Q1 2020 Earnings Call

Our earnings discussion for Pennymac mortgage investment Trust.

The slides that accompany this discussion are available from Pennymac mortgage investment trusts website at www Dot Pennymac dash right dotcom.

Before we begin please take a few moments to read the disclaimer on slide two of the presentation.

Thank you.

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

Thank you Isaac.

For the first quarter 2020, PMT reported net loss attributable to common shareholders of $600.9 million or $5 in 99 cents per common share.

PMT reports results do four segments credit sensitive strategies, which contributed $960.5 million in pre tax loss.

Interest rate sensitive strategies, which contributed $324.8 million in pre tax income.

Correspondent production, which contributed $65.3 million in pre tax income and corporate with a pre tax loss of $14 million.

Our results this quarter reflect noncash fair value losses on GST credit risk transfer investments related to the cobot 19 crisis.

Partially offset by outsized results in the interest rate sensitive strategy segment, driven by gains on hedge instruments and record correspondent production results I.

I will discuss these in more detail later in the presentation.

Book value per common share was $15 in 16 cents at March 30, Onest 2020.

Down from $21 in 37 cents at December 30, Onest 2019, and as previously announced PMT paid a dividend of 25 cents per share for the quarter.

PMT is capital investments this quarter continue to be driven by its conventional loan production volumes, which totaled $18 billion, an unpaid principal balance down 20% from the prior quarter, while up 100% from the first quarter of 2019.

We delivered a Fannie Mae CRT eligible loans of $14.7 billion in new PB, which resulted in a firm commitment to purchase $555 million of CRT Securities.

New MSR investments for the quarter totaled $249 million.

In February through our aftermarket equity offering program, we sold 241000 common shares at a weighted average price of $23.50 for $5.6 million in net proceeds.

And in March we repurchased approximately 783000 common shares at a weighted average price of $7 in 37 cents at a cost of $5.8 million.

Continuing on to slide four after quarter end, we retired our 5.375% senior exchangeable unsecured notes due may onest.

In April we repurchased $123.6 million in principle of the notes at a weighted average price of 90.6% of par value.

Resulting in total savings of approximately $2.2 million.

On the maturity date may Onest, we repaid the remaining $126.4 million in principle of the notes.

Now, let's turn to slide five and discuss the developments that have affected the mortgage markets.

During the first quarter of 2020, the United States was significantly impacted by the effects of the coated 19 pandemic and related public health measures, which triggered a substantial slowdown in economy.

Over the last six weeks 30.3 million workers have filed jobless claims evidencing increase hardships for homeowners and borrowers leading to expectations for higher delinquencies in the future.

In response to these hardships and then in an effort to curtail the coming economic impact the federal government enacted the cares act, providing two trillion dollars of fiscal stimulus hezbollah's granting homeowners with federally back mortgages up to 12 months of forbearance, if impacted directly or indirectly by the covert nine.

The forbearance program is designed to reduce consumer credit losses. However, the advance obligations for mortgage Servicers has increased putting strain on the liquidity of undercapitalized sellers in servicers.

The impact of Copel 19 on the financial markets has been substantial with significantly increased market volatility and reduce the liquidity for many financial assets.

In response, the federal reserve reduce the fed fund rates to near zero and has supported liquidity to asset purchases in many markets, including agency mortgage backed securities.

The market volatility and uncertain economic outlook also severely impacted the value of many credit assets, including government sponsored enterprise credit risk transfer securities due to expectations for elevated delinquencies and actual losses as well as an increase in the required returns among market participants.

Unlike other market participants PMT is not sold any assets to raise liquidity and PMT is total liquidity is increase since February reflecting our disciplined approach to liquidity and capital management throughout our more than 10 year history.

Let's turn to slide six and discuss the mortgage origination market.

Prior to the onset of the Kobin 19 pandemic the mortgage origination market was experiencing healthy demand from historically low interest rates.

The economic stimulus and infusion of additional liquidity by the federal reserve into the financial markets has acted to further lower mortgage market interest rates.

These developments have acted to sustain heightened demand for new mortgage loans. Despite the slowdown the overall economy and recent economic forecast currently estimate total originations of 2.4 trillion dollars for Twentytwenty, an increase from 2.3 trillion dollars in 2019.

The average 30 year fixed rate mortgage decreased 24 basis points this quarter to 3.5% at the end of March and further declines in April to 3.2% at the end of the month.

The low rate environment has continued to support robust refinance volumes, while stay at home orders are expected to reduced demand for purchase mortgages.

We continue to see strong refinance volumes in April.

The spread between the primary and secondary mortgage rate is expected to remain wired for an extended period of time as certain competitors, primarily in the brokering correspondent lending channels have been forced to reduce or limit their participation due to strains on many of these organizations introduced by the cobot 19 crisis.

Pennymac strong risk management mortgage market expertise capital advantages and scale have allowed us to continuously originate fund and settle loans throughout the crisis.

Let's turn to slide seven to discuss PMT is investment activity by strategy during the quarter.