Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q4 2014 Earnings Presentation
28 slides from Pennymac Mortgage Investment Trust's earnings presentation, Feb 5, 2015
Slide 1: Fourth Quarter 2014 Earnings Report
PennyMac Mortgage Investment Trust February 4, 2015 Fourth Quarter 2014 Earnings Report
Slide 2: Forward-looking statements
4Q14 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: Fourth Quarter Highlights
3 Fourth Quarter Highlights • Net income of $26.5 million on net investment income of $53.1 million – Diluted earnings per share of $0.34; return on equity of 7% – Dividend of $ 0.61 per share declared on December 10, 2014 – Book value per share declined to $21.18 at December 31, 2014 • Segment pret
Slide 4: Current Market Environment and Outlook
4 Current Market Environment and Outlook 4 Q14 Earnings Report 3.66% 3.0% 3.5% 4.0% 4.5% 5.0% Average 30 - year fixed rate mortgage (1) • Interest rates have continued to fall, to the lowest levels in 18 months, driven by global economic weakness • Policymakers continue to promote housing stimulus,
Slide 5: PMT Aims to Deliver Superior Long-Term Returns to Shareholders
PMT Aims to Deliver Superior Long - Term Returns to Shareholders 5 MSRs and ESS Prime Non - Agency Loans Agency and Non - Agency MBS Distressed Residential Whole Loans Correspondent Loan Aggregation • Strategies enabled by our relationship with PFSI, e.g.: – Loan fulfillment for correspondent aggreg
Slide 6: PMT's Investment Portfolio Continues to Grow and Diversify
$3,886 $3,827 $4,402 $4,160 $4,358 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 4Q13 1Q14 2Q14 3Q14 4Q14 6 PMT's Investment Portfolio Continues to Grow and Diversify • More than half of PMT’s investments are distressed whole loans and REO – expected to continue delivering a
Slide 7: Expansion Into Commercial Real Estate Finance Opportunities
4Q14 Earnings Report 7 Expansion Into Commercial Real Estate Finance Opportunities New Commercial Loan Originations Legacy Commercial Whole Loan Acquisitions ▪ Market opportunity for a non - bank specialist focused on lending within the nation’s 50 largest MSAs ▪ Nonperforming and sub - performing l
Slide 8: Mortgage Investment Activities
Mortgage Investment Activities
Slide 9: Opportunistic Distressed Whole Loan Investments
• Two NPL pools; first significant NPL acquisitions by PMT since 1Q14 • Both pools acquired from large banks • Generally have attractive characteristics for PMT’s portfolio strategy, including: – High average property value – Properties located in or close to major cities – Large percentage of borro
Slide 10: Correspondent Production Volume and Mix
$2.4 $1.9 $2.9 $3.5 $2.8 $3.3 $2.9 $4.0 $4.4 $4.4 $6.0 $5.5 $8.1 $8.4 $7.5 $0 $2 $4 $6 $8 $10 4Q13 1Q14 2Q14 3Q14 4Q14 Govt Jumbo Conventional Conforming Total Locks Correspondent Production Volume and Mix 10 Correspondent Business Reflects Competition and Seasonally Lower Volumes (1) For Government
Slide 11: Correspondent Results Reflect Continued Tight Margins
($ in thousands) Quarter Ended Dec 31, 2014 As % of Interest Rate Lock Commitments (1) Revenues: Net gain on mortgage loans acquired for sale 5,945$ 0.20% Net interest income 3,371 0.11% Other income 4,925 0.16% 14,241$ 0.47% Expenses: Loan fulfillment, servicing, and management fees payable to Penn
Slide 12: MSR and ESS Investments Continue to Grow
$429 $452 $506 $533 $549 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $0 $100 $200 $300 $400 $500 $600 4Q13 1Q14 2Q14 3Q14 4Q14 MSR and ESS Investments Continue to Grow 12 ($ in millions) • Continued portfolio growth as investments in MSR and ESS reached $549 million, related to underl
Slide 13: Expected Investments in ESS Related to $21bn of Agency MSR Acquisitions
13 Expected Investments in ESS Related to $21bn of Agency MSR Acquisitions 4 Q14 Earnings Report See slides 22 and 23 in the appendix for additional information. ▪ Seasoned, high - quality Agency loans ▪ Low mortgage rate environment results in refinance recapture opportunities ▪ Co - investment by
Slide 14: Financial Results
Financial Results (PennyMac: Mortgage Investment Trust
Slide 15: Pretax Income by Operating Segment
