PMT - PennyMac stock slides 10% as rate sensitive strategies weigh on Q2 earnings

2023-07-28 11:45:53 ET

PennyMac Mortgage Investment Trust ( NYSE: PMT ) stock slid as much as 10.6% to its lowest level in over six weeks on Friday as the residential mortgage firm reported Q2 results weighed by its rate sensitive strategies and issued conservative guidance.

Q2 EPS was $0.16 vs. $0.50 in Q1 and -$0.88 in Q2 2022. Net investment income increased 320.7% Y/Y to $90.45M, but was up just 0.1% sequentially.

"While continued credit spread tightening led to fair value increases for PMT's credit sensitive investments, interest rate sensitive strategies were impacted by the inverted yield curve and elevated hedge costs driven by multi-year highs in interest rate volatility," said CEO David Spector.

Guidance given in the earnings call was conservative, with Spector noting that recent third-party forecasts for 2023 originations range from $1.6T-$1.8T, well below normalized levels. "While industry origination volume in Q2 was meaningfully higher than Q1, higher mortgage rates are driving borrowers to remain in their homes, leading to low inventory levels and continued home price appreciation."

Spector warned of potential industry consolidation if market conditions persist, as unit originations in 2023 are projected to total 5M - the lowest since 1990.

The competitive environment is expected to continue into 2024, as unit origination volume will likely remain constrained. Originations in 2024 are projected to approach $2T.

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