Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q2 2015 Earnings Presentation
31 slides from Pennymac Mortgage Investment Trust's earnings presentation, Aug 6, 2015
Slide 1: Second Quarter 2015 Earnings Report
PennyMac Mortgage Investment Trust August 5, 2015 Second Quarter 2015 Earnings Report
Slide 2: Forward-looking statements
2Q15 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: Second Quarter Highlights
3 Second Quarter Highlights • Net income of $28.1 million on net investment income of $69.8 million – Diluted earnings per share of $0.36; return on equity of 7% – Dividend of $ 0.61 per share declared on June 25, 2015 – Book value per share declined to $20.39 at June 30, 2015 • Segment pretax resul
Slide 4: Second Quarter Highlights (cont'd)
4 Second Quarter Highlights (cont'd) • Expanded use of recently completed financing structures, including approximately $240 million in MSR and ESS financing and $138 million in advances from the Federal Home Loan Bank of Des Moines outstanding at quarter end • Continued strong cash flows from PMT’s
Slide 5: Second Quarter Income and Return Contributions by Strategy
5 Second Quarter Income and Return Contributions by Strategy 2Q15 Earnings Report • Distressed performance in line with expectations – see page 20 for details • Valuation gains on MSR and ESS due to higher interest rates, offset by losses in MBS portfolios – Valuation gains moderated by actual prepa
Slide 6: Balance Sheet Has Continued to Grow with New Financing
Correspondent loan inventory and loans delivered into CRT transaction PMT’s L ong - Term Investments Ŷ Retained interests from private - label securitizations Ŷ MSRs and ESS Ŷ Agency and non - Agency RMBS Ŷ Distressed whole loans and REO 6 Balance Sheet Has Continued to Grow with New Financing Lever
Slide 7: Current Market Environment and Outlook
3.0% 3.5% 4.0% 4.5% 5.0% 7 Current Market Environment and Outlook 2Q15 Earnings Report Average 30 - year fixed rate mortgage (1) • Low mortgage rates prevailed through most of 2Q15 before rising in recent weeks – Continued strong refinance activity drove an increase in industry - wide origination vo
Slide 8: Objective of Superior Returns Over the Long Term Through Multiple Strategies
Objective of Superior Returns Over the Long Term Through Multiple Strategies 2Q15 Earnings Report 8 Correspondent Loan Aggregation MSRs and ESS Prime Non - Agency Loans (1) Commercial Real Estate Loans Distressed Residential Whole Loans • PMT’s focus is mortgage - related investments that require sp
Slide 9: Targeted Returns of PMT's Strategies
Targeted Returns of PMT’s Strategies 9 MSRs and ESS Prime Non - Agency Loans (2) Agency and Non - Agency MBS Distressed Residential Whole Loans Correspondent Loan Aggregation GSE Risk Transfers on PMT’s Production Commercial Real Estate Loans 2Q15 Earnings Report Targeted Unlevered Yield Targeted Gr
Slide 10: PMT Creates Attractive Investments Through Its Unique Correspondent Business
GSE Risk Transfer Investments Ongoing MSR Investment Correspondent Production PMT Creates Attractive Investments Through Its Unique Correspondent Business 10 2Q15 Earnings Report • Opportunity to invest in credit risk on loans delivered by PMT to Fannie Mae – designed to capture benefits of PMT’s hi
Slide 11: Credit Risk Transfer Investment in PMT's Correspondent Production
Credit Risk Transfer Investment in PMT’s Correspondent Production 11 2Q15 Earnings Report • Delivered $618 million of loans into PMT’s inaugural CRT transaction with Fannie Mae during 2Q15 (1) ; completed deliveries in July, totaling $1.1 billion • Created class M1 bond totaling $38.5 million, which
Slide 12: Mortgage Investment Activities
Mortgage Investment Activities
Slide 13: PMT's Distressed Whole Loan Investments Deliver Earnings Over Time
$755 $1,089 $1,011 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,491 $2,105 $2,104 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 13 Nonperforming Loans (at June 30, 2015) Perfor
Slide 14: Distressed Loan Performance Driven by Resolution Activity
$16 $19 $8 $10 $23 $39 $112 $108 $158 $176 $58 $64 $129 $93 1Q15 2Q15 1Q15 2Q15 1Q15 2Q15 1Q15 2Q15 1Q15 2Q15 1Q15 2Q15 1Q15 2Q15 2Q15 Earnings Report 14 Distressed Loan Performance Driven by Resolution Activity • UPB of total liquidation activities, which are comprised of payoffs, foreclosure sales
