PennyMac Mortgage Investment Trust Reports Second Quarter 2023 Results

PennyMac Mortgage Investment Trust (NYSE: PMT) today reported net income attributable to common shareholders of $14.2 million, or $0.16 per common share on a diluted basis for the second quarter of 2023, on net investment income of $90.5 million. PMT previously announced a cash dividend for the second quarter of 2023 of $0.40 per common share of beneficial interest, which was declared on June 9, 2023, and will be paid on July 28, 2023, to common shareholders of record as of July 14, 2023.

Second Quarter 2023 Highlights

Financial results:

• Net income attributable to common shareholders of $14.2 million, compared to net income of $50.2 million in the prior quarter
  • Strong performance from PMT’s credit sensitive strategies and income excluding the impacts of market-driven fair value changes were partially offset by fair value declines in PMT’s interest rate sensitive strategies and related tax impacts
• Repurchased 1.6 million common shares of PMT at an average price of $11.87 per share for a cost of $19.4 million
• Book value per common share decreased to $15.81 at June 30, 2023, from $15.96 at March 31, 2023

Other investment highlights:

• Investment activity driven by correspondent production volumes
  • Conventional correspondent loan production volumes for PMT’s account totaled $3.0 billion in unpaid principal balance (UPB), down 54 percent from the prior quarter and 71 percent from the second quarter of 2022 as a result of the sale of a larger percentage of conventional loans to PennyMac Financial Services, Inc. (NYSE: PFSI)
    -- Resulted in the creation of $91 million in new mortgage servicing rights (MSRs)
• Invested $94 million into opportunistic investments throughout the quarter
  • $52 million into government-sponsored enterprise (GSE) credit risk transfer (CRT) bonds
  • $42 million into senior mezzanine bonds from jumbo securitizations
• Exercised option to extend the maturity for the Fannie Mae MSR term notes originally due in April 2023 for two years
• Issued $235 million of new, 2-year CRT term notes to finance CRT investments previously financed with securities repurchase agreements
• Issued a new, 5-year $155 million term loan secured by Fannie Mae MSR

Notable activity after quarter end

• PMT entered into an agreement to acquire a bulk MSR portfolio totaling $1.4 billion in UPB
• Invested $11 million into senior mezzanine bonds from a jumbo securitization

“PMT’s second quarter financial results reflect strong performance from its credit sensitive strategies partially offset by net fair value declines in its interest rate sensitive strategies and related tax impacts,” said Chairman and CEO David Spector. “While continued credit spread tightening led to fair value increases for PMT’s credit sensitive investments, the interest rate sensitive strategies were impacted by the inverted yield curve and elevated hedge costs driven by multi-year highs in interest rate volatility. We continue to deploy capital towards opportunistic investments in both credit sensitive and interest rate sensitive strategies; and this quarter, we invested nearly $100 million in such investments, which we believe can generate strong, long-term risk-adjusted returns. We continue to believe PMT’s strong balance sheet and seasoned investment portfolio with strong underlying fundamentals will drive improved performance over the long term.”

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

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 legacy investments. Pretax income for the segment was $71.1 million on net investment income of $72.0 million, compared to pretax income of $57.3 million on net investment income of $58.0 million in the prior quarter.

Net gains on investments in the segment were $68.7 million, compared to $54.4 million in the prior quarter. These net gains include $60.5 million on PMT’s organically-created GSE CRT investments, $10.7 million on other acquired subordinate CRT mortgage-backed securities (MBS), $1.6 million of losses on investments from non-agency subordinate bonds from PMT’s production, and $0.9 million of losses on distressed loans.

Net gains on PMT’s organically-created CRT investments for the quarter were $60.5 million, compared to $46.3 million in the prior quarter. These net gains include $43.0 million in valuation-related gains, which reflected the impact of credit spread tightening in the second quarter. The prior quarter included $30.9 million of such gains. Net gains on PMT’s organically-created CRT investments also included $17.9 million in realized gains and carry, compared to $16.6 million in the prior quarter. Realized losses during the quarter were $0.5 million, down from $1.3 million in the prior quarter.

Net interest income for the segment totaled $3.4 million, compared to $3.6 million in the prior quarter. Interest income totaled $25.1 million, up from $21.4 million in the prior quarter, primarily due to higher earnings rates on deposits securing CRT arrangements. Interest expense totaled $21.8 million, up from $17.8 million in the prior quarter, primarily due to higher interest rates.

Segment expenses were $0.9 million, up slightly from the prior quarter.

Interest Rate Sensitive Strategies Segment

The Interest Rate Sensitive Strategies segment includes results from investments in MSRs, Agency MBS, non-Agency senior MBS and interest rate hedges. Pretax loss for the segment was $13.2 million on net investment income of $8.3 million, compared to a pretax loss of $7.0 million on net investment income of $14.6 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 losses on investments for the segment were $71.2 million, which primarily consisted of losses on MBS due to increasing interest rates.

Net loan servicing fees were $108.8 million, compared to $(23.7) million in the prior quarter. Net loan servicing fees included contractually specified servicing fees of $165.5 million and $6.8 million in other fees, reduced by $103.0 million in realization of MSR cash flows, which was up from $91.7 million in the prior quarter due to increased cash flow generated by the MSR asset during the quarter from servicing and placement fees. Net loan servicing fees also included $15.0 million in fair value increases of MSRs, $24.0 million in hedging gains, and $0.5 million of MSR recapture income. PMT’s hedging activities are intended to manage its net exposure across all interest rate sensitive strategies, which include MSRs, MBS and related tax impacts.

The following schedule details net loan servicing fees: