PennyMac Mortgage Investment Trust Reports First Quarter 2019 Results

WESTLAKE VILLAGE, Calif.–(BUSINESS WIRE)–PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income
attributable to common shareholders of $47.3 million, or $0.68 per
common share on a diluted basis for the first quarter of 2019, on net
investment income of $106.6 million. PMT previously announced a cash
dividend for the first quarter of 2019 of $0.47 per common share of
beneficial interest, which was declared on March 26, 2019, and paid on
April 29, 2019 to common shareholders of record as of April 15, 2019.

First Quarter 2019 Highlights

Financial results:

  • Net income attributable to common shareholders of $47.3 million, up
    from $35.4 million in the prior quarter

    • Results reflect solid performance of our GSE credit risk transfer
      (CRT) investments, which benefited from continued investment
      growth and reversal of the credit spread widening we experienced
      in the fourth quarter
    • Hedging of interest rate sensitive assets mitigated the impact of
      significant value losses on mortgage servicing rights (MSRs) as
      interest rates declined
  • Annualized return on average common equity of 14 percent, up from 11
    percent in the prior quarter1
  • Book value per common share of $20.72 at March 31, 2019, up from
    $20.61 at December 31, 2018

Investment and operating highlights:

  • Continued investment in CRT securities and MSRs resulting from PMT’s
    mortgage acquisitions

    • Conventional loan production totaled $9.0 billion in unpaid
      principal balance (UPB), down 10 percent from the prior quarter2
    • CRT eligible loans delivered totaled $7.7 billion, resulting in a
      firm commitment to purchase $282 million of CRT securities
    • New MSR investments totaled $132 million
  • Pioneered a groundbreaking structure in the financing of certain of
    our settled CRT investments

    • Issued $296 million of 3-year term notes secured by our first
      three CRT transactions, replacing short-term repurchase
      agreements, at a similar effective cost with improved capital
  • Raised approximately $147 million in net proceeds from the issuance of
    common shares during the quarter
  • Entered into agreements during and after the quarter to sell $49
    million in UPB of nonperforming loans from the distressed portfolio3


  Annualized return on average common equity is calculated based on
annualized quarterly net income attributable to common shareholders
as a percentage of monthly average common equity during the period
2 Includes conventional loan acquisitions from PennyMac Financial
Services (NYSE: PFSI), which totaled $0.7 billion, down 17% from the
prior quarter
3 These transactions are subject to continuing due diligence and
customary closing conditions. There can be no assurance regarding
the size of these transactions or that these transactions will be
completed at all.

“PMT’s performance in the first quarter demonstrates the earnings
potential of our organic investments in CRT and MSRs,” said President
and CEO David Spector. “CRT investments delivered strong performance
during the quarter, resulting from investment growth and credit spread
tightening that reversed valuation-related losses from the prior
quarter. Our sophisticated interest rate risk management strategies
mitigated the impact of declining rates on the fair value of our MSR and
excess servicing spread (ESS) investments. Furthermore, the decline in
mortgage rates has improved the outlook for mortgage originations and
the prospects for growth of CRT and MSR investments sourced from PMT’s
correspondent production activities. As a result of PMT’s scale and
market position, we are optimistic regarding our prospects for growth.
In order to continue capturing the significant investment opportunities
available to us, we raised approximately $147 million in new equity
during the quarter and are deploying this capital into new investments
at attractive returns.”

The following table presents the contributions of PMT’s segments,
consisting of Correspondent Production, Credit Sensitive Strategies,
Interest Rate Sensitive Strategies, and Corporate:

Quarter ended March 31, 2019





Interest rate

  Corporate   Consolidated
(in thousands)
Net gain (loss) on investments:
Mortgage loans at fair value $ $ 485 $ $ $ 485
Mortgage loans held by variable interest entity net of

asset-backed secured financing

183 545 728
Mortgage-backed securities


CRT investments


Hedging derivatives 7,380 7,380
Excess servicing spread investments           (3,562 )       (3,562 )
53,808 41,285 95,093
Net gain on mortgage loans acquired for sale 10,226 11,097 21,323
Net mortgage loan servicing fees (31,080 ) (31,080 )
Net interest income (expense)
Interest income






Interest expense  












10,654 (3,766 ) 1,024 430 8,342
Other income (loss)   12,964     (30 )       6     12,940  
  33,844     61,109     11,229     436     106,618  
Mortgage loan fulfillment and servicing fees

payable to PennyMac Financial Services, Inc.

