• Net Income to Common Shareholders: $31 million or $0.36 per diluted share.
• Annualized Return on Common Equity: 9%.
• Book Value per Share: $15.85 as of September 30.
• Credit Sensitive Strategies Pre-Tax Income: $26 million.
• Interest Rate Sensitive Strategies Pre-Tax Income: $500,000.
• Fair Value of MSR Investment: Decreased by $84 million.
• MBS Fair Values: Increased by $128 million.
• Interest Rate Hedges: Decreased by $67 million.
• Tax Benefit: $15 million from fair value declines on MSRs and interest rate hedges.
• Correspondent Loan Acquisition Volume: $26 billion, up 15% from the prior quarter.
• Conventional Loans Acquired for PMT's Accounts: $5.9 billion, up 167% from the prior quarter.
• Weighted Average Fulfillment Fee Rate: 19 basis points, down from 20 basis points in the prior quarter.
• Liquidity for Repayment: In place for $210 million in exchangeable senior notes due in November.

• Warning! GuruFocus has detected 5 Warning Signs with PMT.

Release Date: October 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• PennyMac Mortgage Investment Trust (NYSE:PMT) reported a net income of $31 million for the third quarter, translating to $0.36 per diluted share.
• The company successfully refinanced $457 million of CRT and MSR term notes with $514 million of new term notes at lower costs and extended durations.
• PMT's credit-sensitive strategies contributed $26 million in pre-tax income, indicating strong performance in this segment.
• The company has a significant presence in the mortgage market, accounting for approximately 7% of the total production market over the past year.
• PMT is well-positioned to capitalize on emerging opportunities in the private label securitization market, particularly in non-owner occupied and second home loans.

Negative Points

• The book value per share decreased slightly to $15.85 from the previous quarter.
• The fair value of PMT's MSR investment decreased by $84 million due to increased prepayment projections.
• Interest rate sensitive strategies only contributed $500,000 in pre-tax income, indicating limited profitability in this area.
• The company expects a decrease in the percentage of conventional production retained in the fourth quarter, which may impact future income.
• PMT faces challenges in achieving target returns for securitizing jumbo loans, indicating potential limitations in this market segment.

Q & A Highlights

Q: How does the steepness of the yield curve affect PMT's earnings power and dividend policy? A: David Spector, CEO, explained that the steepness of the yield curve impacts PMT's earnings power, particularly in interest rate-sensitive strategies. As the yield curve inverts, it allows for greater earnings power, potentially pushing the run rate back to $0.40 per share. This could influence the Board's evaluation of the dividend, maintaining stability as the yield curve changes.

Q: Are there emerging opportunities to shift equity allocation towards credit-sensitive strategies? A: Daniel Perotti, CFO, noted that there are good opportunities to increase investment in credit-sensitive assets, particularly in securitizations of investor loans and second homes. PMT is looking to close deals in these areas, leveraging its historical expertise and market position to capitalize on these opportunities.

Q: How does the current steepening of the yield curve, with the 10-year selling off, impact PMT's returns? A: David Spector, CEO, stated that PMT is agnostic to how the curve steepens. The focus is on the relationship between longer and shorter-term rates, which drives the spread and income potential in interest rate-sensitive strategies. Either a decrease in short-term rates or an increase in long-term rates is beneficial.

Q: What are the returns on securitizing jumbo loans, and how close are they to meeting PMT's targets? A: Daniel Perotti, CFO, mentioned that while PMT has been selling jumbo loans, the returns on securitizing them are getting close to target. The ability to aggregate quickly for securitization is encouraging, and PMT is working towards completing its first securitization of investor loans and second homes.

Q: What is the source of cash or liquidity to retire the debt due next month, and will leverage change? A: Daniel Perotti, CFO, explained that PMT will use secured lines to repay the debt due next month. The overall leverage will remain similar, as they are essentially swapping secured debt for the convertible issuance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.