PennyMac Mortgage Investment Trust (NYSE: PMT) today reported
net income attributable to common shareholders of $13.3 million, or
$0.20 per common share on a diluted basis, for the third quarter of
2017, on net investment income of $75.8 million. PMT
previously announced a cash dividend for the third quarter of 2017
of $0.47 per common share of beneficial interest, which was
declared on September 27, 2017 and paid on October 30,
2017.
Third Quarter 2017 Highlights
Financial results:
- Diluted earnings per common share of
$0.20, down 49 percent from the prior quarter
- Net income attributable to common
shareholders of $13.3 million, down 50 percent from the prior
quarter
- Net investment income of
$75.8 million, down 10 percent from the prior
quarter
- Book value per common share of $19.74,
down from $20.04 at June 30, 2017
- Repurchased approximately one million
PMT common shares from August 29th to October 4th at a cost of
$16.9 million
- Return on average common equity of
4 percent, down from 8 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 $6.5 billion in unpaid
principal balance (UPB), up 10 percent from the prior
quarter
- CRT deliveries totaled
$4.1 billion in UPB, which will result in approximately
$144 million of new CRT investments once the aggregation
period is complete
- Added $83 million in new MSR
investments
- Reduced PMT's equity allocation to
distressed mortgage loans to 29 percent of total equity, down from
42 percent a year ago2
- Cash proceeds from the liquidation and
pay down of distressed mortgage loans and real estate acquired upon
settlement of loans (REO) were $65 million
- Completed the previously announced sale
of $145 million in UPB of performing loans from the distressed
portfolio
Notable activity after quarter end
- Entered into an agreement to sell $324
million in UPB of nonperforming and performing loans from the
distressed portfolio3
_______________ 1 Return on average common equity is
calculated based on annualized quarterly net income attributable to
common shareholders as a percentage of monthly average common
equity during the period. 2 Management’s internal allocation of
equity. Amounts as of quarter end. 3 This transaction is subject to
continuing due diligence and customary closing conditions. There
can be no assurance regarding the size of the transaction or that
the transaction will be completed at all.
“PMT continues to make significant progress in liquidating the
distressed portfolio, which has underperformed during the last
several quarters,” said President and CEO David Spector. “PMT’s
third quarter results were also affected by the reduced earnings
contribution from our credit risk transfer investments, which
resulted in part from the market’s expectation of the impact of
natural disasters in the United States. Our interest rate sensitive
strategies and correspondent loan production segments, however,
made positive earnings contributions in a market that remains very
competitive and where margins remain tight. We also raised a
significant amount of new preferred equity during the third
quarter, which we expect to deploy over the next few quarters.”
The following table presents the contributions of PMT’s
segments, consisting of Credit Sensitive Strategies, Interest Rate
Sensitive Strategies, Correspondent Production and Corporate.
Quarter ended September 30, 2017 Credit
Interest rate sensitive
sensitive Correspondent
strategies
strategies production Corporate
Consolidated (in thousands) Net gain on mortgage
loans acquired for sale $ 4 $ - $ 17,963 $ - $ 17,967 Net gain
(loss) on investments Mortgage loans at fair value 3,277 - - -
3,277
Mortgage loans held by variable interest
entity net of asset-backed secured financing
- (20 ) - - (20 ) Mortgage-backed securities 134 4,867 - - 5,001
CRT Agreements 15,151 - - - 15,151 Hedging derivatives - (5,910 ) -
- (5,910 ) Excess servicing spread investments
- (3,665 )
- -
(3,665 ) 18,562 (4,728 ) - - 13,834 Net
mortgage loan servicing fees 47 21,829 - - 21,876 Net interest
income Interest income 15,951 19,426 16,018 182 51,577 Interest
expense
(13,096 )
(15,830 ) (11,351
) -
(40,277 ) 2,855 3,596 4,667 182 11,300
Other (loss) income
(935 )
- 11,762
- 10,827
20,533 20,697
34,392 182
75,804 Expenses:
Mortgage loan fulfillment and servicing
fees payable to PennyMac Financial Services, Inc.
