PennyMac (PMT) Q1 2026 Earnings Transcript

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DATE

Tuesday, May 5, 2026 at 6 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — David Spector
• Chief Financial Officer — Daniel Perotti

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TAKEAWAYS

• Net Income -- $14 million, or $0.16 per diluted share, representing a 4% annualized return on common equity.
• Dividend -- Quarterly dividend maintained at $0.40 per share.
• Book Value Per Share -- $14.98 at March 31, down 2% from the prior quarter-end.
• Segment Renaming -- The Correspondent Production segment is now called the aggregation and securitization segment to reflect its broadened activities.
• Loan Purchases -- $4.3 billion in UPB of loans purchased from PennyMac Financial Services (NYSE:PFSI), with $2.8 billion through correspondent agreement and $1.5 billion outside that agreement.
• Private Label Securitizations -- 8 transactions completed, totaling $2.8 billion in UPB, resulting in $190 million in new subordinate bond investments and $12 million in new senior bond investments; $40 million in new MSR investments created.
• Post-Quarter Activity -- 2 additional securitizations completed and 1 priced, totaling $1.1 billion in UPB after quarter end.
• Credit-Sensitive Strategies Portfolio -- $744 million fair value, with 66% from nonowner-occupied loan securitizations and a weighted average origination FICO of 774 and LTV of 72.
• Interest Rate-Sensitive Strategies Portfolio -- $94 million fair value, diversified across multiple loan types, with original FICO scores in the 770 range and LTV ratios in the low 70s.
• Shareholders’ Equity Allocation -- Approximately 60% deployed to MSRs and GSE CRT investments; MSRs account for nearly half of equity, featuring a portfolio weighted average coupon of 3.9%.
• Net Income Excluding Market-Driven Value Changes -- $28 million across strategies, up from $21 million in the prior quarter, primarily due to improved aggregation and securitization segment contribution.
• Credit-Sensitive Strategies -- $16 million pretax income, 17% annualized return on equity, including $10 million gains from CRT investments ($7 million realized, $3 million market-driven) and $6 million gains from subordinate MBS ($2 million market-driven).
• Interest Rate-Sensitive Strategies Segment -- $8 million pretax income, 3% annualized ROE; income excluding market-driven value changes decreased to $11 million from $21 million prior quarter, driven by faster prepayment speeds on MSRs and lower servicing and placement fees.
• MSR and Hedging Activity -- $40 million MSR fair value increase offset by $46 million net fair value declines in MBS and interest rate hedges (including tax expense).
• Agency MBS Sale -- $477 million of agency fixed-rate MBS sold to benefit from spread tightening following the GSE MBS purchase announcement; capital redeployed to retained investments from private label securitizations.
• Aggregation and Securitization Segment -- $16 million pretax income versus a $1 million pretax loss in the prior quarter, reflecting recovery from spread widening and margin compression last quarter.
• Dividend Coverage Outlook -- "we expect to maintain the common share dividend of $0.40 per share, which is supported by our taxable income and which we expect to be sufficient to fully cover the dividend at its current level," Perotti said.
• Debt and Leverage -- $345 million of exchangeable senior notes due March 2026 redeemed using existing lines; core leverage (debt to equity excluding nonrecourse debt) declined to 5.6x from 6x last quarter, within management’s expected range.
• Total Debt to Equity -- Increased to approximately 11:1 from 10:1 the prior quarter, reflecting retention of securitization-related investments and growth in nonrecourse debt, which is consolidated for accounting but recourse is limited to securitized collateral.
• Equity Allocation Reassessment -- Management is actively evaluating a strategic shift away from lower-returning interest rate-sensitive strategies (notably MSRs), with a view to reallocating toward credit-sensitive strategies to meet return targets.
• Non-QM Activity -- Spector said, "I wouldn't be surprised to see us do a non-QM securitization over the next year," pointing to active aggregation for this asset class.
• Agency MBS Portfolio Rotation -- Perotti stated, "that was really more opportunistic or tactical," regarding the $477 million MBS sale, and does not expect "to drawdown necessarily further on the MBS portfolio."
• Corporate Debt -- Perotti said, "there are opportunities. but no immediate plans necessarily, but it's something that we will be opportunistic with to the extent that we see opportunities."
• Scaling Non-Agency Securitization -- Spector emphasized growth is "really capital more than opportunity," affirming a focus on expanding credit-sensitive strategies as capital is recycled from lower-return assets.
• Non-QM Channel Penetration -- Spector described increasing deliveries of non-QM product from correspondent and broker channels, noting "I expect that to meaningfully grow" and citing strong receptivity in both channels.

