# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_PMT_2022/NYSE_PMT_2022.mmd` · pages 2-8_

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Dear Fellow Shareholders,

2022 proved to be a challenging year for the mortgage industry and mortgage REITs overall, including PMT. The Federal Reserve's tightening of monetary policy in response to high inflation drove a rapid and significant increase in mortgage rates, which ended 2022 at the highest levels observed in the last 15 years. While these higher interest rates drove strong financial performance for PMT's interest rate sensitive strategies, the results were more than offset by related tax provisions attributable to fair value changes on investments held in its taxable REIT subsidiary as well as fair value declines in its credit sensitive strategies as market credit spreads widened due to the uncertain impact higher rates may have on the broader economy. Additionally, the steep decline in the size of the origination market from \(4.4 trillion in unpaid principal balance (UPB) in 2021 to an estimated \)2.3 trillion in 2022, according to Inside Mortgage Finance, led to lower volumes and income in PMT's correspondent production segment. For the full year, PMT reported pre-tax income of \(63 million. However, net of tax provisions, PMT reported a net loss of \)73 million; and after distributions to preferred holders, the net loss to common shareholders was \(115 million or \)1.26 per common share. PMT declared and paid dividends of \(1.81 per common share, which combined with the net loss resulted in a reduction in book value per common share to \)15.78 at year-end from \(19.05 \( ^{1} \)  at year-end 2021. While overall performance last year did not meet our expectations, the underperformance was largely driven by fair value changes of our investments and hedges. However, the fundamentals underlying PMT's diversified investment portfolio remain strong and we are confident in the earnings potential of the platform over the longer term.

In 2022, PMT created nearly $700 million of new mortgage servicing rights (MSR) and credit sensitive investments sourced primarily from \(37 billion in UPB of conventional correspondent production designated for its own account. Though the mortgage origination market is expected to remain constrained in 2023 due to higher prevailing mortgage rates, we believe PMT is well-positioned given its historical orientation towards purchase money loans, which are expected to comprise the majority of originations over the next several years. Additionally, the exit of Wells Fargo, a long-term and well-respected competitor in this channel, provides opportunities for smaller community banks, credit unions and independent mortgage companies across the country to benefit by partnering with PMT, who can provide the products,

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stability and support they need to successfully navigate the current mortgage market. The investments we have made in our correspondent lending platform in recent years have made the business extremely scalable, and we stand ready and able to absorb the volumes left behind by Wells Fargo and others who have decided to exit or reduce their participation in the channel without a meaningful increase in associated expenses.

This management team has a long and successful track record of investing in and managing credit sensitive investments. Although PMT's financial performance in 2022 was negatively impacted by fair value declines in its credit sensitive strategies due to wider market credit spreads, the same market dynamics generated opportunities to deploy capital into additional credit assets at attractive risk-adjusted returns. In fact, during 2022 we created or invested in more than $200 million of new credit investments, and looking ahead to 2023 we expect additional investment opportunities to arise. Further, our front-end lender risk share investments, which comprise a large portion of our credit sensitive strategies, consist of loans originated by PMT from 2015 to 2020. Since borrowers with loans underlying these investments have built up a significant equity position in their homes as a result of seasoning and strong home price appreciation in recent years, we ultimately expect realized losses to be limited. Additionally, the vast majority of financing arrangements we maintain against those assets are term notes that do not contain margin call provisions, which has served us extraordinarily well in recent history, providing stable financing for these investments as their fair values fluctuated. While our discussions around the resumption of front-end lender risk share transactions with Fannie Mae and Freddie Mac continue, the GSEs' priorities have shifted towards the expansion of affordable home ownership, and therefore we do not expect to aggregate loans for delivery into a new front-end lender risk share transaction with the GSEs for some time.

PMT's interest rate sensitive strategies, primarily consisting of MSRs paired with Agency mortgage-backed securities, performed well in 2022 as interest rates increased meaningfully throughout the year. We expect performance in 2023 to remain strong, as the sensitivity to changes in interest rates of MSR fair values has declined meaningfully given the significant reduction in prepayment speeds from prior years and earnings from placement fees on custodial balances have increased along with short term interest rate levels.

While PMT's equity allocation to credit sensitive strategies has declined due to runoff and decreases in fair value, the allocation to interest rate sensitive strategies increased meaningfully given net new investments and fair value gains related to higher interest rates. In order to more proactively allocate equity among credit sensitive and interest rate sensitive segments, and to maintain capital for new opportunistic investments, in the fourth quarter of 2022 PMT began selling certain of its conventional correspondent loans to its manager and services provider, PennyMac Financial Services, Inc. (NYSE: PFSI), a mutually beneficial transaction for both companies that highlights the benefits of their synergistic relationship.

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While 2022 was a year of transition for PMT, I am optimistic for improved financial performance in 2023 due to the material improvement in the credit markets year-to-date, which supports both the valuation of our credit sensitive investments and the broader structured product markets in general. I also believe PMT's strength in correspondent lending, decreased volatility of MSR fair values, and our management team's long, successful track record of disciplined risk management positions PMT well to deliver strong risk adjusted returns to its shareholders as we move forward. Thank you for your continued trust and confidence in PMT.

Sincerely,

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David A. Spector
Chairman and Chief Executive Officer
April 21, 2023