4,273 7,128 23,508 - 34,909 Management fees payable to PennyMac
Financial Services, Inc. - - - 6,038 6,038 Other
3,194 265
2,574 4,658
10,691 7,467
7,393 26,082
10,696 51,638 Pretax
income (loss)
13,066
13,304 8,310
(10,514 ) 24,166
Credit Sensitive Strategies Segment
The Credit Sensitive Strategies segment includes results from
distressed mortgage loans, CRT, non-Agency subordinated bonds and
commercial real estate investments. Pretax income for the segment
was $13.1 million on revenues of $20.5 million, compared
with pretax income of $30.5 million on revenues of
$40.2 million in the prior quarter.
Net gain on investments was $18.6 million, a decrease of
46 percent from the prior quarter.
PMT’s distressed mortgage loan portfolio generated realized and
unrealized gains totaling $3.3 million, compared with realized
and unrealized gains of $1.0 million in the prior quarter.
Fair value gains on performing loans in the distressed portfolio
were $8.6 million while fair value losses on nonperforming
loans were $5.8 million.
The schedule below details the realized and unrealized gains
(losses) on distressed mortgage loans:
Quarter ended September 30, 2017
June 30, 2017 September
30, 2016 (in thousands) Valuation changes:
Performing loans $ 8,638 $ 15,466 $ (16,350 ) Nonperforming loans
(5,841 ) (15,750 ) 11,506 2,797 (284 )
(4,844 ) Gain on payoffs 224 1,348 1,298 Gain (loss) on sale
256 (34 ) 146 $ 3,277 $ 1,030
$ (3,400 )
The performing loan portfolio continued to benefit from a strong
market for loans with similar attributes. The nonperforming loan
portfolio was adversely impacted by home price indications that
were below prior forecasts and increased litigation risk and
liquidation expense forecast for certain remaining nonperforming
loans.
Net gain on CRT investments was $15.2 million compared with
a gain of $32.9 million in the prior quarter, driven by a
widening of credit spreads for such securities during the quarter.
Fair value of the CRT investments (as recorded in PMT’s financial
statements) reflects market expectations for higher potential
credit losses that could result from the recent natural disasters.
Actual disaster-related credit losses are expected to be mitigated
by targeted servicing initiatives and high credit quality of the
underlying loans. At quarter end, PMT’s investments in CRT totaled
$546 million, compared with $503 million at June 30,
2017.
Net interest income for the segment totaled $2.9 million,
down 59 percent from the prior quarter. Interest income
totaled $16.0 million, a 23 percent decrease from the prior
quarter, driven by a decrease in capitalized interest from loan
modifications and the sale of performing loans from the distressed
loan portfolio this quarter. Capitalized interest increases
interest income and reduces loan valuation gains. Interest expense
totaled $13.1 million, down 5 percent from the prior
quarter, driven by ongoing reductions in the distressed mortgage
loan and REO portfolios.
Other investment losses were $0.9 million, compared with a
$1.1 million loss in the prior quarter. At quarter end, PMT’s
inventory of REO properties totaled $185.0 million, down from
$207.0 million at June 30, 2017.
Segment expenses were $7.5 million, a 23 percent decrease
from the prior quarter resulting from a reduction in professional
services fees and advance losses.
Interest Rate Sensitive Strategies Segment
The Interest Rate Sensitive Strategies segment includes results
from investments in MSRs, excess servicing spread (ESS), Agency
mortgage-backed securities (MBS), non-Agency senior MBS and
interest rate hedges. The segment includes investments that have
offsetting exposures to changes in interest rates. Interest Rate
Sensitive Strategies generated pretax income of $13.3 million
on revenues of $20.7 million, compared with pretax income of
$5.4 million on revenues of $12.1 million in the prior
quarter.
The results in the Interest Rate Sensitive Strategies segment
consist of net gain/loss on investments, net interest income and
net loan servicing fees, as well as the associated expenses.
Segment investments produced a net loss of $4.7 million,
consisting of $4.9 million of gains on MBS; $5.9 million
of losses on hedging derivatives; and $3.7 million of losses
on ESS.
Net interest income for the segment was $3.6 million,
compared to $3.0 million in the prior quarter. Interest income
totaled $19.4 million, a 4 percent increase from the
prior quarter, driven by higher placement fees on MSR-related
escrow deposits. Interest expense totaled $15.8 million, a
1 percent increase from the prior quarter due to higher
short-term borrowing costs.
