PennyMac Mortgage Q1 2025 slides: net loss amid strategic securitization push

Introduction & Market Context

PennyMac Mortgage Investment Trust (NYSE:PMT) reported a net loss of $(0.01) per share for the first quarter of 2025, a significant decline from the $0.41 EPS reported in the previous quarter. Despite the loss, the company maintained its quarterly dividend at $0.40 per share, highlighting confidence in its underlying business model and long-term strategy.

The mortgage market continues to face challenges with rates remaining elevated at 6.83% as of mid-April 2025, though industry projections suggest growth in origination volumes. According to the company’s presentation, the U.S. mortgage origination market is expected to reach $2.0 trillion in 2025, up from $1.7 trillion in 2024, with further growth to $2.3 trillion projected for 2026.

As shown in the following chart of mortgage market projections and rate trends, the company expects both purchase and refinance volumes to increase in the coming years:

Quarterly Performance Highlights

PMT’s first quarter results revealed mixed performance across its three core business segments. The company reported a net loss attributable to common shareholders of $(1) million, resulting in diluted EPS of $(0.01) and a 0% return on average common equity. Book value per share stood at $15.43, down from $15.87 at the end of Q4 2024.

By segment, Credit Sensitive Strategies generated pretax income of $1 million ($14 million excluding market-driven value changes), while Interest Rate Sensitive Strategies recorded a pretax loss of $(5) million ($27 million excluding market-driven value changes). The Correspondent Production segment delivered pretax income of $10 million on a production volume of $2.8 billion.

The following slide provides a comprehensive overview of the quarter’s financial performance:

Strategic Initiatives

A key focus of PMT’s strategy is the organic creation of investment opportunities through private label securitizations. The company is leveraging its correspondent production platform to originate loans for securitization, particularly non-owner occupied (NOO) and jumbo loans, which have seen significant growth in recent quarters.

In Q1 2025, PMT closed three securitizations of NOO loans totaling $1.0 billion in unpaid principal balance (UPB), resulting in $94 million of retained investments. The company is targeting returns on equity in the low-to-mid teens for these investments and expects to maintain a pace of approximately one securitization per month.

The following chart illustrates the growth in NOO and jumbo loan originations that support this strategy:

PMT’s ability to execute this strategy is enhanced by its synergistic relationship with PennyMac Financial Services, Inc. (NYSE:PFSI), which provides operational support, origination capabilities, and servicing expertise. This relationship allows PMT to operate as a tax-efficient investment vehicle while benefiting from PFSI’s scaled infrastructure.

As shown in the following diagram, this partnership is central to PMT’s business model:

Investment Portfolio Composition

Nearly two-thirds of PMT’s shareholders’ equity is deployed to seasoned investments in Mortgage Servicing Rights (MSRs) and GSE Credit Risk Transfer (CRT) investments. MSRs represent 46% of shareholders’ equity with a fair value of $3.8 billion, while CRT investments account for 16% of equity with organically-created CRT investments valued at $1.1 billion.

The company emphasizes that these investments feature strong underlying fundamentals, including stable cash flows, decreased sensitivity to fair value changes at higher interest rates, and elevated fee income from higher short-term rates. The MSR portfolio has a weighted average coupon of 3.8%, which positions it well in the current high-rate environment as prepayment risk remains low.

The following slide details the composition and advantages of PMT’s seasoned investment portfolio:

MSR investments showed a slight decline in fair value from $3.87 billion at the end of Q4 2024 to $3.77 billion as of March 31, 2025. This decrease was partially offset by new MSR investments of $47 million during the quarter.

The following chart tracks the trends in MSR investments over the past year:

Forward-Looking Statements

Looking ahead, PMT projects a quarterly average run rate of $0.35 per share, with potential for improvement if the yield curve steepens further. The company’s run-rate return potential shows a total net income ROE of 8.5%, with Credit Sensitive Strategies expected to generate a 13.8% ROE, Interest Rate Sensitive Strategies a 12.0% ROE, and Correspondent Production a 15.6% ROE.

The following table provides a detailed breakdown of PMT’s projected returns by investment strategy:

PMT’s management believes that mortgage REITs with diversified investment portfolios, efficient cost structures, and strong risk management practices are best positioned to navigate through market volatility. The company’s focus on creating organic investment opportunities through securitization, combined with its seasoned portfolio of MSRs and CRT investments, forms the foundation of its strategy to deliver attractive risk-adjusted returns.

Despite the quarterly loss, PMT’s maintenance of its $0.40 dividend suggests confidence in the underlying strength of its business model and its ability to generate sufficient cash flow over the long term. However, investors should note the discrepancy between the current quarterly performance and the projected run-rate, which will require improved execution in future quarters to achieve.

Full presentation:

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