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?