Good afternoon, and welcome to PennyMac Mortgage Investment Trust First Quarter 2025 Earnings Call. Additional earnings materials, including the presentation slides that will be referred to in this call are available on PennyMac Mortgage Investment Trust website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on slide 2 of the earnings presentation that could cause the company’s actual results to differ materially as well as non-GAAP measures that have reconciled to their GAAP equivalent in the earnings materials. Now, I’d like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust Chief Financial Officer. You may begin.

Thank you, operator. For the first quarter, PMT produced a net loss to common shareholders of $1 million or diluted earnings per share of negative $0.01. Strong levels of income, excluding market driven value changes were offset by net fair value declines due to interest rate volatility and credit spread widening. PMT declared a first quarter common dividend of $0.40 per share. Book value per share at March 31st was $15.43, down modestly from December 31st. Current third-party estimates for industry originations averaged $2 trillion in 2025, reflecting projections for growth in overall volumes with moderate contributions from both refinance and purchase. Interest rates have been extremely volatile in recent periods, creating a challenging environment for most mortgage REITs. However, our diversified investment portfolio, efficient cost structure and strong risk management practices enabled us to effectively manage through these challenging market conditions. These risk management practices include our well-established interest rate hedging program and the establishment of unique non-mark-to-market financing arrangements for the vast majority of our credit risk transfer investments, which enable us to effectively manage through volatile markets. Turning to slide 5. Our synergistic relationship with PFSI provides PMT with unique and proven competitive advantages. First, PMT leverages PFSI's best-in-class operating platform, including its deep and experienced management team, scaled servicing operations and its large and agile multi-channel origination business which provides PMT with a consistent and high-quality pipeline of loans for investment. Second, our structure allows PMT to efficiently deploy capital into long-term mortgage assets without the operational burdens associated with origination and servicing. And third, PFSI's deep access to the origination market coupled with PMT's ability to execute private label securitizations and retain the related investments positions PMT to capitalize on the evolving landscape for secondary market execution should the GSEs reduce their footprint. This provides…

Thank you, David. PMT reported a net loss to common shareholders of $1 million in the first quarter or negative $0.01 per diluted common share. The credit-sensitive strategies contributed $1 million to pre-tax income. Losses from organically created CRT investments were $5 million. Investments in non-agency subordinate MBS generated gains of $4 million and investments in cash and stacker bonds, generated gains of $2 million. Other credit-sensitive strategies contributed losses of $0.2 million. The interest rate sensitive strategies contributed a pre-tax loss of $5 million. Fair value declines on MSR investments were $56 million as the decrease in mortgage rates drove an increase in future prepayment projections. These fair value declines were partially offset by the combined impact of changes in the fair value of MBS, interest rate hedges and related income tax benefits. MBS fair value increased by $65 million due to the decline in market interest rates. Interest rate hedges decreased by $40 million. Declines on MSRs held in PMT's taxable REIT subsidiary were the primary driver of the $16 million tax benefit. The fair value of PMT's MSR asset at the end of the quarter was $3.8 billion, down slightly from December 31st as fair value declines and runoff were partially offset by newly originated MSR investments. Delinquency rates for borrowers underlying PMT's MSR portfolio remain low, while servicing advances outstanding decreased to $84 million from $105 million at December 31st. No principal and interest advances are currently outstanding. Total correspondent loan acquisition volume was $23 billion in the first quarter, down 18% from the prior quarter and consistent with the overall decline in the size of the origination market. Correspondent loans acquired for PMT's account totaled $3 billion, down 20% from the prior quarter. PMT retained 21% of total conventional correspondent production in the first quarter,…

I would like to remind everyone, we will only take questions related to PennyMac Mortgage Investment Trust or PMT. We also ask that you please keep your questions limited to one preliminary question and one follow-up question, as we'd like to ensure we can answer as many questions as possible. [Operator Instructions] Your first question comes from the line of Bose George with KBW. Please go ahead.

Hey, guys. Good afternoon. Just given the movement in rates since quarter end, can you just talk about, any changes in your book value and also changes in the expected ROE, since quarter end?

So overall, there's been significant interest rate volatility since the end of the quarter as well as credit -- additional credit spread widening since the end of the first quarter. And we've had impacts on -- from both of those during the quarter thus far. Overall, we're very pleased with the installation that we've had from our hedging program on the -- with respect to the interest rate volatility. But the combination of -- some of the higher hedge costs, some of the interest rate volatility and the spread widening has decreased our book value by about 2% to 3% since the end of the quarter but that remains fairly contained. And obviously, there's a significant amount of the quarter left to run. With respect to the ongoing ROE other than those fair value impacts during the -- in the -- with respect to Q2, the ongoing ROE, our run rate return potential reflects really where we've landed since the – through the quarter-to-date and what our expectations are going forward with respect to that.

