PennyMac Mortgage Investment Trust PMT today reported net income of $26.5 million, or $0.34 per diluted share, for the fourth quarter of 2014, on net investment income of $53.1 million. PMT previously announced a cash dividend for the fourth quarter of 2014 of $0.61 per common share of beneficial interest, which was declared on December 10, 2014 and paid on January 16, 2015.
Fourth Quarter 2014 Highlights
Financial results:
- Diluted earnings per common share of $0.34, down 51 percent from the prior quarter
- Net income of $26.5 million, down 52 percent from the prior quarter
- Net investment income of $53.1 million, down 50 percent from the prior quarter
- Book value per share of $21.18, down from $21.42 at September 30, 2014
- Return on average equity of 7 percent, down from 14 percent for the prior quarter1
Investment activities and correspondent production results:
-
Acquired a pool of nonperforming loans totaling $331 million in unpaid
principal
balance (UPB) -
Mortgage servicing rights (MSR) and excess servicing spread (ESS)
investments, related to $63 billion in UPB, grew to $549 million at
December 31, 2014
- Added $32 million in new MSR investments resulting from correspondent production activities
- Invested $17 million in ESS on mini-bulk and flow acquisitions of Agency MSRs acquired by PennyMac Financial Services, Inc. (PFSI) relating to $2.3 billion in UPB
Investment activity after the fourth quarter:
- Acquired a pool of nonperforming whole loans totaling $310 million in UPB
- Expected to enter into agreements with PFSI relating to the acquisition of approximately $175 million in ESS from Agency MSRs totaling $21 billion in UPB that PFSI is expected to acquire2
Full-Year 2014 Highlights
- Net income of $194.5 million, down 3 percent from the prior year
- Net investment income of $356.7 million, down 12 percent from the prior year
- Diluted earnings per common share of $2.47, down 17 percent from the prior year; weighted average shares outstanding increased 18 percent from the prior year
- Return on average equity of 13 percent3, down from 17 percent from the prior year
- Total mortgage assets reached $4.4 billion, up 12 percent from December 31, 2013, with new investments in distressed whole loans, MSRs, and ESS
"During the fourth quarter and in recent weeks we have entered into significant new investments in nonperforming loans and excess servicing spread that we expect will deliver strong contributions to PMT's returns going forward," said Stanford L. Kurland, PMT's Chairman and Chief Executive Officer. "PMT's diversified investment portfolio continues to generate strong cash flows which are consistent with our current dividend level, despite fourth quarter earnings that were adversely affected by reduced gains in our distressed loan portfolio largely resulting from home prices lower than previously forecast."
PMT earned $11.9 million in pretax income for the quarter ended December 31, 2014, a 79 percent decline from the third quarter.
The following table presents the contribution of PMT's Investment Activities and Correspondent Production segments to pretax income:
| Quarter ended December 31, 2014 | |||||||||||
| Investment | Correspondent | ||||||||||
| Activities | Lending | Total | |||||||||
| Net investment income: | (in thousands) | ||||||||||
| Net gain on mortgage loans acquired for sale | $ | - | $ | 5,945 | $ | 5,945 | |||||
| Net gain on investments | 15,700 | - | 15,700 | ||||||||
| Net interest income | |||||||||||
| Interest income | 36,174 | 7,074 | 43,248 | ||||||||
| Interest expense | 18,226 | 3,703 | 21,929 | ||||||||
| 17,948 | 3,371 | 21,319 | |||||||||
| Net loan servicing fees | 11,181 | - | 11,181 | ||||||||
| Other investment (loss) income | (6,011 | ) | 4,925 | (1,086 | ) | ||||||
| 38,818 | 14,241 | 53,059 | |||||||||
| Expenses: | |||||||||||
| Loan Fulfillment, Servicing and Management fees | |||||||||||
|
payable to PennyMac Financial Services, Inc |
19,554 | 12,185 | 31,739 | ||||||||
| Other | 8,270 | 1,110 | 9,380 | ||||||||
| 27,824 | 13,295 | 41,119 | |||||||||
| Pretax income | $ | 10,994 | $ | 946 | $ | 11,940 | |||||
Investment Activities Segment
The Investment Activities segment generated $11.0 million in pretax income on revenues of $38.8 million in the fourth quarter, compared to $55.1 million and $86.4 million, respectively, in the third quarter. Net gain on investments totaled $15.7 million in the fourth quarter, a 78 percent decline from the third quarter. Net gain on investments includes valuation gains on distressed loans of $20.7 million and gains on MBS of $3.4 million, partially offset by valuation losses on mortgage loans held by variable interest entity of $5.4 million and losses on ESS of $3.0 million. Losses on ESS largely resulted from the reduction in mortgage rates during the quarter and expectations of increased prepayment speeds in the future. In future periods as prepayments related to the ESS occur, PMT should benefit from recapture income. The recapture benefit payable to PMT for activity during the quarter was $1.3 million.
