UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
Or
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-34416
PennyMac Mortgage Investment Trust
(Exact name of registrant as specified in its charter)
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Maryland |
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27-0186273 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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3043 Townsgate Road, Westlake Village, California |
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91361 |
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(Address of principal executive offices) |
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(Zip Code) |
(818) 224-7442
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Class |
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Outstanding at November 3, 2016 |
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Common Shares of Beneficial Interest, $0.01 par value |
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66,697,286 |
PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
September 30, 2016
TABLE OF CONTENTS
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4 |
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Item 1. |
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4 |
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4 |
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6 |
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7 |
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8 |
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10 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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59 |
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60 |
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62 |
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63 |
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79 |
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82 |
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83 |
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84 |
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90 |
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91 |
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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations |
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93 |
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99 |
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Item 3. |
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102 |
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Item 4. |
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102 |
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103 |
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Item 1. |
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103 |
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Item 1A. |
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103 |
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Item 2. |
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103 |
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Item 3. |
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103 |
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Item 4. |
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103 |
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Item 5. |
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103 |
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Item 6. |
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104 |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”) contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions.
Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:
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projections of our revenues, income, earnings per share, capital structure or other financial items; |
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descriptions of our plans or objectives for future operations, products or services; |
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forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and |
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descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues. |
Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
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changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks; |
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volatility in our industry, the debt or equity markets, the general economy or the real estate finance and real estate markets specifically, whether the result of market events or otherwise; |
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events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts; |
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changes in general business, economic, market, employment and political conditions, or in consumer confidence and spending habits from those expected; |
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declines in real estate or significant changes in U.S. housing prices or activity in the U.S. housing market; |
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the availability of, and level of competition for, attractive risk-adjusted investment opportunities in mortgage loans and mortgage-related assets that satisfy our investment objectives; |
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the inherent difficulty in winning bids to acquire mortgage loans, and our success in doing so; |
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the concentration of credit risks to which we are exposed; |
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the degree and nature of our competition; |
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our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities; |
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changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates; |
