PennyMac Mortgage Investment Trust (PMT) Q1 2020 Earnings Call Transcript

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PennyMac Mortgage Investment Trust (PMT 1.28%)
Q1 2020 Earnings Call
May 07, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Isaac Garden

Good afternoon, and welcome to the first-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, please take a few moments to read the disclaimer on Slide 2 of the presentation. Thank you.

Now I would like to introduce David Spector, PMT's president and chief executive officer, who will discuss the company's first-quarter results.

David Spector -- President and Chief Executive Officer

Thank you, Isaac. For the first-quarter 2020, PMT reported net loss attributable to common shareholders of $600.9 million or $5.99 per common share. PMT reports results through 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 GSE credit risk transfer investments related to the COVID-19 crisis, partially offset by outsized results in the interest rate-sensitive strategies segment driven by gains on hedge instruments and record correspondent production results.

I will discuss these in more detail later in the presentation. Book value per common share was $15.16 at March 31, 2020, down from $21.37 at December 31, 2019. And as previously announced, PMT paid a dividend of $0.25 per share for the quarter. PMT's capital investments this quarter continued to be driven by its conventional loan production volumes, which totaled $18 billion in unpaid principal balance, down 20% from the prior quarter, while up 100% from the first quarter of 2019.

We delivered to Fannie Mae CRT eligible loans of $14.7 billion in UPB, 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 at-the-market equity offering program, we sold 241,000 common shares at a weighted average price of $23.5 for $5.6 million in net proceeds. And in March, we repurchased approximately 783,000 common shares at a weighted average price of $7.37, at a cost of $5.8 million.

Continuing on to Slide 4. After quarter end, we retired our 5.375% senior exchangeable unsecured notes due May 1. In April, we repurchased $123.6 million in principal of the notes at a weighted average price of 98.6% of par value, resulting in total savings of approximately $2.2 million. On the maturity date, May 1, we repaid the remaining $126.4 million in principle of the notes.

Now let's turn to Slide 5 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 COVID-19 pandemic and related public health measures, which triggered a substantial slowdown in the economy. Over the last six weeks, 30.3 million workers have filed jobless claims, evidencing increased hardships for homeowners and borrowers leading to expectations for higher delinquencies in the future. In response to these hardships and in an effort to curtail the coming economic impact, the federal government enacted the CARES Act, providing $2 trillion of fiscal stimulus, as well as granting homeowners with federally backed mortgages up to 12 months of forbearance if impacted directly or indirectly by the COVID-19 crisis.

The forbearance program is designed to reduce consumer credit losses. However, the advanced obligations for mortgage servicers has increased, putting strain on the liquidity of undercapitalized sellers and servicers. The impact of COVID-19 on the financial market has been substantial, with significantly increased market volatility and reduced liquidity for many financial assets. In response, the Federal Reserve reduced the Fed fund rates to near zero and has supported liquidity through 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 has not sold any assets to raise liquidity. And PMT's total liquidity has increased since February, reflecting our disciplined approach to liquidity and capital management throughout our more than 10-year history. Let's turn to Slide 6 and discuss the mortgage origination market.

Prior to the onset of the COVID-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 in the overall economy and recent economic forecast currently estimate total originations of $2.4 trillion for 2020, an increase from $2.3 trillion 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 declined 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 reduce 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 wide for an extended period of time as certain competitors, primarily in the broker and correspondent lending channels have been forced to reduce or limit their participation due to strains on many of these organizations introduced by the COVID-19 crisis.

PennyMac's 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 7 to discuss PMT's investment activity by strategy during the quarter. On Slide 7, we detail investment activity for each of PMT's investment strategies during the first quarter. PMT's investment opportunities are driven by its conventional Correspondent Production business.

Elevated correspondent acquisition volumes this quarter drove strong capital deployment to both CRT and MSR investments. Eligible Fannie Mae deliveries led to a firm commitment to purchase $555 million in new CRT securities during this quarter. Net of runoff, new CRT investments for the quarter totaled $441 million. Fair value losses on CRT investments totaled $1 billion, which I will expand upon later in my presentation.