Net interest income earned on PMT's investments in distressed loans, ESS, MBS and mortgage loans held by variable interest entity increased by $2.8 million to $17.9 million, driven by $14.1 million of capitalized interest from loan modification activity during the quarter. Capitalized interest from loan modifications during a period increases interest income and tends to reduce the loan valuation. Net loan servicing fees were $11.2 million, up from $10.5 million in the third quarter, driven by higher servicing fee revenue from a growing investment in MSRs in addition to hedge gains which partially offset the MSR valuation loss and impairment resulting from lower mortgage rates. Other investment losses were $6.0 million, versus losses of $9.6 million in the third quarter due to a reduction in costs related to real estate acquired in the settlement of loans. Segment expenses were $27.8 million in the fourth quarter, down 11 percent from the prior quarter driven by lower expenses associated with the administration and sale of distressed loans and a decline in incentive fees paid to PFSI resulting from PMT's reduced financial performance for the fourth quarter.
Distressed Mortgage Investments
PMT's distressed mortgage loan portfolio generated realized and unrealized gains totaling $20.7 million in the fourth quarter, compared to $81.3 million in the third quarter. Of the gains in the fourth quarter, $3.2 million was realized through payoffs in which collections on the loan balances were at levels higher than their recorded fair values.
The following schedule details the realized and unrealized gains on mortgage loans:
| Quarters ended | ||||||
| December 31, 2014 | September 30, 2014 | |||||
| (in thousands) | ||||||
| Valuation changes: | ||||||
| Performing loans | $ | 4,831 | $ | 23,255 | ||
| Nonperforming loans | 12,653 | 51,913 | ||||
| 17,484 | 75,168 | |||||
| Payoffs | 3,191 | 5,866 | ||||
| Sales | - | 262 | ||||
| $ | 20,675 | $ | 81,296 | |||
In the fourth quarter, the portfolios of performing and nonperforming loans increased in value by $4.8 million and $12.7 million, respectively. During the quarter, valuation gains were adversely impacted by a decrease in current home price levels versus prior forecasts and lowered expectation for future price appreciation. Furthermore, seasonally lower reperformance and other resolution activities also contributed to the decline in valuation gains compared to the prior quarter.
Mortgage Servicing Rights
PMT's MSR portfolio, which is subserviced by PFSI, grew to $34.3 billion in UPB compared to $32.3 billion in the third quarter. Servicing fee revenue of $23.0 million was reduced by amortization, impairment and fair value losses totaling $19.8 million, partially offset by $8.0 million of hedge gains, resulting in net loan servicing revenue of $11.2 million, up from $10.5 million in the third quarter.
The following schedule details the net loan servicing fees:
| Quarter ended | |||||||
| December 31, 2014 | September 30, 2014 | ||||||
| (in thousands) | |||||||
| Net loan servicing fees | |||||||
| Servicing fees (1) | $ | 23,020 | $ | 20,300 | |||
| Effect of MSRs: | |||||||
| Carried at lower of amortized cost or fair value | |||||||
| Amortization | (8,741 | ) | (8,109 | ) | |||
| (Provision for) reversal of impairment | (2,890 | ) | 602 | ||||
| Carried at fair value - change in fair value | (8,204 | ) | (1,606 | ) | |||
| Gains (losses) on hedging derivatives | 7,996 | (654 | ) | ||||
| (11,839 | ) | (9,767 | ) | ||||
| Net loan servicing fees | $ | 11,181 | $ | 10,533 | |||
|
(1) Includes contractually specified servicing revenue |
|||||||
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 an ongoing investment in MSRs. For the quarter ended December 31, 2014, PMT's Correspondent Production segment generated pretax income of $0.9 million, versus pretax income of $2.8 million in the third quarter. Revenues totaled $14.2 million, down 29 percent from the third quarter, driven by a decrease in conventional conforming and jumbo interest rate lock commitments (IRLCs) during the quarter.