I would add to that, Bose, given the nature of our debt, especially in CRT, where we don't have mark-to-market and not subject to margin call provisions. It's at times like this where it's really critical when spreads wide and we don't have assets that in the worst case we'd have to sell. And so I think it's an important asset to look at the liability structure we have in place that the underlying fundamentals for the loans remains the same. In our CRT portfolio, we a lot of borrowers, a lot of equity, high credit quality, and I don't -- they're so seasoned that at this point, it would take something really serious for them to be affected. And so I think -- and the same thing holds true for the MSRs, where we have so much low rate servicing with a likewise equity in the underlying properties. The fundamentals stay the same. And so I think it's -- at times like this, it's the fact we hedge just important, and it's the fact that we've termed out our debt without the mark-to-market for the assets that we can hedge cannot hedge that's just as important.

Yes. Okay. Great. Thanks. I definitely appreciate the strength of the capital structure. Actually, just one more on -- just on the mortgage banking, just given the change in the -- or the update in the mortgage banking agreement between PennyMac and PFSI. Is there an expectation that PMT could acquire a larger percentage of loans from PFSI in the back half of the year?

The PMT's acquisition amount really goes to where it's -- where we see it as most advantageous to deploy capital. So currently, we've been more focused on increasing our investment in the credit-sensitive strategies and overall, in terms of the interest rate sensitive strategies with the amount that's going through the correspondent channel and the MSR that's retained there. That has been roughly holding constant in terms of the interest rate-sensitive strategies. And so in terms of what our outlook is currently, we wouldn't necessarily expect an increase in the proportion of loans that PMT is retaining or keeping in the back half of the year since we are more focused on building up the credit-sensitive strategies as opposed to creating more MSR that would go into the interest rate sensitive strategies.

Okay, great. Make sense. Thank you.

Your next question comes from the line of Jason Weaver with Jones Trading. Please go ahead.

Hi, guys. Good afternoon.

Good afternoon.

Thanks for taking my question. So just a bridge onto the end of Bose's question there. Last quarter, we were obviously discussing moving more towards credit focused investments and less interest rate-sensitive strategies. It seems we've incrementally shifted somewhat of that wave during the first quarter. Can you update on -- a little bit on your thinking given the current dislocation into 2Q right now about where you want to commit capital and what looks most attractive right now?

Look, I don't know. I would say that -- I don't know if I -- I'm not seeing a dislocation in the mortgage market. What I would say to you is that we're generally pleased, but the capital allocation as we have it today. It's important, as you point out, that PMT continues to grow census, it's credit sensitive strategy position and being a serial issuer is very important. We're seeing the benefits of that and our securitizations and the spread tightening that's taking place with the senior bonds that get issued. I want to continue to explore doing a jumbo securitization every quarter. We're going to do our first one this quarter. And so I think that if the origination market growth or normalizes, the GSEs reduced their footprint through increasing all level price adjustments. We could do more securitization. Having said that, I'd like to see PMT also continue to benefit from the correspondent activity. I think that there's natural runoff that takes place in the interest rate sensitive strategies position. And so I don't want to put that position in a runoff mode, but there is some replenishment that I would like to see in that position. And, of course, it all comes into two issues with the amount of capital we have to invest and the best execution for that capital. And that's probably the biggest change in how we think about PMT versus two years ago and that we want to focus on continuing to increase the returns in PMT and really focus on it from an investment management point of view by looking at the best execution for all of the investments.

Thank you. That's helpful. And then on correspondent specifically, just given the decline in mortgage rates that was apparent during the second half of the first quarter, what kind of visibility do you have coming into 2Q about volumes just from those loans closing?

I think to your point, correspondent, we -- I expect to see increased correspondent activity starting at the end of this month and running into May. As the loans that were locked into our correspondence Pipelines fund. But I think, look, the market is right now centered on a $2 trillion origination market. Obviously, with -- that's rate dependent. I do think we're in a more traditional mortgage banking environment where you have greater volatility and you're going to be short periods refinance activity followed by longer periods, or perhaps short periods of higher rates. And so with this volatility, the total originations can move as well. But I think we're all still convicted that we're in a $2 trillion market, but we're only in April as we speak.

