Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q1 2015 Earnings Presentation
36 slides from Pennymac Mortgage Investment Trust's earnings presentation, May 7, 2015
Slide 1: First Quarter 2015 Earnings Report
PennyMac Mortgage Investment Trust May 6, 2015 First Quarter 2015 Earnings Report
Slide 2: Forward-looking statements
1Q15 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: First Quarter Highlights
3 First Quarter Highlights • Net income of $7.5 million on net investment income of $37.7 million – Diluted earnings per share of $0.09; return on equity of 2% – Dividend of $ 0.61 per share declared on March 24, 2015 – Book value per share declined to $20.68 at March 31, 2015 • Segment pretax resul
Slide 4: Notable Activity After Quarter End
4 Notable Activity After Quarter End • Entered into financing facilities for ESS and MSRs, borrowing $108 million • Completed acquisition of $136 million in ESS related to $15 billion in UPB of Agency MSRs • Expected to enter into an agreement with PFSI relating to the acquisition of approximately $
Slide 5: Current Market Environment and Outlook
3.0% 3.5% 4.0% 4.5% 5.0% 5 Current Market Environment and Outlook 1Q15 Earnings Report 140 150 160 170 180 Average 30 - year fixed rate mortgage (1) • Interest rates in 1Q15 reached their lowest levels since mid - 2013, driving higher refinancing volume – Industry forecasts now predict a $1.3 trilli
Slide 6: Strong Cash Flows from Existing Investments Support Dividend
1Q15 Earnings Report 6 Strong Cash Flows from Existing Investments Support Dividend Net Cash Flows from Existing Investments and Dividends (1) ($ in millions) • Substantial cash generated (income and return of capital) from PMT’s existing investments; includes: – Cash proceeds from all investments,
Slide 7: PMT Aims to Deliver Superior Return on Equity Through Multiple Strategies
PMT Aims to Deliver Superior Return on Equity Through Multiple Strategies 1Q15 Earnings Report 7 Correspondent Loan Aggregation MSRs and ESS Prime Non - Agency Loans (1) Commercial Real Estate Loans Distressed Residential Whole Loans • Mortgage - related investments that require specialized operatio
Slide 8: PMT Performance by Strategy – Full-Year 2014
($ in millions) Income Contribution (2)(3) Equity Allocated (4) Return on Equity (ROE) Distressed loan investments 214.0$ 1,113$ 19.2% Interest rate sensitive strategies (1) : Correspondent production 11.4$ 59$ 19.4% MSRs 11.8$ 104$ 11.3% ESS (incl. recapture) (12.2)$ 86$ (14.3)% Agency MBS 8.2$ 14$
Slide 9: PMT Performance by Strategy – 1Q15
($ in millions) Income Contribution (2)(3) Equity Allocated (4) Annualized Return on Equity (ROE) Distressed loan investments 13.8$ 994$ 5.5% Interest rate sensitive strategies (1) : Correspondent production 4.6$ 98$ 18.7% MSRs 0.5$ 146$ 1.4% ESS (incl. recapture) (3.8)$ 104$ (14.6)% Agency MBS 1.2$
Slide 10: PMT's Investment Portfolio Continues to Grow and Diversify
Correspondent loan inventory $3,827 $4,402 $4,160 $4,358 $5,279 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 1Q14 2Q14 3Q14 4Q14 1Q15 10 PMT's Investment Portfolio Continues to Grow and Diversify Leverage ratio (1) 1.6x 2.0x 1.8x 2.0x 2.6x (1) All borrowings, includi
Slide 11: Significant New Financing Initiatives Completed
1Q15 Earnings Report 11 Significant New Financing Initiatives Completed • Established PMT Insurance, LLC, a wholly - owned captive insurance subsidiary of PMT in 2014 to help manage a portion of PMT’s insurance risk – Recently granted membership in the FHLB Des Moines • Diversifies PMT’s funding sou
Slide 12: GSE Risk Transfers on PMT's Correspondent Production
• Have been working with Fannie Mae and J.P. Morgan to develop a credit risk transfer structure using newly originated loans aggregated by PMT – Opportunity to invest in credit risk and designed to capture the benefits of PMT’s high - quality correspondent production – Aligns with Fannie Mae’s inter
