PMT PennyMac Mortgage Investment Trust

PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income attributable to common shareholders of $51.0 million, or $0.51 per common share on a diluted basis for the third quarter of 2023, on net investment income of $163.4 million. PMT previously announced a cash dividend for the third quarter of 2023 of $0.40 per common share of beneficial interest, which was declared on August 31, 2023, and will be paid on October 27, 2023, to common shareholders of record as of October 13, 2023.

Third Quarter 2023 Highlights

Financial results:

• Net income attributable to common shareholders of $51.0 million, up from $14.2 million in the prior quarter
  • Strong performance across all segments partially offset by tax impacts
• Book value per common share increased to $16.01 at September 30, 2023, from $15.81 at June 30, 2023

Other investment highlights:

• Investment activity driven by correspondent production volumes
  • Conventional correspondent loan production volumes for PMT’s account totaled $2.8 billion in unpaid principal balance (UPB), down 9 percent from the prior quarter and 73 percent from the third quarter of 2022 as a result of the sale of a large percentage of conventional loans to PennyMac Financial Services, Inc. (NYSE: PFSI)
    • Resulted in the creation of $59 million in new mortgage servicing rights (MSRs)
• Invested $64 million into opportunistic investments throughout the quarter
  • $7 million into government-sponsored enterprise (GSE) credit risk transfer (CRT) bonds
  • $58 million into senior mezzanine bonds from investor loan and jumbo securitizations
• Upsized previously-issued term loan due May 2028 to $370 million from $155 million
• Redeemed $450 million in FMSR term notes due April 2025
• Issued $54 million of 5-year unsecured senior notes due September 2028

“PMT produced a 14 percent annualized return on equity in the third quarter, reflecting strong financial results and growth in book value per share from the prior quarter,” said Chairman and CEO David Spector. “Meaningful income contributions from all three of PMT’s investment strategies were partially offset by a provision for income taxes driven by fair value gains in its taxable REIT subsidiary. The long-term return potential of PMT’s core assets, our seasoned MSR and CRT portfolios, remains strong, supported by low rate mortgages with strong credit characteristics and significant home equity that underlie these investments. Additionally, with the expectation that interest rates remain higher for longer, we expect the runoff of these portfolios to remain low, driving strong expected risk-adjusted returns for PMT over a longer period of time.”

Mr. Spector continued, “In the third quarter, we also took several steps to further strengthen PMT’s balance sheet. These included the upsize of a previously-issued Fannie Mae term loan, the redemption of Fannie Mae term notes due in 2025, and the opportunistic issuance of unsecured senior debt at very attractive terms. With a seasoned investment portfolio and a run-rate return potential that has increased from last quarter due to a steeper yield curve, I remain enthusiastic for PMT’s financial performance in the future.”

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, 2023 Credit sensitivestrategies Interest ratesensitive strategies Correspondentproduction Corporate Consolidated     (in thousands) Net investment income: Net loan servicing fees

$

-

 

$

281,298

 

$

-

 

$

-

 

$

281,298

 

Net gains on loans acquired for sale

 

-

 

 

-

 

 

13,558

 

 

-

 

 

13,558

 

Net gains (losses) on investments and financings Mortgage-backed securities

 

10,756

 

 

(154,787

)

 

-

 

 

-

 

 

(144,031

)

Loans at fair value Held by VIEs

 

(2,079

)

 

6,471

 

 

-

 

 

-

 

 

4,392

 

Distressed

 

(59

)

 

-

 

 

-

 

 

-

 

 

(59

)

CRT investments

 

30,154

 

 

-

 

 

-

 

 

-

 

 

30,154

 

 

38,772

 

 

(148,316

)

 

-

 

 

-

 

 

(109,544

)

Net interest income (expense): Interest income

 

26,235

 

 

114,430

 

 

14,656

 

 

3,605

 

 

158,926

 

Interest expense

 

23,235

 

 

142,942

 

 

16,388

 

 

1,353

 

 

183,918

 

 

3,000

 

 

(28,512

)

 

(1,732

)

 

2,252

 

 

(24,992

)

Other

 

(251

)

 

-

 

 

3,360

 

 

-

 

 

3,109

 

 

41,521

 

 

104,470

 

 

15,186

 

 

2,252

 

 

163,429

 

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

 

33

 

 

20,224

 

 

5,531

 

 

-

 

 

25,788

 

Management fees payable to PennyMac Financial Services, Inc.

