PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income
of $54.9 million, or $0.69 per diluted share, for the third quarter of
2014, on net investment income of $106.5 million. PMT previously
announced a cash dividend for the third quarter of 2014 of $0.61 per
common share of beneficial interest, which was declared on September 18,
2014 and paid on October 30, 2014.
Third Quarter 2014 Highlights
Financial results:
-
Diluted earnings per common share of $0.69, down 26 percent from the
prior quarter which was an all-time high for PMT
-
Net income of $54.9 million, down 27 percent from the prior quarter
-
Net investment income of $106.5 million, down 12 percent from the
prior quarter
-
Book value per share of $21.42, up from $21.27 at June 30, 2014
-
Return on average equity of 14 percent, down from 19 percent for the
prior quarter1
Investment activities and correspondent production results:
-
Mortgage servicing rights (MSR) and excess servicing spread (ESS)
investments, related to $60 billion in UPB, grew to $533 million at
September 30, 2014
-
Added $40 million in new MSR investments resulting from
correspondent production activities
-
Invested $9 million in ESS on mini-bulk and flow acquisitions of
Agency MSRs by PennyMac Financial Services, Inc. (PFSI) relating
to $1.6 billion in UPB
-
Opportunistic acquisition of $54 million in non-agency mortgage-backed
securities (MBS) backed by prime jumbo loans
-
Sold a pool of performing loans from PMT’s distressed loan portfolio
totaling $80 million in UPB
“PMT’s strong financial performance continued in the third quarter, as
demonstrated by the company’s earnings, return on equity, and increase
in the dividend,” said Stanford L. Kurland, PMT’s Chairman and Chief
Executive Officer. “The results reflect our ongoing success in managing
PMT’s investment portfolio, which includes distressed mortgage loans,
MBS, MSRs and ESS. We deployed capital into attractive new investments
such as MSRs and ESS while further diversifying PMT’s portfolio of
mortgage-related investments. While we didn’t acquire any new distressed
loan pools during the quarter, we are active bidders in the distressed
market and remain disciplined in pursuing new investments for PMT.”
PMT earned $57.9 million in pretax income for the quarter ended
September 30, 2014, a 21 percent decline from the second quarter.
The following table presents the contribution of PMT’s Investment
Activities and Correspondent Production segments to pretax income:
|
|
|
Quarter ended September 30, 2014
|
|
|
|
Investment
|
|
Correspondent
|
|
|
|
|
|
Activities
|
|
Lending
|
|
Total
|
Net investment income:
|
|
$ in thousands
|
|
Net gain on mortgage loans acquired for sale
|
|
$
|
-
|
|
|
$
|
9,509
|
|
$
|
9,509
|
|
|
Net gain on investments
|
|
|
70,390
|
|
|
|
-
|
|
|
70,390
|
|
|
Net interest income
|
|
|
|
|
|
|
|
Interest income
|
|
|
33,509
|
|
|
|
7,727
|
|
|
41,236
|
|
|
Interest expense
|
|
|
18,360
|
|
|
|
3,660
|
|
|
22,020
|
|
|
|
|
|
15,149
|
|
|
|
4,067
|
|
|
19,216
|
|
|
Net loan servicing fees
|
|
|
10,533
|
|
|
|
-
|
|
|
10,533
|
|
|
Other investment (loss) income
|
|
|
(9,642
|
)
|
|
|
6,524
|
|
|
(3,118
|
)
|
|
|
|
|
86,430
|
|
|
|
20,100
|
|
|
106,530
|
|
Expenses:
|
|
|
|
|
|
|
|
Loan Fulfillment, Servicing and Management fees payable to
PennyMac Financial Services, Inc
|
|
|
21,545
|
|
|
|
15,900
|
|
|
37,445
|
|
|
Other
|
|
|
9,744
|
|
|
|
1,410
|
|
|
11,154
|
|
|
|
|
|
31,289
|
|
|
|
17,310
|
|
|
48,599
|
|
Pretax income
|
|
$
|
55,141
|
|
|
$
|
2,790
|
|
$
|
57,931
|
|
Total assets at period end
|
|
$
|
3,896,371
|
|
|
$
|
708,442
|
|
$
|
4,604,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities Segment
The Investment Activities segment generated $55.1 million in pretax
income on revenues of $86.4 million in the third quarter, compared to
$70.9 million and $105.1 million, respectively, in the second quarter of
2014. Net gain on investments totaled $70.4 million in the third
quarter, a 4 percent decline from the second quarter. Net gain on
investments includes valuation gains on distressed loans of $81.3
million, which were partially offset by a $3.5 million loss on MBS and
retained interests positions, and valuation losses on ESS of $7.4
million largely resulting from increased expectations of future
prepayment speeds on government-insured loans underlying the investment.
