PennyMac Mortgage Investment Trust Reports Fourth Quarter and Full-Year 2012 Results Business Wire MOORPARK, Calif. -- February 7, 2013 PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income of $49.2 million, or $0.83 per diluted share, for the fourth quarter of 2012, on net investment income of $124.9 million. This brings full-year net income earned by PMT to $138.2 million, or $3.14 per diluted share, on total net investment income for the year of $335.2 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 March 1, 2013 to common shareholders of record as of February 21, 2013. In addition, PMT and its manager, PNMAC Capital Management (PCM), and loan servicer and fulfillment provider, PennyMac Loan Services (PLS), have revised certain key agreements that govern investment management, loan servicing and mortgage banking and warehouse services provided to PMT. Among other things, the agreements extend all services for at least four years, ensure that PLS performs correspondent lending fulfillment services exclusively for PMT, and amend PCM’s and PLS’ compensation for these services. “I am pleased to announce the revised management and services agreements which secure a long-term partnership among PMT, PCM and PLS.” said Chairman and Chief Executive Officer Stanford L. Kurland. “They address aspects of PMT’s business which have evolved over time and better align the incentives of PCM and PLS with PMT’s financial performance.” All of the agreements are being filed with the SEC as part of a Current Report on Form 8-K, which can also be accessed at PMT’s investor relations’ website at www.pennymac-REIT.com. Quarterly Highlights Financial results: *Diluted earnings per common share of $0.83, up 2 percent from the prior quarter *Net investment income of $124.9 million, up 26 percent from the prior quarter *Net income of $49.2 million, up 22 percent from the prior quarter *Return on average equity of 16 percent^1, which was the same as the prior quarter Mortgage investment activity results: *Correspondent acquisitions of $10.0 billion in unpaid principal balance (UPB)^2, up 59 percent from the prior quarter *Conventional acquisitions of $6.5 billion in UPB, up 76 percent from the prior quarter *Correspondent interest rate lock commitments (IRLCs) of $10.4 billion, up 22 percent from the prior quarter *Conventional IRLCs of $7.0 billion, up 28 percent from the prior quarter *Distressed mortgage loan purchases of $290 million in UPB Yearly Highlights Financial results: *Diluted earnings per common share of $3.14, up 30 percent from the prior year, with weighted average shares outstanding increasing 65 percent from 2011 *Net investment income of $335.2 million, up 161 percent from the prior year *Net income of $138.2 million, up 115 percent from the prior year *Return on average equity of 16 percent^1, up from 15% for 2011 Mortgage investment activity results: *Correspondent acquisitions of $21.5 billion in unpaid principal balance (UPB)^3, more than 16 times prior year volumes *Conventional acquisitions of $13.0 billion in UPB, up 20 times the prior year volumes *Correspondent IRLCs of $25.9 billion, up 19 times the prior year *Conventional IRLCs of $16.3 billion, up 22 times the prior year volumes *Distressed mortgage loan purchases of $1.0 billion in UPB PMT earned $65.3 million in pretax income for the quarter ended December 31, 2012, an 11 percent increase from the third quarter. The following table presents the contribution of PMT’s Investment Activities and Correspondent Lending segments to pretax income: Quarter ended December 31, 2012 Investment Correspondent Unaudited Activities Lending Total (in thousands) Revenues: External Net gain on mortgage loans $ - $ 66,465 $ 66,465 acquired for sale Net gain on investments 38,108 - 38,108 Interest income 12,680 7,604 20,284 Other (5,605 ) 5,665 60 45,183 79,734 124,917 Expenses: Loan fulfillment fees - 31,809 31,809 payable to affiliate Interest 4,692 5,291 9,983 Servicing expense 4,932 68 5,000 Other 11,237 1,585 12,822 20,861 38,753 59,614 Pretax income $ 24,322 $ 40,981 $ 65,303 “The fourth quarter results were strong in both our Correspondent Lending and Investment Activities segments,” commented Mr. Kurland. “Housing prices continued to stabilize during the quarter, driving valuation gains in our distressed