Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q3 2016 Earnings Presentation
34 slides from Pennymac Mortgage Investment Trust's earnings presentation, Nov 4, 2016
Slide 1: Third Quarter 2016 Earnings Report
PennyMac Mortgage Investment Trust November 3, 2016 Third Quarter 2016 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
3Q16 Earnings Report 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
Slide 3: Third Quarter Highlights
Third Quarter Highlights Net income of $35.4 million on net investment income of $103.3 million Diluted earnings per share of $0.49; return on equity of 10% Dividend of $0.47 per share declared on September 26, 2016 Book value per share increased to $20.21 from $20.09 at June 30, 2016 Results driven
Slide 4: Current Market Environment
Current Market Environment 3Q16 Earnings Report (1) Freddie Mac Primary Mortgage Market Survey. 3.47% as of 10/27/2016 (2) Actual results are from Census Bureau – seasonally adjusted. Forecast estimates are from the Mortgage Bankers Association New Home Sales Despite expectations for higher interest
Slide 5: Transitioning to Correspondent-Related Investments Such as CRT and MSRs
Transitioning to Correspondent-Related Investments Such as CRT and MSRs 3Q 2014 100% = $1.6 billion Current capital deployment is primarily focused on attractive correspondent-related investments – CRT and MSRs 3Q 2016 100% = $1.4 billion PMT’s Equity Allocation(1) (1) Management’s internal allocati
Slide 6: Distressed Loan Portfolio Is Declining Through Liquidation and Sales
Distressed Loan Portfolio Is Declining Through Liquidation and Sales 3Q16 Earnings Report $419 million in UPB bulk sale -38% Y/Y -10% Y/Y Pending sale of $172 million in UPB of performing loans expected to be completed in 4Q16(1) (1) Although definitive documentation has been executed, this transact
Slide 7: Share Repurchase Program Update
Share Repurchase Program Update 3Q16 Earnings Report Repurchased approximately 1 million PMT common shares from August 5th to October 7th; 8.4 million shares since inception $85 million in additional repurchases remain authorized under the $200 million program We continue to evaluate repurchases usi
Slide 8: Third Quarter Income and Return Contributions by Strategy
Third Quarter Income and Return Contributions by Strategy 3Q16 Earnings Report Note: Amounts may not sum exactly due to rounding (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fees) (2) Equity allocated to MSR, ESS and d
Slide 9: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents estimates for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics). Actual results may differ materially. Please refer to slide 2 for important disclosures regarding forward-looking statements.
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: Shift in Distressed Loan Resolutions Toward Modifications
Shift in Distressed Loan Resolutions Toward Modifications Payoffs Foreclosure sales Short sales REO sales Modifications ($ in millions) Resolution Activity (UPB) Total Liquidation Activities 3Q16 Earnings Report Resolution Activity (% of UPB) ($ in millions) $214 $255 $247 $256 Modifications compris
Slide 12: Correspondent Production Volume and Mix
Correspondent Production Volume and Mix Correspondent Production Volumes Increased Significantly in 3Q16 (1) For Government loans, PMT earns a sourcing fee and interest income for its holding period and does not pay a fulfillment fee ($ in billions) UPB (1) (1) 3Q16 Earnings Report $21.6 $13.6 $16.0
Slide 13: CRT Investment Outstanding
3Q16 Earnings Report CRT Investment Outstanding ($ in millions) Total CRT investments grew to $428 million at September 30, 2016 Completed third CRT commitment with Fannie Mae during the quarter with $6.5 billion in UPB Entered into a fourth CRT commitment with Fannie Mae for $7.5 billion in UPB(1)
Slide 14: MSR Investments Grow, Partially Offset by Prepayment Activity
MSR Investments Grow, Partially Offset by Prepayment Activity ($ in millions) Organic MSR investments resulting from correspondent production activity increased to $525 million, from $471 million at June 30, 2016 ESS investments resulting from bulk, mini-bulk and flow MSR acquisitions by PFSI decrea
Slide 15: Financial Results
Financial Results (bnnyMac: Mortgage Investment Trust
Slide 16: Pretax Income (Loss) by Operating Segment
Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 3Q16 Earnings Report Investment Activities Correspondent Production Total Pretax Income 3Q15 $ 34.9 $ 10.2 $ 45.1 4Q15 $ (6.1) $ 13.1 $ 6.9 1Q16 $ 0.1 $ 10.9 $ 11.0 2Q16 $ (24.6) $ 16.4 $ (8.2) 3Q16 $ 13.6 $
Slide 17: Investment Activities Segment Results
Investment Activities Segment Results Segment revenue increased $31.9 million Q/Q Net gain on investments increased $29.8 million Q/Q, primarily driven by: Gains on CRT resulting from credit spread tightening and continued growth in the investment position $10.1 million Q/Q reduction in valuation lo
