Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q1 2016 Earnings Presentation
35 slides from Pennymac Mortgage Investment Trust's earnings presentation, May 6, 2016
Slide 1: First Quarter 2016 Earnings Report
PennyMac Mortgage Investment Trust May 5, 2016 First Quarter 2016 Earnings Report
Slide 2: Forward-looking statements
1Q16 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 $14.5 million on net investment income of $52.2 million – Diluted earnings per share of $0.20; return on equity of 4% – Dividend of $0.47 per share declared on March 28, 2016 – Book value per share increased to $20.59 at March 31, 2016 • Underperformance of
Slide 4: First Quarter Highlights (continued)
4 First Quarter Highlights (continued) • Continued strong cash flows from PMT’s existing investments, including $96.5 million in cash proceeds generated from the liquidation and paydown of mortgage loans and REO • Sold ESS related to Fannie Mae and Freddie Mac MSRs to PennyMac Financial for $59 mill
Slide 5: Current Market Environment and Outlook
3.0% 3.5% 4.0% 4.5% 5.0% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Hundreds Average 30 - year fixed rate mortgage (1) 5 Current Market Environment and Outlook 1Q16 Earnings Report • Widespread volatility across financial markets during the quar
Slide 6: First Quarter Income and Return Contributions by Strategy
6 First Quarter Income and Return Contributions by Strategy (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fe es) (2) MSR, ESS and distressed loan strategies include an allocation of exchangeable senior notes and associa
Slide 7: PMT's Targeted Returns for Correspondent-Related Investments Are Attractive
PMT’s Targeted Returns for Correspondent - Related Investments Are Attractive 7 1Q16 Earnings Report Agency Multifamily Retained Bonds Correspondent Production MSRs & ESS Distressed Residential Whole Loans GSE Credit Risk Transfers (CRT) Prime Non - Agency Loans (2) Agency MBS Targeted Unlevered Yie
Slide 8: Share Repurchase Program Update
8 Share Repurchase Program Update 1Q16 Earnings Report • Repurchased 5 . 3 million PMT common shares year - to - date ( 1 ) ; 6 . 3 million shares since inception • On February 24 th , PMT’s Board of Trustees authorized an increase in its previously announced share repurchase program from $ 150 mill
Slide 9: Sale of performing loans after quarter end
• After quarter end, PMT completed the sale of performing loans totaling $419 million in UPB at a modest premium to our December 31, 2015 carrying value; generated approximately $100 million in net cash proceeds (1) – Sale of these loans demonstrates that a strong market exists for performing loans
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: Strong Resolution Activity on Distressed Loan Investments
11 Strong Resolution Activity on Distressed Loan Investments Payoffs Foreclosure sales Short sales REO sales Modifications ($ in millions) Resolution Activity (UPB) Total Liquidation Activities $21 $11 $7 $6 $14 $10 $109 $101 $151 $127 $99 $115 4Q15 1Q16 4Q15 1Q16 4Q15 1Q16 4Q15 1Q16 4Q15 1Q16 4Q15
Slide 12: Correspondent Production Volume and Mix
Correspondent production sellers Selected Operational Metrics 1Q16 437 4Q15 432 Purchase money loans, as % of total acquisitions 73% 72% • Correspondent acquisitions totaled $9.7 billion, down 3% Q/Q – In line with overall origination market – Purchase - money focused volume impacted by seasonal fac
Slide 13: Credit Risk Transfer Investments
1Q16 Earnings Report 13 ($ in millions) CRT Investments Created (3) $ 95 $ 118 Equity Requirement (4) $ 24 $ 30 Quarterly Conventional Conforming Production Scenario $3.6 bn in UPB $4.5 bn in UPB CRT Investment Outstanding ($ in millions) Capital Required for Ongoing CRT Investments (2) • Total CRT
Slide 14: MSRs and ESS Investments Decreased in 1Q16 Primarily Due to ESS Sale
MSRs and ESS Investments Decreased in 1Q16 Primarily Due to ESS Sale 14 ($ in millions) • Organic MSR investments resulting from correspondent production activity were $455 million, down from $460 million at December 31, 2015 • ESS investments resulting from bulk, mini - bulk and flow MSR acquisitio
Slide 15: Financial Results
Financial Results (PennyMac’ Mortgage Investment Trust
Slide 16: Pretax Income (Loss) by Operating Segment
16 Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding Investment Correspondent Total Pretax ($ in millions) Activities Production Income 1Q15 (8.2)$ 4.4$ (3.8)$ 2Q15 19.9$ 5.2$ 25.1$ 3Q15 34.9$ 10.2$ 45.1$ 4Q15 (6.1)$ 13.1$ 6.9$ 1Q16 0.1$ 10.9$ 11.0$ 1Q16 Ear
Slide 17: Investment Activities Segment Results
17 Investment Activities Segment Results (1) Includes $1.8 million in recapture income (2) Servicing fees include both special servicing for PMT’s distressed portfolio and subservicing for PMT’s mortgage servicing rights of $6.8 million and $4.6 million, respectively in 1Q16. • Segment revenue incre