SUMMARY

PennyMac Mortgage Investment Trust (NYSE:PMT) reported $14 million in net income, with management confirming dividend sustainability at $0.40 per share based on projected taxable income. The company executed 8 private label securitizations and purchased $4.3 billion in loans, accelerating organic asset creation and supporting a $744 million credit-sensitive bond portfolio. Debt composition shifted as $345 million of senior notes were redeemed, while total leverage rose to 11:1 due to retained securitization investments, highlighting management’s stated reliance on nonrecourse financing structures. Strategic emphasis shifted toward reallocating capital from underperforming interest rate-sensitive strategies, particularly MSRs, to credit-sensitive strategies, with plans for continued expansion in non-QM and non-agency loan securitizations.

• Management indicated planned completion of approximately 30 securitizations in 2026 with targeted returns on equity in the low- to mid-teens, seeking to build a "substantial foundation of investments" for future earnings.
• The company's average run-rate income projection, excluding market-driven value changes, is $0.31 per quarter, which management acknowledged remains below the quarterly dividend, but coverage is expected through taxable income.
• Origination quality in private label securitizations remained elevated, evidenced by weighted average FICO scores above 770 and low LTVs across both credit and interest rate-sensitive investments.
• The pace and magnitude of additional asset rotation—including the potential entry into non-QM securitization—will depend on ongoing strategic reviews of return profiles and available capital, as detailed by Spector.

INDUSTRY GLOSSARY

• MSR (Mortgage Servicing Rights): Rights to service a pool of mortgage loans, earning servicing fees and providing cash flow based on the loan portfolio’s performance.
• CRT (Credit Risk Transfer): Structures or securities designed to transfer credit exposure on mortgage loans—often GSE loans—from the originator to investors, providing income linked to loan performance.
• UPB (Unpaid Principal Balance): The outstanding principal amount of a group of loans used as a key metric in securitizations and portfolio tracking.
• Non-QM (Non-Qualified Mortgage): Loans that do not meet the standard agency underwriting criteria, often targeting borrowers with unique income or credit profiles.
• PFSI (PennyMac Financial Services): PennyMac Financial Services (NYSE:PFSI) is PMT’s affiliate and a major loan originator partnering with PMT on loan acquisitions and securitization strategies.

Full Conference Call Transcript

David Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our first quarter 2026 earnings call. Starting on Slide 3. PMT's first quarter net income was $14 million or $0.16 per diluted common share, representing a 4% annualized return on common equity. These results were impacted by a lower contribution from our interest rate sensitive strategies primarily due to a decrease in servicing fees as a result of seasonality and a larger-than-expected MSR runoff related to higher note rate loans. These impacts were partially offset by improved results in our aggregation and securitization segment.

PMT paid a quarterly dividend of $0.40 per share and book value per share on March 31 was $14.98, down 2% from the end of the prior quarter. Turning to Slide 5. I would like to note we have renamed what was previously the Correspondent Production segment to the aggregation and securitization segment. We believe this name more accurately captures the breadth of PMT's participation in the mortgage ecosystem, specifically our focus on aggregating high-quality loans for execution in the secondary market to drive organic asset creation.

In total, during the first quarter, PMT purchased $4.3 billion in UPB of loans from PFSI. $2.8 billion in UPB was through its correspondent purchase agreement with PFSI, for which PMT pays fulfillment fees. The remaining $1.5 billion represented loan sales from PFSI to PMT outside of their loan purchase agreement where PMT's private label securitization platform provided optimal secondary market execution for PFSI. Slide 6 highlights the continued success of our organic investment creation engine. Similar to last quarter, we completed 8 private label securitizations totaling $2.8 billion in UPB.

This activity resulted in the retention of $190 million of new subordinate bond investments in the credit-sensitive strategies and $12 million of new senior bond investments in the interest rate-sensitive strategies. We also generated $40 million of new MSR investments. Our momentum has continued after quarter end, with 2 additional securitizations completed and another 1 priced totaling $1.1 billion in UPB, and we remain on pace to complete approximately 30 securitizations in 2026, which we expect will build a substantial foundation of investments with returns on equity in the low to mid-teens to support future earnings. On Slide 7, we provided a snapshot of the high-quality investments we are creating through our private label securitization program.

