Good afternoon, and welcome to the third quarter 2014 Earnings discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available from the PennyMac Mortgage Investment Trust website at www.pennymac-reit.com. Before we begin, please take a few moments to read the disclaimer on Slide 2 of the presentation.

Thank you. Now I'd like to turn the discussion over to Stan Kurland, PMT's Chairman and Chief Executive Officer. .

Thank you, Chris. I would like to begin with the highlights of PMT's third quarter performance on Slide 3. PMT's strong financial performance continued in the third quarter, where it earned $54.9 million in net income or $0.69 per diluted share, which represents an annualized return on equity of 14%.

PMT paid a dividend of $0.61 in the third quarter, a $0.02 per share increase from the previous quarter, and book value rose to $21.42 per share, up from $21.27 per share at the end of the second quarter. This quarter's results continued our track record of regular dividend distributions and growing book value. .

Investment Activities and Correspondent Production.

The Investment Activities segment earned $55.1 million in pretax income, driven by gains on distressed mortgage loans resulting from an improvement in the progression of loans towards their ultimate resolution, strong investor demand for performing distressed loans and improved current and future home price expectations.

While we didn't acquire any new distressed loan pools during the quarter, we are active bidders in the distressed market and remain disciplined in pursuing new investments for PMT. .

The Correspondent Production segment earned $2.8 million in pretax income, which reflects the highly competitive correspondent market for newly originated conventional conforming loans.

The correspondent aggregation activities result in new mortgage servicing rights, which we see as attractive investments, particularly in the current low interest-rate environment. Correspondent loan acquisitions increased 15% from the second quarter, which included a 109% increase in prime jumbo acquisition. .

MSRs and excess servicing spread, or ESS, investments grew to $533 million during the third quarter, which relate to $60 billion in UPB of servicing at September 30. For the quarter, PMT made $40 million of direct investments in MSRs from conventional Correspondent Production activities, representing $3.7 billion in UPB.

This quarter's investments in ESS were $9 million, representing $1.6 billion in UPB from mini-bulk and flow acquisitions of agency mortgage servicing rights by PennyMac Financial. Finally, we invested $54 million in opportunistic acquisitions of non-agency MBS backed by prime jumbo loans.

PMT's distressed loan portfolio generated $172 million of cash proceeds from the liquidation of mortgage loans and REO during the quarter, $66 million of which came from selling a pool of performing loans. .

Now let's turn to Slide 4 and discuss our current perspective on the mortgage environment. While mortgage rates trended slightly higher during the third quarter, they remained very low in a historical context, which continued to aid refinance activity.

Subsequent to the end of the third quarter, mortgage rates declined again, which should benefit mortgage production volumes in the fourth quarter. Relatively low rates also helped to maintain the attractiveness of purchasing a home compared to renting.

Market expectations are for interest rates to remain low through 2015 despite the recent end of the Fed's quantitative easing program with rates expected to increase over time as economic growth improves. .

We have observed a slowdown in the rate of home price appreciation thus far in 2014, and the rate of change appears to be moderating to a more normalized pace across much of the United States. Further increases in home prices are likely to be driven by the historically low inventory of available homes and improvements in employment and wages.

The chart at the lower right depicts the available inventory of new and existing homes as a percentage of all households in the U.S., which illustrates the lack of supply in today's housing market. Inventory levels fluctuate but have typically ranged in the past from a low of 2% of households to as high as 4%.

Inventory levels in recent quarters have fallen below 2%. One factor behind this decline is that since the financial crisis, new home construction has failed to keep pace with household formations. Although single-family housing starts have risen, it will take time for these units to translate into meaningful new supply.

The prime jumbo market has begun to improve relative to the first half of 2014 as evidenced by PMT's increase in its jumbo acquisition volumes and the recent uptick in prime jumbo securitizations from a growing number of issuers. .

Another development in the U.S. mortgage market is the growing emphasis that the Federal Housing Finance Agency and the Federal Housing Administration are placing on expanding the availability of mortgage credit to potential borrowers that fall outside of today's strict lending standards.

We view this as a positive development and support the efforts of these agencies but do not yet know how meaningful the impact of these new programs will be.

We continue to see heightened scrutiny of nonbank mortgage companies and discussion about the risks that they may pose, including concerns that they have adequate capital, capabilities and governance systems in place.

We believe that PennyMac Financial is distinguished among mortgage companies with its organically built operating platform, strong corporate governance culture and appropriate levels of capital. Our businesses are subject to considerable external oversight, including from regulators, agencies and other institutional partners.