Slide 15: Correspondent Production Volume and Mix
$2.9 $3.5 $2.8 $2.8 $3.6 $4.0 $4.4 $4.4 $5.1 $8.3 $8.1 $8.4 $7.5 $9.5 $14.4 $0 $4 $8 $12 $16 2Q14 3Q14 4Q14 1Q15 2Q15 Govt Jumbo Conventional Conforming Total Locks • Correspondent acquisitions totaled $11.9 billion, up 49% Q/Q – Conventional conforming and jumbo acquisitions were $3.6 billion; lock
Slide 16: Significant Growth in MSR and ESS Investments During the Quarter
Significant Growth in MSR and ESS Investments During the Quarter 16 ($ in millions) • Continued portfolio growth as investments in MSR and ESS reached $754 million, related to underlying loans with a UPB of $82.7 billion, at June 30, 2015 – Organic MSR investments resulting from correspondent produc
Slide 17: Financial Results
Financial Results anny Mac’ eS Invéstment Trust
Slide 18: Pretax Income (Loss) by Operating Segment
18 Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 2Q15 Earnings Report Investment Correspondent Total Pretax ($ in millions) Activities Production Income 2Q14 70.9$ 2.4$ 73.3$ 3Q14 55.1$ 2.8$ 57.9$ 4Q14 11.0$ 0.9$ 11.9$ 1Q15 (8.2)$ 4.4$ (3.8)$ 2Q15 19.9$
Slide 19: Investment Activities Segment Results
19 Investment Activities Segment Results • Segment revenue increased 149% Q/Q: – Net gain on investments increased significantly Q/Q, driven by: o Improved valuation gains on distressed loans o Gains on ESS due to lower projected prepayments and $1.5 million in recapture income o Valuation losses on
Slide 20: Investment Gains and Cash Flows from the Distressed Loan Portfolio
20 Investment Gains and Cash Flows from the Distressed Loan Portfolio • Net gains on distressed loans totaled $30.1 million, an increase from $17.2 million in 1Q15 – Distressed loan valuations benefitted from higher actual home prices versus prior forecasts o Expectation for home price appreciation
Slide 21: Valuation of MSRs and Excess Servicing Spread (ESS)
21 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 $25.5 million in excess of the ca
Slide 22: Correspondent Production Segment Results
($ in thousands) Quarter Ended June 30, 2015 As % of Interest Rate Lock Commitments (1) Quarter Ended March 31, 2015 As % of Interest Rate Lock Commitments (1) Revenues: Net gain on mortgage loans acquired for sale 11,175$ 0.25% 10,160$ 0.29% Net interest income 4,234 0.10% 3,292 0.09% Other income
Slide 23: Appendix
Appendix anny Mac’ eS Invéstment Trust
Slide 24: PMT Dividends and Book Value Over Time
24 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 25: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 25 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 26: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI 26 (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 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 • In a hypothetical 100 bps drop in interest rates, the estimated fair value loss would be less than 1% of s
Slide 28: Fundings and Locks by Product
Fundings and Locks by Product 28 Note: Figures may not sum exactly due to rounding 2Q15 Earnings Report ($ in millions) 2Q14 3Q14 4Q14 1Q15 2Q15 Fundings Conventional 2,911$ 3,509$ 2,772$ 2,831$ 3,553$ Government 3,991 4,378 4,389 5,106 8,316 Jumbo 81 169 116 59 26 Total 6,983$ 8,056$ 7,276$ 7,996$
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 2Q15 Earnings Report Purchase 2Q15 Purchase 2Q15 Purchase 2Q15 Purchase 2Q15 Balance ($mm) 182.7$ 36.5 Balance ($mm) 195.5$ 30.0 Balance ($mm) 146.2$ 20.6 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 2Q15 Earnings Report Purchase 2Q15 Purchase 2Q15 Purchase 2Q15 Purchase 2Q15 Balance ($mm) 366.2$ 205.6 Balance ($mm) 397.3$ 283.3 Balance ($mm) 929.5$ 671
Slide 31: (1,653) 241,981 271,587 - 26,737 Purchase of excess servicing spread 140,875 46,412 13,246 9,253
(1,653) 241,981 271,587 - 26,737 Purchase of excess servicing spread 140,875 46,412 13,246 9,253 52,867 Purchase of real estate acquired in settlement of loans - - - - - Settlements of derivative financial instruments (2,912) 13,466 2,557 (1,906) 9,526 Margin deposits and restricted cash 20,211 15,7
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