PennyMac Mortgage Investment Trust(PMT) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents PennyMac Mortgage Investment Trust's unaudited consolidated financial statements for Q1 2021, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheets Total assets increased to $12.52 billion from $11.49 billion, primarily due to growth in loans and mortgage servicing rights, with liabilities also rising Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $12,522,254 | $11,492,011 | | Cash | $92,842 | $57,704 | | Loans acquired for sale at fair value | $4,646,761 | $3,551,890 | | Mortgage servicing rights at fair value | $2,441,214 | $1,755,236 | | Total Liabilities | $10,165,111 | $9,195,152 | | Assets sold under agreements to repurchase | $6,091,973 | $6,309,418 | | Notes payable secured by credit risk transfer and mortgage servicing assets | $2,897,794 | $1,924,999 | | Total Shareholders' Equity | $2,357,143 | $2,296,859 | Consolidated Statements of Operations The company reported a net income of $71.6 million in Q1 2021, a significant turnaround from a $594.7 million net loss in Q1 2020, driven by strong investment gains Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Investment Income (Loss) | $201,397 | $(506,517) | | Total Expenses | $110,369 | $77,908 | | Net Income (Loss) | $71,603 | $(594,673) | | Net Income (Loss) Attributable to Common Shareholders | $65,369 | $(600,907) | | Diluted Earnings (Loss) Per Common Share | $0.67 | $(5.99) | | Dividends Declared Per Common Share | $0.47 | $0.25 | Consolidated Statements of Cash Flows Net cash used in operating activities was $1.87 billion in Q1 2021, a shift from cash provided in Q1 2020, with overall cash increasing by $35.1 million Consolidated Cash Flow Summary (in thousands) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(1,869,255) | $1,705,250 | | Net Cash Provided by (Used in) Investing Activities | $930,882 | $(603,960) | | Net Cash Provided by (Used in) Financing Activities | $973,511 | $(105,966) | | Net Increase in Cash | $35,138 | $995,324 | Notes to Consolidated Financial Statements The notes detail the company's segment operations, related party transactions, variable interest entities, and fair value measurements - The company operates through four main segments: credit sensitive strategies (CRT, distressed loans), interest rate sensitive strategies (MSRs, MBS), correspondent production, and corporate[35][40] - Significant related party transactions exist with PennyMac Financial Services, Inc. (PFSI) and its subsidiaries for loan fulfillment, servicing, and management, with fees detailed in the notes. For Q1 2021, loan fulfillment fees to PLS were $60.8 million and loan servicing fees were $19.1 million[53][63][71] - The company has extensive Credit Risk Transfer (CRT) arrangements, which are accounted for as VIEs. As of March 31, 2021, the carrying value of net CRT derivative and strip liabilities was $(64.9) million, secured by $2.66 billion in deposits[88][95] - In March 2021, the company's subsidiary PMC issued $345 million of 5.50% exchangeable senior notes due 2026[198] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a significant turnaround in Q1 2021 driven by credit sensitive strategies and balance sheet changes Our Company PennyMac Mortgage Investment Trust is a specialty finance company focused on mortgage-related assets, primarily MSRs and CRT arrangements - The company's investment focus is on mortgage-related assets created through its correspondent production activities, primarily MSRs and CRT arrangements[244] - The Federal Housing Finance Agency (FHFA) instructed Fannie Mae and Freddie Mac to wind down new front-end CRT investments as of the end of 2020, so the company is no longer creating new CRT investments[246] Results of Operations Company results improved by $666.3 million in Q1 2021, driven by a $1.1 billion increase in CRT gains, partially offset by MSR hedging losses Key Performance Metrics (in thousands, except per share data and percentages) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income (Loss) Attributable to Common Shareholders | $65,369 thousand | $(600,907) thousand | | Diluted EPS | $0.67 | $(5.99) | | Annualized Return on Average Common Equity | 12.8% | (118.9)% | | Book Value Per Common Share (at period end) | $20.90 | N/A (Dec 31, 2020 was $20.30) | - The significant improvement