Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q4 2015 Earnings Presentation
31 slides from Pennymac Mortgage Investment Trust's earnings presentation, Feb 4, 2016
Slide 1: Fourth Quarter 2015 Earnings Report
PennyMac Mortgage Investment Trust February 3, 2016 Fourth Quarter 2015 Earnings Report
Slide 2: Forward-looking statements
4Q15 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: Fourth Quarter Highlights
3 Fourth Quarter Highlights • Net income of $15.7 million on net investment income of $50.6 million – Diluted earnings per share of $0.21; return on equity of 4% – Dividend of $0.47 per share declared on December 10, 2015 – Book value per share decreased to $20.28 at December 31, 2015 • Segment pret
Slide 4: Recent Developments After Quarter End
4 Recent Developments After Quarter End • PMT, through one of its wholly - owned subsidiaries, was approved as a multifamily Seller / Servicer for Freddie Mac’s Small Balance Loan (SBL) program – Significant development for the commercial mortgage business – Loan programs for the purchase and refina
Slide 5: Current Market Environment and Outlook
3.0% 3.5% 4.0% 4.5% 5.0% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Hundreds Average 30 - year fixed rate mortgage (1) 4.0 4.5 5.0 5.5 6.0 6.5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-
Slide 6: Fourth Quarter Income and Return Contributions by Strategy
6 Fourth Quarter Income and Return Contributions by Strategy • Distressed loan investments underperformed driven by lower home prices versus prior forecasts and increased yield requirements – see page 18 for details • Credit risk transfer income offset by valuation losses on the retained bonds resul
Slide 7: PMT's mortgage-related investment focus
• PMT’s focus is mortgage - related investments that require specialized operational capabilities enabled by our relationship with PennyMac Financial Services (PFSI) • Opportunistic investment in distressed whole loans • Recent capital deployment has favored interest rate and credit sensitive strate
Slide 8: Targeted Returns of PMT's Strategies
Targeted Returns of PMT’s Strategies 8 Commercial Real Estate Loans Correspondent Loan Aggregation MSRs & ESS Distressed Residential Whole Loans GSE Risk Transfers & Subordinate Bonds (2) Prime Non - Agency Loans (3) Agency & Senior Non - Agency MBS Targeted Unlevered Yield Targeted Gross Pretax Ret
Slide 9: Mortgage Investment Activities
Mortgage Investment Activities
Slide 10: Strong Liquidation and Resolution Performance in Distressed Loan Investments
10 Strong Liquidation and Resolution Performance in Distressed Loan Investments • UPB of total liquidation activities, which are comprised of payoffs, foreclosure sales to third parties, short sales and real estate owned (REO) sales, increased 15% from 3Q15 – REO sales up 47% Q/Q driven by propertie
Slide 11: Correspondent Production Volume and Mix
Correspondent production sellers 3Q15 400 Purchase money loans, as % of total acquisitions 77% 86% Selected Operational Metrics 4Q15 432 • Correspondent acquisitions totaled $10.0 billion, down 30% Q/Q – Resulting from higher rates, seasonal factors and to a lesser extent TRID – Conventional conform
Slide 12: Correspondent Drives Continued Investment in GSE Credit Risk Transfer
12 Correspondent Drives Continued Investment in GSE Credit Risk Transfer • Investment to date of $107 million related to CRT 2015 - 2 (1) – Class M1 bond expected to total ~$140 million when completed in February 2016 • Total CRT investments reached $147 million at December 31, 2015 • Transactions a
Slide 13: Correspondent Also Continues to Drive MSR Investments
Correspondent Also Continues to Drive MSR Investments 13 ($ in millions) • Continued portfolio growth as investments in MSR and ESS reached $872 million, related to underlying loans with a UPB of $94.3 billion, at December 31, 2015 – Organic MSR investments resulting from correspondent production ac
Slide 14: Financial Results
Financial Results (PennyMac’ Mortgage Investment Trust
Slide 15: Pretax Income (Loss) by Operating Segment
15 Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding Investment Correspondent Total Pretax ($ in millions) Activities Production Income 4Q14 11.0$ 0.9$ 11.9$ 1Q15 (8.2)$ 4.4$ (3.8)$ 2Q15 19.9$ 5.2$ 25.1$ 3Q15 34.9$ 10.2$ 45.1$ 4Q15 (6.1)$ 13.1$ 6.9$ 4Q15 Ear