At quarter end, the fair value of subordinate bonds within our credit-sensitive strategies totaled $744 million. 66% of this portfolio is comprised of bonds from nonowner-occupied loan securitizations. 20% is comprised of bonds from general loan securitization with the remainder primarily from agency eligible owner-occupied loan securitizations. As you can see, these investments feature exceptional credit characteristics. including a weighted average FICO origination of 774, a weighted average LTV and origination of 72 and negligible delinquencies. Within our interest rate-sensitive strategies, as of quarter end, we held $94 million in fair value of senior and mezzanine bonds. These investments are diversified across our jumbo non-owner occupied and agency eligible owner-occupied loan securitizations.

And similar to our credit-sensitive bonds, these investments are backed by high-quality collateral with weighted average original FICO scores in the 770 range and original loan-to-value ratios in the low 70s. This consistent credit quality across these organically created assets underscores our ability to produce attractive, high-yielding investments on Slide 8, approximately 60% of PMT's shareholders' equity remains deployed to long-standing investments in MSRs and our unique GSE credit risk transfer investments. Mortgage servicing rights account for nearly half of shareholders' equity, providing stable cash flows from the portfolio with a low weighted average coupon of 3.9%.

Our organically created GSE CRT investments represent 12% of shareholders' equity and consists of seasoned loans with a weighted average current LTV of 46%. Turning to Slide 9, while our diversified portfolio is constructed of investments with strong underlying fundamentals, we acknowledge our earnings, excluding market-driven value changes have been below our dividend level for the past several quarters. As you can see, we are showing an average run rate return of $0.31 per quarter for the next year. And focusing on the interest rate-sensitive strategies, increased amortization on higher coupon loans as well as reduced expectations for declines in short-term interest rates, which drive financing costs have lowered expected returns on MSRs in the near term.

As is our long-standing practice, we continue to actively evaluate our overall equity allocation and investment opportunities to refine and optimize our returns on a go-forward basis. We are working diligently to reposition PMT to capture the opportunities more aligned to our long-term return hurdles. Our momentum in organic investment creation remains strong, and we have successfully positioned PMT as a leader in the private label securitization market. By leveraging our unique ability to create credit-sensitive, high-quality assets, and drive our overall returns higher through disciplined capital allocation, I remain confident in our strategy to support our dividend and create long-term value for our shareholders. Now I'll turn it over to Dan to review the first quarter financial performance.

Daniel Perotti: Thank you, David. Net income to common shareholders was $14 million or $0.16 per diluted common share in the first quarter or a 4% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $16 million to pretax income, generating an annualized return on equity of 17%. Gains from organically created CRT investments were $10 million, which included $7 million of realized gains and carry and $3 million of market-driven value gains from credit spread tightening. Investments in subordinate MBS from our private label securitizations generated gains of $6 million, $2 million of which were market-driven value gains. Interest rate-sensitive strategies contributed pretax income of $8 million for an annualized ROE of 3%.

Income excluding market-driven value changes for the segment was $11 million, down from $21 million in the prior quarter, impacted by increased prepayment speeds during the quarter, particularly on higher note rate MSRs, which drove higher runoff of our MSR assets, as well as lower servicing fees from seasonality and lower placement fees on custodial balances as a result of lower short-term interest rates. Regarding market-driven value changes, our hedging activities during the quarter yielded a small net decline as the $40 million MSR fair value increase was more than offset by $46 million of net declines in fair value of MBS and interest rate hedges, including the related tax expense.

Additionally, during the quarter, we sold $477 million of agency fixed rate MBS to capitalize on intra-quarter spread tightening, resulting from the GSE MBS purchase announcement, and we redeployed the capital into retained investments from our private label securitizations. The aggregation and securitization segment reported pretax income of $16 million compared to a pretax loss of $1 million in the prior quarter. The prior quarter amount was primarily driven by spread widening on jumbo loans during the aggregation period and lower overall margins. In total, PMT reported $28 million of net income across strategies, excluding market-driven value changes, up from $21 million in the prior quarter, primarily due to an increased contribution from the aggregation and securitization segment.

