PennyMac Mortgage Investment Trust [PMT] Filings

PennyMac Mortgage Investment Trust [PMT] Filings

PennyMac Mortgage Investment Trust [PMT-PA] Filings

PennyMac Mortgage Investment Trust [PMT-PB] Filings

PennyMac Mortgage Investment Trust [PMT-PC] Filings

PennyMac Mortgage Investment Trust [PMTU] Filings

10-Q 1 pmt-20240331.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34416

PennyMac Mortgage Investment Trust

(Exact name of registrant as specified in its charter)


Maryland		27-0186273
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

3043 Townsgate Road, Westlake Village, California		91361
(Address of principal executive offices)		(Zip Code)

(818) 224-7442

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol (s)	Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, $0.01 Par Value	PMT	New York Stock Exchange
8.125% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value	PMT/PRA	New York Stock Exchange
8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value	PMT/PRB PMT/PRC	New York Stock Exchange New York Stock Exchange
8.50% Senior Note Due 2028	PMTU	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2024
Common Shares of Beneficial Interest, $0.01 par value		86,845,447

PENNYMAC MORTGAGE INVESTMENT TRUST

FORM 10-Q

March 31, 2024

TABLE OF CONTENTS


		Page
Special Note Regarding Forward-Looking Statements		1
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Income	6
	Consolidated Statements of Changes in Shareholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
	Our Company	53
	Results of Operations	56
	Net Investment Income	57
	Expenses	65
	Balance Sheet Analysis	68
	Asset Acquisitions	68
	Investment Portfolio Composition	69
	Cash Flows	72
	Liquidity and Capital Resources	72
	Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	76
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77
Item 4.	Controls and Procedures	78
PART II. OTHER INFORMATION		79
Item 1.	Legal Proceedings	79
Item 1A	Risk Factors	79
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibits	80

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions.

Forward-looking statements are based on certain assumptions, discuss future expectations, future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:

•

projections of our revenues, income, earnings per share, capital structure or other financial items;

•

descriptions of our plans or objectives for future operations, products or services;

•

forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and

•

descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 22, 2024.

Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:

•

changes in interest rates and other macroeconomic conditions;

•

our ability to comply with various federal, state and local laws and regulations that govern our business;

•

changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks;

•

changes in real estate values, housing prices and housing sales;

•

the degree and nature of our competition;

•

volatility in our 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 confidence in the financial and housing markets or otherwise have a broad impact on financial and housing markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts;

•

changes in general business, economic, market, employment and domestic and international political conditions, or in consumer confidence and spending habits from those expected;

•

the availability of, and level of competition for, attractive risk-adjusted investment opportunities in loans and mortgage-related assets that satisfy our investment objectives;

•

the inherent difficulty in winning bids to acquire loans, and our success in doing so;

•

the concentration of credit risks to which we are exposed;

•

our dependence on PennyMac Financial Services, Inc., PNMAC Capital Management, LLC and PennyMac Loan Services, LLC, potential conflicts of interest with such entities and their affiliates, and the performance of such entities;

•

changes in personnel and lack of availability of qualified personnel at PennyMac Financial Services, Inc., PNMAC Capital Management, LLC and PennyMac Loan Services, LLC, and their affiliates;

•

the availability, terms and deployment of short-term and long-term capital;

•

the adequacy of our cash reserves and working capital;

•

our substantial amount of debt;

•

our ability to maintain the desired relationship between our financing and the interest rates and maturities of our assets;

•

the timing and amount of cash flows, if any, from our investments;

•

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 the COVID-19 pandemic;

•

unanticipated increases or volatility in financing and other costs, including a rise in interest rates;

•

the performance, financial condition and liquidity of borrowers;

•

the ability of our servicer, which also provides us with fulfillment services, to approve and monitor correspondent sellers and underwrite loans to investor standards;

•

incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties;

•

our indemnification and repurchase obligations in connection with loans we purchase and later sell or securitize;

•

the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest;

•

increased rates of delinquency, default and/or decreased recovery rates on our investments;

•

the performance of loans underlying mortgage-backed securities in which we retain credit risk;

•

our ability to foreclose on our investments in a timely manner or at all;

•

the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•

the effect of the accuracy of or changes in the estimates we make about uncertainties, contingencies and asset and liability valuations when measuring and reporting upon our financial condition and income;

•

our ability to maintain appropriate internal control over financial reporting;

•

technology failures, cybersecurity risks and incidents, and our ability to mitigate cybersecurity risks and cyber intrusions;

•

our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business;

•

our ability to detect misconduct and fraud;

•

changes in our credit risk transfer arrangements and agreements;

•

developments in the secondary markets for our loan products;

•

legislative and regulatory changes that impact the loan industry or housing market;

•

changes in regulations that impact the business, operations or governance of mortgage lenders and/or publicly-traded companies or such changes that increase the cost of doing business with such entities;

•

the Consumer Financial Protection Bureau and its issued and future rules and the enforcement thereof;

•

changes in government support of homeownership;

•

our ability to effectively identify, manage and hedge our credit, interest rate, prepayment, liquidity and climate risks;

•

changes in government or government-sponsored home affordability programs;

•

limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries for U.S. federal income tax purposes, as applicable, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;

•

changes in governmental regulations, accounting treatment, tax rates and similar matters (including changes to laws governing the taxation of REITs, or the exclusions from registration as an investment company);

•

our ability to make distributions to our shareholders in the future;

•

our failure to deal appropriately with issues that may give rise to reputational risk; and

•

our organizational structure and certain requirements in our charter documents.

Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, income and/or financial condition.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31,			December 31,
	2024			2023
	(in thousands, except share information)
ASSETS
Cash	$	126,578		$	281,085
Short-term investments at fair value		343,343			128,338
Mortgage-backed securities at fair value pledged to creditors		3,949,678			4,836,292
Loans acquired for sale at fair value ($903,963 and $659,751 pledged to creditors, respectively)		911,602			669,018
Loans at fair value ($1,406,774 and $1,431,896 pledged to creditors, respectively)		1,408,610			1,433,820
Derivative assets ($22,899 and $16,160 pledged to creditors, respectively)		62,734			177,984
Deposits securing credit risk transfer arrangements pledged to creditors		1,187,100			1,209,498
Mortgage servicing rights at fair value ($3,901,513 and $3,871,249 pledged to creditors, respectively)		3,951,737			3,919,107
Servicing advances ($105,287 and $181,201 pledged to creditors, respectively)		125,971			206,151
Due from PennyMac Financial Services, Inc.		1			56
Other ($1,891 and $1,905 pledged to creditors, respectively)		226,346			252,538
Total assets	$	12,293,700		$	13,113,887
LIABILITIES
Assets sold under agreements to repurchase	$	5,118,377		$	5,624,558
Mortgage loan participation purchase and sale agreements		25,216			—
Notes payable secured by credit risk transfer and mortgage servicing assets		2,880,025			2,910,605
Unsecured senior notes		601,373			600,458
Asset-backed financing of variable interest entities at fair value		1,308,680			1,336,731
Interest-only security payable at fair value		32,227			32,667
Derivative and credit risk transfer strip liabilities at fair value		18,750			51,381
Accounts payable and accrued liabilities		125,055			354,989
Due to PennyMac Financial Services, Inc.		30,835			29,262
Income taxes payable		174,730			190,003
Liability for losses under representations and warranties		19,519			26,143
Total liabilities		10,334,787			11,156,797

Commitments and contingencies ─ Note 17

SHAREHOLDERS’ EQUITY
Preferred shares of beneficial interest, $0.01 par value per share, authorized 100,000,000 shares, issued and outstanding 22,400,000, liquidation preference $560,000,000		541,482			541,482
Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 86,845,447 and 86,624,044 common shares, respectively		868			866
Additional paid-in capital		1,922,954			1,923,437
Accumulated deficit		(506,391	)		(508,695	)
Total shareholders’ equity		1,958,913			1,957,090
Total liabilities and shareholders’ equity	$	12,293,700		$	13,113,887

The accompanying notes are an integral part of these consolidated financial statements.

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Assets and liabilities of consolidated variable interest entities (“VIEs”) included in total assets and liabilities (the assets of each VIE can only be used to settle liabilities of that VIE) are summarized below:


	March 31,		December 31,
	2024		2023
	(in thousands)
ASSETS
Loans at fair value	$	1,406,576	$	1,431,689
Derivative assets		22,899		16,160
Deposits securing credit risk transfer arrangements		1,187,100		1,209,498
Other—interest receivable		4,047		4,106
	$	2,620,622	$	2,661,453
LIABILITIES
Asset-backed financings at fair value	$	1,308,680	$	1,336,731
Derivative and credit risk transfer strip liabilities at fair value		17,352		46,692
Interest-only security payable at fair value		32,227		32,667
Accounts payable and accrued liabilities—interest payable		4,047		4,106
	$	1,362,306	$	1,420,196

The accompanying notes are an integral part of these consolidated financial statements.

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Quarter ended March 31,
	2024			2023
	(in thousands, except per common share amounts)
Net investment income
Net loan servicing fees:
From nonaffiliates
Contractually specified	$	160,357		$	164,214
Other		3,011			3,943
		163,368			168,157
Change in fair value of mortgage servicing rights		(28,202	)		(137,444	)
Mortgage servicing rights hedging results		(89,814	)		(54,891	)
		45,352			(24,178	)
From PennyMac Financial Services, Inc.		353			485
		45,705			(23,693	)
Net gains on investments and financings		39,753			125,804

Net gains on loans acquired for sale:
From nonaffiliates		12,913			5,145
From PennyMac Financial Services, Inc.		1,605			1,328
		14,518			6,473
Loan origination fees		2,008			7,706
Net interest expense:
Interest income		143,559			153,019
Interest expense		171,527			179,137
Net interest expense		(27,968	)		(26,118	)
Results of real estate acquired in settlement of loans		134			56
Other		55			138
Net investment income		74,205			90,366
Expenses
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees		20,262			20,449
Management fees		7,188			7,257
Loan fulfillment fees		4,016			11,923
Compensation		1,916			1,539
Professional services		1,758			1,523
Loan collection and liquidation		1,369			579
Safekeeping		932			1,116
Loan origination		473			2,178
Other		3,910			5,001
Total expenses		41,824			51,565
Income before benefit from income taxes		32,381			38,801
Benefit from income taxes		(15,227	)		(21,896	)
Net income		47,608			60,697
Dividends on preferred shares		10,455			10,455
Net income attributable to common shareholders	$	37,153		$	50,242
Earnings per common share
Basic	$	0.43		$	0.56
Diluted	$	0.39		$	0.50
Weighted average common shares outstanding
Basic		86,689			88,831
Diluted		111,017			113,388

The accompanying notes are an integral part of these consolidated financial statements.

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)


	Quarter ended March 31, 2024
	Preferred shares				Common shares
	Number				Number						Additional
	of				of			Par			paid-in			Accumulated
	shares		Amount		shares			value			capital			deficit			Total
	(in thousands, except per share amounts)
Balance at December 31, 2023		22,400	$	541,482		86,624		$	866		$	1,923,437		$	(508,695	)	$	1,957,090
Net income		—		—		—			—			—			47,608			47,608
Share-based compensation		—		—		221			2			(483	)		—			(481	)
Dividends:
Preferred shares		—		—		—			—			—			(10,455	)		(10,455	)
Common shares ($0.40 per share)		—		—		—			—			—			(34,849	)		(34,849	)
Balance at March 31, 2024		22,400	$	541,482		86,845		$	868		$	1,922,954		$	(506,391	)	$	1,958,913



	Quarter ended March 31, 2023
	Preferred shares				Common shares
	Number				Number						Additional
	of				of			Par			paid-in			Accumulated
	shares		Amount		shares			value			capital			deficit			Total
	(in thousands, except per share amounts)
Balance at December 31, 2022		22,400	$	541,482		88,889		$	889		$	1,947,266		$	(526,822	)	$	1,962,815
Net income		—		—		—			—			—			60,697			60,697
Share-based compensation		—		—		135			1			589			—			590
Dividends:
Preferred shares		—		—		—			—			—			(10,455	)		(10,455	)
Common shares ($0.40 per share)		—		—		—			—			—			(35,349	)		(35,349	)
Repurchase of common shares		—		—		(638	)		(6	)		(7,558	)		—			(7,564	)
Balance at March 31, 2023		22,400	$	541,482		88,386		$	884		$	1,940,297		$	(511,929	)	$	1,970,734

The accompanying notes are an integral part of these consolidated financial statements.