 

-

 

 

-

 

 

-

 

 

7,175

 

 

7,175

 

Other

 

492

 

 

2,683

 

 

809

 

 

8,062

 

 

12,046

 

$

525

 

$

22,907

 

$

6,340

 

$

15,237

 

$

45,009

 

Pretax income (loss)

$

40,996

 

$

81,563

 

$

8,846

 

$

(12,985

)

$

118,420

 

Credit Sensitive Strategies Segment

The Credit Sensitive Strategies segment primarily includes results from PMT’s organically-created GSE CRT investments, opportunistic investments in GSE CRT, investments in non-agency subordinate bonds from private-label securitizations of PMT’s production and legacy investments. Pretax income for the segment was $41.0 million on net investment income of $41.5 million, compared to pretax income of $71.1 million on net investment income of $72.0 million in the prior quarter.

Net gains on investments in the segment were $38.8 million, compared to $68.7 million in the prior quarter. These net gains include $30.2 million of gains on PMT’s organically-created GSE CRT investments, $10.8 million in gains on other acquired subordinate CRT mortgage-backed securities (MBS) and $2.1 million of losses on investments from non-agency subordinate bonds from PMT’s production.

Net gains on PMT’s organically-created CRT investments for the quarter were $30.2 million, compared to $60.5 million in the prior quarter. These net gains include $14.6 million in valuation-related gains, which reflected the impact of credit spread tightening in the third quarter. The prior quarter included $43.0 million of such gains. Net gains on PMT’s organically-created CRT investments also included $16.1 million in realized gains and carry, compared to $17.9 million in the prior quarter. Realized losses during the quarter were $0.5 million.

Net interest income for the segment totaled $3.0 million, compared to $3.4 million in the prior quarter. Interest income totaled $26.2 million, up from $25.1 million in the prior quarter, primarily due to higher earnings rates on deposits securing CRT arrangements. Interest expense totaled $23.2 million, up from $21.8 million in the prior quarter, also due primarily to higher interest rates.

Segment expenses were $0.5 million.

Interest Rate Sensitive Strategies Segment

The Interest Rate Sensitive Strategies segment includes results from investments in MSRs, Agency MBS, non-Agency senior MBS and interest rate hedges. Pretax income for the segment was $81.6 million on net investment income of $104.5 million, compared to a pretax loss of $13.2 million on net investment income of $8.3 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 are expected to increase in fair value, whereas Agency pass-through and non-Agency senior MBS are expected to 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 losses on investments for the segment were $148.3 million, which primarily consisted of losses on MBS due to increasing interest rates.

Net loan servicing fees were $281.3 million, up from $108.8 million in the prior quarter. Net loan servicing fees included contractually specified servicing fees of $166.8 million and $3.8 million in other fees, reduced by $102.2 million in realization of MSR cash flows, down slightly from $103.0 million in the prior quarter. Net loan servicing fees also included $263.1 million in fair value increases of MSRs due to higher market interest rates, $50.7 million in hedging losses, and $0.5 million of MSR recapture income. PMT’s hedging activities are intended to manage its net exposure across all interest rate sensitive strategies, which include MSRs, MBS and related tax impacts.

The following schedule details net loan servicing fees:

Quarter ended September 30, 2023 June 30, 2023 September 30, 2022 (in thousands) From non-affiliates: Contractually specified

$

166,809

 

$

165,499

 

$

162,987

 

Other fees

 

3,752

 

 

6,826

 

 

4,246

 

Effect of MSRs: Change in fair value Realization of cashflows

 

(102,213

)

 

(103,043

)

 

(95,756

)

Due to changes in valuation inputs used in valuation model

 

263,139

 

 

15,046

 

 

162,730

 

 

160,926

 

 

(87,997

)

 

66,974

 

Hedging results

 

(50,689

)

 

23,996

 

 

154,269

 

 

110,237

 

 

(64,001

)

 

221,243

 

 

280,798

 

 

108,324

 

 

388,476

 

From PFSI—MSR recapture income

 

500

 

 

509

 

 

1,648

 

Net loan servicing fees

$

281,298

 

$

108,833

 

$

390,124

 

Net interest expense for the segment was $28.5 million versus $29.3 million in the prior quarter. Interest income totaled $114.4 million, up from $108.7 million in the prior quarter primarily due to increased placement fee income on custodial balances. Interest expense totaled $143.0 million, up from $138.0 million in the prior quarter primarily due to higher financing costs driven by higher short-term interest rates.

Segment expenses were $22.9 million, up slightly from $21.5 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 $8.8 million in the third quarter, up from $1.4 million in the prior quarter.

