# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_PMT_2019/NYSE_PMT_2019.mmd` · pages 2-8_

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Dear Fellow Shareholders,

Last year, PMT celebrated 10 years as a public company. PMT was established in 2009 to invest in differentiated residential mortgage strategies made possible through the operational and investment management capabilities of our manager and services provider, PennyMac Financial Services, Inc. (NYSE: PFSI). Our initial strategies focused on distressed mortgage loans, in which PMT was a major investor helping to resolve legacy issues coming out of the Great Recession, and correspondent production, entering this segment of the market to acquire newly originated loans as large banks retreated. Since then, our investment strategies have evolved along with the mortgage market, but throughout our history our manager has been unwavering in its focus on risk management. In particular, our disciplined approach to liquidity and capital planning distinguishes PMT from other mortgage REITs and has been a hallmark of PMT's success.

2019 was a great year for the company. PMT earned \(201 million in net income attributable to common shareholders, an increase of 58 percent from the prior year and representing a return on average common equity of 12 percent. Diluted earnings were \)2.42 per common share, up 22 percent from the prior year, and PMT declared dividends of \(1.88 per common share for the year. Book value per common share increased to \)21.37 from $20.61. Driven by these outstanding financial results, PMT was again among the best performing stocks in the mortgage REIT sector.

Low interest rates helped drive a strong mortgage origination market and PMT, through its leading correspondent production business, achieved record volumes in 2019. For the second half of the year, PMT was the largest correspondent aggregator in the U.S., according to Inside Mortgage Finance, facilitated by our ability to maintain fast turn times and high service levels. PMT's acquisitions of newly originated conventional loans in the correspondent business totaled \(56 billion in unpaid principal balance. PMT's deliveries under credit risk transfer (CRT) transactions with Fannie Mae resulted in \)1.8 billion of new CRT investments and PMT made over $800 million in new mortgage servicing rights (MSR) investments, all generated organically from its correspondent production business.

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To support this robust pipeline for new investments, PMT raised \(830 million in new common equity at attractive terms through four successfully underwritten offerings and its "at-the-market" offering program. PMT raised additional capital by issuing \)210 million of exchangeable senior notes. Just as important for PMT's capital structure, we successfully executed on an initiative to strengthen the financing for CRT, PMT's largest investment strategy. In 2017, we implemented a securitization structure to finance our Fannie Mae MSRs using secured term notes whose duration aligned more closely with that of our MSR asset. In 2019, we accomplished the same goal for CRT, issuing over $1.3 billion in three- and four-year term notes to finance our CRT investments; we issued an additional $350 million of three-year notes in early 2020 to finance the remainder of our funded CRT investments. The CRT term notes do not have mark-to-market provisions, eliminating the margin call exposure typically associated with financing through repurchase agreements, which has proven critical during the recent stresses in financial markets.

The financial markets have experienced significant dislocations related to the spread of the novel coronavirus and the resulting economic interruption and slowdown. The strength of PMT's liquidity and capital position is the result of the disciplined risk management we have employed throughout our history, including our continued success in hedging our MSR investments and our correspondent production pipeline. These market dislocations have resulted in credit spread widening that has driven fair value losses on our CRT investments, but because of their financing structure has had no impact on PMT's liquidity. While we continue to assess the impact of different possible economic scenarios on our investments, and the situation remains fluid as of this writing, we believe that the fair value losses on our CRT investments are outsized compared to the additional credit losses we expect to incur over the life of these investments. In particular, we believe that PFSI, our manager and subservicer, is well positioned to refinance qualifying borrowers and successfully execute forbearance and other assistance programs to reduce the likelihood of borrower default and ultimate credit losses.

The recent market dislocations have also created opportunities to invest in higher-yielding assets. We reduced the dividend per common share for the first quarter in order to preserve elevated levels of liquidity and capital for investment opportunities in the current environment. While we have curtailed new investments in CRT, we see attractive returns in our core correspondent production business and the resulting MSR investments – with further decreases in interest rates driving a large mortgage origination market and certain competitors forced to reduce or limit their participation – and we are evaluating opportunities to deploy capital in other mortgage investments.

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Looking to the rest of 2020 and beyond, we continue to remain optimistic in our ability to deliver attractive risk-adjusted returns to our shareholders. The two of us are working closely with the senior management team, as we always have, to advise and guide the company through these challenging times. We thank you for your continued trust and confidence in PMT.

Sincerely,

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Stanford L. Kurland
Executive Chairman
March 31, 2020

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David A. Spector
President and Chief Executive Officer
March 31, 2020