PennyMac Mortgage Investment Trust (NYSE: PMT) today reported
net income of $35.4 million, or $0.49 per diluted share,
for the third quarter of 2016, on net investment income of
$103.3 million. PMT previously announced a cash dividend for
the third quarter of $0.47 per common share of beneficial
interest, which was declared on September 26, 2016, and paid
on October 27, 2016.
Third Quarter Highlights
Financial results:
- Diluted earnings per common share of
$0.49, up from a loss per common share of $0.08 in the prior
quarter
- Net income of $35.4 million,
compared with a net loss of $5.3 million in the prior
quarter
- Net investment income of $103.3
million, up 117 percent from the prior quarter
- Book value per share of $20.21, up from
$20.09 at June 30, 2016
- Return on average equity of
10 percent, up from (1) percent for the prior
quarter1
Investment activities and correspondent production results:
- Continued investment in GSE credit risk
transfer (CRT) and mortgage servicing rights (MSRs) resulting from
PMT’s correspondent production business
- Correspondent production related to
conventional conforming loans totaled $7.3 billion in unpaid
principal balance (UPB), up 40 percent from the prior
quarter
- CRT deliveries totaled
$3.4 billion in UPB, resulting in an additional
$90 million of new CRT investments
- Completed third CRT commitment with
Fannie Mae and entered into a fourth CRT commitment for
$7.5 billion in UPB2
- Added $78 million in new MSR
investments
- Repurchased approximately
1 million of PMT’s common shares from August 5th through
October 7th at a cost of $14.4 million; 8.4 million
shares repurchased since the program’s inception last year
- Cash proceeds from the liquidation and
paydown of distressed mortgage loans and real estate owned (REO)
properties were $75 million, reflecting a decrease in REO
sales
Notable activity after quarter end:
- Entered into an agreement to sell
$172 million in UPB of performing loans from the distressed
portfolio2
“PMT’s earnings have improved significantly as we continue to
transition our capital to our newer investment strategies and away
from distressed mortgage loans,” said Chairman and Chief Executive
Officer Stanford L. Kurland. “During the third quarter, our results
were driven by the strength of our correspondent business and the
investments that it creates, including our unique GSE credit risk
transfer investments. We continued to make progress in liquidating
and resolving our distressed mortgage investments, including a
pending sale of performing loans from the distressed portfolio. We
are particularly pleased with the performance of our newer
strategies and correspondent production business, and look for
continuing improvement from the performance of our distressed
investments going forward.”
PMT reported pretax income of $45.0 million for the quarter
ended September 30, 2016, compared with a pretax loss of
$8.2 million in the second quarter.
The following table presents the contribution of PMT’s
Investment Activities and Correspondent Production segments:
Quarter ended September 30, 2016 Correspondent
Investment
Production
Activities
Consolidated
(in thousands) Net investment income: Net interest income
Interest income $ 14,850 $ 43,284 $ 58,134 Interest expense
9,373 30,957 40,330 5,477 12,327 17,804 Net mortgage
loan servicing fees - 15,761 15,761 Net gain on mortgage loans
acquired for sale 43,858 - 43,858 Net (loss) gain on investments
Mortgage loans at fair value - (3,400 ) (3,400 ) Mortgage loans
held by variable interest entity net of
asset-backed secured financing
- 2,454 2,454 Mortgage-backed securities - 517 517 CRT Agreements -
18,477 18,477 Hedging derivatives - (945 ) (945 ) Excess servicing
spread investments - (2,824 ) (2,824 ) -
14,279 14,279 Other income (loss) 12,724 (1,100 )
11,624 62,059 41,267 103,326 Expenses: Mortgage loan
fulfillment, servicing and management
fees payable to PennyMac Financial
Services, Inc.