We believe that a well-managed specialist firm, like PennyMac Financial, should play an important and increasing role in today's mortgage market. .

Now let's turn to Slide 5 and review PMT's investment objectives. PMT aims to deliver superior long-term returns to shareholders by managing an investment portfolio consisting of multiple residential mortgage-related strategies. We continue to pursue several attractive opportunities in the U.S.

mortgage market and new opportunities continue to emerge as the market evolves. These opportunities include distressed whole loans, correspondent loan aggregation and the resulting investment in MSRs, excess servicing spread on MSRs acquired by PennyMac Financial, agency and non-agency MBS and the retained interest from jumbo securitizations. .

The prime jumbo market has seen recent signs of improvement, evidenced by our higher jumbo production volumes and increased issuance of non-agency MBS backed by prime jumbo loans.

We are also evaluating new opportunities in new asset classes, such as small-balance commercial mortgages, which have a potential for attractive returns and align with our core expertise of managing mortgage investments. Together, we expect our investments to deliver attractive returns on equity for shareholders.

In addition, we continue to see opportunities to improve PMT's returns by building out its capital structure with prudent increases in debt financing. PMT's leverage ratio was 1.8x equity at September 30. .

Now let's turn to Slide 6 and discuss in greater detail how PMT has continued to deploy capital into new investments. PMT's existing investment portfolio generates significant cash flows that we are deploying into attractive new investments. The chart on Slide 6 details PMT's cash flows for the 9 months ended September 30, 2014.

PMT's investment portfolio generated gross cash inflows of $725 million, primarily resulting from the resolution and sale of distressed loans and REO. These proceeds, in addition to $223 million in new capital raised this year from a net increase in borrowings and proceeds from the issuance of equity, generated $948 million of gross cash inflows.

PMT used cash of $226 million to finance a larger mortgage loan inventory resulting from higher correspondent acquisition volumes. Cash outflows related to other operating activities, including loan fulfillment, loan servicing and management fees paid to PennyMac Financial and dividends paid to shareholders, were $196 million.

Collectively, gross operating cash outflows were $422 million for the 9-month period, leaving a significant amount of cash available for reinvestment.

PMT invested $507 million over the 9-month period, redeploying the cash generated from distressed loan investments into attractive new investments in MSRs, ESS, MBS and distressed mortgage loans, resulting in a net increase of $19 million in cash for the year-to-date. .

Let's now turn to Slide 7 and discuss the composition of PMT's portfolio of mortgage-related investments. On Slide 7, we show the trend in PMT's mortgage investments over the last 5 quarters.

Distressed mortgage loans comprise more than half of PMT's mortgage assets at quarter end and our investments that we believe will continue providing attractive returns over time. New investment activity during the quarter included a combined $49 million in MSRs and ESS, bringing the total investment in these assets to $533 million at September 30.

PMT also acquired $54 million of non-agency MBS backed by prime jumbo mortgages. .

PMT's investment strategies have complementary sensitivities to interest rates. Investments in MBS and retained interests from securitizations, for example, increase in value with decreases in interest rates. Other assets, such as MSRs and excess servicing spread, tend to increase in value with increases in interest rates.

These complementary sensitivities help to moderate the overall balance sheet exposure to interest rate movements. It is also important to note that our current investments in distressed mortgage loans have an estimated weighted average life of over 4 years.

As a result, we expect distressed loans to be a meaningful contributor to PMT's investment earnings well into the future. .

Now I'd like to turn it over to David Spector, PMT's President and Chief Operating Officer. .

Thank you, Stan. During the third quarter, we continued to evaluate investment opportunities in distressed whole loans. As Stan mentioned, PMT did not make an investment in these assets during the third quarter even though the supply of distressed loans available in the market continues to remain strong.

To achieve targeted return levels, it appears that investors have recently relied more heavily on assumptions about future home price appreciation over the liquidation time frame and on leverage in determining bid prices, which can result in greater downside risk.

We remain an active bidder in the distressed market and continue to be patient and disciplined in making investments. .

We continue to manage existing investments to their optimal resolution, which resulted in the sale of an additional $80 million in UPB of performing loans from PMT's portfolio of distressed loans during the third quarter.

Investor demand for these assets continued to improve during the quarter, and we continuously evaluate a variety of options for optimizing the execution for the distressed loan portfolio going forward. At September 30, the UPB of performing loans in our distressed portfolio was $847 million, down from $910 million at June 30.

