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Financial report summary
?Competition
Pennymac Mortgage Investment TrustRisks
- Because assets we acquire may experience periods of illiquidity, we may lose profits or be prevented from earning capital gains if we cannot sell mortgage-related assets at an opportune time.
- Our investments may be concentrated and will be subject to risk of default.
- Fluctuations in interest rates could adversely affect the value of our investments and derivative financial instruments and cause our interest expense to increase, which could result in reduced earnings, decreased profitability and dividends, and diminished cash available for distribution to our stockholders.
- An increase in interest rates may cause a decrease in the availability of certain of our target assets which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends.
- Spread risk is inherent to investing in MBS and other mortgage-related assets.
- A portion of our RMBS portfolio consists of premium securities. Premium securities may be subject to more risk than par value securities.
- Prepayment rates may adversely affect the value of our investment portfolio.
- Market conditions may upset the historical relationship between interest rate changes and prepayment trends, which would make it more difficult for us to analyze our investment portfolio.
- We operate in a highly competitive market for investment opportunities and competition may limit our ability to acquire desirable investments in our target assets and could also affect the pricing of these securities.
- Our subordinated MBS assets may be in the “first loss” position, subjecting us to greater risks of loss.
- We may not control the special servicing of the mortgage loans included in CMBS in which we invest, and, in such cases, the special servicer may take actions that could adversely affect our interests.
- Due diligence of potential assets may not reveal all of the liabilities associated with such assets and may not reveal other weaknesses in such assets, which could lead to losses.
- We depend on third-party service providers, including mortgage servicers, for a variety of services related to our RMBS. We are, therefore, subject to the risks associated with third-party service providers.
- We use leverage in executing our business strategy, which may adversely affect the return on our assets, reduce cash available for distribution to our stockholders and/or increase losses when economic conditions are unfavorable.
- We depend on repurchase agreement financing to acquire our target assets, and our inability to access this funding on acceptable terms could have a material adverse effect on our results of operations, financial condition and business.
- The inherent uncertainty of repurchase transactions, including counterparty credit risk, may cause us to incur a loss on our repurchase transactions.
- The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired.
- A failure to comply with covenants in our repurchase agreements and other financing arrangements would have a material adverse effect on us, and any future financings may require us to provide additional collateral or pay down debt.
- Our use or future use of repurchase agreements to finance our target assets may give our lenders greater rights if either we or a lender files for bankruptcy.
- We enter into hedging transactions that could expose us to contingent liabilities in the future.
- Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.
- We may enter into derivative contracts that expose us to contingent liabilities, and those contingent liabilities may not appear on our balance sheet. We may invest in synthetic securities, credit default swaps, and other credit derivatives, which expose us to additional risks.
- Our business may be adversely affected by unfavorable or changing economic, market, and political conditions.
- Maintaining 1940 Act exclusions for our subsidiaries imposes limits on our operations, and failure to maintain an exclusion could have a material negative impact on our operations.
- Our Manager utilizes quantitative models to support investment decisions and investment processes, including those related to our portfolio management and risk analysis, which may contain errors.
- We may repurchase shares of our common stock and preferred stock from time to time. Share repurchases may negatively impact our compliance with covenants in our financing agreements and regulatory requirements (including maintaining exclusions from the requirements of the 1940 Act and qualification as a REIT). Any compliance failures associated with share repurchases could have a material negative impact on our business, financial condition and results of operations. Share repurchases also may negatively impact our ability to invest in our target assets in the future.
- The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.
- Changes in the fair value of our derivatives may result in volatility in our U.S. GAAP earnings.
- Our reported U.S. GAAP financial results differ from our REIT taxable income, which impacts our dividend distribution requirements. Therefore, our U.S. GAAP results may not be an accurate indicator of future taxable income and dividend distributions.
- We are dependent on our Manager and its key personnel for our success.
- There are conflicts of interest in our relationship with our Manager and Invesco, which could result in decisions that are not in the best interests of our stockholders.
- Our Manager would have a conflict in recommending our participation in any equity investment it manages.
- The management agreement with our Manager was not negotiated on an arm’s-length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party, and it may be costly and difficult to terminate.
- Our board of directors approved very broad investment guidelines for our Manager and does not approve each investment and financing decision made by our Manager.
- We have not established a minimum dividend payment level, and we cannot assure our stockholders of our ability to pay dividends in the future.
- Future offerings of debt or equity securities that would rank senior to our common stock may adversely affect the market price of our common stock.
- Certain provisions of Maryland law could inhibit changes in control.
- Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares.
- Our authorized but unissued shares of capital stock may prevent a change in our control.
- The change of control conversion feature of our Series B Preferred Stock and Series C Preferred Stock may make it more difficult for a party to acquire us or discourage a party from acquiring us.
- Our rights and the rights of our stockholders to take action against our directors and officers are limited.
- We are the sole general partner of our Operating Partnership and could become liable for the debts and other obligations of our Operating Partnership.
- We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our stock.
- To maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions.
- Compliance with REIT requirements may cause us to forgo otherwise attractive opportunities, which may hinder or delay our ability to meet our investment objectives and reduce your overall return.
- Compliance with REIT requirements may force us to liquidate or restructure otherwise attractive investments.
- Our charter does not permit any person or group to own more than 9.8% of our outstanding common stock or of our outstanding capital stock of all classes or series, and attempts to acquire our common stock or our capital stock of all other classes or series in excess of these 9.8% limits would not be effective without an exemption from these limits by our board of directors.
- Non-U.S. stockholders may be required to file U.S. federal income tax returns and pay U.S. federal income tax upon their receipt of certain distributions from us or upon their disposition of shares of our stock.
- Investments outside the United States may subject us to additional taxes and could present additional complications to our ability to satisfy the REIT qualification requirements.
- We may incur tax liabilities that would reduce our cash available for distribution to you.
- Restrictions on the deduction of all of our interest expense could prevent us from satisfying the REIT distribution requirements and avoiding the incurrence of income or excise taxes.
- Our board of directors is authorized to revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders.
- We may choose to pay dividends in a combination of cash and shares of our common stock, in which case stockholders may be required to pay income taxes in excess of the cash dividends they receive.
- Generally, ordinary dividends payable by REITs do not qualify for reduced U.S. federal income tax rates.
- The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
- Our taxable REIT subsidiaries are subject to special rules that may result in increased taxes.
- If the Operating Partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.
- Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
- The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.
- Liquidation of our assets to repay obligations to our lenders may jeopardize our REIT qualification.
- Purchases of mortgages at a discount may affect our ability to satisfy the REIT asset and gross income tests.
- Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or investment funds.
- We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them.
- The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT.
- The tax on prohibited transactions will limit our ability to engage in certain transactions, including certain methods of securitizing mortgage loans, which would be treated as sales for federal income tax purposes.
- Changing the nature of our assets may complicate our ability to satisfy the REIT gross income and asset tests.
- Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
- Our business is subject to extensive regulation.
- We may be adversely affected by the current and future economic, regulatory and other actions of government bodies and their agencies.
- We may change any of our strategies, policies or procedures without stockholder consent and make investment decisions with which our stockholders may not agree and/or fail to meet our investment criteria.
- We may enter into transactions and take certain actions in connection with such transactions that could affect the price of our common stock.
- The market price and trading volume of our capital stock may be volatile.
- Common stock eligible for future sale may have adverse effects on our share price.
- Investing in our capital stock may involve a high degree of risk.
- A change in market interest rates may cause a material decrease in the market price of our capital stock.
Management Discussion
- The table below presents information from our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023.