Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q2 2014 Earnings Presentation
28 slides from Pennymac Mortgage Investment Trust's earnings presentation, Aug 7, 2014
Slide 1: Second Quarter 2014 Earnings Report
PennyMac Mortgage Investment Trust August 6, 2014 Second Quarter 2014 Earnings Report
Slide 2: Forward-looking statements
2Q14 Earnings Report 2 This presentation contains forward - looking statements within the meaning of Section 21 E 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 r
Slide 3: Second Quarter Highlights
3 Second Quarter Highlights • Net income of $75.2 million on net investment income of $120.6 million – Diluted earnings per share of $0.93 – Dividend of $0.59 per share declared on June 27, 2014 – Book value per share grew to $21.27 at June 30, 2014 • Segment pretax income: Investment Activities: $7
Slide 4: Current Market Environment and Outlook
0 2 4 6 8 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 2 4 6 8 10 12 14 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4 Current Market Environment and Outlook • Interest rates and mortgage rates remain low in a historical context – Lowe
Slide 5: PMT Aims to Deliver Superior Long-Term Returns to Shareholders
PMT Aims to Deliver Superior Long-Term Returns to Shareholders Managed investment portfolio of multiple residential mortgage-related strategies: Distressed Whole Loans v Multiple strategies together expected to deliver attractive long-term return on equity even with shifts in the market environment
Slide 6: PMT's Investment Portfolio Continues to Diversify
$3,178 $3,761 $3,886 $3,827 $4,402 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 2Q13 3Q13 4Q13 1Q14 2Q14 6 PMT's Investment Portfolio Continues to Diversify • More than half of PMT’s investments remain distressed whole loans and REO – expected to continue delivering attractive ret
Slide 7: PMT's Interest Rate Risk Management Approach Results in Offsets in Value
2Q14 Earnings Report 7 PMT's Interest Rate Risk Management Approach Results in Offsets in Value Mortgage loans held by variable interest entity, net of financing (retained interests from private label securitizations) Mortgage backed securities Excess servicing spread, net of recapture value Net gai
Slide 8: Continue to deploy capital in attractive residential mortgage-related investment strategies
2Q14 Earnings Report 8 Continue to deploy capital in attractive residential mortgage - related investment strategies enabled by our relationship with PFSI and its specialized operations and expertise: • Remain disciplined in pursuing new distressed whole loan acquisitions • Invest in mortgage servic
Slide 9: Mortgage Investment Activities
Mortgage Investment Activities
Slide 10: Focus on Maximizing Returns in Distressed Whole Loans
10 • Continue to make selective investments in distressed whole loans ‒ Acquired $38 million in UPB of nonperforming loans (NPLs) in 2Q14 ‒ Supply of new distressed whole loans has expanded with higher market prices ‒ We remain disciplined in pursuing new investments that meet our targeted returns •
Slide 11: Significant Gains in Distressed Portfolio Driven by Performing Loans
June 30, 2014 March 31, 2014 Weighted average discount rate 11.8% 12.4% Weighted average twelve-month projected housing price index change 4.7% 3.5% Quarter Ended 2 Q14 Earnings Report 11 Significant Gains in Distressed Portfolio Driven by Performing Loans • Net gains on mortgage loans in the distre
Slide 12: Correspondent Business Added Seller Relationships and Grew Volume
$4.2 $3.6 $2.4 $1.9 $2.9 $4.3 $4.0 $3.3 $2.9 $4.0 $10.0 $6.7 $6.0 $5.5 $8.1 $0 $2 $4 $6 $8 $10 $12 2Q13 3Q13 4Q13 1Q14 2Q14 Govt Jumbo Conventional Conforming Total Locks Correspondent Production Volume and Mix 12 Correspondent Business Added Seller Relationships and Grew Volume (1) Source: Inside M
Slide 13: Correspondent Production's Results Reflect Margin Declines
Correspondent Production's Results Reflect Margin Declines 13 • Reduced pretax income driven by continued strong competition for conventional conforming loans – Pretax income declined from 0.14% of interest rate lock commitments in 1Q14 – Short inventory holding periods and low - cost debt financing
Slide 14: MSR and ESS Investments Continue to Grow
$227 $273 $429 $452 $506 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $0 $100 $200 $300 $400 $500 $600 2Q13 3Q13 4Q13 1Q14 2Q14 MSR and ESS Investments Continue to Grow 14 ($ in millions) • Continued portfolio growth as investments in MSR and ESS reached $506 million, related to underl
