PennyMac Mortgage Investment Trust (NYSE: PMT) today reported
net income attributable to common shareholders of $40.3 million, or
$0.62 per common share on a diluted basis for the third quarter of
2018, on net investment income of $108.5 million. PMT
previously announced a cash dividend for the third quarter of 2018
of $0.47 per common share of beneficial interest, which was
declared on September 25, 2018, and paid on October 30,
2018.
Third Quarter 2018 Highlights
Financial results:
- Net income attributable to common
shareholders of $40.3 million, up from $30.2 million in the
prior quarter
- Diluted earnings per common share of
$0.62, up 31 percent from the prior quarter
- Book value per common share of $20.48
at September 30, 2018, up from $20.27 at June 30, 2018
- Annualized return on average common
equity of 13 percent, up from 10 percent for the prior
quarter1
Investment and operating highlights:
- Continued investment in GSE credit risk
transfer (CRT) and mortgage servicing rights (MSRs) resulting from
PMT’s mortgage acquisitions
- Correspondent production from
nonaffiliates related to conventional conforming loans totaled
$7.5 billion in unpaid principal balance (UPB), up
39 percent from the prior quarter
- Loan acquisitions from PennyMac
Financial Services, Inc. (NYSE: PFSI) totaled $0.9 billion in UPB,
up 41 percent from the prior quarter
- Loans eligible for CRT investments
totaled $6.8 billion, resulting in a firm commitment to purchase
$237 million of CRT securities
- New MSR investments totaled
$96 million
Notable activity after quarter end:
- Entered into four agreements to sell
approximately $300 million in UPB of performing and nonperforming
loans from the distressed portfolio 2
“Our results this quarter reflect strong performance in our
Credit Sensitive and Interest Rate Sensitive Strategies, and
improved results from Correspondent Production,” said President and
CEO David Spector. “The seasonal purchase market and our unique
execution capabilities drove quarter-over-quarter volume increases
in our Correspondent Production channel, with purchase mortgages
representing 87 percent of our production, and accelerated growth
in our organic investment strategies of CRT and MSRs. Those
factors, combined with a continued strong credit environment,
provided solid returns across each of our business segments. While
third quarter results were adversely impacted by losses on the
distressed loan portfolio, after quarter end we agreed to sell over
$300 million in UPB of distressed loans, which should diminish
their impact on earnings going forward. Overall, we are very
pleased with this quarter’s results and the ability of PMT’s unique
investment strategies to deliver attractive returns in the
future.”
The following table presents the contributions of PMT’s
segments, consisting of Correspondent Production, Credit Sensitive
Strategies, Interest Rate Sensitive Strategies and Corporate:
Quarter ended September 30, 2018
Correspondentproduction
Creditsensitivestrategies
Interest
ratesensitivestrategies
Corporate
Total (in thousands) Net investment
income: Net gain (loss) on investments Mortgage loans at fair value
$ - $ (3,051 ) $ - $ - $ (3,051 )
Mortgage loans held by variable interest
entity net of asset-backed secured financing
- - (114 ) -
(114
)
Mortgage-backed securities - (137 ) (18,893 ) - (19,030 ) CRT
Agreements - 29,481 - - 29,481 Hedging derivatives - - 691 - 691
Excess servicing spread investments
-
- 1,706
- 1,706 -
26,293 (16,610 ) - 9,683 Net gain on mortgage loans acquired for
sale 12,496 12,314 - - 24,810 Net mortgage loan servicing fees - 5
44,389 - 44,394 Net interest income (expense) Interest income
22,465 8,675 30,573 611 62,324 Interest expense
(12,708 ) (8,792
) (25,109 )
- (46,609 )
9,757 (117 ) 5,464 611 15,715 Other income
12,442 1,457
- -
13,899 34,695
39,952 33,243
611 108,501
Expenses:
Mortgage loan fulfillment and servicing
fees payable to PennyMac Financial Services, Inc.
26,256 1,271 8,800 - 36,327
Management fees payable to PennyMac
Financial Services, Inc.
