Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q3 2018 Earnings Presentation
30 slides from Pennymac Mortgage Investment Trust's earnings presentation, Nov 2, 2018
Slide 1: Third Quarter 2018 Earnings Report
PennyMac Mortgage Investment Trust November 1, 2018 Third Quarter 2018 Earnings Report Exhibit 99.2
Slide 2: Forward-looking statements
3Q18 Earnings Report This presentation contains forward-looking statements within the meaning of Section 21E 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 results
Slide 3: Third Quarter Highlights
Third Quarter Highlights 3Q18 Earnings Report Net income attributable to common shareholders of $40.3 million; diluted earnings per common share of $0.62 Annualized return on average common equity of 13%, up from 10% in the prior quarter Dividend of $0.47 per common share declared on September 25, 2
Slide 4: Current Market Environment
6 4 Current Market Environment 3Q18 Earnings Report The average rate on 30-year fixed rate mortgages increased 17 basis points over the quarter to 4.72%(1) Total mortgage originations are expected to remain flat at approximately $1.6 trillion in 2019 A strong U.S. economy and employment growth in ke
Slide 5: Balance Sheet Has Transitioned to Organic Investments in CRT and MSRs
3Q 2016 100% = $1.35 billion 3Q 2018(2) 100% = $1.56 billion PMT’s Equity Allocation(1) (1) Management’s internal allocation of equity. Amounts as of quarter end. Percentages may not sum exactly due to rounding. (2) Includes $300 million of preferred equity 3Q 2017(2) 100% = $1.61 billion Balance Sh
Slide 6: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents estimates for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics) and does not contemplate significant changes or shocks to current market conditions. Actual results may differ materially. Plea
Slide 7: PFSI Is a Strong, Uniquely Qualified Manager for PMT
PFSI Is a Strong, Uniquely Qualified Manager for PMT 3Q18 Earnings Report Uniquely qualified manager and service provider for PMT with strong alignment of interest PFSI sources and manages high-quality, organically produced mortgage investments expected to deliver attractive risk-adjusted returns Pe
Slide 8: PMT's Strategies for New Investments
4 Projected Quarterly Equity Investments ($ in millions) PMT’s Strategies for New Investments 3Q18 Earnings Report Current Investment Focus Core investment strategies remain conventional MSR and CRT investments, which offer attractive return profiles and significant growth opportunities $418 million
Slide 9: Mortgage Investment Activities
Mortgage Investment Activities
Slide 10: Correspondent Production Volume and Mix
Correspondent Production Volume and Mix (1) For Government loans, PMT earns a sourcing fee and interest income for its holding period and does not pay a fulfillment fee (2) Conventional conforming and jumbo interest rate lock commitments (3) Based on funded loans subject to fulfillment fees. The ful
Slide 11: GSE CRT Investments Growing and Performance Remains Strong
GSE CRT Investments Growing and Performance Remains Strong Loans eligible for CRT investments totaled $6.8 billion during 3Q18, resulting in a firm commitment to purchase $237 million of CRT securities Increased percentage of conventional production eligible for CRT enabled by new transaction struct
Slide 12: MSR Investments Continued to Grow
($ in millions) MSR investments increased to $1.1 billion due to growth from production activity and fair value gains Excess servicing spread (ESS) investments relating to bulk, mini-bulk and flow MSR acquisitions by PennyMac Financial Services, Inc. (NYSE: PFSI) decreased modestly to $223 million d
Slide 13: Distressed Loan Portfolio Is Declining Through Liquidation and Sales
After quarter end, entered into four agreements to sell approximately $300 million in UPB of performing and nonperforming loans from the distressed portfolio(4) (1) Includes principal payments, payoffs, and write downs (2) Primarily through recidivism of previously performing loans (3) Primarily thr
Slide 14: Financial Results
Financial Results nnyMac’ Mortgage Investment Trust.
Slide 15: Third Quarter Income and Return Contributions by Strategy
Note: Amounts may not sum exactly due to rounding (1) Income contribution and the annualized return on equity calculated net of any direct expenses associated with investments (e.g., loan fulfillment fees and loan servicing fees), but before tax expenses. Some of the income associated with the inves
Slide 16: Net Gains/(Losses) on Mortgage Loans and Cash Proceeds
Net losses on nonperforming and performing loans totaled $3.1 million, compared to $4.7 million in 2Q18, driven by losses on nonperforming loans due to adverse valuation impact of higher projected costs of liquidation and protecting PMT’s lien interest (e.g., taxes, insurance, maintenance and legal
Slide 17: Appendix
Appendix nnyMac’ Mortgage Investment Trust.