And the loans in this portfolio are at varying stages of reperformance. As these loans continue to perform, we expect to see continued gains in fair value as the loans migrate to their resolution. .

Let's now turn to Slide 10 and review the operational results of our Correspondent Production business. PMT's correspondent acquisitions totaled $8.1 billion in UPB in the third quarter, up 15% from the second quarter. Conventional conforming and jumbo loan acquisitions were $3.7 billion in UPB, an increase of 23% from the prior quarter.

Correspondent lock volume for the quarter was $8.4 billion in UPB, a 3% increase from the second quarter. Conventional conforming and jumbo locks were $3.8 billion in UPB, a 3% increase from the prior quarter. In October, total correspondent loan acquisitions were $2.8 billion in UPB and interest rate lock commitments were also $2.8 billion in UPB.

During the third quarter, we continued to deliver on initiatives to grow the number of seller relationships and deepen our relationships with existing sellers. Our group of approved correspondent sellers increased to 342 lenders at September 30, up from 316 at the end of last quarter. .

Now let's turn to Slide 11 and review the economics of the Correspondent Production business in the third quarter. Pretax income in the Correspondent Production segment increased 16% from the second quarter to $2.8 million, driven by a 23% quarter-over-quarter increase in conventional and jumbo loan production volumes.

As Stan mentioned, these results reflect the highly competitive correspondent market environment for conventional conforming loans.

Segment revenues as a percentage of interest rate lock commitments totaled 54 basis points during the quarter, an increase of 12 basis points from last quarter, which was largely offset by an 11 basis point increase in expenses from higher fulfillment fees.

The average fulfillment fee paid by PMT during the quarter was 42 basis points of loans funded. Despite the tight margins, correspondent aggregation activities continue to provide attractive returns on equity as a result of the short inventory holding periods and cost-effective financing of the mortgage loan inventory.

Additionally, correspondent aggregation is a source of attractive investment in MSRs, which can generate significant return for PMT's investment portfolio over time. .

Now let's turn to Slide 12 and discuss the growth in PMT's investments in MSRs and ESS. PMT's investment in MSR and ESS reached $533 million, up from $506 million at June 30, with the related loans underlying the investment totaling $60 billion in UPB at September 30.

New investments in ESS continued to supplement the MSRs generated by the Correspondent Production business during the third quarter.

ESS investments have become a meaningful portion of PMT's mortgage-related investments portfolio over the past year, and we continue to seek additional opportunities for investment in partnership with PennyMac Financial. .

Now I'd like to turn the discussion over to Anne McCallion, PMT's Chief Financial Officer, to review the third quarter's financial results.

Anne?.

$55.1 million from Investment Activities and $2.8 million from Correspondent Production. .

Now let's turn to Slide 15 and look at the results of the Investment Activities segment. The Investment Activities segment income is derived from the performance of PMT's investment portfolio. In the third quarter, segment revenues totaled $86.4 million, down 18% from a record second quarter.

The quarter-over-quarter decline in revenues was driven by declines in net interest income and net gains on investments, partially offset by an increase in net loan servicing fees.

Net gain on investments, which includes realized and unrealized gains and losses on our distressed loan investments, agency and non-agency MBS and excess servicing spread, decreased by 4% from the second quarter.

Valuation gains on distressed loans were $81.3 million, which were partially offset by a $3.5 million loss on MBS and retained interest positions as a result of wider MBS spreads and valuation losses on ESS of $7.4 million largely resulting from increased expectations of future prepayment speeds on government loans underlying the investment.

In future periods, when those prepayments occur, PMT will benefit from recapture income. Also contributing to lower Investment Activities segment revenue was a $7.6 million quarter-over-quarter decline in net interest income due to a decrease in capitalized interest resulting from lower loan modification activity during the quarter.

Capitalized interest on loan modifications is recorded as interest income and is generally offset by a negative adjustment to the fair value of the loan. As a result, the decline in capitalized interest during the quarter was generally offset by gains in the fair value of the distressed loan portfolio. .

Net loan servicing fees were $10.5 million, a $1.8 million increase from the second quarter, which was partially offset by other losses of $9.6 million generally related to reductions in the value of REO properties primarily related to valuation adjustments for property preservation, taxes and maintenance costs.

Because our REO properties are recorded at the lower of cost or fair value, downward adjustments in value are recognized as a current period item, but increases in value generally are not recognized until the properties are sold. The magnitude of the loss this quarter is a result of the growth in PMT's inventory of REO properties.

