PennyMac Mortgage Investment Trust (NYSE:PMT) Q2 2024 Earnings Call Transcript

PennyMac Mortgage Investment Trust (NYSE:PMT) Q2 2024 Earnings Call Transcript July 23, 2024

Operator: Good afternoon, and welcome to PennyMac Mortgage Investment Trust Second Quarter Earnings Call. Additional materials, including the presentation slides that will be referred to in the call, are available on PennyMac Mortgage Investment Trust website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company’s actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. Now I’d like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Trust, Chief Financial Officer.

David Spector: Thank you, operator. PMT’s second quarter financial results reflect increased levels of income, excluding market-driven value changes and contributions from all three investment strategies, partially offset by fair value changes in the interest rate sensitive strategies due to elevated volatility. Net income to common shareholders was $15 million or diluted earnings per share of $0.17. PMT’s annualized return on common equity was 4% and book value per share was $15.89 at June 30, down slightly from the end of the prior quarter. Turning to the origination market. Current third-party estimates for total originations averaged $1.7 trillion in 2024 and $2.1 trillion in 2025, reflecting projections for lower rates from current levels and increased refinance volumes.

PMT’s financial performance in recent periods highlights the strength of the fundamentals underlying its long-term mortgage assets and our expertise in managing mortgage-related investments in a challenging environment. I am pleased to note that in the second quarter, we successfully issued $217 million of exchangeable senior notes and $355 million of term notes secured by Fannie Mae MSRs, both at attractive terms and both with consideration with similar notes with upcoming maturities. Given its increased investable capital in the current market, PMT is expected to retain an increased percentage of total conventional correspondent loan production in the third quarter. Dan will provide additional detail later on in the discussion. More than two-thirds of PMT shareholders’ equity is currently invested in the seasoned portfolio of MSRs and the unique GSE lender risk share transactions that we invested in from 2015 to 2020.

As the majority of mortgages underlying these assets were originated during periods of very low interest rates, we continue to believe these investments will perform well over the foreseeable future as low expected prepayments to extend the expected asset lives. Additionally, delinquencies remain low due to the overall strength of the consumer as well as a substantial accumulation of home equity in recent years due to continued home price appreciation. MSR investments account for more than half of PMT’s deployed equity. The majority of the underlying mortgages remain far out of the money, and we expect the MSR asset to continue to produce stable cash flows over an extended period of time. MSR values also benefit from the current interest rate environment as the placement fee income PMT receives on custodial deposits is closely tied to short-term interest rates.

Similarly, mortgages underlying PMT’s large investment in GSE lender risk share have low delinquencies and a low weighted average current loan-to-value ratio of 48.5%. These characteristics are expected to support the performance of these assets over the long term, and we continue to expect that realized losses will be limited. Slide 7 outlines the run rate potential expected from PMT’s investment strategies over the next four quarters. PMT’s current run rate reflects a quarterly average of $0.33 per share down slightly from $0.35 per share last quarter, driven primarily by lower expected asset yields in the interest rate-sensitive strategies. Now I’ll turn it over to Dan, who will review the drivers of PMT’s second quarter financial performance.

Dan Perotti: Thank you, David. PMT earned $15 million in net income to common shareholders in the second quarter or $0.17 per diluted common share. PMT’s credit-sensitive strategies contributed $16 million in pretax income, including $11 million from PMT’s organically created CRT investments. Credit spreads were relatively unchanged during the quarter, with only minor impacts on the fair value of our investments. As David mentioned, the outlook for our current investments in organically created CRT remains favorable, with a low underlying current weighted average loan-to-value ratio of below 50% and a 60-day delinquency rate of 1.11%, both as of June 30. Income from opportunistic investments in CAS and STACR bonds issued by the GSEs totaled $6 million in the quarter.

As credit — as mortgage credit spreads tightened over the last several quarters, the go-forward returns on some of the investments that we had previously made fell below our thresholds. In this quarter, we sold $8 million in subordinate tranches of investor loan securitizations we participated in during 2021. The interest rate sensitive strategies contributed $17 million of pretax income. The fair value of PMT’s MSR investment increased by $46 million due to slightly higher mortgage rates at the quarter end. These fair value gains were more than offset by changes in the fair value of MBS, interest rate hedges and related income tax effects during the quarter. MBS fair value decreased by $39 million, and interest rate hedges decreased by $18 million.

