Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q3 2017 Earnings Presentation
35 slides from Pennymac Mortgage Investment Trust's earnings presentation, Nov 3, 2017
Slide 1: Third Quarter 2017 Earnings Report
PennyMac Mortgage Investment Trust November 2, 2017 Third Quarter 2017 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
3Q17 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 attributable to common shareholders of $13.3 million on net investment income of $75.8 million Diluted earnings per common share of $0.20; return on average common equity of 4% Dividend of $0.47 per common share declared on September 27, 2017 Book value per common
Slide 4: Third Quarter Highlights (continued)
Third Quarter Highlights (continued) PMT's equity allocated to distressed mortgage loans declined to 29% of total equity from 42% in 3Q16(1) Completed the previously announced sale of $145 million in UPB of performing loans from the distressed portfolio Cash proceeds from the liquidation and pay dow
Slide 5: Current Market Environment
6 Current Market Environment 5 3Q17 Earnings Report Average 30-year fixed rate mortgage(1) (1) Freddie Mac Primary Mortgage Market Survey. 3.94% as of 10/26/2017 (2) Mortgage Bankers Association Refinance Index – 1,503 at 9/1/2017 and 1,357 at 10/20/2017 (3) Actual results are from Census Bureau – s
Slide 6: Transitioning to Correspondent-Generated Investments in CRT and MSRs
Transitioning to Correspondent-Generated Investments in CRT and MSRs 3Q 2015 100% = $1.51 billion 3Q 2017(2) 100% = $1.61 billion PMT’s Equity Allocation(1) (1) Management’s internal allocation of equity. Amounts as of quarter end. Percentages may not sum exactly due to rounding. (2) Includes $310 m
Slide 7: Distressed Loan Portfolio Is Declining Through Liquidation and Sales
Driven by bulk sale of $160 million in UPB Driven by bulk sale of $89 million in UPB Distressed Loan Portfolio Is Declining Through Liquidation and Sales 3Q17 Earnings Report Entered into an agreement to sell $324 million in UPB of nonperforming and performing loans from the distressed portfolio(5)
Slide 8: Third Quarter Income and Return Contributions by Strategy
Third Quarter Income and Return Contributions by Strategy Note: Amounts may not sum exactly due to rounding (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fees) (2) Equity allocated to MSR, ESS and distressed loan invest
Slide 9: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents estimates for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics). Actual results may differ materially. Please refer to slide 2 for important disclosures regarding forward-looking statements.
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: Resolution Activity in 3Q17 Remained a Consistent Percentage of the Portfolio
Resolution Activity in 3Q17 Remained a Consistent Percentage of the Portfolio Payoffs Foreclosure sales Short sales REO sales Modifications ($UPB in millions) Resolution Activity in the Quarter Total Liquidation Activities Resolution Activity Over Time ($UPB in millions) (% by Activity Type) $223 $2
Slide 12: Correspondent Production Volume and Mix
Correspondent Production Volume and Mix Correspondent Production Highlights (1) For Government loans, PMT earns a sourcing fee and interest income for its holding period and does not pay a fulfillment fee ($ in billions) UPB (1) (1) 3Q17 Earnings Report Correspondent acquisitions by PMT in 3Q17 tota
Slide 13: CRT Investments Outstanding
CRT Investments Outstanding ($ in millions) Completed $4.1 billion in UPB of deliveries during the quarter, which resulted in commitments to fund approximately $144 million of new CRT investments once the aggregation period is complete, $45 million of which had been invested at quarter end Income co
Slide 14: MSR Investments Continued to Grow
MSR Investments Continued to Grow ($ in millions) MSR investments resulting primarily from correspondent production activity increased to $790 million at September 30, 2017, from $735 million at June 30, 2017 Pursuing financing structures that will provide term financing and improve the return on eq
Slide 15: Financial Results
Financial Results (bnnyMac: Mortgage Investment Trust
Slide 16: Pretax Income (Loss) by Operating Segment
Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 3Q17 Earnings Report Unaudited ($ in millions) Credit Sensitive Strategies Interest Rate Sensitive Strategies Correspondent Production Corporate Total Pretax Income 3Q16 $16.614107000000001 $5.631580999999999
Slide 17: Credit Sensitive Strategies Segment Results
Credit Sensitive Strategies Segment Results The Credit Sensitive Strategies Segment includes results from distressed mortgage loans, CRT, non-Agency subordinated bonds and small balance commercial real estate investments Segment revenue decreased 49% Q/Q to $20.5 million Net gain on investments decr
Slide 18: Performance of the Distressed Mortgage Loan Investments