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the availability, terms and deployment of short-term and long-term capital; |
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the adequacy of our cash reserves and working capital; |
1
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our ability to maintain the desired relationship between our financing and the interest rates and maturities of our assets; |
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the timing and amount of cash flows, if any, from our investments; |
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unanticipated increases or volatility in financing and other costs, including a rise in interest rates; |
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the performance, financial condition and liquidity of borrowers; |
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the ability of our servicer, which also provides us with fulfillment services, to approve and monitor correspondent sellers and underwrite loans to investor standards; |
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incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties; |
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our indemnification and repurchase obligations in connection with mortgage loans we purchase and later sell or securitize; |
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the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest; |
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increased rates of delinquency, default and/or decreased recovery rates on our investments; |
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our ability to foreclose on our investments in a timely manner or at all; |
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increased prepayments of the mortgages and other loans underlying our mortgage-backed securities (“MBS”) or relating to our mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”) and other investments; |
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the degree to which our hedging strategies may or may not protect us from interest rate volatility; |
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the effect of the accuracy of or changes in the estimates we make about uncertainties, contingencies and asset and liability valuations when measuring and reporting upon our financial condition and results of operations; |
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our failure to maintain appropriate internal controls over financial reporting; |
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technologies for loans and our ability to mitigate security risks and cyber intrusions; |
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our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business; |
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our ability to detect misconduct and fraud; |
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our ability to comply with various federal, state and local laws and regulations that govern our business; |
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developments in the secondary markets for our mortgage loan products; |
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legislative and regulatory changes that impact the mortgage loan industry or housing market; |
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changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as the Government National Mortgage Association (“Ginnie Mae”), the Federal Housing Administration (the “FHA”) or the Veterans Administration (the “VA”), the U.S. Department of Agriculture (“USDA”), or government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies”), or such changes that increase the cost of doing business with such entities; |
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the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementing regulations and regulatory agencies, and any other legislative and regulatory changes that impact the business, operations or governance of mortgage lenders and/or publicly-traded companies; |
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the Consumer Financial Protection Bureau (“CFPB”) and its issued and future rules and the enforcement thereof; |
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changes in government support of homeownership; |
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changes in government or government-sponsored home affordability programs; |
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limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 (the “Investment Company Act”) and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries (“TRSs”) for U.S. federal income tax purposes, as applicable, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules; |
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changes in governmental regulations, accounting treatment, tax rates and similar matters (including changes to laws governing the taxation of REITs, or the exclusions from registration as an investment company); |
2
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our ability to make distributions to our shareholders in the future; |
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the effect of public opinion on our reputation; |
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the occurrence of natural disasters or other events or circumstances that could impact our operations; and |
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our organizational structure and certain requirements in our charter documents. |
Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
3
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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September 30, |
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December 31, |
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2016 |
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2015 |
