Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q2 2016 Earnings Presentation
34 slides from Pennymac Mortgage Investment Trust's earnings presentation, Aug 4, 2016
Slide 1: Second Quarter 2016 Earnings Report
PennyMac Mortgage Investment Trust August 3, 2016 Second Quarter 2016 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
2Q16 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: Second Quarter Highlights
Second Quarter Highlights Net loss of $5.3 million on net investment income of $47.6 million Diluted loss per share of $0.08; return on equity of (1)% Dividend of $0.47 per share declared on June 28, 2016 Book value per share decreased to $20.09 at June 30, 2016 Underperformance of distressed loan i
Slide 4: Current Market Environment and Outlook
Average 30-year fixed rate mortgage(1) Current Market Environment and Outlook 2Q16 Earnings Report 3.59% 3.48% Home Sales, Seasonally Adjusted Annual Pace (Units in millions) (3) (4) 6.2 5.5 Uncertainty from the U.K.’s vote to exit the European Union resulted in a flight to quality, driving U.S. Tre
Slide 5: Transitioning to Correspondent-Related Investments Such as CRT and MSRs
Transitioning to Correspondent-Related Investments Such as CRT and MSRs 2Q 2014 100% = $1.6 billion 2Q16 Earnings Report Current capital deployment is primarily focused on attractive correspondent-related investments – CRT and MSRs 2Q 2016 100% = $1.4 billion PMT’s Equity Allocation(1) (1) Managemen
Slide 6: Distressed Loan Portfolio Is Declining Through Liquidation and Sales
Distressed Loan Portfolio Is Declining Through Liquidation and Sales 2Q16 Earnings Report Bulk sale of performing loans completed -38% Y/Y -14% Y/Y
Slide 7: Share Repurchase Program Update
Share Repurchase Program Update 2Q16 Earnings Report Repurchased 1.2 million PMT common shares from April 5th to July 5th; 7.5 million shares since inception $100 million in additional repurchases remain authorized under the $200 million program We continue to evaluate repurchases using available ca
Slide 8: Second Quarter Income and Return Contributions by Strategy
Second Quarter Income and Return Contributions by Strategy Amounts may not total due to rounding (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fees) (2) Equity allocated to MSR, ESS and distressed loan strategies includ
Slide 9: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents examples for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics). Actual results may differ materially. Please refer to slide 2 for important disclosures regarding forward-looking statements. M
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: Strong Resolution Activity on Distressed Loan Investments
Strong Resolution Activity on Distressed Loan Investments Payoffs Foreclosure sales Short sales REO sales Modifications ($ in millions) Resolution Activity (UPB) Total Liquidation Activities 2Q16 Earnings Report Resolution Activity (% of UPB) ($ in millions) $239 $210 $250 $241 $244 Increase in REO
Slide 12: Correspondent Production Volumes Increased Significantly in 2Q16
Correspondent acquisitions totaled $14.6 billion, up 51% Q/Q PennyMac was the second largest aggregator in 2Q16, after Wells Fargo(1) Conventional conforming and jumbo acquisitions were $5.2 billion, up 59% Q/Q Total lock volume of $16.0 billion up 54% Q/Q 2Q16 acquisitions were 23% higher than 2Q15
Slide 13: PMT's Unique Investments in GSE Credit Risk Transfer
2Q16 Earnings Report CRT Investment Outstanding ($ in millions) Total CRT investments have grown to $339 million at June 30, 2016 71% of PMT’s 2Q16 conventional conforming production is being delivered into CRT transactions Approximately $3 billion in UPB remaining at June 30th under current CRT com
Slide 14: MSR Investments Grow, Partially Offset by Higher Prepayments
MSR Investments Grow, Partially Offset by Higher Prepayments ($ in millions) Organic MSR investments resulting from correspondent production activity were $471 million, an increase from $455 million at March 31, 2016 Reflects strong correspondent production volumes that resulted in MSR investment gr
Slide 15: Financial Results
Financial Results nnyMac’ Mortgage Investment Trust.
