Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q3 2015 Earnings Presentation
31 slides from Pennymac Mortgage Investment Trust's earnings presentation, Nov 5, 2015
Slide 1: Third Quarter 2015 Earnings Report
PennyMac Mortgage Investment Trust November 4, 2015 Third Quarter 2015 Earnings Report
Slide 2: Forward-looking statements
3Q15 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: Third Quarter Highlights
3 Third Quarter Highlights • Net income of $38.8 million on net investment income of $90.8 million – Diluted earnings per share of $0.49; return on equity of 10% – Dividend of $ 0.47 per share declared on September 21, 2015 – Book value per share increased to $20.52 at September 30, 2015 • Segment p
Slide 4: PMT's Portfolio Is Transitioning to Newer Mortgage-Related Investments
4 PMT's Portfolio Is Transitioning to Newer Mortgage - Related Investments 1Q 2014 100% = $1.560 billion 3Q15 Earnings Report • Portfolio transitioning to investments such as MSRs, ESS and GSE Credit Risk Transfer as opportunities to invest in distressed loans are diminished 3Q 2015 100% = $1.535 bi
Slide 5: Third Quarter Income and Return Contributions by Strategy
($ in millions) Income Contribution (2)(3) Equity Allocated (4) Annualized Return on Equity (ROE) Distressed loan investments 28.9$ 798$ 14.5% Interest rate sensitive strategies (1) : Correspondent production 11.8$ MSRs (incl. recapture) 12.1$ ESS (incl. recapture) (2.2)$ Agency MBS 3.0$ Non-Agency
Slide 6: Current Market Environment and Outlook
New MBS Issuance by Agency (2) ($ in billions) 6 Current Market Environment and Outlook 3Q15 Earnings Report • Volatility in global markets has led to U.S. interest rates and mortgage rates remaining low • Home price appreciation has moderated, but housing fundamentals appear stable • Agency loans c
Slide 7: Objective of Superior Returns Over the Long Term Through Multiple Strategies
GSE Risk Transfers & Subordinate Bonds (2) Objective of Superior Returns Over the Long Term Through Multiple Strategies 3Q15 Earnings Report 7 Correspondent Loan Aggregation MSRs & ESS Prime Non - Agency Loans (1) Commercial Real Estate Loans Distressed Residential Whole Loans • PMT’s focus is mortg
Slide 8: Targeted Returns of PMT's Strategies
Targeted Returns of PMT’s Strategies 8 MSRs & ESS Prime Non - Agency Loans (2) Agency & Senior Non - Agency MBS Distressed Residential Whole Loans Correspondent Loan Aggregation GSE Risk Transfers & Subordinate Bonds (3) Commercial Real Estate Loans 3Q15 Earnings Report Targeted Unlevered Yield Targ
Slide 9: Continuing to Develop PMT's Investment in GSE Credit Risk Transfer
9 Continuing to Develop PMT's Investment in GSE Credit Risk Transfer • PMT is investing in the credit risk of its correspondent loan production delivered to the GSEs – Partnered with Fannie Mae on a second credit risk transfer transaction (1) – Expected to total $4 billion in UPB with loan deliverie
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: PMT's Distressed Whole Loan Investments Deliver Earnings Over Time
$801 $1,160 $1,050 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,359 $1,947 $1,889 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 11 Nonperforming Loans (at September 30, 2015) P
Slide 12: Distressed Loan Performance Driven by Resolution Activity
3Q15 Earnings Report 12 Distressed Loan Performance Driven by Resolution Activity • UPB of total liquidation activities, which are comprised of payoffs, foreclosure sales to third parties, short sales and real estate owned (REO) sales, decreased 25% from 2Q15 – Increased loans re - performing throug
Slide 13: Correspondent Production Selected Operational Metrics
Correspondent production sellers Selected Operational Metrics 3Q15 400 2Q15 377 Purchase money loans, as % of total acquisitions 64% 77% • Correspondent acquisitions totaled $14.4 billion, up 21% Q/Q – Conventional conforming and jumbo acquisitions were $4.1 billion; locks were $4.1 billion – Total
Slide 14: Significant Growth in MSR and ESS Investments During the Quarter
Significant Growth in MSR and ESS Investments During the Quarter 14 ($ in millions) • Continued portfolio growth as investments in MSR and ESS reached $842 million, related to underlying loans with a UPB of $94.1 billion, at September 30, 2015 – Organic MSR investments resulting from correspondent p
Slide 15: Financial Results
Financial Results (annyMac: Mortgage Investment Trust
Slide 16: Pretax Income (Loss) by Operating Segment