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(in thousands, except share amounts) |
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ASSETS |
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Cash |
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$ |
139,068 |
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$ |
58,108 |
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Short-term investments |
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33,353 |
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41,865 |
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Mortgage-backed securities at fair value pledged to creditors |
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708,862 |
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322,473 |
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Mortgage loans acquired for sale at fair value (includes $2,018,292 and $1,268,455 pledged to creditors, respectively) |
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2,043,453 |
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1,283,795 |
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Mortgage loans at fair value (includes $1,947,425 and $2,201,513 pledged to creditors, respectively) |
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1,957,117 |
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2,555,788 |
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Excess servicing spread purchased from PennyMac Financial Services, Inc. at fair value pledged to secure note payable to PennyMac Financial Services, Inc. |
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280,367 |
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412,425 |
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Derivative assets (includes $8,268 pledged to creditors at September 30, 2016) |
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44,774 |
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10,085 |
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Real estate acquired in settlement of loans (includes $221,153 and $283,343 pledged to creditors, respectively) |
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288,348 |
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341,846 |
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Real estate held for investment |
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25,708 |
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8,796 |
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Mortgage servicing rights pledged to creditors (includes $55,843 and $66,584 carried at fair value, respectively) |
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524,529 |
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459,741 |
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Servicing advances |
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78,624 |
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88,010 |
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Deposits securing credit risk transfer agreements (includes $416,163 pledged to creditors at September 30, 2016) |
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427,677 |
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147,000 |
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Due from PennyMac Financial Services, Inc. |
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5,776 |
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8,806 |
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Other |
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61,245 |
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88,186 |
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Total assets |
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$ |
6,618,901 |
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$ |
5,826,924 |
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LIABILITIES |
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Assets sold under agreements to repurchase |
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$ |
4,041,085 |
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$ |
3,128,780 |
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Mortgage loan participation and sale agreements |
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88,458 |
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— |
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Federal Home Loan Bank advances |
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— |
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183,000 |
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Notes payable |
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|
196,132 |
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236,015 |
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Asset-backed financing of a variable interest entity at fair value |
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384,407 |
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247,690 |
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Exchangeable senior notes |
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245,824 |
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245,054 |
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Note payable to PennyMac Financial Services, Inc. |
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150,000 |
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150,000 |
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Interest-only security payable at fair value |
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1,699 |
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— |
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Derivative liabilities |
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1,620 |
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|
|
3,157 |
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Accounts payable and accrued liabilities |