Segment expenses decreased 9% quarter-over-quarter to $31.3 million, primarily related to lower fees and costs related to the administration and sale of seasoned distressed loans, partially offset by higher management and incentive fees from PMT's improved performance in recent quarters. .

Now I'd like to turn to Slide 16 and discuss the performance of the distressed loan portfolio in the third quarter in greater detail. PMT's distressed mortgage loan portfolio generated realized and unrealized gains on mortgage loans totaling $81.3 million in the third quarter compared to $73.6 million in the second quarter.

Valuation gains on distressed loans totaled $75.2 million in the third quarter compared to $63.7 million in the second quarter. Gains on performing loans in the third quarter were $23.3 million, driven by stronger investment demand. The nonperforming loan portfolio increased in value by $51.9 million.

Gains for both performing and nonperforming loans were driven by their improved progression toward their ultimate resolution, in addition to improvements in actual and forecasted home prices in most geographic areas in the U.S. Payoff in sales gains on distressed loans totaled $6.1 million compared to $9.9 million in the prior quarter. .

Liquidation activity on distressed loans continues to generate significant cash proceeds. For the third quarter, gross cash proceeds totaled $172.1 million, which includes $65.7 million of proceeds from the sale of performing loans completed this quarter. Excluding the bulk sale of performing loans, cash proceeds totaled $106.5 million.

With respect to the distressed loans liquidated during the quarter, $23.4 million in the valuation gains was recognized over the holding period of the assets and another $9.8 million of gains was realized at liquidation. .

Now let's turn to Slide 17 and discuss the value of PMT's mortgage servicing rights and excess servicing spread assets. PMT's mortgage servicing rights portfolio, which is subserviced by PennyMac Financial, grew to $32.3 billion in UPB, up from $29.4 billion at the end of the second quarter.

PMT also owns investments in ESS totaling $187.4 million with the UPB related to the underlying loans totaling $27.7 billion. MSRs and ESS are a growing portion of PMT's long-term investments and their economic value generally increases in a rising interest rate environment and decreases when rates fall.

This quarter, the value of the ESS investment was adversely impacted by the projection of future prepayment speeds. When those prepayment speeds occur, PMT will benefit from contractually provided recapture income. .

The chart on Slide 17 shows some of the key metrics of PMT's MSR and ESS portfolio and highlights the difference between the carrying value of PMT's MSRs and their estimated fair value.

For the excess servicing spread column, the UPB, weighted average coupon and expected prepayment speed represent the characteristics of the underlying MSR portfolio owned by PennyMac Financial, while the weighted average servicing spread, fair value and valuation multiple relate to the ESS asset owned by PMT.

At the end of the quarter, the fair value of PMT's MSR asset was $24.2 million greater than its carrying value. .

Let's now turn to Slide 18 and discuss the correspondent segment's third quarter performance. Correspondent Production segment revenues totaled $20.1 million compared to $15.4 million in the second quarter.

Net gain on mortgage loans acquired for sale decreased 7% from the prior quarter due to a decline in margins from strong competition in the correspondent channel. Net interest income for the segment was $4.1 million compared to $700,000 in the second quarter.

Other income, which is primarily comprised of loan origination fees, increased by 45% from the prior quarter to $6.5 million, driven by higher conventional conforming and jumbo loan acquisition volumes as well as a rate increase.

Expenses in the Correspondent Production segment increased 33% quarter-over-quarter as a result of higher fulfillment fee expense from increased correspondent acquisition volumes.

In addition, other expenses and other income are up $700,000 quarter-over-quarter due to structural changes in the collection and payment of certain third-party fees, which were previously offset in expenses and are now recorded as both other revenue and expenses. .

And with that, I'll turn the discussion back over to Stan for some closing remarks. .

Thank you, Anne. We continually evaluate opportunities for new investments for PMT across a variety of mortgage-related assets. We are making attractive investments in MSRs resulting from our Correspondent Production activities and new ESS acquisitions in partnership with PennyMac Financial.

We are focused on additional mortgage opportunities, such as prime jumbo, a market that is improving as evidenced by our increasing jumbo acquisitions through Correspondent Production and our opportunistic investments in MBS backed by jumbo loans.

Finally, we encourage investors with any questions to reach out to our Investor Relations team by email or phone. Thank you. .

This concludes the PennyMac Mortgage Investment Trust third quarter earnings discussion. For any questions, please visit our website at www.pennymac-reit.com or call our Investor Relations department at (818) 224-7028. Thank you..