PennyMac Mortgage Investment Trust Q1 2026 Earnings Call - Pivot to Credit-Sensitive Strategies Amid MSR Headwinds

Operator: Good afternoon, and welcome to PennyMac Mortgage Investment Trust’s first quarter 2026 earnings call. Additional earnings materials, including the presentation slides that will be referred to in the call, as well as an Excel file with supplemental information, 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. Now I’d like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer, and Daniel Perotti, PennyMac Mortgage Investment Trust Chief Financial Officer.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Thank you, operator. Good afternoon, 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 March 31st 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 one priced totaling $1.1 billion in UPB. 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 have 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 non-owner occupied loan securitizations. 20% is comprised of bonds from jumbo loan securitizations, 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 at origination of 774, a weighted average LTV at 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.

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 eight, approximately 60% of PMT shareholders equity remains deployed to longstanding 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 a portfolio with a low weighted average coupon of 3.9%. Our organically created GSE CRT investments represent 12% of shareholders equity and consist of seasoned loans with a weighted average current LTV of 46%.

Turning to slide nine, 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. In 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 Daniel to review the first quarter financial performance.

Daniel Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: 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 pre-tax 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 in 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. The interest rate-sensitive strategies contributed pre-tax income of $8 million for an annualized ROE of 3%.

Income excluding market-driven value changes for this 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 pre-tax income of $16 million compared to a pre-tax 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 its 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 at $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. Finally, on slide 14, we continue to believe that debt-to-equity excluding non-recourse debt is the best metric for measuring our core leverage.

That ratio declined to 5.6 times at quarter end from 6 times at the prior quarter end within our expected range. PMT’s total debt-to-equity increased to approximately 11 to 1 from 10 to 1 at December 31st as we continue to retain investments from securitizations. The increase in our total debt-to-equity ratio 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 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: Thank you. I would like to remind everyone we will 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 raise your hand or press star one. To withdraw your question, please press star one again. Our first question comes from the line of Trevor Cranston with Citizens JMP. Your line is open. Please go ahead.

Trevor Cranston, Analyst, Citizens JMP: Hey, thanks. Question related to your comments on slide 9 about, you know, actively evaluating the asset allocation of the company and some new investment opportunities. Can you elaborate on, you know, what you guys are looking at in terms of kind of new investments, if that includes things like non-QM or home equity? Also was curious if sales of maybe some lower returning assets are part of the evaluation that’s ongoing. Thanks.

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: Well, I think it’s all 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, you know, in terms of achieving, you know, that minimum required return of call 13%, 14%, the sector that’s really under-delivering and has been the net interest rate-sensitive strategies, and in particular, the MSRs. As we look across, you know, our MSR portfolio, I mean, clearly there’s parts of that that have real value, and there’s demand in the marketplace for it. There’s others that has real value that perhaps there isn’t as much demand in the marketplace.

We’re strategically evaluating the MSR portfolio to help accelerate, perhaps the weighted average equity allocation down in that, in that operating strategy and moving more to the credit-sensitive strategies. The point you raise in the credit-sensitive strategies, of course, there’s more opportunity to do additional, you know, securitizations in non-owner occupied loans and agency-eligible loans, and even jumbo loans. Given what we’re seeing on, in the non-QM originations, both in correspondent and over at PFSI in their broker division, the ability to aggregate for securitization, you know, is very apparent to me. I wouldn’t be surprised to see us do a non-QM securitization over the next year. To your point, there’s other assets, you know, that we see in the marketplace that you can create, you know, investments that achieve our, our return target.

you know, as we’ve done in the past, you know, we’re going in and we’re evaluating you know, where can we recycle out of lower returning assets and move to higher returning assets.

Trevor Cranston, Analyst, Citizens JMP: Yeah. Okay. That’s helpful. Thank you.

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

Operator: Your next question comes from Bose George with KBW.

Bose George, Analyst, KBW: Guys, good afternoon. first just, you know, the change in the ROE expectation that you gave for this new, the 31 down from 40, it looks like it’s mainly on the agency MBS, can you just, you know, walk through the drivers of the change?

Daniel Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: The, so really the bigger driver, Bose, is on the MSRs, which where the return came down, you know, a few percentage points and the allocation, weighted average equity allocated there, you know, is a larger proportion. The agency MBS also did decline. That was really related to, you know, 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. The, the bigger impact is related to, really the prepayment speeds and expectations that we, that we see, in the short to medium term on the MSRs.

Bose George, Analyst, KBW: Okay. That makes sense. In terms of the bridge now from, you know, the $0.16 you guys did this quarter, you know, up to the normalized, can you sort of walk through, you know, just the bridge there?

