PennyMac Mortgage Investment Trust(PMT) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements for PennyMac Mortgage Investment Trust as of June 30, 2025, and for the three and six-month periods then ended Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for PennyMac Mortgage Investment Trust as of June 30, 2025, and for the three and six-month periods then ended, including Balance Sheets, Statements of Operations, Statements of Changes in Shareholders' Equity, Statements of Cash Flows, and accompanying Notes Consolidated Balance Sheets Total assets increased to $16.80 billion as of June 30, 2025, from $14.41 billion at December 31, 2024, primarily driven by a significant increase in Loans held for investment, while total liabilities also rose to $14.94 billion from $12.47 billion, and total shareholders' equity decreased slightly to $1.87 billion from $1.94 billion over the same period Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $16,801,119 | $14,408,706 | | Cash | $362,900 | $337,694 | | Loans acquired for sale at fair value | $2,616,251 | $2,116,318 | | Loans held for investment at fair value | $4,566,532 | $2,193,575 | | Mortgage servicing rights at fair value | $3,739,106 | $3,867,394 | | Total Liabilities | $14,935,474 | $12,470,206 | | Assets sold under agreements to repurchase | $6,826,855 | $6,500,938 | | Unsecured senior notes | $875,225 | $605,860 | | Asset-backed financings of VIEs at fair value | $4,176,128 | $2,040,375 | | Total Shareholders' Equity | $1,865,645 | $1,938,500 | Consolidated Statements of Operations For the quarter ended June 30, 2025, the company reported net income of $7.5 million, a decrease from $25.4 million in the same period of 2024, resulting in a net loss attributable to common shareholders of $2.9 million, or ($0.04) per share, primarily due to a significant negative change in the fair value of mortgage servicing rights and higher expenses Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Investment Income | $70,201 | $71,198 | $114,666 | $145,403 | | Total Expenses | $53,195 | $42,589 | $103,959 | $84,413 | | Net Income | $7,534 | $25,434 | $17,214 | $73,042 | | Net (Loss) Income Attributable to Common Shareholders | $(2,921) | $14,980 | $(3,696) | $52,133 | | Basic (Loss) Earnings Per Share | $(0.04) | $0.17 | $(0.05) | $0.60 | | Diluted (Loss) Earnings Per Share | $(0.04) | $0.17 | $(0.05) | $0.60 | Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity decreased from $1.94 billion at the end of 2024 to $1.87 billion at June 30, 2025, primarily due to dividends paid on common ($69.8 million) and preferred shares ($20.9 million), which exceeded the net income of $17.2 million for the six-month period - For the six months ended June 30, 2025, total shareholders' equity decreased by $72.9 million, from $1,938.5 million to $1,865.6 million[31] - Dividends declared for common shares were $0.40 per share for the quarter and $0.80 per share for the six months ended June 30, 2025, totaling $35.0 million and $69.8 million, respectively[29][31] Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the company experienced a net cash outflow from operating activities of $2.61 billion, primarily due to the purchase and sale of loans, while a significant net cash inflow of $2.32 billion from financing activities resulted in a net increase in cash of $25.2 million for the period Summary of Cash Flows (in thousands) | Cash Flow Category | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,609,863) | $(98,571) | | Net cash provided by investing activities | $313,144 | $763,481 | | Net cash provided by (used in) financing activities | $2,321,925 | $(815,261) | | Net increase (decrease) in cash | $25,206 | $(150,351) | | Cash at beginning of period | $337,694 | $281,085 | | Cash at end of period | $362,900 | $130,734 | Notes to Consolidated Financial Statements This section details the company's accounting policies and financial statement items, including organization and business segments, related party transactions, variable interest entities, fair value measurements, debt facilities, and segment reporting - The company operates in three reportable segments: credit sensitive strategies (CRT, subordinate MBS), interest rate sensitive strategies (MSRs, Agency MBS), and correspondent production (loan acquisition and resale)[40][46] - The company has extensive related-party transactions with subsidiaries of PennyMac Financial Services, Inc. (PFSI) for services including loan servicing (PLS), MSR recapture (PLS), correspondent fulfillment (PLS), and investment management (PCM)[57] - A significant portion of assets and liabilities are measured at fair value, with many classified as Level 3, requiring management judgment, including Mortgage Servicing Rights (MSRs), Credit Risk Transfer (CRT) arrangements, and Interest Rate Lock Commitments (IRLCs)[106][131] - The company utilizes various VIEs for