PennyMac Mortgage Investment Trust Reports Third Quarter 2012 Results

PennyMac Mortgage Investment Trust Reports Third Quarter 2012 Results

MOORPARK, Calif.--(BUSINESS WIRE)-- PennyMac Mortgage Investment Trust (NYS: PMT) today reported net income of $40.4 million, or $0.81 per diluted share, for the third quarter of 2012, on net investment income of $99.2 million. In addition, PMT's Board of Trustees has declared a cash dividend of $0.57 per common share of beneficial interest. This dividend will be paid on November 30, 2012 to common shareholders of record on November 16, 2012.

Quarterly Highlights


Financial results:

  • Diluted earnings per common share of $0.81, up 3 percent from the prior quarter with a 33 percent increase in weighted shares outstanding

  • Net investment income of $99.2 million, up 54 percent from the prior quarter

  • Net income of $40.4 million, up 37 percent from the prior quarter

  • Return on average equity of 16 percent1, down from 17 percent in the prior quarter

  • Issued over $359 million in new equity capital, bringing total shareholders' equity to $1.2 billion

  • Increased dividend to $0.57 per diluted common share, up 3 percent from the prior quarter

Mortgage Investment Results:

  • Correspondent purchases of $6.3 billion in unpaid principal balance (UPB)2, up 87 percent from the prior quarter

    • Conventional purchases of $3.7 billion in UPB, up 111 percent from the prior quarter

  • Correspondent interest rate lock commitments (IRLCs) of $8.5 billion, up 84 percent from the prior quarter

    • Conventional IRLCs of $5.5 billion, up 105 percent from the prior quarter

  • Distressed mortgage loan purchases of $357 million in UPB

______________________________________

1

Return on equity calculated based on average shareholders' equity for each month.

2

FHA purchases were $2.6 billion in UPB, for which PMT earns a sourcing fee of 3bps and interest income for its holding period.

PMT earned $59.0 million in pretax income for the quarter ended September 30, 2012, a 55 percent increase from the second quarter. The following table presents the contribution of PMT's Investment Activities and Correspondent Lending segments to pretax income:

Quarter ended September 30, 2012

Investment

Correspondent

Intersegment

Unaudited

Activities

Lending

elimination

Total

(in thousands)

Revenues:

External

Net gain on investments

$

26,061

$

-

$

-

$

26,061

Interest income

13,586

6,159

(15

)

19,730

Net gain on mortgage loans acquired for sale

-

49,793

-

49,793

Other income

775

2,837

-

3,612

40,422

58,789

(15

)

99,196

Expenses:

Interest

4,931

3,366

(15

)

8,282

Servicing expense

5,148

60

-

5,208

Loan fulfillment fees payable to affiliate

-

17,258

-

17,258

Other

8,801

678

-

9,479

18,880

21,362

(15

)

40,227

Pretax income

$

21,542

$

37,427

$

-

$

58,969

"During the third quarter, PMT efficiently deployed capital from its equity raise to grow earnings and achieve strong investment results," said Chairman and Chief Executive Officer Stanford L. Kurland. "We increased earnings to $0.81 per share, grew mortgage investments by over $350 million, increased conventional correspondent loan purchase volume by 111% and realized solid returns in our distressed whole loan portfolio."

During the quarter ended September 30, 2012, PMT recorded investment revenue on financial instruments totaling $95.6 million, as detailed in the following table:

Quarter ended September 30, 2012

Unaudited

Net gain
(loss) on
investments

Interest income/expense

Annualized %

Coupon

Discount(1)

Total

Total
revenue

Average
balance

Interest
yield

Total
return(2)

(dollars in thousands)

Assets:

Short-term investments

$

-

$

13

$

-

$

13

$

13

$

59,589

0.09

%

0.09

%

United States Treasury security

-

-

-

-

-

-

-

-

Mortgage-backed securities:

Agency FNMA 30-year fixed

(422

)

556

(92

)

464

42

62,307

2.92

%

0.27

%

Non-Agency subprime

(159

)

15

15

(144

)

8,794

0.63

%

(6.43

)%

Non-Agency Alt-A

90

18

18

108

1,100

6.11

%

38.06

%

Non-Agency prime jumbo

40

5

5

45

657

2.76

%

25.92

%

Total mortgage-backed securities

(451

)

