Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q4 2016 Earnings Presentation
33 slides from Pennymac Mortgage Investment Trust's earnings presentation, Feb 3, 2017
Slide 1: Fourth Quarter 2016 Earnings Report
PennyMac Mortgage Investment Trust February 2, 2017 Fourth Quarter 2016 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
4Q16 Earnings Report Forward-Looking Statements 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
Slide 3: Fourth Quarter Highlights
Fourth Quarter Highlights Net income of $31.2 million on net investment income of $68.9 million Diluted earnings per share of $0.44; return on equity of 9% Dividend of $0.47 per share declared on December 20, 2016 Book value per share increased to $20.26 from $20.21 at September 30, 2016 Results dri
Slide 4: Current Market Environment
Current Market Environment 4Q16 Earnings Report Mortgage rates rose sharply during the fourth quarter, with the average 30-year fixed rate increasing from 3.41% to 4.32% Mortgage rates have fallen back to 4.19% as of January 26th Changes in regulations and policy resulting from the new administratio
Slide 5: Transitioning to Correspondent-Related Investments Such as CRT and MSRs
Transitioning to Correspondent-Related Investments Such as CRT and MSRs 4Q 2014 100% = $1.6 billion Current capital deployment is primarily focused on attractive correspondent-related investments – CRT and MSRs 4Q 2016 100% = $1.4 billion PMT’s Equity Allocation(1) (1) Management’s internal allocati
Slide 6: Distressed Loan Portfolio Is Declining Through Liquidation and Sales
Distressed Loan Portfolio Is Declining Through Liquidation and Sales 4Q16 Earnings Report Driven by bulk sale of $419 million in UPB -40% Y/Y Driven by bulk sale of $160 million in UPB (1) This transaction is subject to continuing due diligence and customary closing conditions. There can be no assur
Slide 7: Fourth Quarter Income and Return Contributions by Strategy
Fourth Quarter Income and Return Contributions by Strategy 4Q16 Earnings Report Note: Amounts may not sum exactly due to rounding (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fees) (2) Equity allocated to MSR, ESS and
Slide 8: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents estimates for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics). Actual results may differ materially. Please refer to slide 2 for important disclosures regarding forward-looking statements.
Slide 9: Mortgage Investment Activities
Mortgage Investment Activities
Slide 10: Strong Resolution Activity on Distressed Loan Investments
Strong Resolution Activity on Distressed Loan Investments Payoffs Foreclosure sales Short sales REO sales Modifications ($ in millions) Resolution Activity (UPB) Total Liquidation Activities Resolution Activity (% of UPB) ($ in millions) $255 $247 $256 $233 Quarterly resolution activity as a percent
Slide 11: Correspondent Production Volume and Mix
Correspondent Production Volume and Mix Correspondent Production Operational Highlights (1) For Government loans, PMT earns a sourcing fee and interest income for its holding period and does not pay a fulfillment fee ($ in billions) UPB (1) (1) 4Q16 Earnings Report $19.2 $10.6 $21.6 Correspondent ac
Slide 12: CRT Investments Outstanding
4Q16 Earnings Report CRT Investments Outstanding ($ in millions) Total CRT investments grew to $450 million at December 31, 2016 Most recent CRT commitment allows more efficient deployment of capital during the aggregation period(1) As a result, CRT investments will grow at a slower pace until the a
Slide 13: MSR and ESS Investments Increase in Value
MSR and ESS Investments Increase in Value ($ in millions) Organic MSR investments resulting from correspondent production activity increased to $657 million, from $525 million at September 30, 2016 ESS investments resulting from bulk, mini-bulk and flow MSR acquisitions by PFSI increased to $289 mil
Slide 14: Financial Results
Financial Results (bnnyMac: Mortgage Investment Trust
Slide 15: Pretax Income (Loss) by Operating Segment
Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 4Q16 Earnings Report Investment Activities Correspondent Production Total Pretax Income 4Q15 $ (6.1) $ 13.1 $ 6.9 1Q16 $ 0.1 $ 10.9 $ 11.0 2Q16 $ (24.6) $ 16.4 $ (8.2) 3Q16 $ 13.6 $ 31.4 $ 45.0 4Q16 $ 2.1 $ 1
Slide 16: Investment Activities Segment Results
Investment Activities Segment Results Segment revenue decreased $15.0 million Q/Q Net gain on investments decreased to $12.3 million, primarily driven by: CRT gains of 10.4 million, versus $18.5 million in 3Q16 ESS gains and recapture income of $18.9 million(1) and $7.5 million of gains from hedging
Slide 17: Net Interest Income Declined Modestly Driven by Lower Capitalized Interest
