PennyMac Mortgage Investment Trust Q4 FY2024 earnings call

Key Points

• Fourth quarter marked return to organic creation of credit investments, with two securitizations in Q4 and a third after quarter end, expecting mid-teens ROE.
• 2024 was characterized by interest rate volatility, but dividend remained consistent and book value per share stable due to active hedging.
• Repositioned balance sheet in 2024: sold certain investments, rebalanced Agency MBS portfolio, issued $1.3 billion in term debt, renewed mortgage banking agreement with PFSI for another 5 years.
• MSR and CRT portfolios have strong fundamentals: low underlying current weighted average loan-to-value ratio below 50%, 60-day delinquency rate of 1.5%, and stable cash flows from MSRs.

In the fourth quarter, PMT earned $36 million in net income to common shareholders, or $0.41 per diluted common share. Credit-sensitive strategies contributed $20 million in pre-tax income, with organically created CRT investments contributing $20 million. Interest rate-sensitive strategies contributed pre-tax income of $25 million. The fair value of PMT’s MSR asset at the end of the quarter was $3.9 billion, up slightly from $3.8 billion at September 30. Total correspondent loan acquisition volume was $28 billion in the fourth quarter, up 9% from the prior quarter. For the full year, PMT produced a return on common equity of 8%, with $119 million of net income attributable to common shareholders.

Forward-Looking Statements

• Current run-rate return potential is $0.37 per share, unchanged from prior quarter.
• Slightly increased return potential for credit-sensitive strategies as short-term rates stay higher; improvement in interest-sensitive strategies with steeper yield curve could push to $0.40 range.
• Plan to raise additional debt in 2025 to address 2026 maturity of exchangeable note and fund securitization expansion.

Risks

• Interest rate volatility could impact fair value of interest rate-sensitive strategies.
• Volatility in origination market may affect opportunities for securitization.
• Dependence on private label securitization market conditions and GSE policies.

Q: How does yield curve steepening impact run-rate outlook?

A: Greater spread between short-term and longer-dated rates improves outlook for interest rate-sensitive strategies, whether long end goes up or short end goes down.

Q: How does PMT's MSR hedge strategy compare to PFSI?

A: PMT runs a tighter hedge, has a different MSR portfolio with more lower note rate loans, and retains less benefit from origination up-ticking compared to PFSI.

Q: Thoughts on GSE reform and new FHFA Director?

A: Early to have firm view, but PMT has good relationship with FHFA and GSEs, prepared for various GSE production outcomes.

Q: Securitization products beyond investor loans?

A: Looking at jumbo loans, with plan to do at least one securitization in first half of 2025; closed-end seconds not on radar yet due to return targets.

Q: Liquidity and debt maturity?

A: Direct liquidity $430M at end of quarter, financing facilities available; plan to raise debt in 2025 to address 2026 exchangeable note maturity and fund securitization.