594

(92

)

502

51

72,858

2.69

%

0.27

%

Mortgage loans:

At fair value

26,407

12,889

-

12,889

39,296

883,732

5.71

%

17.40

%

Under forward purchase agreements at fair value

105

146

-

146

251

8,996

6.38

%

10.96

%

Acquired for sale at fair value

49,793

6,144

-

6,144

55,937

526,047

4.57

%

41.61

%

Total mortgage loans

76,305

19,179

-

19,179

95,484

1,418,775

5.29

%

26.34

%

Other

-

36

-

36

36

$

75,854

$

19,822

$

(92

)

$

19,730

$

95,584

$

1,551,222

4.98

%

24.11

%

(1)

Amounts in this column represent accrual of unearned discounts

(2)

Total return represents the sum of the interest yield and the net gain on the respective investment and does not take into account any associated expenses.

Investment revenue from financial instruments increased over 54 percent from the second quarter, driven by a 176 percent quarter-over-quarter net gain on correspondent loans acquired for sale to $49.8 million. The annualized total return for mortgage loans acquired for sale through PMT's correspondent lending business was 41.6 percent, up from 32.1 percent in the second quarter. For our distressed whole loan portfolio, net gain on investments totaled $26.5 million, producing an annualized total return of 17.3 percent, down from 20.0 percent in the second quarter. "Investment returns were solid for the quarter, particularly in correspondent where we saw significant growth," continued Mr. Kurland. "The mortgage servicing rights that PMT retains when it sells its correspondent mortgage loans are a very attractive investment, particularly in the current low interest rate environment where prepayment risk is reduced. Additionally, we anticipate that the availability of distressed whole loans available for purchase will remain consistent over the medium-term and opportunities for investments in reperforming whole loans will become more prevalent."

Correspondent Lending

During the quarter, correspondent lending funded $6.3 billion in UPB of loans, and IRLCs amounted to $8.5 billion, compared to $3.4 billion and $4.6 billion, respectively, in the second quarter of 2012. Of total correspondent purchases, conventional loans amounted to $3.7 billion, FHA loans were $2.6 billion, and jumbo loans were $0.8 million. Pretax income attributable to the correspondent lending segment was $37.4 million for the quarter, primarily driven by a $49.8 million net gain on mortgage loans acquired for sale and $6.2 million of interest income, offset by $17.3 million in fulfillment fees.

The following details the net gain on mortgage loans acquired for sale in the third quarter of 2012:

Quarter ended

Unaudited

September 30, 2012

($ in thousands)

MSR value

$

36,760

Rep & warrant provision

(1,129

)

Cash investment(1)

(7,537

)

Market value adjustments of pipeline,

inventory and hedges

21,699

Net gain on mortgage loans acquired for sale

$

49,793

(1) Cash receipt at sale, net of cash hedge expense

Distressed Mortgage Investments

PMT's distressed mortgage loan portfolio generated realized and unrealized gains totaling $26.5 million in the third quarter of 2012 compared to $27.3 million in the second quarter of 2012. Of the gains in the third quarter of 2012, $3.6 million was realized through payoffs, which resulted from collections on the loan balances at levels higher than their recorded fair values. Valuation gains totaled $22.9 million in the third quarter of 2012, compared to $20.9 million in the second quarter of 2012. The increase was driven by the Company's portfolio of nonperforming whole loans which produced $28.0 million of valuation increases during the quarter that were partially offset by a $5.1 million decline in value of the performing loans. The primary factors driving valuation gains on the nonperforming portfolio were continued stabilization in home prices, the continued progression of loans along their timeline towards resolution, and growth in the investment portfolio. The valuation loss on performing loans was primarily the result of an increase in delinquency in the reperforming pool purchased during the second quarter of 2012 and fair value losses stemming from an extension of home price recoveries in the future.

The following details the realized and unrealized gains on mortgage loans for the third quarter of 2012:

Quarter ended September 30,

Unaudited

2012

(in thousands)

Valuation changes

Performing loans

$

(5,090

)

Nonperforming loans

27,953

22,863

Payoffs

3,649

$

26,512