16 Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 3Q15 Earnings Report Investment Correspondent Total Pretax ($ in millions) Activities Production Income 3Q14 55.1$ 2.8$ 57.9$ 4Q14 11.0$ 0.9$ 11.9$ 1Q15 (8.2)$ 4.4$ (3.8)$ 2Q15 19.9$ 5.2$ 25.1$ 3Q15 34.9$
Slide 17: Investment Activities Segment Results
17 Investment Activities Segment Results • Segment revenue increased 28% Q/Q: – Net gain on investments increased 10% Q/Q, driven by: o Continued improvement in valuation gains on distressed loans o Valuation loss on ESS due to higher projected prepayments, partially offset by $2.4 million in recapt
Slide 18: Interest Income Grows as a Component of PMT's Returns
($ in thousands) Net gain (loss) on investments Interest income Net gain (loss) on investments Interest income Net gain (loss) on investments Interest income Short-term investments -$ 115$ -$ -$ -$ 115$ Mortgage-backed securities 3,224 2,614 - - 3,224 2,614 Mortgage loans: At fair value 31,909 24,36
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 $31.9 million, an increase from $30.1 million in 2Q15 – Higher actual home prices versus prior forecasts partially offset by a reduction in future home price appreciation expectations o Home
Slide 20: Valuation of MSRs and Excess Servicing Spread
At 9/30/15 Under lower of amortized cost or fair value Under fair value Fair value Pool UPB $33,834 $6,062 $54,189 Pool weighted average coupon 3.84% 4.77% 4.11% Pool prepayment speed assumption (CPR) 10.5% 14.8% 10.3% Weighted average servicing fee/spread 0.26% 0.25% 0.17% Fair value $386.5 $57.8 $
Slide 21: Correspondent Production Segment Results
($ in thousands) Quarter Ended Sept. 30, 2015 As % of Interest Rate Lock Commitments (1) Quarter Ended June 30, 2015 As % of Interest Rate Lock Commitments (1) Revenues: Net gain on mortgage loans acquired for sale 13,884$ 0.34% 11,175$ 0.25% Net interest income 7,378 0.18% 4,234 0.10% Other income
Slide 22: Appendix
Appendix (annyMac: Mortgage Investment Trust
Slide 23: PMT Dividends and Book Value Over Time
23 PMT Dividends and Book Value Over Time 18% 11% 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 is calculated base
Slide 24: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 24 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 25: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI 25 (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 26: Management of PMT's Interest Rate Risk
-4% -3% -2% -1% 0% 1% 2% 3% 4% 5% -100 -75 -50 -25 0 25 50 75 100 "Long" Assets MSRs/ESS and Hedges Net Exposure (2) • PMT’s interest rate risk exposure is managed on a “global” basis – Disciplined hedging – Multiple mortgage - related investment strategies with complementary interest rate sensitivi
Slide 27: Fundings and Locks by Product
($ in millions) 3Q14 4Q14 1Q15 2Q15 3Q15 Fundings Conventional 3,509$ 2,772$ 2,831$ 3,553$ 4,055$ Government 4,378 4,389 5,106 8,316 10,348 Jumbo 169 116 59 26 19 Total 8,056$ 7,276$ 7,996$ 11,895$ 14,422$ Locks Conventional 3,554$ 2,844$ 3,433$ 4,404$ 4,085$ Government 4,621 4,473 6,010 9,936 9,483
Slide 28: Distressed loan pool performance by purchase
Purchase 3Q15 Purchase 3Q15 Purchase 3Q15 Purchase 3Q15 Balance ($mm) 182.7$ 35.1 Balance ($mm) 195.5$ 29.7 Balance ($mm) 146.2$ 19.4 Balance ($mm) 277.8$ 51.3 Pool Factor (1) 1.00 0.19 Pool Factor (1) 1.00 0.15 Pool Factor (1) 1.00 0.13 Pool Factor (1) 1.00 0.18 Current 6.2% 31.2% Current 5.1% 30.3
Slide 29: Distressed loan pool performance by purchase (continued)
Purchase 3Q15 Purchase 3Q15 Purchase 3Q15 Purchase 3Q15 Balance ($mm) 366.2$ 197.8 Balance ($mm) 397.3$ 273.1 Balance ($mm) 929.5$ 635.8 Balance ($mm) 507.3$ 404.6 Pool Factor (1) 1.00 0.54 Pool Factor (1) 1.00 0.69 Pool Factor (1) 1.00 0.68 Pool Factor (1) 1.00 0.80 Current 1.6% 46.2% Current 4.8%
Slide 30: Cash flows from investing activities reconciliation
($ in thousands) Sept 30, 2015 June 30, 2015 March 31, 2015 Dec 31, 2014 Sept 30, 2014 Cash flows from investing activities (1) (22,526)$ 44,642$ (91,348)$ (280,305)$ 195,523$ Adjustments to remove items: Purchase of mortgage-backed securities at fair value 37,095 - 25,129 112,050 54,284 Purchase of
Slide 31: PMT's Mortgage Assets and Leverage Ratio Over Time
$4,160 $4,358 $5,279 $6,159 $4,965 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 3Q14 4Q14 1Q15 2Q15 3Q15 Correspondent loan inventory (2) 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
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