I want to address our dividend in the context of our current results and the updated run rate return potential. While projections for income, excluding market-driven value changes remain below the dividend level, it is important to note that we expect to maintain the common share dividend of $0.40 per share, which is supported by our taxable income and which we expect to be sufficient to fully cover the dividend at its current level. Turning to Slide 13. We highlight the flexible and sophisticated financing structures PMT has in place to support its diversified portfolio of investments. During the quarter, we redeemed $345 million of exchangeable senior notes originally due in March 2026 using capacity from existing financing lines.

And finally, on Slide 14, we continue to believe that debt to equity, excluding nonrecourse debt is the best metric for measuring our core leverage and that ratio declined to 5.6x at quarter end from 6x at the prior quarter end within our expected range. PMT's total debt to equity increased to approximately 11:1 from 10:1 at December 31 as we continue to retain investments from securitizations. The increase in our total debt-to-equity ratio reflects growth in nonrecourse debt associated with these transactions, where all securitized loans are required to be consolidated on our balance sheet for accounting purposes.

As a reminder, the source of repayment for this debt is limited to the cash flows from the associated loans in each private label securitization mitigating any additional exposure to PMT. We expect the divergence between these 2 metrics to continue increasing as our securitization program grows. We'll now open it up for questions. Operator?

Operator: [Operator Instructions] And our first question comes from the line of Trevor Cranston with Citizens JMP.

Trevor Cranston: Question related to your comments on Slide 9 about actively evaluating the asset allocation of the company and some new investment opportunities. Can you elaborate on what you guys are looking at in terms of kind of new investments if that includes things like non-QM or home equity. And also was curious if sales of maybe some lower returning assets are part of the valuation that's ongoing?

David Spector: Well, I think it's all of the above would be my response. I think first of all, if you look at Slide 9, when you look at the annualized return on equity, you can see that the -- in terms of achieving that minimum required return of, call it, 13%, 14%. Means that the sector that's really under delivering and has been the net interest rate sensitive strategies and, in particular, MSRs. And so as we look across our MSR portfolio, I mean, clearly, there's parts of that, that have real value and there's demand in the marketplace for it. And there's others that have real value that perhaps there isn't as much demand in the marketplace.

So we're strategically evaluating the MSR portfolio to help accelerate perhaps the weighted average equity allocation down in that operating strategy and moving more to the credit-sensitive strategies. The point you raised in the credit-sensitive strategies, of course, there's more opportunity to do additional securitizations in nonowner-occupied loans and agency-eligible loans even jumbo loans. But given what we're seeing in the non-QM originations, both in correspondent and over a PFSI in their broker division, the ability to aggregate for securitization is very apparent to me. So I wouldn't be surprised to see us do a non-QM securitization over the next year.

And to your point, there's other assets that we see in the marketplace that you can create investments that achieve our return target. And so as we've done in the past, we're going in and we're evaluating how to -- where can we recycle out of lower returning assets in the higher returning assets.

Operator: And your next question comes from Bose George with KBW.

Bose George: So first, just the change in the ROE expectation that you gave for the $0.31 down from $0.40, it looks like it's mainly on the Agency MBS, but can you just walk through the drivers of that change.

Daniel Perotti: So the -- so really, the bigger driver of those is on the MSRs, which -- where the return came down a few percentage points in the allocation, weighted average equity allocated there is a larger proportion. The Agency MBS also did decline. That was really related to -- if you look at the expectations for short-term rates going back from last quarter versus this quarter, there was obviously a sharper decline and thus a greater expected carry from the agency MBS in that -- in the prior run rate scenario. But the bigger impact is related to really the prepayment speeds and expectations that we see in the short to medium term on the MSRs.

Bose George: Okay. That makes sense. And -- the -- and in terms of the bridge now from the $0.16 you guys did this quarter up to the normalized. Can you sort of walk through just the bridge there?

Daniel Perotti: Well, certainly, obviously, rates have increased a bit, and so we are expecting slower prepayments on the MSRs. But still below -- still elevated from what we saw earlier in prior quarters or in earlier quarters in 2025. And then as David has mentioned, there we mentioned some allocation out of MSRs and into -- if you look at the allocation here, for example, some ability to ramp up other investments as we move through the next few quarters.

Operator: And your next question comes from Jason Weaver with Jones Trading.

Jason Weaver: In your prepared remarks, you mentioned the sale of roughly $0.5 billion of MBS on tightening to redeploy towards retained securitization, which looks like a material rotation in the interest rate-sensitive book. All else equal, is this a sort of glide path we should think about for the remainder of 2026? Or was this more of a tactical rotation?