Income on assets held in PMT’s taxable REIT subsidiary drove a tax expense of $3 million. The fair value of PMT’s MSR asset at the end of the quarter was $3.9 million, essentially unchanged from March 31. Delinquency rates for borrowers underlying PMT’s MSR portfolio remain low, while servicing advances outstanding decreased to $83 million from $110 million at March 31. No principal and interest advances are currently outstanding. Turning to the Correspondent Production segment. Pretax income was down slightly from last quarter as lower margins offset the impact of higher volumes. Profitability in the segment in recent periods has benefited from the release of reserves related to representations and warranties provided at the time of securitization as the high volumes of loans produced from 2020 to 2022 passed the three year window for violations with minimal repurchase related losses.

We expect a contribution from the release of these reserves to decline to more normalized levels over the next several quarters. Total correspondent loan acquisition volume was $23 billion in the second quarter, up 24% from the prior quarter, driven by an increase in the size of the mortgage origination market. Conventional loans acquired for PMT’s accounts totaled $2.2 billion, up 26% from the prior quarter. As David noted, in the third quarter, we expect PMT to retain a higher percentage of total conventional correspondent production from 30% to 50% versus 18% in the second quarter. The weighted average fulfillment fee rate was 20 basis points, down from 23 basis points in the prior quarter. PMT reported $35 million of net income across its strategies, excluding market-driven value changes and the related tax impacts, up from $28 million last quarter, primarily due to higher average yields on interest-sensitive assets during the quarter.

Turning to capital. We are fully reserved in our liquidity management for repayment in full of the $210 million in exchangeable senior notes due in October 2024. In May, we issued $217 million of new 5-year exchangeable senior notes with a coupon of 8.5%. In June, we issued $355 million in 5.5-year Fannie Mae MSR term notes at SOFR plus 275 basis points. And after quarter end, we redeemed $305 million of similar term notes due in 2027 with a coupon of SOFR plus 419 basis points. These successful financing activities further solidify PMT’s capital position, illustrating our deep access to capital and liquidity across various types of transactions and investors. We’ll now open it up for questions. Operator?

Operator: [Operator Instructions] I’d like to remind everyone we will only take questions related to PennyMac Mortgage Investment Trust, or PMT. [Operator Instructions] Your first question comes from Jason Weaver with Jones Trading. Please go ahead.

Q&A Session

Jason Weaver: Hi. Good afternoon, everyone. Thanks for taking my question. I fully agree with you on where credit spreads are and your decision to retain more correspond production. It makes a ton of sense. But ultimately, can you talk about what form that will take? Is this as simple as just keeping more whole loans on the balance sheet? Or will you be looking to term fund that via securitization eventually?

Dan Perotti: So for those loans that we’re keeping through the quarter that PMT will be — the additional loans that PMT will be retaining through the correspondent channel primarily, those will consist of the Fannie Mae and Freddie eligible loans that PMT has historically retained. And those generally speaking, we sell or securitize to the agencies, a few, we sell as whole loans to third parties. But generally, the investment that generated from that is in mortgage servicing, right? In addition to the game that we earned through the correspondent securitization. So don’t have any plans currently to retain loans specifically on balance sheet other than potentially through securitization of some certain sets of loans that we may look to retain and then — or that we may look to securitize and retain subordinate tranches on, which we’ve done in certain periods in the past and that looks to be a potential opportunity that could be arising again in the current environment.

Jason Weaver: Okay. Got it. That’s clear. And just my follow-up is really on the macro level. Sort of at what level or range of benchmark 30-year mortgage rates do you see as really the inflection point for refinancing activity and prepayment? And I really asked as it pertains to correspond to production levels.

David Spector: Look, I think it’s a gradual decline down. I think if you look at originations post COVID, we kind of jumped and kind of ran through loans with 5% handle. And I think it’s really in the 6% to 7% range where you see a lot — and even north of 7%, where you see a lot of opportunity. It’s going to be — the way I think about it is it’s going to be the slow grind down. I think when rates get to 6.5%, that’s where it really picks up steam. And I think at 6%, you’re in what I would deem a really robust refi market because it’s not just the existing first that are in the money. You could have loans that are 4% and 5%, taking out debt consolidation, cash refinance to either pay off existing HELOCs or closed-end seconds or other forms of debt.

