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PennyMac Mortgage Investment Trust Reports First Quarter 2021 Results

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·21 min read
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PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income attributable to common shareholders of $65.4 million, or $0.67 per common share on a diluted basis for the first quarter of 2021, on net investment income of $201.4 million. PMT previously announced a cash dividend for the first quarter of 2021 of $0.47 per common share of beneficial interest, which was declared on March 24, 2021 and paid on April 29, 2021 to common shareholders of record as of April 15, 2021.

First Quarter 2021 Highlights

Financial results:

  • Net income attributable to common shareholders of $65.4 million, down from $76.6 million in the prior quarter

    • Strong correspondent segment results and continued improvement in the fair value of government-sponsored enterprise (GSE) credit risk transfer (CRT) investments due to credit spread tightening

    • Mortgage servicing rights (MSR) fair value gains more than offset by fair value declines on Agency mortgage-backed securities (MBS) and interest rate hedges due to significant prepayment activity and elevated hedge costs driven by market volatility

  • Book value per common share of $20.90 at March 31, 2021, up from $20.30 at December 31, 2020

Other investment and financing highlights:

  • Investment activity driven by strong correspondent production volumes

    • Conventional correspondent loan production volumes of $33.8 billion in unpaid principal balance (UPB), down 11 percent from the prior quarter and up 109 percent from the first quarter of 2020

    • Added $408 million in new MSRs

    • Sold remaining excess servicing spread (ESS) investment to PennyMac Financial Services, Inc. (NYSE: PFSI) at fair value

  • Issued $1.4 billion in term debt, further strengthening PMT’s capital structure

    • $659 million of 3-year term notes issued to replace short-term securities repurchase agreements associated with PMT’s sixth CRT transaction

    • $350 million of 5-year Fannie Mae MSR term notes issued to replace short-term financing

    • Raised $345 million of new 5-year senior exchangeable notes

"PMT delivered another strong quarter of investment performance with earnings in excess of the dividend level," said Chairman and CEO David Spector. "We saw strong correspondent production segment results and continued improvement in the fair value of our credit risk transfer investments. The CRT performance also reflects the successful implementation of loss mitigation activities by our manager and services provider, PennyMac Financial. PMT also issued $1.4 billion in term debt during the quarter, further strengthening its balance sheet. As the largest correspondent aggregator in the U.S., combined with its synergistic partnership with PennyMac Financial, PMT enjoys a unique, competitive advantage allowing it to organically create high-quality MSR investments and we continue to redeploy capital into these new investments as our CRT portfolio seasons."

Mr. Spector continued, "As we look at the evolving mortgage landscape, we believe PMT remains uniquely positioned to capitalize on the current environment characterized by elevated production volumes. Additionally, we expect changes to the GSE preferred stock purchase agreements limiting cash window deliveries to make the role of well-capitalized correspondent aggregators like PMT increasingly important to a healthy mortgage market. Finally, we look forward to further discussing our outlook for the business at our upcoming investor day for PennyMac Mortgage Investment Trust and PennyMac Financial."

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 March 31, 2021

Credit sensitive strategies

Interest rate sensitive strategies

Correspondent production

Corporate

Consolidated

(in thousands)

Net investment income (loss):

Net gain on loans acquired for sale

$

(1

)

$

-

$

53,013

$

-

$

53,012

Net (loss) gain on investments:

CRT investments

154,031

-

-

-

154,031

Loans at fair value

95

-

-

-

95

Loans held by variable interest entity net of
asset-backed secured financing

-

(1,445

)

-

-

(1,445

)

Mortgage-backed securities

-

(71,117

)

-

-

(71,117

)

Hedging derivatives

145

(169

)

-

-

(24

)

Excess servicing spread investments

-

1,651

-

-

1,651

154,271

(71,080

)

-

-

83,191

Net loan servicing fees

-

50,045

-

-

50,045

Net interest (expense) income:

Interest income

650

13,516

22,797

626

37,589

Interest expense

17,261

37,316

21,731

-

76,308

(16,611

)

(23,800

)

1,066

626

(38,719

)

Other income

888

-

52,980

-

53,868

138,547

(44,835

)

107,059

626

201,397

Expenses:

Loan fulfillment and servicing fees
payable to PennyMac Financial Services, Inc.

137

18,955

60,836

-

79,928

Management fees payable to
PennyMac Financial Services, Inc.

-

-

-

8,449

8,449

Other

4,150

812

10,646

6,384

21,992

$

4,287

$

19,767

$

71,482

$

14,833

$

110,369

Pretax income (loss)

$

134,260

$

(64,602

)

$

35,577

$

(14,207

)

$

91,028

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 $134.3 million on revenues of $138.5 million, compared to pretax income of $134.5 million on revenues of $141.1 million in the prior quarter.

Net gain on investments in the segment was $154.3 million, up from $149.8 million in the prior quarter.