27,573 465 10,106 38,144
Management fees payable to PennyMac Financial Services, Inc. 7,248 7,248


  2,650     2,271     318     6,120     11,359  
  30,223     2,736     10,424     13,368     56,751  
Pretax income (loss) $ 3,621   $ 58,373   $ 805   $ (12,932 ) $ 49,867  

Credit Sensitive Strategies Segment

The Credit Sensitive Strategies segment primarily includes results from
CRT, distressed mortgage loans and non-Agency subordinated bonds. Pretax
income for the segment was $58.4 million on revenues of $61.1 million,
compared to pretax income of $17.9 million on revenues of $22.3 million
in the prior quarter.

The Credit Sensitive Strategies segment recorded a net gain on mortgage
loans acquired for sale of $11.1 million, a decrease from $14.0 million
in the prior quarter. These amounts represent the recognition of the
fair value of firm commitment to acquire CRT securities under a new
REMIC structure; for the first quarter of 2019, an additional $8.6
million was attributed to the Correspondent Production segment.

Net gain on investments in the segment was $53.8 million, up 341 percent
from the prior quarter.

Net gain on CRT investments for the quarter was $53.1 million, compared
to $9.8 million in the prior quarter, and included $20.4 million in
valuation-related gains driven by credit spread tightening from improved
market conditions, which reversed losses related to credit spread
widening in the prior quarter. Net gain on CRT investments also included
$33.6 million in realized gains and carry, up from $30.1 million in the
prior quarter, and recognized losses of $0.9 million, up from $0.7
million in the prior quarter, reflecting portfolio seasoning and in line
with expectations.

PMT’s distressed mortgage loan portfolio generated realized and
unrealized gains totaling $0.5 million, down from $2.5 million in the
prior quarter. Fair value gains on performing loans in the distressed
portfolio were $0.4 million, while fair value gains on nonperforming
loans were $0.5 million and realized losses related to payoffs and loan
sales were $0.4 million.

Net interest expense for the segment totaled $3.8 million, compared to
$2.5 million in the prior quarter. Interest income totaled $8.3 million,
a 19 percent decrease from the prior quarter, driven by a smaller
distressed loan portfolio. Interest expense totaled $12.0 million, down
from $12.6 million in the prior quarter.

Other investment losses in the segment were $30,000, compared to losses
of $1.4 million in the prior quarter, driven by the continued
liquidation of the real estate acquired in the settlement of loans (REO)
portfolio. At quarter end, PMT’s inventory of REO properties totaled
$72.2 million, down from $85.7 million at December 31, 2018.

Segment expenses were $2.7 million, down 38 percent from the prior
quarter driven by elevated professional services expense in the prior
quarter and a reduction in servicing expenses resulting from the ongoing
liquidation of the distressed loan portfolio.

Interest Rate Sensitive Strategies Segment

The Interest Rate Sensitive Strategies segment includes results from
investments in MSRs, ESS, Agency mortgage-backed securities (MBS),
non-Agency senior MBS and interest rate hedges. Pretax income for the
segment was $0.8 million on revenues of $11.2 million, compared to
pretax income of $20.1 million on revenues of $30.2 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 decreasing interest rates, MSRs and ESS typically decrease
in fair value whereas Agency MBS typically increase in 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 gain on investments for the segment totaled $41.3 million, and
primarily consisted of $36.7 million of gains on MBS and $7.4 million of
gains in the value of hedging derivatives, partially offset by a $3.6
million loss in the value of ESS investments.

Net mortgage loan servicing fees resulted in a loss of $31.1 million,
compared to a loss of $7.5 million in the prior quarter. Net mortgage
loan servicing fees included $61.3 million in servicing fees and $3.2
million in ancillary and other fees, reduced by $40.8 million in
realization of MSR cash flows. Net mortgage loan servicing fees also
included a $96.5 million decrease in the fair value of MSRs,
$41.1 million of related hedging gains and $0.6 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 mortgage loan servicing fees:

Quarter ended
March 31, 2019   December 31, 2018   March 31, 2018
(in thousands)
From non-affiliates:  
Servicing fees (1) $ 61,272 $ 57,400 $ 48,732
Ancillary and other fees 3,208 1,388 1,703
Effect of MSRs:
Carried at fair value—change in fair value
Realization of cashflows (40,821 ) (34,863 ) (26,638 )
Other   (96,508 )   (40,927 )   52,611  
(137,329 ) (75,790 ) 25,973
Gains (losses) on hedging derivatives   41,135     8,830     (20,848 )
  (96,194 )   (66,960 )   5,125  
(31,714 ) (8,172 ) 55,560
From PFSI—MSR recapture income   634     624     595  
Net mortgage loan servicing fees $ (31,080 ) $ (7,548 ) $ 56,155  
(1) Includes contractually specified servicing fees

