PennyMac Mortgage Investment Trust Q2 Earnings Call Highlights

PennyMac Mortgage Investment Trust (NYSE: PMT) reported second-quarter net income of $20 million, or $0.23 per diluted common share, as lower contributions from credit-sensitive and aggregation-and-securitization strategies were partly offset by stronger results in interest-rate-sensitive investments. The result represented a 6% annualized return on common equity, Chairman and Chief Executive Officer David Spector said. The company’s book value per share was $14.83 as of June 30, down 1% from the prior quarter. PMT paid a quarterly dividend of $0.40 per share. Spector said earnings were affected by market-driven value declines in credit-sensitive investments and lower volumes in aggregation and securitization activities. The company is responding by shifting capital away from mortgage servicing rights, or MSRs, and toward retained subordinate bonds generated through its private-label securitization program.

Shift Toward Credit-Sensitive Investments Beginning in June, PMT stopped acquiring agency-eligible conventional conforming loans through correspondent production, though it will continue to acquire all non-agency loan volume. Spector said the move is intended to reduce capital deployed in MSRs, which have faced return headwinds, while increasing investment in higher-yielding credit-sensitive assets created through private-label securitizations. During the quarter, PMT acquired $2.6 billion in unpaid principal balance, or UPB, of loans through correspondent production, down 8% from the first quarter and 17% from the year-earlier period. It also acquired $2.2 billion in UPB of loans from PennyMac Financial Services Inc. production for private-label securitizations, up 44% sequentially and 123% year over year. In total, the company acquired $4.8 billion in UPB of loans in the quarter. It completed six private-label securitizations totaling $2.2 billion in UPB, retaining $120 million of new subordinate bond investments and generating $31 million of new MSR investments. After quarter-end, PMT completed two additional securitizations totaling $692 million in UPB. Spector said the company remains on track to complete about 30 securitizations in 2026 and expects to add more than $600 million of retained investments during the year. He said those investments are expected to produce returns on equity in the low- to mid-teens. The company also agreed after quarter-end to sell $13 billion in UPB of low-coupon agency MSRs, with closing expected at the end of August. Spector said PMT is actively managing its MSR portfolio and will evaluate additional sales as it weighs securitization returns against market demand for low-note-rate servicing assets.

Portfolio and Segment Performance At quarter-end, the fair value of retained bonds from PMT’s private-label securitization program totaled $936 million. The portfolio was composed of 63% non-owner-occupied loan securitizations, 21% jumbo loan securitizations and the remainder agency-eligible owner-occupied loan securitizations. Spector said the assets had a weighted average FICO score at origination of 774, a weighted average loan-to-value ratio at origination of 72%, and negligible delinquencies. Chief Financial Officer Dan Perotti said credit-sensitive strategies contributed $11 million in pretax income, representing an 11% annualized return on equity. Organically created credit-risk-transfer investments contributed $6 million, including $7 million in realized carry gains and $1 million in market-driven value declines. Subordinate mortgage-backed securities retained from private-label securitizations generated $5 million of gains, compared with $6 million in the prior quarter, primarily because of lower valuation-related gains. Interest-rate-sensitive strategies contributed $9 million of pretax income, or a ...