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Quarter ended March 31,
	2024			2023
	(in thousands)
Cash flows from operating activities
Net income	$	47,608		$	60,697
Adjustments to reconcile net income to net cash used in operating activities:
Change in fair value of mortgage servicing rights		28,202			137,444
Mortgage servicing rights hedging results		89,814			54,891
Net gains on investments and financings		(39,753	)		(125,804	)
Net gains on loans acquired for sale		(14,518	)		(6,473	)
Accrual of unearned discounts and amortization of purchase premiums on mortgage-backed securities, loans at fair value, and asset-backed financings		(464	)		1,289
Amortization of debt issuance costs		4,184			3,762
Results of real estate acquired in settlement of loans		(134	)		(56	)
Share-based compensation expense		1,365			1,156
Purchase of loans acquired for sale at fair value from nonaffiliates		(18,410,727	)		(20,417,078	)
Sale to nonaffiliates and repayment of loans acquired for sale		1,928,336			5,587,266
Sale of loans acquired for sale to PennyMac Financial Services, Inc.		16,302,059			13,451,031
Repurchase of loans subject to representations and warranties		(7,514	)		(19,199	)
Decrease in servicing advances		80,123			58,919
Decrease in due from PennyMac Financial Services, Inc.		55			3,560
Repurchase of real estate previously sold as loans acquired for sale		—			(442	)
Increase in other assets		(104,330	)		(36,963	)
Decrease in accounts payable and accrued liabilities		(232,977	)		(7,110	)
Increase (decrease) in due to PennyMac Financial Services, Inc.		1,573			(1,206	)
Decrease in income taxes payable		(15,273	)		(21,896	)
Net cash used in operating activities		(342,371	)		(1,276,212	)
Cash flows from investing activities
Net increase in short-term investments		(215,005	)		(39,882	)
Purchase of mortgage-backed securities at fair value		(159,585	)		(2,772,168	)
Sale and repayment of mortgage-backed securities at fair value		1,011,092			2,694,450
Repurchase of loans at fair value		—			(119	)
Repayment of loans at fair value		21,797			22,182
Net settlement of derivative financial instruments		(2,884	)		(3,352	)
Distribution from credit risk transfer arrangements		37,491			42,709
Purchase of mortgage servicing rights at fair value		(26,497	)		—
Transfer of mortgage servicing rights relating to delinquent loans to Agency		(142	)		835
Sale of real estate acquired in settlement of loans		52			760
Decrease (increase) in margin deposits		104,477			(68,158	)
Net cash provided by (used in) investing activities		770,796			(122,743	)

The accompanying notes are an integral part of these consolidated financial statements.

Statements continued on the next page

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Continued)


	Quarter ended March 31,
	2024			2023
	(in thousands)
Cash flows from financing activities
Sale of assets under agreements to repurchase		23,278,163			33,465,001
Repurchase of assets sold under agreements to repurchase		(23,783,768	)		(31,968,132	)
Issuance of mortgage loan participation purchase and sale agreements		335,689			416,243
Repayment of mortgage loan participation purchase and sale agreements		(310,473	)		(416,243	)
Issuance of notes payable secured by credit risk transfer and mortgage servicing assets		306,000			10,000
Repayment of notes payable secured by credit risk transfer and mortgage servicing assets		(335,237	)		(24,578	)
Repayment of asset-backed financings at fair value		(21,067	)		(21,493	)
Payment of debt issuance costs		(5,188	)		(794	)
Payment of dividends to preferred shareholders		(10,455	)		(10,455	)
Payment of dividends to common shareholders		(34,750	)		(35,658	)
Payment of vested share-based compensation tax withholdings		(1,846	)		(567	)
Repurchase of common shares of beneficial interest		—			(7,563	)
Net cash (used in) provided by financing activities		(582,932	)		1,405,761
Net (decrease) increase in cash		(154,507	)		6,806
Cash at beginning of quarter		281,085			111,866
Cash at end of quarter	$	126,578		$	118,672
Supplemental cash flow information
Payments, net:
Income taxes	$	46		$	—
Interest	$	187,619		$	189,351
Non cash investing activities:
Receipt of mortgage servicing rights as proceeds from sales of loans	$	31,249		$	100,618
Unsettled purchase of mortgage servicing rights	$	2,944		$	—
Unsettled securities trades	$	—		$	12,424
Transfer of loans and advances to real estate acquired in settlement of loans	$	—		$	797
Non-cash financing activities:
Dividends declared, not paid	$	34,849		$	35,349

The accompanying notes are an integral part of these consolidated financial statements.

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—Organization

PennyMac Mortgage Investment Trust (“PMT” or the “Company”) is a specialty finance company, which, through its subsidiaries (all of which are wholly-owned), invests in residential mortgage-related assets. The Company operates in four segments: credit sensitive strategies, interest rate sensitive strategies, correspondent production, and corporate:

•

The credit sensitive strategies segment represents the Company’s investments in credit risk transfer (“CRT”) arrangements referencing loans from its own correspondent production, including CRT agreements (“CRT Agreements”) and other CRT securities (together, “CRT arrangements”), and subordinate mortgage-backed securities (“MBS”).

•

The interest rate sensitive strategies segment represents the Company’s investments in mortgage servicing rights (“MSRs”), Agency and senior non-Agency MBS and the related interest rate hedging activities.

•

The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PNMAC Capital Management, LLC (“PCM”) and PennyMac Loan Services, LLC (“PLS”), both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.

The Company primarily sells the loans it acquires through its correspondent production activities to government-sponsored entities ("GSEs") such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or to PLS for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"), or the GSEs. Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.”

•

The corporate segment includes management fees, corporate expense amounts and certain interest income and expense.

The Company conducts substantially all of its operations and makes substantially all of its investments through its subsidiary, PennyMac Operating Partnership, L.P. (the “Operating Partnership”), and the Operating Partnership’s subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner, and the Company is the sole limited partner, of the Operating Partnership.

The Company believes that it qualifies, and has elected to be taxed, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). To maintain its tax status as a REIT, the Company is required to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.

Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements

The Company’s consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. This interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

These unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods presented, but are not necessarily indicative of the income that may be anticipated for the full year. Intercompany accounts and transactions have been eliminated.

Preparation of financial statements in compliance with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

The Company held no restricted cash during the periods presented. Therefore, the consolidated statements of cash flows do not include references to restricted cash.

Recently Issued Accounting Pronouncements

During 2023, the FASB issued two Accounting Standards Updates (“ASUs”) aimed at increasing the amount of detail provided to financial statement users in certain existing disclosures. Neither ASU requires changes to the Company’s accounting. The ASUs are discussed below:

Segment Disclosures

The FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), that is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for more detailed information about a reportable segment’s expenses.

The amendments in ASU 2023-07 are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments will require that the Company supplement its existing disclosures to include disclosure of:

•

significant segment expenses that are regularly provided to the chief operating decision maker included within each reported measure of segment profit or loss; and

•

an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.

The Company will be required to apply ASU 2023-07 in annual periods beginning with its fiscal year ending December 31, 2024 and for quarterly periods ended thereafter with early adoption permitted.

Income Tax Disclosures

The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), that is intended to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 requires disclosures of:

•

Reconciliation of the expected income tax at the applicable statutory federal income tax rate to the reported income tax in a tabular format, using both percentages and amounts, broken out into specific categories with certain reconciling items of five percent or greater of the expected tax further broken out by nature and/or jurisdiction; and

•

Income taxes paid, net of refunds received, broken out between federal and state and local income taxes. Payments to individual jurisdictions representing five percent or more of the total income tax payments must also be separately disclosed.

The disclosures required by ASU 2023-09 are required in the Company’s annual financial statements beginning with the year ended December 31, 2025, with early adoption permitted.

Note 3—Concentration of Risks

As discussed in Note 1 – Organization above, PMT’s operations and investing activities are centered in residential mortgage-related assets, including CRT arrangements, subordinate MBS, Agency and senior Non-Agency MBS and MSRs. CRT arrangements and subordinate MBS are more sensitive to borrower credit performance than other mortgage-related investments such as traditional loans. Agency MBS. Interest-only (“IO”) stripped MBS, principal-only stripped MBS and senior non-Agency MBS are sensitive to changes in market interest rates. MSRs are sensitive to changes in prepayment rate activity and expectations.

Credit Risk

Note 6 – Variable Interest Entities details the Company’s investments in CRT arrangements whereby the Company sold pools of loans into Fannie Mae guaranteed loan securitizations which became reference pools underlying the CRT arrangements. Fannie Mae transferred IO ownership interests and recourse obligations based upon securitized reference pools of loans subject to the CRT arrangements into trust entities, and the Company acquired the IO ownership interest and assumed the recourse obligations in the CRT arrangements through the acquisition of beneficial interests in the trust entities.

The Company also invests in subordinate MBS, which are among the first beneficial interests in the issuing trusts to absorb credit losses on the underlying loans.

The Company’s retention of credit risk through its investment in CRT arrangements and subordinate MBS subjects it to risks associated with delinquency and foreclosure similar to the risks of loss associated with owning the underlying loans, which is greater than the risk of loss associated with selling such loans to the Agencies without the retention of such credit risk in the case of CRT arrangements and investing in senior mortgage securities in the case of subordinate MBS.

CRT Agreements are structured such that loans that reach a specific number of days delinquent trigger losses chargeable to the CRT Agreements based on the sizes of the delinquent loans and a contractual schedule of loss severity. Therefore, the risks associated with delinquency and foreclosure may in some instances be greater than the risks associated with owning the related loans because the structure of the CRT Agreements provides that the Company may be required to absorb losses in the event of delinquency or foreclosure even when there is ultimately no loss realized with respect to such loans (e.g., as a result of a borrower’s re-performance). In contrast, the structure of the Company’s investment in CRT strips requires PMT to absorb losses only when the reference loans realize losses.

Fair Value Risk

The Company is exposed to fair value risk in addition to the risks specific to credit and, as a result of prevailing market conditions, may be required to recognize losses associated with adverse changes to the fair value of its investments in MSRs, CRT arrangements, and MBS:

•

The fair value of MSRs is sensitive to changes in prepayment speeds, estimates of cost to service the underlying loans or the returns demanded by market participants;

•

The fair values of CRT arrangements and subordinate MBS are sensitive to market perceptions of future credit performance of the underlying loans as well as the actual credit performance of such loans and to the returns required by market participants to hold such investments; and

•

The fair values of Agency and senior non-Agency MBS are sensitive to changes in market interest rates.

Note 4—Transactions with Related Parties

The Company enters into transactions with subsidiaries of PFSI in support of its operating, investing and financing activities as summarized below.

Operating Activities

Loan Servicing

The Company has a loan servicing agreement with PLS (the “Servicing Agreement”) pursuant to which PLS provides subservicing for the Company's portfolio of MSRs, loans held for sale and loans held in VIEs (prime servicing), and its portfolio of residential loans purchased with credit deterioration (special servicing). The Servicing Agreement provides for servicing fees earned by PLS that are established at a per loan monthly amount based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or REO.

Prime Servicing

The base servicing fees for prime loans subserviced by PLS on the Company’s behalf are $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans.

To the extent that these prime loans become delinquent, PLS is entitled to an additional servicing fee per loan ranging from $10 to $55 per month based on the delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property becomes real estate acquired in settlement of loans (“REO").

PLS is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and certain fees for pandemic-related forbearance and modification activities.

Special Servicing

The base servicing fee rates for loans purchased with credit deterioration (distressed loans) range from $30 per month for current loans up to $95 per month for loans in foreclosure proceedings. The base servicing fee rate for REO is $75 per month. PLS also receives a supplemental servicing fee of $25 per month for each distressed loan.

PLS receives activity-based fees for modifications, foreclosures and liquidations that it facilitates with respect to distressed loans, as well as other market-based refinancing and loan disposition fees.

The Servicing Agreement expires on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with its terms.

MSR Recapture Agreement

The Company has an MSR recapture agreement with PLS. Pursuant to the terms of the MSR recapture agreement, if PLS refinances (recaptures) mortgage loans for which the Company previously held the MSRs, PLS is generally required to transfer and convey to the Company cash in an amount equal to:

•

40% of the fair market value of the MSRs relating to the recaptured loans subject to the first 15% of the “recapture rate”;

•

35% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 15% and up to 30%; and

•

30% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30%.