MSR valuation losses were primarily driven by a decrease in mortgage
rates during the quarter, resulting in expectations for higher
prepayment activity in the future. ESS investments also declined in
value from a decrease in mortgage rates and the ongoing paydown of the
underlying loans, partially offset by recapture income from PFSI for
prepayment activity during the quarter. PMT generally benefits from
recapture income when the prepayment of a loan underlying PMT’s ESS
results from refinancing by PFSI.

Net interest income for the segment was $1.0 million compared to $3.2
million in the prior quarter. Interest income totaled $34.1 million, up
from $32.9 million in the prior quarter primarily driven by a larger
average MBS portfolio. Interest expense totaled $33.1 million, up from
$29.7 million in the prior quarter, driven by increased financing costs
related to growth in MBS and MSR investments.

Segment expenses were $10.4 million, a 4 percent increase from the prior
quarter, primarily driven by higher servicing fee expense on a growing
MSR portfolio.

Correspondent Production Segment

PMT acquires newly originated mortgage loans from correspondent sellers
and typically sells or securitizes the loans, resulting in
current-period income and ongoing investments in MSRs and CRT related to
a portion of its production. PMT’s Correspondent Production segment
generated pretax income of $3.6 million, compared to a loss of
$0.6 million in the prior quarter.

Through its correspondent production activities, PMT acquired
$15.1 billion in UPB of loans from nonaffiliates compared to
$18.1 billion in the prior quarter. Of total correspondent acquisitions,
conventional conforming and jumbo acquisitions from nonaffiliates
totaled $8.3 billion, and government-insured or guaranteed acquisitions
totaled $6.8 billion, compared to $9.2 billion and $8.9 billion,
respectively, in the prior quarter. PMT also acquired $0.7 billion of
conventional loans from PennyMac Financial, compared to $0.9 billion in
the prior quarter. PMT issued interest rate lock commitments on
conventional loans totaling $9.0 billion, compared to $9.7 billion in
the prior quarter.

Segment revenues were $33.8 million, a 9 percent increase from the prior
quarter and included a net gain on mortgage loans of $10.2 million,
other income of $13.0 million, which primarily consists of volume-based
origination fees, and net interest income of $10.7 million. Net gain on
mortgage loans acquired for sale in the quarter increased by $6.6
million from the prior quarter, driven by improved production margins
and which includes CRT-related gains as discussed earlier. Net interest
income decreased $1.6 million from the prior quarter, primarily driven
by lower production volumes. Net interest income includes the
recognition of incentives the Company is entitled to receive under one
of its master repurchase agreements to finance mortgage loans that
satisfy certain consumer relief characteristics. These incentives
totaled $7.5 million, down from $8.7 million in the fourth quarter. As
previously noted, the Company expects to cease accruing incentives under
this repurchase agreement in the second quarter of 2019. While there can
be no assurance, the Company expects that the loss of any such
incentives will be partially offset by an improvement in pricing margins.

Segment expenses were $30.2 million, down 4 percent from the prior
quarter resulting from a decrease in production activity, partially
offset by an increase in the weighted average fulfillment fee during the
quarter. The weighted average fulfillment fee rate in the first quarter
was 34 basis points, up from 32 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 $436,000, up from $417,000 in the prior quarter.

Management fees were $7.2 million, up 11 percent from the prior quarter
driven by a combination of increased incentive fees paid to PFSI based
on PMT’s profitability and an increase in PMT’s shareholders’ equity
from the issuance of common shares during the quarter.

Other segment expenses were $6.1 million, up from $5.1 million in the
prior quarter.


PMT recorded a $3.7 million benefit for income tax expense compared to a
$15.4 million benefit in the prior quarter, driven by fair value losses
on investments held in PMT’s taxable subsidiary.

