PennyMac Mortgage Investment Trust Reports First Quarter 2022 Results

WESTLAKE VILLAGE, Calif., May 05, 2022–(BUSINESS WIRE)–PennyMac Mortgage Investment Trust (NYSE: PMT) today reported a net loss attributable to common shareholders of $29.6 million, or $(0.32) per common share on a diluted basis for the first quarter of 2022, on net investment income of $81.8 million. PMT previously announced a cash dividend for the first quarter of 2022 of $0.47 per common share of beneficial interest, which was declared on March 4, 2022 and paid on April 28, 2022 to common shareholders of record as of April 15, 2022.

First Quarter 2022 Highlights

Financial results:

  • Net loss attributable to common shareholders of $29.6 million, compared to a net loss of $27.3 million in the prior quarter

    • Credit sensitive strategies impacted by fair value decreases resulting from credit spread widening

    • Strong results in the interest rate sensitive strategies partially offset by $37.2 million of tax provisions in PMT’s taxable REIT subsidiary

  • Repurchased 2.0 million PMT common shares at a cost of $31.8 million; also repurchased an additional 990 thousand shares in April at a cost of $15.4 million

  • Book value per common share decreased to $17.87 at March 31, 2022 from $19.05 at December 31, 20211

1 As described in Note 3 of PMT’s Annual Report on form 10-K for the year ended December 31, 2021, a recent accounting change requires that beginning in 2022, the portion of PMT’s senior notes that are exchangeable for PMT common shares of beneficial interest originally allocated to additional paid-in capital was reclassified to the carrying value of the exchangeable notes. Giving effect to this change on a pro forma basis, PMT’s book value as of December 31, 2021 would have been $18.60.

Other investment highlights:

  • Investment activity driven by correspondent production volumes

    • Conventional correspondent loan production volumes of $9.8 billion in unpaid principal balance (UPB), down 43% from the prior quarter and 71% from the first quarter of 2021 as a result of the smaller origination market and significant levels of competition for conventional loans, including from the government sponsored enterprises (GSEs)

    • Retained mortgage securities from a PMT securitization of agency-eligible investor loans totaling $420 million in UPB; in aggregate, the fair value of PMT’s investments in investor loan securitizations was approximately $103 million at March 31, 2022

  • Invested $86 million in floating-rate credit risk transfer (CRT) bonds recently issued by Freddie Mac and Fannie Mae

  • Invested $27 million in fixed-rate bonds from a senior tranche of a recently completed jumbo securitization

Notable activity after quarter-end:

“PMT’s first quarter net loss was primarily driven by fair value declines in its credit sensitive strategies due to spread widening that resulted from economic uncertainty across financial markets and a provision for tax expense driven by fair value increases in its taxable REIT subsidiary,” said Chairman and CEO, David Spector. “In addition, competitive pressure in the conventional correspondent production channel continued as mortgage rates increased to levels not seen in more than a decade. Conversely, PMT’s interest rate sensitive strategies performed well, benefiting from MSR net valuation related gains that primarily resulted from lower expected prepayment activity in the future.”

Mr. Spector continued, “While the origination market continues to transition, higher interest rates and wider credit spreads are presenting attractive opportunities for PMT to deploy capital. We continued to invest in subordinate tranches from the securitization of our own production of investor loans during the quarter. Additionally, we recently opportunistically invested more than $140 million in securities with attractive expected returns from newly issued Agency CRT transactions and non-agency securitizations. As the mortgage environment continues to evolve, PMT remains well-positioned with the deep knowledge and expertise of this management team to find and invest in assets with attractive, long-term risk-adjusted returns.”

