PennyMac Mortgage Investment Trust

Good afternoon and welcome to the fourth quarter and full year 2020 earnings discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available from PennyMac Mortgage Investment Trust's website at www.pennymac-reit.com. Before we begin, let me remind you that our discussion contains forward-looking statements that are subject to the risks identified on slide two that could cause our actual results to differ materially. Thank you. Now I'd like to introduce David Spector, PMT's President and Chief Executive Officer, who will discuss the company's fourth quarter and full year 2020 results.

Thank you, Isaac. PMT produced another strong quarter of financial results in book value growth, driven by the continued recovery in the fair value of its GSE credit risk transfer investments, combined with strong correspondent production segment results. Net income attributable to common shareholders was $76.6 million, or diluted earnings per share of 78 cents. PMT paid a common dividend of $0.47 per share, returning the dividend to its pre-COVID levels. Book value per share increased to $20.30 from $19.95 at the end of the prior quarter and, similar to the dividend, is almost back to pre-COVID levels. Credit spreads tighten in the fourth quarter, driven by optimism related to an economic recovery supported by fiscal stimulus and the distribution of COVID-19 vaccines throughout the country. Additionally, PMT's CRT investments continue to benefit from the elevated prepayment speeds we are seeing across the industry. PMT's industry-leading correspondent production business also captured record volumes, benefiting from not only the low-rate environment but also the investments in technology and fulfillment capacity made by its manager and services provider, PennyMac Financial. And finally, we repurchased approximately 927,000 common shares of PMT during the fourth quarter at a weighted average share price of $16.88. Turning to 2020 full-year results, PMT paid dividends of $1.52 and earned net income attributable to common shareholders of $27.4 million, despite the extreme market dislocations caused by uncertainties related to COVID-19 early in 2020. For the full year, we repurchased 2.8 million shares of PMT at an average price of $13.46, or $37 million. PMT navigated the market dislocation and volatility associated with the investments we manage and the business in which we operate remarkably well as a result of our strong risk management disciplines, which Andy will discuss in more detail. In the current market environment, I believe PMT remains uniquely positioned as the largest correspondent lender in the country to utilize its ability to create organic investments in MSRs sourced from its high quality production. PMT also benefits from the capabilities of its manager and services provider, PFSI, to effectively manage credit losses utilizing a variety of loss mitigation strategies. Before I turn it over to Andy, I would like to take a moment to express the gratitude I have for the many kind thoughts and prayers we have received since announcing the sad passing of Stan Kurland, our founder and chairman. While standing retired from day-to-day responsibilities at PennyMac, he remained a trusted advisor and a dear friend. His leadership helped lay the foundation for PennyMac's long-term success, which included building and developing this deep management team that carries on his legacy. With that, I will now turn it over to Andy Chang, PMT's Senior Managing Director and Chief Operating Officer.

Thank you, David. I will discuss the financing PMT has against its largest long-term mortgage assets, PMT's investment activity for the quarter, and our outlook for returns from PMT's strategies. PMT's performance in 2020 reflects the disciplines we maintain in risk and capital management and the work we did prior to the pandemic, which included financing our CRT investments using term notes that do not contain margin call provisions. As a result, PMT was not subject to margin calls on its CRT investments when their fair values declined sharply early in the year due to credit market volatility and uncertainty of the impact of COVID-19. PMT was therefore able to retain the entirety of its CRT position and the performance of these investments improved throughout the remainder of 2020. Similarly, in a year where MSR fair values declined significantly due to lower interest rates and expectations for higher prepayment activity, PMT was able to successfully manage the related liquidity risks thanks to the success of its interest rate hedging program. PMT's capital deployment is currently focused on the large opportunity in conventional correspondent production and the related mortgage servicing rights. As you can see on slide 7 of our presentation, during the quarter, CRT investments continued to decrease, driven by substantial runoff from prepayment activity, which exceeded fair value gains. PMT ended the quarter with $2.6 billion of CRT investments, all of which are now funded investments, as PMT completed the purchase of its sixth and largest CRT transaction ever. Vandy will discuss this transaction in more detail later. New MSR investments sourced from the securitization of PMT's record $38 billion in UPB of conventional production totaled $441 million. Net of runoff, MSR and ESS investments increased $380 million. PMT's position as an industry-leading producer of mortgage loans gives us a unique ability to create attractive, organic investments in MSRs at low interest rates. In fact, during the quarter, PMT's invested equity for newly originated, low-rate MSR investments more than offset the runoff from prepayments on its CRT investments. For 2021, third-party economic forecasts for mortgage originations now average over $3.3 trillion, another robust market supported by low mortgage rates and the Federal Reserve's commitment to keep short-term interest rates near zero through 2023. Purchase originations are forecasted to be up approximately 10% from 2020 levels, while refinance originations are expected to decrease, positioning PMT for continued strong results given its historical focus towards the purchase market. On slide 9, we illustrate the run rate return potential from PMT's investment strategies. which represents the average annualized return and quarterly earnings potential PMT expects from its strategies over the next four quarters. In total, we expect a quarterly run rate return from PMT's strategies of 53 cents per share or a 10.4% annualized return on equity. This run rate estimate is down slightly from 58 cents per share or an 11.4% annualized return on equity that we showed last quarter, largely driven by a lower return on equity in our correspondent production business. This is due to conventional correspondent gain on sale margins normalizing with origination volumes expected to decrease from the record levels in 2020. In contrast, the return potential for our MSR investments has improved modestly, driven by a decrease in prepayment speed expectations due to the increasing portion of newly originated loans at lower note rates. Finally, the return potential for our CRT investments has increased slightly as the equity allocation decreased due to improved financing terms. Now I'd like to turn the call over to Vandy Fartage, PMT's Senior Managing Director and Chief Investment Officer, who will discuss the drivers of PMT's fourth quarter investment performance.