The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance ("UPB") of all recaptured loans, to (ii) the aggregate UPB of all mortgage loans for which the Company held the MSRs and that were refinanced or otherwise paid off in such month. PFSI has further agreed to allocate sufficient resources to target a recapture rate of at least 15%.

The MSR recapture agreement expires, unless terminated earlier in accordance with its terms, on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated in accordance with its terms.

Following is a summary of loan servicing fees earned by PLS:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Loan servicing fees:
Loans acquired for sale at fair value	$	90	$	285
Loans at fair value		62		120
Mortgage servicing rights		20,110		20,044
	$	20,262	$	20,449
Average investment in loans:
Acquired for sale at fair value	$	704,809	$	2,359,044
At fair value	$	1,425,584	$	1,510,606
Average MSR portfolio unpaid principal balance	$	230,591,966	$	230,812,774

Correspondent Production Activities

The Company is provided fulfillment and other services by PLS under an amended and restated mortgage banking services agreement. The Company does not hold the Ginnie Mae approval required to issue securities guaranteed by Ginnie Mae MBS and act as a servicer. Accordingly, under the agreement, PLS currently purchases loans saleable in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from the Company at cost less any administrative fees paid by the correspondent to the Company plus accrued interest and a sourcing fee. The Company may also sell conventional loans to PLS under the same arrangement subject to mutual agreement between the parties.

Fulfillment and sourcing fees are summarized below:

•

Fulfillment fees shall not exceed the following:

(i)

the number of loan commitments issued by the Company multiplied by a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, plus

(ii)

$315 multiplied by the number of purchased loans up to and including 16,500 per quarter and $195 multiplied by the number of purchased loans in excess of 16,500 per quarter, plus

(iii)

$750 multiplied by the number of all purchased loans that are sold or securitized to parties other than Fannie Mae and Freddie Mac; provided however, that no fulfillment fee shall be due or payable to PLS with respect to any Ginnie Mae loans and, as of October 1, 2022, designated Fannie Mae or Freddie Mac loans acquired by PLS.

•

Sourcing fees range from one to two basis points of the loans' UPB, generally based on the average number of calendar days the loans are held by PMT before purchase by PLS.

The mortgage banking services agreement expires, unless terminated earlier in accordance with its terms, on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated in accordance with its terms.

The Company may purchase newly originated conforming balance non-government insured or guaranteed loans from PLS under a mortgage loan purchase and sale agreement.

Following is a summary of correspondent production activity between the Company and PLS:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Loan fulfillment fees earned by PLS	$	4,016	$	11,923
UPB of loans fulfilled by PLS	$	1,771,681	$	6,628,810

Sourcing fees received from PLS included in Net gains on loans acquired for sale	$	1,605	$	1,328
UPB of loans sold to PLS:
Government guaranteed or insured	$	7,856,925	$	9,213,712
Conventional conforming		8,189,930		4,062,874
	$	16,046,855	$	13,276,586

Tax service fees paid to PLS	$	359	$	1,410


	March 31, 2024		December 31, 2023
	(in thousands)
Loans included in Loans acquired for sale at fair value pending sale to PLS	$	480,421	$	168,303

Management Fees

The Company has a management agreement with PCM pursuant to which PMT pays PCM management fees as follows:

•

A base management fee that is calculated quarterly and is equal to the sum of (i) 1.5% per year of average shareholders’ equity up to $2 billion, (ii) 1.375% per year of average shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of average shareholders’ equity in excess of $5 billion.

•

A performance incentive fee that is calculated quarterly at a defined annualized percentage of the amount by which “net income,” on a rolling four-quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.”

The performance incentive fee is equal to the sum of:

•

10% of the amount by which “net income” for the quarter exceeds (i) an 8% return on “equity” plus the “high watermark”, up to (ii) a 12% return on “equity”; plus

•

15% of the amount by which “net income” for the quarter exceeds (i) a 12% return on “equity” plus the “high watermark”, up to (ii) a 16% return on “equity”; plus

•

20% of the amount by which “net income” for the quarter exceeds a 16% return on “equity” plus the “high watermark.”

For the purpose of determining the amount of the performance incentive fee:

“Net income” is defined as net income or loss attributable to the Company’s common shares of beneficial interest (“Common Shares”) calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussion between PCM and the Company’s independent trustees and after approval by a majority of the Company’s independent trustees.

“Equity” is the weighted average of the issue price per Common Share of all of the Company’s public offerings, multiplied by the weighted average number of Common Shares outstanding (including restricted share units) in the rolling four-quarter period.

“High watermark” is the quarterly adjustment that reflects the amount by which the “net income” (stated as a percentage of return on "equity") in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30-year MBS yield (the "Target Yield") for the four quarters then ended. The “high watermark” starts at zero and is adjusted quarterly. If the “net income” is lower than the Target Yield, the “high watermark” is increased by the difference. If the “net income” is higher than the Target Yield, the “high watermark” is reduced by the difference. Each time a performance incentive fee is earned, the “high watermark” returns to zero. As a result, the threshold amounts required for PCM to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s “net income” over (or under) the Target Yield, until the “net income” in excess of the Target Yield exceeds the then-current cumulative “high watermark” amount.

The base management fee and the performance incentive fee are both payable quarterly in arrears. The performance incentive fee may be paid in cash or a combination of cash and the Company’s Common Shares (subject to a limit of no more than 50% paid in Common Shares), at the Company’s option.

In the event of termination of the management agreement between the Company and PCM, PCM may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by PCM, in each case during the 24-month period before termination of the management agreement.

Following is a summary of management fee expenses:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Base management	$	7,188	$	7,257
Performance incentive		—		—
	$	7,188	$	7,257
Average shareholders' equity amounts used to calculate base management fee expense	$	1,927,401	$	1,962,105

Expense Reimbursement

Under the management agreement, PCM is entitled to reimbursement of its organizational and operating expenses, including third-party expenses, incurred on the Company’s behalf, it being understood that PCM and its affiliates shall allocate a portion of their personnel’s time to provide certain legal, tax and investor relations services for the direct benefit of the Company. PCM is reimbursed $165,000 per fiscal quarter, such amount to be reviewed annually and to not preclude reimbursement for any other services performed by PCM or its affiliates.

The Company is required to pay PCM and its affiliates a portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of PCM and its affiliates required for the Company’s and its subsidiaries’ operations. These expenses are allocated based on the ratio of the Company’s and its subsidiaries’ proportion of gross assets compared to all remaining gross assets managed or owned by PCM and/or its affiliates as calculated at each fiscal quarter end.

Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Reimbursement of:
Expenses incurred on the Company’s behalf, net	$	6,414	$	5,661
Common overhead incurred by PCM and its affiliates		1,944		1,821
Compensation		165		165
	$	8,523	$	7,647
Payments and settlements during the quarter (1)	$	30,085	$	32,384

(1)

Payments and settlements include payments and netting settlements made pursuant to master netting agreements between the Company and PFSI for the operating, investing and financing activities itemized in this Note.

Financing Activities

PFSI held 75,000 of the Company’s Common Shares at both March 31, 2024 and December 31, 2023.

Amounts Receivable from and Payable to PFSI

Amounts receivable from and payable to PFSI are summarized below:


	March 31, 2024		December 31, 2023
	(in thousands)
Due from PFSI-Miscellaneous receivables	$	1	$	56

Due to PFSI:
Correspondent production fees	$	7,368	$	8,288
Management fees		7,188		7,252
Loan servicing fees		6,730		6,809
Allocated expenses and expenses and costs paid by PFSI on PMT’s behalf		8,194		5,612
Fulfillment fees		1,355		1,301
	$	30,835	$	29,262

The Company has also transferred cash to PLS to fund loan servicing advances and REO property acquisition and preservation costs on its behalf. Such amounts are included in various of the Company's balance sheet items as summarized below:


Balance sheet line including advance amount	March 31, 2024		December 31, 2023
	(in thousands)
Loan servicing advances	$	125,971	$	206,151
Real estate acquired in settlement of loans		2,021		2,003
	$	127,992	$	208,154

Note 5—Loan Sales

The following table summarizes cash flows between the Company and transferees in transfers of loans that are accounted for as sales where the Company maintains continuing involvement with the loans:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Cash flows:
Proceeds from sales	$	1,928,336	$	5,587,266
Loan servicing fees received	$	160,357	$	164,214

The following table summarizes for the dates presented collection status information for loans that are accounted for as sales where the Company maintains continuing involvement:


	March 31, 2024		December 31, 2023
	(in thousands)
UPB of loans outstanding	$	226,806,609	$	228,838,471
Collection status (UPB)
Delinquency:
30-89 days delinquent	$	1,962,219	$	2,184,500
90 or more days delinquent:
Not in foreclosure	$	868,093	$	1,029,962
In foreclosure	$	108,958	$	85,045
Bankruptcy	$	212,975	$	185,320
Custodial funds managed by the Company (1)	$	2,468,707	$	1,759,974

(1)

Custodial funds include borrower and investor custodial cash accounts relating to loans serviced under mortgage servicing agreements and are not included on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the loans’ borrowers and investors, and these fees are included in Interest income in the Company’s consolidated statements of income.

Note 6—Variable Interest Entities

The Company is a variable interest holder in various VIEs that relate to its investing and financing activities as discussed below.

Credit Risk Transfer Arrangements

The Company has previously entered into certain loan sales arrangements pursuant to which it accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on such loans and include CRT Agreements, and other CRT securities.

The Company, through its subsidiary, PennyMac Corp. (“PMC”), entered into CRT arrangements with Fannie Mae, pursuant to which the Company sold pools of loans into Fannie Mae-guaranteed securitizations while retaining recourse obligations as part of the retention of IO ownership interests in such loans and include:

•

CRT Agreements, which are structured such that loans that reach a specific number of days delinquent (including loans in forbearance) trigger losses chargeable to the CRT Agreements based on the sizes of the delinquent loans and a contractual schedule of loss severity; and

•

CRT strips, which require the Company to absorb losses only when the reference loans realize credit losses.

The Company placed Deposits securing CRT arrangements into subsidiary trust entities to secure its recourse obligations. The Deposits securing CRT arrangements represent the Company’s maximum contractual exposure to claims under its recourse obligations and are the sole source of settlement of losses under the CRT arrangements.

The Company’s exposure to losses under its recourse obligations was initially established at rates ranging from 3.5% to 4.0% of the UPB of the loans sold under the CRT arrangements. As the UPB of the underlying loans subject to each CRT arrangement decreased through repayments, the percentage exposure of each CRT arrangement increased to maximums ranging from 4.5% to 5.0% of outstanding UPB, although the total dollar amount of exposure to losses did not increase.

The Company has concluded that the subsidiary trust entities holding its CRT arrangements are VIEs and the Company is the primary beneficiary of the VIEs as it is the holder of the primary beneficial interests which absorb the variability of the trusts’ income. For CRT Agreements, the Company recognizes its IO ownership interests and recourse obligations on the consolidated balance sheets as CRT Derivatives in Derivative assets and Derivative and credit risk transfer strip liabilities. For other CRT securities, the Company recognizes its IO ownership interests and recourse obligations as CRT strips which are also included on the consolidated balance sheet in Derivative and credit risk transfer strip liabilities. Gains and losses on the derivatives and strips (including the IO ownership interest sold to nonaffiliates) included in the CRT arrangements are included in Net gains on investments and financings in the consolidated statements of income.

