PennyMac Mortgage Investment Trust

Good afternoon and welcome to PennyMac Mortgage Investment Trust's third quarter 2026 earnings call. 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 PennyMac Mortgage Investment Trust's website at pmt.pennymac.com. Before we begin... David Spector, Penny Mac Mortgage Investment Trust Chairman and Chief Executive Officer. Please go ahead.

Thank you, Operator. Good afternoon and thank you to everyone for participating in our third quarter 2026 earnings call. Before discussing our financial results, I want to take a few moments to address the important leadership transitions we announced earlier today. Thank you for joining us. Over the next several months, Doug's roles and responsibilities will transition smoothly to other senior leaders across our organization. Second, effective January 1st, 2027, Kevin Ryan, currently our Chief Strategy Officer, will assume the role of Chief Financial Officer. Dan Perotti, our current CFO, will remain in his current role through the end of this year and will continue supporting the company in an advisory role through the first quarter of 2027. Kevin will continue to lead our strategy and business development teams alongside his financial leadership responsibilities. I want to express my extraordinary gratitude to both Doug and Dan for their long service to PennyMac, their relentless dedication and their enduring passion for our business. Both served in critical leadership positions, guiding PennyMac through dynamic market cycles and helping transform our organization to the premier mortgage company it is today. Their countless contributions have shaped our foundation and they will be greatly missed. Having said that, we have an exceptional leadership team and a deep bench of talent that is fully prepared to lead PMT into its next chapter. I have absolute confidence in this management team's ability to carry our strategy forward seamlessly while driving long-term value for our shareholders. Turning to our third quarter results on slide three, PMT reported a third quarter net loss attributable to common shareholders of $36 million or a loss of 41 cents per common share. These results were primarily impacted by market-driven value declines driven by mortgage spread widening and rate volatility. Excluding market-driven value changes, our investment strategies generated adjusted net income attributable to common shareholders, and many more. PMT's Board of Trustees approved a $130 million increase to our share repurchase authorization, bringing our total available capacity to over $200 million currently. On slide four, we summarize our three key capital allocation priorities. In recent periods, we have sold or committed to sell approximately $35 billion in UPB of agency MSRs, including a meaningful amount of higher no-rate MSRs and we will continue to evaluate additional sales opportunities to free up capital for redeployment into higher yielding investments. Next, PMT's upcoming fourth quarter common dividend is expected to be reduced in order to maximize the potential for book value accretion and support the ongoing rotation of capital into higher returning assets. and finally, PMT's common shares continue to trade at substantial discount to book value per share. In response, we are opportunistically looking to repurchase outstanding common shares where these repurchases meet our return hurdles, driving long-term value for our shareholders. Now turning to slide five, as I mentioned earlier, Thank you for joining us. This wider mortgage basis drove asset price declines and sector-wide headwinds related to hedging and pipeline management. Turning to slide six, we highlight why PMT is differentiated from peers and why our diversified model helped insulate us from these sector-wide headwinds. First, prepayment risk on our MSR asset remains very low with the portfolio carrying a weighted average coupon of 3.9%. Meanwhile, agency MBS and credit sensitive investments provide a natural hedge to our MSR portfolio with residual exposure actively managed through interest rate derivatives. Second, as discussed last quarter, PMT's correspondent acquisitions are now limited to non-agency loans. and finally, PMT's synergistic relationship with its manager, PennyMac Financial Services, Inc., gives it unique access to PFSI's capacity to organically create investments in the residential mortgage market. Further, PFSI's best-in-class servicing platform ensures proactive delinquency management and loss mitigation, which is expected to enhance the long-term performance of our investments. To discuss our portfolio sensitivity, the execution of our MSR sales and private label securitizations, and our updated run rate return potential, I am pleased to introduce Marshall Sebring, PMT's Chief Investment Officer.

Thank you, David. On slide seven, you can see how PMT carries significantly less sensitivity to both interest rate and spread changes compared to other mortgage rates. And during the third quarter, our modeled book value sensitivity to an instantaneous 50 basis point parallel rate shot was just 0.7%, less than one-fourth of the 3.6% average across a peer group of four publicly traded mortgage rates. Similarly, under a 10 basis point spread widening shot, PMT's modeled book value loss was 1.3% compared to 4.4% for the peer group. This lower sensitivity is a direct result of our portfolio diversification. Because fair value changes on our MSRs are naturally offset by our investments in agency MBS and credit assets, PMP's duration and spread exposures are partially mitigated before hedging activities. While mortgage spreads widen aggressively across the market, 85% or $56 million of our $66 million in net market-driven value declines was attributable to spread widening. At the same time, excluding market-driven value changes, our strategy is generating stable cash flows with our credit-sensitive and interest-rate-sensitive strategies producing $12 million and $37 million of pre-tax income, respectively. Looking ahead, our strategic roadmap is clear. We are actively rotating capital away from certain lower-yielding MSR assets and reinvesting into accretive, organically-created credit investments with expected ROEs in the low to mid-teens. This deliberate rotation expands our run rate earnings power, reinforces our book value stability, and positions PMT to deliver attractive, sustainable total returns to shareholders. Moving now to slide eight, we continue to actively rotate equity away from lower yielding MSR investments and redeploy that capital into higher returning, organically created credit investments from our private label securitization activity. During the third quarter, we sold $13 billion in UPV of agency MSRs and entered into an agreement to sell an additional $10 billion in UPV. After quarter end, we entered into an agreement to sell another $12 billion in UPV, bringing our total closed and committed MSR sales to approximately $35 billion. Importantly, these transactions were executed at prices at or near fair value. and we will continue to evaluate additional sales opportunities as they arise in order to optimize our return on capital and create a more balanced weighting between credit and interest rate offensive strategies. In our private label securitization business, we completed eight transactions in the third quarter across non-owner occupied jumbo and owner occupied collateral, retaining $167 million of accretive investments with expected ROEs in the mid-teens. As shown on slide nine, this ongoing capital rotation combined with the current rate environment has increased our projected run rate return potential over the next four quarters to 38 cents per common share, up 15% from 33 cents in the prior quarter. This translates to an expected average annualized return on common equity of 10.6%. This expansion in our forward-looking returns is driven by two key dynamics. First, higher interest rates as well as recent sales of MSRs have driven prepayment expectations lower, which substantially reduces our projections for amortization. As a result, our MSR asset is projected to deliver an annualized return on equity of 12.8% over the next four quarters. And as discussed previously, we are accelerating the deployment of capital released from MSR sales and to organically created investments from our private label securitizations. These investments carry targeted ROEs in the low to mid teens, which compares favorably to run rate returns on certain MSIs. Overall, we expect improved performance across all three of our primary investment strategies. As David highlighted earlier, we will continue actively monitoring our equity allocations with PMT's upcoming fourth quarter dividend expected to be adjusted to maximize book value accretion while also considering projections of taxable income. Now I'd like to introduce our current chief strategy officer and incoming CFO, Kevin Ryan.