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PM

PennyMac Mortgage Investment Trust (PMT)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered net income attributable to common shareholders of $36.1M and diluted EPS of $0.41, with an annualized ROE of 10% and book value per share rising slightly to $15.87, driven by strong income excluding market-driven value changes and excellent performance across all three strategies .
  • Interest Rate Sensitive Strategies showed a sharp rebound: MSR fair value gains of $183.9M offset by MBS losses of $125.9M and hedging losses of $51.2M; net loan servicing fees swung to +$207.4M from a loss in Q3 .
  • PMT accelerated organic credit investment creation via private-label securitizations of agency-eligible investor loans: two deals in Q4 (UPB $822M, $52M net new credit sub-bonds), and another in January 2025 (UPB $341M, $21M net new sub-bonds) .
  • Correspondent Production pretax income rose to $22.5M on higher whole-loan and securitization execution; PMT retained 19% of conventional correspondent production in Q4 and expects 15–25% retention in Q1 2025 as it prioritizes private-label opportunities .
  • We could not retrieve S&P Global Wall Street consensus estimates due to a request limit; thus, beat/miss vs consensus is unavailable at this time (SPGI daily limit exceeded on GetEstimates).

What Went Well and What Went Wrong

  • What Went Well

    • Strong quarter across strategies: net income to common of $36.1M; diluted EPS $0.41; annualized ROE 10% .
    • MSR performance and hedging delivered stability: net loan servicing fees swung to +$207.4M as higher rates boosted MSR fair value; hedging managed “global” rate risk across strategies .
    • Organic credit investments resumed: two investor-loan securitizations in Q4 and one post-quarter with $73M combined net new sub-bonds; CEO: “return to organic creation of credit investments… expect similar levels of activity well into 2025” .

  • What Went Wrong

    • MBS and hedge marks pressured interest-rate sensitive results: segment reported $125.9M losses on MBS and $51.2M hedging losses despite MSR gains .
    • Net interest expense weighed on results: interest rate sensitive net interest expense increased to $29.6M (vs $8.4M in Q3), reflecting lower interest income on MBS and custodial balances and high funding costs .
    • Correspondent retention reduced PMT’s on-balance volumes: PMT retained 19% of conventional production in Q4 (down from 42% in Q3), lowering PMT’s own-account UPB to $3.5B; lock commitments fell to $3.2B (down 58% q/q) .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Net Investment Income ($USD Millions)$84.8 $71.2 $80.9 $107.9
Net Income Attributable to Common ($USD Millions)$42.5 $15.0 $31.0 $36.1
Diluted EPS ($USD)$0.44 $0.17 $0.36 $0.41
Book Value Per Share ($USD)$16.13 (12/31/2023) $15.89 (6/30/2024) $15.85 (9/30/2024) $15.87 (12/31/2024)
Annualized ROE (%)n/a4% 9% 10%
Wall Street Consensus (EPS/Revenue)n/an/an/aUnavailable (SPGI limit exceeded)

Segment breakdown (pretax income and net investment income):

SegmentQ2 2024 Net Inv. Inc. ($M)Q2 2024 Pretax ($M)Q3 2024 Net Inv. Inc. ($M)Q3 2024 Pretax ($M)Q4 2024 Net Inv. Inc. ($M)Q4 2024 Pretax ($M)
Credit Sensitive Strategies$15.8 $15.7 $26.5 $26.4 $20.4 $20.1
Interest Rate Sensitive Strategies$39.1 $16.9 $26.1 $0.5 $51.9 $25.5
Correspondent Production$14.6 $9.6 $26.3 $13.2 $33.4 $22.5
Corporate$1.7 ($13.6) $1.9 ($13.7) $2.3 ($13.0)

Key operating KPIs:

KPIQ2 2024Q3 2024Q4 2024
Net Loan Servicing Fees ($USD Thousands)$96,494 ($85,080) $207,421
MSR Fair Value Change ($USD Thousands)+$46,039 ($84,306) +$183,879
Hedging Results on MSR ($USD Thousands)($18,365) ($67,220) ($51,209)
Servicing Advances Outstanding ($USD Millions)$98.99 $71.12 $105.04
MSR Fair Value ($USD Billions)$3.94 $3.81 $3.87
Correspondent Acquisitions (Total UPB, $USD Billions)$22.54 $25.83 $28.08
Conventional Conforming for PMT ($USD Billions)$2.20 $5.85 $3.24
PMT Conventional/Jumbo Locks ($USD Billions)$2.60 $7.37 $3.19
Weighted Avg Fulfillment Fee (bp)20 19 18

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Retention of Conventional Conforming ProductionQ4 2024 → Q1 2025Retain ~15–25% of total conventional correspondent production in Q4 2024 Retain 15–25% of total conventional conforming correspondent production in Q1 2025; retain all jumbo production Maintained range; clarified jumbo
Private-Label Securitization PaceQ4 2024 → 2025Expected non-owner occupied deal in Q4 and another in Q1 2025 On track for ~one securitization per month; January 2025 PMTLT 2025-INV1 ($341M UPB) completed Increased cadence/visibility
Run-Rate EPS PotentialNext 4 quartersAverage diluted EPS per quarter ~$0.37 (base case) Average diluted EPS per quarter ~$0.37; could rise toward ~$0.40 if yield curve steepens Maintained base; upside scenario added
Common DividendQ3 → Q4 2024$0.40 declared (Q3) $0.40 declared (Q4), paid Jan 24, 2025 Maintained