Following is a summary of the CRT arrangements:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Net investment income:
Net gains on investments and financings:
CRT Derivatives and strips:
CRT derivatives
Realized	$	3,409	$	3,030
Valuation changes		6,781		8,096
		10,190		11,126
CRT strips
Realized		11,685		12,304
Valuation changes		29,340		24,128
		41,025		36,432
Interest-only security payable at fair value		440		(1,280	)
		51,655		46,278
Interest income — Deposits securing CRT arrangements		15,696		14,212
	$	67,351	$	60,490

Net payments made to settle losses on CRT arrangements	$	185	$	1,257


	March 31, 2024			December 31, 2023
	(in thousands)
Carrying value of CRT arrangements:
Derivative assets - CRT derivatives	$	22,899		$	16,160
CRT strip liabilities		(17,352	)		(46,692	)
Deposits securing CRT arrangements		1,187,100			1,209,498
Interest-only security payable at fair value		(32,227	)		(32,667	)
	$	1,160,420		$	1,146,299

CRT arrangement assets pledged to secure borrowings:
Derivative assets	$	22,899		$	16,160
Deposits securing CRT arrangements (1)	$	1,187,100		$	1,209,498

UPB of loans underlying CRT arrangements	$	22,725,768		$	23,152,230
Collection status (UPB):
Delinquency
Current	$	22,187,344		$	22,531,905
30-89 days delinquent	$	363,398		$	411,991
90-180 days delinquent	$	98,415		$	120,011
180 or more days delinquent	$	48,346		$	64,647
Foreclosure	$	28,265		$	23,676
Bankruptcy	$	58,352		$	58,696

(1)

Deposits securing credit risk transfer strip liabilities also secure $17.4 million and $46.7 million in CRT strip liabilities at March 31, 2024 and December 31, 2023, respectively.

Subordinate Mortgage-Backed Securities

The Company retains or purchases subordinate MBS in transactions sponsored by PMC or a nonaffiliate. Cash inflows from the loans underlying these securities are distributed to investors and service providers in accordance with the respective securities' contractual priority of payments and, as such, most of these inflows must be directed first to service and repay the senior securities.

The rights of holders of subordinate securities to receive distributions of principal and/or interest, as applicable, are subordinate to the rights of holders of senior securities. After the senior securities are repaid, substantially all cash inflows will be directed to the subordinate securities, including those held by the Company, until they are fully repaid.

The Company’s retention or purchase of subordinate MBS exposes PMT to the credit risk in the underlying loans because the Company’s investments are among the first beneficial interests to absorb credit losses on those assets. The Company’s exposure to losses from its investments in subordinate MBS is limited to its recorded investment in such securities.

The Company has concluded that the trusts holding the assets underlying certain of these transactions are VIEs. The Company has concluded that it is the primary beneficiary of the VIEs as it has the power, through PLS, in its role as the servicer or sub-servicer of the loans, to direct the activities of the trusts that most significantly impact the trusts’ economic performance and, as a holder of subordinate securities, that PMT is exposed to losses that could potentially be significant to the VIEs. Therefore, PMT consolidates those VIEs.

The Company recognizes the interest income earned on the loans owned by the VIEs and the interest expense attributable to the asset-backed securities issued to nonaffiliates by its consolidated VIEs on its consolidated statements of income.

Following is a summary of the Company’s investment in subordinate MBS backed by assets held in consolidated VIEs:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Net investment income
Fair value changes:
Loans at fair value	$	(1,240	)	$	11,017
Asset-backed financings at fair value		7,476			(10,160	)
Interest income		12,108			15,166
Interest expense		12,678			12,353
	$	5,666		$	3,670


	March 31, 2024		December 31, 2023
	(in thousands)
Loans at fair value	$	1,406,576	$	1,431,689
Asset-backed financings at fair value	$	1,308,680	$	1,336,731
Retained subordinate MBS at fair value pledged to secure Assets sold under agreements to repurchase	$	88,412	$	85,344

Financing of Mortgage Servicing Assets

The Company entered into a securitization transaction in which VIEs issued variable funding notes backed by beneficial interests in Fannie Mae MSRs. The Company acts as guarantor of the variable funding notes. The Company determined that it is the primary beneficiary of the VIEs because, as the holder of the variable funding notes and issuer of performance guarantees, it holds the variable interests in the VIEs. Therefore, the Company consolidates the VIEs.

For financial reporting purposes, the MSRs financed by the consolidated VIEs are included in Mortgage servicing rights at fair value and the variable funding notes are included in Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets on the Company’s consolidated balance sheets. The financing is detailed in Note 15 – Long Term Debt.

Note 7— Fair Value

The Company’s consolidated financial statements include assets and liabilities that are measured at or based on their fair values. Measurement at or based on fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the Company has elected to carry the item at its fair value as discussed in the following paragraphs.

The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company.

•

Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.

The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the inputs required to establish fair value at a higher level of the hierarchy become available.

Fair Value Accounting Elections

The Company identified all of PMT’s non-cash financial assets and MSRs to be accounted for at fair value. The Company has elected to account for these assets at fair value so such changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance.

The Company has also identified its Asset-backed financings at fair value and Interest-only security payable at fair value to be accounted for at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of the assets at fair value collateralizing these financings. For other borrowings, the Company has determined that historical cost accounting is more appropriate because under this method debt issuance costs are amortized over the term of the debt facility, thereby matching the debt issuance cost to the periods benefiting from the availability of the debt.

Financial Statement Items Measured at Fair Value on a Recurring Basis

Following is a summary of financial statement items that are measured at fair value on a recurring basis:


	March 31, 2024
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	343,343	$	—	$	—	$	343,343
Mortgage-backed securities at fair value		—		3,855,011		94,667		3,949,678
Loans acquired for sale at fair value		—		906,506		5,096		911,602
Loans at fair value		—		1,406,576		2,034		1,408,610
Derivative assets:
Call options on interest rate futures purchase contracts		559		—		—		559
Put options on interest rate futures purchase contracts		13,754		—		—		13,754
Forward purchase contracts		—		5,833		—		5,833
Forward sale contracts		—		1,782		—		1,782
MBS put options		—		93		—		93
CRT derivatives		—		—		22,899		22,899
Interest rate lock commitments		—		—		5,154		5,154
Total derivative assets before netting		14,313		7,708		28,053		50,074
Netting		—		—		—		12,660
Total derivative assets after netting		14,313		7,708		28,053		62,734
Mortgage servicing rights at fair value		—		—		3,951,737		3,951,737
	$	357,656	$	6,175,801	$	4,081,587	$	10,627,704
Liabilities:
Asset-backed financings at fair value	$	—	$	1,308,680	$	—	$	1,308,680
Interest-only security payable at fair value		—		—		32,227		32,227
Derivative and credit risk transfer strip liabilities:
Put options on interest rate futures sell contracts		156		—		—		156
Forward purchase contracts		—		1,125		—		1,125
Forward sales contracts		—		6,174		—		6,174
Interest rate lock commitments		—		—		309		309
Total derivative liabilities before netting		156		7,299		309		7,764
Netting		—		—		—		(6,366	)
Total derivative liabilities after netting		156		7,299		309		1,398
Credit risk transfer strips		—		—		17,352		17,352
Total derivative and credit risk transfer strip liabilities		156		7,299		17,661		18,750
	$	156	$	1,315,979	$	49,888	$	1,359,657


	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	128,338	$	—	$	—	$	128,338
Mortgage-backed securities at fair value		—		4,742,061		94,231		4,836,292
Loans acquired for sale at fair value		—		662,700		6,318		669,018
Loans at fair value		—		1,431,689		2,131		1,433,820
Derivative assets:
Call options on interest rate futures purchase contracts		41,712		—		—		41,712
Put options on interest rate futures purchase contracts		4,324		—		—		4,324
Forward purchase contracts		—		15,905		—		15,905
Forward sale contracts		—		671		—		671
MBS call options		—		3,218		—		3,218
MBS put options		—		5		—		5
CRT derivatives		—		—		16,160		16,160
Interest rate lock commitments		—		—		7,596		7,596
Total derivative assets before netting		46,036		19,799		23,756		89,591
Netting		—		—		—		88,393
Total derivative assets after netting		46,036		19,799		23,756		177,984
Mortgage servicing rights at fair value		—		—		3,919,107		3,919,107
	$	174,374	$	6,856,249	$	4,045,543	$	11,164,559
Liabilities:
Asset-backed financings at fair value	$	—	$	1,336,731	$	—	$	1,336,731
Interest-only security payable at fair value		—		—		32,667		32,667
Derivative liabilities and credit risk transfer strips:
Call options on interest rate futures purchase contracts		2,005		—		—		2,005
Call options on interest rate futures sell contracts		1,328		—		—		1,328
Forward purchase contracts		—		490		—		490
Forward sales contracts		—		50,363		—		50,363
Interest rate lock commitments		—		—		64		64
Total derivative liabilities before netting		3,333		50,853		64		54,250
Netting		—		—		—		(49,561	)
Total derivative liabilities after netting		3,333		50,853		64		4,689
Credit risk transfer strips		—		—		46,692		46,692
Total derivative and credit risk transfer strip liabilities		3,333		50,853		46,756		51,381
	$	3,333	$	1,387,584	$	79,423	$	1,420,779

The following is a summary of changes in items measured at fair value on a recurring basis using Level 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or end of the quarters presented:


	Quarter ended March 31, 2024
Assets (1)	Interest-only stripped mortgage-backed securities			Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2023	$	94,231		$	6,318		$	2,131		$	16,160		$	7,532		$	(46,692	)	$	3,919,107		$	3,998,787
Purchases and issuances		—			1,484			—			—			3,111			—			29,441			34,036
Repayments and sales		(5,070	)		(2,658	)		(59	)		(3,451	)		—			(11,685	)		—			(22,923	)
Accrual of unearned discounts		2,216			—			—			—			—			—			—			2,216
Amounts received pursuant to sales of loans		—			—			—			—			—			—			31,249			31,249
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—			—			—			—			—			—			—			—
Other factors		3,290			(48	)		(38	)		10,190			(855	)		41,025			(28,202	)		25,362
		3,290			(48	)		(38	)		10,190			(855	)		41,025			(28,202	)		25,362
Transfers of:																							—
Interest rate lock commitments to loans acquired for sale (2)		—			—			—			—			(4,943	)		—			—			(4,943	)
Mortgage servicing rights relating to delinquent loans to Agency		—			—			—			—			—			—			142			142
Balance, March 31, 2024	$	94,667		$	5,096		$	2,034		$	22,899		$	4,845		$	(17,352	)	$	3,951,737		$	4,063,926
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2024	$	3,290		$	(55	)	$	(41	)	$	6,781		$	4,845		$	29,340		$	(28,202	)	$	15,958

(1)

For the purpose of this table, CRT derivative, interest rate lock commitment (“IRLC”), and CRT strip asset and liability positions are shown net.

(2)

The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.


Liabilities	Quarter ended March 31, 2024
	(in thousands)
Interest-only security payable:
Balance, December 31, 2023	$	32,667
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk		—
Other factors		(440	)
		(440	)
Balance, March 31, 2024	$	32,227
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2024	$	(440	)


	Quarter ended March 31, 2023
Assets (1)	Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2022	$	10,708		$	3,457		$	(22,098	)	$	(478	)	$	(137,193	)	$	4,012,737		$	3,867,133
Purchases and issuances		3,495			119			—			(7,687	)		—			—			(4,073	)
Repayments and sales		(3,767	)		(20	)		(2,888	)		—			(12,304	)		—			(18,979	)
Amounts received pursuant to sales of loans		—			—			—			—			—			100,618			100,618
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—			—			—			—			—			—			—
Other factors		(327	)		452			11,126			27,032			36,432			(137,444	)		(62,729	)
		(327	)		452			11,126			27,032			36,432			(137,444	)		(62,729	)
Transfers of:
Loans to REO		—			(460	)		—			—			—			—			(460	)
Interest rate lock commitments to loans acquired for sale (2)		—			—			—			(10,318	)		—			—			(10,318	)
Mortgage servicing rights relating to delinquent loans to Agency		—			—			—			—			—			(835	)		(835	)
Balance, March 31, 2023	$	10,109		$	3,548		$	(13,860	)	$	8,549		$	(113,065	)	$	3,975,076		$	3,870,357
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2023	$	161		$	(8	)	$	8,096		$	8,549		$	24,128		$	(137,444	)	$	(96,518	)

(1)

For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.

(2)

The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.


