PennyMac Mortgage Investment Trust

Good afternoon and welcome to the first quarter 2021 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 Chairman and Chief Executive Officer, who will discuss the company's first quarter 2021 results.

Thank you, Isaac. PMT produced another strong quarter of financial results with net income attributable to common shareholders of $65.4 million or diluted earnings per share of 67 cents. These strong results were driven by strong correspondent production results and the continued improvement in the fair value of its GSE credit risk transfer investments. Additionally, PMT CRT investments continue to benefit from the elevated prepayment speeds we are seeing across the industry. MSR fair value gains were more than offset by fair value declines on agency MBS and interest rate hedges due to significant prepayment activity and elevated hedge costs driven by market volatility. PMT paid a common dividend of 47 cents per share. Book value per share increased 3% to $20.90 from $20.30 at the end of the prior quarter, partially due to strong earnings and partially due to the issuance of senior exchangeable notes. In the current and evolving market environment, PMT is uniquely positioned as the largest correspondent lender in the country to continue to create organic investments in MSRs sourced from the high-quality conventional production of loans it delivers to the GSEs. In addition to benefiting from the historically large origination market we are currently in, PMT also benefits from the investments in technology and fulfillment capacity made by its manager and services provider, PennyMac Financial. Further, PMT's investments in MSR and CRT benefit from PFSI's expertise in managing credit risk utilizing a variety of loss mitigation strategies. Our high-quality loan production in the quarter resulted in the creation of more than $400 million in new low-rate mortgage servicing rights, and PMT ended the quarter with approximately $2.4 billion in fair value of MSRs, which we expect will perform well in a rising rate environment. Also this quarter, we further strengthened PMT's balance sheet issuing senior exchangeable notes and term asset-backed financing to replace less favorable short-term securities repurchase agreements. We issued $659 million of three-year term notes associated with PMT's sixth CRT transaction, and the entirety of PMT's CRT investments is now financed with term notes that do not contain margin call provisions, providing stable financing throughout much of the expected life of the asset. We also issued $350 million in five-year Fannie Mae MSR term notes to support the growing MSR portfolio. This term financing also more closely aligns to the expected life of the asset. And finally, we issued $345 million of five-year senior exchangeable notes, upsized from an initial $200 million offered with strong support from institutional investors. This issuance with an initial conversion price of $21.69 represents an attractive premium to PMT's book value per share at issuance. In addition, the option value in the conversion premium contributed partially to the increase in PMT's book value during the quarter. 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 mortgage origination landscape and how we believe we have positioned PMT to continue delivering attractive, risk-adjusted returns to our shareholders. The origination market continues to be historically strong as mortgage rates remain near record lows despite the increases in the 10-year Treasury yield since the start of the year. Recent economic forecasts for 2021 originations range from Thank you for joining us. So while refinance origination volumes are expected to decline significantly over time as a result of higher interest rates, we believe PMT is well positioned to continue organically creating investments, especially as we are one of the largest producers of purchase money loans in the U.S. We believe favorable dynamics continue to drive significant opportunities for PMT and correspondent production. As the GSEs implement the latest amendments to their preferred stock purchase agreements, we expect these changes to favor scaled and well-capitalized market participants such as PMT. Additionally, we expect the $1.5 billion annual limit per client on cash window deliveries into each of the GSEs to drive more volume into the correspondent channel. Finally, we expect limitations placed on the GSE's ability to guarantee certain types of loans to create a heightened need for private capital over time, providing opportunities for increased investment from companies like PMT that have established expertise in the mortgage capital markets and private label securitizations. PMT's capital deployment is currently focused on the large opportunity in conventional correspondent production and the related high-quality mortgage servicing rights. As you can see on slide seven of our presentation, during the first quarter, runoff from prepayments on our CRT investments was more than offset by net new MSR investments. As David mentioned, PMT's position as an industry-leading producer of mortgage loans gives us a unique ability to create attractive, high-quality, organic investments in MSRs at low interest rates. Furthermore, PennyMac Financial's history in successfully executing loss mitigation strategies in its role as a servicer of the loans underlying these investments creates a strong alignment of interests. 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 that PMT expects over the next four quarters. In total, we expect a quarterly run rate return for PMT's strategies of 50 cents per share or a 9.5% annualized return on equity. This run rate potential estimate Thank you for joining us today. Thank you, Andy.