Net Interest Income Declined Modestly Driven by Lower Capitalized Interest Net interest income from Investment Activities was $11.6 million, a 6% Q/Q decrease Total interest income from Investment Activities was $41.1 million, a 5% Q/Q decrease Interest income from the distressed loan portfolio was
Slide 18: Performance of the Distressed Loan Investments
Performance of the Distressed Loan Investments Combining net losses with net interest income, revenue from distressed loans was $13.1 million, compared with $14.1 million in 3Q16 Distressed loan portfolio underperformed expectations resulting from: Increased recidivism of previously performing loans
Slide 19: Valuation of MSRs and Excess Servicing Spread (ESS)
Valuation of MSRs and Excess Servicing Spread (ESS) PMT carries most of its MSRs at the lower of amortized cost or fair value (“LOCOM”) MSRs where the note rate on the underlying loan is less than or equal to 4.5% The fair value of MSRs carried at LOCOM was $33.9 million in excess of the carrying va
Slide 20: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
Derivative represents net value of expected future cash inflows related to assumption of credit risk and expected future losses Current cash collateralizing guarantee included in “Deposits securing credit risk transfer agreements” Gains and losses resulting from valuation changes represent fair valu
Slide 21: Correspondent Production Segment Results
Correspondent Production Segment Results Segment revenue totaled $42.7 million, a 31% decrease from 3Q16, driven by lower lock volumes and margins Net gain on mortgage loans acquired for sale declined 47% Q/Q; third quarter results included a $5.1 million benefit in provision for representations and
Slide 22: Appendix
Appendix (bnnyMac: Mortgage Investment Trust
Slide 23: PMT EPS, Dividends and Book Value Over Time
Book value per share(1) PMT EPS, Dividends and Book Value Over Time 7% 7% Return on Equity(2) (1) At period end. (2) Return on average equity during the respective quarter; return on average equity is calculated based on annualized quarterly net income as a percentage of monthly average shareholders
Slide 24: PMT's Mortgage Assets and Leverage Ratio Over Time
Correspondent loan inventory PMT’s Long-Term Investments ■ Credit Risk Transfer (CRT)(1) ■ Retained interests from private-label securitizations ■ MSRs and ESS ■ Agency and non-Agency MBS ■ Distressed whole loans and REO PMT's Mortgage Assets and Leverage Ratio Over Time Leverage ratio(2) (1) The fa
Slide 25: Management of PMT's Interest Rate Risk
(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 26: Carrying Values for PMT's Distressed Whole Loans
Nonperforming Loans (at December 31, 2016) Performing Loans (at December 31, 2016) Nonperforming loans are held on average at a 34% discount to current property value – fair value considers costs expected over the liquidation timeline, expected property appreciation and reperformance probability PMT
Slide 27: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 4Q16 Earnings Report
Slide 28: Distressed Portfolio by Acquisition Period (cont.)
Distressed Portfolio by Acquisition Period (cont.) (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 4Q16 Earnings Report
Slide 29: Correspondent Production Fundings and Locks by Product
Correspondent Production Fundings and Locks by Product Note: Figures may not sum exactly due to rounding 4Q16 Earnings Report ($ in millions) 4Q15 1Q16 2Q16 3Q16 4Q16 Fundings Conventional $ 3,460 $ 3,253 $ 5,171 $ 7,263 $ 7,492 Government 6,558 6,423 9,433 11,657 12,544 Jumbo 12 7 3 1 - Total $ 10,
Slide 30: PMT's Investments in GSE Credit Risk Transfer
PMT’s Investments in GSE Credit Risk Transfer 4Q16 Earnings Report (1) FICO and LTV metrics at origination ($ in billions)
Slide 31: Net Cash Flows from Existing Investments
Net Cash Flows from Existing Investments (1) Quarterly cash flows from investing activities are derived from the Company’s year-to-date statements of cash flows (2) Debt repayment from liquidations calculated based on debt advance rates for each asset type (3) Revenue component of net loan servicing
Slide 32: Opportunity in MSR Acquisitions
Opportunity in MSR Acquisitions Why Are MSR Sales Occurring? How Do MSRs Come to Market? Large servicers may sell MSRs due to continuing operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re-focus on core customers/businesses Independent mortgag
Slide 33: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI (1) The contractual servicer and MSR owner is PennyMac Loan Services, LLC, an indirect subsidiary of PennyMac Financial Services, Inc. (2) Subject and subordinate to Agency rights (under the related servicer guide); does not change t
PennyMac Mortgage Investment Trust — Q4 2016 Earnings Presentation on 6ix