And so it’s really a function of what’s behind the first lien that helps drive the refinanceability. But I continue to believe that it’s 10-year around 3.75%, mortgage is down 50 basis points, that it really is to me, that’s the signal of a true new market or new phase of the refinanceability.

Jason Weaver: Great. I really appreciate that color. Thank you.

Operator: Your next question comes from the line of Doug Harter with UBS. Please go ahead.

Doug Harter: Thanks. I know you guys take a long-term approach to the dividend. But I guess, how are you thinking about the dividend and given kind of the run rate earnings that you laid out and that, that took a slight tick down in this quarter?

Dan Perotti: Yes. So to your point, we do take a long-term approach to the dividend and look to — obviously, over time, we want the dividends to reflect the earnings capacity of the company. But at the same time, as the market generates don’t necessarily look to adjust it with every sort of gyration. We did see a little bit of a tick down in our run rates, as you mentioned, from $0.35 to $0.33 versus the dividend of $0.40. That was primarily driven by some additional reinversion of the yield curve over the past month or 2. As we look out, really what — some of what that’s reflective of is an expected decline in short-term rates and that would drive down our financing rates. And really, as we look out a little bit past the horizon of our forecast here into later next year, we do see the — in our forecast the potential for the — our EPS to move up back above the $0.40 level.

And so given that we see that potential, we’re not looking to adjust the dividend or we don’t expect to adjust the dividend in the short term. I would really look to keep it stable as the market sort of readjust as expected, and we see short rates come down over the next few periods.

Doug Harter: I guess just a follow-up to that. In addition to kind of the direction of short rates of the yield curve, what other factors could be a positive towards getting run rate earnings back to the dividend?

Dan Perotti: The deployment of capital is important, and so that’s part of why we are looking to adjust and deploy more capital in PMT through the correspondent channel, which we view as at the current point in time or at this point in time, the best option for PMT to deploy the capital that it raised in the second quarter through its convertible debt issuance. As I had talked about a little bit earlier through in addition to investments in MSRs. We are looking also at potential securitizations of certain subsets of the loans notably investor and second home loans where we do think that those securitizations have become viable again and we do have sufficient amounts of those types of loans coming through the correspondent channel to be able to form a securitization.

Further investment into those areas, I think, could help drive the earnings back towards the dividend level. But in addition to that, the other driver with the deinversion of the yield curve, having our long-term assets, the yields on our long-term assets, which are mark-to-market according to where the current market is and given the longer — that longer rates are currently lower than shorter rates, having short rates come down some and normalize that. And of course, through our interest rate sensitive assets, we are hedged for those interest rate changes, but that will drive the sort of earnings potential, the run rate earnings potential up given the balance of the longer-term yields and the shorter-term yields. And we think that’s probably the biggest driver.

David Spector: Doug, PMT is a really uniquely from the point of view that it has, this really unique synergistic relationship with PFSI. And when you look at what’s going on in the marketplace with more and more loans being delivered outside of the GSEs and being securitized, we’re really encouraged by what we’re seeing in terms of the ability to aggregate in a short period of time and be able to create credit-related investments for PMT in a sustainable way. One of the beauties of CRT was in addition to having credit risk investments, we were able to create the sustainable asset creation mechanism where PMT could invest in credit-related assets. And I’m seeing what’s going on with subsectors of the market to the point Dan raised on investors and second homes, in particular, we’re seeing opportunities to create investments that are either at our return target or maybe a little above or a little below but I think what’s perhaps underappreciated, the fact that if we can do this on a consistent basis, so we can — and we continue to show investors that we have the ability to raise and deploy capital, that’s really powerful for PMT.

In addition, we’re seeing in PFSI, we’re seeing a really, really strong growth in our jumbo business in PFSI that it could use — we could take that jumbo business and sell to PMT and PMT could buy additional jumbos through the correspondent channel to do jumbo investments. And then finally, while closed-in seconds, don’t at this point, return anywhere near the targeted return that we’d like in PMT, that’s another asset class that we have access to. So if you go back to the creation of PMT, this was the investment thesis of PMT. And we believe that we’re — depending on what happens in the election and the regulatory environment, we’re really positioned very, very well to seize on an opportunity that we haven’t seen in quite some time in the capital markets.

Doug Harter: I guess just to that last point, do you foresee that opportunity being more durable than it’s been since PMT was created since that opportunity has kind of been completing in its life?