Net mortgage loan servicing fees were $21.9 million, up
from $15.7 million in the prior quarter. Net loan servicing
fees included $44.3 million in servicing fees, reduced by
$21.6 million of amortization and realization of MSR cash
flows. Net loan servicing fees also included a $1.7 million
impairment provision for MSRs carried at the lower of amortized
cost or fair value, a $4.0 million valuation loss on MSRs
carried at fair value, partially offset by $4.6 million of
related hedging gains, and $0.3 million of MSR recapture
income. PMT’s hedging activities are intended to manage its net
exposure across all interest rate-sensitive strategies, which
include MSRs, ESS and MBS.
The following schedule details net loan servicing fees:
Quarter ended September 30,
2017 June 30, 2017
September 30, 2016 (in thousands) From
nonaffiliates Servicing fees(1) $ 44,280 $ 41,084 $ 34,304 Effect
of MSRs: Carried at lower of amortized cost or fair value
Amortization and realization of cashflows (21,634 ) (19,523 )
(17,902 ) Reversal of (provision for) impairment (1,702 ) (4,089 )
(3,460 ) Carried at fair value - change in fair value (3,977 )
(4,400 ) (3,202 ) Gains (Losses) on hedging derivatives
4,576 2,391 5,612
(22,737 ) (25,621 ) (18,952 ) From PennyMac Financial Services,
Inc. MSR recapture fee receivable from PFSI 333
234 409 Net mortgage loan
servicing fees(2) $ 21,876 $ 15,697 $
15,761 (1)Includes contractually specified servicing and
ancillary fees (2)Includes $47 thousand of commercial loan
servicing for the three months ended September 30, 2017
PMT’s MSR portfolio, which is subserviced by a subsidiary of
PennyMac Financial Services, Inc. (NYSE: PFSI), grew to
$67.9 billion in UPB compared with $63.3 billion at
June 30, 2017.
MSR and ESS valuation losses primarily resulted from a
combination of yield curve flattening, tighter mortgage spreads and
higher than expected prepayment activity during the quarter. ESS
valuation losses are net of recapture income totaling
$1.2 million from PFSI for prepayment activity during the
quarter. When prepayment of a loan underlying PMT’s ESS results
from a refinancing by PFSI, PMT generally benefits from recapture
income.
Segment expenses were $7.4 million, a 10 percent
increase from the prior quarter resulting from servicing portfolio
growth.
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 CRT related to a portion of its production. PMT’s
Correspondent Production segment generated pretax income of
$8.3 million versus $8.1 million in the prior
quarter.
Through its correspondent production activities, PMT acquired
$17.4 billion in UPB of loans and issued IRLCs totaling
$17.4 billion in the third quarter, compared with
$16.3 billion and $18.2 billion, respectively, in the
prior quarter. Of the correspondent acquisitions, conventional
conforming acquisitions totaled $6.5 billion, and
government-insured or guaranteed acquisitions totaled
$10.9 billion, compared with $5.9 billion and
$10.4 billion, respectively, in the prior quarter.
Segment revenues were $34.4 million, a 9 percent
increase from the prior quarter. Segment revenues included a net
gain on mortgage loans of $18.0 million, net interest income of
$4.7 million and other income of $11.8 million, which primarily
consists of volume-based origination fees. Net gain on mortgage
loans acquired for sale in the quarter increased 5 percent
from the prior quarter, driven by continued strong lock volumes and
stable margins.
The following schedule details the net gain on mortgage loans
acquired for sale:
Quarter ended September 30,
2017 June 30, 2017
September 30, 2016 (in thousands) Net gain on
mortgage loans acquired for sale: Receipt of MSRs in loan sale
transactions $ 82,838 $ 65,835 $ 77,635
Provision for losses relating to
representations and warranties provided in mortgage loan sales:
Pursuant to mortgage loans sales (1,075 ) (607 ) (781 ) Reduction
in liability due to change in estimate 1,642 1,305 5,098 Cash
investment (1) (61,678 ) (43,204 ) (42,480 ) Fair value changes of
pipeline, inventory and hedges (3,760 ) (6,037
) 4,386 $ 17,967 $ 17,292
$ 43,858 (1) Includes cash hedge expense
Segment expenses were $26.1 million, up 11 percent
from the prior quarter, driven by an increase in volume-based
fulfillment fee expense. The weighted average fulfillment fee rate
in the third quarter was 36 basis points, unchanged from the
prior quarter.
