PennyMac Mortgage Investment Trust

Good afternoon and welcome to PennyMac Mortgage Investment Trust's second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To answer your question, press star 1 again. Additional earnings materials, including the presentation slides that will be referred to in the call, as well as an Excel file with supplemental information, are available on the PennyMac Mortgage Investment Trust website, and David Spector. Penny Mac Mortgage Investment Trust Chairman and Chief Executive Officer, and Dan Perotti, Penny Mac Mortgage Investment Trust Chief Financial Officer. Please go ahead.

Thank you, operator. Good afternoon, and thank you to everyone for participating in our second quarter 2026 earnings call. Starting on slide three, P&T's second quarter net income was $20 million, or 23 cents per diluted common share representing a 6% annualized return on common equity. These results were impacted by a lower contribution from our credit-sensitive strategies, driven primarily by market-driven value declines, as well as lower contributions from our aggregation and securitization strategies, primarily due to lower volumes. These impacts were partially offset by improved results in our interest rate-sensitive strategies. PMT paid a quarterly dividend of $0.40 per share, and book value per share June 30th was $14.83, down 1% from the end of the prior quarter. Turning to slide four, during the second quarter, PMT acquired $2.6 billion in UPB of loans through corresponding production activities, for which PMT pays fulfillment fees to PFSI. This number was down 8% from the prior quarter and 17% from the second quarter of 2025. P&T also acquired $2.2 billion in UPV of loans from PFSI production for inclusion in private label securitizations, up 44% from the prior quarter and 123% from the second quarter of 2025. In total, during the second quarter, P&T acquired $4.8 billion in UPV of loans. Beginning in June, P&T elected to stop acquiring agency eligible conventional conforming loans through correspondent production, but will continue acquiring 100% of all non-agency loan volume. This strategic decision allows us to optimize our capital allocation by pivoting away from MSR investment. which have faced return headwinds in recent periods and accelerating the redeployment of our capital into higher-yielding, credit-sensitive investments created from our private label securitization program. Consistent with this objective, I am pleased to announce that after quarter-end, we entered into agreement to sell $13 billion in UPV of low-coupon agency MSRs, with a close expected at the end of August. Slide 5 highlights the continued success of our organic investment creation engine. During the quarter, we completed six private label securitizations, totaling $2.2 billion in UPB. This activity resulted in the retention of $120 million of new subordinate bond investments in the credit census strategies. We also generated $31 million of new MSR investments. Our momentum has continued after quarter end, with two additional securitizations completed, totaling $692 million in UPV, and we remain on pace to complete approximately 30 securitizations in 2026. In total, through 2026, we expect we will have added more than $600 million of retained investments, building a substantial foundation of investments with returns on equity, and the low to mid-teens to support future earnings. On slide 6, we provided a snapshot of high-quality investments we are creating through our private label securitization program. At quarter end, the fair value retained bonds from this program totaled $936 million. 63% of this portfolio is comprised of bonds from non-owner-occupied loan securitization. The credit quality of these bonds Organically created assets underscores our ability to produce attractive, high-yielding investments in the current market. On slide 7, approximately half of PMT shareholders' equity remains deployed to long-standing investments in MSRs, and 13% is comprised of our unique GFC credit risk transfer investments. Mortgage servicing rights provide stable cash flows from a portfolio with a low weighted average coupon of 3.9%. and our organically created GFC CRT investments consist of seasoned loans with a waived average current loan to value of 45%. Turning to slide 8, of our diversified portfolios constructed of investments with strong underlying fundamentals, we acknowledge our earnings, excluding market-driven value changes, have been below our dividend levels for the past several quarters. As you can see, we are showing an average run rate return of $0.33 per quarter for the next year, up from the $0.31 projection in the prior quarter. In the credit-sensitive strategies, return dynamics are similar to the prior quarter. The improvement of the overall run rate versus the prior quarter is driven by reallocation of equity to subordinate bond investments and higher expected returns of our MSR assets in a higher rate environment. As is our standard practice, we continue to monitor our portfolio mix and allocate capital towards investments with the most attractive return potential. Our momentum in organic investment creation remains strong, and we have successfully positioned PMT as a leader in the private label securitization market. Given the success of our securitization program, we are shifting our equity allocation towards creative credit-sensitive strategies. And I am confident this realignment of our balance sheet will bolster PMT's return profile to deliver attractive total returns over the long term. Now, I'll turn it over to Dan to review the second quarter financial performance.