Earnings Call Themes & Trends

TopicQ-2 (Q2 2024)Q-1 (Q3 2024)Current (Q4 2024)Trend
Private-Label Securitization/Investor LoansPreparing capital and portfolio for organic investments; equity allocation and CRT financing actions Expect investor-loan securitizations in Q4 & Q1 Two investor-loan securitizations in Q4; one more in Jan; aim ~monthly cadence Accelerating
MSR Hedging & Global IR RiskHedging offsets MSR FV changes; stability of book value emphasized Hedging largely offset MSR declines in lower-rate quarter Hedge strategy runs tighter at PMT; MSR FV gains offset by MBS and hedge losses Consistent risk discipline
Yield Curve & Run-RateBase-case quarterly EPS ~$0.33–$0.37; curve inversion a headwind Run-rate EPS ~$0.37; steepening supportive Run-rate ~$0.37; steepening could lift to ~$0.40 Improving with steepening
GSE CRT Portfolio QualityLow current LTV (~50%), low delinquencies; limited expected realized losses Slight rise in 60+ DQ, still strong credit metrics Current LTV <50%; 60+ DQ ~1.5%; continued strong fundamentals Stable/seasoned
Liquidity/RefinancingIssued exchangeable notes; MSR term notes; liquidity plans Repaid exchangeable notes in Nov; CRT notes retired/refinanced ~$430M direct liquidity; plan to access markets ahead of 2026 maturity Proactive

Management Commentary

  • CEO David Spector: “PMT produced strong results in the fourth quarter with a 10 percent annualized return on equity… the fourth quarter marked a return to organic creation of credit investments… we expect similar levels of activity well into 2025” .
  • CFO Daniel Perotti: “Fair value increases on MSR investments were $184 million… offset by changes in the fair value of MBS, interest rate hedges, and related income tax effects… The fair value of PMT’s MSR asset at the end of the quarter was $3.9 billion” .
  • Strategy signal: “Run rate reflects a quarterly average of $0.37 per share… If the yield curve steepens further, we expect PMT’s overall run rate would increase, closer to the $0.40 range” .
  • Organic investment creation: “We completed 2 securitizations of agency-eligible investor loans… retained $52 million of new investments… After quarter end, we completed a third securitization… retained an additional $21 million” .

Q&A Highlights

  • Yield curve dynamics: Perotti noted either long-end rising or short-end falling helps interest-rate sensitive strategies; “ambivalent” on which side moves, focus is steepness .
  • MSR hedge philosophy: PMT runs a tighter hedge than PFSI due to PMT’s lower note-rate concentration and reduced origination recapture benefit; overall MSR sensitivity lower at PMT .
  • GSE reform and FHFA: Spector expects operational readiness across scenarios; private-label securitization offers attractive returns as guarantee fees rise and spreads tighten; bullish on PMT’s opportunity set .
  • Liquidity and maturities: ~$430M direct liquidity and additional capacity on facilities; potential baby bonds or convertible markets to address 2026 unsecured maturity .
  • Correspondent profitability: Investor/second-home execution improved margins; multiple delivery avenues (securitization, deep whole-loan bid, and GSE delivery) provide flexibility .

Estimates Context

  • We attempted to fetch S&P Global consensus for Q4 2024 EPS and revenue but hit a daily request limit; therefore, beat/miss vs consensus is unavailable at this time (SPGI GetEstimates error).
  • Given management’s run-rate disclosure ($0.37 quarterly EPS base with upside toward $0.40 on curve steepening), estimate revisions may skew upward for MSR/interest-rate sensitive returns if the curve steepens, and incorporate ongoing private-label credit investment contributions .

Key Takeaways for Investors

  • MSR-led stability with proactive hedging: Q4’s +$183.9M MSR FV gains and +$207.4M net loan servicing fees underscore resilience; watch funding costs and hedge marks’ interplay on quarterly volatility .
  • Organic credit engine is back: Monthly cadence of investor-loan securitizations supports low-to-mid teens ROEs on retained sub-bonds; early-2025 deal flow already confirmed .
  • Correspondent flexibility: Retention of conventional volumes tactically reduced to 15–25% to optimize capital toward private-label investments; jumbo retained fully, supporting MSR creation .
  • Run-rate EPS sensitivity to curve: Base ~$0.37/qtr with potential toward ~$0.40 if the curve steepens; traders should monitor macro rate dynamics as a near-term catalyst .
  • Liquidity and terming: ~$430M direct liquidity and multiple capital market options ahead of 2026 unsecured maturities reduce refinancing risk .
  • Credit quality underpins CRT: Low current LTVs (~50%) and modest 60+ DQ rates support limited expected losses; supports steady spread income even with modest prepayments .
  • Dividend stability: $0.40 maintained in Q4, supported by diversified income streams and risk management, offering carry for yield-focused investors .