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Despite Earnings Miss, PennyMac Sees Opportunity In Credit Markets

Apr 25, 2025
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Loan acquisitions fell 18% in Q1; EPS missed forecasts by $0.40; $1B in new securitizations completed

PennyMac Mortgage Investment Trust reported a difficult first quarter of 2025, marked by lower-than-expected loan production and profitability challenges, even as management remains optimistic about long-term returns through securitization strategies and credit-focused investments.

Loan Production And Types

The company's correspondent loan acquisition volume — a critical driver of PennyMac's performance — fell to $23 billion in the first quarter, an 18% decline compared to the previous quarter. Loans acquired specifically for PennyMac’s own account totaled $3 billion, representing a 20% quarter-over-quarter decrease. Despite the dip, PennyMac retained 21% of its total conventional correspondent production, up slightly from 19% last quarter.

CEO David Spector emphasized that the company expects “increased correspondent activity starting at the end of this month and running into May as the loans that were locked into our correspondent’s pipelines fund.” He noted that the mortgage market remains centered around a $2 trillion origination market for 2025, albeit sensitive to interest rate fluctuations.

PennyMac also continues to invest heavily in private label securitizations, closing three investor loan securitizations totaling $1 billion in unpaid principal balance during the first quarter. These deals yielded $94 million in new investments with mid-teen returns on equity.

“Our structure allows PMT to efficiently deploy capital into long-term mortgage assets without the operational burdens associated with origination and servicing," Spector said, adding that the company’s unique securitization capabilities are a competitive advantage.

Channel Breakdown: Modest Gains Outside of Correspondent

While correspondent loan acquisitions—the largest channel—fell 18% quarter-over-quarter to $23 billion, lock volume in that channel totaled $22.1 billion in Q1. PMT retained 21% of its conventional conforming correspondent loans, up from 19% in the prior quarter, reflecting a more selective and strategic approach to capital deployment.

PennyMac’s smaller, more margin-sensitive channels showed slight growth: Broker Direct rose to $5.5 billion, up from $5.0 billion in Q4 2024, and Consumer Direct increased to $3.9 billion from $3.7 billion. These modest gains helped offset softness in correspondent and reflect the company’s ongoing diversification across origination channels.

Profitability Challenges

PennyMac reported a net loss to common shareholders of $1 million, or negative $0.01 per diluted share, missing Wall Street’s forecast of $0.39 EPS. Revenue came in at $44.47 million, less than half of the expected $93.71 million.

CFO Dan Pirotti attributed much of the financial pressure to the “compression between longer dated asset yields and short-term financing rates.” He explained, “The primary reason for the decline in the run rate quarter over quarter really has to do with the shape of the yield curve and its impact on the interest rate sensitive strategies.”

Still, the company maintained its quarterly dividend of $0.40 per share and remains committed to stability. "We do expect the dividend to remain stable," Pirotti confirmed, underscoring management’s view that current challenges are cyclical rather than structural.

Credit-Sensitive Strategies In Focus

Strategically, PennyMac continues shifting capital allocation toward credit-sensitive investments rather than interest-rate-sensitive strategies. "It’s important that PMT continues to grow its credit-sensitive strategy position and being a serial issuer is very important," Spector said.

In fact, the company anticipates closing approximately one non-owner-occupied loan securitization each month and one jumbo loan securitization each quarter. Spector highlighted the significance of this approach: “We’re seeing the benefits of that and our securitizations and the spread tightening that’s taking place with the senior bonds that get issued.”

Return expectations on new loan securitizations are strong, with Spector noting, "Return targets on sub bonds are mid-teens, call it 15%."

Stock Performance And Financial Position

Following the earnings release, PennyMac’s stock dipped 0.76% in aftermarket trading to $13.11, after closing the day up 2.4% at $12.90. The stock remains within its 52-week range of $11.77 to $15.22.

Despite the earnings miss, InvestingPro data shows that PennyMac maintains a robust 12.11% dividend yield and has paid dividends for 16 consecutive years. The company’s book value per share fell slightly to $15.43 from $15.60 at the end of December.

Management indicated that the company's strong capital structure should cushion the impact of current market volatility. "It’s a time like this where it’s really critical, when spreads widen, we don’t have assets that, in the worst case, we’d have to sell," Spector said, emphasizing the resilience of PennyMac’s non-mark-to-market financing structures.


 

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