David Spector: I don’t like predicting the future, but I can tell you it’s the most traction I’ve seen in private label securitization since we started PMT. And I think the capital runs deep, but I think we have a real advantage in the fact that we have this flywheel of sorts where we can buy the loans and raise the securities, sponsor the securitization, sell the senior bonds and retain the sub bonds. And that’s — I don’t know who else has that who has that ability.

Doug Harter: All right. Appreciate the answers. Thank you.

Operator: Your next question comes from the line of Crispin Love with Piper Sandler. Please go ahead.

Crispin Love: Thanks. In the interest rate sensitive strategies segment, can you just speak to the investment opportunities you’re seeing and which you view as the best risk-adjusted returns, whether it’s on the MSR or the Agency and non-Agency side as you look forward? And how about those opportunities compare to the credit side?

Dan Perotti: Sure. In the current environment, and this goes along with some of the commentary and some of the actions — activities that we’ve had in the portfolio recently. On the credit side, we’ve seen credit spreads tighten over the last several quarters. We had been opportunistically purchasing credit investments primarily STACR and CAS securities. We’ve generally been divesting of those and certain other credit investments in the recent quarters as spreads have tightened significantly and brought some of those investments below our return hurdles. Where we see the most attractive places to invest currently, as you mentioned, is in the interest rate sensitive strategies primarily in mortgage servicing rights. And so we have access through the correspondent channel to those mortgage servicing rights.

So that’s why we’re shifting a portion or PMT retaining in Q3, a greater portion of those conventional correspondent loans given the capital that it raised through its conventional — or through its convertible issuance. That’s what we see as the most attractive and present opportunity. We also are looking at MSR portfolios that come to market on the secondary market or bulk MSR portfolios. We’ve participated in a few of those purchases or bought a few of those portfolios over the past few quarters. in recent periods, we’ve seen those portfolios really be pretty bid up to a significant degree to where the acquisition of MSRs through the correspondent channel appears more attractive at this point in time. But we still, from a collateral point of view and from a PMT positioning point of view, generally see the low coupon MSR portfolios as attractive pricing in the bulk market has not been what we’re looking for most recently.

As David mentioned, the other opportunities that we’re looking at are really around the securitization of some of the production that comes through in the correspondent channel, potentially also in terms of loans that are originated from the direct channels at PFSI and potential generation of securitizations and retention of the subs, the subordinate bonds there. So that’s another avenue that we view as attractive currently and especially to the extent that we can create a program that allows us to consistently invest in those types of assets.

Crispin Love: Great. Thank you. That’s helpful. And then just on the third-party estimates that you mentioned early on in the prepared remarks on mortgage originations. I think it was $1.7 trillion in ’24. And $2.1 trillion in ’25. In the current environment, do you believe those estimates are about right with the forward curve and your rate expectations? Or do you think we — or those could be a little bit too aggressive with what you’re seeing right now?

David Spector: Look, I think they are personally, I will tell you that are back loaded to Q3 and Q4 and in that back loading, there is a perception that rates are going to decline. And so I think you have to ask yourself, if you just look at the current run rate and you annualize it or you look at the first two quarters and you annualize it, you don’t get to $1.7 trillion. And so the question is what is going to be the general direction of rates as you go through those quarters.

Crispin Love: Thank you. I appreciate you taking my questions.

David Spector: Thank you.

Operator: Your next question comes from the line of Bose George with KBW. Please go ahead.

Bose George: Yes, good afternoon. I wanted to try and quantify just the benefit from retaining more of the conventional production at PMT. So I was just looking at the difference between the gain on sale and the fulfillment fee, it’s 0.35% versus 0.20%. So can we just look at sort of 15 basis points on the incremental loans that have been retained with PMT?

Dan Perotti: I think that the primary benefit is really around the capital deployment. So if we look at the gain on sale or the gain in PMT, a portion of that is driven by the — a portion of that is driven by the gain of the loans that flow through to PFSI, a portion of it is also driven by what I’ve mentioned earlier in the call, the — some of the rep and warrant relief, which is really related to loans that we sold historically not necessarily loans that are being sold and securitized in the current period. So really, the additional correspondent benefit on those loans is a smaller spread is a few basis points, the really the benefit overall a few basis points net over the fulfillment fee. Really, the primary benefit overall is in terms of the retention of additional investment and additional MSR that will grow that MSR asset a bit and drive additional earnings from a growing MSR portfolio or a larger MSR portfolio as opposed to the MSR portfolio, which really has been pretty static over the past few quarters.