In future periods as prepayments related to the ESS occur, PMT should
benefit from recapture income. The recapture benefit to PMT during the
quarter was $2.1 million.
Net interest income earned on PMT’s investments in distressed loans,
ESS, MBS and retained interests from jumbo securitization, declined by
$10.8 million to $15.1 million driven by a decline in loan modification
activity. Capitalized interest from loan modifications during a period
increases interest income and tends to reduce the loan valuation. Net
loan servicing fees were $10.5 million, up from $8.8 million in the
second quarter, driven by higher servicing fee revenue from a growing
investment in MSRs and a relatively modest net impact of MSR valuation
changes for the quarter. Other investment losses were $9.6 million,
versus losses of $2.7 million in the second quarter, driven by an
increase in losses related to real estate acquired in the settlement of
loans. Expenses were $31.3 million in the third quarter, down 9 percent
from the prior quarter driven by lower expenses associated with the
administration and sale of seasoned distressed loans, partially offset
by higher management and incentive fees paid to PFSI.
Distressed Mortgage Investments
PMT’s distressed mortgage loan portfolio generated realized and
unrealized gains totaling $81.3 million in the third quarter, compared
to $73.6 million in the second quarter. Of the gains in the third
quarter, $5.9 million was realized through payoffs in which collections
on the loan balances were at levels higher than their recorded fair
values, and $0.3 million was realized from the sale of performing loans
at a price higher than their recorded fair values.
The following schedule details the realized and unrealized gains on
mortgage loans:
|
|
Quarters ended
|
|
|
September 30, 2014
|
|
June 30, 2014
|
|
|
(in thousands)
|
Valuation changes:
|
|
|
|
|
Performing loans
|
|
$
|
23,255
|
|
$
|
39,123
|
Nonperforming loans
|
|
|
51,913
|
|
|
24,587
|
|
|
|
75,168
|
|
|
63,710
|
Payoffs
|
|
|
5,866
|
|
|
7,490
|
Sales
|
|
|
262
|
|
|
2,395
|
|
|
$
|
81,296
|
|
$
|
73,595
|
|
|
|
|
|
|
|
As distressed mortgage loans season in PMT’s portfolio, their payment
performance characteristics tend to move toward the extremes of either
current or seriously delinquent. The portfolios of performing and
nonperforming loans increased in value by $23.3 million and $51.9
million, respectively, in the third quarter. During the quarter,
valuation gains were driven by the improved progression of loans toward
their ultimate resolution, as well as stronger investor demand for
performing loans. Furthermore, improvements in actual and forecast home
prices in most geographic areas in the U.S. also contributed
meaningfully to gains in both the nonperforming and performing loan
portfolios.
During the quarter, PMT sold a pool of performing loans from its
distressed loan portfolio totaling $80 million in UPB.
Mortgage Servicing Rights
PMT’s MSR portfolio, which is subserviced by PFSI, grew to $32.3 billion
in UPB, compared to $29.4 billion in the second quarter. Servicing fee
revenue of $20.3 million was partially offset by amortization,
impairment and fair value losses totaling $9.8 million, resulting in net
loan servicing revenue of $10.5 million, up from $8.8 million in the
second quarter.
The following schedule details the net loan servicing fees:
|
|
Quarter ended
|
|
|
September 30, 2014
|
|
June 30, 2014
|
|
|
(in thousands)
|
Net loan servicing fees
|
|
|
|
|
Servicing fees (1)
|
|
$
|
20,300
|
|
|
$
|
19,156
|
|
MSR recapture fee receivable from PFSI
|
|
|
-
|
|
|
|
1
|
|
Effect of MSRs:
|
|
|
|
|
Carried at lower of amortized cost or fair value
|
|
|
|
|
Amortization
|
|
|
(8,109
|
)
|
|
|
(7,697
|
)
|
Reversal of (provision for) impairment
|
|
|
602
|
|
|
|
(2,224
|
)
|
Carried at fair value - change in fair value
|
|
|
(1,606
|
)
|
|
|
(4,764
|
)
|
Gains (losses) on hedging derivatives
|
|
|
(654
|
)
|
|
|
4,286
|
|
|
|
|
(9,767
|
)
|
|
|
(10,399
|
)
|
Net loan servicing fees
|
|
$
|
10,533
|
|
|
$
|
8,758
|
|
|
|
|
|
|
|
|
|
|
(1) Includes contractually specified servicing revenue.
|
|
|
|
|
|
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 an ongoing investment in MSRs.
