Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q2 2020 Earnings Presentation
30 slides from Pennymac Mortgage Investment Trust's earnings presentation, Aug 5, 2020
Slide 1: PennyMac Mortgage Investment Trust Second Quarter 2020 Earnings Report
PennyMac Mortgage Investment Trust Second Quarter 2020 Earnings Report August 6, 2020
Slide 2: Forward-Looking Statements
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 Company’s financial r
Slide 3: Second Quarter Highlights
Second Quarter Highlights • Net income attributable to common shareholders of $458.4 million; diluted earnings per common share of $4.51 – Driven by record Correspondent Production segment results and partial recovery in the fair value of government-sponsored enterprise (GSE) credit risk transfer (C
Slide 4: Economic Developments Affecting Our Business
Economic Developments Affecting Our Business • Challenges in the U.S. economy reflect the impact of COVID-19 as a recent resurgence of the virus weighs on states’ plans to re-open ‒ Re-opening plans, including a return to physical work locations, are now on pause in over 80% of the country and recov
Slide 5: Opportunity in the Mortgage Origination Market
Opportunity in the Mortgage Origination Market U.S. Mortgage Origination Market(1) Average 30-year fixed rate mortgage(2) (UPB in billions) 5.0% $2,957 4.5% $2,325 $2,328 4.0% 3.50% 3.13% 3.5% 3.0% 2.5% Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Jul-15 Jan-16 Jul-16 Jan-17
Slide 6: PMT's Investment Activity by Strategy During the Quarter
PMT’s Investment Activity by Strategy During the Quarter Long-term Asset carrying Net new Fair value Asset carrying ($ in millions) mortgage asset value at 3/31/20 investments (5) changes (6) value at 6/30/20 Credit Risk Credit (1) $ 3,128 $ (451) $ 453 $ 3,130 Transfer Sensitive Strategies Distress
Slide 7: Run-Rate Return Potential from PMT's Investment Strategies
Run-Rate Return Potential from PMT’s Investment Strategies WA Equity • Represents the average annualized Annualized Return ($ in millions, except EPS) on Equity (ROE) Allocated (%) (1) return and quarterly earnings potential PMT expects from its strategies over Credit sensitive strategies: (2) the n
Slide 8: Mortgage Investment Activities
Mortgage Investment Activities
Slide 9: Correspondent Production Highlights
Correspondent Production Highlights • Correspondent acquisitions in 2Q20 totaled $29.9 Correspondent Production Volume and Mix billion in UPB, up slightly from the prior quarter and (UPB in billions) 40% Y/Y $37.7 $34.0 – 63% conventional loans; 37% government loans $29.9 $29.8 – Conventional confor
Slide 10: Trends in PMT's Investments in GSE Credit Risk Transfer (CRT)
Trends in PMT's Investments in GSE Credit Risk Transfer (CRT) • In alignment with the wind down of new investments CRT Investments(1) in CRT, delivered $1.8 billion in UPB of loans in Funded investments ($ in millions) 2Q20 under our sixth transaction with Fannie Mae $3,727 Unfunded commitments • CR
Slide 11: Gains on PMT's CRT Investments Versus CAS/STACR
Gains on PMT’s CRT Investments Versus CAS/STACR • PMT’s CRT investments recorded $453 million in fair value gains in 2Q20 representing a significant recovery of the fair value loss in 1Q20, but gains were lower relative to the more liquid tranches of comparable Connecticut Avenue Securities (CAS) an
Slide 12: Prepayments Allow PMT to Recoup CRT Fair Value Losses
Prepayments Allow PMT to Recoup CRT Fair Value Losses • PMT avoids actual losses and expects to recognize fair value gains on its CRT investments when the underlying loans pay off, since principal is received (or for CRT-6, the commitment amount is reduced) at par • Reporting conventions create a tw
Slide 13: Trends in MSR and ESS Investments
Trends in MSR and ESS Investments MSR and ESS Investments ($ in millions) Carrying value on balance sheet Related UPB $2,000 $200,000 $1,714 $1,600 $179 $160,000 $1,321 $1,346 $1,314 $1,341 $183 $157 $151 $1,200 $194 $120,000 $800 $1,536 $80,000 $1,126 $1,163 $1,157 $1,190 $400 $40,000 $0 $0 6/30/20
Slide 14: Hedging Approach Central to PMT's Interest Rate Sensitive Investments
Hedging Approach Central to PMT’s Interest Rate Sensitive Investments • PMT seeks to manage interest rate risk MSR and ESS Valuation Changes and Offsets exposure on a “global” basis, recognizing ($ in millions) interest rate sensitivities across its investment strategies MSR and ESS fair value chang
Slide 15: Financial Results
Financial Results (PannyMac’ Mortgage Investment Trust
Slide 16: Second Quarter Results and Return Contributions by Strategy
Second Quarter Results and Return Contributions by Strategy Income Excluding Total Income Market-Driven WA Equity Annualized Return ($ in millions) (1) (2) Market-Driven Value (3) (1) Contribution Value Changes (1)(2) Allocated on Equity (ROE) Changes Credit sensitive strategies: GSE credit risk tra
