PennyMac Mortgage Investment Trust Reports Third Quarter 2020 Results
PennyMac Mortgage Investment Trust (NYSE: PMT) reported net income of $93.3 million ($0.94 per share) for Q3 2020, down from $458.4 million in Q2. Net investment income stood at $221 million, primarily driven by robust Correspondent Production segment results. Book value per share increased to $19.95. The company announced a cash dividend of $0.40, paid on October 30, 2020. Correspondent loan production reached $27.4 billion, marking a 45% rise from the previous quarter. The report emphasizes the focus on leveraging market position and technology to enhance returns.
- Net income of $93.3 million for Q3 2020.
- Book value per share increased to $19.95.
- Correspondent loan production rose 45% to $27.4 billion.
- Cash dividend of $0.40 declared and paid to shareholders.
- Net income decreased significantly from $458.4 million in Q2.
- Pretax income in Credit Sensitive Strategies segment dropped to $50 million from $458.8 million in the previous quarter.
- Correspondent Production segment income fell to $86.9 million from $139.6 million in Q2.
WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income attributable to common shareholders of
Third Quarter 2020 Highlights
Financial results:
-
Net income attributable to common shareholders of
$93.3 million , down from$458.4 million in the prior quarter- Driven by strong Correspondent Production segment results and income from government-sponsored enterprise (GSE) credit risk transfer (CRT) investments
-
Book value per common share increased to
$19.95 at September 30, 2020 from$19.39 at June 30, 2020
Other investment and financing highlights:
-
Record correspondent production volumes drove strong investment activity
-
Conventional correspondent loan production totaled
$27.4 billion in unpaid principal balance (UPB), up 45 percent from the prior quarter -
Added
$265 million in new MSRs -
CRT deliveries totaled
$1.8 billion in UPB resulting in a firm commitment to purchase$42million of new CRT securities
-
Conventional correspondent loan production totaled
-
Repurchased approximately 492,000 common shares of PMT at a total cost of
$8.3 million
Notable activity after quarter end:
- CRT-6 settlement is expected in the fourth quarter for which PMT has arranged appropriate financing1
“PMT delivered strong earnings during the third quarter driven by record correspondent production volumes and income from its credit risk transfer investments,” said President and CEO David Spector. “Earnings per share again exceeded the quarterly dividend and as a result, book value per share increased to
[1] 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. |
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, 2020 | |||||||||||||||||||
| Credit sensitive stratgies |
Interest rate sensitive strategies |
Correspondent production |
Corporate | Consolidated | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Net investment income (loss): | |||||||||||||||||||
| Net gain (loss) on investments: | |||||||||||||||||||
| CRT investments | $ |
60,952 |
|
$ |
- |
|
$ |
- |
$ |
- |
|
$ |
60,952 |
|
|||||
| Loans at fair value |
|
193 |
|
|
- |
|
|
- |
|
- |
|
|
193 |
|
|||||
| Loans held by variable interest entity net of asset-backed secured financing |
|
- |
|
|
201 |
|
|
- |
|
- |
|
|
201 |
|
|||||
| Mortgage-backed securities |
|
- |
|
|
(37,873 |
) |
|
- |
|
- |
|
|
(37,873 |
) |
|||||
| Hedging derivatives |
|
(1,134 |
) |
|
(132 |
) |
|
- |
|
- |
|
|
(1,266 |
) |
|||||
| Excess servicing spread investments |