For the quarter ended September 30, 2014, PMT’s Correspondent Production
segment generated pretax income of $2.8 million, versus pretax income of
$2.4 million in the second quarter. Revenues totaled $20.1 million, up
30 percent from the second quarter, driven by an increase in
conventional conforming and jumbo interest rate lock commitments (IRLCs)
during the quarter.
PMT acquired $8.1 billion in UPB of loans through its correspondent
activities in the third quarter, and IRLCs totaled $8.4 billion,
compared to $7.0 billion and $8.1 billion, respectively, in the second
quarter. Of the correspondent fundings, conventional conforming and
jumbo fundings totaled $3.7 billion, and government insured or
guaranteed loans were $4.4 billion. The increase in PMT’s loan
acquisition volumes was driven by market share gains aided by continued
low interest rates, which led to a larger total origination market
during the quarter.
Net gain on mortgage loans acquired for sale totaled $9.5 million in the
third quarter, which included the receipt of $39.6 million in new MSRs.
Segment revenues also included $6.5 million of loan origination fees and
net interest income of $4.1 million.
The following schedule details the net gain on mortgage loans acquired
for sale:
|
|
Quarter ended
|
|
|
September 30, 2014
|
|
June 30, 2014
|
|
|
(in thousands)
|
Net gain on mortgage loans acquired for sale
|
|
|
|
|
Receipt of MSRs in loan sale transactions
|
|
$
|
39,613
|
|
|
$
|
28,741
|
|
Provision for representation and warranties
|
|
|
(1,359
|
)
|
|
|
(1,022
|
)
|
Cash investment (1)
|
|
|
(28,178
|
)
|
|
|
(21,922
|
)
|
Fair value changes of pipeline, inventory and hedges
|
|
|
(567
|
)
|
|
|
4,425
|
|
|
|
$
|
9,509
|
|
|
$
|
10,222
|
|
(1) Net of cash hedge expense
|
|
|
|
|
|
|
|
|
|
Segment expenses increased 33 percent quarter-over-quarter to $17.3
million, primarily due to higher loan fulfillment fee expense resulting
from the increase in loan acquisition volumes. The average fulfillment
fee in the third quarter was 42 basis points, unchanged from the prior
quarter.
Expenses
Expenses for the third quarter totaled $48.6 million, compared to $47.3
million in the second quarter, primarily due to an increase in loan
fulfillment fees and management fees, which was partially offset by
lower servicing fee expense. Loan fulfillment fee expense increased 25
percent from the second quarter due to higher correspondent funding
volumes. Management fees increased by 8 percent from the second quarter,
driven by the higher incentive fees resulting from PMT’s strong
performance in recent quarters. Servicing fees declined 13 percent from
the second quarter due to a reduction in fees and costs associated with
the administration and sale of seasoned distressed loans.
The Company booked an income tax provision of $3.0 million in the third
quarter, versus an income tax benefit of $1.9 million in the second
quarter.
Mr. Kurland concluded, “We continually evaluate opportunities for new
investments for PMT across a variety of mortgage-related assets. We are
making attractive investments in MSRs resulting from our correspondent
production activity and new ESS acquisitions in partnership with PFSI.
We are focused on additional mortgage opportunities such as in prime
jumbo, a market that is improving as evidenced by our increasing jumbo
acquisitions through correspondent production and our opportunistic
investment in MBS backed by jumbo loans.”
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 Standard Time) on Wednesday, November 5,
2014. We encourage investors to submit questions via email to InvestorRelations@pnmac.com;
if any questions are submitted we will post responses via a document on
our website.
1 Return on average equity is calculated based on annualized
quarterly net income as a percentage of monthly average shareholders’
equity during the period.
