PennyMac Mortgage Investment Trust

Good afternoon and welcome to the second quarter 2021 earnings discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available on 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 2 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 second quarter 2021 results.

Thank you, Isaac. PMT produced another strong quarter of financial results with net income attributable to common shareholders of $31.9 million, or diluted earnings per share of $0.32. These results were driven by strong correspondent production segment results and the performance of its GSE credit risk transfer investments. PMT's MSR fair value declined due to lower mortgage rates, which increased the refinance potential for loans in our portfolio. These losses were partially offset by fair value gains on interest rate hedges and agency MBS. PMT paid a common dividend of 47 cents per share. Book value per share decreased slightly to $20.77 from $20.90 at the end of the prior quarter. In this dynamic mortgage market, PMT is uniquely positioned to capitalize on current and evolving investment opportunities given its scale and importance in the homeownership ecosystem. In addition to benefiting from the historically large origination market we are currently in, PMT also benefits from strong demographic and secular trends driving growth in purchase activity. With a new administration in the White House and changes at the FHFA, we are likely to see an increasingly focused regulatory environment. As the GSE footprint continues to change, we also expect additional demand for private capital in the mortgage markets, and we believe that well-capitalized aggregators with expertise in the capital markets will be best positioned for success. Large correspondent aggregators with scalable technology, flexibility, and capital resources like PMT will become increasingly more important. Our high quality loan production in the quarter resulted in the creation of more than $400 million in new low coupon mortgage servicing rights and PMT ended the quarter with approximately $2.6 billion in fair value of MSRs. At our Investor Day, we discussed a potential new investment opportunity for PMT related to securitization of non-owner occupied loans. This quarter we purchased $13 million in face amount of a securitization of non-owner-occupied loans totaling $248 million in new PB, sourced organically from PMT's conventional correspondent production volumes. We believe this to be an important investment going forward, and Vandy Fartage, PMT's Chief Investment Officer, will discuss this later on in the presentation. 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 strong on a historical basis as mortgage rates have recently returned to near-record lows. Additionally, we believe FHFA's elimination of the adverse market refinance fee has resulted in a larger population of loans that would benefit from a refinance at today's lower rates, further supporting the origination market. Recent economic forecasts for 2021 originations range from $3.6 trillion to $4.2 trillion, while average forecasts for 2022 originations remain strong at $2.7 trillion. It is worth noting that purchase originations are expected to grow and are forecasted to be $1.7 trillion and $1.9 trillion in 2021 and 2022, respectively. So while refinance origination volumes are expected to decline significantly over the next several years as a result of higher interest rates, we believe PMT is well positioned to continue organically creating investments, especially as one of the largest producers of purchase money loans in the U.S. PMT's capital deployment is primarily focused on the large opportunity in conventional correspondent production and the related high-quality mortgage servicing rights. As you can see on slide 7 of our presentation, during the second quarter, runoff from prepayments on our CRT assets was mostly offset by net investments in MSR and from private label securitizations. 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. Furthermore, PennyMac Financial's history as a leading servicer of the loan's underlying PMT's investments further enhances the risk-adjusted return profile of those investments. On slide 8, 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 49 cents per share or a 9.3% annualized return on equity. This run rate potential estimate is down slightly from what we showed last quarter. In our credit sensitive strategies, a slight reduction to our expected CRT returns reflects credit spreads that have tightened. The return potential for our interest rate sensitive strategies is roughly in line with the previous quarter. In correspondent production, increased expectations for market volumes have driven an increased equity allocation to the strategy. As I mentioned earlier, FHFA recently announced the elimination of a 50 basis point adverse market refinance fee on Fannie Mae and Freddie Mac mortgage refinance transactions effective August 1st. The elimination of this fee will reduce the cost of refinancing a residential mortgage loan with a new conventional conforming loan and is expected to increase future prepayment rates on mortgage loans underlying our MSRs. Our run rate estimate on slide 8 does not include the expected valuation impact to the MSR of this one-time event. Had FHFA reversed the adverse market refinance fee as of June 30th, we estimate that the MSRs would have experienced a one-time decrease of approximately $50 million. This estimate is based on the composition of the MSRs we held as of June 30th which may differ materially from the size and composition of the value of our MSRs as of September 30th, 2021. The amount of the adjustment that will be included in our results for the third quarter 2021 may differ significantly from the estimate based on the June 30th composition of the portfolio and will consider changes in market interest rates among other key valuation inputs at that time. 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 second quarter investment performance.