Agreed. Okay. Well, thank you for that color, and helpful as always.

Thanks so much.

[Operator Instructions] Your next question comes from the line of Doug Harter with UBS. Please go ahead.

Thanks. Can you talk about your outlook for the dividend given that you lowered run rate earnings? And kind of the ability -- and wanting the ability to kind of retain as much capital for future growth and therefore, kind of how the dividend fits into the total return strategy.

So consistent with our -- what we've seen previously as the run rate has moved around a little bit, we do expect the dividend to remain stable. We do think there's a value in the dividend stability, but also the -- we do the primary reason for the decline in the run rate quarter-over-quarter really has to do with the shape of the yield curve and its impact on the interest rate sensitive strategies as longer-term yields decline, but overall short-term financing rates have not moved further. The Fed is on pause. That really puts some pressure on the interest rate sensitive strategies and the net returns generated there. We do expect the yield curve to normalize over time and drive up the expected returns on that interest rate sensitive strategy. And so this decline in terms of the run rate is within the range that we've seen previously. It doesn't really change our view currently in terms of the dividend and maintaining it at the level that we've had at $0.40

Great. And Dan, just a follow-up on the yield curve, it seems like so far in April, while volatile, the yield curve has steepened somewhat and I guess if you look at the forward curve, it would imply kind of even steeper. Just want to make sure I understand kind of when you think about run rate, how -- what pieces of that either April or the forward curve are kind of baked into that run rate expectation? Or is that kind of currently what you're seeing?

Well, it's a little bit of a moving target, but consistent -- we still think that we're in that range once we see either yields move up a bit further or maintain their level at the somewhat higher rates or short-term rates decline a bit, either of those would sort of lock in an increase in terms of our expectations with respect to – with respect to the run rate return potential of the interest rate-sensitive strategies.

Okay. I appreciate that, Dan. Thank you.

Your next question comes from the line of Trevor Cranston with Citizens JMP. Please go ahead.

All right. Thanks. Good afternoon. You guys talk about the return expectations you're seeing on new loan securitizations, and if there's been any material change there with the spread widening we've seen so far in April kind of versus where you were seeing expected returns in the first quarter. Thanks.

Look, I mean, obviously, with the credit spread widening, I would say that the return targets on the sub bonds that we have in our position have increased as one would expect. And I would say right now, the return targets on sub-bonds are, call it, mid-teens, call it, 15%-ish. And I think that, that's something that intrigued us about the -- that's one of the reasons why we're doing the securitization activity that we're doing. And I think that for us to get that returns being in the organic creation of the security is really important. We're not seeing a lot of secondary flows in the market right now. And so to meaningfully deploy the capital into these returns, having the structure that we have and having the ability to have the loans to create the securitization is something that's really unique for PMT.

Got it. Okay. Appreciate the timing. Thank you.

Your next question comes from the line of Eric Hagen with BTIG. Please go ahead.

Hey, thanks. A follow-up on the interest rate strategies, I mean you typically manage an agency MBS portfolio alongside the MSR portfolio, sort of, paring or kind of a hedge, if you will. I mean, would you say that the jumbo and investor property loans are somewhat of a substitute for the agency MBS portfolio since the risk profile is kind of similar, or is that really not the way you guys are just thinking about?

So it depends on the portions of the capital structure that we retain, and we identify that and in terms of the expected contribution from each of those and the expected equity in the run rate return potential. So to date, in terms of our securitizations, we've retained on a few of the securitization, some of the senior mezz portion, which really has, as you know, interest rate sensitivity that's similar to the TBA position with a little bit generally wider spread. And so those we do view as a substitute effectively for some of the agency MBS position. But primarily -- and we noted the investments that we've made in credit sensitive versus the interest rate sensitive in some of the earnings release. In the last quarter, we retained $66 million in credit sensitive or subordinate bonds, which we don't view as a substitute, which are really more first loss piece and credit sensitive about $29 million of the somewhat more senior bonds that are more effectively substitutes for TBA. So the portion of it is a TBA substitute, but most of what we're investing in from the securitizations is really not comparable and more of a credit investment similar to CRT.

Got it.

We have no further questions at this time. I will turn it back to David Spector for closing remarks.

Thank you, operator. I'd like to thank everyone for joining us today. Please don't hesitate to reach out to our Investor Relations team, if you have any follow-up questions. And again, thank you all very much.