As we announced in our March investor update, we will be curtailing new investments in CRT over the remainder of the year. PMT's distressed loan and real estate owned portfolio declined further to $60 million in fair value at the end of the first quarter from $80 million at December 31. The substantial majority of the portfolio is REO. New MSR and ESS investments sourced from the securitization of $80 million in UPB conventional loan production were $249 million and net of runoff totaled $178 million.

As a result of the significant decline in interest rates during the quarter, the fair value of our MSR and ESS investments declined by $578 million, more than offsetting the value of the net new investments. Agency MBS are held by PMT as a part of the comprehensive strategy designed to mitigate the interest rate sensitivity of the MSR and ESS assets. Accordingly, in the first quarter, we increased our net agency MBS position by $1 billion. In total, net new investments in the first quarter were $1.6 billion, offset by declines in fair value totaling $1.5 billion.

As a result, long-term mortgage assets grew slightly to $8.4 billion. Now let's turn to Slide 8 and review the financing for PMT's CRT investments. This slide details the outstanding financing arrangements underlying our CRT investments. In February, we issued $350 million of three-year term notes related to the remainder of our fifth CRT transaction.

With that issuance, we successfully established term financing for the entirety of our funded CRT investments with over $1.5 billion of outstanding term notes at March 31. Importantly, these term notes do not contain mark-to-market provisions. And as a result, PMT has not been subject to margin calls related to the fair value losses on its CRT investments. The earliest maturity of these notes is March of 2022, and all of the notes contain optional two-year extensions.

PMT carries the term note financing or notes payable secured by CRT assets on its balance sheet at amortized cost, not fair value. The fair value of the notes payable secured by CRT assets declined by $370 million during the quarter. Now let's turn to Slide 9 to discuss how loss is assessed for our CRT investments. The assessment of loss for PMT CRT investments varies by transaction.

PMT's earliest three CRT transactions, which represents 8% of the UPB underlying our total investment are structured whereby losses are assessed pursuant to a scheduled severity framework when a loan becomes 180 days or more delinquent. Loans in these early transactions become credit events at 180 days or more delinquent, regardless of any forbearance program. Our fourth CRT transaction, which represents 18% of the UPB underlying our investment is structured similarly with the notable exception that loans in this transaction become reverse credit events, if the payment status is reported as current at the conclusion of a forbearance period due to a casualty event such as a natural disaster, fire or theft or up to three months thereafter, if necessary. Fannie Mae has published clarification that the COVID-19 pandemic is a casualty event.

PMT's fifth completed transaction, as well as its ongoing sixth CRT transaction comprises 74% of the UPB underlying PMT's total CRT investment. For these transactions, losses are calculated based on an actual loss framework for defaulted loans, including principal and interest loss and other liquidation costs. Modifications that reduced payments also result in losses. Loans in forbearance are only impacted if there is an actual loss.

Now let's turn to Slide 10 and discuss the changes in fair value of PMT's CRT investments. The carrying value of PMT's CRT investments declined to $3.1 billion at the end of the first quarter, down from $3.7 billion at the end of the fourth quarter. This decline was primarily the result of a $1 billion reduction in the fair value of our CRT investments that more than offset the fair value of net new investments during the quarter. The COVID-19 crisis created significant disruption in the financial markets, as well as changing market perceptions of future credit losses to be incurred on investments in mortgage loans.

This, in turn, had a substantial negative impact on the fair value of our CRT investments. Both the historic rise in unemployment and the enactment of the CARES Act had dramatic negative effects on the fair value of our CRT investments. The CARES Act, which requires PMT to provide substantial payment forbearance to effective borrowers, caused substantial uncertainty as to the performance of the underlying mortgage loans. As you can see on this slide, we estimate the impact on the fair value of our CRT investments related to an increase in the discount rates, which increased from approximately 5% at December 31, to approximately 11% at March 31, was a fair value loss of $726 million.

Changes in cash flow assumptions, which included collateral loss expectations, resulted in an additional $314 million of fair value losses. More discussions of these key assumptions can be found in Note 7 in our Form 10-Q for the quarter. Now let's turn to Slide 11 and discuss loss and expected return scenarios for PMT's CRT investments. On this slide, we discuss our varying loss and expected return scenarios, taking into account the specific distinctions across our CRT transactions.