Liabilities	Quarter ended March 31, 2023
	(in thousands)
Interest-only security payable:
Balance, December 31, 2022	$	21,925
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—
Other factors		1,280
		1,280
Balance, March 31, 2023	$	23,205
Changes in fair value recognized during the year relating to liability outstanding at March 31, 2023	$	1,280

Financial Statement Items Measured at Fair Value under the Fair Value Option

Following are the fair values and related principal amounts due upon maturity of loans accounted for under the fair value option (including loans acquired for sale, loans held in consolidated VIEs, and distressed loans):


	March 31, 2024							December 31, 2023
	Fair value		Principal amount due upon maturity		Difference			Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Loans acquired for sale at fair value:
Current through 89 days delinquent	$	909,934	$	894,884	$	15,050		$	667,857	$	648,283	$	19,574
90 or more days delinquent:
Not in foreclosure		1,376		1,699		(323	)		433		617		(184	)
In foreclosure		292		397		(105	)		728		845		(117	)
		1,668		2,096		(428	)		1,161		1,462		(301	)
	$	911,602	$	896,980	$	14,622		$	669,018	$	649,745	$	19,273
Loans at fair value:
Held in consolidated VIEs:
Current through 89 days delinquent	$	1,404,532	$	1,671,969	$	(267,437	)	$	1,430,427	$	1,697,305	$	(266,878	)
90 or more days delinquent:
Not in foreclosure		2,044		2,595		(551	)		1,262		1,582		(320	)
In foreclosure		—		—		—			—		—		—
		2,044		2,595		(551	)		1,262		1,582		(320	)
		1,406,576		1,674,564		(267,988	)		1,431,689		1,698,887		(267,198	)
Distressed:
Current through 89 days delinquent		505		703		(198	)		569		728		(159	)
90 or more days delinquent:
Not in foreclosure		411		1,786		(1,375	)		393		2,023		(1,630	)
In foreclosure		1,118		2,546		(1,428	)		1,169		2,546		(1,377	)
		1,529		4,332		(2,803	)		1,562		4,569		(3,007	)
		2,034		5,035		(3,001	)		2,131		5,297		(3,166	)
	$	1,408,610	$	1,679,599	$	(270,989	)	$	1,433,820	$	1,704,184	$	(270,364	)

Following are the changes in fair value included in current period income by consolidated statement of income line item for financial statement items accounted for under the fair value option:


	Quarter ended March 31, 2024
	Net loan servicing fees			Net gains on investments and financings			Net gains on loans acquired for sale			Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	—		$	(38,198	)	$	—		$	3,091		$	(35,107	)
Loans acquired for sale at fair value		—			—			(337	)		—			(337	)
Loans at fair value		—			(1,278	)		—			(2,135	)		(3,413	)
Credit risk transfer strips		—			41,025			—			—			41,025
MSRs at fair value		(28,202	)		—			—			—			(28,202	)
	$	(28,202	)	$	1,549		$	(337	)	$	956		$	(26,034	)
Liabilities:
Interest-only security payable at fair value	$	—		$	440		$	—		$	—		$	440
Asset-backed financings at fair value		—			7,476			—			492			7,968
	$	—		$	7,916		$	—		$	492		$	8,408


	Quarter ended March 31, 2023
	Net loan servicing fees			Net gains on investments and financings			Net gains on loans acquired for sale		Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	—		$	78,218		$	—	$	(1,956	)	$	76,262
Loans acquired for sale at fair value		—			—			15,315		—			15,315
Loans at fair value		—			11,468			—		126			11,594
Credit risk transfer strips		—			36,432			—		—			36,432
MSRs at fair value		(137,444	)		—			—		—			(137,444	)
	$	(137,444	)	$	126,118		$	15,315	$	(1,830	)	$	2,159
Liabilities:
Interest-only security payable at fair value	$	—		$	(1,280	)	$	—	$	—		$	(1,280	)
Asset-backed financings at fair value		—			(10,160	)		—		(542	)		(10,702	)
	$	—		$	(11,440	)	$	—	$	(542	)	$	(11,982	)

Financial Statement Item Measured at Fair Value on a Nonrecurring Basis

Following is a summary of the carrying value of assets that were remeasured during the quarter based on fair value on a nonrecurring basis:


Real estate acquired in settlement of loans	Level 1		Level 2		Level 3		Total
	(in thousands)
March 31, 2024	$	—	$	—	$	675	$	675
December 31, 2023	$	—	$	—	$	753	$	753

The following table summarizes the fair value changes recognized during the quarters on assets held at quarter end that were remeasured at fair value on a nonrecurring basis:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Real estate acquired in settlement of loans	$	82	$	73

The Company remeasures its REO based on fair value when it evaluates the REO properties for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less costs to sell. REO may be revalued after acquisition due to the Company receiving greater access to the property, the property being held for an extended period or receiving indications that the property’s fair value may not be supported by developing market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loans in the Company’s consolidated statements of income.

Fair Value of Financial Instruments Carried at Amortized Cost

Most of the Company’s borrowings are carried at amortized cost. The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by credit risk transfer and mortgage servicing assets and the Exchangeable Notes, as defined in Note 15 – Long Term Debt, are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values. The Company classifies the 2023 Senior Notes, defined in Note 15 – Long-Term Debt, as “Level 2” fair value liabilities.

The Company has concluded that the fair values of these borrowings other than term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets and the Unsecured senior notes approximate the agreements’ carrying values due to the borrowing agreements’ variable interest rates and short maturities.

The Company estimates the fair value of the term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets using indications of fair value provided by nonaffiliate brokers for the term notes and internal estimates

of fair value for the term loans, and uses pricing services for estimates of fair value of its Unsecured senior notes. The fair value and carrying value of these liabilities are summarized below:


	March 31, 2024				December 31, 2023
Instrument	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Notes payable secured by credit risk transfer and mortgage servicing assets	$	2,880,025	$	2,890,201	$	2,910,605	$	2,904,678
Unsecured senior notes	$	601,373	$	589,082	$	600,458	$	580,090

Valuation Governance

Most of the Company’s assets, its Asset-backed financings at fair value, Interest-only security payable at fair value and Derivative and credit risk transfer strip liabilities at fair value are carried at fair value with changes in fair value recognized in current period income. A substantial portion of these items are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair value of these assets and liabilities to specialized staff within PFSI's capital markets group and subjects the valuation process to significant senior management oversight.

With respect to “Level 3” valuations other than IRLCs, the capital markets valuation staff reports to PFSI’s senior management valuation committee, which oversees the valuations. The capital markets valuation staff monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities other than IRLCs, including the models’ performance versus actual results, and reports those results to PFSI’s senior management valuation committee. PFSI’s senior management valuation committee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, risk management and capital markets staffs.

The capital markets valuation staff is responsible for reporting to PFSI’s senior management valuation committee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuation of changes to the significant inputs to the models and, for MSRs, comparisons of its estimates of fair value and key inputs to those procured from nonaffiliate brokers and published surveys.

The fair value of the Company’s IRLCs is developed by its capital markets risk management staff and is reviewed by its capital markets operations staff.

Valuation Techniques and Inputs

The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:

Mortgage-Backed Securities

The Company’s categorization of its current holdings of MBS is based on whether the respective security is an IO security:

•

The Company categorizes the majority of its current holdings of MBS as “Level 2” fair value assets. Fair value of these securities is established based on quoted market prices for the Company’s MBS holdings or similar securities.

•

The Company categorizes its current holdings of IO securities as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of its IO securities.

The key inputs used in the estimation of the fair value of IO securities include discount rate (pricing spread) and prepayment rate (prepayment speed). Significant changes to those inputs in isolation may result in a significant change in the IO securities' fair value measurement. Changes in these key inputs are not directly related.

Following are the key inputs used in determining the fair value of IO securities:


	March 31, 2024		December 31, 2023
Fair value (in thousands)	$	94,667	$	94,231
Key inputs (1)
Pricing spread (2)
Range	5.1% – 5.1%		5.1% – 5.1%
Weighted average	5.1%		5.1%
Annual total prepayment speed (3)
Range	10.1% – 10.2%		10.9% – 11.0%
Weighted average	10.1%		10.9%
Equivalent life (in years)
Range	4.8 – 7.5		4.7 – 7.2
Weighted average	7.5		7.1

(1)

Weighted-average inputs are based on the UPB of the underlying loans.

(2)

Pricing spread represents a margin that is applied to a reference forward rate to develop periodic discount rates. The Company uses the pricing spread over a derived United States Treasury Securities (“Treasury”) yield curve for the purpose of discounting cash flows relating to IO securities.

(3)

Prepayment speed is measured using life total Conditional Prepayment Rate (“CPR”). Equivalent life is provided as supplementary information.

Changes in the fair value of MBS are included in Net gains on investments and financings in the consolidated statements of income.

Loans

Fair value of loans is estimated based on whether the loans are saleable into active markets:

•

Loans that are saleable into active markets, comprised of most of the Company’s loans acquired for sale at fair value and all of the loans at fair value held in VIEs, are categorized as “Level 2” fair value assets:

•

For loans acquired for sale, the fair values are established using the loans’ contracted selling prices, quoted market prices or market price equivalents.

•

For the loans at fair value held in VIEs, the quoted indications of fair value of all of the individual securities issued by the securitization trusts are used to derive fair values for the loans. The Company obtains indications of fair value from nonaffiliate brokers based on comparable securities and validates the brokers’ indications of fair value using pricing models and inputs the Company believes are similar to the pricing models and inputs used by other market participants. The Company adjusts the fair values received from brokers to include the fair value of MSRs attributable to the loans included in the VIEs.

•

Loans that are not saleable into active markets, comprised of previously sold loans that the Company repurchased pursuant to the representation and warranties it provided to the purchaser and distressed loans, are categorized as “Level 3” fair value assets:

•

Fair value for loans acquired for sale categorized as “Level 3” assets is estimated using a discounted cash flow approach or the loans' contracted selling prices when applicable. Inputs to the discounted cash flow model include current interest rates, payment status, property types, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds and loss severities.

•

Distressed loans’ fair values are estimated based on the expected resolution from the individual asset’s disposition strategy. When a cash flow projection is used to estimate fair value, those cash flows are discounted at annual rates up to 20%.

Derivative and Credit Risk Transfer Strip Assets and Liabilities

CRT Derivatives

The Company categorizes CRT derivatives as “Level 3” fair value assets and liabilities. The fair values of CRT derivatives are based on indications of fair value provided to the Company by nonaffiliate brokers for the certificates representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the recourse obligations and the IO ownership interests. Together, the recourse obligation and the IO ownership interest comprise the CRT derivative. Fair value of

the CRT derivatives is derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair values of the certificates.

The Company assesses the fair values it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of CRT derivatives are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT derivatives are included in Net gains on investments and financings in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of broker-provided fair values for CRT derivatives:


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Fair value	$	22,899	$	16,160
UPB of loans in reference pools	$	5,322,567	$	5,437,551
Key inputs (1)
Discount rate
Range	9.7% – 11.8%		9.0% – 9.7%
Weighted average	9.9%		9.6%
Voluntary prepayment speed (2)
Range	7.2% – 7.5%		6.9% – 7.6%
Weighted average	7.3%		7.4%
Involuntary prepayment speed (3)
Range	0.1% – 0.1%		0.2% – 0.8%
Weighted average	0.1%		0.3%
Remaining loss expectation
Range	0.0% – 0.2%		0.2% – 0.3%
Weighted average	0.1%		0.3%

(1)

Weighted average inputs are based on fair value amounts of the CRT Agreements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.

(2)

Voluntary prepayment speed is measured using life voluntary CPR.

(3)

Involuntary prepayment speed is measured using life involuntary CPR.

Interest Rate Lock Commitments

The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair value of IRLCs based on quoted Agency MBS prices, the probability that the loans will be purchased under the commitments (the “pull-through rate”) and the Company’s estimate of the fair value of the MSRs it expects to receive upon sale of the loans.

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rates and the estimated MSRs attributed to the mortgage loans subject to the commitments. Significant changes in the pull-through rates or the MSR components of the IRLCs, in isolation, may result in a significant change in the IRLCs’ fair values. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of an IRLC’s fair value, but also increase the pull-through rate for the loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans acquired for sale in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:


	March 31, 2024		December 31, 2023
Fair value (in thousands) (1)	$	4,845	$	7,532
Committed amount (in thousands)	$	1,086,938	$	874,017
Key inputs (2)
Pull-through rate
Range	62.0% - 99.0%		50.0% - 98.0%
Weighted average	83.3%		82.5%
MSR fair value expressed as
Servicing fee multiple
Range	1.9 - 6.9		1.7 - 6.5
Weighted average	5.0		4.6
Percentage of unpaid principal balance
Range	0.5% - 2.5%		0.4% - 2.4%
Weighted average	1.9%		1.7%

(1)

For purposes of this table, IRLC asset and liability positions are shown net.