Slide 16: Pretax Income (Loss) by Operating Segment
Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 2Q16 Earnings Report Investment Correspondent Total Pretax ($ in millions) Activities Production Income 2Q15 $19.866 $5.22 $25.088000000000001 3Q15 $34.915999999999997 $10.199999999999999 $45.1 4Q15 $-6.1 $13
Slide 17: Investment Activities Segment Results
Investment Activities Segment Results Segment revenue decreased $17.0 million Q/Q: Net loss on investments increased $11.6 million Q/Q, driven by: Valuation losses on distressed loan portfolio (see slide 19) ESS fair value loss of $15.8 million, partially offset by net MBS portfolio valuation gains
Slide 18: Net Interest Income Declined Partly Due to Sale of Performing Loans and ESS
Net Interest Income Declined Partly Due to Sale of Performing Loans and ESS Total interest income from Investment Activities was $38.4 million, a 15% Q/Q decrease Primarily driven by the sale of $419 million in UPB of performing loans from the distressed portfolio and a decrease in capitalized inter
Slide 19: Investment (Losses) Gains and Cash Flows from the Distressed Loan Portfolio
Investment (Losses) Gains and Cash Flows from the Distressed Loan Portfolio Net losses on distressed loans totaled $13.5 million, compared to gains of $14.4 million in 1Q16 Distressed loan portfolio underperformed expectations by approximately $30 million Majority related to the extension of resolut
Slide 20: 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 $3.6 million in excess of the carrying val
Slide 21: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
Gains and losses resulting from valuation changes represent mark-to-market valuations Payments made to Fannie Mae, from pledged cash, for losses on loans underlying the CRT agreements Cash income or loss to PMT from the SPVs Total UPB of loans delivered to the CRT Special Purpose Vehicles (“SPVs”) a
Slide 22: Correspondent Production Segment Results
Correspondent Production Segment Results Segment revenue totaled $38.2 million, a 48% increase from 1Q16, driven by strong conventional conforming lock volumes Gain on mortgage loans increase driven by higher volumes and strong margins, reflecting limited industry capacity Net interest income growth
Slide 23: Appendix
Appendix nnyMac’ Mortgage Investment Trust.
Slide 24: PMT EPS, Dividends and Book Value Over Time
Book value per share(1) PMT EPS, Dividends and Book Value Over Time 19% 14% 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 shar
Slide 25: PMT's Mortgage Assets and Leverage Ratio Over Time
Correspondent loan inventory(3) PMT’s Long-Term Investments ■ Credit Risk Transfer (CRT) ■ 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) 2.9x 2.6x
Slide 26: 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 Also employ financial hedge instruments Management of PMT’s Interest Rate Risk(1) Estimated Sensitivity to Changes i
Slide 27: Carrying Values for PMT's Distressed Whole Loans
Nonperforming Loans (at June 30, 2016) Performing Loans (at June 30, 2016) Nonperforming loans are held on average at an approximate 30% discount to current property value – discount net of expected costs earned over expected liquidation timeline, plus additional value from property appreciation and
Slide 28: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 2Q16 Earnings Report
Slide 29: 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 2Q16 Earnings Report No distressed loan acquisitions since 1Q15
Slide 30: Correspondent Production Fundings and Locks by Product
Correspondent Production Fundings and Locks by Product Note: Figures may not sum exactly due to rounding 2Q16 Earnings Report ($ in millions) 2Q15 3Q15 4Q15 1Q16 2Q16 Fundings Conventional $ 3,553 $ 4,055 $ 3,460 $ 3,253 $ 5,171 Government 8,316 10,348 6,558 6,423 9,433 Jumbo 26 19 12 7 3 Total $ 11
Slide 31: PMT's Investments in GSE Credit Risk Transfer
PMT’s Investments in GSE Credit Risk Transfer 2Q16 Earnings Report (1) FICO and LTV metrics at origination CRT 2015 -1 (May 2015 - July 2015) CRT 2015 -2 (August 2015 - Feburary 2016) At inception 42551 At inception 42551 UPB in Millions $1,153.991303 $1,057.11973302 UPB in Millions $4,250.197527999
Slide 32: 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 33: 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 34: 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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