PennyMac Mortgage Investment Trust(PMT) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for Q1 2025 show a net loss attributable to common shareholders of $0.8 million, a significant decrease from $37.2 million net income in the prior-year quarter Consolidated Balance Sheets As of March 31, 2025, total assets increased to $14.88 billion, primarily due to a rise in loans at fair value, while total liabilities also rose to $12.97 billion, leading to a slight decrease in shareholders' equity Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $14,876,226 | $14,408,706 | | Cash | $247,941 | $337,694 | | Loans at fair value | $3,228,991 | $2,193,575 | | Mortgage servicing rights at fair value | $3,770,034 | $3,867,394 | | Total Liabilities | $12,973,508 | $12,470,206 | | Assets sold under agreements to repurchase | $6,202,539 | $6,500,938 | | Asset-backed financings of VIEs at fair value | $2,967,631 | $2,040,375 | | Unsecured senior notes | $773,122 | $605,860 | | Total Shareholders' Equity | $1,902,718 | $1,938,500 | Consolidated Statements of Operations For Q1 2025, the company reported a net income of $9.7 million, down from $47.6 million in Q1 2024, resulting in a net loss of $0.8 million attributable to common shareholders due to a significant drop in net loan servicing fees Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Investment Income | $44,465 | $74,205 | | Total Expenses | $50,764 | $41,824 | | (Loss) Income Before Income Taxes | ($6,299) | $32,381 | | Net Income | $9,680 | $47,608 | | Net (Loss) Income Attributable to Common Shareholders | ($775) | $37,153 | | Basic (Loss) Earnings Per Common Share | ($0.01) | $0.43 | | Diluted (Loss) Earnings Per Common Share | ($0.01) | $0.39 | Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities significantly increased to $594.3 million, while investing activities provided $40.2 million, and financing activities provided $464.3 million, resulting in an overall cash decrease of $89.8 million Summary of Cash Flows (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($594,267) | ($342,371) | | Net Cash Provided by Investing Activities | $40,228 | $770,796 | | Net Cash Provided by (Used in) Financing Activities | $464,286 | ($582,932) | | Net Decrease in Cash | ($89,753) | ($154,507) | | Cash at End of Quarter | $247,941 | $126,578 | Notes to Consolidated Financial Statements The notes detail the company's operating segments, extensive related-party transactions, use of Variable Interest Entities, fair value measurement techniques, and compliance with debt covenants for its various short-term and long-term debt facilities - The company operates in three segments: Credit Sensitive Strategies (CRT, subordinate MBS), Interest Rate Sensitive Strategies (MSRs, Agency MBS), and Correspondent Production (loan acquisition and resale)[36][42] - PMT has extensive related-party agreements with subsidiaries of PennyMac Financial Services, Inc. (PFSI) for loan servicing (PLS), management (PCM), and correspondent fulfillment services (PLS), with fee changes effective January 1, 2025[53][54][70] - The company utilizes Variable Interest Entities (VIEs) for Credit Risk Transfer (CRT) arrangements with Fannie Mae and for securitizing loans where it retains subordinate interests, consolidating these VIEs as the primary beneficiary[83][85][93] - A significant portion of assets and liabilities are measured at fair value, with MSRs, CRT derivatives, and certain MBS classified as Level 3 due to reliance on unobservable inputs like prepayment speeds and discount rates[98][100][119] - As of March 31, 2025, the company was in compliance with all financial covenants for its debt facilities, including requirements for minimum tangible net worth, liquidity, and debt-to-equity ratios[174][355] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the $37.9 million decrease in Q1 2025 net income to market conditions, specifically MSR valuation losses and widening credit spreads, despite increased correspondent production volume and asset growth Pretax (Loss) Income by Segment (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Credit sensitive strategies | $1,110 | $60,826 | | Interest rate sensitive strategies | ($5,474) | ($27,245) | | Correspondent production | $10,127 | $11,667 | | Corporate operations | ($12,062) | ($12,867) | | Total Pretax (Loss) Income | ($6,299) | $32,381 | - The decrease in Q1 2025 results was driven by a $53.5 million decrease in net gains from the Credit Sensitive segment and a $72.9 million decrease in net servicing fees from the Interest Rate Sensitive