Pennymac Mortgage Investment Trust · NYSE:PMT
Pennymac Mortgage Investment Trust — Q2 2017 Earnings Presentation
35 slides from Pennymac Mortgage Investment Trust's earnings presentation, Aug 4, 2017
Slide 1: Second Quarter 2017 Earnings Report
PennyMac Mortgage Investment Trust August 3, 2017 Second Quarter 2017 Earnings Report Exhibit 99.2
Slide 2: Forward-Looking Statements
2Q17 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: Second Quarter Highlights
Second Quarter Highlights Net income attributable to common shareholders of $26.4 million on net investment income of $84.0 million Diluted earnings per share of $0.38; return on average common equity of 8% Dividend of $0.47 per common share declared on June 27, 2017 Book value per common share decr
Slide 4: Second Quarter Highlights (continued)
Second Quarter Highlights (continued) Focus on liquidation and sales of the remaining distressed mortgage loan portfolio; successfully reduced PMT's equity allocation for distressed mortgage loans to 31% of total equity from 50% in 2Q16(1) Cash proceeds from the liquidation and pay down of distresse
Slide 5: Current Market Environment
Average 30-year fixed rate mortgage(1) (1) Freddie Mac Primary Mortgage Market Survey. 3.92% as of 7/27/2017 (2) Mortgage Bankers Association Refinance Index (3) Census Bureau (4) Bloomberg (5) Mortgage Bankers Association Mortgage Delinquency Survey. Includes loans that are at least one payment pas
Slide 6: Transitioning to Correspondent-Generated Investments in CRT and MSRs
Transitioning to Correspondent-Generated Investments in CRT and MSRs 2Q 2015 100% = $1.53 billion 2Q 2017(2) 100% = $1.45 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 $115 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 2Q17 Earnings Report $803 million ending balance of performing loans includes loans subject to a pending sale of $149 million in UPB, expected to
Slide 8: Second Quarter Income and Return Contributions by Strategy
Second Quarter Income and Return Contributions by Strategy Note: Amounts may not sum exactly due to rounding (1) Income contribution is net of any direct expenses associated with investments (e.g., loan fulfillment fees, loan servicing fees) (2) Equity allocated to MSR, ESS and distressed loan inves
Slide 9: Run-Rate Quarterly Income Potential from PMT's Strategies
Note: This slide presents estimates for illustrative purposes only, using PMT’s base case assumptions (e.g., for credit performance, prepayment speeds, financing economics). Actual results may differ materially. Please refer to slide 2 for important disclosures regarding forward-looking statements.
Slide 10: Mortgage Investment Activities
Mortgage Investment Activities
Slide 11: Strong Execution on Modifications Drives Resolution Activity in 2Q17
Strong Execution on Modifications Drives Resolution Activity in 2Q17 Payoffs Foreclosure sales Short sales REO sales Modifications ($UPB in millions) Resolution Activity in the Quarter Total Liquidation Activities Resolution Activity Over Time ($UPB in millions) (% by Activity Type) $256 $233 $238 $
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) 2Q17 Earnings Report Correspondent acquisitions by PMT in 2Q17 tota
Slide 13: PMT's Unique Investments in GSE Credit Risk Transfer
CRT Investments Outstanding ($ in millions) Total CRT deposits grew to $503 million at June 30, 2017 Completed $3.8 billion in UPB of deliveries in the second quarter, which will result in approximately $132 million of new CRT investments once the aggregation period is complete, $33 million of which
Slide 14: MSR Investments Continued to Grow
MSR Investments Continued to Grow ($ in millions) Organic MSR investments resulting primarily from correspondent production activity increased to $735 million at June 30, 2017, from $697 million at March 31, 2017 ESS investments resulting from bulk, mini-bulk and flow MSR acquisitions by PennyMac Fi
Slide 15: Financial Results
Financial Results (bnnyMac: Mortgage Investment Trust
Slide 16: Pretax Income (Loss) by Operating Segment
Pretax Income (Loss) by Operating Segment Note: Figures may not sum exactly due to rounding 2Q17 Earnings Report Unaudited ($ in millions)Credit Sensitive Strategies Interest Rate Sensitive Strategies Correspondent Production Corporate Total Pretax Income2Q16(13.9)$ 0.7$ 17.2$ (12.2)$ (8.2)$ 3Q1616.