|
- |
|
|
(2,610 |
) |
|
- |
|
- |
|
|
(2,610 |
) |
|||||
|
60,011 |
|
|
(40,414 |
) |
|
- |
|
- |
|
|
19,597 |
|
||||||
| Net loan servicing fees |
|
- |
|
|
60,427 |
|
|
- |
|
- |
|
|
60,427 |
|
|||||
| Net gain on loans acquired for sale |
|
(3,934 |
) |
|
- |
|
|
102,356 |
|
- |
|
|
98,422 |
|
|||||
| Net interest (expense) income: | |||||||||||||||||||
| Interest income |
|
656 |
|
|
33,516 |
|
|
26,073 |
|
378 |
|
|
60,623 |
|
|||||
| Interest expense |
|
6,236 |
|
|
36,178 |
|
|
16,547 |
|
56 |
|
|
59,017 |
|
|||||
|
(5,580 |
) |
|
(2,662 |
) |
|
9,526 |
|
322 |
|
|
1,606 |
|
||||||
| Other income |
|
2,321 |
|
|
- |
|
|
38,640 |
|
- |
|
|
40,961 |
|
|||||
|
52,818 |
|
|
17,351 |
|
|
150,522 |
|
322 |
|
|
221,013 |
|
||||||
| Expenses: | |||||||||||||||||||
| Loan fulfillment and servicing fees payable to PennyMac Financial Services, Inc. |
|
187 |
|
|
18,564 |
|
|
54,840 |
|
- |
|
|
73,591 |
|
|||||
| Management fees payable to PennyMac Financial Services, Inc. |
|
- |
|
|
- |
|
|
- |
|
8,508 |
|
|
8,508 |
|
|||||
| Other |
|
2,603 |
|
|
270 |
|
|
8,786 |
|
5,058 |
|
|
16,717 |
|
|||||
$ |
2,790 |
|
$ |
18,834 |
|
$ |
63,626 |
$ |
13,566 |
|
$ |
98,816 |
|
||||||
| Pretax income (loss) | $ |
50,028 |
|
$ |
(1,483 |
) |
$ |
86,896 |
$ |
(13,244 |
) |
$ |
122,197 |
|
|||||
Credit Sensitive Strategies Segment
The Credit Sensitive Strategies segment primarily includes results from CRT, and also includes distressed loans and non-Agency subordinated bonds. Pretax income for the segment was
Net gain on investments in the segment was
Net gain on CRT investments for the quarter was
In alignment with the Agencies’ wind down of front-end lender risk share transactions, CRT deliveries totaled
The Credit Sensitive Strategies segment also recorded a net loss on loans acquired for sale of
Net interest expense for the segment totaled
Segment expenses were
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. Pretax loss for the segment was
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 was
Net loan servicing fees were
The following schedule details net loan servicing fees:
| Quarter ended | |||||||||||
| September 30, 2020 | June 30, 2020 | September 30 2019 | |||||||||
| (in thousands) | |||||||||||
| From non-affiliates: | |||||||||||
| Contractually specified(1) | $ |
98,027 |
|
$ |
101,823 |
|
$ |
76,377 |
|
||
| Other fees |
|
18,660 |
|
|
11,887 |
|
|
6,994 |
|
||
| Effect of MSRs: | |||||||||||
| Carried at fair value—change in fair value | |||||||||||
| Realization of cashflows |
|
(53,418 |
) |
|
(59,199 |
) |
|
(55,673 |
) |
||
| Other |
|
(13,055 |
) |
|
(111,649 |
) |
|
(157,928 |
) |
||
|
(66,473 |
) |
|
(170,848 |
) |
|
(213,601 |
) |
|||
| Gains (losses) on hedging derivatives |
|
962 |
|
|
(50,650 |
) |
|
133,921 |
|
||
|
(65,511 |
) |
|
(221,498 |
) |
|
(79,680 |
) |
|||
|
51,176 |
|
|
(107,788 |
) |
|
3,691 |
|
|||
| From PFSI—MSR recapture income |
|
9,251 |
|
|
5,128 |
|
|
1,468 |
|
||
| Net loan servicing fees | $ |
60,427 |
|
$ |
(102,660 |
) |
$ |
5,159 |
|
||
| (1) Includes contractually specified servicing fees, net of guarantee fees. | |||||||||||
MSR and ESS valuation losses were primarily driven by expectations for increased prepayment activity in the future related to slightly lower mortgage interest rates. PMT benefited from higher recapture income from PFSI for elevated prepayments during the quarter. PMT generally benefits from recapture income when the prepayment of a loan underlying PMT’s MSR or ESS results from refinancing by PFSI.