portfolio. Correspondent loan purchase activity continued its robust growth, resulting in solid pretax earnings from the segment that comprised 63% of total pretax earnings.” During the quarter ended December 31, 2012, PMT recorded investment revenue on financial instruments totaling $124.9 million, as detailed in the following table: Quarter ended December 31, 2012 Unaudited Net gain Annualized % on Interest Total Average Interest Total investments Income revenue balance yield return^(1) (dollars in thousands) Assets: Mortgage loans: At fair value $ 38,108 $ 12,607 $ 50,715 $ 1,002,864 4.92 % 19.79 % Under forward purchase - 1 1 - - - agreements at fair value Acquired for sale at fair 66,465 7,639 74,104 827,335 3.61 % 35.05 % value Total mortgage 104,573 20,247 124,820 1,830,199 4.33 % 26.69 % loans Other - 30 30 Mortgage-backed securities: Non-Agency - (3 ) (3 ) - - - Alt-A Total mortgage-backed - (3 ) (3 ) - 2.69 % 0.27 % securities Short-term - 10 10 30,764 0.13 % 0.13 % investments $ 104,573 $ 20,284 $ 124,857 $ 1,860,963 4.27 % 26.25 % (1) 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 gains from financial instruments increased over 38 percent from the third quarter, driven by a 33 percent quarter-over-quarter increase in net gain on correspondent loans acquired for sale, and a 44 percent increase in net gain on mortgage loans at fair value. Net gains on mortgage loans acquired for sale at fair value through the correspondent lending business totaled $66.5 million resulting in an annualized total return for the quarter of 35 percent, down from 42 percent in the third quarter. PMT’s distressed whole loan portfolio realized net gain on investments of $38.1 million during the fourth quarter, resulting in an annualized total return of 20 percent, up from 17 percent in the third quarter. “PMT continued to grow its correspondent activities and the related MSR investments during the quarter, in addition to completing attractive purchases of distressed whole loans for the investment portfolio,” continued Mr. Kurland. “Both of our operating segments delivered strong performance in the fourth quarter and throughout 2012 as well. The correspondent segment continued to execute effectively and grow volumes, while our distressed whole loan investments benefitted from solid operational performance and a firming in home prices.” Correspondent Lending During the quarter, correspondent lending acquired $10.0 billion in UPB of loans, and IRLCs amounted to $10.3 billion, compared to $6.3 billion and $8.5 billion, respectively, in the third quarter of 2012. Of total correspondent acquisitions, conventional loans amounted to $6.5 billion, FHA loans were $3.5 billion, and jumbo loans were $2.1 million. Pretax income attributable to the correspondent lending segment was $41.0 million for the quarter. These results were driven by net gain on mortgage loans acquired for sale of $66.5 million, $7.6 million of interest income, and $5.7 million of loan origination fee revenue, partially offset by $31.8 million in fulfillment fees and $5.3 million of interest expense. The following schedule details the net gain on mortgage loans acquired for sale in the fourth quarter of 2012: Quarter ended Unaudited December 31, 2012 ($ in thousands) MSR value $ 68,033 Rep & warrant provision (2,063 ) Cash investment^(1) (25,079 ) Market value adjustments of pipeline, inventory and 25,574 hedges Net gain on mortgage loans acquired for sale $ 66,465 (1) Cash receipt at sale, net of cash hedge expense Although margins on gains from mortgage loans acquired for sale benefitted from wider secondary spreads early in the fourth quarter, margins narrowed somewhat as the quarter progressed. For the quarter as a whole, margins expressed as the ratio of net gain on mortgage loans to locks during the quarter, were slightly higher than the previous quarter. While margins remained elevated from a historical perspective during the fourth quarter, we expect them to begin normalizing in 2013. Investment Activities Segment Servicing Net loan servicing fee revenue reached $605 thousand in the fourth quarter compared to a $511 thousand loss in the third quarter. Servicing fee revenue rose by $1.1 million from the third quarter, which was offset by higher amortization and impairment charges. The impairment