Corporate Segment
The Corporate segment includes interest income from cash and
short-term investments, management fees and corporate expenses.
Segment revenues were $182,000, an increase from $155,000 in the
prior quarter.
Management fees, which include incentive fees, were
$6.0 million, up 7 percent from the prior quarter,
resulting from PMT’s higher equity capital base. No incentive fee
was paid in the third quarter, compared to $304,000 paid in the
prior quarter.
Other segment expenses were $4.7 million compared with
$6.6 million in the prior quarter, driven by a reduction in
stock-based compensation.
Taxes
PMT recorded income tax expense of $4.8 million compared
with a $3.0 million expense in the prior quarter.
Executive Chairman Stanford L. Kurland concluded, “PMT continues
to make progress transitioning from distressed loans and into
correspondent-related investments such as credit risk transfer
(CRT) and mortgage servicing rights (MSRs). We are focused on
specific initiatives in our correspondent business that we expect
to deliver higher production volumes, as well as optimized
financing that should improve earnings from our correspondent
production. We also are deploying more capital into the
higher-returning CRT and MSR strategies. In addition, we have
raised capital that is not earning its full potential. Taking all
of these initiatives together, we believe PMT’s strategies will
generate improved earnings that are consistent with our current
quarterly dividend on our common stock.”
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 2, 2017.
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 common shares trade on the New York Stock Exchange
under the symbol "PMT." PMT is externally managed by PNMAC Capital
Management, LLC, a controlled subsidiary of PennyMac Financial
Services, Inc. (NYSE: PFSI). 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; events or circumstances which
undermine confidence in the financial markets or otherwise have a
broad impact on financial markets; 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 distressed loans or correspondent loans,
and our success in doing so; the concentration of credit risks to
which we are exposed; the degree and nature of our competition; 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; incomplete or inaccurate information or
documentation provided by customers or counterparties, or adverse
changes in the financial condition of our customers and
counterparties; changes in the number of investor repurchases or
indemnifications and our ability to obtain indemnification or
demand repurchase from our correspondent sellers; increased rates
of delinquency, default and/or decreased recovery rates on our
investments; 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; changes in regulations or the occurrence of
other events that impact the business, operation or prospects of
government sponsored enterprises; changes in government support of
homeownership; changes in governmental regulations, accounting
treatment, tax rates and similar matters; our ability to satisfy
complex rules in order to qualify as a REIT for U.S. federal income
tax purposes; and our ability to make distributions to our
shareholders in the future. 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, 2017 June 30,
2017 September 30, 2016 (in
thousands except share information)
ASSETS Cash $ 99,515 $
69,893 $ 139,068 Short-term investments 5,646 77,366 33,353
Mortgage-backed securities at fair value 1,036,669 1,065,540
708,862 Mortgage loans acquired for sale at fair value 1,270,340
1,318,603 2,043,453 Mortgage loans at fair value 1,347,943
1,527,812 1,957,117 Excess servicing spread purchased from PennyMac
Financial Services, Inc. 248,763 261,796 280,367 Derivative assets
67,288 73,875 44,774 Real estate acquired in settlement of loans
185,034 207,034 288,348 Real estate held for investment 42,546
40,316 25,708 Mortgage servicing rights 790,335 734,800 524,529
Servicing advances 61,826 67,172 78,624 Deposits securing credit
