WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--PennyMac Mortgage Investment Trust (NYSE: PMT) today reported a net loss of $5.3 million, or $(0.08) per diluted share, for the second quarter of 2016, on net investment income of $47.6 million. PMT previously announced a cash dividend for the second quarter of 2016 of $0.47 per common share of beneficial interest, which was declared on June 28, 2016 and paid on July 28, 2016.
Second Quarter Highlights
- Diluted loss per common share of $0.08, down from earnings per common share of $0.20 in the prior quarter
- Net loss of $5.3 million, compared to net income of $14.5 million in the prior quarter
- Net investment income of $47.6 million, down 9 percent from the prior quarter
- Book value per share of $20.09, down from $20.59 at March 31, 2016
- Return on average equity of (1) percent, down from 4 percent for the prior quarter1
Investment activities and correspondent production results:
Correspondent production related to conventional conforming loans
totaled $5.2 billion in unpaid principal balance (UPB), up 59 percent
from the prior quarter
Loans eligible for credit risk transfer (CRT) transactions with
Fannie Mae totaled $3.2 billion in UPB, resulting in an additional
$126 million of new CRT investments
- Approximately $3 billion in UPB remaining at June 30th under current CRT commitment with Fannie Mae2; in discussions on a fourth CRT transaction related to PMT’s production3
- Added $60 million in new mortgage servicing rights (MSR) investments
- Loans eligible for credit risk transfer (CRT) transactions with Fannie Mae totaled $3.2 billion in UPB, resulting in an additional $126 million of new CRT investments
- Repurchased 1.2 million PMT common shares of beneficial interest from April 5th through July 5th at a cost of $18.1 million; 7.5 million shares repurchased since the program’s inception last year
- Continued strong cash flows from PMT’s existing investments, including $114.0 million in cash proceeds generated from the liquidation and paydown of distressed mortgage loans and real estate owned (REO) properties4
“PMT’s loss is clearly disappointing, and our financial performance did not meet expectations in the second quarter,” said Chairman and Chief Executive Officer Stanford L. Kurland. “In particular, our distressed loan investments underperformed, mostly as a result of longer timelines and higher expected expenses on liquidations of nonperforming loans as well as home prices lower than previously forecast. However, we believe that PMT’s mortgage-related strategies, which include distressed loan investments, correspondent production, MSRs, and GSE credit risk transfer, have the potential to produce earnings in line with our current dividend level.”
PMT reported a pretax loss of $8.2 million for the quarter ended June 30, 2016, compared to pretax income of $11.0 million in the first quarter.
1 Return on average equity is calculated based on annualized
quarterly net income as a percentage of monthly average shareholders’
equity during the period.
2 Current CRT transaction with Fannie Mae is for $7.5 billion in UPB of PMT’s production.
3 There can be no assurance regarding the size of the transaction or that the transaction will be completed at all.
4 Proceeds excludes bulk sales of distressed loans during the quarter.
The following table presents the contribution of PMT’s Investment Activities and Correspondent Production segments:
|Quarter ended June 30, 2016|
|Net investment income:||(in thousands)|
|Net interest income|
|Net mortgage loan servicing fees||-||15,691||15,691|
|Net gain on mortgage loans acquired for sale||24,226||-||24,226|
|Net loss on investments|
|Mortgage loans at fair value||-||(13,463||)||(13,463||)|
Mortgage loans held by variable interest entity net of asset-backed secured financing
|Excess servicing spread investments||-||(15,824||)||(15,824||)|
|Other investment income (loss)||8,535||(520||)||8,015|
Mortgage loan fulfillment, servicing and management fees payable to PennyMac Financial Services, Inc
Pretax income (loss)
Investment Activities Segment
The Investment Activities segment generated a pretax loss of $24.6 million on revenues of $9.4 million, compared to pretax income of $135 thousand on revenues of $26.4 million in the first quarter. Net loss on investments in the second quarter totaled $15.5 million, compared to a net loss of $3.9 million in the prior quarter. Net loss on investments for the second quarter included losses on distressed mortgage loans of $13.5 million; $15.8 million of losses related to excess servicing spread (ESS), net of recapture income; and a $21 thousand loss on mortgage loans held by a variable interest entity, net of valuation changes on the related asset-backed secured financing. These losses were partially offset by gains on mortgage-backed securities (MBS) of $6.1 million and income from CRT investments totaling $7.8 million.
