Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q1 2017 Earnings Presentation
36 slides from Pennymac Mortgage Investment Trust's earnings presentation, May 5, 2017
Slide 1: First Quarter 2017 Earnings Report
PennyMac Mortgage Investment Trust May 4, 2017 First Quarter 2017 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
1Q17 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: First Quarter Highlights
First Quarter Highlights Net income of $28.7 million on net investment income of $64.5 million Diluted earnings per share of $0.40; return on average common equity of 8% Dividend of $0.47 per share declared on March 27, 2017 Book value per common share decreased to $20.14 from $20.26 at December 31,
Slide 4: First Quarter Highlights (continued)
First Quarter Highlights (continued) Issued 4.6 million of 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares, for gross proceeds of $115 million Net proceeds are being used to fund PMT’s business and investment activities, pay down indebtedness, repurchase outstanding com
Slide 5: Current Market Environment
Average 30-year fixed rate mortgage(1) 4.14% 4.32% Agency MBS CPRs(2) (1) Freddie Mac Primary Mortgage Market Survey. 4.03% as of 4/27/2017 (2) Bloomberg 6 Current Market Environment 1Q17 Earnings Report 5 After rising sharply in the fourth quarter of 2016, mortgage rates declined modestly during th
Slide 6: Transitioning to Correspondent-Related Investments in CRT and MSRs
Transitioning to Correspondent-Related Investments in CRT and MSRs 1Q 2015 100% = $1.54 billion 1Q 2017(2) 100% = $1.46 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 $115 mil
Slide 7: Distressed Loan Portfolio Is Declining Through Liquidation and Sales
Distressed Loan Portfolio Is Declining Through Liquidation and Sales 1Q17 Earnings Report Driven by bulk sale of $419 million in UPB -39% Y/Y Driven by bulk sale of $160 million in UPB -39% Y/Y Driven by bulk sale of $89 million in UPB
Slide 8: First Quarter Income and Return Contributions by Strategy
First Quarter Income and Return Contributions by Strategy 1Q17 Earnings Report Note: Amounts may not sum exactly due to rounding (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fees) (2) Equity allocated to MSR, ESS and d
Slide 9: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents estimates for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics). Actual results may differ materially. Please refer to slide 2 for important disclosures regarding forward-looking statements.
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: Strong REO Sales Drive Resolution Activities in 1Q17
Strong REO Sales Drive Resolution Activities in 1Q17 Payoffs Foreclosure sales Short sales REO sales Modifications ($UPB in millions) Resolution Activity in the Quarter Total Liquidation Activities Resolution Activity Over Time ($UPB in millions) (% by Activity Type) $247 $256 $233 $238 Quarterly re
Slide 12: Distressed Loan Investments – Nonperforming Loans in Select Judicial States
Distressed Loan Investments – Nonperforming Loans in Select Judicial States New York, New Jersey, Florida, Massachusetts and Illinois combined represent over 80% of PMT’s judicial state exposure Over the last 24 months, PMT has reduced the UPB of loans 90+ days delinquent or in foreclosure in these
Slide 13: Correspondent Production Volume and Mix
Correspondent Production Volume and Mix Correspondent Production Highlights (1) For Government loans, PMT earns a sourcing fee and interest income for its holding period and does not pay a fulfillment fee ($ in billions) UPB (1) (1) 1Q17 Earnings Report $14.5 $10.4 $19.2 Correspondent acquisitions b
Slide 14: PMT's Unique Investments in GSE Credit Risk Transfer
1Q17 Earnings Report CRT Investments Outstanding ($ in millions) Total CRT investments grew to $464 million at March 31, 2017 Completed $1.8 billion in UPB of deliveries in the first quarter, which will result in approximately $64 million of new CRT investments once the aggregation period is complet
Slide 15: MSR Investments Continued to Increase in Value
MSR Investments Continued to Increase in Value ($ in millions) Organic MSR investments resulting from correspondent production activity increased to $697 million from $657 million at December 31, 2016 ESS investments resulting from bulk, mini-bulk and flow MSR acquisitions by PennyMac Financial Serv
Slide 16: Financial Results
