PennyMac Mortgage Investment Trust (NYSE: PMT) today reported
net income attributable to common shareholders of $26.4 million, or
$0.38 per common share on a diluted basis, for the second quarter
of 2017, on net investment income of $84.0 million. PMT
previously announced a cash dividend for the second quarter of 2017
of $0.47 per common share of beneficial interest, which was
declared on June 27, 2017 and paid on July 27, 2017.
Second Quarter 2017 Highlights
Financial results:
- Diluted earnings per common share of
$0.38, down 5 percent from the prior quarter
- Net income attributable to common
shareholders of $26.4 million, down 6 percent from the prior
quarter
- Net investment income of
$84.0 million, up 30 percent from the prior quarter
- Book value per common share of $20.04,
down from $20.14 at March 31, 2017
- Return on average common equity of
8 percent, essentially unchanged from 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 $5.9 billion in UPB, up
28 percent from the prior quarter
- CRT deliveries totaled
$3.8 billion in unpaid principal balance (UPB), which will
result in approximately $132 million of new CRT investments
once the aggregation period is complete
- Added $66 million in new MSR
investments
- Focus on liquidation and sales of the
remaining distressed mortgage loan portfolio; successfully reduced
PMT's equity allocation for distressed mortgage loans to 31% of
total equity, down from 50 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 $71 million
- Entered into an agreement to sell $149
million in UPB of performing loans from the distressed
portfolio3
- Assessing opportunities to access the
market for bulk sales of performing and nonperforming loans from
the distressed loan portfolio
Notable activity after quarter end
- Issued 7.8 million preferred shares for
gross proceeds of $195 million4
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.4 8.00% Series B
Fixed-to-Floating Rate Cumulative Redeemable preferred shares.
Includes 800,000 shares from the exercise of the underwriters’
over-allotment option.
“PMT continues to make solid progress in growing its credit risk
transfer and mortgage servicing rights investments and in
liquidating its distressed loan investments,” said President and
CEO David Spector. “Our second quarter results were driven by
strong contributions from our credit risk transfer investments and
from correspondent production, where we experienced significant
growth in volumes. The market volatility in interest rates, which
declined overall during the quarter, contributed to challenges in
managing our interest rate sensitive investments which include MSRs
and ESS. Our strategy is to continue transitioning PMT’s assets to
correspondent-related investments such as CRT and MSRs and to
assess opportunities to sell performing and non-performing loans
from our distressed portfolio.”
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 June 30, 2017
Credit
sensitive strategies
Interest rate
sensitive strategies
Correspondent
production
Corporate
Consolidated (in thousands) Net gain on
mortgage loans acquired for sale $ 149 $ - $ 17,143 $ - $ 17,292
Net gain (loss) on investments Distressed mortgage loans at fair
value 1,030 - - - 1,030 Mortgage loans held by variable interest
entity net of
asset-backed secured financing
- 456 - - 456 Mortgage-backed securities 257 3,770 - - 4,027 CRT
Agreements 32,853 - - - 32,853 Hedging derivatives - (4,889 ) - -
(4,889 ) Excess servicing spread investments
-
(5,885 )
- -
(5,885 ) 34,140 (6,548 ) - - 27,592 Net
mortgage loan servicing fees 29 15,668 - - 15,697 Net interest
income Interest income 20,739 18,672 12,820 155 52,386 Interest
expense
(13,809 )
(15,655 ) (8,962
) -
(38,426 ) 6,930 3,017 3,858 155 13,960
Other (loss) income
(1,079 )
- 10,497
- 9,418
40,169 12,137
31,498 155
83,959 Expenses: Mortgage loan
fulfillment and servicing fees
payable to PennyMac Financial Services,
Inc.
3,522 6,576 21,108 - 31,206 Management fees payable to PennyMac
Financial Services, Inc. - - - 5,638 5,638 Other
6,197 145
2,302 6,645
15,289 9,719
6,721 23,410
12,283 52,133 Pretax
income (loss)
30,450
5,416 8,088
(12,128 ) 31,826
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 $30.4 million on revenues of $40.2 million, compared
with pretax income of $19.4 million on revenues of
$25.8 million in the prior quarter.
Net gain on investments was $34.1 million, an increase of
55 percent from $22.0 million in the prior quarter.
PMT’s distressed mortgage loan portfolio generated realized and
unrealized gains totaling $1.0 million, compared with realized
and unrealized gains of $3.2 million in the prior quarter.