Net loan servicing fees were $15.7 million, up from $15.6 million in the first quarter. Net loan servicing fees included $31.6 million in servicing fees and $311 thousand of MSR recapture income, reduced by $15.5 million of amortization and realization of MSR cash flows. Net loan servicing fees also included $23.2 million of impairment provisioning and $4.9 million of fair value losses related to MSRs, offset by $27.4 million of related hedging gains. PMT’s hedging activities are intended to manage its net exposure across all interest rate sensitive strategies, which include MSRs, ESS and MBS.
MSR fair value losses, impairment provisioning and ESS valuation losses in the second quarter resulted from higher actual and expected prepayment activity due to the decline in interest rates and expectations for lower future mortgage rates. ESS valuation losses were partially offset by recapture income payable to PMT for prepayment activity during the quarter totaling $1.6 million. When prepayment of a loan underlying PMT’s ESS results from a refinancing by PennyMac Financial Services, Inc. (NYSE: PFSI), PMT generally benefits from recapture income.
Interest income earned on PMT’s interest rate sensitive strategies of ESS, MBS and mortgage loans held by a variable interest entity totaled $13.4 million, a 14 percent decrease from the first quarter. Interest income from PMT’s distressed mortgage loans totaled $23.0 million, down from $29.2 million in the first quarter. Interest income from distressed mortgage loans included $16.4 million of capitalized interest from loan modifications, which increases interest income and reduces loan valuation gains.
Other investment losses were $520 thousand, compared to $3.7 million in the first quarter, driven by reduced valuation losses of PMT’s REO properties. At quarter end, PMT’s inventory of REO properties totaled $299.5 million, down from $327.2 million at March 31, 2016.
Segment expenses were $34.0 million, up from $26.3 million in the first quarter, primarily driven by $5.1 million in servicing activity fees related to the sale of performing loans from the distressed portfolio during the quarter.
Distressed Mortgage Investments
PMT’s distressed mortgage loan portfolio generated realized and unrealized losses totaling $13.5 million, compared to gains of $14.4 million in the first quarter. In the second quarter, the portfolio of performing loans declined in fair value by $8.4 million while nonperforming loans declined by $5.9 million.
The schedule below details the realized and unrealized (losses) gains on distressed mortgage loans:
|June 30, 2016||March 31, 2016|
|Gain on payoffs||1,208||1,548|
|Loss on sale||(396||)||(2||)|
Income contribution from the distressed portfolio underperformed PMT’s expectations by approximately $30 million for the quarter. The underperformance was largely related to the extension of expected resolution timelines for the nonperforming portfolio beyond those previously forecast, particularly on loans with underlying properties located in the Northeast. The impact of this extension is to move estimated cash realization further into the future, while PMT incurs additional expenses to maintain its liens on the properties. Furthermore, the performance of the distressed loan portfolio this quarter was adversely impacted by lower than expected home prices for certain loans in the portfolio, as well as a reduction in the forecast for future home price appreciation in certain geographies.
Mortgage Servicing Rights
PMT’s MSR portfolio, which is subserviced by PFSI, grew to $47.1 billion in UPB compared to $44.2 billion at March 31, 2016. Servicing fees and MSR recapture revenue of $31.9 million were reduced by $15.5 million of amortization. Provisioning for impairment and fair value losses totaled $28.1 million, which were largely offset by $27.4 million of gains on hedging derivatives.
The following schedule details net loan servicing fees:
|June 30, 2016||March 31, 2016|
|Net mortgage loan servicing fees|
|Servicing fees (1)||$||31,578||$||28,872|
|MSR recapture fee receivable from PFSI||311||130|
|Effect of MSRs:|
|Carried at lower of amortized cost or fair value|
|Provision for impairment||(23,170||)||(17,706||)|
|Gain on sale||11||-|
|Carried at fair value - change in fair value||(4,941||)||(11,415||)|
|Gains on hedging derivatives||27,433||29,960|
|Net mortgage loan servicing fees||$||15,691||$||15,554|
(1) Includes contractually specified servicing and ancillary fees
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 credit risk transfers related to a portion of its production. For the second quarter, PMT’s Correspondent Production segment generated pretax income of $16.4 million, versus $10.9 million in the first quarter.
