PennyMac Mortgage Investment Trust (NYSE:PMT) Q2 2020 Earnings Conference Call - Final Transcript

Aug 06, 2020 • 04:30 pm ET

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PennyMac Mortgage Investment Trust (NYSE:PMT) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Isaac Garden

Good afternoon, and welcome to the Second Quarter Earnings discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available from PennyMac Mortgage Investment Trust 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. Thank you.

Now I'd like to introduce David Spector, PMT's President and Chief Executive Officer, who will discuss the Company's second quarter results.

Executive
David A. Spector

Thank you, Isaac. For the second-quarter 2020, PMT reported net income attributable to common shareholders of $458.4 million or $4.51 per common share. Our record earnings this quarter reflect record correspondent production segment results and the partial recovery in the fair value of our CRT investments from depressed levels at March 31, 2020, as a result of market dislocations related to COVID-19. These earnings were partially offset by fair value losses on MSRs, driven by higher-than-anticipated prepayments during the quarter and expectations for higher prepayments in the future driven by lower rates.

Interest rate hedges also recorded fair value losses, driven by elevated hedge costs and fair value losses on options used to hedge MSRs as volatility decreased by June 30. PMT reports results through four segments; credit-sensitive strategies, which contributed $458.8 million in pre-tax income, interest rate-sensitive strategies, which contributed $117.5 million in pre-tax loss, correspondent production, which contributed $139.6 million in pre-tax income and corporate with a pre-tax loss of $12.8 million.

As previously announced, PMT paid a dividend of $0.40 per share for the quarter. Book value per common share was $19.39 at June 30, up from $15.16 at March 31, 2020. PMT's capital deployment this quarter continued to be driven by its conventional loan production volumes, which totaled $18.9 billion in unpaid principal balance, up 17% from the prior quarter and up 76% from the second quarter 2019. New MSR investments for the quarter totaled $203 million and we delivered to Fannie Mae CRT eligible loans of $1.8 billion in UPB, resulting in a firm commitment to purchase $48 million of new CRT securities.

In May and June, we repurchased approximately 566,000 shares of PMT at a weighted average price of $13.36 at a cost of $7.6 million. Now let's turn to slide 4 and discuss economic developments affecting our business. Challenges in the U.S. economy reflect the impact of COVID-19 as a recent resurgence of the virus weighs on state's plans to reopen.

Reopening plans, including a return to physical work locations, are now on pause in over 80% of the country and the economic recovery is expected to be more gradual than previously forecasted. According to the Bureau of Labor Statistics, the unemployment rate reached a recent high of 14.7% at April 30, while leading economists forecast a gradual recovery to 6.9% by the end of 2021. New requests for mortgage forbearance have decreased substantially since March and April and borrowers are beginning to exit forbearance plans as they