- - - 6,482 6,482 Other
2,485
5,619 344
5,582 14,030
28,741 6,890
9,144 12,064
56,839 Pretax income (loss)
$
5,954 $ 33,062
$ 24,099 $
(11,453 ) $
51,662
Credit Sensitive Strategies Segment
The Credit Sensitive Strategies segment primarily includes
results from CRT, distressed mortgage loans and non-Agency
subordinated bonds. Pretax income for the segment was
$33.1 million on revenues of $40.0 million, compared to
pretax income of $32.7 million on revenues of
$37.4 million in the prior quarter.
Net gain on investments was $26.3 million, a decrease of
23 percent from the prior quarter.
Net gain on CRT investments was $29.5 million, compared to
$38.5 million in the prior quarter driven by a reduced
earnings contribution from market-driven value changes, partially
offset by the growth in CRT investments.
PMT’s distressed mortgage loan portfolio generated realized and
unrealized losses totaling $3.1 million, compared to
$4.7 million of losses in the prior quarter.
The schedule below summarizes the (losses) gains on distressed
mortgage loans:
Quarter ended September 30, 2018
June 30, 2018 September
30, 2017 (in thousands) Valuation changes:
Performing loans $ 885 $ (4,437 ) $ 8,638 Nonperforming loans
(2,026 ) (409 ) (5,841 ) (1,141 ) (4,846 )
2,797 Gain on payoffs 107 561 224 (Loss) gain on sale (2,017
) (416 ) 256 $ (3,051 ) $ (4,701 ) $ 3,277
Fair value gains on performing loans in the distressed portfolio
were $0.9 million while fair value losses on nonperforming
loans were $2.0 million. Performing loans benefitted from
improved reperformance during the quarter. Nonperforming loan
losses resulted from the adverse valuation impact of higher
projected costs of liquidation and protecting PMT’s lien interest
(e.g., taxes, insurance, maintenance and legal fees). The
nonperforming loan portfolio also incurred losses on sales of
deeply delinquent loans.
The Credit Sensitive Strategies segment includes net gain on
mortgage loans acquired for sale of $12.3 million, up from $4.4
million in the prior quarter, which represents the recognition of
the fair value of firm commitments to acquire CRT securities under
the new REMIC structure. The quarter-over-quarter increase was
driven by three months of loan deliveries into the new structure
this quarter, compared to one month in the prior quarter.
Net interest expense for the segment totaled $0.1 million,
compared to $0.7 million in the prior quarter. Interest income
totaled $8.7 million, a 1 percent decrease from the prior
quarter, driven by a decrease in interest income from deposits
securing CRT agreements, partially offset by an increase in
capitalized interest from higher loan modification activity.
Interest expense totaled $8.8 million, down 7 percent
from the prior quarter, driven by lower financing costs related to
the ongoing reduction of the distressed loan portfolio and real
estate acquired upon settlement of loans (REO).
Other investment income was $1.5 million, compared to a
loss of $0.4 million in the prior quarter driven by improved
results from REO due to the ongoing distressed portfolio
reductions. At quarter end, PMT’s inventory of REO properties
totaled $95.6 million, down from $109.3 million at
June 30, 2018.
Segment expenses were $6.9 million, a 46 percent increase
from the prior quarter driven by higher professional services
expense and activity fees paid to PFSI related to the settlement of
a bulk distressed loan sale.
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), and non-Agency senior MBS and
interest rate hedges. Pretax income for the segment was
$24.1 million on revenues of $33.2 million, compared to
pretax income of $16.4 million on revenues of
$24.4 million in the prior quarter. The segment includes
investments that typically have offsetting exposures to changes in
interest rates. For example, in a period with increasing interest
rates, MSRs and ESS typically gain in value whereas Agency MBS
typically decline in value.
The results in the Interest Rate Sensitive Strategies segment
consist of net gains and losses on investments, net interest income
and net loan servicing fees, as well as associated expenses.
Net loss on investments for the segment totaled
$16.6 million, primarily consisting of $18.9 million of
losses on MBS, partially offset by $1.7 million in gains on ESS and
$0.7 million in gains on hedging derivatives.