risk transfer agreements 545,694 503,108 427,677 Due from PennyMac
Financial Services, Inc. 4,725 5,013 5,776 Other assets
78,719 57,916 61,245 Total
assets $ 5,785,043 $ 6,010,244 $ 6,618,901
LIABILITIES Assets sold under agreements to repurchase $
3,203,386 $ 3,497,999 $ 4,041,085 Mortgage loan participation and
sale agreements 43,988 38,345 88,458 Notes payable 80,106 159,980
196,132 Exchangeable senior notes 246,906 246,629 245,824
Asset-backed financing of a variable interest entity at fair value
318,404 329,459 384,407 Assets sold to PennyMac Financial Services,
Inc. under agreement to repurchase 148,072 150,000 150,000
Interest-only security payable at fair value 6,386 6,577 1,699
Derivative liabilities 4,900 8,856 1,620 Accounts payable and
accrued liabilities 76,127 74,253 88,704 Due to PennyMac Financial
Services, Inc. 16,008 17,725 14,747 Income taxes payable 20,148
14,892 36,380 Liability for losses under representations and
warranties 10,047 10,697 14,927
Total liabilities 4,174,478 4,555,412
5,263,983
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest 299,707 111,172 -
Common shares of beneficial
interest—authorized, 500,000,000 common shares of $0.01 par value;
issued and outstanding 65,875,618, 66,842,495, and 67,036,149
common shares, respectively
659 668 671 Additional paid-in capital 1,362,319 1,377,990
1,380,502 Accumulated deficit (52,120 ) (34,998 )
(26,255 ) Total shareholders' equity 1,610,565
1,454,832 1,354,918 Total liabilities
and shareholders' equity $ 5,785,043 $ 6,010,244 $
6,618,901
PENNYMAC MORTGAGE INVESTMENT
TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) Quarter ended
September 30, 2017 June 30,
2017 September 30, 2016 (in
thousands, except per share amounts)
Net investment income
Net gain on mortgage loans acquired for sale From nonaffiliates
14,692 14,088 41,321 From PennyMac Financial Services, Inc.
3,275 3,204 2,537 17,967 17,292
43,858 Mortgage loan origination fees 11,744 10,467 12,684 Net gain
(loss) on investments: From nonaffiliates 17,499 33,477 17,103 From
PennyMac Financial Services, Inc. (3,665 ) (5,885 )
(2,824 ) 13,834 27,592 14,279 Net mortgage loan servicing
fees — From nonaffiliates 21,543 15,463 15,352 From PennyMac
Financial Services, Inc. 333 234
409 21,876 15,697 15,761 Interest income: From nonaffiliates
47,579 48,020 53,307 From PennyMac Financial Services, Inc.
3,998 4,366 4,827 51,577 52,386
58,134 Interest expense: To nonaffiliates 38,161 36,401 38,356 To
PennyMac Financial Services, Inc. 2,116 2,025
1,974 40,277 38,426 40,330 Net interest income
11,300 13,960 17,804 Results of real estate acquired in settlement
of loans (3,143 ) (3,465 ) (3,285 ) Other 2,226
2,416 2,225 Net investment income
75,804 83,959 103,326
Expenses Earned by PennyMac Financial Services, Inc.:
Mortgage loan fulfillment fees 23,507 21,107 27,255 Mortgage loan
servicing fees 11,402 10,099 11,039 Management fees 6,038 5,638
5,025 Professional services 1,331 2,747 1,134 Compensation 1,067
1,959 1,508 Mortgage loan origination 2,230 1,993 2,202 Mortgage
loan collection and liquidation 864 3,338 6,205 Other 5,199
5,252 3,944 Total expenses
51,638 52,133 58,312 Income before provision for income taxes
24,166 31,826 45,014 Provision for income taxes 4,771
3,046 9,606 Net income 19,395 28,780
35,408 Dividends on preferred shares 6,125
2,336 — Net income attributable to common
shareholders $ 13,270 $ 26,444 $ 35,408
Earnings per common share Basic $ 0.20 $ 0.39 $ 0.52 Diluted
$ 0.20 $ 0.38 $ 0.49
Weighted-average common shares
outstanding Basic 66,653 66,761 67,554 Diluted 66,653 75,228
76,329
Dividends declared per common share $ 0.47 $ 0.47 $
0.47
(1)
Mortgage loan servicing fees expense includes both special
servicing for PMT’s distressed portfolio and subservicing for its
mortgage servicing rights
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171102006765/en/
PennyMac Mortgage Investment TrustMediaStephen Hagey(805)
530-5817orInvestorsChristopher Oltmann(818) 224-7028
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