Net interest expense for the segment was
Segment expenses were
Correspondent Production Segment
PMT acquires newly originated loans from correspondent sellers and typically sells or securitizes the loans, resulting in current-period income and additions to its investments in MSRs and CRT related to a portion of its production. PMT’s Correspondent Production segment generated pretax income of
Through its correspondent production activities, PMT acquired
Segment revenues were
Segment expenses were
Corporate Segment
The Corporate segment includes interest income from cash and short-term investments, management fees, and corporate expenses.
Segment net investment income was
Management fees were
Other segment expenses were
Taxes
PMT recorded income tax expense of
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 Time) on Thursday, November 5, 2020.
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 wholly-owned subsidiary of PennyMac Financial Services, Inc. (NYSE: PFSI). Additional information about PennyMac Mortgage Investment Trust is available at www.PennyMac-REIT.com.
Forward-Looking Statements
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: our exposure to risks of loss and disruptions in operations resulting from adverse weather conditions, man-made or natural disasters, climate change and pandemics such as COVID-19; the impact to our CRT agreements of increased borrower requests for forbearance under the CARES Act; changes in the Company’s investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject it to additional risks; volatility in the Company’s 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 and housing markets or otherwise have a broad impact on financial and housing markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or manmade disasters, or threatened or actual armed conflicts; changes in general business, economic, market, employment and domestic and international 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 the Company’s investment objectives; the inherent difficulty in winning bids to acquire mortgage loans, and the Company’s success in doing so; the concentration of credit risks to which the Company is exposed; the degree and nature of the Company’s competition; the Company’s dependence on its 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 its manager, servicer or their affiliates; the availability, terms and deployment of short-term and long-term capital; the adequacy of the Company’s cash reserves and working capital; the Company’s ability to maintain the desired relationship between its financing and the interest rates and maturities of its assets; the timing and amount of cash flows, if any, from the Company’s 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 the Company’s servicer, which also provides the Company 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 the Company’s customers and counterparties; the Company’s indemnification and repurchase obligations in connection with mortgage loans it purchases and later sells or securitizes; the quality and enforceability of the collateral documentation evidencing the Company’s ownership and rights in the assets in which it invests; increased rates of delinquency, default and/or decreased recovery rates on the Company’s investments; the performance of mortgage loans underlying mortgage-backed securities in which the Company retains credit risk; the Company’s ability to foreclose on its investments in a timely manner or at all; increased prepayments of the mortgages and other loans underlying the Company’s mortgage-backed securities or relating to the Company’s mortgage servicing rights, excess servicing spread and other investments; the degree to which the Company’s hedging strategies may or may not protect it from interest rate volatility; the effect of the accuracy of or changes in