The following table presents the pretax income contributions of PMT’s segments:

Quarter ended March 31, 2022

Credit sensitive strategies

Interest rate sensitive strategies

Correspondent production

Corporate

Consolidated

(in thousands)

Net investment income (loss):

Net losses on investments and financings:

CRT investments

$

(35,623

)

$

$

$

$

(35,623

)

Loans at fair value

443

443

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

(7,390

)

(7,390

)

Mortgage-backed securities

(2,335

)

(184,190

)

(186,525

)

(44,905

)

(184,190

)

(229,095

)

Net (losses) gains on loans acquired for sale

(4

)

3,957

3,953

Net loan servicing fees

304,178

304,178

Net interest (expense) income:

Interest income

2,058

29,110

19,181

714

51,063

Interest expense

10,128

41,685

11,560

141

63,514

(8,070

)

(12,575

)

7,621

573

(12,451

)

Other income

288

14,966

15,254

(52,691

)

107,413

26,544

573

81,839

Expenses:

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

59

21,029

16,754

37,842

Management fees payable to PennyMac Financial Services, Inc.

8,117

8,117

Other

3,211

2,175

5,212

7,224

17,822

$

3,270

$

23,204

$

21,966

$

15,341

$

63,781

Pretax (loss) income

$

(55,961

)

$

84,209

$

4,578

$

(14,768

)

$

18,058

Credit Sensitive Strategies Segment

The Credit Sensitive Strategies segment primarily includes results from PMT’s organically-created GSE CRT investments, investments in non-agency subordinate bonds from private-label securitizations of PMT’s production, opportunistic investments in GSE CRT and other legacy investments. Pretax loss for the segment was $56.0 million on net investment losses of $52.7 million, compared to pretax income of $33.2 million on net investment income of $38.8 million in the prior quarter.

Net losses on investments in the segment were $44.9 million, compared to net gains on investments of $48.3 million in the prior quarter and included $35.6 million in net losses on PMT’s organically-created GSE CRT investments, $7.4 million in net losses from investments in non-agency subordinate bonds from PMT’s production, $2.3 million in net losses on mortgage-backed securities (MBS) and $0.4 million in net gains on loans at fair value.

Net losses on PMT’s organically-created CRT investments for the quarter were $35.6 million, compared to net gains of $43.1 million in the prior quarter, and included $74.9 million in valuation-related losses, which reflected the impact of credit spread widening. The prior quarter included $1.6 million in valuation-related gains. Net losses on PMT’s organically-created CRT investments also included $23.3 million in realized gains and carry, compared to $26.9 million in the prior quarter. Recoveries net of realized losses during the quarter were $16.0 million, primarily related to L Street Securities 2017-PM1, as losses were reversed for loans that had been in forbearance and reperformed.

During the quarter, PMT retained mortgage securities from a PMT securitization of agency-eligible investor loans totaling $420 million in UPB. This resulted in approximately $23 million in fair value of new investments, net of associated asset-backed financing. PMT also opportunistically invested $86 million in floating-rate CRT bonds recently issued by Freddie Mac and Fannie Mae.

Net interest expense for the segment totaled $8.1 million, compared to $11.2 million in the prior quarter. Interest income totaled $2.1 million, up from $1.1 million in the prior quarter. Interest expense totaled $10.1 million, down from $12.3 million in the prior quarter due to decreased financing expenses as a result of smaller CRT balances.

Segment expenses were $3.3 million, down from $5.7 million in the prior quarter.

Interest Rate Sensitive Strategies Segment

The Interest Rate Sensitive Strategies segment includes results from investments in MSRs, Agency mortgage-backed securities (MBS), non-Agency senior MBS and interest rate hedges. Pretax income for the segment was $84.2 million on net investment income of $107.4 million, compared to a pretax loss of $43.2 million on net investment losses of $20.8 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 loss on investments for the segment was $184.2 million and consisted of losses on MBS due to higher interest rates.

Net loan servicing fees were $304.2 million, compared to $12.2 million in the prior quarter. Net loan servicing fees included servicing fees of $146.9 million, down slightly from the prior quarter due to seasonal collection trends, and $9.1 million in other fees, reduced by $88.9 million in realization of MSR cash flows, which were up slightly from the prior quarter driven by higher average MSR values. Net loan servicing fees also included $392.6 million in fair value increases of MSRs, $163.8 million in related hedging declines, and $8.3 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 and MBS.