Investment Correspondent Total Pretax ($ in millions) Activities Lending Income 4Q13 48.4$ 6.3$ 54.7$ 1Q14 33.1$ 3.1$ 36.3$ 2Q14 70.9$ 2.4$ 73.3$ 3Q14 55.1$ 2.8$ 57.9$ 4Q14 11.0$ 0.9$ 11.9$ 15 Pretax Income by Operating Segment Note: Figures may not sum exactly due to rounding 4 Q14 Earnings Report
Slide 16: 4Q14 Investment Activities Segment Results
16 4 Q14 Investment Activities Segment Results • Segment revenue decreased 55% Q/Q: – Net gain on investments decreased 78% Q/Q, driven by: o Lower valuation gains on distressed loans coupled with losses on ESS and retained interests from jumbo securitization – Net interest income increased 18% Q/Q,
Slide 17: Investment Gains and Cash Flows from the Distressed Loan Portfolio
($ in thousands) Quarter ended December 31, 2014 Gain on Proceeds liquidation (2) Mortgage loans 44,130$ 6,349$ 3,191$ REO 59,673 3,732 4,013 103,803$ 10,081$ 7,204$ Accumulated gains (1) ($ in thousands) December 31, 2014 September 30, 2014 Valuation Changes: Performing loans 4,831$ 23,255$ Nonperf
Slide 18: Valuation of MSRs and Excess Servicing Spread
At 12/31/14 Under lower of amortized cost or fair value Under fair value Fair value UPB $28,007 $6,279 $28,227 Weighted average coupon 3.80% 4.78% 4.19% Prepayment speed assumption (CPR) 8.8% 11.4% 11.1% Weighted average servicing fee/spread 0.26% 0.25% 0.16% Fair value $322.2 $57.4 $191.2 As multip
Slide 19: 4Q14 Correspondent Production Segment Results
19 4Q14 Correspondent Production Segment Results • Segment revenue totaled $14.2 million, a 29% decline from 3 Q14 – Net gain on mortgage loans declined 37% Q/Q due to: o Conventional conforming loan market remained highly competitive o Seasonal decline in volume • Expenses declined 23% from 3Q14 :
Slide 20: Appendix
Appendix (PennyMac: Mortgage Investment Trust
Slide 21: PMT Dividends and Book Value Over Time
$0.81 $0.83 $0.90 $0.86 $0.57 $0.69 $0.50 $0.93 $0.69 $0.34 $0.57 $0.57 $0.57 $0.57 $0.57 $0.59 $0.59 $0.59 $0.61 $0.61 $21.18 $18.00 $19.00 $20.00 $21.00 $22.00 $0.00 $0.25 $0.50 $0.75 $1.00 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Diluted EPS (left axis) Dividend (left axis) Book value pe
Slide 22: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 22 Why Are MSR Sales Occurring? How Do MSRs Come to Market? • Large servicers are selling MSRs due to continuing operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re - focus on core customers/bus
Slide 23: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI 23 4 Q14 Earnings Report (1) The contractual servicer and MSR owner is PennyMac Loan Services, LLC, an indirect subsidiary of PennyMac Financial Services, Inc. (2) Subject and subordinate to Agency rights (under the related servicer
Slide 24: Management of PMT's Interest Rate Risk
- 3.0% - 2.0% - 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% - 100 - 75 - 50 - 25 0 25 50 75 100 "Long" Assets MSRs/ESS and Hedges Net Exposure (2) • PMT’s interest rate risk exposure is managed on a “global” basis – Disciplined hedging – Multiple mortgage - related investment strategies with complementary interes
Slide 25: Fundings and Locks by Product
($ in millions) 4Q13 1Q14 2Q14 3Q14 4Q14 Fundings Conventional 2,419$ 1,907$ 2,911$ 3,509$ 2,772$ Government 3,340 2,913 3,991 4,378 4,389 Jumbo 14 13 81 169 116 Total 5,773$ 4,833$ 6,983$ 8,056$ 7,276$ Locks Conventional 2,532$ 2,163$ 3,393$ 3,554$ 2,844$ Government 3,455 3,282 4,398 4,621 4,473 Ju
Slide 26: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period 26 (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 4 Q14 Earnings Report Purchase 4Q14 Purchase 4Q14 Purchase 4Q14 Purchase 4Q14 Balance ($mm) 182.7$ 39.8 Balance ($mm) 195.5$ 32.5 Balance ($mm) 146.2$ 23.6 Balance
Slide 27: Distressed Portfolio by Acquisition Period (continued)
Purchase 4Q14 Purchase 4Q14 Purchase 4Q14 Purchase 4Q14 Balance ($mm) 366.2$ 231.2 Balance ($mm) 397.3$ 312.5 Balance ($mm) 929.5$ 761.5 Balance ($mm) 507.3$ 458.5 Pool Factor (1) 1.00 0.63 Pool Factor (1) 1.00 0.79 Pool Factor (1) 1.00 0.82 Pool Factor (1) 1.00 0.90 Current 1.6% 37.4% Current 4.8%
Slide 28: Carrying Values for PMT's Distressed Whole Loans
$664 $939 $935 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,535 $2,140 $2,247 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 28 Nonperforming Loans ( at December 31, 2014) Perfo
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