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 commercial real estate investments Segment revenue increased 56% Q/Q to $40.2 million Net gain on investments increased 55% Q/Q
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 $10.3 million, compared with $12.3 million in 1Q17 Positive valuation changes in the performing loan portfolio were offset by changes in the nonperforming
Slide 19: Credit Risk Transfer – Income Statement and Balance Sheet Treatment
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 inflows related to assumption of credit risk net of expected future losses Current cash collateralizing g
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 MBS, non-Agency senior MBS and related interest rate hedges Segment revenue increased 61% Q/Q to $12.1 million Net mortgage loan servicing fees increased 33% Q/
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”) 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 $25.7 million in excess of the carrying va
Slide 22: Correspondent Production Segment Results
Correspondent Production Segment Results Segment revenue totaled $31.5 million, a 2% increase from 1Q17, driven by a 35% Q/Q increase in lock volumes, partially offset by tighter margins Margins reflect a highly competitive market Net gain on mortgage loans acquired for sale included a $4.6 million
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 decreased to $155,000 from $326,000 in 1Q17 Total expenses increased 19% Q/Q to $12.3 million Management fees include $0.3 mil
Slide 24: Appendix
Appendix (bnnyMac: Mortgage Investment Trust
Slide 25: PMT EPS, Common Dividends and Book Value Per Common Share Over Time
Book value per common share(1) PMT EPS, Common Dividends and Book Value Per Common Share Over Time 7% 4% Return on Avg. Common Equity(2) (1) At period end. (2) Return on average common equity is calculated based on annualized quarterly net income attributable to common shareholders as a percentage o
Slide 26: PMT's Mortgage Assets and Leverage Ratio Over Time
Correspondent loan inventory PMT’s Long-Term Investments ■ CRT(1) ■ Retained interests from private-label securitizations ■ MSRs and ESS ■ Agency and non-Agency MBS ■ Distressed whole loans and REO PMT's Mortgage Assets and Leverage Ratio Over Time Leverage ratio(2) (1) The fair value of CRT investm
Slide 27: Management of PMT's Interest Rate Risk
(2) PMT’s interest rate risk exposure is managed on a “global” basis Disciplined hedging Multiple mortgage-related investment strategies with complementary interest rate sensitivities Utilization of financial hedge instruments Also considers recapture benefit on MSRs and ESS and revenue opportunitie
Slide 28: Carrying Values for PMT's Distressed Whole Loans
Nonperforming Loans (at June 30, 2017) Performing Loans (at June 30, 2017) Nonperforming loans are held on average at a 37% discount to current property value – fair value considers costs expected over the liquidation timeline, expected property appreciation and reperformance probability PMT advance
Slide 29: Distressed Portfolio by Acquisition Period
Distressed Portfolio by Acquisition Period (1) Ratio of unpaid principal balance remaining to unpaid principal balance at acquisition 2Q17 Earnings Report Purchase 2Q17 Purchase 2Q17 Purchase 2Q17 Purchase 2Q17 Balance ($mm) 182.7 $ 19.7 Balance ($mm) 195.5 $ 20.3 Balance ($mm) 146.2 $ 12.0 Balance
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 2Q17 Earnings Report Purchase 2Q17 Purchase2Q17Purchase2Q17Purchase2Q17Balance ($mm)366.2$ 90.7 Balance ($mm)397.3$ 140.8 Balance ($mm)929.5$ 329.8 Balance ($
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 2Q17 Earnings Report ($ in millions)2Q163Q164Q161Q172Q17 Fundings Conventional$ 5,171$ 7,263$ 7,492$ 4,632$ 5,918Government9,43311,65712,5449,28010,392Jumbo31 - - - Total$ 14,607$ 18,920$ 20,036$
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) 2Q17 Earnings Report (UPB$ in billions)CRT 2015 -1 (May 2015 - July 2015)CRT 2015 -2 (August 2015 - Feburary 2016)CRT 2016 -1 (Feburary 2016 - August 2016)At inception6/30/2017At inception6/30/20
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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