Assessing PennyMac Mortgage's Performance For Q2 2025

Core Viewpoint - PennyMac Mortgage Trust (PMT) experienced an underperforming quarter, with results slightly below expectations, primarily due to higher borrowing costs impacting profits. The company remains slightly undervalued, and the dividend remains unchanged [1][11]. Performance Summary - PMT recorded a minor book value (BV) decrease compared to projections, which anticipated a relatively unchanged BV. The accuracy of BV projections is challenging due to the complexity of PMT's business model and sector volatility [2][10]. - Correspondent loan acquisitions increased significantly in Q2 2025, with a volume of $29.8 billion, representing a 30% increase from Q1 2025, surpassing the expected 25% increase. However, this growth came with a decline in gross origination spread margins [3][10]. - The company's Credit Risk Transfer (CRT) sub-portfolio showed stable net valuation fluctuations, with delinquencies remaining under 1.5%, indicating subdued credit risk [4][10]. - The Mortgage Servicing Rights (MSR) sub-portfolio slightly underperformed expectations due to higher prepayment speeds, with actual amortization of $98 million compared to the projected $90 million [5][10]. - PMT's agency mortgage-backed securities (MBS) and residential whole loans sub-portfolios slightly underperformed expectations, primarily due to a reduction in the fixed-rate agency MBS sub-portfolio size by $115 million [6][10]. - The hedging and derivative instruments sub-portfolio also slightly underperformed expectations, with no notable surprises in underlying changes during Q2 2025 [7][10]. - The income tax provision recorded a larger-than-anticipated variance due to a non-recurring tax expense of $14 million, which was difficult to project [8][10]. Financial Metrics - PMT reported a minor increase in interest income but also a modest increase in interest expense, leading to a slight worsening in net interest spreads, which underperformed expectations by $0.03 per common share [9][10]. - The actual BV at the end of Q2 2025 was $15.00, reflecting a 2.6% miss compared to projections [14][10]. - PMT's forward guidance indicates adjusted diluted earnings of $0.38 per common share, a $0.03 increase from Q1 2025, suggesting potential for improved returns in the future [18][10]. Valuation and Recommendations - PMT is currently deemed slightly undervalued, with a dividend range for Q3 2025 expected to remain unchanged at $0.35 - $0.40 per common share [19][10]. - The risk/performance rating for PMT remains at 3.5, indicating a stable outlook in the current environment [12][16].