“The availability of opportunities in today’s mortgage market, combined
with PMT’s access to the operational capabilities of PFSI to organically
generate attractive investments, drives our optimistic outlook,”
concluded Executive Chairman Stanford L. Kurland. “To facilitate our
long-term growth and maximize returns, we continue to develop innovative
ways to strengthen our balance sheet and reduce liquidity risk. The
groundbreaking CRT financing structure we launched this quarter began to
provide term financing for our CRT investments through a cost-effective
and capital-efficient structure. The term notes we issued more
effectively match the duration of our CRT assets and improves the return
on equity of our CRT investments. We now have in place term financing
solutions for both of PMT’s core investments – CRT and MSRs – which will
help PMT support its growth trajectory and strong performance in the
future. As we pursue PMT’s growth strategy, we also expect to gain
efficiencies as we leverage our corporate infrastructure across a larger
asset base and realize greater economies of scale.”

Management’s slide presentation will be available in the Investor
Relations section of the Company’s website at
beginning at 1:30 p.m. (Pacific Time) on Thursday, May 2, 2019.

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

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; events or circumstances which
undermine confidence in the financial markets or otherwise have a broad
impact on financial markets; 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; 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; incomplete or inaccurate
information or documentation provided by customers or counterparties, or
adverse changes in the financial condition of our customers and
counterparties; changes in the number of investor repurchases or
indemnifications and our ability to obtain indemnification or demand
repurchase from our correspondent sellers; increased rates of
delinquency, default and/or decreased recovery rates on our investments;
increased prepayments of the mortgages and other loans underlying our
mortgage-backed securities or relating to our mortgage servicing rights,
excess servicing spread and other investments; our exposure to market
risk and declines in credit quality and credit spreads; 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; changes in regulations or the
occurrence of other events that impact the business, operation or
prospects of government sponsored enterprises; changes in government
support of homeownership; changes in governmental regulations,
accounting treatment, tax rates and similar matters; our ability to
mitigate cybersecurity risks and cyber incidents; our exposure to risks
of loss with real estate investments resulting from adverse weather
conditions and man-made or natural disasters; our ability to satisfy
complex rules in order to qualify as a REIT for U.S. federal income tax
purposes; our ability to make distributions to our shareholders in the
future; 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.

March 31, 2019 December 31, 2018 March 31, 2018
(in thousands except share amounts)
Cash $ 68,538 $ 59,845 $ 102,167
Short-term investments 29,751 74,850 71,044
Mortgage-backed securities at fair value 2,589,106 2,610,422 1,436,456
Mortgage loans acquired for sale at fair value 1,435,071 1,643,957 1,115,534
Mortgage loans at fair value 398,664 408,305 779,489
Excess servicing spread purchased from PennyMac Financial Services,
205,081 216,110 236,002
Derivative assets 188,710 167,165 122,518
Firm commitment to purchase credit risk transfer securities at fair
79,784 37,994
Real estate acquired in settlement of loans 72,175 85,681 141,506
Real estate held for investment 42,346 43,110 45,790
Deposits securing credit risk transfer agreements 1,137,283 1,146,501 622,330
Mortgage servicing rights 1,156,908 1,162,369 957,013
Servicing advances 37,392 67,666 63,352
Due from PennyMac Financial Services, Inc. 3,345 4,077 313
Other assets   111,833     85,309     96,972  
Total assets $ 7,555,987   $ 7,813,361   $ 5,790,486  
Assets sold under agreements to repurchase $ 4,179,829 $ 4,777,027 $ 3,408,283
Mortgage loan participation and sale agreements 73,142 178,639
Exchangeable senior notes 248,652 248,350 247,471
Notes payable 739,224 445,573
Asset-backed financing of a variable interest entity at fair value 275,509 276,499 296,982
Interest-only security payable at fair value 32,564 36,011 7,796
Assets sold to PennyMac Financial Services, Inc. under agreement to
125,929 131,025 142,938
Derivative liabilities 8,750 5,914 3,636
Accounts payable and accrued liabilities 74,294 70,687 63,196
Due to PennyMac Financial Services, Inc. 29,951 33,464 27,356
Income taxes payable 32,866 36,526 42,321
Liability for losses under representations and warranties   7,688     7,514     8,249  
Total liabilities   5,828,398     6,247,229     4,248,228  
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 68,412,435,

and 60,882,954 common shares, respectively

684 610 609
Additional paid-in capital 1,431,887 1,285,533 1,281,115
Accumulated deficit   (4,689 )   (19,718 )   (39,173 )
Total shareholders’ equity   1,727,589     1,566,132     1,542,258  
Total liabilities and shareholders’ equity $ 7,555,987   $ 7,813,361   $ 5,790,486  


Janis Allen
(805) 330-4899

Christopher Oltmann
(818) 224-7028

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