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88,704 |
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64,474 |
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Due to PennyMac Financial Services, Inc. |
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14,747 |
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18,965 |
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Income taxes payable |
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36,380 |
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33,505 |
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Liability for losses under representations and warranties |
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14,927 |
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20,171 |
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Total liabilities |
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5,263,983 |
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4,330,811 |
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SHAREHOLDERS’ EQUITY |
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Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 67,036,149 and 73,767,435 common shares |
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|
671 |
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|
738 |
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Additional paid-in capital |
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1,380,502 |
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|
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1,469,722 |
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(Accumulated deficit) retained earnings |
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(26,255 |
) |
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|
25,653 |
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Total shareholders’ equity |
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1,354,918 |
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|
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1,496,113 |
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Total liabilities and shareholders’ equity |
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$ |
6,618,901 |
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$ |
5,826,924 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Assets and liabilities of consolidated variable interest entities (“VIEs”) included in total assets and liabilities (the assets of each VIE can only be used to settle liabilities of that VIE):
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September 30, |
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December 31, |
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2016 |
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2015 |
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(in thousands) |
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ASSETS |
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Mortgage loans at fair value |
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$ |
397,740 |
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$ |
455,394 |
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Derivative assets |
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16,662 |
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|
593 |
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Deposits securing credit risk transfer agreements |
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|
427,677 |
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|
|
147,000 |
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Other—interest receivable |
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1,097 |
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|
|
1,447 |
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|
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$ |
843,176 |
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$ |
604,434 |
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LIABILITIES |
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Asset-backed financing at fair value |
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$ |
384,407 |
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$ |
247,690 |
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Interest-only security payable at fair value |
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|
1,699 |
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|
|
— |
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Accounts payable and accrued liabilities—interest payable |
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|
1,097 |
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|
|
724 |
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$ |
387,203 |
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$ |
248,414 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Quarter ended September 30, |
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Nine months ended September 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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(in thousands, except per share amounts) |
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Net investment income |
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Interest income: |
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From nonaffiliates |
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$ |
53,307 |
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$ |
53,412 |
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$ |
146,711 |
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$ |
129,860 |
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From PennyMac Financial Services, Inc. |
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4,827 |
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|
|
8,026 |
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|
17,555 |
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|