Slide 18: Track Record of Stable Dividends and Book Value
Book value per common share(1) 10% 9% Return on Avg. Common Equity(2) (1) At period end (2) Return on average common equity is calculated based on annualized quarterly net income attributable to common shareholders as a percentage of monthly average common equity during the period 9% EPS & Common Di
Slide 19: PMT's Mortgage Assets and Leverage Ratio Over Time
Correspondent loan inventory PMT’s Long-Term Investments ■ CRT(1) ■ Retained interests from private-label securitizations ■ MSRs and ESS ■ Agency and non-Agency MBS ■ Distressed whole loans and REO Leverage ratio(2) (1) The fair value of CRT investments is reflected on the balance sheet as restricte
Slide 20: Estimated Sensitivity to Changes in Interest Rates
(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 Utilization of financial hedge instruments Also considers recapture benefit on MSRs and ESS and revenue opportunitie
Slide 21: MSRs and ESS Asset Valuation
MSRs and ESS Asset Valuation Unaudited (1) Pool UPB, weighted average coupon and expected prepayment speed represent the characteristics of the underlying MSR portfolio owned by PennyMac Financial. Weighted average servicing spread, fair value and valuation multiple relate to the ESS asset owned by
Slide 22: Excess Servicing Spread structure
(1) The contractual servicer and MSR owner is PennyMac Loan Services, LLC, an indirect controlled subsidiary of PFSI (2) Subject and subordinate to Agency rights (under the related servicer guide); does not change the contractual servicing fee paid by the Agency to the servicer. Excess Servicing Spr
Slide 23: Carrying Values for PMT's Distressed Whole Loans
Nonperforming Loans (at September 30, 2018) Performing Loans (at September 30, 2018) Nonperforming loans are held on average at a 48% discount to current property value – fair value considers costs expected over the liquidation timeline, expected property appreciation and reperformance probability P
Slide 24: 3Q18 Distressed Loan Portfolio Resolution Activity
Payoffs Foreclosure sales Short sales REO sales Modifications ($UPB in millions) Resolution Activity in the Quarter Total Liquidation Activities Resolution Activity Over Time ($UPB in millions) (% by Activity Type) $185 $142 Quarterly resolution activity as a percentage of nonperforming loans and RE
Slide 25: Distressed Portfolio by Acquisition Period
(1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition Distressed Portfolio by Acquisition Period 3Q18 Earnings Report 1Q10 2Q10 3Q10 4Q10 Purchase 3Q18 Purchase 3Q18 Purchase 3Q18 Purchase 3Q18 Balance ($mm) $ 182.7 8.2 Balance ($mm) $ 195.5 4.4 Balance ($mm) $ 1
Slide 26: Distressed Portfolio by Acquisition Period (cont.)
(1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition Distressed Portfolio by Acquisition Period (cont.) 3Q18 Earnings Report Update 1Q13 2Q13 3Q13 4Q13 Purchase 3Q18 Purchase 3Q18 Purchase 3Q18 Purchase 3Q18 Balance ($mm) $ 366.2 32.2 Balance ($mm) $ 397.3 53.4
Slide 27: Correspondent Production Fundings and Locks by Product
Correspondent Production Fundings and Locks by Product Note: Amounts may not sum exactly due to rounding (1) Does not include loans purchased from PennyMac Financial Services, Inc. in 2Q18, 1Q18, 4Q17 and 3Q17. 3Q18 Earnings Report ($ in millions) 3Q17 4Q17 1Q18 2Q18 3Q18 Fundings Conventional $ 6,5
Slide 28: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
Cash deposited in the SPV in Other assets. Represents collateral for the initial credit risk retained Includes fair value recognition upon loan delivery under CRT Agreements and market value changes Payments made to Fannie Mae, from pledged cash, for losses on loans underlying the CRT agreements Cas
Slide 29: Credit Risk Transfer – Income Statement and Balance Sheet Treatment (cont'd)
Current outstanding UPB of loans delivered to the CRT SPVs and sold to Fannie Mae or delivered subject to agreements to purchase REMIC CRT securities Credit Risk Transfer – Income Statement and Balance Sheet Treatment (cont’d) Current cash collateralizing guarantee included in “Deposits securing cre
Slide 30: PMT's Investments in GSE Credit Risk Transfer
(1) FICO and LTV metrics at origination (UPB in billions) PMT’s Investments in GSE Credit Risk Transfer 3Q18 Earnings Report CRT 2015 -1 (May 2015 - July 2015) CRT 2015 -2 (August 2015 - Feburary 2016) CRT 2016 -1 (Feburary 2016 - August 2016) At inception 9/30/2018 At inception 9/30/2018 At incepti
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