PennyMac Mortgage Investment Trust Q4 2025 Earnings Call - Securitization push accelerates, retained investments surge

Operator/Moderator, PennyMac Mortgage Investment Trust: Good afternoon, and welcome to PennyMac Mortgage Investment Trust’s fourth quarter 2025 earnings call. Additional materials, including the presentation slides that will be referred to in the call, are available on PennyMac Mortgage Investment Trust’s 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. I’d like now to introduce David Spector, PennyMac Mortgage Investment Trust’s Chairman and Chief Executive Officer, and Dan Perotti, PennyMac Mortgage Investment Trust’s Chief Financial Officer. Please go ahead.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Thank you, operator. Good afternoon, and thank you to everyone for participating in our fourth quarter and full year 2025 earnings call. Starting on slide 3, PMT generated strong financial results in the fourth quarter, with net income to common shareholders of $42 million or a 13% annualized return on common equity. Diluted earnings per share was $0.48, in excess of PMT’s $0.40 per share quarterly dividend, increasing book value per share to $15.25 at year-end from $15.16 on September thirtieth. Dan will talk about PMT’s fourth quarter financial results in more detail later on in the presentation. Turning to slide 4, I’d like to highlight the significant progress we made in 2025, accelerating our organic investment creation activities resulting from private label securitizations.

As you can see, over the course of the year, we successfully completed 19 securitizations, totaling $6.7 billion in UPB, a substantial increase from just 2 securitizations in 2024. Retained investments from these securitizations grew to $528 million, up nearly tenfold from just $54 million in 2024. This consistent cadence of securitization activity firmly established PMT as a top three issuer of prime non-agency MBS in 2025. At the same time, we rotated capital to better optimize PMT’s return profile. This included the purchase of $876 million of agency floating rate MBS and the sale of $195 million of opportunistic GSE-issued CRT investments, where we had realized significant gains.

We decided to sell these GSE-issued CRT investments as their forward-looking expected returns fell below our targeted return requirements and to free up capital for PMT to invest in newly created assets with higher expected returns from our ongoing private label securitization activity. Turning to slide six, our synergistic relationship with PFSI remains a unique and proven competitive advantage. First, PMT leverages PFSI’s best-in-class operating platform, including its deep and experienced management team, scaled servicing operations, and its large and agile multi-channel origination business, which provides PMT with a consistent and high-quality pipeline of loans for investment. Second, PMT is able to efficiently deploy capital into long-term mortgage assets without the operational burdens associated with origination and servicing.

And third, PFSI’s deep access to the origination market, coupled with PMT’s ability to execute private label securitizations, provides PMT with the unique opportunity to invest in organically created investments with attractive risk-adjusted returns. And as PFSI further grows its overall share of loan production, PMT is expected to have even more opportunities to organically grow its portfolio. Turning to slide 7, approximately 60% of PMT shareholders’ equity is deployed to seasoned investments in MSRs and our unique GSE credit risk transfer investments. Mortgage servicing rights account for 46% of shareholders’ equity, providing stable cash flows as the loans underlying this investment have a weighted average coupon of 3.9%, far out of the money. Our GSE credit risk transfer investments represent 13% of shareholders’ equity and consist of seasoned loans originated from 2015 to 2020.

With a weighted average current LTV of 46%, we continue to expect realized lifetime losses on this portfolio to be limited. Slide 8 highlights our robust securitization activity in the fourth quarter and our ability to rapidly grow this business. We completed 8 securitizations, totaling $2.8 billion in UPB and retained $184 million of new investments. Our fourth quarter activity included three non-owner-occupied deals, three jumbo deals, and two agency-eligible owner-occupied deals. Our momentum has continued after quarter end, with three additional securitizations completed, totaling $1.1 billion in UPB. Looking ahead and at this pace, we currently expect to complete approximately 30 securitizations in 2026 with targeted returns on equity for these retained investments in the low to mid-teens. The pie charts on Slide 9 highlight our active management of the portfolio to maximize risk-adjusted returns.

As strong managers of capital, we expect to optimize returns by recycling capital into assets that maximize risk-adjusted returns, transitioning from lower-yielding assets into high-quality investments with superior return profiles. We remain focused on optimizing our allocation towards investments with targeted ROEs in the 13%-15% range, and as we strategically redeploy capital into these higher-returning assets, we are successfully driving the long-term return potential of our overall portfolio higher. Turning to slide 10, you can see the average quarterly run rate return potential expected from PMT’s investment strategies over the next four quarters. PMT’s current run rate reflects a quarterly average of $0.40 per share, down slightly from $0.42 per share in the prior quarter. As I noted earlier, we expect increased investments in accretive non-agency subordinate and senior bonds, primarily through organic securitization activity.