17,596 |
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|
|
|
|
58,134 |
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|
|
61,438 |
|
|
|
164,266 |
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|
|
147,456 |
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Interest expense: |
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To nonaffiliates |
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38,356 |
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|
|
36,471 |
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|
|
103,129 |
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|
91,423 |
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To PennyMac Financial Services, Inc. |
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|
1,974 |
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|
|
1,289 |
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|
|
5,798 |
|
|
|
1,822 |
|
|
|
|
|
40,330 |
|
|
|
37,760 |
|
|
|
108,927 |
|
|
|
93,245 |
|
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Net interest income |
|
|
17,804 |
|
|
|
23,678 |
|
|
|
55,339 |
|
|
|
54,211 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
43,858 |
|
|
|
13,884 |
|
|
|
83,133 |
|
|
|
35,219 |
|
|
Mortgage loan origination fees |
|
|
12,684 |
|
|
|
9,135 |
|
|
|
28,104 |
|
|
|
21,701 |
|
|
Net gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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From nonaffiliates |
|
|
17,103 |
|
|
|
32,802 |
|
|
|
31,169 |
|
|
|
56,521 |
|
|
From PennyMac Financial Services, Inc. |
|
|
(2,824 |
) |
|
|
(7,844 |
) |
|
|
(36,275 |
) |
|
|
(5,502 |
) |
|
|
|
|
14,279 |
|
|
|
24,958 |
|
|
|
(5,106 |
) |
|
|
51,019 |
|
|
Net mortgage loan servicing fees |
|
|
15,761 |
|
|
|
20,791 |
|
|
|
47,006 |
|
|
|
41,810 |
|
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Results of real estate acquired in settlement of loans |
|
|
(3,285 |
) |
|
|
(4,221 |
) |
|
|
(11,886 |
) |
|
|
(11,859 |
) |
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Other |
|
|
2,225 |
|
|
|
2,549 |
|
|
|
6,570 |
|
|
|
6,095 |
|
|
Net investment income |
|
|
103,326 |
|
|
|
90,774 |
|
|
|
203,160 |
|
|
|
198,196 |
|
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Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earned by PennyMac Financial Services, Inc.: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment fees |
|
|
27,255 |
|
|
|
17,553 |
|
|
|
59,301 |
|
|
|
45,752 |
|
|
Mortgage loan servicing fees |
|
|
11,039 |
|
|
|
11,736 |
|
|
|
38,919 |
|
|
|
34,542 |
|
|
Management fees |
|
|
5,025 |
|
|
|
5,742 |
|
|
|
15,576 |
|
|
|
18,524 |
|
|
Mortgage loan collection and liquidation |
|
|
6,205 |
|
|
|
1,853 |
|
|
|
12,709 |
|
|
|
6,480 |
|
|
Professional services |
|
|
1,134 |
|
|
|
1,759 |
|
|
|
5,438 |
|
|
|
5,249 |
|
|
Compensation |
|
|
1,508 |
|
|
|
1,550 |
|
|
|
5,021 |
|
|
|
5,748 |
|
|
Other |
|
|
6,146 |
|
|
|
5,474 |
|
|
|
18,297 |
|
|
|
15,526 |
|
|
Total expenses |
|
|
58,312 |
|
|
|
45,667 |
|
|
|
155,261 |
|
|
|
131,821 |
|
|
Income before provision for (benefit from) income taxes |
|
|
45,014 |
|
|
|
45,107 |
|
|
|
47,899 |
|
|
|
66,375 |
|
|
Provision for (benefit from) income taxes |
|
|
9,606 |
|
|
|
6,295 |
|
|
|
3,262 |
|
|
|
(8,016 |
) |
|
Net income |
|
$ |
35,408 |
|
|
$ |
38,812 |
|
|
$ |
44,637 |
|
|
$ |
74,391 |
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.52 |
|
|
$ |
0.51 |
|
|
$ |
0.63 |
|
|
$ |
0.98 |
|
|
Diluted |
|
$ |
0.49 |
|
|
$ |
0.49 |
|
|
$ |
0.63 |
|
|
$ |
0.95 |
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
67,554 |
|
|
|
74,681 |
|
|
|
69,289 |
|
|
|
74,675 |
|
|
Diluted |
|
|
76,329 |
|
|
|
83,411 |
|
|
|
69,289 |
|
|
|
83,486 |
|
|
Dividends declared per share |
|
$ |
0.47 |
|
|
$ |
0.47 |
|
|
$ |
1.41 |
|
|
$ |
1.69 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
|
|
|
Common shares |
|
|
(Accumulated |
|
|
|
|
|
||||||||||
|
|
|
Number |
|
|
|
|
|
|
Additional |
|
|
deficit) |
|
|
|
|
|
|||
|
|
|
of |
|
|
Par |
|
|
paid-in |
|
|
retained |
|
|
|
|
|
||||
|
|
|
shares |
|
|
value |
|
|
capital |
|
|
earnings |
|
|
Total |
|
|||||
|
|
|
(in thousands, except per share amounts) |
|
|||||||||||||||||
|
Balance at December 31, 2014 |
|
|
74,510 |
|
|
$ |
745 |
|
|
$ |
1,479,699 |
|
|
$ |
97,728 |
|
|
$ |
1,578,172 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,391 |
|
|
|
74,391 |
|
|
Share-based compensation |
|
|
302 |
|
|
|
3 |
|
|
|
4,977 |
|
|
|
— |
|
|
|
4,980 |
|
|
Common share dividends, $1.69 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(127,166 |
) |
|
|
(127,166 |
) |
|
Issuance of common shares |
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
|
Repurchase of common shares |
|
|
(1,020 |
) |
|
|
(10 |
) |
|
|
(15,945 |
) |
|
|
— |
|
|
|
(15,955 |
) |
|
Balance at September 30, 2015 |
|
|
73,792 |
|
|
$ |
738 |
|
|
$ |
1,468,739 |
|
|
$ |
44,953 |
|
|
$ |
1,514,430 |
|
|
Balance at December 31, 2015 |
|
|
73,767 |
|
|
$ |
738 |
|
|
$ |
1,469,722 |
|
|
$ |
25,653 |
|
|
$ |
1,496,113 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,637 |
|
|
|
44,637 |
|
|
Share-based compensation |
|
|
298 |
|
|
|
3 |
|
|
|
4,139 |
|
|
|
— |
|
|
|
4,142 |
|
|
Common share dividends, $1.41 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(96,545 |
) |
|
|
(96,545 |
) |
|
Repurchase of common shares |
|
|
(7,029 |
) |
|
|
(70 |
) |
|
|
(93,359 |
) |
|
|
— |
|
|
|
(93,429 |
) |
|
Balance at September 30, 2016 |
|
|
67,036 |
|
|
$ |
671 |
|
|
$ |
1,380,502 |
|
|
$ |
(26,255 |
) |
|
$ |
1,354,918 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Nine months ended September 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,637 |
|
|
$ |
74,391 |
|
|
Adjustments to reconcile net income to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
Accrual of unearned discounts and amortization of premiums on mortgage-backed securities, mortgage loans at fair value, and asset-backed financing of a variable interest entity |
|
|
1,628 |
|
|
|
(884 |
) |
|
Capitalization of interest on mortgage loans at fair value |
