Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q3 2021 Earnings Presentation
31 slides from Pennymac Mortgage Investment Trust's earnings presentation, Nov 4, 2021
Slide 1: 3Q21 Earnings Report
PENNYMAC MORTGAGE INVESTMENT TRUST 3Q21 EARNINGS REPORT November 2021
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: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS • Net loss attributable to common shareholders of $43.9 million; diluted earnings per common share of $(0.45) • Segment pretax results: Credit Sensitive Strategies: $60.7 million; Interest Rate Sensitive Strategies: $(116.8) million; Correspondent Production: $27.8 million;
Slide 4: PMT Is Focused on Unique Investment Strategies in Three Segments
PMT IS FOCUSED ON UNIQUE INVESTMENT STRATEGIES IN THREE SEGMENTS • Leading producer of conventional conforming mortgage loans Correspondent • Consistent gains in market share over PMT’s 12-year history driven by operational Production excellence and high service levels • Provides unique ability to p
Slide 5: PMT Is Well-Positioned for a Changing Mortgage Market
PMT IS WELL-POSITIONED FOR A CHANGING MORTGAGE MARKET PMT is uniquely positioned to capitalize on current and evolving investment environments over the long-term given its scale and importance in the home ownership landscape ROBUST CONVENTIONAL ORGANIC ASSET STRONG MANAGEMENT ORIGINATION MARKET CREA
Slide 6: Origination Market Remains Historically Large
ORIGINATION MARKET REMAINS HISTORICALLY LARGE U.S. Mortgage Origination Market(1) Mortgage Rates Remain Historically Low ($ in trillions) 5.0% $4.1 $4.2 4.0% $3.0 $2.4 3.0% $2.3 $2.6 $1.1 $1.1 2.0% $1.8 $2.0 1.0% $1.3 $1.5 0.0% 2019 2020 2021E 2022E (2) (3) Purchase Refinance Average 30-year fixed r
Slide 7: Impacts of Recent FHFA Announcements
IMPACTS OF RECENT FHFA ANNOUNCEMENTS PMT’s business model is unique with organic investment creation positioning it for attractive long-term returns; competitive environment expected to impact near-term results Issued a notice of Suspended the GSEs’ Suspended the $1.5 Suspended the GSEs’ proposed ru
Slide 8: Successful Capital Deployment into Attractive New Investments
SUCCESSFUL CAPITAL DEPLOYMENT INTO ATTRACTIVE NEW INVESTMENTS Net new investments (in millions) $353 $356 Year-to-date, $925 million of net new investments in MSRs and $216 private label securitizations… 1Q21 2Q21 3Q21 Net runoff of CRT assets (in millions) $408 …more than offset $836 million in $29
Slide 9: Run-Rate Return Potential from PMT's Investment Strategies
RUN-RATE RETURN POTENTIAL FROM PMT’S INVESTMENT STRATEGIES Annualized Return WA Equity • Represents the average annualized return and quarterly (1) ($ in millions, except EPS) on Equity (ROE) Allocated (%) earnings potential PMT expects from its strategies over the next four quarters Credit sensitiv
Slide 10: Mortgage Investment Activities
MORTGAGE INVESTMENT ACTIVITIES
Slide 11: Correspondent Production Highlights
CORRESPONDENT PRODUCTION HIGHLIGHTS • Correspondent acquisitions in 3Q21 totaled $44.0 billion in Correspondent Production Volume and Mix UPB, down 6% Q/Q and down 1% Y/Y (UPB in billions) ‒ 65% conventional loans; 35% government loans $54.5 $46.0 $45.6 $44.3 $46.7 $44.0 ‒ Conventional conforming ac
Slide 12: Trends in MSR Investments
TRENDS IN MSR INVESTMENTS MSR Investments ($ in millions) • MSR assets were $2.8 billion as of September $3,200 $240,000 30th, up from $2.6 billion at June 30th, 2021 $2,826 $2,800 $210,000 ‒ Driven by newly originated MSR investments $2,551 $2,441 of $425 million resulting from strong $2,400 $180,0
Slide 13: Hedging Approach Central to Interest Rate Sensitive Investments
HEDGING APPROACH CENTRAL TO PMT’S INTEREST RATE SENSITIVE INVESTMENTS MSR and ESS Valuation Changes and Offsets ($ in millions) • PMT seeks to manage interest rate risk exposure on a “global” MSR and ESS fair value change before realization of cash flows basis, recognizing interest rate sensitivitie
Slide 14: Trends in PMT's Investments in GSE Credit Risk Transfer
TRENDS IN PMT'S INVESTMENTS IN GSE CREDIT RISK TRANSFER (CRT) • UPB and fair value of CRT investments declined Q/Q CRT Investments(1) as overall prepayment activity remains elevated ($ in millions) Funded investments • 60+ day delinquency rate declined Q/Q as the Unfunded commitments overall number
Slide 15: Performance Update and Loss Mitigation Activity Related to CRT Investments
PERFORMANCE UPDATE AND LOSS MITIGATION ACTIVITY RELATED TO PMT’S CRT INVESTMENTS Face Fair % of total (Discount)/ Losses-to- PMTT1-3: As of September 30, 2021 amount value premium date fair value If all presently delinquent loans proceeded unmitigated to 180 days or more (in millions) (in millions)
Slide 16: Financial Results