the estimates the Company makes about uncertainties, contingencies and asset and liability valuations when measuring and reporting upon the Company’s financial condition and results of operations; the Company’s ability to maintain appropriate internal control over financial reporting; technologies for loans and the Company’s ability to mitigate security risks and cyber intrusions; the Company’s ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct its business; the Company’s ability to detect misconduct and fraud; the Company’s ability to comply with various federal, state and local laws and regulations that govern its business; developments in the secondary markets for the Company’s 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 such as the Government National Mortgage Association, the Federal Housing Administration or the Veterans Administration, the U.S. Department of Agriculture, or government-sponsored entities such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, 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 the Company’s business and its ability to satisfy complex rules for it to qualify as a 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 the Company’s subsidiaries to qualify as REITs or as taxable REIT subsidiaries for U.S. federal income tax purposes, as applicable, and the Company’s ability and the ability of its 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 Company’s ability to make distributions to its shareholders in the future; the Company’s failure to deal appropriately with issues that may give rise to reputational risk; and the Company’s organizational structure and certain requirements in its 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, 2020 | June 30, 2020 | September 30, 2019 | ||||||||
| (in thousands except share amounts) | ||||||||||
| ASSETS | ||||||||||
| Cash | $ |
278,486 |
|
$ |
346,007 |
|
$ |
113,651 |
||
| Short-term investments |
|
81,624 |
|
|
273,592 |
|
|
74,895 |
||
| Mortgage-backed securities at fair value |
|
2,404,766 |
|
|
2,612,986 |
|
|
2,325,010 |
||
| Loans acquired for sale at fair value |
|
4,024,494 |
|
|
2,179,962 |
|
|
3,947,368 |
||
| Loans at fair value |
|
193,832 |
|
|
230,660 |
|
|
290,527 |
||
| Excess servicing spread received from PennyMac Financial Services, Inc. |
|
142,990 |
|
|
151,206 |
|
|
183,141 |
||
| Derivative and credit risk transfer strip assets |
|
107,436 |
|
|
114,346 |
|
|
274,444 |
||
| Firm commitment to purchase credit risk transfer securities at fair value |
|
- |
|
|
- |
|
|
54,734 |
||
| Real estate acquired in settlement of loans |
|
35,697 |
|
|
43,559 |
|
|
79,201 |
||
| Deposits securing credit risk transfer arrangements |
|
1,417,792 |
|
|
1,666,449 |
|
|
2,044,250 |
||
| Mortgage servicing rights |
|
1,388,403 |
|
|
1,189,605 |
|
|
1,162,714 |
||
| Servicing advances |
|
46,897 |
|
|
38,254 |
|
|
32,057 |
||
| Due from PennyMac Financial Services, Inc. |
|
18,872 |
|
|
3,458 |
|
|
4,993 |
||
| Other |
|
313,778 |
|
|
233,635 |
|
|
157,624 |
||
| Total assets | $ |
10,455,067 |
|
$ |
9,083,719 |
|
$ |
10,744,609 |
||
| LIABILITIES | ||||||||||
| Assets sold under agreements to repurchase | $ |
5,439,835 |
|
$ |
3,981,761 |
|
$ |
6,355,476 |
||
| Mortgage loan participation and sale agreements |
|
79,721 |
|
|
93,117 |
|
|
- |
||
| Exchangeable senior notes |
|
196,058 |
|
|
195,333 |
|
|
249,269 |
||
| Notes payable secured by credit risk transfer and mortgage servicing assets |
|
1,602,389 |
|
|
1,810,845 |
|
|
1,361,142 |
||
| Asset-backed financing of a variable interest entity at fair value |
|
175,879 |
|
|
212,170 |
|
|
261,209 |
||
| Interest-only security payable at fair value |
|
12,940 |
|
|
14,981 |
|
|
24,729 |
||
| Assets sold to PennyMac Financial Services, Inc. under agreement to repurchase |
|
86,958 |
|
|
90,101 |
|
|
107,678 |
||