Slide 16: Investment Activities Segment Results
16 Investment Activities Segment Results (1) Servicing fees include both special servicing for PMT’s distressed portfolio and subservicing for PMT’s mortgage servicing rights • Segment revenue decreased 63% Q/Q: – Net gain on investments decreased 90% Q/Q, driven by: o Significant decline in distres
Slide 17: Interest Income Is a Large Component of Investment Activities Returns
17 Interest Income Is a Large Component of Investment Activities Returns • Total interest income from Investment Activities was $43.8 million, an 8% Q/Q decrease • Total interest expense from Investment Activities was $26.6 million, a 15% Q/Q decrease • Interest income from the distressed loan portf
Slide 18: Investment Gains and Cash Flows from the Distressed Loan Portfolio
18 Investment Gains and Cash Flows from the Distressed Loan Portfolio • Net gains on distressed loans totaled $2.0 million, a decrease from $31.9 million in 3Q15 – Lower actual home prices versus prior forecasts offset by an increase in expectations for future home price appreciation – Nonperforming
Slide 19: Valuation of MSRs and Excess Servicing Spread (ESS)
19 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 $31.0 million in excess of the ca
Slide 20: Correspondent Production Segment Results
($ in thousands) Quarter Ended Dec. 31, 2015 As % of Interest Rate Lock Commitments (1) Quarter Ended Sept. 30, 2015 As % of Interest Rate Lock Commitments (1) Revenues: Net gain on mortgage loans acquired for sale 15,780$ 0.43% 13,884$ 0.34% Net interest income 5,228 0.14% 7,378 0.18% Other income
Slide 21: Appendix
Appendix (PennyMac’ Mortgage Investment Trust
Slide 22: PMT Dividends and Book Value Over Time
Book value per share (1) 11% 22 PMT Dividends and Book Value Over Time 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 equi
Slide 23: PMT's Mortgage Assets and Leverage Ratio Over Time
$4,358 $5,279 $6,159 $4,965 $5,128 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 4Q14 1Q15 2Q15 3Q15 4Q15 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
Slide 24: 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 Management of PMT’s Interest Rate Risk (1) 24 Estimated Sensitivity to Changes in Interest Rates % change in
Slide 25: Nonperforming and Performing Loans at December 31, 2015
$877 $1,216 $1,134 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance $1,223 $1,731 $1,703 $0 $500 $1,000 $1,500 $2,000 $2,500 Fair Value on Balance Sheet Collateral Value Unpaid Principal Balance 25 Nonperforming Loans (at December 31, 2015) Pe
Slide 26: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period 26 (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 4Q15 Earnings Report Purchase 4Q15 Purchase 4Q15 Purchase 4Q15 Purchase 4Q15 Balance ($mm) 182.7$ 32.9 Balance ($mm) 195.5$ 28.5 Balance ($mm) 146.2$ 19.4 Balance
Slide 27: Distressed Portfolio by Acquisition Period (cont.)
Distressed Portfolio by Acquisition Period (cont.) 27 (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 4Q15 Earnings Report Purchase 4Q15 Purchase 4Q15 Purchase 4Q15 Purchase 4Q15 Balance ($mm) 366.2$ 189.2 Balance ($mm) 397.3$ 262.0 Balance ($mm) 929.5$ 596
Slide 28: Fundings and Locks by Product
Fundings and Locks by Product 28 Note: Figures may not sum exactly due to rounding 4Q15 Earnings Report ($ in millions) 4Q14 1Q15 2Q15 3Q15 4Q15 Fundings Conventional 2,772$ 2,831$ 3,553$ 4,055$ 3,460$ Government 4,389 5,106 8,316 10,348 6,558 Jumbo 116 59 26 19 12 Total 7,276$ 7,996$ 11,895$ 14,421
Slide 29: Net Cash Flows from Existing Investments
Net Cash Flows from Existing Investments 29 (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 se
Slide 30: Opportunity for PFSI and PMT in MSR Acquisitions
Opportunity for PFSI and PMT in MSR Acquisitions 30 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 31: PMT's Excess Servicing Spread Investments in Partnership with PFSI
PMT's Excess Servicing Spread Investments in Partnership with PFSI 31 (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
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