Thank you, David. Net income to common shareholders was $20 million, or 23 cents, per diluted common share in the second quarter, or a 6% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $11 million to pre-tax income, generating an annualized return on equity of 11%. The contribution to pre-tax income from organically created CRT investments was $6 million, which included $7 million of realized gains in carry and $1 million of market-driven value declines. Investments of subordinate MDS from our private label securitizations generated gains of $5 million, down from $6 million in the prior quarter, primarily due to lower valuation-related gains. The interest rate-sensitive strategies contributed pre-tax income of $9 million for an annualized ROE of 3%. Income excluding market-driven value changes for this segment was $20 million, up from $11 million in the prior quarter, as decreased repayment speeds during the quarter, particularly on higher note rate MSRs, drove slower runoff of our MSR assets. During the quarter, we purchased and the fair value of our MBS portfolio increased to $4.1 billion at June 30th, up from $3.8 billion at March 31st. Regarding market-driven fair value changes, our hedging activities during the quarter effectively mitigated our interest rate risk exposure, as the $18 million MSR fair value increase was offset by $18 million of net declines in fair value of MBS and interest rate hedging. The aggregation and securitization segment reported pre-tax income of $11 million, down from $16 million in the prior quarter. Net gains on loans acquired for sale declined by approximately $8 million from the prior quarter, primarily due to lower volumes. In total, PMP reported $32 million of net income across its strategies, excluding market-driven value chains. up from $28 million in the prior quarter, primarily due to an increased contribution from the interest rate-sensitive strategies. I want to address our dividend in the context of our current results and the updated run rate return potential. While projections for income excluding market-driven value changes remain below the dividend level, it is important to note that we expect to maintain the common share dividend at 40 cents per share. This is supported by our taxable income, which we expect to be sufficient to fully cover the dividend at its current level in coming periods. Turning to slide 12, we highlight the flexible and sophisticated financing structures PMP has in place to support its diversified portfolio of investments. And finally, on slide 13, we continue to believe that debt to equity excluding non-recourse debt is the best metric for measuring our core leverage. That ratio increased to 6.2 times at quarter end from 5.6 times at the prior quarter end due to growth in loans held for sale and remains in line with our expected levels. DMT's total debt-to-equity increased to approximately 12 to 1 from 11 to 1 at March 31st as we continue to retain investments from securitizations. The increase in our total debt-to-equity ratio reflects growth in non-recourse debt associated with these transactions, where all securitized loans are required to be consolidated on our balance sheet for accounting purposes. As a reminder, the source of repayment for this debt is limited to the cash flows from the associated loans in each private label securitization, mitigating any additional exposure to P&T. We expect the divergence between these two metrics to continue increasing as our securitization program continues to grow. We'll now open it up for questions. Operator?

We will now begin the question and answer session. Q&A Roster Your first question is from Boast George from KDW. Your line is now open. Please go ahead.

Hey, guys. In terms of the move we've had in rates since quarter end, can you just talk about the impact of that on the run rate earnings? Does that help with the MSR returns? Just call around. That would be great.

Overall, thanks for the question, Boast. Overall as interest rates move higher and particularly in particular long rates and talked about this a little bit before it's beneficial to the you know expected earnings and run rate especially with the MSR so we mentioned it in terms of the context of the runway that as interest rates have moved higher it's driven of our expectation for the returns of the MSR portfolio as or if rates continue to move higher, longer rates and mortgage rates, that further dampens the, you know, the prepayment speeds on the MSR and could drive additional increases in the MSR returns, which would help to further bolster the MSR returns. I would say a little bit of an offset to that is that to the extent that short rates, you know, Thank you for joining us. But those are the two sort of offsetting, you know, potential impacts from interest rates increasing.

Okay. But net-net could be a couple of pennies higher than the 33 cents that you showed.

Concentration in mortgage servicing rights and, you know, the fact that we've generally seen the long rates, I'd say, move up a bit faster than we expect short rates to. It would generally be beneficial to the market.

Okay, great. And then just on the MSR sales, could we see more MSR sales? It seems like the market for low-coupon MSRs at least is very strong. And would it make sense to potentially do that, maybe park some in agency MBSs if it happens?

As you know, Bo, we've become much more active in terms of managing the portfolio. And I think as we look at the opportunities and we see the returns, Thank you. The next question is from Marissa Lobo of UBS. Your line is open. Please go ahead. All right. Thank you.

Just on the shift and the relationship to PFFI on the shift to 100% non-agency acquisition, I mean, how does that alter the economic relationship or the management agreement with PFFI?