Performance of the Distressed Mortgage Loan Investments Combining net gains/(losses) with net interest income, revenue from distressed loans was $8.2 million, compared with $10.3 million in 2Q17 For 3Q17, positive valuation changes in the performing loan portfolio were partially offset by adverse ch
Slide 19: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
Cash deposited in the SPV in other assets. Represents collateral for the initial credit risk retained Adjustment to timing of cash flows in the most recent CRT commitment allows more efficient deployment of capital during the aggregation period Derivative represents value of expected future cash inf
Slide 20: Interest Rate Sensitive Strategies Segment Results
Interest Rate Sensitive Strategies Segment Results The Interest Rate Sensitive Strategies Segment includes investments in MSRs, ESS, Agency mortgage-backed securities (MBS), non-Agency senior MBS and related interest rate hedges Segment revenue increased 71% Q/Q to $20.7 million Net mortgage loan se
Slide 21: 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) Originated 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 $20.8 million more than its carry
Slide 22: Correspondent Production Segment Results
Correspondent Production Segment Results Segment revenue totaled $34.4 million, a 9% increase from 2Q17, driven by continued strong lock volumes and stable margins The weighted average fulfillment fee rate for the quarter was 36bps, unchanged from 2Q17(2) Total expenses increased 11% Q/Q to $26.1 mi
Slide 23: Corporate Segment Results
Corporate Segment Results The Corporate Segment includes interest income from certain cash and short-term investments, management fees and corporate expenses Segment revenue increased to $182,000 from $155,000 in 2Q17 Total expenses decreased 13% Q/Q to $10.7 million Compensation and professional se
Slide 24: Appendix
Appendix (bnnyMac: Mortgage Investment Trust
Slide 25: PMT EPS, Common Dividends and Book Value Per Common Share Over Time
Book value per common share(1) PMT EPS, Common Dividends and Book Value Per Common Share Over Time 10% 4% Return on Avg. Common Equity(2) (1) At period end. (2) Return on average common equity is calculated based on annualized quarterly net income attributable to common shareholders as a percentage
Slide 26: PMT's Mortgage Assets and Leverage Ratio Over Time
Correspondent loan inventory PMT’s Long-Term Investments ■ CRT(1) ■ Retained interests from private-label securitizations ■ MSRs and ESS ■ Agency and non-Agency MBS ■ Distressed whole loans and REO PMT's Mortgage Assets and Leverage Ratio Over Time Leverage ratio(2) (1) The fair value of CRT investm
Slide 27: Management of PMT's Interest Rate Risk
(2) PMT’s interest rate risk exposure is managed on a “global” basis Disciplined hedging Multiple mortgage-related investment strategies with complementary interest rate sensitivities Utilization of financial hedge instruments Also considers recapture benefit on MSRs and ESS and revenue opportunitie
Slide 28: Carrying Values for PMT's Distressed Whole Loans
Nonperforming Loans (at September 30, 2017) Performing Loans (at September 30, 2017) Nonperforming loans are held on average at a 40% discount to current property value – fair value considers costs expected over the liquidation timeline, expected property appreciation and reperformance probability P
Slide 29: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 3Q17 Earnings Report 1Q10 2Q10 3Q10 4Q10 Purchase 3Q17 Purchase 3Q17 Purchase 3Q17 Purchase 3Q17 Balance ($mm) $182.672582201057 18.62579479 Balance ($mm) $195.496376
Slide 30: Distressed Portfolio by Acquisition Period (cont.)
Distressed Portfolio by Acquisition Period (cont.) (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 3Q17 Earnings Report ` 2Q10 3Q10 4Q10 Purchase 3Q17 Purchase 3Q17 Purchase 3Q17 Purchase 3Q17 Balance ($mm) $182.672582201057 18.62579479 Balance ($mm) $195.4
Slide 31: Correspondent Production Fundings and Locks by Product
Correspondent Production Fundings and Locks by Product Note: Figures may not sum exactly due to rounding 3Q17 Earnings Report ($ in millions) 3Q16 4Q16 1Q17 2Q17 3Q17 Fundings Conventional $7,263 $7,492 $4,632 $5,918.259999999998 $6,530.360000000001 Government 11657 12544 9280 10392.396000000001 108
Slide 32: PMT's Investments in GSE Credit Risk Transfer
PMT’s Investments in GSE Credit Risk Transfer (1) FICO and LTV metrics at origination (UPB in billions) 3Q17 Earnings Report ($ 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 43008 At inception 43008 At
Slide 33: 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 34: 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 35: 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 controlled subsidiary of PFSI (2) Subject and subordinate to Agency rights (under the related servicer guide); does not change the contractual ser
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