in Q1 2021 results was primarily driven by a $1.1 billion increase in net gains on CRT arrangements compared to Q1 2020, when the market was severely impacted by the onset of the COVID-19 pandemic[259][261] Net Investment Income Net investment income recovered to $201.4 million in Q1 2021 from a $506.5 million loss in Q1 2020, primarily due to CRT asset valuation recovery - Net gains on loans acquired for sale rose to $53.0 million in Q1 2021 from $48.8 million in Q1 2020, reflecting higher loan sales volume, though with compressed margins[262] - Net gains on investments showed a massive positive swing to $83.2 million in Q1 2021 from a loss of $815.1 million in Q1 2020, primarily due to a $154.0 million gain on CRT arrangements as credit markets recovered[275][276] - Net loan servicing fees decreased significantly to $50.0 million from $244.6 million, as a $278.3 million positive change in MSR fair value was more than offset by $374.4 million in hedging losses[286][287] - Net interest expense increased to $38.7 million from $8.9 million, driven by higher interest shortfall on loan prepayments and lower interest income from custodial funds and CRT deposits[289][290] Expenses Total expenses increased by 42% to $110.4 million in Q1 2021, primarily due to higher loan fulfillment and origination fees tied to increased volumes Expense Summary (in thousands) | Expense Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Loan fulfillment fees | $60,835 | $41,940 | | Loan servicing fees | $19,093 | $14,521 | | Management fees | $8,449 | $9,055 | | Loan origination | $9,308 | $4,249 | | Total Expenses | $110,369 | $77,908 | Balance Sheet Analysis Total assets grew by $1.0 billion to $12.5 billion at March 31, 2021, driven by increases in loans acquired for sale and MSRs, funded by higher debt - Correspondent loan purchases increased significantly to $53.2 billion in Q1 2021 from $33.2 billion in Q1 2020, driven by a favorable interest rate environment and an expanded seller network[307][308] - The company received $407.7 million in MSRs from loan sales in Q1 2021, a substantial increase from $248.8 million in Q1 2020[309] Liquidity and Capital Resources The company's leverage ratio increased to 4.10x at March 31, 2021, from 3.78x at year-end 2020, while maintaining compliance with financial covenants - The company's leverage ratio (total borrowings divided by shareholders' equity) increased to 4.10 at March 31, 2021, from 3.78 at December 31, 2020[324] - The company is subject to various financial covenants, including minimum tangible net worth ($1.25 billion for the Company), minimum unrestricted cash ($40 million), and a maximum leverage ratio (7:1 for the Company)[327] - The company must also meet FHFA and Ginnie Mae eligibility requirements for sellers/servicers, including specific net worth and liquidity calculations[328] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to real estate, credit, interest rate, and prepayment risks, with sensitivity analyses provided for key assets MBS Fair Value Sensitivity to Interest Rate Changes (in thousands) | Interest Rate Shift (bps) | -200 | -75 | +75 | +200 | | :--- | :--- | :--- | :--- | :--- | | Change in Fair Value | $94,475 | $72,615 | $(89,852) | $(236,629) | MSR Fair Value Sensitivity to Key Inputs (in thousands) | Change in Fair Value Attributable to a +10% Adverse Shift in: | Estimated Impact | | :--- | :--- | | Pricing Spread | $(75,820) | | Prepayment Speed | $(95,920) | | Annual Per-Loan Cost of Servicing | $(31,419) | CRT Arrangements Fair Value Sensitivity (in thousands) | Scenario | Estimated Impact | | :--- | :--- | | +50 bps shift in Pricing Spread | $(41,143) | | -10% shift in Property Value | $(51,991) | Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[344] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[345] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of March 31, 2021, the company was not involved in any material legal actions, claims, or proceedings - As of March 31, 2021, the company was not involved in any material legal proceedings[348] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended March 31, 2021 - The company reported no sales of unregistered equity securities for the quarter[349] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[350] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, and certifications