Slide 18: Interest Income Is a Large Component of Investment Activities Returns
18 Interest Income Is a Large Component of Investment Activities Returns • Total interest income from Investment Activities was $45.3 million, a 4% Q/Q increase • Total interest expense from Investment Activities was $26.9 million, a 1% Q/Q increase • Interest income from the distressed loan portfol
Slide 19: Investment Gains and Cash Flows from the Distressed Loan Portfolio
19 Investment Gains and Cash Flows from the Distressed Loan Portfolio • Net gains on distressed loans totaled $14.4 million, an increase from $2.0 million in 4Q15 – Performing loan valuations positively impacted by sale of $419 million in UPB of reperforming loans – Loan modification activity increa
Slide 20: Valuation of MSRs and Excess Servicing Spread (ESS)
20 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 $11.6 million in excess of the ca
Slide 21: Credit Risk Transfer Agreements Summary
($ in thousands) Since Inception (1) UPB of mortgage loans transferred under CRT Agreements..................... 6,525,620$ Deposits of restricted cash to secure guarantees........................................ 214,152$ Gains (losses) recognized on derivatives related to CRT agreements..... includ
Slide 22: Correspondent Production Segment Results
($ in thousands) Quarter Ended Mar. 31, 2016 As % of Interest Rate Lock Commitments (1) Quarter Ended Dec. 31, 2015 As % of Interest Rate Lock Commitments (1) Revenues: Net gain on mortgage loans acquired for sale 15,049$ 0.39% 15,780$ 0.43% Net interest income 3,904 0.10% 5,228 0.14% Other income 6
Slide 23: Appendix
Appendix (PennyMac’ Mortgage Investment Trust
Slide 24: PMT Dividends and Book Value Over Time
Book value per share (1) 24 PMT Dividends and Book Value Over Time 14% 10% 19% 14% 7% 7% Return on Equity (2) (1) At period end. Book value per share in 4Q13 was reduced by two dividends declared in that quarter. ( 2) Return on average equity during the respective quarter; return on average equity i
Slide 25: PMT's focus on mortgage-related investments
• PMT’s focus is mortgage - related investments that require specialized operational capabilities enabled by our relationship with PennyMac Financial Services (PFSI) • Opportunistic investment in distressed whole loans • Recent capital deployment has favored interest rate and credit sensitive strate
Slide 26: PMT's Mortgage Assets and Leverage Ratio Over Time
$5,279 $6,159 $4,965 $5,128 $4,960 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 1Q15 2Q15 3Q15 4Q15 1Q16 Correspondent loan inventory (3) PMT’s L ong - Term Investments Ŷ Retained interests from private - label securitizations Ŷ MSRs and ESS Ŷ Agency and non - Agency MBS Ŷ Distressed whole lo
Slide 27: 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) 27 Estimated Sensitivit
Slide 28: Nonperforming and Performing Loans
$960 $1,424 $1,229 $0 $500 $1,000 $1,500 $2,000 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,087 $1,579 $1,502 $0 $500 $1,000 $1,500 $2,000 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 28 Nonperforming Loans (at March 31, 2016) Performing Loans (
Slide 29: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period 29 (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 1Q16 Earnings Report Purchase 1Q16 Purchase 1Q16 Purchase 1Q16 Purchase 1Q16 Balance ($mm) 182.7$ 31.6 Balance ($mm) 195.5$ 27.5 Balance ($mm) 146.2$ 19.0 Balance
Slide 30: Distressed Portfolio by Acquisition Period (cont.)
Distressed Portfolio by Acquisition Period (cont.) 30 (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 1Q16 Earnings Report Purchase 1Q16 Purchase 1Q16 Purchase 1Q16 Purchase 1Q16 Balance ($mm) 366.2$ 182.0 Balance ($mm) 397.3$ 249.4 Balance ($mm) 929.5$ 572
Slide 31: Fundings and Locks by Product
Fundings and Locks by Product 31 Note: Figures may not sum exactly due to rounding 1Q16 Earnings Report ($ in millions) 1Q15 2Q15 3Q15 4Q15 1Q16 Fundings Conventional $ 2,831 $ 3,553 $ 4,055 $ 3,460 $ 3,253 Government 5,106 8,316 10,348 6,558 6,423 Jumbo 59 26 19 12 7 Total $ 7,996 $ 11,895 $ 14,421
Slide 32: Net Cash Flows from Existing Investments
Net Cash Flows from Existing Investments 32 (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 se
Slide 33: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 33 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/busine
Slide 34: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI 34 (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 35: Credit Risk Transfer Delinquency Metrics
Credit Risk Transfer Delinquency Metrics 35 1Q16 Earnings Report ($ in billions) CRT 2015 -1 CRT 2015 -2 CRT 2016 -1 Total Origination period............................ 5/15 - 7/15 8/15 - 2/16 2/16 - current 5/15- current Original UPB.................................... 1.2$ 4.2$ 5.0$ 10.4$ Outstan
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