(2)

Weighted-average inputs are based on the committed amounts.

Hedging Derivatives

Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities. Changes in the fair value of hedging derivatives are included in Net loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results, Net gains on investments and financings, or Net gains on loans acquired for sale, as applicable, in the consolidated statements of income.

Credit Risk Transfer Strips

The Company categorizes CRT strips as “Level 3” fair value liabilities. The fair values of CRT strips are based on indications of fair value provided to the Company by nonaffiliate brokers for the securities representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the IO ownership interests and recourse obligations. Together, the IO ownership interest and the recourse obligation comprise the CRT strip.

Fair value of the CRT strips is derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the indications of fair value of the securities provided by the nonaffiliate brokers.

The Company assesses the indications of fair value it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of the CRT strips are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT strips are included in Net gains on investments and financings in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the broker-provided fair values used to derive the fair value of the CRT strip liabilities:


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Fair value	$	17,352	$	46,692
Unpaid principal balance of loans in the reference pools	$	17,403,201	$	17,714,679
Key inputs (1)
Discount rate
Range	8.2% – 9.3%		7.9% – 9.6%
Weighted average	9.2%		9.4%
Voluntary prepayment speed (2)
Range	7.3% – 7.5%		6.6% – 8.2%
Weighted average	7.4%		6.8%
Involuntary prepayment speed (3)
Range	0.1% – 0.3%		0.2% – 0.3%
Weighted average	0.1%		0.2%
Remaining loss expectation
Range	0.4% – 1.5%		0.5% – 1.6%
Weighted average	0.6%		0.6%

(1)

Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.

(2)

Voluntary prepayment speed is measured using life voluntary CPR.

(3)

Involuntary prepayment speed is measured using life involuntary CPR.

Mortgage Servicing Rights

The Company categorizes MSRs as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of MSRs. The fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company receives a servicing fee based on the remaining UPB of the loans subject to the servicing agreements and generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and is generally entitled to retain any placement fees earned on certain custodial funds held pending remittance of mortgagor principal, interest, tax and insurance payments.

The key inputs used in the estimation of the fair value of MSRs include the applicable pricing spreads, the prepayment speeds of the underlying loans, and the annual per-loan costs to service the loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of income.

MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (pricing spreads) increase, or when annual per-loan costs of servicing increase. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value.

Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:


	Quarter ended March 31,
	2024		2023
MSRs recognized (in thousands)	$	31,249	$	100,618
Unpaid principal balance of underlying loans (in thousands)	$	1,831,018	$	5,549,325
Weighted average annual servicing fee rate (in basis points)	36		41
Key inputs (1)
Pricing spread (2)
Range	5.5% – 8.5%		5.5% – 8.7%
Weighted average	5.6%		5.8%
Prepayment speed (3)
Range	11.2% – 17.5%		13.1% – 21.8%
Weighted average	13.5%		13.2%
Equivalent average life (in years)
Range	3.6 – 6.5		2.8 – 6.6
Weighted average	6.4		6.5
Annual per-loan cost of servicing
Range	$70 – $70		$69 – $69
Weighted average	$70		$69

(1)

Weighted average inputs are based on UPB of the underlying loans.

(2)

The Company uses the pricing spread over a derived Treasury yield curve for the purpose of discounting cash flows relating to MSRs.

(3)

Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

Following is a quantitative summary of key inputs used in the valuation of MSRs as of the dates presented, and the effect on the fair value from adverse changes in those inputs:


	March 31, 2024		December 31, 2023
Fair value (in thousands)	$	3,951,737	$	3,919,107
Unpaid principal balance of underlying loans (in thousands)	$	230,494,050	$	230,294,583
Weighted average annual servicing fee rate (in basis points)	28		28
Weighted average note interest rate	3.7%		3.7%
Key inputs (1)
Pricing spread (2)
Range	5.5 – 8.5%		5.5% – 8.5%
Weighted average	5.5%		5.5%
Effect on fair value (in thousands) of (3):
5% adverse change	$(48,628)		$(48,362)
10% adverse change	$(96,098)		$(95,575)
20% adverse change	$(187,715)		$(186,699)
Prepayment speed (4)
Range	6.7% – 17.8%		6.5% – 17.9%
Weighted average	6.8%		7.0%
Equivalent average life (in years)
Range	2.6 – 9.2		2.7 – 9.4
Weighted average	8.6		8.5
Effect on fair value (in thousands) of (3):
5% adverse change	$(52,875)		$(53,964)
10% adverse change	$(104,063)		$(106,144)
20% adverse change	$(201,702)		$(205,509)
Annual per-loan cost of servicing
Range	$70 – $89		$70 – $89
Weighted average	$70		$70
Effect on fair value (in thousands) of (3):
5% adverse change	$(17,256)		$(17,276)
10% adverse change	$(34,512)		$(34,551)
20% adverse change	$(69,023)		$(69,103)

(1)

Weighted-average inputs are based on the UPB of the underlying loans.

(2)

The Company uses a pricing spread over a derived Treasury yield curve for the purpose of discounting cash flows relating to MSRs.

(3)

These sensitivity analyses are limited in that they were performed as of a particular date; only account for the estimated effect of the movements in the indicated inputs; do not incorporate changes in those inputs in relation to other inputs; are subject to the

accuracy of the models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments to account for changing circumstances. For these reasons, these analyses should not be viewed as earnings forecasts.

(4)

Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

Real Estate Acquired in Settlement of Loans

REO is measured based on its fair value on a nonrecurring basis and is categorized as a “Level 3” fair value asset. Fair value of REO is established by using a current estimate of fair value from either a broker’s price opinion, a full appraisal, or the price given in a pending contract of sale.

REO fair values are reviewed by PLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the indications of fair value. PLS staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the staff appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers obtain an additional appraisal to determine fair value. Recognized changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of income.

Note 8— Mortgage-Backed Securities

Following is a summary of activity in the Company’s holdings of MBS:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Balance at beginning of quarter	$	4,836,292		$	4,462,601
Purchases		159,585			2,784,592
Sales		(941,340	)		(2,629,540	)
Repayments		(69,752	)		(64,910	)
Changes in fair value included in income arising from:
Accrual (amortization) of net purchase premiums and discounts		3,091			(1,957	)
Valuation adjustments, net		(38,198	)		78,218
		(35,107	)		76,261
Balance at end of quarter	$	3,949,678		$	4,629,004


	March 31, 2024		December 31, 2023
	(in thousands)
Fair value of mortgage-backed securities pledged to secure Assets sold under agreements to repurchase	$	3,949,678	$	4,836,292

Following is a summary of the Company’s investments in MBS:


	March 31, 2024
Security type (1)	Principal balance		Unamortized net purchase premiums (discounts)			Cumulative valuation changes			Fair value
	(in thousands)
Agency fixed-rate pass-through securities	$	3,367,176	$	(1,683	)	$	(30,407	)	$	3,335,086
Subordinate credit-linked securities		174,813		(3,686	)		23,431			194,558
Senior non-Agency securities		121,791		(3,527	)		(4,339	)		113,925
Principal-only stripped mortgage-backed securities		263,964		(57,926	)		5,404			211,442
	$	3,927,744	$	(66,822	)	$	(5,911	)		3,855,011
Interest-only stripped mortgage-backed securities										94,667
									$	3,949,678


	December 31, 2023
Security type (1)	Principal balance		Unamortized net purchase premiums (discounts)			Cumulative valuation changes			Fair value
	(in thousands)
Agency fixed-rate pass-through securities	$	4,311,342	$	34		$	(41,320	)	$	4,270,056
Subordinate credit-linked securities		275,963		(3,633	)		28,850			301,180
Senior non-Agency securities		124,771		(3,567	)		(3,715	)		117,489
Principal-only stripped mortgage-backed securities		65,573		(18,567	)		6,330			53,336
	$	4,777,649	$	(25,733	)	$	(9,855	)		4,742,061
Interest-only stripped mortgage-backed securities										94,231
									$	4,836,292

(1)

All MBS have maturities of more than ten years and are pledged to secure Assets sold under agreements to repurchase.

Note 9—Loans Acquired for Sale at Fair Value

Following is a summary of the distribution of the Company’s loans acquired for sale at fair value:


Loan type	March 31, 2024		December 31, 2023
	(in thousands)
GSE eligible — held for sale to nonaffiliates (1)	$	422,066	$	491,108
Held for sale to PLS
Government insured or guaranteed		150,198		106,069
Conventional conforming loans		330,223		62,234
		480,421		168,303
Jumbo		4,019		3,289
Home equity lines of credit		1,736		1,803
Repurchased pursuant to representations and warranties		3,360		4,515
	$	911,602	$	669,018
Loans pledged to secure:
Assets sold under agreements to repurchase	$	877,377	$	659,751
Mortgage loan participation purchase and sale agreements		26,586		—
	$	903,963	$	659,751

(1)

GSE eligibility refers to the eligibility of loans for sale to Fannie Mae or Freddie Mac. The Company sells or finances a portion of its GSE eligible loan production to other investors, including PLS.

Note 10—Loans at Fair Value

Loans at fair value are comprised primarily of loans held in VIEs securing asset-backed financings as described in Note 6 –Variable Interest Entities – Subordinate Mortgage-Backed Securities.

Following is a summary of the distribution of the Company’s loans at fair value:


Loan type	March 31, 2024		December 31, 2023
	(in thousands)
Loans in VIEs:
Agency-conforming loans secured by investment properties	$	1,359,304	$	1,383,392
Fixed interest rate jumbo loans		47,272		48,297
		1,406,576		1,431,689
Distressed loans		2,034		2,131
	$	1,408,610	$	1,433,820
Loans at fair value pledged to secure:
Asset-backed financings at fair value (1)	$	1,406,576	$	1,431,689
Assets sold under agreements to repurchase		198		207
	$	1,406,774	$	1,431,896

(1)

As discussed in Note 6 ‒ Variable Interest Entities ‒ Subordinate Mortgage-Backed Securities, the Company holds a portion of the securities issued by the VIEs. At March 31, 2024 and December 31, 2023, $88.4 million and $85.3 million, respectively, of such retained securities were pledged to secure Assets sold under agreements to repurchase.

Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities

Derivative and credit risk transfer assets and liabilities are summarized below:


	March 31, 2024		December 31, 2023
	(in thousands)
Derivative assets	$	62,734	$	177,984
	$	62,734	$	177,984

Derivative liabilities	$	1,398	$	4,689
Credit risk transfer strip liabilities		17,352		46,692
	$	18,750	$	51,381

The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period income.

Derivative Activities

The Company holds and issues derivative financial instruments in connection with its operating, investing and financing activities. Derivative financial instruments are created as a result of certain of the Company’s operations and the Company also enters into derivative transactions as part of its interest rate risk management activities.

Derivative financial instruments created as a result of the Company’s operations include:

•

IRLCs that are created when the Company commits to purchase loans acquired for sale; and

•

CRT Agreements whereby the Company retained recourse obligations relating to certain loans it sold into Fannie Mae guaranteed securitizations as part of the retention of IO ownership interests in such loans.

The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by the effects of changes in interest rates on the fair values of certain of its assets and liabilities. The Company bears price risk related to its mortgage production, servicing assets and MBS financing activities due to changes in market interest rates as discussed below:

•

The Company is exposed to losses if market mortgage interest rates increase, because market interest rate increases generally cause the fair values of MBS, IRLCs and loans acquired for sale to decrease.

•

The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally encourage increased mortgage refinancing activities, which causes the fair values of MSRs to decrease.

To manage the price risk resulting from these interest rate risks, the Company uses derivative financial instruments with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair values of the Company’s MBS, inventory of loans acquired for sale, IRLCs and MSRs. The Company does not designate and qualify any of its derivative financial instruments for hedge accounting.

Cash flows from derivative financial instruments relating to hedging of IRLCs and loans acquired for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans acquired for sale at fair value. Cash flows from derivative financial instruments relating to hedging of MSRs are included in Cash flows from investing activities.