Slide 17: Performance of the GSE Credit Risk Transfer Investments in 2Q20
Performance of the GSE Credit Risk Transfer Investments in 2Q20 (Loss) Income ($ in millions) Comments Contribution Market-driven value changes: Valuation-related changes included $ 410.7 • Reflects a decrease in the market discount rates and improvements in market in Net gain (loss) on investment c
Slide 18: Servicing Trends – Delinquencies & Advances for PMT's MSR Portfolio
Servicing Trends – Delinquencies & Advances for PMT’s MSR Portfolio 30+ Day Delinquency Rate(1) 6.3% 5.0% 5.3% 1.2% 1.1% 1.0% 1.1% Jun-19 Sep-19 Dec-19 Mar-20 Apr-20 Jun-20 Jul-20 • Servicing advances outstanding were $42 million at July 31, versus $34 million at April 30, 2020 ‒ Fannie Mae and Fred
Slide 19: MSR Portfolio Servicing Trends – COVID Forbearances
MSR Portfolio Servicing Trends – COVID Forbearances Forbearance Rate (1) 7.3% 6.1% 3.1% 5.2% 1.1% 0.9% 5.0% 4.2% 4.3% 4/30/2020 6/30/2020 7/31/2020 Delinquent Current • 59% of forbearance plans in effect for PMT’s servicing portfolio as of April 30th have been extended • The percentage of loans in P
Slide 20: Appendix
Appendix (PannyMac’ Mortgage Investment Trust
Slide 21: Historical Earnings, Dividends and Book Value Per Share
Historical Earnings, Dividends and Book Value Per Share $4.51 $1.00 $0.80 $0.71 $19.39 $20.00 $20.24 $0.62 $0.60 $0.55 $0.55 $0.47 $0.47 $0.47 $0.47 $0.47 $0.50 $0.47 $0.47 $0.47 $15.16 $0.40 $0.40 $0.35 $0.25 $15.00 $0.20 $0.00 1Q18 2Q18 3Q18 4Q18 2Q19 3Q19 4Q19 1Q20 2Q20 $10.00 -$0.20 -$0.40 $5.00
Slide 22: Interest Rate Sensitive Strategies Designed to Mitigate Interest Rate Volatility
Interest Rate Sensitive Strategies Designed to Mitigate Interest Rate Volatility Gain in value with Gain in value with Estimated Sensitivity to Changes in Interest Rates increasing rates decreasing rates At 6/30/20 % change in PMT’s shareholders’ equity 10% Instantaneous parallel shock MSRs Agency M
Slide 23: MSRs and ESS Asset Valuation
MSRs and ESS Asset Valuation Unaudited Mortgage Servicing Excess Servicing (1) ($ in millions) Rights Spread At 6/30/20 Pool UPB $145,315 $18,198 Pool weighted average coupon 4.03% 4.19% Weighted-average pool prepayment 17.2% 12.1% speed assumption (CPR) Weighted average servicing fee/spread 0.28% 0
Slide 24: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT’s Excess Servicing Spread Investments in Partnership with PFSI • PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to Ginnie Mae MSRs • PMT acquires the right to receive the excess servicing spread cash flows over the life of the underlying loan
Slide 25: Return on Equity Contribution of the GSE Credit Risk Transfer Investments
Return on Equity Contribution of the GSE Credit Risk Transfer Investments Annualized Return on Average CRT Equity 294.8% 67.6% 54.5% 38.6% 34.3% 38.5% 31.5% 29.4% 20.9% 21.8% 19.6% 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 -477.4% Average CRT equity(1) $271 $333 $403 $452 $490 $446
Slide 26: Expected Return Scenarios for PMT's CRT Investments
Expected Return Scenarios for PMT's CRT Investments PMTT1, PMTT2, L Street Securities L Street Securities CRT-6 ($ in millions) PMTT3 2017-PM1 Trust 2019-PM1 (2) Total CRT (1) (Actual Loss) (Scheduled Loss) (Scheduled Loss) (Actual Loss) Face Amount $292 $711 $664 $1,795 $3,461 Fair Value $271 $652
Slide 27: CRT Term Notes Are Critically Important Financing Structure
CRT Term Notes Are Critically Important Financing Structure PMTT1 L Street Securities L Street Securities Transaction PMTT2 CRT-6(1) 2017-PM1 Trust 2019-PMT1 PMTT3 Status Funded Funded Funded In aggregation UPB(2) ($ in billions) $5.9 $14.1 $12.1 $48.4 Face Amount(2) ($ in millions) $291.6 $710.7 $6
Slide 28: Credit Risk Transfer – Balance Sheet Treatment
Credit Risk Transfer – Balance Sheet Treatment At June 30, ($ in thousands) 2020 Current outstanding UPB of loans delivered to the CRT UPB of loans subject to guarantee obligation.................................... $ 80,532,460 SPVs and sold to Fannie Mae or delivered subject to agreements to purch
Slide 29: PMT's Investments in GSE Credit Risk Transfer
PMT’s Investments in GSE Credit Risk Transfer (UPB in billions) PMTT1 (May 2015 - July 2015) PMTT2 (August 2015 - February 2016) PMTT3 (February 2016 - August 2016) At inception 6/30/2020 At inception 6/30/2020 At inception 6/30/2020 UPB $ 1.2 $ 0.5 UPB $ 4.2 $ 1.8 UPB $ 6.5 $ 3.6 Loan Count 4,113 2
Slide 30: Correspondent Production Acquisitions and Locks by Product
Correspondent Production Acquisitions and Locks by Product (UPB in millions) 2Q19 3Q19 4Q19 1Q20 2Q20 Acquisitions Conventional Conforming $ 10,737 $ 16,644 $ 20,510 $ 16,153 $ 18,900 Government 10,574 14,346 16,653 13,616 10,991 (1) Non-Agency 4 3 - - - Total Correspondent Acquisitions $ 21,315 $ 3
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