In its correspondent activities in the fourth quarter, PMT acquired $7.3 billion in UPB of loans and issued IRLCs totaling $7.5 billion, compared to $8.1 billion and $8.4 billion, respectively, in the third quarter. Of the correspondent acquisitions, conventional conforming and jumbo volumes totaled $2.9 billion, and government insured or guaranteed volumes totaled $4.4 billion compared to $3.7 billion and $4.4 billion, respectively, in the third quarter. The decrease in conventional acquisitions was driven by a competitive environment and a seasonal decline in the purchase money market which represents a significant portion of PMT's volumes.
Net gain on mortgage loans acquired for sale totaled $5.9 million in the fourth quarter compared to $9.5 million last quarter. Segment revenues in the fourth quarter also included $4.9 million of loan origination fees and net interest income of $3.4 million.
The following schedule details the net gain on mortgage loans acquired for sale:
| Quarter ended | |||||||
| December 31, 2014 | September 30, 2014 | ||||||
| (in thousands) | |||||||
| Net gain on mortgage loans acquired for sale | |||||||
| Receipt of MSRs in loan sale transactions | $ | 32,104 | $ | 39,613 | |||
| Provision for representation and warranties | (1,130 | ) | (1,359 | ) | |||
| Cash investment (1) | (21,606 | ) | (28,178 | ) | |||
| Fair value changes of pipeline, inventory and hedges | (3,423 | ) | (567 | ) | |||
| $ | 5,945 | $ | 9,509 | ||||
|
(1) Net of cash hedge expense |
|||||||
Segment expenses decreased 23 percent quarter-over-quarter to $13.3 million, primarily due to lower loan fulfillment fee expense resulting from the decrease in loan acquisition volumes and a lower weighted average fulfillment fee rate during the quarter. The weighted average fulfillment fee rate in the fourth quarter was 41 basis points, compared to 42 basis points in the prior quarter.
Management Fees and Taxes
Management fees decreased by 12 percent from the third quarter to $8.4 million, driven by the lower incentive fees resulting from PMT's reduced financial performance in the fourth quarter.
PMT recognized an income tax benefit of $14.6 million in the fourth quarter, versus income taxes of $3.0 million in the third quarter. The tax benefit primarily resulted from a loss in the taxable REIT subsidiary and an improvement in that entity's estimated tax rate.
Mr. Kurland concluded, "PMT continues to grow and diversify its investments. We continued to make new investments and prudently increased our use of leverage, which enhances returns to shareholders. PMT is investing in assets such as MSRs and ESS, which are well positioned in today's low interest rate environment, and we see considerable opportunity for PMT to continue making attractive investments in mortgage-related assets as the U.S. economy strengthens."
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 Standard Time) on Wednesday, February 4, 2015.
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; volatility in our industry, the debt or equity markets, the general economy or the residential finance and real estate markets; changes in general business, economic, market, employment and political conditions or in consumer confidence; declines in residential real estate or significant changes in U.S. housing prices or activity in the U.S. housing market; availability of, and level of competition for, attractive risk-adjusted investment opportunities in residential mortgage loans and mortgage-related assets that satisfy our investment objectives; 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 the performance of such entities; availability, terms and deployment of short-term and long-term capital; unanticipated increases or volatility in financing and other costs; 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; 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; increased prepayments of the mortgages and other loans underlying our mortgage-backed securities and other investments; the degree to which our hedging strategies may protect us from interest rate volatility; our failure to maintain appropriate internal controls over financial reporting; our ability to comply with various federal, state and local laws and regulations that govern our business; changes in legislation or regulations or the occurrence of other events that impact the business, operations or prospects of government agencies, mortgage lenders and/or publicly-traded companies; the creation of the Consumer Financial Protection Bureau, or CFPB, and enforcement of its rules; changes in government support of homeownership; changes in government or government-sponsored home affordability programs; changes in governmental regulations, accounting treatment, tax rates and similar matters (including changes to laws governing the taxation of real estate investment trusts, or REITs; limitations imposed on our business and our ability to satisfy complex rules for us 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 our subsidiaries to qualify as REITs or as taxable REIT subsidiaries for U.S. federal income tax purposes and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules; and the effect of public opinion on our reputation. 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.
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 The MSR acquisitions by PFSI
and the Company's purchase of excess servicing spread are subject to the
negotiation and execution of definitive documentation, continuing due
diligence and customary closing conditions, including required
regulatory approvals. There can be no assurance that the committed
amounts will ultimately be acquired or that the transactions will be
completed at all.