|
|
(62,783 |
) |
|
|
(34,979 |
) |
|
Capitalization of interest on excess servicing spread |
|
|
(17,555 |
) |
|
|
(17,596 |
) |
|
Amortization of debt issuance costs |
|
|
9,798 |
|
|
|
8,491 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
(83,133 |
) |
|
|
(35,219 |
) |
|
Net loss (gain) on investments |
|
|
5,106 |
|
|
|
(51,019 |
) |
|
Change in fair value, amortization and impairment of mortgage servicing rights |
|
|
48,608 |
|
|
|
32,876 |
|
|
Results of real estate acquired in settlement of loans |
|
|
11,886 |
|
|
|
11,859 |
|
|
Share-based compensation expense |
|
|
4,142 |
|
|
|
4,980 |
|
|
Purchase of mortgage loans acquired for sale at fair value from nonaffiliates |
|
|
(45,300,447 |
) |
|
|
(35,922,418 |
) |
|
Purchase of mortgage loans acquired for sale at fair value from PennyMac Financial Services, Inc. |
|
|
(13,146 |
) |
|
|
(13,708 |
) |
|
Repurchase of mortgage loans subject to representation and warranties |
|
|
(9,922 |
) |
|
|
(14,873 |
) |
|
Sale and repayment of mortgage loans acquired for sale at fair value to nonaffiliates |
|
|
15,323,444 |
|
|
|
10,593,309 |
|
|
Sale of mortgage loans acquired for sale to PennyMac Financial Services, Inc. |
|
|
29,154,270 |
|
|
|
24,877,077 |
|
|
Decrease (increase) in servicing advances |
|
|
4,719 |
|
|
|
(16,930 |
) |
|
Decrease (increase) in due from PennyMac Financial Services, Inc. |
|
|
2,699 |
|
|
|
(2,090 |
) |
|
Decrease (increase) in other assets |
|
|
58,246 |
|
|
|
(14,891 |
) |
|
Increase in accounts payable and accrued liabilities |
|
|
27,442 |
|
|
|
10,624 |
|
|
Decrease in due to PennyMac Financial Services, Inc. |
|
|
(4,218 |
) |
|
|
(6,487 |
) |
|
Increase (decrease) in income taxes payable |
|
|
2,875 |
|
|
|
(8,715 |
) |
|
Net cash used in operating activities |
|
|
(791,704 |
) |
|
|
(526,202 |
) |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Net decrease in short-term investments |
|
|
8,512 |
|
|
|
108,382 |
|
|
Purchase of mortgage-backed securities at fair value |
|
|
(551,654 |
) |
|
|
(62,224 |
) |
|
Sale and repayment of mortgage-backed securities at fair value |
|
|
172,470 |
|
|
|
52,520 |
|
|
Purchase of mortgage loans at fair value |
|
|
— |
|
|
|
(241,981 |
) |
|
Sale and repayment of mortgage loans at fair value |
|
|
516,507 |
|
|
|
215,630 |
|
|
Purchase of excess servicing spread from PennyMac Financial Services, Inc. |
|
|
— |
|
|
|
(271,452 |
) |
|
Repayment of excess servicing spread by PennyMac Financial Services, Inc. |
|
|
54,623 |
|
|
|
55,800 |
|
|
Sale of excess servicing spread to PennyMac Financial Services, Inc. |
|
|
59,045 |
|
|
|
— |
|
|
Net settlement of derivative financial instruments |
|
|
(6,077 |
) |
|
|
(8,766 |
) |
|
Sale of mortgage loans at fair value to PennyMac Financial Services, Inc. |
|
|
891 |
|
|
|
1,466 |
|
|
Sale of real estate acquired in settlement of loans |
|
|
180,416 |
|
|
|
174,784 |
|
|
Purchase of mortgage servicing rights |
|
|
(2,602 |
) |
|
|
— |
|
|
Sale of mortgage servicing rights |
|
|
106 |
|
|
|
392 |
|
|
Deposit of cash securing credit risk transfer agreements |
|
|
(282,434 |
) |
|
|
(87,891 |
) |
|
Distribution from credit risk transfer agreements |
|
|
14,358 |
|
|
|
— |
|
|
(Increase) decrease in margin deposits and restricted cash |
|
|
(3,017 |
) |
|
|
1,438 |
|
|
Purchase of Federal Home Loan Bank capital stock |
|
|
(225 |
) |
|
|
(7,330 |
) |
|
Redemption of Federal Home Loan Bank capital stock |
|
|
7,320 |
|
|
|
— |
|
|
Net cash provided by (used in) investing activities |
|
|
168,239 |
|
|
|
(69,232 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Nine months ended September 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Sale of assets under agreements to repurchase |
|
|
48,753,454 |
|
|
|
38,669,898 |
|
|
Repurchase of assets sold under agreements to repurchase |
|
|
(47,841,632 |
) |
|
|
(38,534,306 |
) |
|
Sale of mortgage loan participation certificates |
|
|
4,955,742 |
|
|
|
3,613,090 |
|
|
Repayment of mortgage loan participation certificates |
|
|
(4,867,284 |
) |
|
|
(3,572,232 |
) |
|
Issuance of credit risk transfer financing |
|
|
— |
|
|
|
1,204,187 |
|
|
Repayment of credit risk transfer financing |
|
|
— |
|
|
|
(1,204,187 |
) |
|
Federal Home Loan Bank advances |
|
|
28,000 |
|
|
|
461,484 |
|
|
Repayment of Federal Home Loan Bank advances |
|
|
(211,000 |
) |
|
|
(278,484 |
) |
|
Advance under notes payable |
|
|
103,554 |
|
|
|
346,179 |
|
|
Repayment under notes payable |
|
|
(143,518 |
) |
|
|
(153,765 |
) |
|
Advance under notes payable to PennyMac Financial Services, Inc. |
|
|
— |
|
|
|
168,546 |
|
|
Repayment under notes payable to PennyMac Financial Services, Inc. |
|
|
— |
|
|
|
(18,546 |
) |
|
Issuance of asset-backed financing of a variable interest entity at fair value |
|
|
182,400 |
|
|
|
85,206 |
|
|
Repayment of asset-backed financing of a variable interest entity at fair value |
|
|
(53,641 |
) |
|
|
(15,590 |
) |
|
Payment of debt issuance costs |
|
|
(8,464 |
) |
|
|
(8,436 |
) |
|
Issuance of common shares |
|
|
— |
|
|
|
8 |
|
|
Repurchase of common shares |
|
|
(93,429 |
) |
|
|
(15,955 |
) |
|
Payment of contingent underwriting fees payable |
|
|
— |
|
|
|
(705 |
) |
|
Payment of dividends |
|
|
(99,757 |
) |
|
|
(138,041 |
) |
|
Net cash provided by financing activities |
|
|
704,425 |
|
|
|
608,351 |
|
|
Net increase in cash |
|
|
80,960 |
|
|
|
12,917 |
|
|
Cash at beginning of period |
|
|
58,108 |
|
|
|
76,386 |
|
|
Cash at end of period |
|
$ |
139,068 |
|
|
$ |
89,303 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization and Basis of Presentation
PennyMac Mortgage Investment Trust (“PMT” or the “Company”) was organized in Maryland on May 18, 2009, and commenced operations on August 4, 2009, when it completed its initial offerings of common shares of beneficial interest (“common shares”). The Company is a specialty finance company, which, through its subsidiaries (all of which are wholly-owned), invests primarily in residential mortgage-related assets.