Daniel Perotti: I think that was really more opportunistic or tactical. We wouldn't necessarily expect to continue to wind down that portfolio, especially, although we will adjust as we're looking at rotating out of certain portions of the portfolio. But given the returns that we expect from the Agency MBS portfolio and what we have here overall, we wouldn't expect to drawdown necessarily further on the MBS portfolio, but it's something that we'll continuously evaluate based on where spreads are in the market.

Jason Weaver: Got it. And I think you redeemed about $350 million of exchangeable senior notes from the existing financing book. What is the unsecured corporate debt stack look for the next 24 months, if you can just guess. And are you targeting any sort of opportunistic refinancing or extension given current spreads?

Daniel Perotti: So we issued about $150 million of additional convertible debt towards the end of Q4 last year. We additionally in 2025 issued a few unsecured baby bonds. That was effectively a pre-refinancing of the convertible debt that was retired in Q1 of this year. So we don't have a need to necessarily raise additional unsecured debt. It is something that we will continue to look at and see if there are opportunities. but no immediate plans necessarily, but it's something that we will be opportunistic with to the extent that we see opportunities.

Operator: [Operator Instructions] Your next question comes from the line of Doug Harter with BTIG.

Douglas Harter: As you think about the opportunity in the non-agency securitization, do you view it as more opportunity limited today or more capital constrained and as you think about the ability to scale -- continue to scale that business?

David Spector: I think it's really capital more than opportunity. I think the great story about PMT is obviously, the synergistic relationship it has with PFSI and the ability to source the underlying assets, the ability to underwrite and process the loans on the front end and where we have the ability to actively select the loans that we want in our investments is a really important feature that we have in PMT. And so the -- whether it's investor or non-owner securitizations where we create subordinate bonds or general loan securitizations and even the agency eligible loans where we're not securitizing just for best execution purposes, we're securitizing to create investments for PMT.

And so I think that it's really more of a capital issue for us. And I think that's why we're focused on opportunistically getting out of lower returning assets and most likely reinvesting the capital into our credit-sensitive strategies sector, which, by the way, from the very beginning of PMT is what the -- is what the investment thesis was for PMT looks to be a credit-sensitive strategy vehicle. And so that's really the guiding -- the kind of the guiding force here. We're -- I think we've done a great job in being the preeminent securitizer of these non-agency loans and creating the investments behind them. And you look at the performance of these, and they're really remarkable.

And I think that we've done a nice job when CRT was discontinued to be able to move to figure out, okay, how do we create a like investment without the CRT opportunity, and that's how we ended up where we are today. But I think you're going to continue to see us grow the equity allocation in the credit sensitive strategies over time.

Douglas Harter: And David, as you mentioned, you're seeing increased non-QM volume, how much crossover is there in your traditional agency originator that's a correspondent partner versus non-QM or some of these other products that you haven't necessarily gotten as large in yet?

David Spector: I'm really -- I've been really pleasantly surprised and I think it's a function of the size of the market that we're seeing a good amount of our correspondent getting into non-QM lending. And so I think that they are -- they're recognizing that they need to expand their product base. And so this is where being the leading correspondent aggregator with over 700 plus [ clients ] is really an advantage to us and being really good, meaningful deliveries of non-QM correspondent. And I expect that to meaningfully grow.

I think the important part of non-QM, like all non-Agency products, you have to keep an eye on the fact that you don't want to get caught in a market disruption or with spreads widening. And so we're being really diligent at least initially in selling and forward selling the non-QM product to really lock in the margin until such time as we want and we decide to do a securitization. And that's where again, the synergistic relationship with PFSI to be really valuable because similar to the correspondent side on the PFSI side, we're seeing really good receptivity to non-QM with our broker partners.

And so I think when we decide that we want to do a securitization and really deploy capital there, we'll be able to do so. But by and large, I think there's part of the non-QM market that we're participating in is getting more readily accepted in the broker and correspondent communities has more akin to their credit profile and their risk management framework than when it was originally -- when a vision was born some 10 years ago and people thought of it as maybe a little less than prime. But I've been pleasantly surprised by this.

Operator: We have no further questions at this time. I'll now turn it back to David Spector for closing remarks.

David Spector: Well, I'd like to thank everyone for joining us on our call today. If you have any questions, please don't hesitate to reach out to me or our IR team, Dan and I look forward to speaking to all of you in the near future. Thank you.

Operator: The concluded today's call. You may now disconnect.

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