Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q3 2022 Earnings Presentation
28 slides from Pennymac Mortgage Investment Trust's earnings presentation, Oct 27, 2022
Slide 1: 3Q22 Earnings Report
3Q22 EARNINGS REPORT PennyMac Mortgage Investment Trust October 2022
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 Strong performance from PMT’s Interest Rate Sensitive Strategies and income excluding the impacts of market-driven fair value changes offset the impact of continued credit spread widening and a provision for tax expense Fair value of 3Q22 Results Pretax income organically- N
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Have Rapidly Increased ($ in trillions) 7.0% $4.4 $4.1 6.0% 5.0% $2.7 4.0% $2.6 $2.4 $1.9 3.0% $0.7 $0.4 2.0% $1.5 $1.8 $1.7 $1.5 1.0% 0.0% 2020 2021 2022E 2023E (2) (3) Purchase Refinance Average 30-year
Slide 5: Impact of Current Market Environment on PMT's Businesses
IMPACT OF CURRENT MARKET ENVIRONMENT ON PMT’S BUSINESSES Credit Sensitive Interest Rate Sensitive Correspondent Strategies Strategies Production • Realized losses on PMT’s • Volatility of MSR value has • Volumes expected to be lower organically-created CRT declined given significant in future quarte
Slide 6: Capital Deployment Outlook for PMT
CAPITAL DEPLOYMENT OUTLOOK FOR PMT • Equity allocation to PMT’s Credit Sensitive Credit Sensitive Strategies Strategies has decreased due to runoff of lender • While the future of lender risk share remains uncertain, wider risk share investments and fair value declines due credit spreads have create
Slide 7: Run-Rate Return Potential from PMT's Investment Strategies
RUN-RATE RETURN POTENTIAL FROM PMT’S INVESTMENT STRATEGIES Annualized WA Equity • Represents the average annualized return and quarterly earnings ($ in millions, except EPS) Return on Equity (1) Allocated (%) potential PMT expects from its strategies over the next four (ROE) quarters Credit sensitiv
Slide 8: Correspondent Production Highlights
CORRESPONDENT PRODUCTION HIGHLIGHTS Correspondent Production Volume and Mix (UPB in billions) • Correspondent acquisitions in 3Q22 totaled $22.4 billion in UPB, up 7% Q/Q and down 49% Y/Y $44.0 $45.6 ‒ 46% conventional loans; 54% government loans $15.4 ‒ Conventional conforming acquisitions of $10.2
Slide 9: Trends in MSR Investments
TRENDS IN MSR INVESTMENTS MSR Investments ($ in millions) • MSR assets were $3.9 billion as of September 30th, $5,000 $240,000 up from $3.7 billion at June 30th, 2022 $226,808 $4,500 ‒ Driven by fair value increases and newly originated $212,100 $3,941 MSR investments of $178 million resulting from
Slide 10: Trends in PMT's Unique Investments in GSE Credit Risk Transfer
TRENDS IN PMT’S UNIQUE INVESTMENTS IN GSE CREDIT RISK TRANSFER • UPB and fair value of PMT’s organically-created CRT Organically-Created GSE CRT Investments(1) investments declined from June 30th, 2022 due to fair value ($ in millions) Funded investments decreases that resulted from market credit sp
Slide 11: 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) Market-Driven Contribution(1) Value Changes(2) Allocated(3) Equity (ROE)(1) Value Changes(1)(2) Credit sensitive strategies: Organically-created inves
Slide 12: Hedging Approach Central to PMT's Interest Rate Sensitive Investments
HEDGING APPROACH CENTRAL TO PMT’S INTEREST RATE SENSITIVE INVESTMENTS MSR Valuation Changes and Offsets ($ in millions) • PMT seeks to manage interest rate risk exposure on a MSR fair value change before realization of cash flows “global” basis, recognizing interest rate sensitivities across Change
Slide 13: PMT's Flexible and Sophisticated Financing Structures
PMT’S FLEXIBLE AND SOPHISTICATED FINANCING STRUCTURES $555mm Exchangeable Senior Notes $345mm 5.500% due • Low, fixed interest rates March 2026 • More than two years until first maturity of exchangeable senior notes $210mm 5.500% due November 2024 • Provides flexibility and complements asset-backed
Slide 14: PMT Is in Excess of Prospective Regulatory Capital and Liquidity Requirements
PMT IS IN EXCESS OF PROSPECTIVE REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS In August, the Federal Housing Finance Agency (FHFA) released updated eligibility standards for non-bank seller/servicers with a proposed effective date for most requirements of September 30, 2023 • PennyMac Corp. (PMC) is
