PennyMac Mortgage Investment Trust(PMT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $42 million for Q4 2025, translating to a 13% annualized return on common equity, with diluted earnings per share at $0.48, exceeding the quarterly dividend of $0.40 per share [2][10] - Book value per share increased to $15.25 at year-end from $15.16 on September 30 [2] - The total debt-to-equity ratio rose to approximately 10-to-1 from 9-to-1 at the end of Q3 2025, reflecting growth in non-recourse debt associated with securitizations [15] Business Line Data and Key Metrics Changes - The company completed 19 securitizations in 2025, totaling $6.7 billion in UPB, a significant increase from 2 securitizations in 2024 [3] - Retained investments from securitizations grew to $528 million, up nearly tenfold from $54 million in 2024 [3] - The correspondent production segment reported a pre-tax loss of $1 million due to spread widening on jumbo loans and lower overall channel margins [12] Market Data and Key Metrics Changes - Approximately 60% of shareholders' equity is deployed to seasoned investments in MSRs and GSE credit risk transfer investments, with MSRs accounting for 46% of shareholders' equity [5] - The weighted average coupon of the loans underlying the MSR investment is 3.9%, providing stable cash flows [5] - The UPB of loans acquired from PFSI's correspondent production totaled $3.7 billion, with $2.9 billion being conventional conforming volume [12] Company Strategy and Development Direction - The company aims to optimize returns by recycling capital into higher-yielding assets, targeting ROEs in the 13%-15% range [8] - The relationship with PFSI is highlighted as a competitive advantage, providing a consistent pipeline of loans for investment [4] - The company expects to complete approximately 30 securitizations in 2026, with targeted returns on equity for retained investments in the low to mid-teens [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate earnings that support dividends and drive long-term shareholder value [9] - The company anticipates that prepayment speeds will remain elevated but expects to offset declines in profitability through additional recapture [17][18] - Management noted that the market for securitizations remains robust, with stable to tightening spreads in the non-agency space [43] Other Important Information - The company raised $150 million of new unsecured financing during the quarter [14] - The MSR asset at year-end was valued at $3.6 billion, slightly down from the prior quarter due to higher levels of runoff [11] Q&A Session Summary Question: Return expectations for the interest rate strategy - Management indicated that prepayments are expected to remain elevated, but they plan to offset profitability declines through additional recapture from PFSI [17][18] Question: Competition in the non-agency space - Management noted healthy competition from companies like Rocket Mortgage and UWM, but stated that they have been outperforming in terms of originations [23][24] Question: Financing costs for securitization - Management described the financing market as competitive, with a focus on risk management through facilities that minimize mark-to-market risk [30][31] Question: MSR sales for risk management - Management is open to considering MSR sales if higher returning assets are available, highlighting their agility in managing the portfolio [37][38] Question: Spread behavior in the non-agency market - Management reported stable to tightening spreads in the non-agency space, supporting continued securitization activity [43]