMac crease can competitive the risk XX other than have be strong of years Organic returns. PMT asset the to to navigated has disciplines regulatory attributed management we since advantage our origination for team and on mortgage strong rate relative

now focused to While will Chief risk Operating shares Officer. opportunities it of I remain we return such current lender and profiles. Senior MSRs Director long-term Andy With the Andy? market on that, investor Chang, PMT’s securitizations the uncertain, environment, attractive with future in over Managing as turn and

Andy Chang

you, from Thank the mortgage the landscape, return PMT review discuss FHFA announced PMT, strategies. recently rate run and of from origination changes the impact David. potential on I will

large. year's purchase be in in decline expected for forecasts XXXX strong is trillion in economists. origination be originations of rates trillion. are X% to the originations to leading while Despite transition, remain recent noting XXXX projections remain the grow trillion. $X up continue $X.X record and It to worth the Current levels to originations $X that to this expected at low a refinance it market are to from is interest period continues weeks, within While of a increase historically

in said, creation competitive is current we remains landscape backdrop, Regulatory the for driving affect this expected given purchase PMTs focus. and focus production. impacting new transition term and the investment near money a its correspondent believe changes asset capabilities. to is which with with results outlook the earlier, platform administration Given as heightened competition, favorable are David changing discussed flexible the and also market PMT That organic

notice GSE an to capital for to would CAS Notably, uncertain. for of completed regulatory rulemaking transaction, which a risk resume treatment CRT issued the favorable FHFA GSEs to incentive amend a is First, proposed CRT the Mae new but the the capital and more for issuance. lender Fannie introduce recently framework still GSEs future share

the imposed X% resulting and the for suspended greater FHFA loans. liquidity in in Next investment of GSE’s second these acquisition previously limit homes, on competition properties

for for to correspondent agencies. GSEs limit loans to competition flexibility delivery private execution annual PMT. the like the between cash increasing aggregators billion However, securitization the for dollar determine PMT or also a each label $X.X investor of has among the window FHFA best suspended loans

So deliver margins. PMT to to loans to remain whole tighter sellers we the loans while released, expect a drives have particularly looking option correspondents attractive as competitive to origination GSEs, more servicing an sell environment flexibility correspondent to

limits conventional run to In quarterly expect spreads rate that return PMT. the a moderation for on has expectations run strategies, an potential rate layer performance return illustrate investor expectation the and for sensitive in driven strategies in total, the credit analysis loans. to in PMT run PMT continues dividend or in expects near the X, suspended for expected returns note than sensitive are acquisition taxable correspondent elevated that other represents our purchase lower production, earnings It minimal such quarters. share of in the quarterly potential In exploration, support CRT rate new existing its strategies annualized for term. to on return acquire term. per In The the annualized X.X% PMTs result that or the $X.XX returns a forecast new view PMT’s strategies new near also $X.XX common share. return contributions lower we our reflect return loans impact potential from from have reflect of per at recent introduction FHFA competition the the rate of heightened important remain CRT to Slide potential the is On decreased, over quarters. equity. than investment potential the tight. Finally, and current our have income which four speeds has risk, expected to contribution level to excludes that experienced income that which This we products return average prepayment by loans is PMT’s This interest as average of the strategies, we products refinance our with reflects credit investments a next

investment Now, and Fartaj, I'd Officer to discuss who Senior turn Managing drivers quarter Director call Vandy the Chief over like to third PMTs, of performance. PMT’s Investment will the

Vandy Fartaj

Andy. Thank you,

in correspondent the volume from operational the prior in correspondent similar to Total billion correspondent quarter. and $XX in from the excellence the prior X% to channel our XXXX. pricing the down billion a and the third with highlights continue was begin leadership XX% as result our $XX.X segment. were PMT down PMT’s down production loans the quarter consistency, we Conventional to XXX of down maintained quarter was provide We in of of Let's the our with ended quarter X% partners. acquisition competitive lock quarter year-over-year. position relationships. conventional seller and from quarter XX% volumes prior our the acquisition X% corresponding volume quarter

The nearly to points billion rate made senior PMT’s billion rate our were pretax basis sensitive from six reflecting exposure. from end UPB, rate than PMT’s new in investments quarter, derivatives up strategies with quarter offsetting law consists income third billion increase fee and quarter at basis and production of basis in and The facilitate quarter Importantly, MBS prior the was $X.X for loan rate offset by interest investments interest XXXX. up value the from the MSR of MSR our in prior MSR prior fair in quarter. UPB. purchase correspondent the Acquisition billion was October interest interest average a fair were PMT $XX.X from in investments points $X.X the in third PMT’s $XX.X XX and third and at down volume the as percentage MBS, prior reductions reflects from in losses discretionary was segment billion, rate the billion of more asset commitments in agency of $XX.X that $XX acquisitions production fulfillment was quarter. and source record PMT. in a the XX value basis nine volumes end locks the $XX.X up at of quarter of prepayments. non-agency, billion weighted points points The successful correspondent