Net interest income for the segment was $5.5 million
compared to $5.3 million in the prior quarter. Interest income
totaled $30.6 million, a 20 percent increase from the
prior quarter, primarily driven by growth in the MBS portfolio and
placement fees on custodial deposits. Interest expense totaled
$25.1 million, a 25 percent increase from the prior
quarter primarily driven by higher interest rates and increased
financing costs driven by the growth in investments.
Net mortgage loan servicing fees were $44.4 million, up
from $27.6 million in the prior quarter. Net mortgage loan
servicing fees included $49.9 million in servicing fees and
$3.1 million in ancillary and other fees, reduced by $30.1 million
in realization of MSR cashflows. Net mortgage loan servicing fees
also included a $33.1 million increase in the value of MSRs,
$12.1 million of related hedging losses and $0.6 million
of MSR recapture income. PMT’s hedging activities are intended to
manage the Company’s net exposure across all interest
rate-sensitive strategies, which include MSRs, ESS and MBS.
The following schedule details net mortgage loan servicing
fees:
Quarter ended September 30, 2018
June 30, 2018 September
30, 2017 (in thousands) From non-affiliates: Servicing
fees(1) $ 49,864 $ 48,667 $ 42,237 Ancillary and other fees 3,111
1,859 2,043 Effect of MSRs: Carried at fair value—change in fair
value Realization of cashflows (30,053 ) (27,997 ) (2,628 ) Other
33,127 16,083
(1,349 ) 3,074 (11,914 ) (3,977 )
Loss on sale (123 ) - - Carried at lower of amortized cost or fair
value: Amortization - - (21,634 ) Additions to impairment valuation
allowance - - (1,702 ) Gains (losses) on hedging derivatives
(12,093 ) (11,438
) 4,576
(9,142 ) (23,352
) (22,737 ) 43,833
27,174 21,543
From PFSI-MSR recapture income
561 412
333 Net mortgage loan servicing fees
$ 44,394 $
27,586 $ 21,876
(1)Includes contractually specified servicing fees,
net of Agency guarantee fees.
Before January 1, 2018, PMT carried the majority of its MSRs at
the lower of amortized cost or fair value. Beginning January 1,
2018 and prospectively, the Company accounts for all MSRs at fair
value.
MSR valuation gains were primarily driven by higher mortgage
rates, resulting in expectations for lower prepayment activity in
the future. ESS valuation gains also benefitted from higher
mortgage rates and include recapture income of $0.5 million
from PFSI for prepayment activity during the quarter. When
prepayment of a loan underlying PMT’s ESS results from refinancing
by PFSI, PMT generally benefits from recapture income.
Segment expenses were $9.1 million, a 15 percent
increase from the prior quarter, primarily driven by higher
servicing expenses on a growing MSR portfolio.
Correspondent Production Segment
PMT acquires newly originated mortgage loans from correspondent
sellers and typically sells or securitizes the loans, resulting in
current-period income and ongoing investments in MSRs and CRT
related to a portion of its production. PMT’s Correspondent
Production segment generated pretax income of $6.0 million, up
from $4.5 million in the prior quarter.
Through its correspondent production activities, PMT acquired
$16.5 billion in UPB of loans and issued interest rate lock
commitments totaling $17.7 billion in the third quarter,
compared to $15.0 billion and $16.2 billion,
respectively, in the prior quarter. Of the correspondent
acquisitions, conventional conforming acquisitions from
nonaffiliates totaled $7.5 billion and government-insured or
guaranteed acquisitions totaled $9.0 billion, compared to
$5.4 billion and $9.5 billion, respectively, in the prior
quarter.
Segment revenues were $34.7 million, a 66 percent
increase from the prior quarter. Segment revenues included a net
gain on mortgage loans of $12.5 million, other income of $12.4
million, which primarily consists of volume-based origination fees,
and net interest income of $9.8 million. Net gain on mortgage loans
acquired for sale in the quarter increased 165 percent from
the prior quarter, driven by PMT’s unique execution capabilities
and improved market conditions during the quarter. Net interest
income increased 34 percent from the prior quarter, primarily
driven by volume growth and the recognition of incentives, which
the Company is currently entitled to receive under one of its
master repurchase agreements to finance mortgage loans that satisfy
certain consumer relief characteristics. These incentives totaled
$5.0 million, a 43 percent increase form the prior quarter. The
master repurchase agreement is subject to a rolling six-month term
through August 2019, unless terminated earlier at the option of the
lender.