Through its correspondent production activities, PMT acquired a total of $21.5 billion in UPB of loans, up 2 percent from the prior quarter and down 4 percent from the third quarter of 2022. Of total correspondent acquisitions, government-insured or guaranteed acquisitions totaled $8.8 billion, down 21 percent from the prior quarter, and conventional conforming acquisitions totaled $12.7 billion, up 26 percent from the prior quarter. $2.8 billion of conventional volume was for PMT’s account, down 9 percent from the prior quarter due to a higher percentage of conventional loans sold to PFSI. The remaining $9.9 billion of conventional volume was for PFSI’s account. Interest rate lock commitments on conventional loans for PMT’s account totaled $3.5 billion, up 5 percent from the prior quarter.

Segment revenues were $15.2 million and included net gains on loans acquired for sale of $13.6 million, other income of $3.4 million, which primarily consists of volume-based origination fees, and net interest expense of $1.7 million. Net gains on loans acquired for sale in the quarter increased by $9.1 million from the prior quarter. The increase from the prior quarter was primarily due to higher margins. The prior quarter also included a negative impact of $4.5 million due to changes in GSE pricing. Interest income was $14.7 million, down from $25.7 million in the prior quarter, and interest expense was $16.4 million, down from $26.7 million in the prior quarter, both due to lower average financing balances for loans held for sale at fair value.

Segment expenses were $6.3 million, down slightly from the prior quarter. The weighted average fulfillment fee rate in the third quarter was 20 basis points, up from 18 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 $2.3 million, unchanged from the prior quarter. Management fees were $7.2 million, and other segment expenses were $8.1 million.

Taxes

PMT recorded a tax expense of $57.0 million, driven primarily by fair value gains on MSRs held in PMT’s taxable subsidiary.

***

Management’s slide presentation and accompanying materials will be available in the Investor Relations section of the Company’s website at pmt.pennymac.com after the market closes on Thursday, October 26, 2023. Management will also host a conference call and live audio webcast at 6:00 p.m. Eastern Time to review the Company’s financial results. The webcast can be accessed at pmt.pennymac.com, and a replay will be available shortly after its conclusion.

Individuals who are unable to access the website but would like to receive a copy of the materials should contact the Company’s Investor Relations department at 818.224.7028.

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 pmt.pennymac.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: changes in interest rates; the Company’s ability to comply with various federal, state and local laws and regulations that govern its business; 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; events or circumstances which undermine confidence in the financial and housing markets or otherwise have a broad impact on financial and housing markets; changes in general business, economic, market, employment and domestic and international political conditions, or in consumer confidence and spending habits from those expected; the degree and nature of the Company’s competition; changes in real estate values, housing prices and housing sales; 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 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; our substantial amount of indebtedness; the performance, financial condition and liquidity of borrowers; our exposure to risks of loss and disruptions in operations resulting from adverse weather conditions, man-made or natural disasters, climate change and pandemics; 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, defaults and forbearances 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 detect misconduct and fraud; 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; regulatory or other changes that impact government agencies or government-sponsored entities, or such changes that increase the cost of doing business with such agencies or entities; 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; changes in governmental regulations, accounting treatment, tax rates and similar matters; 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)

  For the Quarterly Periods Ended September 30, 2023 June 30, 2023 September 30, 2022 (in thousands except share amounts) ASSETS Cash

$

236,396

 

$

238,805

 

$

58,931

 

Short-term investments at fair value

 

150,059

 

 

242,037

 

 

352,343

 

Mortgage-backed securities at fair value

 

4,665,970

 

 

4,731,341

 

 

3,880,288

 

Loans acquired for sale at fair value

 

1,025,730

 

 

1,080,047

 

 

2,259,645

 

Loans at fair value

 

1,372,118

 

 

1,457,272

 

 

1,522,934

 

Derivative assets

 

29,750

 

 

29,012

 

 

74,659

 

Deposits securing credit risk transfer arrangements

 

1,237,294

 

 

1,269,558

 

 

1,369,236

 

Mortgage servicing rights at fair value

 

4,108,661

 

 

3,977,938

 

 

3,940,584

 

Servicing advances

 

93,614

 

 

112,743

 

 

81,399

 

Due from PennyMac Financial Services, Inc.

 

2,252

 

 

7,824

 

 

3,560

 

Other

 

301,492

 

 

238,345

 

 

402,361

 

Total assets

$

13,223,336

 

$

13,384,922

 

$

13,945,940

 

LIABILITIES Assets sold under agreements to repurchase

$

6,020,716

 

$

5,914,625

 

$

6,409,796

 

Mortgage loan participation and sale agreements

 

23,991

 

 

34,787

 

 

16,999

 

Notes payable secured by credit risk transfer and mortgage servicing assets

 

2,825,591

 

 

3,158,407

 

 

2,829,160

 

Senior notes

 

599,754

 

 

547,767

 

 

545,521

 

Asset-backed financing of variable interest entities at fair value

 

1,279,059

 

 

1,361,108

 

 

1,424,473

 

Interest-only security payable at fair value

 

28,288

 

 

24,060

 

 

21,186

 

Derivative and credit risk transfer strip liabilities at fair value

 

140,494

 

 

98,038

 

 

351,383

 

Accounts payable and accrued liabilities

 

92,633

 

 

104,547

 

 

98,170

 

Due to PennyMac Financial Services, Inc.