The Company operates in two segments, correspondent production and investment activities:
|
|
• |
The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of mortgage-backed securities (“MBS”), using the services of PNMAC Capital Management, LLC (“PCM” or the “Manager”) and PennyMac Loan Services, LLC (“PLS”), both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”). |
Most of the mortgage loans the Company has acquired in its correspondent production activities have been eligible for sale to government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or through government agencies such as the Government National Mortgage Association (“Ginnie Mae”). Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.”
|
|
• |
The investment activities segment represents the Company’s investments in mortgage-related assets, which include MBS, distressed mortgage loans, excess servicing spread (“ESS”), credit risk transfer agreements (“CRT Agreements”), real estate acquired in settlement of loans (“REO”), real estate held for investment, mortgage servicing rights (“MSRs”), and small balance commercial real estate mortgage loans. |
The Company believes that it qualifies, and has elected to be taxed, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, beginning with its taxable period ended on December 31, 2009. To maintain its tax status as a REIT, the Company has to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.
The Company conducts substantially all of its operations and makes substantially all of its investments through its subsidiary, PennyMac Operating Partnership, L.P. (the “Operating Partnership”), and the Operating Partnership’s subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner, and the Company is the sole limited partner, of the Operating Partnership.
The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. The interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods, but are not necessarily indicative of the results of operations that may be anticipated for the full year. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires the Manager to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.
Note 2—Concentration of Risks
As discussed in Note 1— Organization and Basis of Presentation above, PMT’s operations and investing activities are centered in residential mortgage-related assets, a substantial portion of which were distressed at acquisition. The mortgage loans at fair value not acquired for sale or held in a variable interest entity (“VIE”) are generally purchased at discounts reflecting their distressed state or perceived higher risk of default, as well as a greater likelihood of collateral documentation deficiencies.
10
Due to the nature of the Company’s investments, PMT is exposed, to a greater extent than traditional mortgage investors, to the risks associated with loan resolution, including that borrowers may be in economic distress and/or may have become unemployed, bankrupt or otherwise unable or unwilling to make payments when due, and that fluctuations in the residential real estate market may affect the performance of its investments. Factors influencing these risks include, but are not limited to:
|
|
• |
changes in the overall economy, unemployment rates and residential real estate values in the markets where the properties securing the Company’s mortgage loans are located; |
|
|
• |
PCM’s ability to identify and PLS’ ability to execute optimal resolutions of certain mortgage loans; |
|
|
• |
the accuracy of valuation information obtained during the Company’s due diligence activities; |
|
|
• |
PCM’s ability to effectively model, and to develop appropriate model inputs that properly anticipate, future outcomes; |
|
|
• |
the level of government support for resolution of certain mortgage loans and the effect of current and future proposed and enacted legislative and regulatory changes on the Company’s ability to effect cures or resolutions to distressed mortgage loans; and |
|
|
• |
regulatory, judicial and legislative support of the foreclosure process, and the resulting effect on the Company’s ability to acquire and liquidate the real estate securing its portfolio of distressed mortgage loans in a timely manner or at all. |
Due to these uncertainties, there can be no assurance that risk management activities identified and executed on PMT’s behalf will prevent significant losses arising from the Company’s investments in real estate-related assets.
A substantial portion of the distressed mortgage loans and REO purchased by the Company in prior years has been acquired from or through one or more subsidiaries of Citigroup Inc., as presented in the following summary:
|
|
|
September 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Mortgage loans at fair value |
|
$ |
601,572 |
|
|
$ |
855,691 |
|
|
REO |
|
|
53,052 |
|
|
|
88,088 |
|
|
|
|
$ |
654,624 |
|
|
$ |
943,779 |
|
|
Total carrying value of mortgage loans at fair value and REO |
|
$ |
2,245,465 |
|
|
$ |
2,897,634 |
|
Note 3—Transactions with Related Parties
Operating Activities
Correspondent Production Activities
Following is a summary of correspondent production activity between the Company and PLS:
|
|
|
Quarter ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Fulfillment fees earned by PLS |
|
$ |
27,255 |
|
|
$ |
||||||||||