charges resulted from higher prepayment expectations inherent in our estimates of the value of the MSRs due to the low mortgage rate environment that prevailed in the fourth quarter. Positively impacting fourth quarter servicing results were hedge gains of $2.1 million. The following schedule details the net loan servicing fees in the fourth quarter of 2012: Unaudited Quarter ended December 31, 2012 Servicing fees^(1) $ 4,878 Effect of MSRs: Amortization (3,121) Provision for impairment of MSRs carried at lower (3,042) of amortized cost or fair value Change in fair value of MSRs carried at fair value (233) Gains on hedging derivatives 2,123 (4,273) Net loan servicing fees $ 605 (1) Includes contractually specified servicing fees. Distressed Mortgage Investments PMT’s distressed mortgage loan portfolio generated realized and unrealized gains totaling $38.1 million in the fourth quarter of 2012, compared to $26.5 million in the third quarter of 2012. Of the gains in the fourth quarter of 2012, $4.4 million was realized through payoffs in which collections on the loan balances were at levels higher than their recorded fair values. Valuation gains totaled $33.8 million in the fourth quarter of 2012, compared to $22.9 million in the third quarter. The increase was driven by the Company’s portfolio of nonperforming whole loans which produced $30.4 million of valuation increases during the quarter, which was further supplemented by a $3.3 million valuation gain on performing loans. The continued stabilization in home prices was once again a major driver of the unrealized gains on mortgage loans, but fair value accretion of the loans as they progress toward their ultimate resolution also contributed meaningfully to gains on mortgage loans in the quarter. The following schedule details the realized and unrealized gains on mortgage loans for the fourth quarter of 2012: Quarter ended Unaudited December 31, 2012 (in thousands) Valuation changes Performing loans $ 3,335 Nonperforming loans 30,418 33,753 Payoffs 4,355 $ 38,108 Expenses Expenses for the fourth quarter of 2012 totaled $59.6 million, compared to $40.2 million in the third quarter of 2012. The increase is primarily attributable to fulfillment fees on sales of correspondent loans, as well as professional services and management fees. Fulfillment fees, which are payable when loans are sold, rose 84% from the prior quarter, in line with the increase in sales of conventional and jumbo loans during the quarter. Interest expense increased from the financing of higher average balances of mortgage loans available for sale during the quarter and servicing expenses declined due to lower distressed loan resolution activity during the quarter, primarily as a result of seasonal factors. Management fee expense rose 22% quarter-over-quarter driven by a higher average shareholder’s equity balance over the quarter. Other expense items increased commensurately with increased business activity and asset growth. The provision for income tax expense totaled $16.1 million in the fourth quarter, resulting in an effective income tax rate of 25%, down from 32% in the prior period. The decline in the effective tax rate is due to a higher proportion of income being generated by business activities in PMT’s REIT qualifying entities. Mr. Kurland concluded, “PMT ended 2012 with a strong fourth quarter and we remain optimistic about the progress that the housing and mortgage markets are making toward normalization. PMT is uniquely positioned to capitalize on a wide variety of residential mortgage opportunities emerging in today’s market. We look forward to building upon our successes in 2013 and continuing to deliver solid investment returns as the market continues to evolve.” Management’s recorded earnings call and slide presentation will be available in the Investor Relations section of the Company’s website at www.PennyMac-REIT.com beginning at 5:30 a.m. (PT) on Thursday, February 07, 2013. 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, a wholly owned subsidiary of Private National Mortgage Acceptance Company, LLC. 