Segment expenses were $28.7 million, up 75 percent
from the prior quarter, resulting from an $11.7 million increase in
fulfillment fee expenses driven by the increase in conventional
correspondent production volume and a higher weighted average
fulfillment fee rate. The weighted average fulfillment fee rate in
the third quarter was 35 basis points, up from 27 basis points
in the prior quarter, reflecting lower discretionary reductions by
PFSI to facilitate successful loan acquisitions by PMT.
Corporate Segment
The Corporate segment includes interest income from cash and
short-term investments, management fees, and corporate
expenses.
Segment revenues were $611,000, up from $349,000 in the prior
quarter.
Management fees were $6.5 million, up 13 percent from
the prior quarter primarily driven by $683,000 of incentive fees in
the third quarter based on PMT’s performance.
Other segment expenses were $5.6 million, down from
$5.9 million in the prior quarter.
Taxes
PMT recorded income tax expense of $5.1 million compared to
$5.9 million of expense in the prior quarter.
***
“PMT’s unique investment strategies and capabilities to
organically create attractive investments sourced from its loan
production business are delivering strong returns,” said Executive
Chairman Stanford L. Kurland. “Our correspondent business has
delivered profitable volume growth this year, driving increased
capital deployment into attractive CRT and MSR investments. Our new
REMIC structure for CRT investments allows a greater percentage of
loans to be eligible for CRT, further accelerating growth of this
opportunity. Looking forward, we see tremendous opportunity in the
mortgage market as we focus on product expansion in the prime
non-Agency and HELOC markets to continue driving investment
opportunities beyond CRT and MSRs while leveraging our mortgage
market expertise and risk management capabilities.”
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 1, 2018.
1 Annualized 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 These transactions are subject to continuing due diligence and
customary closing conditions. There can be no assurance regarding
the size of these transactions or that these transactions will be
completed at all.
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. 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 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; 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; our exposure to market risk and declines in credit
quality and credit spreads; 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 mitigate cybersecurity risks and cyber incidents;
our exposure to risks of loss with real estate investments
resulting from adverse weather conditions and man-made or natural
disasters; our ability to satisfy complex rules in order to qualify
as a REIT for U.S. federal income tax purposes; our ability to make
distributions to our shareholders in the future; 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, 2018 June 30,
2018 September 30, 2017 (in
thousands except share information)
ASSETS Cash $ 88,929 $
63,035 $ 99,515 Short-term investments 26,736 39,484 5,646
Mortgage-backed securities at fair value 2,126,507 1,698,322
1,036,669 Mortgage loans acquired for sale at fair value 1,949,432
1,790,518 1,270,340 Mortgage loans at fair value 633,168 749,445
1,347,943 Excess servicing spread purchased from PennyMac Financial
Services, Inc. 223,275 229,470 248,763 Firm commitment to purchase
credit risk transfer security at fair value 18,749 4,426 -
Derivative assets 143,577 133,239 67,288 Real estate acquired in
settlement of loans 95,605 109,271 185,034 Real estate held for
investment 45,971 46,431 42,546 Mortgage servicing rights 1,109,741
1,010,507 790,335 Servicing advances 48,056 53,340 61,826 Deposits
securing credit risk transfer agreements 662,624 651,204 545,694