Fair value gains on the performing loans in the distressed
portfolio were $15.5 million while fair value losses on
nonperforming loans were $15.8 million.
The schedule below details the realized and unrealized gains
(losses) on distressed mortgage loans:
Quarter ended June 30, 2017
March 31, 2017 June 30,
2016 (in thousands) Valuation changes: Performing
loans $ 15,466 $ 5,970 $ (8,356 ) Nonperforming loans
(15,750 ) (3,169 ) (5,919 ) (284 ) 2,801 (14,275 )
Gain on payoffs 1,348 415 1,208 Gain (loss) on sale (34 )
- (396 ) $ 1,030 $ 3,216 $
(13,463 )
The performing loan portfolio benefitted from a strong market
for portfolios with similar attributes. The nonperforming loan
portfolio was adversely impacted by home price indications that
were below prior forecasts and increased uncertainty regarding the
realization of cash flows on the remaining population of loans.
Net gain on CRT investments was $32.9 million compared with
a gain of $18.6 million in the prior quarter. These gains
resulted from higher income on a larger investment position and
market-driven value changes related to tight credit spreads. At
quarter end, PMT’s deposits in CRT totaled $503 million,
compared with $464 million at March 31, 2017.
Net interest income for the segment totaled $6.9 million,
up 15 percent from the prior quarter. Interest income totaled
$20.7 million, a 2 percent increase from the prior quarter,
which included $10.8 million of capitalized interest from loan
modifications, up from $9.9 million in the prior quarter.
Capitalized interest increases interest income and reduces loan
valuation gains. Interest expense totaled $13.8 million, down
3 percent from the prior quarter driven by a smaller
distressed mortgage loan portfolio.
Other investment losses were $1.1 million, compared with a
$2.3 million loss in the prior quarter. At quarter end, PMT’s
inventory of REO properties totaled $207.0 million, down from
$224.8 million at March 31, 2017.
Segment expenses were $9.7 million, a 52 percent increase
from $6.4 million in the prior quarter. Other expenses in the
first quarter included gains realized on previously sold REO.
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 $5.4 million
on revenues of $12.1 million, compared with pretax income of
$0.7 million on revenues of $7.6 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.
The net loss on investments was $6.5 million, consisting of
$3.8 million of gains on MBS and $0.5 million of gains on
mortgage loans held by a variable interest entity, net of the
related asset-backed secured funding; $4.9 million of losses
on hedging derivatives; and $5.9 million of net losses on
ESS.
Net interest income for the segment was $3.0 million,
compared to $1.1 million in the prior quarter. Interest income
totaled $18.7 million, a 16 percent increase from the
prior quarter, driven by higher placement fees on MSR-related
escrow deposits. Interest expense totaled $15.7 million, a
4 percent increase from the prior quarter due to higher
short-term borrowing costs.
Net mortgage loan servicing fees were $15.7 million, up
from $11.7 million in the prior quarter. Net loan servicing
fees included $41.1 million in servicing fees, reduced by
$19.5 million of amortization and realization of MSR cash
flows. Net loan servicing fees also included a $4.1 million
impairment provision for MSRs carried at the lower of amortized
cost or fair value, a $4.4 million valuation loss on MSRs
carried at fair value and $2.4 million of related hedging
gains, and $0.2 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 June 30, 2017
March 30, 2017 June 30,
2016 (in thousands) From nonaffiliates Servicing fees
(1) $ 41,084 $ 38,505 $ 31,578 Effect of MSRs: Carried at lower of
amortized cost or fair value Amortization and realization of
cashflows (19,523 ) (17,858 ) (15,531 ) Reversal of (provision for)
impairment (4,089 ) 1,504 (23,170 ) Carried at fair value - change
in fair value (4,400 ) (1,993 ) (4,941 ) Gains (Losses) on hedging
derivatives 2,391 (8,698 ) 27,433
(25,621 ) (27,045 ) (16,198 ) From PennyMac Financial
Services, Inc. MSR recapture fee receivable from PFSI 234
292 311 Net mortgage loan
servicing fees $ 15,697 $ 11,752 $ 15,691
PMT’s MSR portfolio, which is subserviced by a subsidiary of
PennyMac Financial Services, Inc. (NYSE: PFSI), grew to
$63.3 billion in UPB compared with $59.6 billion at
March 31, 2017.
MSR and ESS valuation losses primarily resulted from higher
projected prepayment activity due to a decline in mortgage rates
during the quarter. ESS valuation losses are net of recapture
income totaling $1.4 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 $6.7 million, a 1 percent
decrease from $6.8 million in the prior quarter.
