# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_PMT_2017/NYSE_PMT_2017.mmd` · pages 2-8_

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Dear Fellow Shareholders,

PennyMac Mortgage Investment Trust (NYSE: PMT) is a unique residential mortgage real estate investment trust (REIT) that invests in attractive strategies made possible through the operational and investment management capabilities of its manager and service provider, PennyMac Financial Services, Inc. (NYSE: PFSI). Examples of these investments include credit risk transfer (CRT) on newly originated loans delivered to Fannie Mae and mortgage servicing rights (MSRs) generated organically from PMT's mortgage production.

In 2017, higher interest rates created headwinds for our correspondent production activities while volatility created challenges for our interest rate sensitive strategies. We also observed strong demand for credit-related assets whose fair value benefited from the tightening of credit spreads. Against this backdrop, PMT earned \(102 million in net income attributable to common shareholders, an increase of 35 percent from 2016, and representing a return on average common equity of 8 percent. Diluted earnings per common share were \)1.48 and included a benefit of \(0.13 related to the passage of the new federal tax law. We declared dividends in 2017 totaling \)1.88 per share, and book value per share was \(20.13 at year end. These results reflect the significant progress PMT has made transitioning from underperforming distressed whole loan investments and redeploying that capital into growing attractive investments in CRT and MSRs.

During 2017, PMT produced a total of \(63 billion in unpaid principal balance (UPB) of newly originated mortgages, making it again the largest non-bank correspondent producer in the U.S. and the second-largest overall, according to Inside Mortgage Finance.

Our large volumes of conventional conforming production resulted in strong growth in PMT's MSR and CRT investments. During 2017, PMT generated \(290 million in new MSR investments from our mortgage production, bringing total MSR investments to \)845 million at December 31, 2017, on an underlying servicing portfolio of \(72 billion in UPB. PMT seeks to hedge the impact of interest rates on its MSRs through offsetting investments in mortgage backed securities and derivative investments.

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We delivered more than \(14 billion in UPB of CRT loans in 2017, and we ended the year with \)688 million of CRT investments outstanding and commitments to fund \(482 million in additional CRT investments. Our CRT investments have delivered outstanding returns, reflecting the strong credit performance of the underlying mortgages and the robust market demand for credit investments which benefited their market value. Without the market-driven valuation impact, the return on equity for CRT was 19 percent, which aligns with our expectations for the returns from these investments. PMT's CRT investments reflect the portion of the credit risk taken on newly originated mortgages we produce and securitize with Fannie Mae. Because we closely examine these loans during our correspondent acquisition process, and we also service the loans over their life, we believe we have better insight into the credit quality of these investments and are in a position to optimize their performance versus generic CRT investments such as CAS or STACR securities. We believe there is tremendous potential to continue growing our CRT strategy in partnership with the government-sponsored enterprises (GSEs).

Throughout the year, we made significant progress reducing PMT's investments in distressed mortgage loans. Our distressed loan investments represented 22 percent of PMT's equity at December 31, 2017, down from 39 percent at the start of the year. Our emphasis remained on modifications as the preferred loan resolution path because they help keep borrowers in their homes, and once a track record of performance has been achieved, the modified reperforming loans can be sold into well-established markets. In 2017, we sold $438 million in UPB of performing loans. The improved market tone for credit assets also opened the door to opportunities to sell nonperforming loans (NPLs). In the fourth quarter of 2017, we completed our first sale of NPLs totaling $154 million in UPB, and we subsequently announced a larger sale of NPLs and performing loans in early 2018, further reducing PMT's equity allocated to these investments.

We successfully raised equity through two preferred share issuances in 2017, with gross proceeds totaling \(310 million. The proceeds are being deployed toward growing investments in CRT and MSRs, in addition to repurchasing our common shares at a discount to their book value. In 2017 and through January 5, 2018, we repurchased approximately \)102 million of PMT's common shares, with an estimated underlying book value of $125 million. In December, our Board of Trustees authorized another increase in our repurchase program. Since inception, we have reduced PMT's common shares outstanding by approximately 19 percent.

We also are making enhancements to the financing strategy for our investments. Notably, we have developed and put in place a securitization structure to finance PMT's Fannie Mae MSRs. The securitization structure offers many advantages, among them access to long-term financing through the potential issuance of term notes, diversification of financing to include institutional investors, access to cost-effective capital and the ability to expand financing capacity as our MSR asset grows.

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In the current market environment, we also are pursuing new investment opportunities for PMT. We recently re-introduced a prime jumbo offering to serve our correspondent clients better and drive additional purchase volume. As volume grows, we expect to securitize these loans and invest in the subordinate tranches of PMT's jumbo securitizations.

PMT's performance in 2017 represents meaningful progress in the transition to an improved earnings outlook, and we expect further success resolving the remaining distressed loan investments and realizing higher return on equity. PMT's unique ability to generate attractive long-term investments such as CRT and MSRs fuels our optimism for the future and the belief that its investment strategies have the potential to deliver attractive long-term, risk-adjusted returns.

Sincerely,

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Stanford L. Kurland

Executive Chairman

April 17, 2018

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David A. Spector

President and Chief Executive Officer

April 17, 2018