segment[277] - Correspondent loan purchases increased to $24.0 billion in Q1 2025 from $18.4 billion in Q1 2024, though gain on sale margins were reduced[261][324] - Beginning July 2025, PLS will become the initial purchaser of correspondent loans, with PMT retaining the right to purchase up to 100% of PLS's non-government production[264] Results of Operations Net income declined to $9.7 million in Q1 2025 from $47.6 million in Q1 2024, primarily due to a significant negative swing in net loan servicing fees and increased total expenses Key Performance Measures (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Investment Income | $44,465 | $74,205 | | Expenses | $50,764 | $41,824 | | Net (Loss) Income | $9,680 | $47,608 | | Book Value per Common Share | $15.43 | $15.87 (at 12/31/24) | Balance Sheet Analysis Total assets increased by $467.5 million to $14.88 billion, driven by a $1.0 billion rise in loans at fair value, while total debt reached $12.67 billion, resulting in a 6.7:1 debt-to-equity ratio - Total assets increased by $467.5 million, primarily due to a $1.0 billion increase in Loans at fair value, offset by a $114.1 million decrease in Loans acquired for sale at fair value[321] Correspondent Loan Purchases (Fair Value, in thousands) | Loan Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | GSE-Eligible Loans | $12,194,110 | $10,080,120 | | Government insured or guaranteed | $11,449,035 | $8,328,018 | | Jumbo loans | $348,740 | $2,589 | | Total | $23,991,885 | $18,410,727 | Liquidity and Capital Resources The company's liquidity is supported by investment cash flows and borrowings, with total debt at $12.7 billion and a 6.7:1 debt-to-equity ratio as of March 31, 2025, while remaining compliant with all debt covenants and regulatory capital requirements - The company's debt-to-equity ratio was 6.7:1 on a total basis and 5.1:1 excluding non-recourse debt from consolidated VIEs as of March 31, 2025[345][346] - In February 2025, the company issued $172.5 million of 9.00% senior notes due 2030[349] - The company and its servicer, PLS, were in compliance with liquidity and net worth requirements from FHFA and Ginnie Mae as of March 31, 2025[358] Quantitative and Qualitative Disclosures About Market Risk The company faces real estate, credit, interest rate, prepayment, and market value risks, with sensitivity analyses showing significant impacts on MSR and MBS fair values from changes in prepayment speeds and interest rates MSR Fair Value Sensitivity to Prepayment Speed (as of March 31, 2025, in thousands) | Change in Prepayment Speed | +5% | +10% | +20% | | :--- | :--- | :--- | :--- | | Change in Fair Value | $(54,038) | $(106,340) | $(206,073) | MBS Fair Value Sensitivity to Interest Rates (as of March 31, 2025, in thousands) | Interest Rate Shift (bps) | -75 | -50 | +50 | +75 | | :--- | :--- | :--- | :--- | :--- | | Change in Fair Value | $128,373 | $93,935 | $(111,893) | $(171,231) | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[371] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[372] PART II. OTHER INFORMATION Legal Proceedings The company is involved in a class action lawsuit alleging improper replacement of the LIBOR dividend rate for preferred shares, which the company believes is without merit and intends to vigorously defend - A class action lawsuit (Verthelyi Action) was filed alleging the company improperly replaced the LIBOR dividend rate for Series A and B Preferred Shares with a fixed rate instead of a SOFR-based rate[209] - The company believes its actions were consistent with the terms of the shares and the LIBOR Act, considers the lawsuit to be without merit, and plans to defend itself vigorously[210] Risk Factors No material changes have occurred regarding the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2024[376] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company did not sell any unregistered equity securities or repurchase common shares, with approximately $73.4 million remaining available under its share repurchase program - No common shares were repurchased during the quarter ended March 31, 2025[377] Share Repurchase Program Status (as of March 31, 2025) | Metric | Amount (in thousands) | | :--- | :--- | | Total Authorization | $500,000 | | Amount Available for Future Repurchase | $73,353 | Other Information During Q1 2025, no trustees or officers adopted, terminated, or modified any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No trustees or officers adopted, terminated, or modified a Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement during the quarter[378]