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;
volatility in our industry, the debt or equity markets, the general
economy or the residential finance and real estate markets; changes in
general business, economic, market, employment and political conditions
or in consumer confidence; declines in residential real estate or
significant changes in U.S. housing prices or activity in the U.S.
housing market; availability of, and level of competition for,
attractive risk-adjusted investment opportunities in residential
mortgage loans and mortgage-related assets that satisfy our investment
objectives; concentration of credit risks to which we are exposed; the
degree and nature of our competition; our dependence on our manager and
servicer, potential conflicts of interest with such entities, and the
performance of such entities; availability, terms and deployment of
short-term and long-term capital; unanticipated increases or volatility
in financing and other costs; 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;
the quality and enforceability of the collateral documentation
evidencing our ownership and rights in the assets in which we invest;
increased rates of delinquency, default and/or decreased recovery rates
on our investments; increased prepayments of the mortgages and other
loans underlying our mortgage-backed securities and other investments;
the degree to which our hedging strategies may protect us from interest
rate volatility; our failure to maintain appropriate internal controls
over financial reporting; our ability to comply with various federal,
state and local laws and regulations that govern our business; changes
in legislation or regulations or the occurrence of other events that
impact the business, operations or prospects of government agencies,
mortgage lenders and/or publicly-traded companies; the creation of the
Consumer Financial Protection Bureau, or CFPB, and enforcement of its
rules; changes in government support of homeownership; changes in
government or government-sponsored home affordability programs; changes
in governmental regulations, accounting treatment, tax rates and similar
matters (including changes to laws governing the taxation of real estate
investment trusts, or REITs; limitations imposed on our business and our
ability to satisfy complex rules for us 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 our
subsidiaries to qualify as REITs or as taxable REIT subsidiaries for
U.S. federal income tax purposes and our ability and the ability of our
subsidiaries to operate effectively within the limitations imposed by
these rules; and the effect of public opinion on our reputation. 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
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
June 30, 2014
|
|
September 30, 2013
|
|
|
(in thousands except share data)
|
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
46,487
|
|
$
|
37,902
|
|
$
|
100,064
|
Short-term investments
|
|
|
37,452
|
|
|
104,453
|
|
|
80,936
|
Mortgage-backed securities at fair value pledged to secure
securities sold under agreements to repurchase
|
|
|
267,885
|
|
|
218,725
|
|
|
204,914
|
Agency debt securities at fair value
|
|
|
-
|
|
|
-
|
|
|
12,578
|
Mortgage loans acquired for sale at fair value
|
|
|
688,850
|
|
|
909,085
|
|
|
737,114
|
Mortgage loans at fair value
|
|
|
2,561,911
|
|
|
2,697,821
|
|
|
2,385,432
|
Mortgage loans under forward purchase agreements at fair value
|
|
|
-
|
|
|
-
|
|
|
228,086
|
Excess servicing spread purchased from PennyMac Financial Services,
Inc.
|
|
|
187,368
|
|
|
190,244
|
|
|
2,857
|
Derivative assets
|
|
|
10,344
|
|
|
14,594
|
|
|
18,415
|
Real estate acquired in settlement of loans
|
|
|
275,185
|
|
|
240,471
|
|
|
99,693
|
Real estate acquired in settlement of loans under forward purchase
agreements
|
|
|
-
|
|
|
-
|
|
|
3,509
|
Mortgage servicing rights
|
|
|
345,848
|
|
|
315,484
|
|
|
269,675
|
Servicing advances
|
|
|
59,325
|
|
|
63,993
|
|
|
43,741
|
Due from PennyMac Financial Services, Inc.
|
|
|
4,311
|
|
|
4,137
|
|
|
113
|
Other assets
|
|
|
119,847
|
|
|
72,836
|
|
|
62,104
|
Total assets
|
|
$
|
4,604,813
|
|
$
|
4,869,745
|
|
$
|
4,249,231
|
LIABILITIES
|
|
|
|
|
|
|
Assets sold under agreements to repurchase
|
|
$
|
2,416,686
|
|
$
|
2,701,755
|
|
$
|
1,980,058
|
Borrowings under forward purchase agreements
|
|
|
-
|
|
|
-
|
|
|
229,841
|
Asset-backed secured financing of the variable interest entity at
fair value
|
|
|
166,841
|
|
|
170,201
|
|
|
170,008
|
Exchangeable senior notes
|
|
|
250,000
|
|
|
250,000
|
|
|
250,000
|
Derivative liabilities
|
|
|
1,889
|
|
|
6,347
|
|
|
5,898
|
Accounts payable and accrued liabilities
|
|
|
80,493
|
|
|
69,552
|
|
|
34,649
|
Due to PennyMac Financial Services, Inc.