Bose George: Okay. Okay. Great. That’s helpful. And then on Slide 7, where you have the run rate earnings, does that just incorporate the forward curve? Or like if the curve steepens, is there any benefit? Or how should we think about that?

Dan Perotti: Yes, it does — yes, it incorporates the forward curve. So to the extent that the curve steepens and really the primary steepening would be either the long rates going up or really short-term rates going up like a Fed cut because to the extent that you think of a steepening as [two 10s] or something along those lines, the three year declining at this point doesn’t give us a lot of benefit. We don’t really get the benefit until actual short rates decline, and we get some benefit in terms of the financing. So either the yields on our longer-term assets go up, we mark those to market, and are generally hedged against that, and that would be a benefit in terms of the ongoing returns of the assets versus the financing or if we see short rates go down, then the spread and long rates stay the same, then the spread between the short rates and the longer-term yields would grow and that would drive additional earnings on the interest rate-sensitive strategies.

Bose George: Okay, great. Thanks.

Operator: Your next question comes from the line of Matthew Howlett with B. Riley Financial. Please go ahead.

Matthew Howlett: Hi David, thanks for taking my question.

David Spector: Hi Matt, how are you?

Matthew Howlett: Good thanks. Look, on the subject of the balance sheet and the capital constraints, I know you want to put more money to work out there. If rates start coming down, in September, does that change your opinion and maybe trying to refinance the’24 maturity? I mean what’s the appetite? I’m assuming the preferred markets probably aren’t open quite yet, but you probably don’t want to issue equity below book. So just thoughts on environment starts going down, the rates are heading downward.

Dan Perotti: So yes, to the extent that we see — saw on the financing side to the extent that we see rates decline we could look at doing some additional issuance. But with respect to the 2024 maturity really the way that we have been looking at that and that we’ve sort of talked about in the past, that we fully reserve for that in our liquidity forecasting. And so as we were looking out, we had constrained investment because we wanted to make sure we had enough liquidity reserve to pay off the maturity that comes later in the year of our convertible debt. Given that we raised additional convertible debt in the second quarter, that really freed up some investment capacity for us. And that’s really what’s leading us to drive toward additional investment through an increased participation in the conventional correspondent loans that come through the correspondent channel and drive investment in MSR as well as additional correspondent activity and income.

But to your point, to the extent that we see some opportunities — some additional opportunities as interest rates decline to issue additional financing, then we would potentially look to take advantage of those opportunities as well, which could drive additional potential for investment. I think your perception of the preferred and our opportunities on the preferred and the common equity side are correct currently, where we don’t see those as available opportunities in the current market.

Matthew Howlett: Well, I say because, David, I mean, you’ve been in the business a long time and I hear you talk about securitization market like you just did. It’s just — I mean, it’s just really eye opening. My question is, I mean non-Agency securitization, where is PFSI selling all that production today? That’s one. And then two, if PMT was to start acquiring investor seconds, I mean, what type of returns are we talking about here? I mean, I know it’s going to depend on what you assume for losses and where the securitization spreads are and yields. But I remember when you guys were doing sort of 20% yields on the CRT, I mean, are we talking about that type of ROEs if you start doing a jumbo program or a second program?

David Spector: I wish.

Dan Perotti: Those were great days.

David Spector: Look, to that point, there’s been this migration of loans that have either high loan level price adjustments or a higher cost of delivery to the GSEs away from the GSEs to cheaper cost of capital, and particularly, we’ve seen this with insurance companies and other organizations that are aggregating those loans and securitizing them. Now they have a lower cost of capital than PMT. But at the same time, I am seeing that specifically on investors in second homes, there’s an opportunity to do a securitization and do what that gets — we — our dividend yield is roughly 10%, and that’s kind of how we view it net of our expenses of the returns that we want to achieve. And I think that I think it’s achievable. Is this going to be 9.75% or 10.25%.