its Credit Risk Transfer (CRT) arrangements and for financing transactions involving Mortgage Servicing Rights (MSRs) and other mortgage-backed securities, consolidating those where it is the primary beneficiary[90][101][103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, business trends, and financial condition, noting a significant decrease in Q2 2025 net income due to fair value losses on MSRs, offset by gains in correspondent production and credit sensitive segments, while highlighting its strategy of creating mortgage-related assets and managing risks - The company's objective is to provide attractive risk-adjusted returns through dividends and capital appreciation by investing in mortgage-related assets, a significant portion of which are created through its correspondent production activities[269] - Management attributes the $17.9 million decrease in net income for Q2 2025 compared to Q2 2024 to increased fair value losses on MSRs, which were partially offset by gains on MBS and CRT investments[295] - Business trends indicate that elevated interest rates have constrained the mortgage origination market, but recent interest rate volatility has increased refinancing opportunities, which may drive higher production and prepayment speeds[289][290] - Beginning in July 2025, the correspondent production operating model will change, with PLS becoming the initial purchaser of loans and PMT retaining the right to purchase up to 100% of the non-government production from PLS[283] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to various market risks, primarily real estate risk, credit risk, interest rate risk, and prepayment risk, providing sensitivity analyses for key assets like MBS and MSRs to hypothetical changes in interest rates and other valuation inputs MBS Fair Value Sensitivity to Interest Rate Changes (as of June 30, 2025) | Interest Rate Shift (bps) | Change in Fair Value (in thousands) | | :--- | :--- | | -75 | $143,569 | | -50 | $102,056 | | +50 | $(117,232) | | +75 | $(178,717) | MSR Fair Value Sensitivity to Key Inputs (as of June 30, 2025) | Change in Fair Value Attributable to Shift in: | -10% | +10% | | :--- | :--- | :--- | | Pricing Spread | $97,044 | $(92,450) | | Prepayment Speed | $114,525 | $(107,260) | | Annual Per-Loan Cost of Servicing | $32,710 | $(32,710) | CRT Arrangements Fair Value Sensitivity to Pricing Spread (as of June 30, 2025) | Pricing Spread Shift (bps) | Change in Fair Value (in thousands) | | :--- | :--- | | -50 | $18,069 | | -25 | $8,970 | | +25 | $(8,847) | | +50 | $(17,569) | Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 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 the end of the period covered by the report[398] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[399] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in a putative class action lawsuit (Verthelyi Action) alleging unlawful replacement of the LIBOR dividend rate for its Series A and B Preferred Shares with a fixed rate, which the company believes is without merit - A class action lawsuit, Verthelyi v. PennyMac Mortgage Investment Trust, was filed on June 14, 2024, alleging the company improperly replaced the LIBOR dividend rate for its Series A and B Preferred Shares with a fixed rate[221] - The company's Motion to Dismiss was denied, but it was granted an interlocutory appeal to the Ninth Circuit, and the matter remains pending, with the company believing the claims are without merit[222][223] Item 1A. Risk Factors There have been no material changes to 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, were reported[403] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities or repurchase common shares during the quarter ended June 30, 2025, with approximately $73.4 million remaining available for future repurchases under its program - No unregistered sales of equity securities occurred during the quarter ended June 30, 2025[404] Common Share Repurchase Activity (Q2 2025) | Period | Total Shares Purchased | Average Price Paid | Amount Available for Future Repurchase | | :--- | :--- | :--- | :--- | | April 2025 | 0 | $0.00 | $73,353,000 | | May 2025 | 0 | $0.00 | $73,353,000 | | June 2025 | 0 | $0.00 | $73,353,000 | Item 5. Other Information During the quarter ended June 30, 2025, none of the company's trustees or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No trustees or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the quarter[405] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to management and mortgage banking services agreements, certifications by the CEO and CFO, and interactive data files (XBRL) - Key exhibits filed include amendments to the Management Agreement and the Mortgage Banking Services Agreement, both dated June 23, 2025[406] - Certifications from the CEO (David A. Spector) and CFO (Daniel S. Perotti) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[406]