|
|
|
21,420
|
|
|
19,636
|
|
|
20,030
|
Income taxes payable
|
|
|
66,208
|
|
|
63,218
|
|
|
54,840
|
Liability for losses under representations and warrants
|
|
|
13,235
|
|
|
11,876
|
|
|
9,142
|
Total liabilities
|
|
|
3,016,772
|
|
|
3,292,585
|
|
|
2,754,466
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Common shares of beneficial interest—authorized, 500,000,000
common shares of $0.01 par value; issued and outstanding
74,139,570, 74,139,070, and 70,453,326 common shares
|
|
|
741
|
|
|
741
|
|
|
705
|
Additional paid-in capital
|
|
|
1,470,189
|
|
|
1,468,791
|
|
|
1,383,082
|
Retained earnings
|
|
|
117,111
|
|
|
107,628
|
|
|
110,978
|
Total shareholders' equity
|
|
|
1,588,041
|
|
|
1,577,160
|
|
|
1,494,765
|
Total liabilities and shareholders' equity
|
|
$
|
4,604,813
|
|
$
|
4,869,745
|
|
$
|
4,249,231
|
|
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
September 30, 2014
|
|
June 30, 2014
|
|
September 30, 2013
|
|
|
(in thousands, except per share data)
|
Investment Income
|
|
|
|
|
|
|
Net gain on mortgage loans acquired for sale
|
|
$
|
9,509
|
|
|
$
|
10,222
|
|
|
$
|
11,031
|
|
Loan origination fees
|
|
|
6,447
|
|
|
|
4,485
|
|
|
|
4,559
|
|
Net interest income:
|
|
|
|
|
|
|
Interest income
|
|
|
41,236
|
|
|
|
48,518
|
|
|
|
35,278
|
|
Interest expense
|
|
|
22,020
|
|
|
|
21,865
|
|
|
|
19,497
|
|
|
|
|
19,216
|
|
|
|
26,653
|
|
|
|
15,781
|
|
Net gain on investments
|
|
|
70,390
|
|
|
|
73,134
|
|
|
|
49,086
|
|
Net loan servicing fees
|
|
|
10,533
|
|
|
|
8,758
|
|
|
|
6,659
|
|
Results of real estate acquired in settlement of loans
|
|
|
(11,926
|
)
|
|
|
(5,348
|
)
|
|
|
(2,295
|
)
|
Other
|
|
|
2,361
|
|
|
|
2,652
|
|
|
|
1,241
|
|
Net investment income
|
|
|
106,530
|
|
|
|
120,556
|
|
|
|
86,062
|
|
Expenses
|
|
|
|
|
|
|
Expenses payable to PennyMac Financial Services, Inc.:
|
|
|
|
|
|
|
Loan servicing fees (1)
|
|
|
12,325
|
|
|
|
14,180
|
|
|
|
10,738
|
|
Loan fulfillment fees
|
|
|
15,497
|
|
|
|
12,433
|
|
|
|
18,327
|
|
Management fees
|
|
|
9,623
|
|
|
|
8,912
|
|
|
|
8,539
|
|
Professional services
|
|
|
1,927
|
|
|
|
2,690
|
|
|
|
2,149
|
|
Compensation
|
|
|
1,843
|
|
|
|
1,883
|
|
|
|
2,292
|
|
Other
|
|
|
7,384
|
|
|
|
7,154
|
|
|
|
7,955
|
|
Total expenses
|
|
|
48,599
|
|
|
|
47,252
|
|
|
|
50,000
|
|
Income before provision for income taxes
|
|
|
57,931
|
|
|
|
73,304
|
|
|
|
36,062
|
|
Provision (Benefit from) for income taxes
|
|
|
2,982
|
|
|
|
(1,907
|
)
|
|
|
(3,639
|
)
|
Net income
|
|
|
54,949
|
|
|
|
75,211
|
|
|
|
39,701
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
Basic
|
|
$
|
0.74
|
|
|
$
|
1.01
|
|
|
$
|
0.61
|
|
Diluted
|
|
$
|
0.69
|
|
|
$
|
0.93
|
|
|
$
|
0.57
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
Basic
|
|
|
74,140
|
|
|
|
74,065
|
|
|
|
64,405
|
|
Diluted
|
|
|
82,832
|
|
|
|
82,750
|
|
|
|
73,121
|
|
(1) Servicing expenses include both special servicing for PMT’s
distressed portfolio and subservicing for its mortgage servicing rights.
Copyright Business Wire 2014