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 Section21E 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 general business, economic, market and employment conditions from those expected; continued declines in residential real estate and disruption in the U.S. housing market; the 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 and investment strategies; changes in our investment or operational objectives and strategies, including any new lines of business; the concentration of credit risks to which we are exposed; the availability, terms and deployment of short-term and long-term capital; unanticipated increases in financing and other costs, including a rise in interest rates; the performance, financial condition and liquidity of borrowers; increased rates of delinquency or decreased recovery rates on our investments; increased prepayments of the mortgage and other loans underlying our investments; 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; and our ability to satisfy complex rules in order to qualify as a REIT for U.S. federal income tax purposes. 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 (In thousands, except share data) December 31, September 30, 2012 2012 (unaudited) ASSETS Cash $ 33,756 $ 67,813 Investments: Short-term investments 39,017 38,322 Mortgage loans acquired for sale at fair 975,184 847,575 value Mortgage loans at fair value 1,189,971 1,089,966 Real estate acquired in settlement of 88,078 86,180 loans Mortgage servicing rights 126,776 65,154 Principal and interest collections 29,204 30,016 receivable Interest receivable 3,029 2,932 Derivative financial instruments 23,706 - Servicing advances 32,191 - Due from affiliates 4,829 2,004 2,545,741 2,229,962 Other assets 13,922 98,763 Total assets $ 2,559,663 $ 2,328,725 LIABILITIES Assets sold under agreements to repurchase: Mortgage loans acquired for sale at fair 894,906 755,471 value Mortgage loans at fair value 353,805 274,185 Real estate acquired in settlement of 7,391 11,715 loans Derivative financial instruments 967 36,203 Mortgage repurchase liability 4,441 2,378 Accounts payable and accrued liabilities 42,402 25,271 Contingent underwriting fees payable 5,883 5,883 Payable to affiliates 12,216 9,812 Income taxes payable 36,316 23,604 Total liabilities 1,358,327 1,144,522 SHAREHOLDERS' EQUITY Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and 589 589 outstanding, 58,904,456 and 58,903,681 common shares, respectively. Additional paid-in capital 1,129,858 1,128,387 Retained earnings 70,889 55,227 Total shareholders' equity 1,201,336 1,184,203 Total liabilities and shareholders' $ 2,559,663 $ 2,328,725 equity PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) 2012 Quarter Ended Quarter Ended Dec. 31 Sept. 30 Investment Income (unaudited) Net gain (loss) on investments: Mortgage-backed securities $ - $ (451 ) Mortgage loans 38,108 26,512 38,108 26,061 Interest income: Short-term investments 10 13 Mortgage-backed securities (3 ) 502 Mortgage loans 20,247 19,179 Other 30 36 20,284 19,730 Net gain on mortgage loans 66,465 49,793 acquired for sale Loan Origination Fees 5,665 2,836 Results of real estate acquired in (6,209 ) 1,288 settlement of loans Net loan servicing fees 605 (511 ) Other (1 ) (1 ) Net investment income 124,917 99,196 Expenses Loan fulfillment fees 31,809 17,258 Interest 9,983 8,282 Loan servicing expense 5,000 5,208 Management fees 4,472 3,672 Compensation 2,102 1,997 Professional services 2,732 1,693 Other 3,516 2,117 Total expenses 59,614 40,227 Income before provision for income 65,303 58,969 taxes Provision for income taxes 16,065 18,585 Net income $ 49,238 $ 40,384 Earnings per share Basic $ 0.83 $ 0.81 Diluted $ 0.83 $ 0.81 Weighted-average shares outstanding Basic 58,904 49,078 Diluted 59,338 49,463 Dividends declared per share $ 0.57 $ 0.55 ^1 Return on equity calculated based on average shareholders’ equity for each month. ^2 FHA acquisitions for the fourth quarter were $3.5 billion in UPB, for which PMT earned a sourcing fee of 3bps and interest income for its holding period. ^3 FHA acquisitions for the year were $8.5 billion in UPB, for which PMT earned a sourcing fee of 3bps and interest income for its holding period. Contact: PennyMac Mortgage Investment Trust Media Kevin Chamberlain, 818-746-2877 or Investors Christopher Oltmann, 818-746-2046
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PennyMac Mortgage Investment Trust Reports Fourth Quarter and Full-Year 2012 Results
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