3 Return on average equity is
calculated based on annualized quarterly net income as a percentage of
monthly average shareholders' equity during the period.
|
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS |
||||||||
| December 31, 2014 | September 30, 2014 | December 31, 2013 | ||||||
| (in thousands except share data) | ||||||||
| ASSETS | ||||||||
| Cash | $ | 76,386 | $ | 46,487 | $ | 27,411 | ||
| Short-term investments | 139,900 | 37,452 | 92,398 | |||||
| Mortgage-backed securities at fair value pledged to secure securities | ||||||||
| sold under agreements to repurchase | 307,363 | 267,885 | 197,401 | |||||
| Mortgage loans acquired for sale at fair value | 637,722 | 688,850 | 458,137 | |||||
| Mortgage loans at fair value | 2,726,952 | 2,561,911 | 2,600,317 | |||||
| Mortgage loans under forward purchase agreements at fair value | - | - | 218,128 | |||||
| Excess servicing spread purchased from PennyMac Financial Services, Inc. | 191,166 | 187,368 | 138,723 | |||||
| Derivative assets | 11,107 | 10,344 | 7,976 | |||||
| Real estate acquired in settlement of loans | 303,228 | 275,185 | 138,942 | |||||
| Real estate acquired in settlement of loans under forward purchase agreements | - | - | 9,138 | |||||
| Mortgage servicing rights | 357,780 | 345,848 | 290,572 | |||||
| Servicing advances | 79,878 | 59,325 | 59,573 | |||||
| Due from PennyMac Financial Services, Inc. | 6,621 | 4,311 | 6,009 | |||||
| Other assets | 66,193 | 119,847 | 66,192 | |||||
| Total assets | $ | 4,904,296 | $ | 4,604,813 | $ | 4,310,917 | ||
| LIABILITIES | ||||||||
| Assets sold under agreements to repurchase | $ | 2,750,366 | $ | 2,416,686 | $ | 2,039,605 | ||
| Borrowings under forward purchase agreements | - | - | 226,580 | |||||
| Asset-backed secured financing of the variable interest entity at fair value | 165,920 | 166,841 | 165,415 | |||||
| Exchangeable senior notes | 250,000 | 250,000 | 250,000 | |||||
| Derivative liabilities | 2,430 | 1,889 | 1,961 | |||||
| Accounts payable and accrued liabilities | 67,806 | 80,493 | 71,561 | |||||
| Due to PennyMac Financial Services, Inc. | 23,943 | 21,420 | 18,636 | |||||
| Income taxes payable | 51,417 | 66,208 | 59,935 | |||||
| Liability for losses under representations and warrants | 14,242 | 13,235 | 10,110 | |||||
| Total liabilities | 3,326,124 | 3,016,772 | 2,843,803 | |||||
| SHAREHOLDERS' EQUITY | ||||||||
| Common shares of beneficial interest—authorized, 500,000,000 common shares of | ||||||||
| $0.01 par value; issued and outstanding 74,510,159, 74,139,570, and 70,458,082 common shares | 745 | 741 | 705 | |||||
| Additional paid-in capital | 1,479,699 | 1,470,189 | 1,384,468 | |||||
| Retained earnings | 97,728 | 117,111 | 81,941 | |||||
| Total shareholders' equity | 1,578,172 | 1,588,041 | 1,467,114 | |||||
| Total liabilities and shareholders' equity | $ | 4,904,296 | $ | 4,604,813 | $ | 4,310,917 | ||
|
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME |
||||||||||||
| Quarter Ended | ||||||||||||
| December 31, 2014 | September 30, 2014 | December 31, 2013 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Investment Income | ||||||||||||
| Net gain on mortgage loans acquired for sale | $ | 5,945 | $ | 9,509 | $ | 13,921 | ||||||
| Loan origination fees | 4,897 | 6,447 | 2,981 | |||||||||
| Net interest income: | ||||||||||||
| Interest income | 43,248 | 41,236 | 43,912 | |||||||||
| Interest expense | 21,929 | 22,020 | 20,345 | |||||||||
| 21,319 | 19,216 | 23,567 | ||||||||||
| Net gain on investments | 15,700 | 70,390 | 47,858 | |||||||||
| Net loan servicing fees | 11,181 | 10,533 | 12,229 | |||||||||