Our expected losses for our CRT investments range from 40 basis points to 60 basis points, which will result in IRRs of 10.7% to 14.8% across the various transactions. The weighted average in this base case scenario is for expected remaining losses of 50 basis points, which will result in an IRR of 12%. Because of the significant uncertainty of the long-term economic outlook, we have presented here additional return scenarios with losses stressed at two times and three times our base case. The impact of these higher stress scenarios results in a weighted average IRR of 8.6% in the two times base case loss scenario and a weighted average IRR of 5% in the three times base case loss scenario.

As previously discussed, PMT's first three and smaller CRT transactions have contractual recourse events pursuant to its scheduled severity framework. Our loss scenarios and expected returns on these investments were calculated assuming that loans in COVID-19 forbearances do not become credit events at 180 days or more delinquent. On March 31, market participants and the resulting market prices or price indications for certain scheduled severity CRT securities may have assumed that losses would be determined based on the loan status at the end of the forbearance period rather than being treated as losses if a forbearance lasts 180 days or more. There is precedence for this market expectation based on amendments that Fannie Mae and Freddie Mac made to CAS and STACR documents, respectively, that modify the treatment of forbearance delinquencies related to the 2017 hurricane disasters.

If the existing contractual terms for these first three CRT transactions are not amended and losses are triggered at 180 days or more delinquent, irrespective of COVID-19 forbearance, our expected returns for those transactions could be materially lower. Now let's turn to Slide 12 and discuss the run rate potential for PMT's investment strategies. PMT's run rate potential reflects our expectations for returns over the next several quarters. Our expectation for PMT's investment strategies is an average diluted EPS of $1.04 per quarter, which would result in an annualized return on common equity of 26%.

PMT's equity allocation related to credit-sensitive strategies is expected to average 32% with a run rate annualized return on equity potential of 19.7%. Our credit-sensitive strategies primarily consist of our investments in CRT, with a return potential that has increased from previous estimates. The higher projected returns stem from the significant fair value declines experienced in the first quarter, which increased our go-forward expected rates of return despite higher projected credit losses and an expected increase in financing expense upon settlement of our sixth CRT transaction. Equity allocated to interest rate-sensitive strategies is expected to average 37%, with an annualized return on equity of 2.4%.

We consider the results from this segment in aggregate as MBS and hedge positions are primarily used to moderate the impact of interest rate volatility on MSR and ESS returns. Our expectations reflect lower projected returns on MSRs due to the impact of COVID-19 on servicing expenses and income, as well as continued elevated hedge cost and an increase in the equity allocated to this segment driven by continued market volatility. Equity allocated to the correspondent production segment is expected to average 23%, with an annualized return on equity of approximately 80%, which reflects significantly elevated margins that gradually decline over the next few quarters. That concludes my presentation, and I would now like to turn the discussion over to Vandy Fartaj, PMT's chief investment officer, who will review our mortgage investment activities.

Vandy Fartaj -- Chief Investment Officer

Thank you, David. Let's begin with Slide 14 for a look at our correspondent production highlights. Correspondent acquisitions by PMT from nonaffiliated sellers in the fourth quarter totaled $29.8 billion in UPB, down 20% from the prior quarter and up 100% year over year. 54% of our acquisitions were conventional loans and 46% were government loans.

Conventional correspondent acquisitions totaled $16.2 billion in UPB, down 21% from the prior quarter and up 99% from the first quarter of 2019. Government loan acquisitions in the quarter for which PMT earns a sourcing fee from PennyMac Financial, totaled $13.6 billion in UPB, down 18% from the prior quarter and up 102% from the first quarter of 2019. As part of its correspondent loan acquisitions, PMT also acquired conventional loans originated by PFSI, totaling $1.9 billion in UPB. These loans were originated through PFSI's consumer and broker direct lending channels.