So it doesn't alter the management agreement. Really, overall, the impact that that would have is that there are less loans flowing through and many more. Thank you very much. that would be a bit lower gain on sale being generated at PMT from those loans, but lower fulfillment fees flowing back to the PSSI. Just to emphasize the reason or rationale for that change is really to getting back to the allocation of equity to reduce the amount of Okay, got it.

And on rate sensitivity, following the sale of the MSR and your capital redeployment, I mean, how should we think about PMT's interest rate sensitivity and book value volatility versus today?

Overall should be, you know, should be very similar. Our hedging practices remain the same as they have been. And our, you know, our overall strategy in PMT has generally been to insulate it from, you know, and many, many more. Those holdings from the private label securitizations, those are also included in our global interest rates hedging and management, and so are considered in terms of our hedging positions.

Appreciate the answers.

Our next question is from Trevor Cranston of Citizens JPM. Your line is open. Please go ahead.

Thanks. As you think about the pace of capital transition going forward, it seems like, broadly speaking, non-agency securitization activity has been fairly robust recently. Are you guys finding any opportunities to potentially deploy capital into third-party securitizations or should the expectation be more so that you guys will continue to focus on your organically created investments?

So, you know, we look at a lot of bonds being offered by street desks. We buy smaller pieces here and there. Not because we have any bias necessarily to wanting to do the organic creation, but we believe in the economic value of it. I think given the fact that our manager is servicing the loans and we have the investment in the loans and our manager has done the diligence on the loans, we feel very, very comfortable with the underlying assets in the securitization versus buying in the secondary market from other originators for loans that are being serviced by others. But it's not a policy we won't do it for what we believe an appropriate return. We have bought in the past and we will buy in the future, but it's just from a best execution standpoint, the best path to redeploying the capitals to redeploy it into the securitizations that we've been doing. Okay, thank you.

Our next question is from Doug Harder of VTIG. Your line is open. Please go ahead.

Thanks, and good afternoon. Can you talk about the pacing of securitization activity, you know, to the extent that you're able to free up more capital through MSR sales? Do you think that could accelerate or, you know, is the pace that you've been operating at, you know, kind of the pace that the market, you know, that you see the opportunity as today?

Well, look, this is the advantage that, you know, PMT has given its synergistic relationship with PFSI. And, look, I think that as we have capitalists deploy, I can see us doing larger securitizations. to create larger investments. You know, we've been redeploying some of the capital into, you know, the floaters. But I don't, you know, I think that we have, look, the leading, PFSI is the leading correspondent aggregator. There's securitization activity around, you know, call it 25% to 30% of the owner-occupied loans that go to the GSEs. Securitization activity around the investor and second homes that go to the GSEs. We at PMT could do jumbo securitizations. And, you know, given the pace of activity of non-QM that we're doing in PMT, combined with the fact that, you know, PFSI is doing a robust amount out of its broker division and is selling in the secondary market for which PMT could buy, we could do a non-QM securitization, which, you know, I'm hopeful we can get undone you know in the second half of the year and so there is a lot of opportunity for us to deploy capital into the securitization market so you know it's not you know it's not a necessarily a function of redeployment as we sell assets it's you know understanding that you know if we're going to sell servicing what the servicing landscape looks like and you know identifying that you know are we maximizing are, you know, the capital upon the sale in addition to maximizing the return upon the redeployment.

I appreciate that, David. And can you just briefly talk, what impact, if any, do you think the move higher in rates that we've seen will have on kind of securitization execution?

Look, any higher, any time you move higher in rates, it does have an effect on production. But I will tell you, we've been running at, I would say, slower levels over the past, call it, two months. And I think that you're going to continue to see things slow down. There's still a lot of activity on the origination side and the non-QM space. There's a lot of activity on the investor and second home space. and there's a good amount of activity in cash out refinances but there's no escaping the fact that mortgage is a cyclical endeavor and as rates go up activity does slow down.

With respect to the execution and a bit of the offset to that too though when we're talking about execution is that to the extent that there's less supply flowing into the market that can help in terms of Investor Demand for the Securitization, just because there's less overall supply. And so to the extent that there's still a good amount of loans, as David was talking about, sort of raw materials to generate the securitizations coming through from PNC's partnership with PFSI, that does give us that advantage and potentially a little bit of tailwinds with respect to securitization executions.

Great, appreciate it. Thank you.

There are no further questions at this time. I will now turn the call back to David Spector for closing remarks.

Thank you, Operator, and thank you all for joining us. If you have any additional questions, please don't hesitate to reach out to our investor relations team. Thank you so much.

Thank you for attending. You may now disconnect.