Slide 18: Net Interest Income Increase Driven by Distressed Loan Modification Activity
Net Interest Income Increase Driven by Distressed Loan Modification Activity Total interest income from Investment Activities was $43.3 million, a 13% Q/Q increase Interest income from the distressed loan portfolio was $29.0 million, a 26% Q/Q increase Capitalized interest on loan modifications of $
Slide 19: Performance of the Distressed Loan Investments
Performance of the Distressed Loan Investments Combining valuation changes with net interest income, revenue from distressed loans was $14.1 million, compared with $(2.5) million in 2Q16 While significantly improved from the prior quarter, the distressed loan portfolio underperformed expectations Lo
Slide 20: Valuation of MSRs and Excess Servicing Spread (ESS)
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 $4.1 million in excess of the carrying val
Slide 21: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
Derivative represents net value of expected future cash inflows related to assumption of credit risk and expected future losses Current cash collateralizing guarantee included in “Deposits securing credit risk transfer agreements” Gains and losses resulting from valuation changes represent fair valu
Slide 22: Correspondent Production Segment Results
Correspondent Production Segment Results Segment revenue totaled $62.1 million, a 62% increase from 2Q16, due to strong conventional conforming lock volume growth Higher net gain on mortgage loans acquired for sale driven by larger volumes and strong margins, including specified loan sales made poss
Slide 23: Appendix
Appendix (bnnyMac: Mortgage Investment Trust
Slide 24: PMT EPS, Dividends and Book Value Over Time
Book value per share(1) PMT EPS, Dividends and Book Value Over Time 14% 7% 7% Return on Equity(2) (1) At period end. (2) Return on average equity during the respective quarter; return on average equity is calculated based on annualized quarterly net income as a percentage of monthly average sharehol
Slide 25: PMT's Mortgage Assets and Leverage Ratio Over Time
Correspondent loan inventory PMT’s Long-Term Investments ■ Credit Risk Transfer (CRT)(1) ■ Retained interests from private-label securitizations ■ MSRs and ESS ■ Agency and non-Agency MBS ■ Distressed whole loans and REO PMT's Mortgage Assets and Leverage Ratio Over Time Leverage ratio(2) 2.6x (1) T
Slide 26: 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 Utilization of financial hedge instruments Also considers recapture benefit on MSRs and ESS and revenue opportunitie
Slide 27: Carrying Values for PMT's Distressed Whole Loans
Nonperforming Loans (at September 30, 2016) Performing Loans (at September 30, 2016) Nonperforming loans are held on average at a 32% discount to current property value – fair value considers costs expected over the liquidation timeline, expected property appreciation and reperformance probability P
Slide 28: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 3Q16 Earnings Report
Slide 29: Distressed Portfolio by Acquisition Period (cont.)
Distressed Portfolio by Acquisition Period (cont.) (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 3Q16 Earnings Report No distressed loan acquisitions since 1Q15
Slide 30: Correspondent Production Fundings and Locks by Product
Correspondent Production Fundings and Locks by Product Note: Figures may not sum exactly due to rounding 3Q16 Earnings Report ($ in millions) 3Q15 4Q15 1Q16 2Q16 3Q16 Fundings Conventional $ 4,055 $ 3,460 $ 3,253 $ 5,171 $ 7,263 Government 10,348 6,558 6,423 9,433 11,657 Jumbo 19 12 7 3 1 Total $ 14
Slide 31: PMT's Investments in GSE Credit Risk Transfer
PMT’s Investments in GSE Credit Risk Transfer 3Q16 Earnings Report (1) FICO and LTV metrics at origination ($ in billions) CRT 2015 -1 (May 2015 - July 2015) CRT 2015 -2 (August 2015 - Feburary 2016) CRT 2016 -1 (Feburary 2016 - August 2016) At inception 42643 At inception 42643 At inception 42643 U
Slide 32: Net Cash Flows from Existing Investments
Net Cash Flows from Existing Investments (1) Quarterly cash flows from investing activities are derived from the Company’s year-to-date statements of cash flows (2) Debt repayment from liquidations calculated based on debt advance rates for each asset type (3) Revenue component of net loan servicing
Slide 33: Opportunity in MSR Acquisitions
Opportunity in MSR Acquisitions 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/businesses Independent mortgag
Slide 34: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI (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 change t
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