PMT does not expect to purchase conventional loans originated by PFSI in upcoming quarters. Combined, conventional lock volume totaled $19.1 billion in UPB, down 3% from the prior quarter and up 113% from the first quarter of 2019. According to inside mortgage finance, our acquisition volumes made PennyMac the largest correspondent aggregator in the United States for the third consecutive quarter. As David noted earlier, margins in the correspondent channel have improved significantly since February as certain lenders have reduced or limited their participation.

The weighted average fulfillment fee paid to PFSI to facilitate correspondent loan production was 26 basis points, down from 28 basis points in the previous quarter. Purchase money loans accounted for 58% of total acquisition volume. The number of approved correspondent sellers in our network continue to rise, and we reported nearly 700 at quarter end, up from 676 at the end of the prior quarter. Looking at April, volumes and margins remain elevated.

Total correspondent loan acquisitions for the month were $11.1 billion in UPB, and interest rate lock commitments were $11.2 billion in UPB. Now let's turn to Slide 15 and discuss PMT's investments and GSE credit risk transfer. As David noted, PMT is curtailing new investments in GSE CRT. The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to gradually wind down front-end lender risk share transactions, such as PMT's by the end of this year.

This quarter, we continued to deliver loans to Fannie Mae pursuant to our sixth CRT transaction. The UPB of eligible loans delivered totaled $14.7 billion, which resulted in a firm commitment to purchase $555 million in CRT securities. For the full-year 2020, we expect total CRT loan deliveries to be approximately $18 billion in UPB. On a pro forma basis at March 31, 2020, PMT's outstanding CRT investments totaled $3.1 billion, down from $3.7 billion at December 31, 2019, driven by fair value declines, which exceeded the fair value of new investments.

The UPB of the loans underlying PMT's CRT agreements was $89.6 billion. Credit performance and characteristics of the loans underlying these investments remain strong through the end of the first quarter. Realized losses in the first quarter were $1.5 million, bringing cumulative losses to $10.3 million. The 60-plus day delinquency rate was 0.33%, down from 0.35% in the prior quarter, reflecting seasonal trends.

However, as discussed, delinquency rates and realized losses are expected to increase in future periods as a result of the impact of COVID-19. Now let's turn to Slide 16 and talk about trends in MSR and ESS investments. PMT's organic MSR investments resulting from its correspondent conventional production activity totaled $1.2 billion at quarter end, down from $1.5 billion at December 31, driven by fair value losses. These losses resulted from expectations for increased prepayment activity related to lower interest rates and higher servicing costs related to expected increases in delinquencies as a result of hardships related to COVID-19.

PMT's MSR portfolio totaled $141.8 billion in UPB at March 31, up from $131 billion at December 31. PMT's ESS investments resulting from bulk, mini bulk and flow MSR acquisitions by PennyMac financial from 2013 to 2015, decreased to $157 million at March 31, driven by repayments of underlying loans. The UPB associated with ESS investments totaled $19.2 billion at March 31, down from $19.9 billion at December 31. Now let's turn to Slide 17 for a broader discussion on how we hedge PMT's MSR and ESS.

The charts on this page illustrate the percentage change in PMT's equity from an instantaneous parallel shock in interest rates based on the hedge profiles that were in place on December 31, 2019, and March 31, 2020. PMT's exposure to long assets are loans acquired for sale and interest rate lock commitments, net of associated hedges and MBS as shown on the green dotted line. PMT's exposure to MSRs, ESS, CRT and hedges are shown on the blue dotted line. The solid yellow line represents the net exposure.

As you can see, PMT's net exposure to changes in interest rates change meaningfully throughout the first quarter to address the significant interest rate volatility. PMT's hedge profile seeks to protect against the risk of significant fair value changes, as well as timing-driven liquidity impacts, which led to a profile position for gains in the event of large interest rate changes. In addition, higher revenues from improved correspondent production margins provided the ability for PMT to purchase additional option-based coverage and in part, the additional option-based coverage was established to hedge the interest rate-sensitive components of PMT's CRT investments. Now let's turn to Slide 18 to discuss the outstanding performance from the interest rate-sensitive strategies segment in the first quarter.