(knnyMac: Mortgage Investment Trust FINANCIAL RESULTS »»>
Slide 17: Third Quarter Results and Return Contributions by Strategy
THIRD QUARTER RESULTS AND RETURN CONTRIBUTIONS BY STRATEGY Income Excluding Total Income Market-Driven WA Equity Annualized Return on ($ in millions) (1) (2) Market-Driven (3) Contribution Value Changes Allocated Equity (ROE)(1) Value Changes(1)(2) Credit sensitive strategies: GSE credit risk transf
Slide 18: Performance of the GSE Credit Risk Transfer Investments in 3Q21
PERFORMANCE OF THE GSE CREDIT RISK TRANSFER INVESTMENTS IN 3Q21 (Loss) Income ($ in millions) Comments Contribution Market-driven value changes: Valuation-related changes included • Reflects impact of credit spread tightening and elevated prepayment $ 26.4 speeds in Net gain (loss) on investment Inc
Slide 19: Appendix
(knnyMac: Mortgage Investment Trust APPENDIX »»>
Slide 20: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 10-year Treasury Bond Yield(2) 5.0% 4.5% 4.0% 3.02% 1.49% 4.0% 1.47% 3.01% 3.0% 3.5% 2.0% 3.0% 2.5% 1.0% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 (1) Freddie Mac Pr
Slide 21: Historical Earnings, Dividends and Book Value per Share
HISTORICAL EARNINGS, DIVIDENDS AND BOOK VALUE PER SHARE Diluted EPS Common Dividend Book value per share (1) $21.14 $4.51 $19.79 $0.94 $0.71 $0.78 $15.16 $0.67 $0.47 $0.55 $0.47 $0.47 $0.47 $0.47 $0.47 $0.40 $0.40 $0.25 $0.32 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 -$0.45 -$5.99 ROE(2): 14% 10%
Slide 22: PMT's Investment Activity by Strategy During the Quarter
PMT’S INVESTMENT ACTIVITY BY STRATEGY DURING THE QUARTER ($ in millions) Long-term Asset carrying Net new Fair value Asset carrying mortgage asset value at 6/30/21 (5) changes value at 9/30/21 investments Credit Risk $ 2,210 $ (293) $ 26 $ 1,943 Transfer(1) Credit Investment in Sensitive Investor Lo
Slide 23: 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 at 9/30/21 increasing rates decreasing rates % change in PMT’s shareholders’ equity 10% Principal component analysis based 8% shoc
Slide 24: Servicing Trends – Delinquencies & Advances for PMT's MSR Portfolio
SERVICING TRENDS – DELINQUENCIES & ADVANCES FOR PMT’S MSR PORTFOLIO 30+ Day Delinquency Rate and Forbearance Trend(1) • In PMT’s conventional MSR portfolio, approximately 59,000 6.3% borrowers have been enrolled in a forbearance plan 6.1% 4.7% related to COVID-19 3.5% 3.9% 3.2% ‒ Through September 3
Slide 25: MSR Asset Valuation
MSR ASSET VALUATION September 30, 2021 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB $212,102 (1) Coupon 3.3% Servicing fee(1) 0.28% Prepayment speed assumption (CPR)(1) 9.8% Fair value $2,826 As a multiple of servicing fee 4.84 (1) Weighted average 25
Slide 26: Return on Equity Contribution of the GSE Credit Risk Transfer Investments
RETURN ON EQUITY CONTRIBUTION OF THE GSE CREDIT RISK TRANSFER INVESTMENTS Annualized Return on Average CRT Equity 294.8% 89.3% 85.9% 54.5% 57.8% 44.9% 34.3% 31.5% 38.5% 29.4% 28.9% 19.6% 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 -477.4% Average CRT Equity(1) ($ in millions) $8
Slide 27: Credit Risk Transfer – Balance Sheet Treatment
CREDIT RISK TRANSFER – BALANCE SHEET TREATMENT At September 30, ($ in thousands) 2021 Current outstanding UPB of loans delivered to the CRT SPVs and UPB of loans subject to guarantee obligation........................................ $ 35,371,965 sold to Fannie Mae or delivered subject to agreements
Slide 28: CRT Financing Summary
CRT FINANCING SUMMARY L Street Securities L Street Securities L Street Securities Transaction PMTT1, PMTT2 & PMTT3 2017-PM1 Trust 2019-PMT1 Trust 2020-PMT1 as of September 30, 2021 Status Funded Funded Funded Funded UPB ($ in billions) $2.6 $5.9 $4.6 $22.3 Face Amount ($ in millions) $131.6 $332.4 $
Slide 29: Assessment of Loss Varies by Transaction for PMT's CRT Investments
ASSESSMENT OF LOSS VARIES BY TRANSACTION FOR PMT’S CRT INVESTMENTS PMT CRT Recourse Event / Loss Calculation Loans in Forbearance Transactions PMTT1, Mortgage Obligations become credit events at 180 days or more PMTT2 & delinquent regardless of any grant of forbearance PMTT3 Losses assesed pursuant
Slide 30: 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 9/30/21 At inception 9/30/21 At inception 9/30/21 UPB $ 1.2 $ 0.2 UPB $ 4.2 $ 0.8 UPB $ 6.5 $ 1.5 Loan Count 4,113 1,033 L
Slide 31: Correspondent Production Acquisitions and Locks by Product
CORRESPONDENT PRODUCTION ACQUISITIONS AND LOCKS BY PRODUCT Unaudited ($ in millions) 3Q20 4Q20 1Q21 2Q21 3Q21 Correspondent Acquisitions Conventional Conforming $ 27,351 $ 37,986 $ 33,762 $ 30,479 $ 28,605 Government(1) 16,977 18,923 17,440 16,175 15,375 Total $ 44,328 $ 56,908 $ 51,202 $ 46,654 $ 4
PennyMac Mortgage Investment Trust — Q3 2021 Earnings Presentation on 6ix