Net gain on CRT investments for the quarter was $154.0 million, down from $163.7 million in the prior quarter, and included $98.1 million in valuation-related gains which reflects the impact of credit spread tightening and elevated prepayment speeds. The prior quarter included $209.9 million in such gains. Net gain on CRT investments also included $42.7 million in realized gains and carry, compared to a gain of $48.2 million in the prior quarter. Recoveries net of realized losses during the quarter were $13.3 million, primarily related to L Street Securities 2017-PM1, as losses were reversed for loans that had been in forbearance and reperformed.

Net interest expense for the segment totaled $16.6 million, compared to $9.1 million in the prior quarter. Interest income totaled $0.7 million, up slightly from $0.6 million in the prior quarter. Interest expense totaled $17.3 million, up from $9.6 million in the prior quarter primarily due to the settlement of PMT’s sixth CRT transaction late in the fourth quarter.

Segment expenses were $4.3 million, down from $6.6 million in the prior quarter due to lower expenses related to assisting certain borrowers in mitigating loan delinquencies they incurred as a result of dislocations arising from the COVID-19 pandemic.

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 $64.6 million on investment losses of $44.8 million, compared to a pretax loss of $100.1 million on investment losses of $82.4 million in the prior quarter. The segment includes investments that typically have offsetting fair value exposures to changes in interest rates. For example, in a period with increasing interest rates, MSRs and ESS typically increase in fair value whereas Agency MBS typically decrease in fair 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 was $71.1 million, and consisted of $71.1 million of losses on MBS, $1.4 million of losses on loans held by variable interest entity net of asset-backed secured financing, and $0.2 million of losses on hedging derivatives, and $1.7 million of gains in ESS investments.

Net loan servicing fees were $50.0 million, up from a loss of $48.6 million in the prior quarter. Net loan servicing fees included servicing fees of $116.3 million, up from the prior quarter primarily driven by a larger portfolio, and $16.2 million in other fees, reduced by $59.4 million in realization of MSR cash flows, which was up 6 percent from the prior quarter. Net loan servicing fees also included $337.7 million in fair value gains of MSRs, $374.4 million in related hedging losses, and $13.6 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 loan servicing fees:

Quarter ended

March 31, 2021

December 31, 2020

March 31, 2020

(in thousands)

From non-affiliates:

Contractually specified(1)

$

116,287

$

111,741

$

94,469

Other fees

16,245

18,719

7,191

Effect of MSRs:

Carried at fair value—change in fair value

Realization of cashflows

(59,385

)

(56,258

)

(63,955

)

Other

337,667

(18,157

)

(563,246

)

278,282

(74,415

)

(627,201

)

Gains (losses) on hedging derivatives

(374,403

)

(115,755

)

767,186

(96,121

)

(190,170

)

139,985

36,411

(59,710

)

241,645

From PFSI—MSR recapture income

13,634

11,067

2,927

Net loan servicing fees

$

50,045

$

(48,643

)

$

244,572

(1) Includes contractually specified servicing fees, net of guarantee fees.

MSR and ESS fair value gains resulted from lower expectations for prepayment activity in the future driven by higher interest rates, while Agency MBS and interest rate hedges declined in fair value. PMT benefited from higher recapture income from PFSI for elevated prepayment activity 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 $23.8 million, up from $19.7 million in the prior quarter. Interest income totaled $13.5 million, down from $17.6 million in the prior quarter, primarily lower earnings rates on custodial balances. Interest expense totaled $37.3 million, essentially unchanged from the prior quarter.

Segment expenses were $19.8 million, up from $17.6 million in the prior quarter.

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 related to a portion of its production. PMT’s Correspondent Production segment generated pretax income of $35.6 million, down from $52.7 million in the prior quarter.

Through its correspondent production activities, PMT acquired $51.2 billion in UPB of loans, down 10 percent from the prior quarter and up 72 percent from the first quarter of 2020. Of total correspondent acquisitions, conventional conforming acquisitions totaled $33.8 billion, and government-insured or guaranteed acquisitions totaled $17.4 billion, down from $38.0 billion and $18.9 billion, respectively, in the prior quarter. Interest rate lock commitments on conventional loans totaled $34.0 billion, down from $39.5 billion in the prior quarter.

Segment revenues were $107.1 million, a 22 percent decrease from the prior quarter and included net gain on loans acquired for sale of $53.0 million, other income of $53.0 million, which primarily consists of volume-based origination fees, and net interest income of $1.1 million. Net gain on loans acquired for sale in the quarter decreased by $17.5 million from the prior quarter, as margins normalized. Interest income was $22.8 million, down from $29.3 million in the prior quarter, and interest expense was $21.7 million, down from $22.6 million in the prior quarter, driven by lower loan acquisition volumes.

Segment expenses were $71.5 million, down from $84.1 million in the prior quarter driven by the decrease in origination activity. The weighted average fulfillment fee rate in the first quarter was 18 basis points, down from 19 basis points in 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 $0.6 million, down from $1.1 million in the prior quarter. Management fees were $8.4 million, down 3 percent from the prior quarter. Other segment expenses were $6.4 million, up from $5.7 million in the prior quarter.

Taxes

PMT recorded a provision for tax expense of $19.4 million compared to a tax benefit of $9.0 million in the prior quarter.

***

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, May 6, 2021.