Slide 15: Appendix
NAPPENDIX
Slide 16: 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 • Significant growth in market share over PMT’s 13-year history driven by operational Production excellence and high service levels • Provides unique ability to
Slide 17: Robust Liquidity Risk Management Discipline
ROBUST LIQUIDITY RISK MANAGEMENT DISCIPLINE $697 million in available liquidity at September 30, 2022(1), significantly in excess of minimum requirements and internally established reserve levels Reserves maintained for: • Financing covenants and other requirements of counterparties, regulators and
Slide 18: 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) $19.95 $0.94 $16.18 $0.78 $0.67 $0.47 $0.47 $0.47 $0.47 $0.47 $0.47 $0.47 $0.47 $0.40 $0.32 $0.01 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 ($0.28) ($0.32) ($0.45) ($0.88) ROE(2): 19% 15%
Slide 19: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 6.70% 10-year Treasury Bond Yield(2) 3.83% 7.0% 5.70% 5.0% 6.5% 3.01% 6.0% 4.0% 5.5% 5.0% 3.0% 4.5% 4.0% 2.0% 3.5% 3.0% 1.0% 2.5% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes (1) Freddie Mac Primary Mortgage M
Slide 20: PMT's Investment Activity by Strategy During the Quarter
PMT’S INVESTMENT ACTIVITY BY STRATEGY DURING THE QUARTER ($ in millions) Long-term Asset carrying Net new Fair value Asset carrying mortgage asset value at 6/30/22 investments(5) changes value at 9/30/22 Organically-Created $ 1,270 $ (61) $ (14) $ 1,195 Investments in GSE CRT(1) Credit Investment in
Slide 21: MSR Asset Valuation
MSR ASSET VALUATION September 30, 2022 Mortgage Servicing Unaudited ($ in millions) Rights Pool UPB $226,808 Coupon(1) 3.4% (1) Servicing fee 0.28% (1) Prepayment speed assumption (CPR) 6.4% Fair value $3,941 As a multiple of servicing fee 6.13 (1) Weighted average 21
Slide 22: Interest Rate Sensitive Strategies Designed to Mitigate Interest Rate Volatility
INTEREST RATE SENSITIVE STRATEGIES DESIGNED TO MITIGATE INTEREST RATE VOLATILITY Gain in value with Gain in value with Estimated Sensitivity to Changes in Interest Rates at 9/30/22 increasing rates decreasing rates % change in PMT’s shareholders’ equity 15% 10% MSRs Agency MBS 5% 0% -75 -50 -25 0 25
Slide 23: Historical Trends in Delinquencies and Advances
HISTORICAL TRENDS IN DELINQUENCIES AND ADVANCES Historical Trends in Delinquency and Foreclosure Rates(1) 7.0% 5.0% 3.3% 2.6% 1.9% 1.5% 1.3% 1.1% 1.1% 1.1% 1.0% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 30-60 Day 60-90 Day 90+ Day In Foreclosure • Over
Slide 24: Performance of PMT's Organically-Created GSE Credit Risk Transfer Investments in 3Q22
PERFORMANCE OF PMT’S ORGANICALLY-CREATED INVESTMENTS IN GSE CREDIT RISK TRANSFER INVESTMENTS IN 3Q22 (Loss) Income ($ in millions) Comments Contribution Market-driven value changes: Valuation-related changes included in Net gain (loss) on investment $ (14.2) • Reflects impact of credit spread wideni
Slide 25: Balance Sheet Treatment of PMT's Organically-Created Credit Risk Transfer Investments
BALANCE SHEET TREATMENT OF PMT’S ORGANICALLY-CREATED CREDIT RISK TRANSFER INVESTMENTS At September 30, 2022 ($ in thousands) Current outstanding UPB of loans delivered to the CRT SPVs and UPB of loans subject to guarantee obligation............................................ $ 25,265,401 sold to Fa
Slide 26: PMT's Organically-Created Investments in Credit Risk Transfer
PMT’S ORGANICALLY-CREATED INVESTMENTS IN CREDIT RISK TRANSFER (UPB in billions) PMTT1 (May 2015 - July 2015) PMTT2 (August 2015 - February 2016) PMTT3 (February 2016 - August 2016) At inception 9/30/22 At inception 9/30/22 At inception 9/30/22 UPB $ 1.2 $ 0.2 UPB $ 4.2 $ 0.6 UPB $ 6.5 $ 1.1 Loan Cou
Slide 27: Correspondent Production Acquisitions and Locks by Product
CORRESPONDENT PRODUCTION ACQUISITIONS AND LOCKS BY PRODUCT Unaudited ($ in millions) 3Q21 4Q21 1Q22 2Q22 3Q22 Correspondent Acquisitions Conventional Conforming $ 28,605 $ 17,157 $ 9,768 $ 10,320 $ 10,225 (1) Government 15,375 15,651 12,730 10,649 12,161 Jumbo - - 1 3 2 Total $ 43,980 $ 32,808 $ 22,
Slide 28: PennyMac Mortgage Investment Trust
™ PENNYMAC’ MORTGAGE INVESTMENT TRUST 28
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