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

Bose George, Analyst, KBW: Okay, great. Thank you.

Operator: Your next question comes from Jason Weaver with Jones Trading. Your line is open. Please go ahead.

Jason Weaver, Analyst, Jones Trading: Hey, good afternoon, guys. Hope you’re doing well.

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

You mentioned the sale of roughly half a billion of MBS on tightening to redeploy towards retained securitization, which looks like a material rotation, the interest rate sensitive book. All else equal, is this the sort of glide path we should think about for the remainder of 2026, or was this more of a tactical rotation?

Daniel Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: I think that was really more opportunistic or tactical. We wouldn’t necessarily expect to continue to wind down that, you know, that portfolio especially, although, you know, we will adjust as we’re looking at rotating out of certain portions of the portfolio. Given the, you know, returns that we expect from the agency MBS portfolio and what we, you know, what we, you know, you know what we have here overall, we wouldn’t expect to draw down 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, Analyst, Jones Trading: Got it. Thanks for that. I think you redeemed, excuse me, about $350 million of the exchangeable senior notes from the existing financing book. What does the unsecured corporate debt stack look for the next, you know, 24 months, if you can just guess? Are you targeting any sort of opportunistic refinancing or extension given current spreads?

Daniel Perotti, Chief Financial Officer, PennyMac Mortgage Investment Trust: We, you know, we issued about $150 million of additional convertible debt towards the end of Q4 last year. We additionally in 2025 issued a few unsecured, you know, baby bonds. That was effectively a, you know, pre-refinancing of the, you know, the convertible debt that was retired in Q1 of this year. 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. No, you know, immediate plans necessarily. It’s something that we will be opportunistic with the extent that we see opportunities.

Jason Weaver, Analyst, Jones Trading: That’s good color. I appreciate it, guys.

Operator: Your next question comes from the line of Doug Harter with BTIG. Your line is open. Please go ahead.

Doug Harter, Analyst, BTIG: Thanks. 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, you know, as you think about the ability to scale, continue to scale that business?

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: I think it’s really capital more than opportunity. I think, you know, 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, the fact that we select the loans that we want in our investments is a really important feature that we have in PMT. You know, whether it’s, you know, investor, not or non-owner securitizations where we create subordinate bonds or jumbo 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. I think that it’s really a, you know, really more of a capital issue for us.

I think that’s, you know, why we’re, you know, focused on opportunistically, you know, 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 investment thesis was for PMT, was to be a credit-sensitive strategy vehicle. That’s, that’s really the guiding, you know, the kind of the guiding force here. You know, I think we’ve done a great job in being the, you know, the preeminent securitizer of these non-agency loans and creating the investments behind them. You look at the performance of these, and they’re really remarkable.

I think that, you know, 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, you know, the CRT opportunity? That’s how we ended up where we are today. I think you’re gonna continue to see us grow the equity allocation in the credit-sensitive strategies over time.

Doug Harter, Analyst, BTIG: Thanks. David, as you mentioned, you know, 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’re, you know, you haven’t necessarily gotten as large in yet?

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: You know, 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 correspondents getting into non-QM lending. I think that they are, you know, they’re recognizing that they need to expand their product, you know, they need to expand their product base. You know, this is where being the leading correspondent aggregator with over 700 clients is really an advantage to us. You know, getting really good, you know, meaningful deliveries of non-QM correspondent, I expect that to meaningfully grow. You know, I think the important part of non-QM, like all non-agency product, you have to keep an eye on the fact that you know, you don’t wanna get caught in a market disruption or with spreads widening.

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, that we decide to do a securitization. That’s where, again, the synergistic relationship with PFSI is gonna be really valuable because similar to the correspondent side, on the PFSI side, we’re seeing really good, you know, receptivity to non-QM with our broker partners. I think when we decide that, you know, we wanna do a securitization and really, you know, deploy capital there, we’ll be able to do so.

By and large, I think there’s the part of the non-QM market that we’re participating in is getting more readily accepted in the broker and correspondent communities as more akin to their credit profile and their risk management framework than when it was originally, you know, when it was originally was born some 10 years ago and people thought of it as maybe a little less than prime. I’ve been pleasantly surprised by this.

Doug Harter, Analyst, BTIG: Great. Thank you, David.

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

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

David Spector, Chairman and Chief Executive Officer, PennyMac Mortgage Investment Trust: 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. I look forward to speaking to all of you in the near future. Thank you.

Operator: This concludes today’s call. You may now disconnect.