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
$8.1 million versus $12.5 million in the prior
quarter.
Through its correspondent production activities, PMT acquired
$16.3 billion in UPB of loans and issued IRLCs totaling
$18.2 billion in the second quarter, compared with
$13.9 billion and $14.5 billion, respectively, in the
prior quarter. Of the correspondent acquisitions, conventional
conforming acquisitions totaled $5.9 billion, and
government-insured or guaranteed acquisitions totaled
$10.4 billion, compared with $4.6 billion and
$9.3 billion, respectively, in the prior quarter.
Segment revenues were $31.5 million, a 2 percent
increase from the prior quarter. Net gain on mortgage loans
acquired for sale in the quarter declined 10 percent from the
prior quarter, driven by a 35 percent quarter-over-quarter increase
in conventional lock volumes, partially offset by tighter margins
reflecting highly competitive market conditions. Additionally, net
gain on mortgage loans acquired for sale in the prior quarter
included a $4.6 million benefit from a reduction in the estimate of
the liability for representations and warranties as compared to a
reduction of $1.3 million in the second quarter.
The following schedule details the net gain on mortgage loans
acquired for sale:
Quarter ended June 30, 2017
March 31, 2017 June 30,
2016 (in thousands) Net gain on mortgage loans acquired
for sale: Receipt of MSRs in loan sale transactions $ 65,834
$ 58,688 $ 60,109 Provision for losses relating to representations
and warranties
provided in mortgage loan sales:
Pursuant to mortgage loans sales (607 ) (673 ) (650 ) Reduction in
liability due to change in estimate 1,305 4,576 — Cash investment
(1) (43,204 ) (37,248 ) (47,579 ) Fair value changes of pipeline,
inventory and hedges (6,036 ) (6,318 )
12,346 $ 17,292 $ 19,025 $ 24,226
(1) Includes cash hedge expense
Segment expenses were $23.4 million, up 28 percent
from $18.3 million in the prior quarter, driven by an increase
in volume-based fulfillment fee expense. The weighted average
fulfillment fee rate in the second 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 $155,000, a decrease from $326,000 in the
prior quarter.
Management fees, which include incentive fees, were
$5.6 million, up 13 percent compared with
$5.0 million in the prior quarter. Incentive fees were
$304,000 in the second quarter, compared to none in the prior
quarter.
Other segment expenses were $6.6 million compared with
$5.4 million in the prior quarter, driven by a 19 percent
increase in professional services expense, primarily related to
financing and distressed asset transaction activities.
Taxes
PMT recorded an income tax expense of $3.0 million compared
with a $6.1 million benefit in the prior quarter.
“PMT continues to focus on CRT and MSR investments that result
from our correspondent production business,” concluded Executive
Chairman Stanford L. Kurland. “Fannie Mae and Freddie Mac recently
announced structural improvements to their credit risk transfer
programs which we expect will benefit PMT’s future CRT investments.
We are pleased with our capital progress, highlighted by our
successful raise of new preferred equity after quarter-end. The
ability to finance mortgage servicing rights has also improved
markedly with attractive transactions recently in the market. These
are exciting developments that we believe will enhance the
attractiveness of PMT’s core strategies and earnings potential
going forward."
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, August 3, 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 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; 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)
June 30, 2017 March 31,
2017 June 30, 2016 (in thousands
except share information)
ASSETS Cash $ 69,893 $ 120,049 $
95,705 Short-term investments 77,366 19,883 16,877 Mortgage-backed
securities at fair value 1,065,540 1,089,610 531,612 Mortgage loans
acquired for sale at fair value 1,318,603 1,278,441 1,461,029
Mortgage loans at fair value 1,527,812 1,583,356 2,035,997 Excess
servicing spread purchased from PennyMac Financial Services, Inc.