The following schedule details net loan servicing fees:

Quarter ended

March 31, 2022

December 31, 2021

March 31, 2021

(in thousands)

From non-affiliates:

Contractually specified(1)

$

146,885

$

148,135

$

116,287

Other fees

9,114

13,994

16,245

Effect of MSRs:

Carried at fair value—change in fair value

Realization of cashflows

(88,919

)

(87,734

)

(59,385

)

Due to changes in valuation inputs used in valuation model

392,640

(83,995

)

337,667

303,721

(171,729

)

278,282

(Losses) gains on hedging derivatives

(163,802

)

9,087

(374,403

)

139,919

(162,642

)

(96,121

)

295,918

(513

)

36,411

From PFSI—MSR recapture income

8,260

12,701

13,634

Net loan servicing fees

$

304,178

$

12,188

$

50,045

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

The fair value of the MSR increased by $392.6 million in the quarter, driven by higher mortgage rates which resulted in expectations for lower prepayment activity in the future. Agency MBS and interest rate hedges decreased in fair value as a result of increases in market interest rates.

Additionally, during the quarter PMT opportunistically invested $27 million in fixed-rate bonds from a senior tranche of a recently completed jumbo securitization.

Net interest expense for the segment was $12.6 million, versus net interest expense of $19.9 million in the prior quarter. Interest income totaled $29.1 million, up from $22.7 million in the prior quarter due to higher average MBS balances and a decline in prepayment activity. Interest expense totaled $41.7 million, down slightly from the prior quarter primarily due to a reduction in interest shortfall from slower prepayment activity.

Segment expenses were $23.2 million, up slightly from $22.4 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 $4.6 million, essentially unchanged from the prior quarter.

Through its correspondent production activities, PMT acquired $22.5 billion in UPB of loans, down 31 percent from the prior quarter and 56 percent from the first quarter of 2021. Of total correspondent acquisitions, conventional conforming acquisitions totaled $9.8 billion, and government-insured or guaranteed acquisitions totaled $12.7 billion, down from $17.2 billion and $15.7 billion, respectively, in the prior quarter. Interest rate lock commitments on conventional loans totaled $10.2 billion, down from $14.7 billion in the prior quarter, due to reduced market volumes driving elevated levels of competition for conventional loans, including from the GSEs.

Segment revenues were $26.5 million, a 13 percent decrease from the prior quarter and included other income of $15.0 million, which primarily consists of volume-based origination fees, net interest income of $7.6 million, and net gains on loans acquired for sale of $4.0 million. Net gain on loans acquired for sale in the quarter increased from the prior quarter as a result of higher overall gain on sale margins. Interest income was $19.2 million, down from $30.8 million in the prior quarter, and interest expense was $11.6 million, down from $18.9 million in the prior quarter, both due to lower volumes.

Segment expenses were $22.0 million, down from $25.8 million in the prior quarter driven by the decrease in acquisition volumes and slightly offset by an increase in the weighted average fulfillment fee rate. The weighted average fulfillment fee rate in the first quarter was 17 basis points, up from 12 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 $1.2 million in the prior quarter. Management fees were $8.1 million, down from $8.9 million in the prior quarter. Other segment expenses were $7.2 million, up from $6.3 million in the prior quarter.

Taxes

PMT recorded a provision for tax expense of $37.2 million primarily driven by fair value increases in MSRs held in PMT’s taxable subsidiary.

Management’s slide presentation will be available in the Investor Relations section of the Company’s website at www.pennymac-REIT.com beginning after the market closes on Thursday, May 5, 2022.

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: changes in interest rates; 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; the degree and nature of the Company’s competition; 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, 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 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; 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; 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; 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, 2022

December 31, 2021

March 31, 2021

(in thousands except share amounts)

ASSETS

Cash

$

187,880

$

58,983

$

92,842

Short-term investments at fair value

236,468

167,999

108,375

Mortgage-backed securities at fair value

3,070,330

2,666,768

1,916,485

Loans acquired for sale at fair value

1,708,745

4,171,025

4,646,761

Loans at fair value

1,826,482

1,568,726

117,647

Derivative assets

77,823

34,238

182,969

Deposits securing credit risk transfer arrangements

1,536,862

1,704,911

2,664,420

Mortgage servicing rights at fair value

3,391,172

2,892,855

2,441,214

Servicing advances

134,002

204,951

150,160

Due from PennyMac Financial Services, Inc.