Financial Results (bnnyMac: Mortgage Investment Trust
Slide 17: Pretax Income (Loss) by Operating Segment
Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 1Q17 Earnings Report Unaudited ($ in millions) Credit Sensitive Strategies Interest Rate Sensitive Strategies Correspondent Production Corporate Total Pretax Income 1Q16 $8.2509999999999994 $2.345000000000000
Slide 18: Credit Sensitive Strategies Segment Results
Credit Sensitive Strategies Segment Results The Credit Sensitive Strategies Segment includes results from distressed loans, CRT, non-Agency subordinated bonds and multifamily commercial real estate investments Segment revenue increased 82% Q/Q to $25.8 million Net gain on investments increased 144%
Slide 19: Performance of the Distressed Mortgage Loan Investments
Performance of the Distressed Mortgage Loan Investments Combining net gains/(losses) with net interest income, revenue from distressed loans was $12.3 million, compared with $13.1 million in 4Q16 Overall, net gains in the distressed mortgage loan portfolio improved versus 4Q16, driven by performance
Slide 20: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
Adjustment to timing of cash flows in the most recent CRT commitment allows more efficient deployment of capital during the aggregation period Derivative represents net value of expected future cash inflows related to assumption of credit risk and expected future losses Current cash collateralizing
Slide 21: Interest Rate Sensitive Strategies Segment Results
Interest Rate Sensitive Strategies Segment Results The Interest Rate Sensitive Strategies Segment includes investments in MSRs, ESS, Agency MBS, non-Agency senior MBS and related interest rate hedges Segment revenue decreased 36% Q/Q to $7.6 million Income from the segment’s assets were largely offs
Slide 22: 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 $35.3 million in excess of the carrying va
Slide 23: Correspondent Production Segment Results
Correspondent Production Segment Results Segment revenue totaled $30.8 million, a 28% decrease from 4Q16, driven by lower lock volumes and margins 1Q17 volume and margins reflect increased competition in a smaller market due to the significant decline in refinancing activity from higher mortgage rat
Slide 24: Corporate Segment Results
Corporate Segment Results The Corporate Segment includes interest income from certain cash and short-term investments, management fees and corporate expenses Segment revenue increased to $326,000 from $201,000 in 4Q16 Interest income increased due to higher cash balances in 1Q17 Total expenses decre
Slide 25: Appendix
Appendix (bnnyMac: Mortgage Investment Trust
Slide 26: PMT EPS, Dividends and Book Value Per Common Share Over Time
Book value per common share(1) PMT EPS, Dividends and Book Value Per Common Share Over Time 2% 10% 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 mont
Slide 27: 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 PMT's Mortgage Assets and Leverage Ratio Over Time Leverage ratio(2) (1) The fair value of CRT investm
Slide 28: 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 29: Distressed Whole Loans: Nonperforming and Performing Loans
Nonperforming Loans (at March 31, 2017) Performing Loans (at March 31, 2017) Nonperforming loans are held on average at a 35% discount to current property value – fair value considers costs expected over the liquidation timeline, expected property appreciation and reperformance probability PMT advan
Slide 30: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 1Q17 Earnings Report
Slide 31: 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 1Q17 Earnings Report
Slide 32: Correspondent Production Fundings and Locks by Product
Correspondent Production Fundings and Locks by Product Note: Figures may not sum exactly due to rounding 1Q17 Earnings Report ($ in millions) 1Q16 2Q16 3Q16 4Q16 1Q17 Fundings Conventional $ 3,253 $ 5,171 $ 7,263 $ 7,492 $ 4,632 Government 6,423 9,433 11,657 12,544 9,280 Jumbo 7 3 1 - - Total $ 9,68
Slide 33: PMT's Investments in GSE Credit Risk Transfer
PMT’s Investments in GSE Credit Risk Transfer 1Q17 Earnings Report (1) FICO and LTV metrics at origination ($ in billions)
Slide 34: 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 35: 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 36: 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
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