27,969 15,350 43,319 Other 2,707 12,286 14,993
30,676 27,636 58,312 Pretax income (loss) $
31,383 $ 13,631 $ 45,014
Investment Activities Segment
The Investment Activities segment generated pretax income of
$13.6 million on revenues of $41.3 million, compared with
a pretax loss of $24.6 million on revenues of
$9.4 million in the second quarter. Net gain on investments in
the third quarter totaled $14.3 million, compared with a net
loss of $15.5 million in the prior quarter. Net gain on
investments for the third quarter included $18.5 million of
gains on CRT investments, $0.5 million of gains on
mortgage-backed securities (MBS) and $2.5 million of gains on
mortgage loans held by a variable interest entity, net of valuation
changes on the related asset-backed secured financing. These gains
were partially offset by net losses on distressed mortgage loans of
$3.4 million; $2.8 million of losses related to excess
servicing spread (ESS), net of recapture income; and
$0.9 million of losses related to hedging derivatives.
Net loan servicing fees were $15.8 million, up slightly
from $15.7 million in the second quarter. Net loan servicing
fees included $34.7 million in servicing fees and MSR
recapture income, reduced by $17.9 million of amortization and
realization of MSR cash flows. Net loan servicing fees also
included $6.7 million of impairment provisioning and fair
value losses related to MSRs, offset by $5.6 million of
related hedging gains. PMT’s hedging activities are intended to
manage its net exposure across all interest rate-sensitive
strategies, which include MSRs, ESS and MBS.
MSR fair value losses, impairment provisioning and ESS valuation
losses in the third quarter resulted from higher actual and
expected prepayment activity due to the continued low mortgage rate
environment. ESS valuation losses were partially offset by
recapture income totaling $1.3 million payable to PMT for
prepayment activity during the quarter. When prepayment of a loan
underlying PMT’s ESS results from a refinancing by PennyMac
Financial Services, Inc. (NYSE: PFSI), PMT generally benefits from
recapture income.
Interest income earned on PMT’s interest rate-sensitive
strategies of ESS, MBS and mortgage loans held by a variable
interest entity totaled $12.3 million, a 9 percent
decrease from the second quarter. Interest income from PMT’s
distressed mortgage loans totaled $29.0 million, up from
$23.0 million in the second quarter. Interest income from
distressed mortgage loans included $23.1 million of
capitalized interest from loan modifications, which increases
interest income and reduces loan valuation gains.
Other investment losses were $1.1 million, compared with a
$0.5 million loss in the second quarter, driven by an increase
in valuation losses of PMT’s REO properties. At quarter end, PMT’s
inventory of REO properties totaled $288.3 million, down from
$299.5 million at June 30, 2016.
Segment expenses were $27.6 million, down from
$34.0 million in the second quarter, primarily driven by
$5.1 million in servicing activity fees included in second
quarter expenses related to a sale of performing loans from the
distressed portfolio.
Distressed Mortgage Investments
PMT’s distressed mortgage loan portfolio generated realized and
unrealized losses totaling $3.4 million, compared with
realized and unrealized losses of $13.5 million in the second
quarter. In the third quarter, fair value losses on the performing
loans in the distressed portfolio were $16.4 million while
fair value gains on nonperforming loans were
$11.5 million.
The schedule below details the realized and unrealized (losses)
gains on distressed mortgage loans:
Quarter ended
September 30,
2016
June 30,
2016
(in thousands) Valuation changes: Performing loans $ (16,350
) $ (8,356 ) Nonperforming loans 11,506 (5,919 )
(4,844 ) (14,275 ) Gain on payoffs 1,298 1,208 Gain (loss) on sale
146 (396 ) $ (3,400 ) $ (13,463 )
Income contribution from the distressed portfolio improved
significantly from the second quarter, but underperformed PMT’s
expectations. The underperformance was primarily related to lower
expected REO proceeds on loans transitioning from foreclosure to
REO, an increase in redefaults of performing loans, and fewer
nonperforming loans transitioning from foreclosure to REO. The
performance of the distressed loan portfolio in the third quarter
was aided by home prices which performed in line with prior
forecasts.
Mortgage Servicing Rights
PMT’s MSR portfolio, which is subserviced by PFSI, grew to
$50.9 billion in UPB compared with $47.1 billion at
June 30, 2016. Servicing fees and MSR recapture revenue of
$34.7 million was reduced by $17.9 million of
amortization. Provision for impairment and fair value losses
totaled $6.7 million, which was largely offset by
$5.6 million of gains on hedging derivatives.