| Derivative and credit risk transfer strip liabilities at fair value |
|
166,080 |
|
|
140,201 |
|
|
9,160 |
||
| Firm commitment to purchase credit risk transfer securities at fair value |
|
148,794 |
|
|
191,193 |
|
|
- |
||
| Accounts payable and accrued liabilities |
|
94,864 |
|
|
48,735 |
|
|
108,913 |
||
| Due to PennyMac Financial Services, Inc. |
|
122,478 |
|
|
44,329 |
|
|
39,744 |
||
| Income taxes payable |
|
33,164 |
|
|
15,451 |
|
|
- |
||
| Liability for losses under representations and warranties |
|
14,641 |
|
|
10,225 |
|
|
7,678 |
||
| Total liabilities |
|
8,173,801 |
|
|
6,848,442 |
|
|
8,524,998 |
||
| 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 99,275,258, and 90,345,127 common shares, respectively |
|
988 |
|
|
993 |
|
|
903 |
||
| Additional paid-in capital |
|
2,111,854 |
|
|
2,119,577 |
|
|
1,901,852 |
||
| (Accumulated deficit) retained earnings |
|
(131,283 |
) |
|
(185,000 |
) |
|
17,149 |
||
| Total shareholders' equity |
|
2,281,266 |
|
|
2,235,277 |
|
|
2,219,611 |
||
| Total liabilities and shareholders' equity | $ |
10,455,067 |
|
$ |
9,083,719 |
|
$ |
10,744,609 |
||
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||||||
| For the Quarterly Periods Ended | |||||||||||
| September 30, 2020 | June 30, 2020 | September 30, 2019 | |||||||||
| (in thousands, except per share amounts) | |||||||||||
| Investment Income | |||||||||||
| Net gain on investments | $ |
19,597 |
|
$ |
488,934 |
|
$ |
45,789 |
|
||
| Net loan servicing fees: | |||||||||||
| From nonaffiliates | |||||||||||
| Servicing fees |
|
125,938 |
|
|
118,838 |
|
|
84,839 |
|
||
| Change in fair value of mortgage servicing rights |
|
(66,473 |
) |
|
(170,848 |
) |
|
(213,601 |
) |
||
| Hedging results |
|
962 |
|
|
(50,650 |
) |
|
133,921 |
|
||
|
60,427 |
|
|
(102,660 |
) |
|
5,159 |
|
|||
| Net gain on loans acquired for sale |
|
98,422 |
|
|
162,214 |
|
|
49,260 |
|
||
| Loan origination fees |
|
38,547 |
|
|
25,208 |
|
|
25,470 |
|
||
| Interest income |
|
60,623 |
|
|
40,812 |
|
|
87,801 |
|
||
| Interest expense |
|
59,017 |
|
|
61,048 |
|
|
84,229 |
|
||
| Net interest income (expense) |
|
1,606 |
|
|
(20,236 |
) |
|
3,572 |
|
||
| Results of real estate acquired in settlement of loans |
|
2,259 |
|
|
2,856 |
|
|
702 |
|
||
| Other |
|
155 |
|
|
2,005 |
|
|
808 |
|
||
| Net investment income |
|
221,013 |
|
|
558,321 |
|
|
130,760 |
|
||
| Expenses | |||||||||||
| Earned by PennyMac Financial Services, Inc.: | |||||||||||
| Loan fulfillment fees |
|
54,839 |
|
|
52,815 |
|
|
45,149 |
|
||
| Loan servicing fees |
|
18,752 |
|
|
15,533 |
|
|
12,964 |
|
||
| Management fees |
|
8,508 |
|
|
8,288 |
|
|
10,098 |
|
||
| Loan origination |
|
7,234 |
|
|
4,468 |
|
|
4,328 |
|
||
| Safekeeping |
|
1,075 |
|
|
1,905 |
|
|
1,633 |
|
||
| Professional services |
|
1,554 |
|
|
1,492 |
|
|
1,430 |
|
||
| Loan collection and liquidation |
|
1,082 |
|
|
864 |
|
|
1,551 |
|
||
| Compensation |
|
1,039 |
|
|
1,200 |
|
|
1,644 |
|
||
| Other |
|
4,733 |
|
|
3,693 |
|
|
3,830 |
|
||
| Total expenses |
|
98,816 |
|
|
90,258 |
|
|
82,627 |
|
||
| Income before provision for (benefit from) income taxes |
|
122,197 |
|
|
468,063 |
|
|
48,133 |
|
||
| Provision for (benefit from) income taxes |
|
22,650 |
|
|
3,443 |
|
|
(21,867 |
) |
||
| Net income |
|
99,547 |
|
|
464,620 |
|
|
70,000 |
|
||
| Dividends on preferred shares |
|
6,234 |
|
|
6,235 |
|
|
6,234 |
|
||
| Net income attributable to common shareholders | $ |
93,313 |
|
$ |
458,385 |
|
$ |
63,766 |
|
||
| Earnings per share | |||||||||||
| Basic | $ |
0.94 |
|
$ |
4.59 |
|
$ |
0.75 |
|
||
| Diluted | $ |
0.94 |
|
$ |
4.51 |
|
$ |
0.71 |
|
||
| Weighted average shares outstanding | |||||||||||
| Basic |
|
99,227 |
|
|
99,689 |
|
|
84,367 |
|
||
| Diluted |
|
99,424 |
|
|
101,592 |
|
|
92,834 |
|
||
| Dividends declared per common share | $ |
0.40 |
|
$ |
0.40 |
|
$ |
0.47 |
|
||