Our expected returns from the interest rate-sensitive strategies remains unchanged from the prior quarter, as lower return potential from MSRs due to higher prepayment expectations was offset by a decrease in projected hedge costs. In correspondent production, margins have declined, and our expectations for returns from the strategy are down from the prior quarter. Our legacy investments provide a stable foundation for continued strong performance, and we have succeeded in repositioning PMT as a leader in the private label securitization market, where we are organically creating new investments and driving our overall returns higher. As we look ahead, I am confident that this comprehensive and diversified investment platform will drive our ability to continue generating earnings that more than support our dividend and drive long-term value for our shareholders. Now, I’ll turn it over to Dan to review the fourth quarter financial performance.

Dan Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: Thank you, David. Net income to common shareholders was $42 million, or $0.48 per diluted common share in the fourth quarter, for a 13% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $24 million to pre-tax income, generating an annualized return on equity of 27%. Gains from organically created CRT investments were $12 million, which included $8 million of realized gains in carry and $4 million of market-driven value gains from credit spread tightening. Investments in subordinate MBS from our private label securitizations generated gains of $11 million, including $9 million of market-driven value gains. The interest rate-sensitive strategies contributed pre-tax income of $28 million, generating an annualized ROE of 10%. The returns in this segment were impacted by increased prepayment speeds during the quarter, driving higher runoff of our MSR asset.

Income excluding market-driven value changes for this segment was $21 million, down from $36 million in the prior quarter. However, our hedging activities during the quarter yielded net favorable results, as the increase of $26 million in MSR fair value was partially offset by $7 million of net declines in fair value of MBS and interest rate hedges, including the related tax benefit. Our MSR asset at year-end was valued at $3.6 billion, down slightly from the prior quarter, as gains from changes in fair value inputs and new MSRs from production were offset by the higher levels of runoff. Overall, mortgage delinquency rates for PMT’s primarily conventional MSR portfolio remained steady. Servicing advances increased to $97 million from $63 million in the prior quarter due to seasonal property tax payments. No principal and interest advances are outstanding.

The correspondent production segment reported a pre-tax loss of $1 million. The negative result was due primarily to spread widening on jumbo loans during the aggregation period, as well as lower overall channel margins as competition increased during the quarter. The UPB of loans acquired from PFSI’s correspondent production through our fulfillment agreement totaled $3.7 billion. Of this, $2.9 billion in UPB was conventional conforming correspondent volume, and $800 million in UPB was non-agency-eligible correspondent volume. PMT purchased 17% of total conventional conforming correspondent production and 100% of non-agency-eligible correspondent production from PFSI in the fourth quarter. In the first quarter of 2026, PMT expects to purchase 15%-25% of conventional conforming correspondent production and 100% of correspondent non-agency-eligible loan volume, consistent with levels reported in recent periods.

PMT also acquired $1.8 billion in UPB of loans from PFSI’s production outside of their fulfillment agreement for inclusion in private label securitizations. The weighted average fulfillment fee rate was unchanged from the prior quarter at 18 basis points. In total, PMT reported $21 million of net income across its strategies, excluding market-driven value changes, down from the prior quarter, primarily due to a decreased contribution from the correspondent segment and increased runoff from MSRs, as discussed earlier. Turning to Slide 15, we highlight the flexible and sophisticated financing structures PMT has in place to support its diversified portfolio of investments. During the quarter, we raised $150 million of new unsecured financing through opportunistic reopenings of our Exchangeable Senior Notes due in 2029.

We currently expect to retire the $345 million in exchangeable senior notes due in 2026, using capacity from existing financing lines. Finally, on Slide 16, PMT’s total debt-to-equity ratio increased to approximately 10-to-1 from 9-to-1 at September 30, as we continue to retain investments from securitizations. The increase in our total debt-to-equity reflects growth in non-recourse 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 continue to believe that debt-to-equity, excluding non-recourse debt, is the best metric for measuring our core leverage, and that ratio remained within our expected range at 6-to-1.

We expect the divergence between these two metrics to continue increasing as our securitization program grows. We’ll now open it up for questions. Operator?

Operator/Moderator, PennyMac Mortgage Investment Trust: We will now begin the question and answer session. I would like to remind everyone, we would like to only take questions related to PennyMac Mortgage Investment Trust or PMT. We also ask that you please keep your questions limited to one preliminary question and one follow-up question. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Doug Harter from UBS.

Doug Harter, Analyst, UBS: Great. Thanks. Just hoping you could talk about the return expectations for the interest rate strategy. I would expect that prepayments probably stay elevated. You know, kind of how do you offset the decline in that profitability to kind of get back to the target range?

Dan Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: So, overall, in terms of the MSRs, you know, there’s a limited portion of, you know, the MSRs that have that responsiveness to change higher-level interest rates. And so it’s really a combination of both additional recapture, which we expect to grow on those loans through the year from PMT’s recapture provider, which is PFSI.

