PennyMac Financial Services(PFSI) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 2025, the company reported a net loss to common shareholders of $1 million, translating to a diluted earnings per share of negative one cent [3][16] - The book value per share as of March 31 was$15.43, a modest decline from December 31 [4] - The run rate return potential reflects a quarterly average of 35 cents per share, down from 37 cents in the prior quarter [23] Business Line Data and Key Metrics Changes - The credit-sensitive strategies contributed $1 million to pre-tax income, while losses from organically created CRT investments were$5 million [16] - Interest rate-sensitive strategies reported a pre-tax loss of $5 million, with fair value declines on MSR investments amounting to$56 million [17] - Total correspondent loan acquisition volume was $23 billion in Q1, down 18$2 trillion in 2025, indicating growth in overall volumes [4] - PMT retained 21% of total conventional correspondent production in Q1, an increase from 19% in the previous quarter [20] Company Strategy and Development Direction - The company emphasizes its diversified investment portfolio and strong risk management practices to navigate the volatile interest rate environment [5] - PMT's relationship with PFSI provides competitive advantages, including access to a consistent pipeline of loans for investment [6][7] - The company plans to continue closing approximately one securitization of non-owner-occupied loans per month and one jumbo loan securitization per quarter starting in Q2 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating a volatile market, highlighting the importance of their hedging program and the structure of their debt [15][32] - The company expects to see increased correspondent activity starting at the end of April, driven by loans locked into their correspondent pipelines [45] - Management remains optimistic about the long-term performance of MSR investments, which account for approximately half of PMT's deployed equity [13] Other Important Information - PMT declared a common dividend of 40 cents per share for Q1 [4] - The company issued $173 million in unsecured senior notes due in 2030 and retired$45 million of CRT term notes [24] Q&A Session Summary Question: Changes in book value and expected ROE since quarter end - Management noted a decrease in book value by about 2 to 3% due to interest rate volatility and credit spread widening, but expressed satisfaction with their hedging program [30][31] Question: Expectation of acquiring a larger percentage of loans from PFSI - Management indicated that PMT's acquisition strategy focuses on where capital deployment is most advantageous, and they do not expect an increase in the proportion of loans retained in the back half of the year [36] Question: Outlook for dividend given lower run rate earnings - Management expects the dividend to remain stable at 40 cents, emphasizing the importance of dividend stability despite fluctuations in run rate [52][53] Question: Return expectations on new loan securitizations - Management stated that return targets on subordinate bonds have increased due to credit spread widening, with expected returns in the mid-teens [59][60] Question: Interest rate strategies and substitutes for agency MBS - Management clarified that while some securitization portions act as substitutes for agency MBS, most investments are more credit-sensitive rather than direct substitutes [66]