The following schedule details net loan servicing fees:
Quarter ended
September 30,
2016
June 30,
2016
(in thousands) Net mortgage loan servicing fees Servicing fees (1)
$ 34,304 $ 31,578 MSR recapture fee receivable from PFSI 409 311
Effect of MSRs: Carried at lower of amortized cost or fair value
Amortization (17,902 ) (15,531 ) Provision for impairment (3,460 )
(23,170 ) Gain on sale - 11 Carried at fair value - change in fair
value (3,202 ) (4,941 ) Gains on hedging derivatives 5,612
27,433 (18,952 ) (16,198 ) Net mortgage loan
servicing fees $ 15,761 $ 15,691 (1) Includes contractually
specified servicing and ancillary fees
Correspondent Production Segment
PMT acquires newly originated mortgage loans from third-party
correspondent sellers and typically sells or securitizes the loans,
resulting in current-period income and ongoing investments in MSRs
and GSE credit risk transfers related to a portion of its
production. For the third quarter, PMT’s Correspondent Production
segment generated pretax income of $31.4 million, versus
$16.4 million in the second quarter.
Through its correspondent production activities, PMT acquired
$18.9 billion in UPB of loans and issued IRLCs totaling
$21.6 billion, compared with $14.6 billion and
$16.0 billion, respectively, in the second quarter. Of the
correspondent acquisitions, conventional conforming and jumbo
acquisitions totaled $7.3 billion, and government-insured or
guaranteed acquisitions totaled $11.7 billion, compared with
$5.2 billion and $9.4 billion, respectively, in the
second quarter.
Segment revenues were $62.1 million, a 62 percent
increase from the second quarter, driven by a 46 percent
quarter-over-quarter increase in conventional conforming and jumbo
lock volume and strong margins, including specified loan sales made
possible by PMT’s large production volumes. The increase in volumes
reflects a larger mortgage origination market, driven by low
mortgage rates, and market share gains for PMT facilitated by
maintaining high service levels in a market with significantly
elevated volume. Net gain on mortgage loans acquired for sale in
the third quarter also included a $5.1 million benefit from a
revision of previously recorded provision for representations and
warranties due to a change in estimate.
The following schedule details the net gain on mortgage loans
acquired for sale:
Quarter ended
September 30,
2016
June 30,
2016
(in thousands) Net gain on mortgage loans acquired for sale Receipt
of MSRs in loan sale transactions $ 77,635 $ 60,109 Provision for
representation and warranties (781 ) (650 ) Revision of previously
recorded provision for representations
and warranties due to change in
estimate
5,098 - Cash investment (1) (42,480 ) (47,579 ) Fair value changes
of pipeline, inventory and hedges 4,386 12,346 $
43,858 $ 24,226 (1) Includes cash hedge expense
Segment expenses were $30.7 million, up from
$21.8 million in the second quarter, primarily due to the
increase in acquisition volumes. The weighted average fulfillment
fee rate in the third quarter was 38 basis points, up slightly
from 37 basis points in the prior quarter.3
Management Fees and Taxes
Management fees were $5.0 million, down from
$5.2 million in the second quarter, driven by a decrease in
PMT’s shareholders’ equity as a result of common share repurchases.
There were no incentive fees for the third quarter as a result of
PMT’s financial performance over the four-quarter period for which
incentive fees are calculated.
PMT recorded a $9.6 million provision for income taxes,
versus an income tax benefit of $2.9 million in the second
quarter.
Mr. Kurland concluded, “PMT remains uniquely positioned, through
PFSI’s specialized capabilities as our manager and service
provider, to access investment opportunities that result from our
correspondent production activities, including GSE credit risk
transfers and excess servicing spread. We continue to transition
capital over time into these opportunities and away from distressed
loan investments, which represent a decreasing allocation of PMT’s
equity. We also continue to evaluate repurchasing our common
shares, where we believe the return is superior to other investment
opportunities. We believe that these strategies have the potential
to continue producing earnings in line with our dividend
level.”