 

27,613

 

 

25,046

 

 

32,306

 

Income taxes payable

 

202,967

 

 

147,972

 

 

160,117

 

Liability for losses under representations and warranties

 

33,152

 

 

37,069

 

 

39,498

 

Total liabilities

 

11,274,258

 

 

11,453,426

 

 

11,928,609

 

SHAREHOLDERS' EQUITY Preferred shares of beneficial interest

 

541,482

 

 

541,482

 

 

541,482

 

Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding 86,760,408, 86,760,408 and 90,094,066 common shares, respectively

 

868

 

 

868

 

 

901

 

Additional paid-in capital

 

1,923,130

 

 

1,921,710

 

 

1,960,320

 

Accumulated deficit

 

(516,402

)

 

(532,564

)

 

(485,372

)

Total shareholders' equity

 

1,949,078

 

 

1,931,496

 

 

2,017,331

 

Total liabilities and shareholders' equity

$

13,223,336

 

$

13,384,922

 

$

13,945,940

 

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

  For the Quarterly Periods Ended September 30, 2023 June 30, 2023 September 30, 2022 (in thousands, except per share amounts) Investment Income

Net loan servicing fees:

From nonaffiliates Servicing fees

$

170,561

 

$

172,325

 

$

167,233

 

Change in fair value of mortgage servicing rights

 

160,926

 

 

(87,997

)

 

66,974

 

Hedging results

 

(50,689

)

 

23,996

 

 

154,269

 

 

280,798

 

 

108,324

 

 

388,476

 

From PennyMac Financial Services, Inc.

 

500

 

 

509

 

 

1,648

 

 

281,298

 

 

108,833

 

 

390,124

 

Net gains on loans acquired for sale

 

13,558

 

 

4,446

 

 

4,313

 

Loan origination fees

 

3,226

 

 

4,295

 

 

13,215

 

Net losses on investments and financings

 

(109,544

)

 

(2,499

)

 

(253,336

)

Interest income

 

158,926

 

 

162,684

 

 

109,658

 

Interest expense

 

183,918

 

 

187,390

 

 

114,080

 

Net interest expense

 

(24,992

)

 

(24,706

)

 

(4,422

)

Other

 

(117

)

 

83

 

 

1,171

 

Net investment income

 

163,429

 

 

90,452

 

 

151,065

 

Expenses Earned by PennyMac Financial Services, Inc.: Loan servicing fees

 

20,257

 

 

20,317

 

 

20,247

 

Loan fulfillment fees

 

5,531

 

 

5,441

 

 

18,407

 

Management fees

 

7,175

 

 

7,078

 

 

7,731

 

Professional services

 

2,133

 

 

1,881

 

 

2,394

 

Compensation

 

1,961

 

 

1,279

 

 

1,368

 

Loan origination

 

710

 

 

897

 

 

2,430

 

Loan collection and liquidation

 

1,890

 

 

909

 

 

690

 

Safekeeping

 

467

 

 

1,124

 

 

2,986

 

Other

 

4,885

 

 

4,673

 

 

4,433

 

Total expenses

 

45,009

 

 

43,599

 

 

60,686

 

Income before provision for income taxes

 

118,420

 

 

46,853

 

 

90,379

 

Provision for income taxes

 

56,998

 

 

22,229

 

 

78,466

 

Net income

 

61,422

 

 

24,624

 

 

11,913

 

Dividends on preferred shares

 

10,455

 

 

10,454

 

 

10,455

 

Net income attributable to common shareholders

$

50,967

 

$

14,170

 

$

1,458

 

Earnings per common share Basic

$

0.59

 

$

0.16

 

$

0.01

 

Diluted

$

0.51

 

$

0.16

 

$

0.01

 

Weighted average shares outstanding Basic

 

86,760

 

 

87,269

 

 

90,594

 

Diluted

 

111,088

 

 

87,269

 

 

90,594

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231026319307/en/

Media Kristyn Clark kristyn.clark@pennymac.com 805.395.9943 818.224.7028

Investors Kevin Chamberlain Isaac Garden investorrelations@pennymac.com