Derivative Notional Amounts and Fair Value of Derivatives

The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative and credit risk transfer liabilities and related margin deposits on the consolidated balance sheets:


	March 31, 2024							December 31, 2023
			Fair value							Fair value
	Notional		Derivative		Derivative			Notional		Derivative		Derivative
Instrument	amount (1)		assets		liabilities			amount (1)		assets		liabilities
	(in thousands)
Hedging derivatives subject to master netting arrangements (2):
Call options on interest rate futures purchase contracts		325,000	$	559	$	—			2,315,000	$	41,712	$	2,005
Put options on interest rate futures purchase contracts		4,225,000		13,754		—			2,900,000		4,324		—
Call options on interest rate futures sell contracts		—		—		—			500,000		—		1,328
Put options on interest rate futures sell contracts		500,000		—		156			—		—		—
Forward purchase contracts		3,260,797		5,833		1,125			2,789,324		15,905		490
Forward sale contracts		6,782,456		1,782		6,174			7,219,512		671		50,363
MBS call options		—		—		—			500,000		3,218		—
MBS put options		150,000		93		—			450,000		5		—
Bond futures		1,342,500		—		—			2,860,500		—		—
Swap futures		951,200		—		—			1,048,800		—		—
Other derivatives not subject to master netting arrangements:
CRT derivatives		5,322,567		22,899		—			5,437,551		16,160		—
Interest rate lock commitments		1,086,938		5,154		309			874,017		7,596		64
Total derivative instruments before netting				50,074		7,764					89,591		54,250
Netting				12,660		(6,366	)				88,393		(49,561	)
			$	62,734	$	1,398				$	177,984	$	4,689
Margin deposits placed with derivative counterparties included in derivative balances above, net			$	19,026						$	137,955
Derivative assets pledged to secure:
Notes payable secured by credit risk transfer and mortgage servicing assets			$	22,899						$	16,160

(1) Notional amounts provide an indication of the volume of the Company’s derivative activity.

(2) All hedging derivatives are interest rate derivatives that are used as economic hedges.

Netting of Financial Instruments

The Company has elected to net derivative asset and liability positions, and cash collateral placed with or received from its counterparties when such positions are subject to legally enforceable master netting arrangements and the Company intends to set off. The derivative financial instruments that are not subject to master netting arrangements are CRT derivatives and IRLCs. As of March 31, 2024 and December 31, 2023, the Company was not a party to any reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.

Derivative Assets, Financial Instruments and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amounts of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.


	March 31, 2024								December 31, 2023
	Net amount		Gross amounts						Net amount		Gross amounts
	of assets		not offset in the						of assets		not offset in the
	presented		consolidated						presented		consolidated
	in the		balance sheet						in the		balance sheet
	consolidated				Cash				consolidated				Cash
	balance		Financial		collateral		Net		balance		Financial		collateral		Net
	sheet		instruments		received		amount		sheet		instruments		received		amount
Counterparty	(in thousands)
CRT derivatives	$	22,899	$	—	$	—	$	22,899	$	16,160	$	—	$	—	$	16,160
Interest rate lock commitments		5,154		—		—		5,154		7,596		—		—		7,596
RJ O’Brien & Associates, LLC		14,156		—		—		14,156		42,703		—		—		42,703
Morgan Stanley & Co. LLC		9,837		—		—		9,837		79,825		—		—		79,825
Wells Fargo Securities, LLC		7,866		—		—		7,866		7,759		—		—		7,759
J.P. Morgan Securities LLC		2,029		—		—		2,029		997		—		—		997
Athene Annuity & Life Assurance Company		246		—		—		246		94		—		—		94
BNP Paribas		149		—		—		149		—		—		—		—
Citigroup Global Markets Inc.		—		—		—		—		503		—		—		503
Goldman Sachs & Co. LLC		—		—		—		—		18,701		—		—		18,701
Bank of America, N.A.		—		—		—		—		3,418		—		—		3,418
Other		398		—		—		398		228		—		—		228
	$	62,734	$	—	$	—	$	62,734	$	177,984	$	—	$	—	$	177,984

Derivative Liabilities, Financial Liabilities and Collateral Pledged by Counterparty

The following table summarizes by significant counterparty the amounts of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance to qualify for setoff accounting. All assets sold under agreements to repurchase represent sufficient collateral or exceed the liability amounts recorded on the consolidated balance sheet.


	March 31, 2024									December 31, 2023
	Net amount		Gross amounts							Net amount		Gross amounts
	of liabilities		not offset in the							of liabilities		not offset in the
	presented		consolidated							presented		consolidated
	in the		balance sheet							in the		balance sheet
	consolidated		Financial			Cash				consolidated		Financial			Cash
	balance		instruments			collateral		Net		balance		instruments			collateral		Net
	sheet		(1)			pledged		amount		sheet		(1)			pledged		amount
Counterparty	(in thousands)
Interest rate lock commitments	$	309	$	—		$	—	$	309	$	64	$	—		$	—	$	64
J.P. Morgan Securities LLC		1,487,305		(1,487,305	)		—		—		1,521,072		(1,521,072	)		—		—
Wells Fargo Securities, LLC		612,631		(612,631	)		—		—		569,129		(569,129	)		—		—
Bank of America, N.A.		542,329		(542,209	)		—		120		785,756		(785,756	)		—		—
Atlas Securitized Products, L.P.		526,347		(526,347	)		—		—		783,456		(783,456	)		—		—
Barclays Capital Inc.		480,762		(480,762	)		—		—		807,404		(803,641	)		—		3,763
Citigroup Global Markets Inc.		432,805		(432,482	)		—		323		147,093		(147,093	)		—		—
Santander US Capital		337,459		(337,459	)		—		—		292,091		(292,091	)		—		—
Daiwa Capital Markets		237,462		(237,462	)		—		—		340,975		(340,975	)		—		—
RBC Capital Markets, L.P.		189,813		(189,813	)		—		—		128,602		(128,602	)		—		—
Goldman Sachs & Co. LLC		120,446		(120,137	)		—		309		145,007		(145,007	)		—		—
Mizuho Financial Group		67,051		(66,749	)		—		302		67,637		(67,110	)		—		527
Morgan Stanley & Co. LLC		41,555		(41,555	)		—		—		25,814		(25,814	)		—		—
BNP Paribas		39,096		(39,096	)		—		—		10,121		(10,121	)		—		—
Nomura Holdings America, Inc		8,196		(8,196	)		—		—		8,135		(7,940	)		—		195
Other		35		—			—		35		140		—			—		140
	$	5,123,601	$	(5,122,203	)	$	—	$	1,398	$	5,632,496	$	(5,627,807	)	$	—	$	4,689

(1)

Amounts represent the UPB of Assets sold under agreements to repurchase.

Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of income line items where such gains and losses are included:


		Quarter ended March 31,
Derivative activity	Consolidated statements of income line	2024			2023
		(in thousands)
Interest rate lock commitments	Net gains on loans acquired for sale (1)	$	(2,688	)	$	9,027
CRT derivatives	Net gains on investments and financings	$	10,190		$	11,126
Hedged item:
Assets sold under agreements to repurchase	Net gains on investments and financings	$	20,098		$	—
Interest rate lock commitments and loans acquired for sale	Net gains on loans acquired for sale	$	2,610		$	(20,744	)
Mortgage servicing rights	Net loan servicing fees	$	(89,814	)	$	(54,891	)

(1)

Represents net change in fair value of IRLCs from the beginning to the end of the reporting period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loan or cancellation of the commitment are shown in the rollforwards of IRLCs for the period in Note 7 – Fair Value – Financial Statement Items Measured at Fair Value on a Recurring Basis.

Note 12—Mortgage Servicing Rights

Following is a summary of MSRs:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Balance at beginning of quarter	$	3,919,107		$	4,012,737
Purchases		29,441			—
MSRs resulting from loan sales		31,249			100,618
Transfers to Agency of mortgage servicing rights relating to delinquent loans		142			(835	)
Changes in fair value:
Due to changes in inputs used in valuation model (1)		71,570			(45,771	)
Other changes in fair value (2)		(99,772	)		(91,673	)
		(28,202	)		(137,444	)
Balance at end of quarter	$	3,951,737		$	3,975,076


	March 31, 2024		December 31, 2023
	(in thousands)
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets	$	3,901,513	$	3,871,249

(1)

Primarily reflects changes in pricing spread, prepayment speed, servicing cost, and UPB of underlying loan inputs.

(2)

Represents changes due to realization of expected cash flows.

Servicing fees relating to MSRs are recorded in Net loan servicing fees – from nonaffiliates on the Company’s consolidated statements of income and are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Contractually specified servicing fees	$	160,357	$	164,214
Ancillary and other fees:
Late charges		993		759
Other		2,018		3,184
		3,011		3,943
	$	163,368	$	168,157
Average MSR servicing portfolio	$	230,591,966	$	230,812,774

From PFSI—MSR recapture fees	$	353	$	485
UPB of loans recaptured	$	62,073	$	95,191

Note 13— Other Assets

Other assets are summarized below:


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Margin deposits	$	135,657	$	124,293
Interest receivable		36,206		37,305
Servicing fees receivable		11,247		14,603
Correspondent lending receivables		7,369		6,313
Other receivables		10,065		7,199
Real estate acquired in settlement of loans		4,680		4,541
Other		21,122		58,284
	$	226,346	$	252,538
Real estate acquired in settlement of loans pledged to secure Assets sold under agreements to repurchase	$	1,891	$	1,905

Note 14— Short-Term Debt

The borrowing facilities described throughout these Notes 14 and 15 contain various covenants, including financial covenants governing the Company and its subsidiaries’ net worth, debt-to-equity ratio, and liquidity. Management believes that the Company was in compliance with these covenants as of March 31, 2024.

Assets Sold Under Agreements to Repurchase

Following is a summary of financial information relating to assets sold under agreements to repurchase:


	Quarter ended March 31,
	2024			2023
	(dollars in thousands)
Weighted average interest rate (1)		6.17	%		5.55	%
Average balance	$	5,144,834		$	7,242,478
Total interest expense	$	80,557		$	100,267
Maximum daily amount outstanding	$	6,494,643		$	9,107,074

(1)

Excludes the effect of amortization of debt issuance costs of $1.6 million and $1.2 million for the quarters ended

March 31, 2024 and 2023, respectively.


	March 31, 2024			December 31, 2023
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	5,122,203		$	5,627,807
Unamortized debt issuance costs		(3,826	)		(3,249	)
	$	5,118,377		$	5,624,558
Weighted average interest rate		6.09	%		6.14	%
Available borrowing capacity (1):
Committed	$	851,138		$	634,147
Uncommitted		5,080,528			5,221,706
	$	5,931,666		$	5,855,853
Margin deposits placed with (received from) counterparties included in Other assets (accounts payable and accrued liabilities), net	$	59,229		$	(116,358	)
Assets securing agreements to repurchase:
Mortgage-backed securities	$	3,949,678		$	4,836,292
Loans acquired for sale at fair value	$	877,377		$	659,751
Loans at fair value:
Securities retained in asset-backed financings	$	88,412		$	85,344
Distressed	$	198		$	207
Deposits securing credit risk transfer arrangements	$	75,754		$	77,417
Mortgage servicing rights (2)	$	2,013,510		$	2,000,574
Servicing advances	$	62,943		$	101,927
Real estate acquired in settlement of loans	$	1,891		$	1,905

(1)

The amount the Company is able to borrow under asset repurchase agreements is tied to the fair value of unencumbered assets eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the assets financed.

(2)

Beneficial interests in Fannie Mae MSRs are pledged to secure both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.

Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:


Remaining maturity at March 31, 2024 (1)	Unpaid principal balance
	(in thousands)
Within 30 days	$	2,988,184
Over 30 to 90 days		1,560,763
Over 90 days to 180 days		189,813
Over 180 days to 1 year		—
Over 1 year to 2 years		383,443
	$	5,122,203
Weighted average maturity (in months)		2.5

(1)

The Company is subject to margin calls during the period the repurchase agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective repurchase agreements mature if the fair values (as determined by the applicable lender) of the assets securing those repurchase agreements decrease.