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 changes in interest rates; our substantial amount of indebtedness; 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 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)

March 31, 2021

December 31, 2020

March 31, 2020

(in thousands except share amounts)

ASSETS

Cash

$

92,842

$

57,704

$

1,099,380

Short-term investments

108,375

127,295

137,960

Mortgage-backed securities at fair value

1,916,485

2,213,922

3,947,420

Loans acquired for sale at fair value

4,646,761

3,551,890

2,856,042

Loans at fair value

117,647

151,734

251,423

Excess servicing spread received from
PennyMac Financial Services, Inc.

-

131,750

157,109

Derivative and credit risk transfer strip assets

182,969

164,318

173,310

Real estate acquired in settlement of loans

17,715

28,709

50,838

Deposits securing credit risk transfer arrangements

2,664,420

2,799,263

1,855,936

Mortgage servicing rights

2,441,214

1,755,236

1,157,326

Servicing advances

150,160

121,820

39,030

Due from PennyMac Financial Services, Inc.

7,521

8,152

3,512

Other

176,145

380,218

189,202

Total assets

$

12,522,254

$

11,492,011

$

11,918,488

LIABILITIES

Assets sold under agreements to repurchase

$

6,091,973

$

6,309,418

$

6,348,192

Mortgage loan participation and sale agreements

68,176

16,851

-

Exchangeable senior notes

494,097

196,796

444,525

Notes payable secured by credit risk transfer
and mortgage servicing assets

2,897,794

1,924,999

1,967,526

Asset-backed financing of a
variable interest entity at fair value

101,238

134,726

232,565

Interest-only security payable at fair value

18,922

10,757

14,134

Assets sold to PennyMac Financial Services, Inc.
under agreement to repurchase

-

80,862

99,766

Derivative and credit risk transfer strip liabilities
at fair value

229,970

263,473

462,639

Firm commitment to purchase credit risk transfer
securities at fair value

-

-

409,649

Accounts payable and accrued liabilities

122,837

124,809

40,534

Due to PennyMac Financial Services, Inc.

68,644

87,005

56,223

Income taxes payable

42,493

23,563

12,067

Liability for losses under representations and warranties

28,967

21,893

7,300

Total liabilities

10,165,111

9,195,152

10,095,120

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 97,938,350, 97,862,625, and 99,941,390
common shares, respectively

979

979

998

Additional paid-in capital

2,137,933

2,096,907

2,126,264

Accumulated deficit

(81,476

)

(100,734

)

(603,601

)

Total shareholders' equity

2,357,143

2,296,859

1,823,368

Total liabilities and shareholders' equity

$

12,522,254

$

11,492,011

$

11,918,488

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the Quarterly Periods Ended

March 31, 2021

December 31, 2020

March 31, 2020

(in thousands, except per share amounts)

Investment Income (Loss)

Net gains on loans acquired for sale

$

53,012

$

70,511

$

48,775

Loan origination fees

52,902

59,589

23,928

Net gains (losses) on investments

83,191

135,715

(815,131

)

Net loan servicing fees:

From nonaffiliates

Servicing fees

132,532

130,460

101,660

Change in fair value of mortgage servicing rights

278,282

(74,415

)

(627,200

)

Hedging results

(374,403

)

(115,755

)

767,185

36,411

(59,710

)

241,645

From PennyMac Financial Services, Inc.

13,634

11,067

2,927

50,045

(48,643

)

244,572

Interest income

37,589

48,577

72,123

Interest expense

76,308

69,637

81,068

Net interest expense

(38,719

)

(21,060

)

(8,945

)

Results of real estate acquired in settlement of loans

837

318

32

Other

129

104

252

Net investment income (loss)

201,397

196,534

(506,517

)

Expenses

Earned by PennyMac Financial Services, Inc.:

Loan fulfillment fees

60,835

72,606

41,940

Loan servicing fees

19,093

18,375

14,521

Management fees

8,449

8,687

9,055

Loan origination

9,308

10,486

4,249

Loan collection and liquidation

3,857

7,667

750

Professional services

2,224

1,863

1,496

Compensation

2,185

1,132

519

Safekeeping

1,941

2,452

1,658

Other

2,477

(629

)

3,720

Total expenses

110,369

122,639

77,908

Income (loss) before provision for (benefit from) income taxes

91,028

73,895

(584,425

)

Provision for (benefit from) income taxes

19,425

(8,984

)

10,248

Net income (loss)

71,603

82,879

(594,673

)

Dividends on preferred shares

6,234

6,235

6,234

Net income (loss) attributable to common shareholders

$

65,369

$

76,644

$

(600,907

)

Earnings (loss) per share

Basic

$

0.67

$

0.78

$

(5.99

)

Diluted

$

0.67

$

0.78

$

(5.99

)

Weighted average shares outstanding

Basic

97,892

98,346

100,245

Diluted

98,103

98,534

100,245

Dividends declared per common share

$

0.47

$

0.47

$

0.25

View source version on businesswire.com: https://www.businesswire.com/news/home/20210506006217/en/

Contacts

Media
Janis Allen
Kristyn Clark
(805) 330-4899

Investors
Kevin Chamberlain
Isaac Garden
(818) 224-7028