20,562

15,953

7,521

Other

197,189

286,299

193,860

Total assets

$

12,387,515

$

13,772,708

$

12,522,254

LIABILITIES

Assets sold under agreements to repurchase

$

5,092,700

$

6,671,890

$

6,091,973

Mortgage loan participation and sale agreements

65,699

49,988

68,176

Notes payable secured by credit risk transfer and mortgage servicing assets

2,372,279

2,471,961

2,897,794

Exchangeable senior notes

544,100

502,459

494,097

Asset-backed financings at fair value

1,712,650

1,469,999

101,238

Interest-only security payable at fair value

16,373

10,593

18,922

Derivative and credit risk transfer strip liabilities at fair value

129,350

42,206

229,970

Accounts payable and accrued liabilities

117,682

96,156

122,837

Due to PennyMac Financial Services, Inc.

27,722

40,091

68,644

Income taxes payable

46,797

9,598

42,493

Liability for losses under representations and warranties

40,225

40,249

28,967

Total liabilities

10,165,577

11,405,190

10,165,111

SHAREHOLDERS’ EQUITY

Preferred shares of beneficial interest

541,482

541,482

299,707

Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding 93,007,076, 94,897,255, and 97,938,350 common shares, respectively

930

949

979

Additional paid-in capital

2,000,107

2,081,757

2,137,933

Accumulated deficit

(320,581

)

(256,670

)

(81,476

)

Total shareholders’ equity

2,221,938

2,367,518

2,357,143

Total liabilities and shareholders’ equity

$

12,387,515

$

13,772,708

$

12,522,254

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Quarterly Periods Ended

March 31, 2022

December 31, 2021

March 31, 2021

(in thousands, except per share amounts)

Investment Income

Net loan servicing fees:

From nonaffiliates

Servicing fees

$

155,999

$

162,129

$

132,532

Change in fair value of mortgage servicing rights

303,721

(171,729

)

278,282

Hedging results

(163,802

)

9,087

(374,403

)

295,918

(513

)

36,411

From PennyMac Financial Services, Inc.

8,260

12,701

13,634

304,178

12,188

50,045

Net (losses) gains on investments and financings

(229,095

)

35,177

83,191

Net gains (losses) on loans acquired for sale

3,953

(9,661

)

53,012

Loan origination fees

14,774

27,867

52,902

Interest income

51,063

55,680

37,589

Interest expense

63,514

73,738

76,308

Net interest expense

(12,451

)

(18,058

)

(38,719

)

Other

480

1,967

966

Net investment income

81,839

49,480

201,397

Expenses

Earned by PennyMac Financial Services, Inc.:

Loan servicing fees

21,088

20,847

19,093

Loan fulfillment fees

16,754

20,150

60,835

Management fees

8,117

8,919

8,449

Professional services

4,025

6,078

2,224

Loan collection and liquidation

3,177

1,321

3,857

Loan origination

2,842

4,904

9,308

Safekeeping

2,395

2,248

1,941

Compensation

1,437

870

2,185

Other

3,946

3,652

2,477

Total expenses

63,781

68,989

110,369

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

18,058

(19,509

)

91,028

Provision for (benefit from) income taxes

37,187

(2,622

)

19,425

Net (loss) income

(19,129

)

(16,887

)

71,603

Dividends on preferred shares

10,455

10,454

6,234

Net (loss) income attributable to common shareholders

$

(29,584

)

$

(27,341

)

$

65,369

(Loss) earnings per share

Basic

$

(0.32

)

$

(0.28

)

$

0.67

Diluted

$

(0.32

)

$

(0.28

)

$

0.67

Weighted average shares outstanding

Basic

94,146

96,306

97,892

Diluted

94,146

96,306

98,103

View source version on businesswire.com: https://www.businesswire.com/news/home/20220505006006/en/

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