Management’s slide presentation will be available in the
Investor Relations section of the Company’s website at
www.pennymac-REIT.com beginning at 1:30 p.m. (Pacific Daylight
Time) on Thursday November 3, 2016.
1 Return on average equity is calculated based on
annualized quarterly net income as a percentage of monthly average
shareholders’ equity during the period. 2 Although definitive
documentation has been executed, these transactions are subject to
continuing due diligence and customary closing conditions. There
can be no assurance regarding the size of the transactions or that
the transactions will be completed at all. 3 Fulfillment fees are
based on the unpaid principal balance of acquired mortgage loans
and monthly funding volumes. Effective September 1, 2016, the
contractual fulfillment fee is 0.35% for conventional loans sold to
the Agencies, and 0.85% for all other loans. Previously, the
fulfillment fee was 0.50% of the unpaid principal balance of
conventional and jumbo loans, subject to reductions at specified
volumes and discretionary reductions by PFSI.
About PennyMac Mortgage Investment Trust
PennyMac Mortgage Investment Trust is a mortgage real estate
investment trust (REIT) that invests primarily in residential
mortgage loans and mortgage-related assets. PennyMac Mortgage
Investment Trust trades on the New York Stock Exchange under the
symbol “PMT” and is externally managed by PNMAC Capital Management,
LLC, an indirect subsidiary of PennyMac Financial Services, Inc.
Additional information about PennyMac Mortgage Investment Trust is
available at www.PennyMac-REIT.com.
This press release contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, regarding management’s beliefs, estimates,
projections and assumptions with respect to, among other things,
the Company’s financial results, future operations, business plans
and investment strategies, as well as industry and market
conditions, all of which are subject to change. Words like
“believe,” “expect,” “anticipate,” “promise,” “plan,” and other
expressions or words of similar meanings, as well as future or
conditional verbs such as “will,” “would,” “should,” “could,” or
“may” are generally intended to identify forward-looking
statements. Actual results and operations for any future period may
vary materially from those projected herein and from past results
discussed herein. Factors which could cause actual results to
differ materially from historical results or those anticipated
include, but are not limited to: changes in our investment
objectives or investment or operational strategies, including any
new lines of business or new products and services that may subject
us to additional risks; volatility in our industry, the debt or
equity markets, the general economy or the real estate finance and
real estate markets specifically, whether the result of market
events or otherwise; events or circumstances which undermine
confidence in the financial markets or otherwise have a broad
impact on financial markets, such as the sudden instability or
collapse of large depository institutions or other significant
corporations, terrorist attacks, natural or man-made disasters, or
threatened or actual armed conflicts; changes in general business,
economic, market, employment and political conditions, or in
consumer confidence and spending habits from those expected;
declines in real estate or significant changes in U.S. housing
prices or activity in the U.S. housing market; the availability of,
and level of competition for, attractive risk-adjusted investment
opportunities in mortgage loans and mortgage-related assets that
satisfy our investment objectives; the inherent difficulty in
winning bids to acquire mortgage loans, and our success in doing
so; the concentration of credit risks to which we are exposed; the
degree and nature of our competition; our dependence on our manager
and servicer, potential conflicts of interest with such entities
and their affiliates, and the performance of such entities; changes
in personnel and lack of availability of qualified personnel at our
manager, servicer or their affiliates; the availability, terms and
deployment of short-term and long-term capital; the adequacy of our
cash reserves and working capital; our ability to maintain the
desired relationship between our financing and the interest rates
and maturities of our assets; the timing and amount of cash flows,