Slide 15: Financial Results
Financial Results (PennyMac: Mortgage Investment Trust
Slide 16: Pretax Income by Operating Segment
Investment Correspondent Total Pretax ($ in millions) Activities Production Income 2Q13 39.8$ 28.1$ 67.9$ 3Q13 36.4$ (0.3)$ 36.1$ 4Q13 48.4$ 6.3$ 54.7$ 1Q14 33.1$ 3.1$ 36.3$ 2Q14 70.9$ 2.4$ 73.3$ 16 Pretax Income by Operating Segment Note: Figures may not sum exactly due to rounding 2Q14 Earnings Re
Slide 17: 2Q14 Investment Activities Segment Results
Quarter Ended ($ in thousands) June 30, 2014 March 31, 2014 Revenues: Net gain on investments 73,134$ 42,585$ Net interest income Interest income 44,434 36,598 Interest expense 18,485 17,007 25,949 19,591 Net loan servicing fees 8,758 7,421 Other (2,696) (5,309) Total revenues 105,145 64,288 Expense
Slide 18: Investment Gains and Cash Flows from the Distressed Loan Portfolio
($ in thousands) Quarter ended June 30, 2014 Gain on Proceeds liquidation (2) Mortgage loans 71,971$ 8,950$ 7,488$ Performing loan sale 70,284 18,630 2,395 REO 48,874 3,229 3,811 191,129$ 30,809$ 13,694$ Accumulated gains (1) ($ in thousands) June 30, 2014 March 31, 2014 Valuation Changes: Performin
Slide 19: Valuation of MSRs and Excess Servicing Spread (ESS)
At 6/30/14 Under lower of amortized cost or fair value Under fair value Fair value UPB $24,640 $4,758 $26,964 Weighted average coupon 3.72% 4.79% 4.23% Prepayment speed assumption (CPR) 8.6% 10.2% 10.2% Weighted average servicing fee/spread 0.26% 0.25% 0.16% Fair value $289.2 $46.8 $190.2 As multipl
Slide 20: 2Q14 Correspondent Production Segment Results
20 2Q14 Correspondent Production Segment Results • Segment revenue totaled $15.4 million, a 25% increase from 1Q14 – Increase in net gain on mortgage loans reflects higher funding volumes partially offset by decreased margins – Other income up Q/Q due to an increase in loan origination fees • Expens
Slide 21: Appendix
Appendix (PennyMac: Mortgage Investment Trust
Slide 22: Demonstrated Track Record of Dividends and Growing Book Value
$0.65 $0.79 $0.81 $0.83 $0.90 $0.86 $0.57 $0.69 $0.50 $0.93 $0.55 $0.55 $0.57 $0.57 $0.57 $0.57 $0.57 $0.59 $0.59 $0.59 $18.00 $19.00 $20.00 $21.00 $22.00 $0.00 $0.25 $0.50 $0.75 $1.00 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Diluted EPS (left axis) Dividend (left axis) Book value per share
Slide 23: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 23 Why Are MSR Sales Occurring? How Do MSRs Come to Market? • Large banks are selling MSRs due to continuing operational pressures, higher regulatory capital requirements (treatment under Basel III) and a re - focus on core customers/businesses • Inde
Slide 24: Management of PMT's Interest Rate Risk
-3% -2% -1% 0% 1% 2% 3% -100 -75 -50 -25 0 25 50 75 100 "Long" Assets MSRs/ESS and Hedges Net Exposure (2) • PMT’s interest rate risk exposure is managed on a “global” basis – Disciplined hedging – Multiple mortgage - related investment strategies with complementary interest rate sensitivities • In
Slide 25: Fundings and Locks by Product
Fundings and Locks by Product 25 Note: Figures may not sum exactly due to rounding 2 Q14 Earnings Report ($ in millions) 2Q13 3Q13 4Q13 1Q14 2Q14 Fundings Conventional conforming 4,216$ 3,608$ 2,419$ 1,907$ 2,911$ Government 4,262 3,992 3,340 2,913 3,991 Jumbo 107 74 14 13 81 Total 8,586$ 7,674$ 5,7
Slide 26: Distressed Portfolio by Acquisition Period
Purchase 2Q14 Purchase 2Q14 Purchase 2Q14 Purchase 2Q14 Balance ($mm) 182.7$ 44.7 Balance ($mm) 195.5$ 39.9 Balance ($mm) 146.2$ 27.4 Balance ($mm) 277.8$ 74.8 Pool Factor (1) 1.00 0.24 Pool Factor (1) 1.00 0.20 Pool Factor (1) 1.00 0.19 Pool Factor (1) 1.00 0.27 Current 6.2% 26.9% Current 5.1% 21.6
Slide 27: Distressed Portfolio by Acquisition Period (cont.)
Purchase 2Q14 Purchase 2Q14 Purchase 2Q14 Purchase 2Q14 Balance ($mm) 366.2$ 272.6 Balance ($mm) 397.3$ 345.6 Balance ($mm) 929.5$ 828.4 Balance ($mm) 507.3$ 486.1 Pool Factor (1) 1.00 0.74 Pool Factor (1) 1.00 0.87 Pool Factor (1) 1.00 0.89 Pool Factor (1) 1.00 0.96 Current 1.6% 36.7% Current 4.8%
Slide 28: Nonperforming and Performing Loans at June 30, 2014
$610 $900 $910 $0 $400 $800 $1,200 $1,600 $2,000 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,546 $2,190 $2,440 $0 $400 $800 $1,200 $1,600 $2,000 $2,400 $2,800 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 2 Q14 Earnings Report 28 Nonperforming Loa
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