As well as, you know, we expect the impact of those prepayments to dilute a bit through the year as well, just based on the percentage of the portfolio that they represent and the fact that we’re, you know, adding at a slower pace than that overall portion of the portfolio is generally, you know, not expanding at a rapid pace. But, you know, I would note that overall, in terms of the... In some sense, those, you know, the MSRs need to be viewed in the context of the entire interest rate sensitive strategy, which if you look at our, you know, which if you look at our run rate on page 10 of the earnings presentation, you know, remained at that 12.5% annualized ROE overall.

So there is some complementarity between those MSRs and the, you know, the offsetting interest rate exposure that they have versus the Agency MBS, which, you know, generally speaking, have had over the past few quarters, elevating returns on equity.

Doug Harter, Analyst, UBS: Great. Appreciate it. Thank you.

Operator/Moderator, PennyMac Mortgage Investment Trust: Your next question is from Bose George with KBW. Please go ahead.

Bose George, Analyst, KBW: Hey, guys. Good afternoon. Can you talk about competition in the non-agency space on the production side?

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Yeah. So, you know, I think it’s what you’d expect. I think on the jumbo side, you know, we’re seeing very healthy activity from the likes of Rocket Mortgage on the retail side and UWM on the broker side. You know, I think that we have been outperforming both as a percentage of our originations, which speaks to the dynamic nature to with how we manage our secondary marketing efforts. But I do think that, you know, for now, we don’t see a lot of bank competition. You know, we do see the third name I should mention is Redwood Trust. I mean, they are active in the jumbo market from time to time.

You know, by and large, it’s really those shops that we’re seeing as our competition.

Bose George, Analyst, KBW: So, okay, great! That’s helpful. Thanks. And then in terms of the equity allocation to the non-agency securitization, where do you see that trending, let’s say, by year-end?

Dan Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: Overall, I mean, overall, if you, again, look at the run rate, our weighted average allocation reflects the, basically the average through the next 12 months. So we have it at 9%, you know, as an average through the, through the next few months. As we get to the end of the year, it’s a few percentage points higher than that. So, you know, pressing above, you know, to probably 11 or 12% by the end of the year.

Eric Hagen, Analyst, BTIG: Okay, great. Thanks.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: You know, Bose, what I think, you know, in doing non-agency securitization, one of the things that we balance, of course, we like the returns on the investment, but there’s an aggregation risk in terms of holding the loans until securitization. And so, you know, we’re trying to manage that risk, and keeping in mind, you know, you know, especially on jumbo securitizations, you know, just kind of trying to dimension and monitoring what that risk is. So that’s why we’re, you know, we’ve grown our production in securitizations in a meaningful way.

But I do, I do think that that’s something that, you know, we’re going to look to find exciting and alternative solutions to do more, while not taking on the incremental risk of growing an aggregation pipeline, you know, to $2 billion-$3 billion.

Operator/Moderator, PennyMac Mortgage Investment Trust: Your next question is from Jason Weaver with Jones Research. Please go ahead.

Jason Weaver, Analyst, Jones Research: Hey, hey, good evening, guys. Thanks for taking the question. As it pertains to the securitization opportunity, can you comment on financing costs you’ve seen for investor jumbo and agency-eligible deals as of late? And also, is there any possible legacy deals that you might look at to call and re-securitize, you know, near term?

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: You know, I think that, you know, as it pertains, you know, on the financing side, it’s a robust, competitive market for financing. And so one of the things that we’ve been very, you know, we’ve been the beneficiaries of, is taking advantage of that. Having said that, in Q4, we implemented a facility that doesn’t have a mark-to-market feature, and that’s very important from a risk management standpoint. It’s something, if you recall, during COVID, we had a similar type structure in place, but we didn’t have mark-to-market, you know, we didn’t have the mark-to-market risk. And so while this isn’t, it doesn’t take away all the mark-to-market risk, it would take a very dramatic event, and then the ability to work out of a major event is, you know, contemplated.

And so, you know, there’s a bit of a trade-off in terms of, you know, the cost versus the risks. But, suffice it to say, you know, the IR team could get back to you on the absolute levels, but, it’s a pretty competitive market out there. There’s a lot of capital flowing to finance these assets.

Jason Weaver, Analyst, Jones Research: All right. Thank you. And then, so under some of these affordability-driven initiatives that the administration is floating, can you talk a bit about the origination capacity of the correspondent channel, which is PFSI inclusive, and its ability to expand under what could be greater demand going forward?

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Yeah, look, I think that, you know, there is a good amount of capacity in the system to deal with any program that the GSEs put out. Obviously, if you put out something, you know, that’s along the lines of a streamlined refi program in the conventional space, that’s going to introduce a level of demand for refinances that’s going to outstrip the capacity. But ultimately, that will take care of itself. And as I mentioned on the PFSI call, one of the issues that we’re observing in the marketplace is there’s actually more excess capacity in the sector than I thought there would be. And I think it’s basically because there’s been talk about rates coming down now for upwards of the last 12 months, that it’s given people the opportunity to grow their capacity.