Through its correspondent production activities, PMT acquired $14.6 billion in UPB of loans and issued IRLCs totaling $16.0 billion, compared to $9.7 billion and $10.4 billion, respectively, in the first quarter. Of the correspondent acquisitions, conventional conforming and jumbo acquisitions totaled $5.2 billion, and government insured or guaranteed acquisitions totaled $9.4 billion, compared to $3.3 billion and $6.4 billion, respectively, in the first quarter.
Segment revenues were $38.2 million, a 48 percent increase from the first quarter, driven by a 54 percent quarter-over-quarter increase in conventional conforming and jumbo lock volume. The increase in locks and production volumes reflects a larger mortgage origination market, driven by lower mortgage rates, and market share gains during the quarter.
The following schedule details the net gain on mortgage loans acquired for sale:
|June 30, 2016||March 31, 2016|
|Net gain on mortgage loans acquired for sale|
|Receipt of MSRs in loan sale transactions||$||60,109||$||36,162|
|Provision for representation and warranties||(650||)||(571||)|
Adjustment to previously recorded amount due to change in estimate
|Cash investment (1)||(47,579||)||(35,596||)|
|Fair value changes of pipeline, inventory and hedges||12,346||13,330|
|(1) Includes cash hedge expense|
Segment expenses were $21.8 million, up from $14.9 million in the first quarter, primarily due to the increase in acquisition volumes, partially offset by a decline in the weighted average loan fulfillment fee. The weighted average fulfillment fee rate in the second quarter was 37 basis points, down from 40 basis points in the prior quarter. The weighted average fulfillment fee rate fluctuates as a result of contractual discretionary reductions in the fulfillment fee by PFSI to facilitate the successful completion of certain loan transactions by PMT.
Management Fees and Taxes
Management fees were $5.2 million, down from $5.4 million in the first quarter, driven by a decrease in PMT’s shareholders’ equity as a result of common share repurchases. There were no incentive fees for the second quarter as a result of PMT’s financial performance over the four-quarter period for which incentive fees are calculated.
PMT recorded an income tax benefit of $2.9 million, versus an income tax benefit of $3.5 million in the first quarter.
Mr. Kurland concluded, “PMT is uniquely positioned to access investment opportunities that result from our correspondent production activities, including GSE credit risk transfer, which are made possible through PFSI’s specialized capabilities as our manager and service provider. We are transitioning capital over time into these attractive opportunities and away from distressed loan investments which are supported by approximately half of PMT’s equity today. We are focused on the timely resolution of our nonperforming loans in order to expedite this transition and maximize our returns on these investments. In addition, we continue to evaluate using available capital to repurchase our common shares where the return is superior to alternative investment opportunities.”
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 Wednesday August 3, 2016.
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, whether the result of market events or otherwise; events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts; changes in general business, economic, market, employment and political conditions, or in consumer confidence and spending habits from those expected; declines in real estate or significant changes in U.S. housing prices or activity in the U.S. housing market; the availability of, and level of competition for, attractive risk-adjusted investment opportunities in mortgage loans and mortgage-related assets that satisfy our investment objectives; the inherent difficulty in winning bids to acquire mortgage loans, and our success in doing so; the concentration of credit risks to which we are exposed; the degree and nature of our competition; our dependence on our 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 our manager, servicer or their affiliates; 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; the ability of our servicer, which also provides us 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 our customers and counterparties; our indemnification and repurchase obligations in connection with mortgage loans we purchase and later sell or securitize; 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; our ability to foreclose on our investments in a timely manner or at all; 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; our failure to maintain appropriate internal controls over financial reporting; technologies for loans and our ability to mitigate security risks and cyber intrusions; our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business; our ability to detect misconduct and fraud; our ability to comply with various federal, state and local laws and regulations that govern our business; developments in the secondary markets for our 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 or government-sponsored entities, 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 our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (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, as applicable, and our ability and the ability of our 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 effect of public opinion on our reputation; the occurrence of natural disasters or other events or circumstances that could impact our operations; and our organizational structure and certain requirements in our charter documents. You should not place undue reliance on any forward-looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, and the statements made in this press release are current as of the date of this release only.
|PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES|
|CONSOLIDATED BALANCE SHEETS (UNAUDITED)|
|June 30, 2016||March 31, 2016||June 30, 2015|
|(in thousands except share amounts)|
|Mortgage-backed securities at fair value||531,612||364,439||287,626|
|Mortgage loans acquired for sale at fair value||1,461,029||1,339,633||2,213,874|
|Mortgage loans at fair value||2,035,997||2,496,778||2,730,820|
|Excess servicing spread purchased from PennyMac Financial Services, Inc.||294,551||321,976||359,102|
|Real estate acquired in settlement of loans||299,458||327,212||324,278|
|Real estate held for investment||20,662||12,758||1,544|
|Mortgage servicing rights||471,458||455,097||394,737|
|Deposits securing credit risk transfer agreements||338,812||213,536||28,050|
|Due from PennyMac Financial Services, Inc.||12,375||6,531||9,342|
|Assets sold under agreements to repurchase||$||3,275,691||$||3,245,014||$||3,500,569|
|Federal Home Loan Bank advances||-||-||138,400|
|Mortgage loan participation and sale agreements||96,335||62,400||70,612|
|Asset-backed financing of a variable interest entity at fair value||325,939||344,693||151,489|
|Exchangeable senior notes||245,564||245,307||244,559|
|Note payable to PennyMac Financial Services, Inc.||150,000||150,000||52,526|
|Interest-only security payable at fair value||1,663||675||649,120|
|Accounts payable and accrued liabilities||75,587||71,932||75,967|
|Due to PennyMac Financial Services, Inc.||22,054||17,647||16,245|
|Income taxes payable||26,774||29,878||36,706|
|Liability for losses under representations and warranties||19,258||18,712||16,714|
Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding 67,723,293, 68,687,094 and 74,811,922 common shares, respectively
|Additional paid-in capital||1,389,962||1,406,350||1,483,389|
|(Accumulated deficit) retained earnings||(29,812||)||7,466||41,160|
|Total shareholders' equity||1,360,827||1,414,503||1,525,297|
|Total liabilities and shareholders' equity||$||5,767,562||$||5,820,440||$||6,677,374|
|PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES|
|CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)|
|June 30, 2016||March 31, 2016||June 30, 2015|
|(in thousands, except per share amounts)|
|Net interest income:|
|From PennyMac Financial Services, Inc.||5,713||7,015||5,818|
|To PennyMac Financial Services, Inc.||2,222||1,602||533|
|Net interest income||15,173||22,362||15,594|
|Net gain on mortgage loans acquired for sale||24,226||15,049||11,175|
|Mortgage loan origination fees||8,519||6,901||7,279|
|Net (loss) gain on investments|
|From PennyMac Financial Services, Inc.||(15,824||)||(17,627||)||8,589|
|Net mortgage loan servicing fees||15,691||15,554||13,017|
|Results of real estate acquired in settlement of loans||(2,565||)||(6,036||)||(1,806||)|
|Net investment income||47,618||52,216||69,765|
|Earned by PennyMac Financial Services, Inc.:|
|Mortgage loan fulfillment fees||19,111||12,935||15,333|
|Mortgage loan servicing fees (1)||16,427||11,453||12,136|
|Mortgage loan collection and liquidation||4,290||2,214||3,182|
|(loss) Income before benefit from income taxes||(8,159||)||11,044||25,088|
|Benefit from income taxes||(2,892||)||(3,452||)||(2,983||)|
|Earnings per share|
|Weighted-average shares outstanding|
(1) Mortgage loan servicing fees expense includes both special servicing for PMT’s distressed portfolio and subservicing for its mortgage servicing rights of $5.0 million and $11.4 million, respectively for the second quarter 2016.