Slide 13: Targeted Returns of PMT's Strategies
Targeted Returns of PMT’s Strategies 13 MSRs and ESS Prime Non - Agency Loans (2) Agency and Non - Agency MBS Distressed Residential Whole Loans Correspondent Loan Aggregation GSE Risk Transfers on PMT’s Production Commercial Real Estate Loans 1Q15 Earnings Report Targeted Unlevered Yield Targeted G
Slide 14: Mortgage Investment Activities
Mortgage Investment Activities
Slide 15: Distressed Loan Performance Impacted by Reduced Resolution Activity
1Q15 Earnings Report 15 Distressed Loan Performance Impacted by Reduced Resolution Activity • UPB of total liquidation activities, which are comprised of payoffs, foreclosure sales to third parties, short sales and REO sales, decreased 14% from 4Q14 • Recent NPL acquisitions did not board onto PFSI’
Slide 16: Increased Focus on Rental Initiatives for PMT's REO Portfolio
Illinois, $17.0 Florida, $53.0 Maryland, $35.7 California, $85.3 Other states, $126.6 1Q15 Earnings Report 16 Increased Focus on Rental Initiatives for PMT's REO Portfolio • Launched REO rental initiative leveraging local third - party property management – Tighter market yields make rental option a
Slide 17: Low Rates and MIP Reduction Drive Higher Correspondent Production Volume
1Q14 2Q14 3Q14 4Q14 1Q15 End-to-end cycle time (days) 8.5 7.0 8.9 8.2 8.2 4Q14 1Q15 Correspondent production sellers 344 356 76% 60% Purchase money loans, as % of total acquisitions acquisitions Selected Operational Metrics Selected Program Metrics Correspondent Production Volume and Mix Low Rates a
Slide 18: Correspondent Results Reflect Improving Margins
($ in thousands) Quarter Ended March 31, 2015 As % of Interest Rate Lock Commitments (1) Quarter Ended Dec 31, 2014 As % of Interest Rate Lock Commitments (1) Revenues: Net gain on mortgage loans acquired for sale 10,160$ 0.29% 5,945$ 0.20% Net interest income 3,292 0.09% 3,371 0.11% Other income 5,
Slide 19: MSR and ESS Investments Continue to Grow
$452 $506 $533 $549 $581 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $0 $100 $200 $300 $400 $500 $600 1Q14 2Q14 3Q14 4Q14 1Q15 MSR and ESS Investments Continue to Grow 19 ($ in millions) • Continued portfolio growth as investments in MSR and ESS reached $581 million, related t
Slide 20: Recently Completed and New Investments in ESS Related to $25bn of Agency MSRs
20 Recently Completed and New Investments in ESS Related to $25bn of Agency MSRs See slides 29 and 30 in the appendix for additional information. ▪ New pending investment in seasoned Ginnie Mae MSR portfolio – Loans with above - market average note rates – low mortgage rate environment results in re
Slide 21: Financial Results
Financial Results (PennyMac: Mortgage Investment Trust
Slide 22: Pretax Income (Loss) by Operating Segment
22 Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding • First quarter net income included a tax benefit of $11.3 million – Benefit related to a loss in the taxable REIT subsidiary 1Q15 Earnings Report Investment Correspondent Total Pretax ($ in millions) Acti
Slide 23: 1Q15 Investment Activities Segment Results
Quarter Ended ($ in thousands) March 31, 2015 December 31, 2014 Revenues: Net gain on investments: Mortgage loans at fair value 17,186$ 20,676$ Mortgage loans held by variable interest entity net of asset-backed secured financing (6,642) (5,370) Mortgage-backed securities (850) 3,394 Excess spread i
Slide 24: Investment Gains and Cash Flows from the Distressed Loan Portfolio
($ in thousands) Quarter ended March 31, 2015 Gain on Proceeds liquidation (2) Mortgage loans 44,943$ 5,807$ 2,042$ Performing loan sale 939 (186) (284) REO 65,976 962 5,568 111,858$ 6,583$ 7,326$ Accumulated gains (1) ($ in thousands) March 31, 2015 December 31, 2014 Valuation Changes: Performing l