| Results of real estate acquired in settlement of loans | (8,552 | ) | (11,926 | ) | (6,014 | ) | ||||||
| Other | 2,569 | 2,361 | 1,545 | |||||||||
| Net investment income | 53,059 | 106,530 | 96,087 | |||||||||
| Expenses | ||||||||||||
| Expenses payable to PennyMac Financial Services, Inc.: | ||||||||||||
| Loan fulfillment fees | 11,887 | 15,497 | 11,087 | |||||||||
| Loan servicing fees (1) | 11,426 | 12,325 | 12,162 | |||||||||
| Management fees | 8,426 | 9,623 | 8,924 | |||||||||
| Professional services | 2,031 | 1,927 | 2,501 | |||||||||
| Compensation | 1,660 | 1,843 | 2,095 | |||||||||
| Other | 5,689 | 7,384 | 4,589 | |||||||||
| Total expenses | 41,119 | 48,599 | 41,358 | |||||||||
| Income before provision for income taxes | 11,940 | 57,931 | 54,729 | |||||||||
| (Benefit from) provision for income taxes | (14,571 | ) | 2,982 | 2,033 | ||||||||
| Net income | $ | 26,511 | $ | 54,949 | $ | 52,696 | ||||||
| Earnings per share | ||||||||||||
| Basic | $ | 0.35 | $ | 0.74 | $ | 0.74 | ||||||
| Diluted | $ | 0.34 | $ | 0.69 | $ | 0.69 | ||||||
| Weighted-average shares outstanding | ||||||||||||
| Basic | 74,211 | 74,140 | 70,456 | |||||||||
| Diluted | 82,996 | 82,832 | 79,214 | |||||||||
(1) Servicing expenses include both special servicing for PMT's distressed portfolio and subservicing for its mortgage servicing rights.
|
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME |
||||||||||||
| Year Ended | ||||||||||||
| December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Investment Income | ||||||||||||
| Net gain on mortgage loans acquired for sale | $ | 35,647 | $ | 98,669 | $ | 147,675 | ||||||
| Loan origination fees | 18,184 | 17,765 | 10,545 | |||||||||
| Net interest income: | ||||||||||||
| Interest income | 172,348 | 122,862 | 72,441 | |||||||||
| Interest expense | 85,589 | 65,222 | 31,642 | |||||||||
| 86,759 | 57,640 | 40,799 | ||||||||||
| Net gain on investments | 201,809 | 207,758 | 103,649 | |||||||||
| Net loan servicing fees | 37,893 | 32,791 | (754 | ) | ||||||||
| Results of real estate acquired in settlement of loans | (32,451 | ) | (13,491 | ) | 1,368 | |||||||
| Other | 8,900 | 4,386 | 244 | |||||||||
| Net investment income | 356,741 | 405,518 | 303,526 | |||||||||
| Expenses | ||||||||||||
| Expenses payable to PennyMac Financial Services, Inc.: | ||||||||||||
| Loan fulfillment fees | 48,719 | 79,712 | 62,906 | |||||||||
| Loan servicing fees (1) | 52,522 | 39,413 | 18,608 | |||||||||
| Management fees | 35,035 | 32,410 | 12,436 | |||||||||
| Professional services | 8,380 | 8,373 | 6,053 | |||||||||
| Compensation | 8,328 | 7,914 | 7,144 | |||||||||
| Other | 24,293 | 23,061 | 9,557 | |||||||||
| Total expenses | 177,277 | 190,883 | 116,704 | |||||||||
| Income before provision for income taxes | 179,464 | 214,635 | 186,822 | |||||||||
| (Benefit from) provision for income taxes | (15,080 | ) | 14,445 | 48,573 | ||||||||
| Net income | $ | 194,544 | $ | 200,190 | $ | 138,249 | ||||||
|
Earnings per share |
||||||||||||
| Basic | $ | 2.62 | $ | 3.13 | $ | 3.14 | ||||||
| Diluted | $ | 2.47 | $ | 2.96 | $ | 3.14 | ||||||
| Weighted-average shares outstanding | ||||||||||||
| Basic | 73,495 | 63,426 | 43,553 | |||||||||
| Diluted | 82,211 | 69,448 | 43,876 | |||||||||
(1) Servicing expenses include both special servicing for PMT's distressed portfolio and subservicing for its mortgage servicing rights.
PennyMac Mortgage Investment Trust
Investors and Media
Christopher
Oltmann, (818) 224-7028
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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