PennyMac projects continued monthly securitizations and sees $0.38 run rate per share amid growing non-Agency investments

Earnings Call Insights: PennyMac Mortgage Investment Trust (PMT) Q2 2025

MANAGEMENT VIEW

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David Spector, Chairman and CEO, reported that for the second quarter, PMT produced a net loss to common shareholders of $3 million or loss per share of $0.04, attributing this to fair value declines and a $14 million nonrecurring tax adjustment. He stated, "Interest rates were extremely volatile this quarter, with the 10-year treasury yield traversing a range of more than 70 basis points, including intraday moves in 1 week in April alone. This created a challenging environment for our investment strategies. However, our diversified investment portfolio, efficient cost structure and strong risk management practices enable us to effectively manage through these challenging market conditions."

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Spector highlighted PMT's competitive advantages from its partnership with PFSI, emphasizing access to a high-quality loan pipeline and the ability to deploy capital into long-term mortgage assets. He noted, "In the second quarter, we successfully completed three securitizations of Agency-eligible investor loans totaling $1.1 billion in UPB, retaining $71 million of new investments. And we also completed our first jumbo loan securitization since 2013, with a total UPB of $339 million and retained investments of $82 million."

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Spector explained, "Looking ahead, we expect to continue executing one securitization of Agency-eligible nonowner-occupied loans per month and one jumbo loan securitization per quarter."

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Daniel Perotti, CFO, stated, "PMT reported a net loss to common shareholders of $3 million in the second quarter or negative $0.04 per diluted common share. The Credit Sensitive Strategies contributed $22 million to pretax income. Gains from organically created CRT investments were $17 million, including $9 million primarily consisting of realized gains and carry and $8 million of market-driven value changes from credit spread tightening."

OUTLOOK

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Management expects to continue executing one securitization of Agency-eligible nonowner-occupied loans per month and one jumbo loan securitization per quarter. Spector stated, "This consistent cadence of securitizations underscores our commitment to leveraging our organic investment creation abilities and remaining a leader in the private label securitization market."

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Perotti cited PMT's run rate return potential, noting, "PMT's current run rate reflects a quarterly average of $0.38 per share, up from $0.35 per share in the prior quarter. Overall, we expect increased investment activity in accretive non-Agency subordinate and senior bonds, primarily through organic securitization activity."

FINANCIAL RESULTS

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PMT declared a second quarter common dividend of $0.40 per share and reported book value per share at June 30 of $15, down modestly from March 31.

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The fair value of PMT's MSR asset at the end of the quarter was $3.8 billion, as fair value increases and newly originated MSR investments were offset by runoff. Delinquency rates for borrowers underlying the MSR portfolio remain low, and servicing advances outstanding decreased to $70 million from $84 million at March 31.

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Total correspondent loan acquisition volume was $30 billion in the second quarter, up 30% from the prior quarter. Correspondent loans acquired for PMT's account totaled $3 billion, up 11% from the prior quarter. PMT retained 17% total conventional Correspondent Production, down from 21% in the first quarter.

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Income from PMT's Correspondent Production segment was $14 million, up from the prior quarter, primarily due to gains on nonowner-occupied and jumbo loans due to credit spread tightening.

Q&A

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Douglas Harter, UBS, asked about the non-Agency securitization opportunity and returns amid volatility. Perotti responded, "Overall, during the quarter, with respect to credit investments, we did see generally credit spread tightening... returns... continue to be in the low to mid-teens returns in terms of their returns through time."

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Harter followed up on the higher retained interest in the jumbo securitization. Perotti stated, "We did retain a senior mezzanine tranche on the jumbo securitization... it's likely that we would be retaining a greater proportion of the interest, both the subordinate bonds and the senior mezzanine piece from many of these securitizations, but we do make the decision on a deal-by-ideal basis."

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Jason Weaver, JonesTrading, asked about GSE privatization and credit risk transfer. Spector said, "We're not hearing much out of the folks in D.C. on anything GSE reform related... our non-Agency securitization program is the fact that we can create very comparable investments... we can create a similar type investment by doing these securitizations."

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Crispin Love, Piper Sandler, inquired about the sustainability of the $0.40 dividend. Perotti answered, "We continue to be comfortable with the $0.40 dividend level when we look at the potential for returns as we're moving out through the next 4 quarters at the $0.38 level... we are comfortable with our position at the $0.40 level currently."

SENTIMENT ANALYSIS

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Analysts focused on return sustainability, the impact of market volatility on securitization strategy, and dividend stability, with a neutral to slightly positive tone as seen in questions about ongoing investment opportunities and dividend confidence.

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Management maintained a confident and reassuring tone, frequently using phrases such as "we remain confident" and "we are comfortable with our position" when discussing both returns and dividend policy. Spector emphasized, "We remain confident in our ability to successfully navigate a volatile and evolving market by leveraging our competitive advantages."

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Compared to the previous quarter, analysts' tone shifted from concern about interest rate volatility to a focus on the company’s ability to maintain returns and dividend stability amid ongoing market changes. Management continued their steady, confident stance, further emphasizing their strategy and risk management.

QUARTER-OVER-QUARTER COMPARISON

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PMT's net loss to common shareholders increased to $3 million from $1 million in the previous quarter. The loss per share moved from (-$0.01) to (-$0.04). Book value per share declined from $15.43 at March 31 to $15 at June 30.

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Total correspondent loan acquisition volume rose from $23 billion to $30 billion, while the proportion of loans retained decreased from 21% to 17%.

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Run rate return potential improved to $0.38 per share from $0.35 in the prior quarter, and management signaled expectations for continued growth through increased securitization activity.

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Analysts’ questions shifted from concerns about capital structure and interest rate risk to the sustainability of returns and the dividend, reflecting increased focus on the company’s strategic execution.

RISKS AND CONCERNS

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Spector highlighted the challenging interest rate environment and noted, "Interest rates were extremely volatile this quarter... This created a challenging environment for our investment strategies."

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Perotti addressed increased leverage, explaining that growth in nonrecourse debt is tied to increased private label securitization activity, but emphasized that this debt is nonrecourse and limited to associated loan cash flows.

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Management described ongoing risk management, including efficient cost structure, diversified investment strategies, and dynamic portfolio management.

FINAL TAKEAWAY

PMT’s second quarter was marked by a volatile interest rate environment and a modest net loss, but management emphasized the strength of its diversified investment strategies, robust risk management, and ongoing expansion in private label securitizations. With a quarterly run rate of $0.38 per share and sustained confidence in the $0.40 dividend, PMT outlined its intention to continue executing monthly Agency-eligible loan securitizations and quarterly jumbo securitizations, aiming to deliver mid-teen returns on new investments and maintain stability for shareholders in the evolving market landscape.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/pmt/earnings/transcripts]

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