PMT seeks to manage interest rate risk exposure on a global basis, recognizing interest rate sensitivities across its investment strategies. In a period of decreasing interest rates, PMT's MSR and ESS investments typically decrease in fair value while agency MBS and interest rate hedges increase in fair value. In the first quarter, MSR fair value decreased significantly due to lower interest rates, as well as higher cost to service related to expected increases in delinquency as a result of COVID-19. This decrease represented approximately 37% of the MSR fair value at December 31.

However, gains from interest rate hedges in Agency MBS more than offset those losses primarily due to significant gains from option-based hedge coverage that was in place to address the significant interest rate volatility during the quarter. Now I would like to turn the discussion over to Andy Chang, PMT's chief financial officer, to review the first quarter's financial results.

Andy Chang -- Chief Financial Officer

Thank you, Vandy. Let's turn to Slide 20 and discuss the first-quarter results and return contributions by strategy. PMT's activities in the first quarter reflected a net loss attributable to common shareholders of $600.9 million, or an annualized return on common equity of negative 119%, net of all expenses. In total, credit-sensitive strategies contributed $960.5 million of pre-tax loss or a negative 462% annualized return on equity for the quarter.

Within the segment, CRT investments contributed pre-tax loss of $954.2 million, which I will expand upon later. Interest rate-sensitive strategies which include the performance of our MSRs, ESS and agency and non-agency senior MBS positions and related interest rate hedges, together contributed a pre-tax income of $324.8 million or a 185% annualized return on equity for the quarter. As Vandy discussed earlier, the outsized segment results were primarily driven by fair value gains on interest rate hedges and agency MBS, which more than offset fair value losses on MSR and ESS assets. While we show the income contribution for each of these interest rate-sensitive strategies separately, they are managed together as the interest rate sensitivity of the MSRs and ESS is inversely correlated to that of the MBS and our other interest rate hedges.

Correspondent production contributed a record $65.3 million to pre-tax income or a 56% annualized return on equity for the quarter, driven by significantly higher margins. The corporate segment contributed a pre-tax loss of $14 million. And finally, we recorded $10.2 million in income tax expense as a result of recording a valuation allowance against PMT's net operating loss carryforwards. Now let's turn to Slide 21 to discuss the performance of PMT's CRT investments in the first quarter.

Our CRT investments contributed $954.2 million of pre-tax loss in the first quarter, consisting of just over $1 billion in losses from market-driven value changes, and $47.4 million of income, excluding market-driven value changes. Market-driven value changes on our existing CRT investments included fair value losses of $969.2 million, reflecting changes in the market's discount rate and expectation for credit losses resulting from the COVID-19 crisis. Net losses on mortgage loans acquired for sale contributed an additional $32.3 million. These fair value losses were recognized upon loan delivery under firm commitments to purchase CRT securities, pursuant to our current transaction with Fannie Mae.

In the first quarter, $5.7 million of related fair value gains upon loan delivery were attributed to the correspondent production segment. Income, excluding market-driven value changes, consists of net realized gains and net interest expense related to our CRT investments. For the quarter, realized gains and carry on CRT investments totaled $55.9 million, while losses recognized were $1.5 million. Interest income earned on cash deposits, securing CRT investments, was $6.1 million while interest expense related to the financing of these investments was $13.1 million.

Now let's turn to Slide 22 and discuss the delinquency and forbearance trends we see in PMT's MSR portfolio. The 30-plus day delinquency rates on PMT's MSR portfolio have historically been around 1%. As of April 30, the 30-day plus delinquency rate was 5%, driven by borrower hardships related to COVID-19 and forbearance requests. As of April 30, PFSI, our subservicer, had placed approximately 7% of PMT's loans into forbearance plans.

We believe this reflects the ability of our subservicer, PFSI, to rapidly and efficiently provide access to forbearance. It is also important to note that of the 7% in forbearance, approximately 3% are current and 4% are delinquent. PMT is in a strong position to successfully manage hardships related to COVID-19, given the technology platform and specialty servicing expertise of its subservicer, PFSI. PFSI began offering forbearance plans on March 19, following the GSE's initial guidance, allowing customers to request, be evaluated for and receive forbearance through its automated systems.