261,796 277,484 294,551 Derivative assets 73,875 41,213 35,007 Real
estate acquired in settlement of loans 207,034 224,831 299,458 Real
estate held for investment 40,316 35,537 20,662 Mortgage servicing
rights 734,800 696,970 471,458 Servicing advances 67,172 70,332
74,090 Deposits securing credit risk transfer agreements 503,108
463,836 338,812 Due from PennyMac Financial Services, Inc. 5,013
10,916 12,375 Other assets 57,916 90,488
79,929 Total assets $ 6,010,244 $
6,002,946 $ 5,767,562
LIABILITIES Assets sold
under agreements to repurchase $ 3,497,999 $ 3,500,190 $ 3,275,691
Mortgage loan participation and sale agreements 38,345 72,975
96,335 Notes payable 159,980 100,088 163,976 Asset-backed financing
of a variable interest entity at fair value 329,459 340,365 325,939
Exchangeable senior notes 246,629 246,357 245,564 Assets sold to
PennyMac Financial Services, Inc. under agreement to repurchase
150,000 150,000 150,000 Interest-only security payable at fair
value 6,577 4,601 1,663 Derivative liabilities 8,856 5,352 3,894
Accounts payable and accrued liabilities 74,253 80,219 75,587 Due
to PennyMac Financial Services, Inc. 17,725 20,756 22,054 Income
taxes payable 14,892 12,006 26,774 Liability for losses under
representations and warranties 10,697 11,447
19,258 Total liabilities 4,555,412
4,544,356 4,406,735
SHAREHOLDERS' EQUITY 8.125% Series A fixed-to floating rate
redeemable cumulative preferred shares of
beneficial interest, $0.01 par value per
share, 4,600,000 shares issued and outstanding,
$115,000,000 aggregate liquidation
preference
46 46 - Common shares of beneficial interest—authorized,
500,000,000 common shares of $0.01 par
value; issued and outstanding 66,842,495,
66,711,052, and 67,723,293 common shares, respectively
668 667 677 Additional paid-in capital 1,489,116 1,487,517
1,389,962 Accumulated deficit (34,998 ) (29,640 )
(29,812 ) Total shareholders' equity 1,454,832
1,458,590 1,360,827 Total liabilities
and shareholders' equity $ 6,010,244 $ 6,002,946 $
5,767,562
PENNYMAC MORTGAGE INVESTMENT TRUST AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended June 30,
2017 March 31, 2017
June 30, 2016 (in thousands, except per share
amounts)
Net investment income Net gain on mortgage loans
acquired for sale From nonaffiliates 14,088 16,624 22,095 From
PennyMac Financial Services, Inc. 3,204 2,401
2,131 17,292 19,025 24,226 Mortgage loan
origination fees 10,467 8,290 8,519 Net gain (loss) on investments:
From nonaffiliates 33,477 18,091 337 From PennyMac Financial
Services, Inc. (5,885 ) (1,370 ) (15,824 )
27,592 16,721 (15,487 ) Net mortgage loan servicing fees From
nonaffiliates 15,463 11,460 15,380 From PennyMac Financial
Services, Inc. 234 292 311
15,697 11,752 15,691 Interest income: From nonaffiliates
48,020 43,453 46,053 From PennyMac Financial Services, Inc.
4,366 4,647 5,713 52,386 48,100
51,766 Interest expense: To nonaffiliates 36,401 35,374 34,371 To
PennyMac Financial Services, Inc. 2,025 1,805
2,222 38,426 37,179 36,593 Net interest income
13,960 10,921 15,173 Results of real estate acquired in settlement
of loans (3,465 ) (4,246 ) (2,565 ) Other 2,416
2,011 2,061 Net investment income
83,959 64,474 47,618
Expenses Earned by PennyMac Financial Services, Inc.:
Mortgage loan fulfillment fees 21,107 16,570 19,111 Mortgage loan
servicing fees(1) 10,099 10,486 16,427 Management fees 5,638 5,008
5,199 Professional services 2,747 1,453 2,011 Compensation 1,959
1,892 2,224 Mortgage loan origination 1,993 1,512 1,557 Mortgage
loan collection and liquidation 3,338 354 4,290 Other 5,252
4,591 4,958 Total expenses
52,133 41,866 55,777 Income before benefit from income taxes 31,826
22,608 (8,159 ) Provision for (benefit) from income taxes
3,046 (6,129 ) (2,892 ) Net income 28,780
28,737 (5,267 ) Dividends on preferred shares 2,336
571 — Net income attributable to common
shareholders $ 26,444 $ 28,166 $ (5,267 )
Earnings
per common share Basic $ 0.39 $ 0.42 $ (0.08 ) Diluted $ 0.38 $
0.40 $ (0.08 )
Weighted-average common shares outstanding
Basic 66,761 66,719 68,446 Diluted 75,228 75,186 68,446
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/20170803006479/en/
PennyMac Mortgage Investment TrustMediaStephen Hagey,
(805) 530-5817orInvestorsChristopher Oltmann, (818)
224-7028
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