But suffice it to say the way we look at the returns is in a very conservative fashion. When we look at returns with burdening the investment with the margin call reserves that are required with the financing, we stress tested at 2x losses or faster speeds. We look at it where does the investment completely breaks. So we’re — we have a long history of doing this with CRT in particular. But I do think it’s — I think it’s — what’s exciting about is it’s a meaningful opportunity for us, potentially meaningful opportunity to add credit-sensitive investments in the PMT by leveraging the synergistic relationship that we have with PFSI. And that’s what I’m enthusiastic about.

Matthew Howlett: Yes, look, we’d love to see you grow in the next part of the cycle, get more capital into the company. Best of luck. Thanks a lot.

David Spector: Thanks.

Operator: Your next question comes from the line of Doug Harter with UBS. Please go ahead.

Doug Harter: Thanks. Just wanted to follow up, how you’re thinking about the different risk profile of kind of the current coupon MSR from correspondent versus the lower coupon that’s currently in the portfolio? And if you could just remind us kind of the recapture agreement that PMT has with PFSI?

Dan Perotti: Sure. So the — to your point, the — and to what I raised earlier, PMT’s sort of preferred investment in MSR in terms of collateral characteristics would be in the lower coupon that comprises — the lower coupon comprises the vast majority of its current investment in MSR. We expect that investments in MSR to have lower prepayment speeds, also more stable prepayment speeds as interest rates fluctuate because generally, those loans are at 3% to 4% note rates, and we don’t expect them to become refinanceable except in a very, very, very significant interest rate decline. However, those portfolios are priced in the current market when they come through bulk pretty fairly aggressively as far as we’ve seen recently.

Through the correspondent market, PMT is able to acquire more recently originated current note rate loans, so in loans with note rates generally in the 6s today. Those loans are obviously more sensitive to refinances. And given that itself does not does not originate loans is less beneficial to the extent that there’s an interest rate decline. However, PMT does have a recapture arrangement with PFSI to the extent that PFSI recaptures loans that are part of PMT’s MSR, it can recapture around generally 35% of the MSR — the value of the new MSR that — and that varies a little bit depending on the recapture rate that PFSI achieves. So that’s the protection that PMT has and benefit that PMT has as interest rates fluctuate and prepayments speeds might pick up.

Doug Harter: Great. Appreciate it. Thank you.

Operator: Next question comes from the line of Michael Kaye with Wells Fargo. Please go ahead.

Michael Kaye: Hi. I know you just said you don’t like predicting the future, but do you think there’s potentially a better chance of reviving the lender CRT that you did in the past, given what could happen potentially with the election?

David Spector: Well, I think that we’ve been in discussion with the GSEs about lender CRT. It’s really doubtful for the foreseeable future. The GSEs are creating CRT. They’re not even selling all the CRT. I think that a few things need to happen. One is you need a much bigger origination market. But more importantly, you need a change in thought in terms of what do you do with the CRT and the GSEs would have to be put in a position where they feel compelled to sell more of the bonds and they need the additional liquidity from PMT. And so I think that there’s a few things that need to take place, but I don’t, at this point, believe that it’s really in the cards. But to your point, Michael, you could have a change of administration, you could have a change of leadership at FHFA.

And so we try to remain very close to the people in FHFA. I’ve been spending time in D.C. once a quarter in meeting people, in and out of government. And so we’re just trying to really make ourselves available to leaders and to be able to make ourselves available to give our point of view. But I think it’s — I think that it’s not something that we’re really planning on, which is what makes the opportunity to do private label securitization, so exciting for me.

Michael Kaye: Okay. And second quarter is, I mean, does PMT have any interest in issuing equity below book value? I saw that $200 million distribution agreement recently filed.

Dan Perotti: Yes. So no, consistent with our previous — how we’ve operated through our entire history. We’re not looking to issue equity below book value. We did renew our equity shelf which we had not used since the last renewal of note as we’ve been below book value but we did renew that. And with that renewed at the money agreements with our underwriters, we would really only look to utilize that to the extent that we saw PMT’s price move above book value to potentially end and had opportunities to be able to deploy the capital then we would potentially look to issue through that shelf, but we don’t have any plans to issue equity below book value.

Michael Kaye: Okay. Thank you.

Operator: We have no further questions in our queue at this time. I will now turn the call back over to Mr. Spector for closing remarks.

David Spector: Well, I’d like to thank everyone for joining our call today, and thank you very much for your great questions. If you have any additional questions, please feel free to reach out to our Investor Relations department, and they will be responsive as always. So thank you all very much, and have a good day.

Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.