PennyMac Mortgage Investment Trust Q1 FY2025 earnings call

• Interest rates have been volatile, but PMT's diversified portfolio, efficient cost structure, and risk management practices helped navigate challenges, including a well-established interest rate hedging program and unique non-mark-to-market financing for CRT investments.
• Synergistic relationship with PFSI provides PMT with access to PFSI's operating platform, efficient capital deployment, and access to the origination market for a consistent loan pipeline.
• Successfully completed three securitizations in Q1 totaling $1 billion UPB, retaining $94 million in new investments with mid-teens ROE; expects to close one non-owner-occupied securitization per month and one jumbo loan securitization per quarter starting in Q2.
• Seasoned MSR and CRT portfolio: MSRs account for ~half of deployed equity, producing stable cash flow; CRT investments have low weighted average current LTV below 50%, with limited realized losses expected.
• Issued $173 million in unsecured senior notes in February, retired $45 million of CRT term notes, and will seek additional debt capital in 2025 for securitization expansion.

For the first quarter, PMT had a net loss to common shareholders of $1 million or diluted EPS of negative $0.01. The company declared a first quarter common dividend of $0.40 per share. Book value per share at March 31st was $15.43, down modestly from December 31st. Credit-sensitive strategies contributed $1 million to pre-tax income, with losses from organically created CRT investments at $5 million, gains from non-agency subordinate MBS at $4 million, and gains from cash and stacker bonds at $2 million; other credit-sensitive strategies had losses of $0.2 million. Interest rate-sensitive strategies had a pre-tax loss of $5 million, with fair value declines on MSR investments at $56 million offset by MBS fair value increase of $65 million, interest rate hedges decrease of $40 million, and a $16 million tax benefit from MSR declines. Total correspondent loan acquisition volume in Q1 was $23 billion, down 18% from prior quarter, with correspondent loans acquired for PMT's account at $3 billion, down 20%; PMT retained 21% of total conventional correspondent production in Q1, expected 15%-25% in Q2 2025; acquired $637 million in UPB of loans from PFSI for private label securitization, up from $437 million prior quarter; income from correspondent production was $10 million, down from prior quarter.

• Current run rate return is $0.35 per share quarterly, down from $0.37 prior quarter; credit-sensitive strategies' return potential increased due to wider credit spreads, while interest rate-sensitive strategies' potential declined due to yield curve compression. If yield curve steepens, overall run rate could increase.
• Dividend expected to remain stable at $0.40 per share, as decline in run rate is within previous range and fundamentals of CRT and MSR portfolios remain strong.

• Interest rate volatility impacting fair values of MSR and MBS investments.
• Credit spread widening affecting pre-tax income from credit-sensitive strategies.
• Volatile market conditions challenging mortgage REITs' performance.
• Origination market fluctuations impacting correspondent loan acquisition volumes and securitization opportunities.

Q: Given the movement in rates since quarter end, can you talk about any changes in your book value and also changes in the expected ROE since quarter end?

A: Significant interest rate volatility and credit spread widening led to ~2%-3% decline in book value since quarter end. ROE run rate reflects quarter-to-date and forward expectations, with hedging program helping manage interest rate volatility but spread widening affecting results.

Q: Is there an expectation that PMT could acquire a larger percentage of loans from PFSI in the back half of the year?

A: PMT's acquisition focus is on credit-sensitive strategies, so no expectation of increased loan retention percentage in back half; more focused on building credit-sensitive strategies.

Q: Your outlook for the dividend given that you lowered run rate earnings?

A: Dividend expected to remain stable at $0.40 per share. Decline in run rate is due to yield curve shape impact on interest rate-sensitive strategies, but yield curve normalization expected to improve returns, and dividend stability is valued.

Q: Are jumbo and investor property loans somewhat of a substitute for the agency MBS portfolio?

A: Retained portions of securitizations (senior mezz) are similar to TBA agency MBS in interest rate sensitivity, but most securitized investments are credit-sensitive, not direct substitutes for agency MBS.