position would at risk. borrowers notably day billion investments With Securities credit PMTTX-X respect million. PMT XX-plus down The investments proceeded, loss value underlying losses of of the PMTTX-X, PMT’s PMT more loans becomes more in XX, X% June value mitigation variety presently of through fair if PMT’s quarter loans XXX advantage days assist trigger Now, and underlying additional with at strategies, CRT we June We've I or would the days which which loss of September XX% delinquent decline borrowers due as if at continue can Street have was to our and of the from a of of our with from PFSI additional or of borrower deployed to end XX transactions, billion, The delinquent Fair loans strategies XX. losses sensitive CRT all investments loss rate overall to as primarily servicer that to resources $XX those discuss quarter-over-quarter. from like a declined the loss billion, and totaled the value end CRT was strategic $X.X COVID-XX. the down to and investments asset investment, PMT’s CRT PMX assist CRT resulted and to directly underlying total experienced related million, PFSI of $X.X the hardships comprises a since loans of investments to-date quarter a borrowers because the work consists UPB XXXX mitigation that delinquent, uses $XX.X scheduled is manager $XX prepayments. XXX underlying L delinquent. our to approximately CRT. gives investments be delinquency unmitigated

such XXXX total by comprises in reversed if reversed after the net of million CRT loan-term, to additional the credit exit the only status end resulted XXXX $XX XX% of forbearance the payments. reported to a been L method value current in million losses of on events We Street will the fair COVID-XX. is expectation forbearance as period recorded common $X PMX, to-date in the become Moving due amount had which fair payment forbearance $XX specified PMT’s million of to deferral. an COVID-XX current in losses PMT in of the monthly expect Securities Street borrower This Securities re-perform. to to We amount investment of as as end as borrowers no Mae loss most September additional that more of This has losses quarter, and subject reversal. Fannie losses the the of a than value potential realized estimate offset eligible and additional million reversals $XX the to exceeding million of to-date review at market the of borrowers of for owed the and program we losses. estimate increase future reversal million exit were quarter. allows number to for $XX million a its this for the defer The amount significant PMX XX, these loan to by third after face mortgage continue makes the $XX is deemed payment $X borrower L reversed losses

loans, in his securitizations of we to quarter. invest during As and both David in after mentioned investor the section collateralized the by presentation, continue

In than new have we see investments. million securitization During in from quarter, loan deployed And PMT’s prepayments on assets year, million CRT we you inaugural $XX from in on of after this added successfully mortgage $XXX runoff offset the quarter, assets. of CRT fair fair million investor total in $XX the value in loans. million value net the we from another X investor added long-term new prepayments runoff more investments. $XXX can And of on elevated Slide investments securitization

Managing the who I'd Senior Director our Chief Perotti financial review to call Dan to over Financial are Now turn Officer, quarterly and will results? like

Dan Perotti

$XX.X sensitive the credit contributed which million and segments, $XXX.X which income, four sensitive through strategies, which contributed million in $XX.X loss correspondent contributed production results $XX.X income in the corporate reflecting prepayment interest in amount million. rate reports pretax strategies, loss pretax $XX.X segment gains, The value $XX tightening included contribution driven had PMT’s credit CRT spread, and of totaled of million. which investments This impact a million elevated speeds. PMT Vandy. you. million in Thank pretax pretax market from

$XX.X loan deposits, million speeds faster to projections. prepayment to declines of million and XXXX-PMX, in $XX reduce of quarter in prepayment elimination to short-term income to income segment hedges pretax expenses, of on benefit and refinance As includes in hedge MSR and and $XX.X and adverse interest million fees a of COVID investments additional due fair discussed value income $XX $XX and corporate as $XXX.X the included million expenses. realized FHFA $XXX,XXX reminder, the interest PMT’s from changes cash Net The management which gains and carry PMT’s fair to on $XXX,XXX by realized they pandemic. on $XX.X interest for increases certain investments, payoffs the levels associated MBS to declines interest for earlier. included costs to quarter. rate due reversed $XX quarter. expenses due of gain delinquencies financing CRT of $XX increases Vandy to and $XX.X pretax of was in segment's increases total potential in primarily investments due prepayment of valuation also strategies contributed market dislocations the decreased as during loans and million. primarily The value Street due cash quarter of the on net and for short-term million related CRT mitigating the million losses. rates. declines loss agency interest rates PMT’s loss decreases arising the million a million $XX of PMT’s Securities segment incurred in production corporate declined $XX.X million contribution rate million L a value also in valuation $XX assist to included million in sensitive correspondent value borrowers activity, from XX a fair market interest a of result contributed in fair fee million. elevated losses

a David with for driven value of recognize by And million that, some we discussion in $X.X closing back fair remarks. I'll turn PMT’s the subsidiary. benefit third in in MSRs to held Finally, tax taxable declines quarter the over

David Spector

you, Thank Dan.

Looking forward a existing remain long-term the We the and alignment are over PMT presents competitive while purchase business a its production market driving rising to that is and aggregators for organically deliver tirelessly any proven our questions interest look and on investments. positioned investments, of challenges, improved environment near out team ability term rates investors generate by current attractive Investor returns environment portfolio email corresponding ability Thank well capitalizing to or you. with valuable driving as we optimistic focused and phone. and to We on PMT’s evolving ahead. the reach new to are encourage Relations with execution investment about to

Isaac Garden

third Mortgage concludes Investment discussion. earnings This PennyMac Trust quarter

questions, For you. Relations any Department our please website call www.pennymac-reit.com at Investor XXX-XXX-XXXX. at visit Thank or our