Now, as I said, if something meaningful gets deployed and all of a sudden you go from, you know, 20% of the market being refinanced to 50% of the market, that’s gonna, that’s gonna change this dynamic. But, I think that, you know, we as an industry and our correspondents, I know are, you know, are in, are in pretty good shape for, you know, call it a $2.4-$2.5 trillion market. Much beyond that, we would require bringing on more, more, capacity.

Jason Weaver, Analyst, Jones Research: Understood. I appreciate the insight. Thank you.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Thanks, Jason.

Operator/Moderator, PennyMac Mortgage Investment Trust: A reminder for the analysts that have dialed in to ask a question, to please press star one if you would like to be queued up to be the next question. Our next question comes from Eric Hagen with BTIG. Please go ahead.

Eric Hagen, Analyst, BTIG: Hi. Hi again. I think I just have one. You know, I can’t recall if PMT has ever sold any MSRs, but would you ever consider that as an option, you know, either opportunistically or for risk management purposes to delever the balance sheet?

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: We would consider it. I think that, you know, one of the things that I’m really pleased about, in 2025, and this was a theme throughout the years, we’ve been much more agile and dynamic in terms of managing the portfolio. And so, you know, as we’ve been fortunate enough to raise capital, to focus on, you know, being able to, to pay off the convert and do other things, as we find ourselves in a position where we can see higher returning assets versus MSRs, of course, we would look at it, as evidenced by the MSR trade that we did out of PFSI, this management team knows how to sell and close and transfer servicing. And so that’s something that we would clearly contemplate.

Eric Hagen, Analyst, BTIG: Great. That’s helpful color. Thank you.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Thanks, Eric.

Operator/Moderator, PennyMac Mortgage Investment Trust: Our next question comes from Trevor Cranston with Citizens JMP. Go ahead.

Trevor Cranston, Analyst, Citizens JMP: Can you guys talk about what you’ve seen in terms of spread behavior in the non-agency market in January? You know, given the significant amount of tightening that’s happened within the agency space, and if that’s, you know, flowed through to any meaningful change in securitization execution. Thanks.

Dan Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: Yeah. Overall, I think in the non-agency space, you know, spreads have been stable to, you know, to tightening in, sympathy, with the, you know, with the agency spreads. Overall, you know, we’ve continued to see fairly robust, demand for securitizations in January. And so overall, it’s, you know, it’s been supportive of, of our continued securitization activity. We noted our securitization activity in January. We completed one of each of the, you know, types of deals that we or the one deal under each collateral type that we’ve been, issuing under thus far, non-owner occupied jumbo and agency-eligible owner occupied. So as I said, you know, robust demand, for each of those, and so overall, we continue to see the market as being, as being supportive of the securitization activity.

Trevor Cranston, Analyst, Citizens JMP: Got it. Okay. And then looking at the prospective return slide, you know, the returns on the CRT position look like they’re pretty competitive with what you guys are expecting on the new subordinate retentions. You know, would you expect to find more opportunities to opportunistically sell within the CRT book, or do you think that’s kind of reached a point where it’s likely to be kind of in more of a stable run-off mode at this point?

Dan Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: So what we had sold from the CRT book was actually CRTs that were not specific to PMT collateral that we had acquired opportunistically when spreads were wider. Basically, spreads tightened insignificantly, and the returns on those had fallen below our threshold, and so we sold entirely out of that third-party CRT opportunistic position. We have, you know, retained all of the credit risk transfer that’s based on our lender credit risk share that came directly from our production, from PMT’s production. We would expect to continue to retain that. Some of that it has been on our books for, you know, quite a long period at this point.

We actually had one of our deals, you know, which had a 10-year maturity, mature late last year. We have a few of the smaller deals maturing as we move forward. Given the return profile and the really high-quality nature of the underlying loans that have really significant home price appreciation, low mark-to-market LTVs, high FICOs, you know, low expected future credit losses, you know, we’d expect to maintain that position as we go forward.

Trevor Cranston, Analyst, Citizens JMP: Got it. Okay, that makes sense. Thank you.

Operator/Moderator, PennyMac Mortgage Investment Trust: We have no further questions at this time, so I’ll now turn it back to David Spector for closing remarks.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Thank you all for joining us. We are very proud of the transformation PMT has undergone this year and look forward to all the opportunities ahead in 2026. If you have any additional questions, please reach out to our investor relations team, and thank you very much for the time and thoughtful questions.

Operator/Moderator, PennyMac Mortgage Investment Trust: The call has now ended. You may now disconnect.