In fact, 93% of PFSI's customers in a forbearance plan have been enrolled through one of its automated channels, reflecting the flexibility of PFSI's technology and its ability to respond to a rapidly changing market environment. For delinquent borrowers, including those in forbearance plans, PMT has the responsibility to fund servicing advances for its owned MSRs. Now let's turn to Slide 23 and discuss PMT's projected need for servicing advances. This slide details PMT's expectation for servicing advances as a result of the COVID-19 crisis.

As of March 31, PMT's MSR portfolio was approximately 86% Fannie Mae loans, 11% Freddie Mac loans, with the remaining balance allocated to non-agency loans. Fannie Mae requires a servicer to continue advancing scheduled principal and interest payments for delinquent loans for 120 days. Similarly, Freddie Mac requires a servicer to continue advancing scheduled interest for 120 days. These principal and interest advances are typically covered by prepayment activity, except in adverse scenarios where high delinquency rates, combined with extended average periods of delinquency.

We expect the vast majority of PMT's servicing advances to relate to property taxes, insurance premiums and other expenses. Historically, PMT has funded any required servicing advances with corporate cash. Outstanding servicing advances were $34 million as of April 30, 2020. As of the same date, PMT had $1.6 billion in available liquidity, less $100 million in minimum liquidity covenants.

PMT's expected servicing advances assumes that 15% of borrowers are in forbearance plans and that the delinquency rates peak at 10% in both cases. In the moderate scenario, we assume that the average month's delinquent for the delinquent loans reaches four months before the start of recovery. We also consider a more severe scenario where the average months delinquent for the delinquent loans reaches eight months before the start of recovery. In the moderate case, peak advances reached a total of $82 million in the third quarter of 2020 and primarily consist of other advances as prepayments of principal and interest during the periods may be used to offset the principal and interest advance obligations.

In the stress case, peak advances reached a quarterly total of $141 million in the first quarter of 2021, still primarily consisting of other advances for the same reasons I mentioned before. In both cases, the majority of advances for PMT's agency MSR portfolio are expected to be related to property taxes and insurance to protect investors' interest in the property collateralizing the mortgages. Advanced balance projections could increase if recoveries of advances from borrowers or ensuring agencies are prolonged or delayed significantly after borrower reinstatement or loan modification. And with that, I'll turn the discussion back over to David Spector for some closing remarks.

David Spector -- President and Chief Executive Officer

Thank you, Andy. PMT's financial results in the first quarter reflected the extreme market dislocations resulting from the COVID-19 crisis and were driven by noncash fair value losses on CRT investments, partially offset by outstanding performance from the interest rate-sensitive strategies and correspondent production. We believe that the fair value losses recognized on our CRT investments in the first quarter are outsized compared to the additional losses from borrower defaults that we expect to incur over the life of these investments. Furthermore, PFSI, PMT's manager and subservicer, is well-positioned to refinance qualifying borrowers and successfully managed forbearance and other assistance programs to reduce the likelihood to borrower defaults and ultimate credit losses.

We believe that PMT's performance during this crisis and the strength of PMT's liquidity and capital position are the direct result of our managers' steadfast focus on risk management, including interest rate, credit and operational risk disciplines throughout our more than 10-year history. Unlike other market participants, PMT has not sold any assets to raise liquidity. And as a result of the innovative term financing structure we put in place, PMT has not been subject to margin calls for its CRT investments. While we have curtailed new investments in CRT, recent market dislocations have expanded the opportunity for PMT as certain competitors have limited or reduced their participation in what was already a capacity-constrained industry.

Looking ahead, we expect improved financial performance and are confident in the return potential of PMT's investment strategies.

Isaac Garden

This concludes PennyMac Mortgage Investment Trust first-quarter earnings discussion. For any questions, please visit our website at www.pennymac-reit.com or call our investor relations department at (818) 224-7028. Thank you.

Duration: 39 minutes

Call participants:

Isaac Garden

David Spector -- President and Chief Executive Officer

Vandy Fartaj -- Chief Investment Officer

Andy Chang -- Chief Financial Officer

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