Due from PennyMac Financial Services, Inc. 2,351 4,010 4,725 Other
assets 92,857 94,147 78,719
Total assets $ 7,267,578 $ 6,676,849 $
5,785,043
LIABILITIES Assets sold under agreements to
repurchase $ 4,394,500 $ 3,780,204 $ 3,203,386 Mortgage loan
participation and sale agreements 31,578 87,751 43,988 Notes
payable 445,318 445,062 80,106 Asset-backed financing of a variable
interest entity at fair value 278,113 287,719 318,404 Exchangeable
senior notes 248,053 247,759 246,906 Assets sold to PennyMac
Financial Services, Inc. under agreement to repurchase 133,128
138,582 148,072 Interest-only security payable at fair value 8,821
7,652 6,386 Derivative liabilities 11,880 3,446 4,900 Accounts
payable and accrued liabilities 70,362 58,612 76,127 Due to
PennyMac Financial Services, Inc. 27,467 19,661 16,008 Income taxes
payable 52,382 47,289 20,148 Liability for losses under
representations and warranties 7,413 7,625
10,047 Total liabilities 5,709,015
5,131,362 4,174,478
SHAREHOLDERS' EQUITY Preferred shares of beneficial interest
299,707 299,707 299,707 Common shares of beneficial
interest—authorized, 500,000,000 common shares of $0.01 par
value; issued and outstanding 60,951,444,
60,950,754, and 65,875,618 common shares, respectively
610 610 659 Additional paid-in capital 1,284,537 1,282,971
1,362,319 Accumulated deficit (26,291 ) (37,801 )
(52,120 ) Total shareholders' equity 1,558,563
1,545,487 1,610,565 Total
liabilities and shareholders' equity $ 7,267,578 $ 6,676,849
$ 5,785,043
PENNYMAC MORTGAGE INVESTMENT TRUST AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended September 30, 2018
June 30, 2018 September 30,
2017 (in thousands, except per share amounts)
Net
investment income Net mortgage loan servicing fees From
nonaffiliates $ 43,833 $ 27,174 $ 21,543 From PennyMac Financial
Services, Inc. 561 412 333
44,394 27,586 21,876 Net gain on mortgage loans acquired for
sale From nonaffiliates 22,121 6,251 14,692 From PennyMac Financial
Services, Inc. 2,689 2,891 3,275
24,810 9,142 17,967 Mortgage loan origination fees 12,424
8,850 11,744 Net gain (loss) on investments: From nonaffiliates
7,977 23,989 17,499 From PennyMac Financial Services, Inc.
1,706 1,520 (3,665 ) 9,683 25,509
13,834 Interest income: From nonaffiliates 58,584 48,434 47,579
From PennyMac Financial Services, Inc. 3,740
3,910 3,998 62,324 52,344 51,577 Interest
expense: To nonaffiliates 44,797 38,167 38,161 To PennyMac
Financial Services, Inc. 1,812 1,898
2,116 46,609 40,065 40,277 Net interest income 15,715
12,279 11,300 Results of real estate acquired in settlement of
loans (310 ) (2,297 ) (3,143 ) Other 1,785
1,922 2,226 Net investment income
108,501 82,991 75,804
Expenses Earned by PennyMac Financial Services, Inc.:
Mortgage loan fulfillment fees 26,256 14,559 23,507 Mortgage loan
servicing fees (1) 10,071 9,431 11,402 Management fees 6,482 5,728
6,038 Mortgage loan collection and liquidation 2,747 1,923 864
Professional services 2,616 1,757 1,331 Compensation 1,924 2,220
1,067 Real estate held for investment 1,713 1,301 1,898 Mortgage
loan origination 2,136 1,572 2,230 Other 2,894
2,214 3,301 Total expenses 56,839 40,705
51,638 Income before provision for income taxes 51,662 42,286
24,166 Provision for income taxes 5,100 5,861
4,771 Net income 46,562 36,425 19,395
Dividends on preferred shares 6,235 6,234
6,125 Net income attributable to common
shareholders $ 40,327 $ 30,191 $ 13,270
Earnings per common share Basic $ 0.66 $ 0.49 $ 0.20 Diluted
$ 0.62 $ 0.47 $ 0.20
Weighted-average common shares
outstanding Basic 60,950 60,903 66,636 Diluted 69,417 69,370
66,636
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: https://www.businesswire.com/news/home/20181101006124/en/
PennyMac Mortgage Investment TrustMediaStephen
Hagey(805) 530-5817orInvestorsChristopher Oltmann(818)
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