Slide 25: Valuation of MSRs and Excess Servicing Spread (ESS)
At 3/31/15 Under lower of amortized cost or fair value Under fair value Fair value Pool UPB $29,156 $6,001 $33,142 Pool weighted average coupon 3.81% 4.78% 4.11% Pool prepayment speed assumption (CPR) 8.9% 13.5% 11.6% Weighted average servicing fee/spread 0.26% 0.25% 0.16% Fair value $327.7 $49.4 $2
Slide 26: 1Q15 Correspondent Production Segment Results
26 1Q15 Correspondent Production Segment Results • Segment revenue totaled $18.8 million, a 32% increase from 4Q14 – Net gain on mortgage loans increased 71% Q/Q: o Higher margins driven by industry capacity constraints o Conventional conforming and jumbo lock volumes increased 16% Q/Q • Expenses in
Slide 27: Appendix
Appendix (PennyMac: Mortgage Investment Trust
Slide 28: PMT Dividends and Book Value Over Time
$0.83 $0.90 $0.86 $0.57 $0.69 $0.50 $0.93 $0.69 $0.34 $0.09 $0.57 $0.57 $0.57 $0.57 $0.59 $0.59 $0.59 $0.61 $0.61 $0.61 $20.68 $17.00 $18.00 $19.00 $20.00 $21.00 $22.00 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Diluted EPS (left axis) Dividend (left axis)
Slide 29: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 29 Why Are MSR Sales Occurring? How Do MSRs Come to Market? • Large servicers are selling MSRs due to continuing operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re - focus on core customers/bus
Slide 30: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI 30 (1) The contractual servicer and MSR owner is PennyMac Loan Services, LLC, an indirect subsidiary of PennyMac Financial Services, Inc. (2) Subject and subordinate to Agency rights (under the related servicer guide); does not chang
Slide 31: Management of PMT's Interest Rate Risk
- 3% - 2% - 1% 0% 1% 2% 3% - 100 - 75 - 50 - 25 0 25 50 75 100 "Long" Assets MSRs/ESS and Hedges Net Exposure (2) • PMT’s interest rate risk exposure is managed on a “global” basis – Disciplined hedging – Multiple mortgage - related investment strategies with complementary interest rate sensitivitie
Slide 32: Fundings and Locks by Product
($ in millions) 1Q14 2Q14 3Q14 4Q14 1Q15 Fundings Conventional 1,907$ 2,911$ 3,509$ 2,772$ 2,831$ Government 2,913 3,991 4,378 4,389 5,106 Jumbo 13 81 169 116 59 Total 4,833$ 6,983$ 8,056$ 7,276$ 7,996$ Locks Conventional 2,163$ 3,393$ 3,554$ 2,844$ 3,433$ Government 3,282 4,398 4,621 4,473 6,010 Ju
Slide 33: Distressed Portfolio by Acquisition Period
Purchase 1Q15 Purchase 1Q15 Purchase 1Q15 Purchase 1Q15 Balance ($mm) 182.7$ 38.4 Balance ($mm) 195.5$ 30.8 Balance ($mm) 146.2$ 21.9 Balance ($mm) 277.8$ 57.5 Pool Factor (1) 1.00 0.21 Pool Factor (1) 1.00 0.16 Pool Factor (1) 1.00 0.15 Pool Factor (1) 1.00 0.21 Current 6.2% 26.9% Current 5.1% 27.4
Slide 34: Distressed Portfolio by Acquisition Period (cont.)
Distressed Portfolio by Acquisition Period (cont.) 34 (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 1Q15 Earnings Report Purchase 1Q15 Purchase 1Q15 Purchase 1Q15 Purchase 1Q15 Balance ($mm) 366.2$ 216.2 Balance ($mm) 397.3$ 295.9 Balance ($mm) 929.5$ 717
Slide 35: Carrying Values for PMT's Distressed Whole Loans
$723 $1,015 $982 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,620 $2,275 $2,321 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 35 Nonperforming Loans (at March 31, 2015) Perform
Slide 36: Net Cash Flows from Existing Investments and Dividends
Net Cash Flows from Existing Investments and Dividends Reconciliation of Non-GAAP Financial Measure 6 Quarter Ei March 31,2015 _Dec31,2014 Sept 30,2014 _June 30,2014 March 31, 2014 ‘Cash flows from investing activities"? S$ (94,348) $ (280,305) $ 195,623 $ 113,261 § (607) ‘Adjustments to remove tems
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