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Press Release: PennyMac Mortgage Investment Trust -2-

· 02/04/2021 16:30
Quarter ended -------------------------------------------------- December 31, September 30, December 31, 2020 2020 2019 ------------- ----------------- ---------------- (in thousands) From non-affiliates: Contractually specified (1) $ 111,741 $ 98,027 $ 90,822 Other fees 18,719 18,660 7,489 Effect of MSRs: Carried at fair value--change in fair value Realization of cashflows (56,258 ) (53,418) (59,248) Other (18,157 ) (13,055) 129,292 -------- --------- --------- (74,415 ) (66,473) 70,044 Gains (losses) on hedging derivatives (115,755) 962 (149,970) -------- --------- --------- (190,170) (65,511) (79,926) -------- --------- --------- (59,710 ) 51,176 18,385 From PFSI--MSR recapture income 11,067 9,251 2,207 -------- --------- --------- Net loan servicing fees $ (48,643 ) $ 60,427 $ 20,592 ======== ========= ========= (1) Includes contractually specified servicing fees, net of guarantee fees.

Net interest expense for the segment totaled $9.1 million, compared to $5.6 million in the prior quarter. Interest income totaled $0.6 million, down from $0.7 million in the prior quarter. Interest expense totaled $9.6 million, up from $6.2 million in the prior quarter, driven by increased financing costs related to the settlement of PMT's sixth CRT investment.

Segment expenses were $6.6 million, up from $2.8 million in the prior quarter due to additional expenses related to PMT's loss mitigation efforts.

Interest Rate Sensitive Strategies Segment

The Interest Rate Sensitive Strategies segment includes results from investments in MSRs, excess servicing spread (ESS), Agency mortgage-backed securities (MBS), non-Agency senior MBS and interest rate hedges. Pretax loss for the segment was $100.1 million on investment losses of $82.4 million, compared to a pretax loss of $1.5 million on revenues of $17.4 million in the prior quarter. The segment includes investments that typically have offsetting fair value exposures to changes in interest rates. For example, in a period with increasing interest rates, MSRs and ESS typically increase in fair value whereas Agency MBS typically decrease in fair value.

The results in the Interest Rate Sensitive Strategies segment consist of net gains and losses on investments, net interest income and net loan servicing fees, as well as associated expenses.

Net loss on investments for the segment was $14.1 million, and consisted of $7.3 million of losses on MBS, $5.9 million of losses in the fair value of ESS investments, and $1.0 million of losses on loans held by variable interest entity net of asset-backed secured financing, and $0.1 million of gains in the fair value of hedging derivatives.

Net loan servicing fees were a loss of $48.6 million, down from a gain of $60.4 million in the prior quarter. Net loan servicing fees included servicing fees of $111.7 million, up from the prior quarter primarily driven by a larger portfolio, and $18.7 million in other fees, reduced by $56.3 million in realization of MSR cash flows, which was up 5 percent from the prior quarter. Net loan servicing fees also included $18.2 million in fair value losses of MSRs, $115.8 million in related hedging losses, and $11.1 million of MSR recapture income. PMT's hedging activities are intended to manage the Company's net exposure across all interest rate sensitive strategies, which include MSRs, ESS and MBS.

The following schedule details net loan servicing fees:

MSR and ESS valuation losses were realized despite higher rates, driven by increased projections of future prepayment speeds. Agency MBS and interest rate hedges recorded fair losses due to higher interest rates. PMT further benefited from higher recapture income from PFSI for elevated prepayment activity during the quarter. PMT generally benefits from recapture income when the prepayment of a loan underlying PMT's MSR or ESS results from refinancing by PFSI.

Net interest expense for the segment was $19.7 million, up from $2.7 million in the prior quarter. Interest income totaled $17.6 million, down from $33.5 million in the prior quarter, primarily driven by increased amortization of purchase premiums on Agency MBS. Interest expense totaled $37.4 million, up from $36.2 million in the prior quarter, primarily driven by higher interest shortfall expense from elevated prepayment activity.

Segment expenses were $17.6 million, down from $18.8 million in the prior quarter.

Correspondent Production Segment

PMT acquires newly originated loans from correspondent sellers and typically sells or securitizes the loans, resulting in current-period income and additions to its investments in MSRs related to a portion of its production. PMT's Correspondent Production segment generated pretax income of $52.7 million, down from $86.9 million in the prior quarter.

Through its correspondent production activities, PMT acquired $56.9 billion in UPB of loans originated by nonaffiliates, up 28 percent from the prior quarter and 53 percent from the fourth quarter of 2019. Of total correspondent acquisitions, conventional conforming acquisitions from nonaffiliates totaled $38.0 billion, and government-insured or guaranteed acquisitions totaled $18.9 billion, up from $27.4 billion and $17.0 billion, respectively, in the prior quarter. Interest rate lock commitments on conventional loans totaled $39.5 billion, up from $34.4 billion in the prior quarter.

Segment revenues were $136.9 million, a 9 percent decrease from the prior quarter and included net gain on loans acquired for sale of $70.5 million, other income of $59.7 million, which primarily consists of volume-based origination fees, and net interest income of $6.7 million. Net gain on loans acquired for sale in the quarter decreased by $31.8 million from the prior quarter, as margins returned to more normalized levels. Interest income was $29.3 million, up from $26.1 million in the prior quarter, and interest expense was $22.6 million, up from $16.5 million in the prior quarter, driven by higher volumes.

Segment expenses were $84.1 million, up from $63.6 million in the prior quarter driven by the increase in activity. The weighted average fulfillment fee rate in the fourth quarter was 19 basis points, down from 20 basis points in the prior quarter.

Corporate Segment

The Corporate segment includes interest income from cash and short-term investments, management fees, and corporate expenses.

Segment revenues were $1.1 million, up from $0.3 million in the prior quarter.

Management fees were $8.7 million, up 2 percent from the prior quarter primarily driven by the increase in average shareholders' equity versus the prior quarter.

Other segment expenses were $5.7 million, up from $5.1 million in the prior quarter.

Taxes

PMT recorded a tax benefit of $9.0 million compared to a tax expense of $22.7 million in the prior quarter driven by a loss in PMT's taxable REIT subsidiary.

Management's slide presentation will be available in the Investor Relations section of the Company's website at www.pennymac-REIT.com beginning at 1:30 p.m. (Pacific Time) on Thursday, February 4, 2021.

About PennyMac Mortgage Investment Trust

PennyMac Mortgage Investment Trust is a mortgage real estate investment trust (REIT) that invests primarily in residential mortgage loans and mortgage-related assets. PMT is externally managed by PNMAC Capital Management, LLC, a wholly-owned subsidiary of PennyMac Financial Services, Inc. (NYSE: PFSI). Additional information about PennyMac Mortgage Investment Trust is available at www.PennyMac-REIT.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management's beliefs, estimates, projections and assumptions with respect to, among other things, the Company's financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like "believe," "expect," "anticipate," "promise," "plan," and other expressions or words of similar meanings, as well as future or conditional verbs such as "will," "would," "should," "could," or "may" are generally intended to identify forward-looking statements. Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: our exposure to risks of loss and disruptions in operations resulting from adverse weather conditions, man-made or natural disasters, climate change and pandemics such as COVID-19; the impact to our CRT agreements of increased borrower requests for forbearance under the CARES Act; changes in the Company's investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject it to additional risks; volatility in the Company's industry, the debt or equity markets, the general economy or the real estate finance and real estate markets specifically, whether the result of market events or otherwise; events or circumstances which undermine

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February 04, 2021 16:30 ET (21:30 GMT)