if any, from our investments; unanticipated increases or volatility
in financing and other costs, including a rise in interest rates;
the performance, financial condition and liquidity of borrowers;
the ability of our servicer, which also provides us with
fulfillment services, to approve and monitor correspondent sellers
and underwrite loans to investor standards; incomplete or
inaccurate information or documentation provided by customers or
counterparties, or adverse changes in the financial condition of
our customers and counterparties; our indemnification and
repurchase obligations in connection with mortgage loans we
purchase and later sell or securitize; the quality and
enforceability of the collateral documentation evidencing our
ownership and rights in the assets in which we invest; increased
rates of delinquency, default and/or decreased recovery rates on
our investments; our ability to foreclose on our investments in a
timely manner or at all; increased prepayments of the mortgages and
other loans underlying our mortgage-backed securities or relating
to our mortgage servicing rights , excess servicing spread and
other investments; the degree to which our hedging strategies may
or may not protect us from interest rate volatility; the effect of
the accuracy of or changes in the estimates we make about
uncertainties, contingencies and asset and liability valuations
when measuring and reporting upon our financial condition and
results of operations; our failure to maintain appropriate internal
controls over financial reporting; technologies for loans and our
ability to mitigate security risks and cyber intrusions; our
ability to obtain and/or maintain licenses and other approvals in
those jurisdictions where required to conduct our business; our
ability to detect misconduct and fraud; our ability to comply with
various federal, state and local laws and regulations that govern
our business; developments in the secondary markets for our
mortgage loan products; legislative and regulatory changes that
impact the mortgage loan industry or housing market; changes in
regulations or the occurrence of other events that impact the
business, operations or prospects of government agencies or
government-sponsored entities, or such changes that increase the
cost of doing business with such entities; the Dodd-Frank Wall
Street Reform and Consumer Protection Act and its implementing
regulations and regulatory agencies, and any other legislative and
regulatory changes that impact the business, operations or
governance of mortgage lenders and/or publicly-traded companies;
the Consumer Financial Protection Bureau and its issued and future
rules and the enforcement thereof; changes in government support of
homeownership; changes in government or government-sponsored home
affordability programs; limitations imposed on our business and our
ability to satisfy complex rules for us to qualify as a real estate
investment trust (REIT) for U.S. federal income tax purposes and
qualify for an exclusion from the Investment Company Act of 1940
and the ability of certain of our subsidiaries to qualify as REITs
or as taxable REIT subsidiaries for U.S. federal income tax
purposes, as applicable, and our ability and the ability of our
subsidiaries to operate effectively within the limitations imposed
by these rules; changes in governmental regulations, accounting
treatment, tax rates and similar matters (including changes to laws
governing the taxation of REITs, or the exclusions from
registration as an investment company); the effect of public
opinion on our reputation; the occurrence of natural disasters or
other events or circumstances that could impact our operations; and
our organizational structure and certain requirements in our
charter documents. You should not place undue reliance on any
forward-looking statement and should consider all of the
uncertainties and risks described above, as well as those more
fully discussed in reports and other documents filed by the Company
with the Securities and Exchange Commission from time to time. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements or any other information contained
herein, and the statements made in this press release are current
as of the date of this release only.
PENNYMAC MORTGAGE INVESTMENT TRUST AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30,
2016
June 30,
2016
September 30,
2015
(in thousands except share amounts)
ASSETS Cash $ 139,068 $
95,705 $ 89,303 Short-term investments 33,353 16,877 31,518
Mortgage-backed securities at fair value 708,862 531,612 315,599
Mortgage loans acquired for sale at fair value 2,043,453 1,461,029
1,050,296 Mortgage loans at fair value 1,957,117 2,035,997
2,637,730 Excess servicing spread purchased from PennyMac Financial
Services, Inc. 280,367 294,551 418,573 Derivative assets 44,774
35,007 16,806 Real estate acquired in settlement of loans 288,348
299,458 353,563 Real estate held for investment 25,708 20,662 4,448
Mortgage servicing rights 524,529 471,458 423,095 Servicing
advances 78,624 74,090 79,528 Deposits securing credit risk
transfer agreements 427,677 338,812 87,892 Due from PennyMac
Financial Services, Inc. 5,776 12,375 9,050 Other assets
61,245 344,651 74,830 Total assets $
6,618,901 $ 6,032,284 $ 5,592,231
LIABILITIES
Assets sold under agreements to repurchase $ 4,041,085 $ 3,275,691
$ 2,864,032 Mortgage loan participation and sale agreements 88,458
96,335 61,078 Federal Home Loan Bank advances - - 183,000 Notes
payable 196,132 163,976 192,332 Asset-backed financing of a
variable interest entity at fair value 384,407 325,939 234,287
Exchangeable senior notes 245,824 245,564 244,805 Note payable to
PennyMac Financial Services, Inc. 150,000 150,000 150,000
Interest-only security payable at fair value 1,699 1,663 -
Derivative liabilities 1,620 3,894 2,786 Accounts payable and
accrued liabilities 88,704 75,587 67,086 Due to PennyMac Financial
Services, Inc. 14,747 22,054 17,220 Income taxes payable 36,380
26,774 42,702 Liability for losses under representations and
warranties 14,927 19,258 18,473
Total liabilities 5,263,983 4,406,735
4,077,801
SHAREHOLDERS' EQUITY Common shares of
beneficial interest—authorized, 500,000,000 common
shares of $0.01 par value; issued and
outstanding 67,723,293, 68,687,094
and 74,811,922 common shares,
respectively
671 677 738 Additional paid-in capital 1,380,502
1,389,962 1,468,739 (Accumulated deficit)
retained earnings (26,255 ) (29,812 )
44,953 Total shareholders' equity 1,354,918
1,360,827 1,514,430 Total liabilities and
shareholders' equity $ 6,618,901 $ 5,767,562 $
5,592,231
PENNYMAC MORTGAGE INVESTMENT TRUST AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) Quarter ended
September 30,
2016
June 30,
2016
September 30,
2015
(in thousands, except per share amounts)
Investment Income
Net interest income: Interest income From nonaffiliates $ 53,307 $
46,053 $ 53,412 From PennyMac Financial Services, Inc. 4,827
5,713 8,026 58,134 51,766 61,438 Interest expense To
nonaffiliates 38,356 34,371 36,471 To PennyMac Financial Services,
Inc. 1,974 2,222 1,289 40,330 36,593 37,760
Net interest income 17,804 15,173 23,678 Net gain on mortgage loans
acquired for sale 43,858 24,226 13,884 Mortgage loan origination
fees 12,684 8,519 9,135 Net gain (loss) on investments From
nonaffiliates 17,103 337 32,802 From PennyMac Financial Services,
Inc. (2,824 ) (15,824 ) (7,844 ) 14,279
(15,487 ) 24,958 Net mortgage loan servicing fees 15,761 15,691
20,791 Results of real estate acquired in settlement of loans
(3,285 ) (2,565 ) (4,221 ) Other 2,225 2,061
2,549 Net investment income 103,326 47,618
90,774
Expenses Earned by PennyMac Financial Services, Inc.:
Mortgage loan fulfillment fees 27,255 19,111 17,553 Mortgage loan
servicing fees (1) 11,039 16,427 11,736 Management fees 5,025 5,199
5,742 Mortgage loan collection and liquidation 6,205 4,290 1,853
Compensation 1,134 2,011 1,759 Professional services 1,508 2,224
1,550 Other 6,146 6,515 5,474 Total expenses
58,312 55,777 45,667 Income (loss) before
provision for (benefit from)
income taxes
45,014 (8,159 ) 45,107 Provision for (benefit from) income taxes
9,606 (2,892 ) 6,295 Net income (loss) $
35,408 $ (5,267 ) $ 38,812
Earnings (loss) per share Basic $
0.52 $ (0.08 ) $ 0.51 Diluted $ 0.49 $ (0.08 ) $ 0.49
Weighted-average shares outstanding Basic 67,554 68,446 74,681
Diluted 76,329 68,446 83,411
(1) Mortgage loan servicing fees expense includes both special
servicing for PMT’s distressed portfolio and subservicing for its
mortgage servicing rights of $5.6 million and $5.0 million,
respectively for the third quarter 2016.
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version on businesswire.com: http://www.businesswire.com/news/home/20161103006778/en/
PennyMac Mortgage Investment TrustMediaStephen
Hagey(805) 530-5817orInvestorsChristopher Oltmann(818)
264-4907
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