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and interest payable) and maturity information relating to the Company’s assets sold under agreements to repurchase is summarized by pledged asset and counterparty below as of March 31, 2024:

Loans, REO and MSRs


			Weighted-average maturity
Counterparty	Amount at risk		Advances	Facility
	(in thousands)
Atlas Securitized Products, L.P.	$	213,240	June 22, 2024	June 27, 2025
Citibank, N.A.	$	145,955	May 25, 2024	June 27, 2025
Goldman Sachs & Co. LLC	$	50,779	June 16, 2024	March 13, 2026
JPMorgan Chase & Co.	$	3,595	June 6, 2024	June 16, 2025
Bank of America, N.A.	$	15,148	April 22, 2024	July 15, 2024
Wells Fargo Securities, LLC	$	2,159	June 22, 2024	May 3, 2025
Barclays Capital Inc.	$	2,148	June 16, 2024	March 6, 2026
RBC Capital Markets, L.P.	$	7,557	July 15, 2024	February 12, 2025
Morgan Stanley & Co. LLC	$	2,333	June 21, 2024	February 6, 2026
BNP Paribas	$	1,436	June 24, 2024	September 30, 2025

Securities


Counterparty	Amount at risk		Weighted average maturity
	(in thousands)
Citibank, N.A.	$	63,645	May 7, 2024
JPMorgan Chase & Co.	$	42,227	April 22, 2024
Bank of America, N.A.	$	12,617	April 21, 2024
Wells Fargo Securities, LLC	$	24,354	May 23, 2024
Barclays Capital Inc.	$	23,916	April 25, 2024
Santander US Capital	$	11,038	April 24, 2024
Daiwa Capital Markets America Inc.	$	6,314	April 30, 2024
Nomura Holdings America, Inc	$	3,423	May 4, 2024
Mizuho Financial Group	$	1,746	May 22, 2024

CRT arrangements

Mortgage Loan Participation Purchase and Sale Agreement

One of the borrowing facilities secured by loans acquired for sale is in the form of a mortgage loan participation purchase and sale agreement. Participation certificates, each of which represents an undivided beneficial ownership interest in a pool of loans that have been pooled with Fannie Mae or Freddie Mac, are sold to the lender pending the securitization of such loans and the sale of the resulting security. The commitment between the Company and a nonaffiliate to sell such security is also assigned to the lender at the time a participation certificate is sold.

The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount. The holdback amount is based on a percentage of the purchase price and is not required to be paid to the Company until the settlement of the security and its delivery to the lender.

The mortgage loan participation purchase and sale agreement is summarized below:


	Quarter ended March 31,
	2024			2023
	(dollars in thousands)
Average balance	$	12,731		$	17,107
Weighted average interest rate (1)		6.78	%		6.20	%
Total interest expense	$	246		$	293
Maximum daily amount outstanding	$	44,762		$	90,531

(1)

Excludes the effect of amortization of debt issuance costs of $31,000 for the quarters ended March 31, 2024 and 2023.


	March 31, 2024
	(dollars in thousands)
Carrying value:
Amount outstanding	$	25,216
Unamortized debt issuance costs		—
	$	25,216
Weighted average interest rate		6.58	%
Loans acquired for sale pledged to secure mortgage loan participation purchase and sale agreement	$	26,586

Note 15— Long-Term Debt

Notes Payable Secured By Credit Risk Transfer and Mortgage Servicing Assets

CRT Arrangement Financing

The Company, through various wholly-owned subsidiaries, issued secured term notes (the “CRT Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). All of the CRT Term Notes rank pari passu with each other.

Following is a summary of the CRT Term Notes outstanding:


CRT				Unpaid		Annual
Term Notes	Issuance date	Issuance amount		principal balance		interest rate spread (1)	Maturity date
		(in thousands)
2024 1R	March 6, 2024	$	306,000	$	302,616	3.50%	March 1, 2027
2023 1R	April 5, 2023	$	235,000		213,025	4.40%	March 25, 2025
2020 1R	February 14, 2020	$	350,000		49,331	3.35%	February 27, 2025
2019 3R	October 16, 2019	$	375,000		46,068	3.70%	October 29, 2024
2019 2R	June 11, 2019	$	638,000		157,385	3.75%	May 28, 2025
				$	768,425

(1)

Interest rates are charged at a spread to the Secured Overnight Financing Rate ("SOFR").

Fannie Mae MSR Financing

The Company, through two subsidiaries, PMT ISSUER TRUST-FMSR and PMT CO-ISSUER TRUST-FMSR (together, the "Issuer Trusts"), finance MSRs and Excess Servicing Spread ("ESS") pledged or sold by PMC and PennyMac Holdings, LLC (“PMH”) through a combination of repurchase agreements and term financing.

The repurchase agreements financing for Fannie Mae MSRs and ESS are effected through the issuance of variable funding notes (a Series 2017-VF1 Note and a Series 2024-VF1 Note, and together the ("FMSR VFNs")) by the Issuer Trusts to PMC and PMH, which are then sold to qualified institutional buyers under agreements to repurchase. The amounts outstanding under the FMSR VFNs are included in Assets sold under agreements to repurchase in the Company’s consolidated balance sheets. The FMSR VFNs have a committed borrowing combined capacity of $1.4 billion under two year repurchase agreement facilities.

The term financing for Fannie Mae MSRs through the Issuer Trusts is effected through the issuance of term notes (the “FT-1 Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act and a series of syndicated term loans with various lenders (the “FTL-1 Term Loans").

The FT-1 Term Notes and FTL-1 Term Loans and the FMSR VFN are secured by certain participation certificates relating to Fannie Mae MSRs and ESS and rank pari passu with each other.

Following is a summary of the term financing of the Company’s Fannie Mae MSRs:

         
        Unpaid

        Annual

        Maturity date

        Issuance

        Issuance date

        principal
balance

        interest rate spread (1)

        Stated

        Optional extension (2)

         
        (in thousands)

        Term Loans

2023

May 25, 2023

370,000

3.00%

May 25, 2028

May 25, 2029

        Term Notes

2022

June 28, 2022

305,000

4.19%

June 25, 2027

(3)

2021

March 30, 2021

350,000

3.00%

March 25, 2026

March 27, 2028

1,025,000

(1)

Interest rates are charged at a spread to SOFR.

(2)

The indentures relating to these issuances provide the Company with the option of extending the maturity dates of certain of the FT-1 Term Notes and FTL-1 Term Loans under the conditions specified in the respective agreements.

(3)

Either June 26, 2028 or June 25, 2029.

Freddie Mac MSR and Servicing Advance Receivables Financing

The Company, through PMC and PMH, finances certain MSRs relating to loans pooled into Freddie Mac securities through various credit agreements. The total loan amount available under the agreements is approximately $2.0 billion, bearing interest at an annual rate equal to SOFR plus a spread as defined in each agreement. The agreements have a weighted average maturity of March 2025. The total loan amount available under the agreements may be reduced by other debt outstanding with the counterparties. Advances under the credit agreements are secured by MSRs relating to loans serviced for Freddie Mac guaranteed securities.

On August 10, 2023, the Company, through its indirect, wholly owned subsidiaries, PMT ISSUER TRUST - FHLMC SAF, PMT SAF Funding, LLC, and PMC, entered into a structured finance transaction that allows PMC to finance Freddie Mac servicing advance receivables (the “Series 2023-VF1”). The maturity date of the related Series 2023-VF1, Class A-VF1 Variable Funding Note is August 9, 2025 and has a maximum principal amount of $150 million.

Following is a summary of financial information relating to notes payable secured by credit risk transfer and mortgage servicing assets:


	Quarter ended March 31,
	2024			2023
	(dollars in thousands)
Average balance	$	2,866,504		$	2,802,691
Weighted average interest rate (1)		8.84	%		7.69	%
Total interest expense	$	64,989		$	54,947
Maximum daily amount outstanding	$	2,945,587		$	2,812,694

(1)

Excludes the effect of amortization of debt issuance costs of $2.0 million and $1.8 million for the quarters ended

March 31, 2024 and 2023, respectively.


	March 31, 2024			December 31, 2023
	(dollars in thousands)
Carrying value:
Unpaid principal balance:
CRT arrangement financing	$	768,425		$	747,662
Fannie Mae MSR financing		1,025,000			1,025,000
Freddie Mac MSR and servicing advance receivable financing		1,095,000			1,145,000
		2,888,425			2,917,662
Unamortized debt issuance costs		(8,400	)		(7,057	)
	$	2,880,025		$	2,910,605
Weighted average interest rate		8.71	%		8.73	%
Assets securing notes payable:
Mortgage servicing rights (1)	$	3,901,513		$	3,871,249
Servicing advances	$	42,344		$	79,274
CRT Agreements:
Deposits securing CRT arrangements	$	1,111,346		$	1,132,081
Derivative assets	$	22,899		$	16,160

(1)

Beneficial interests in Freddie Mac MSRs are pledged as collateral for the Notes payable secured by credit risk transfer and mortgage servicing assets. Beneficial interests in Fannie Mae MSRs are pledged for both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.

Unsecured Senior Notes

Exchangeable Senior Notes

PMC has issued $345 million aggregate principal amount of exchangeable senior notes due 2026 (the “2026 Exchangeable Notes”) and $210 million aggregate principal amount of exchangeable senior notes due 2024 (the “2024 Exchangeable Notes” and, together with the 2026 Exchangeable Notes, the “Exchangeable Notes”) in private offerings. The 2026 Exchangeable Notes will mature on March 15, 2026 unless repurchased or exchanged in accordance with their terms before such date. The 2024 Exchangeable Notes will mature on November 1, 2024 unless repurchased or exchanged in accordance with their terms before such date. The Exchangeable Notes bear interest at a rate of 5.50% per year, payable semiannually.

The 2026 Exchangeable Notes and the 2024 Exchangeable Notes are fully and unconditionally guaranteed by the Company and are exchangeable for Common Shares, cash, or a combination thereof, at PMC’s election, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, subject to the satisfaction of certain conditions if the exchange occurs before December 15, 2025 and August 1, 2024, respectively. The exchange rates are equal to 46.1063 and 40.101 Common Shares per $1,000 principal amount of the 2026 Exchangeable Notes and 2024 Exchangeable Notes, respectively, and are subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest.

2023 Senior Notes

In September 2023, the Company issued $53.5 million principal amount of unsecured 8.50% senior notes due

September 30, 2028 (the "2023 Senior Notes”). The 2023 Senior Notes bear interest at a rate of 8.50% per year, payable quarterly.

On or after September 30, 2025, PMT may redeem for cash all or any portion of the 2023 Senior Notes, at its option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The 2023 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal and interest, whether at stated maturity, upon acceleration, call for redemption or otherwise.

Following is financial information relating to the unsecured senior notes:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Average balance	$	608,500		$	546,511
Weighted average interest rate (1)		5.80	%		5.66	%
Interest expense	$	9,684		$	8,380

	March 31, 2024			December 31, 2023
	(in thousands)
Carrying value:
Unpaid principal balance	$	608,500		$	608,500
Unamortized debt issuance costs		(7,127	)		(8,042	)
	$	601,373		$	600,458

(1)

Excludes the effect of amortization of debt issuance costs of $916,000 and $748,000 for the quarters ended March 31, 2024 and 2023, respectively.

Asset-Backed Financing of Variable Interest Entities at Fair Value

Following is a summary of financial information relating to the asset-backed financings of VIEs at fair value described in Note 6 ‒ Variable Interest Entities ‒ Subordinate Mortgage-Backed Securities:


	Quarter ended March 31,
	2024			2023
	(dollars in thousands)
Average balance	$	1,581,818		$	1,411,990
Total interest expense	$	12,678		$	12,353
Weighted average interest rate (1)		3.10	%		3.70	%

(1)

Excludes the effect of amortization of debt issuance costs and (accrual) of premiums of $492,000 and $(542,000) for the quarters ended March 31, 2024 and 2023, respectively.


	March 31, 2024			December 31, 2023
	(dollars in thousands)
Fair value	$	1,308,680		$	1,336,731
Unpaid principal balance	$	1,568,935		$	1,590,003
Weighted average interest rate		3.22	%		3.22	%

The asset-backed financings are non-recourse liabilities and are secured solely by the assets of consolidated VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment of the securities.

Maturities of Long-Term Debt

Contractual maturities of long-term debt obligations (based on final maturity dates) are as follows:


			Twelve months March 31,
	Total		2025		2026		2027		2028		2029		Thereafter
	(in thousands)
Notes payable secured by credit risk transfer and mortgage servicing assets (1)	$	2,888,425	$	758,424	$	1,152,385	$	302,616	$	305,000	$	370,000	$	—
Unsecured senior notes		608,500		210,000		345,000		—		—		53,500		—
Asset-backed financings at fair value (2)		1,568,935		—		—		—		—		—		1,568,935
Interest-only security payable at fair value (2)		32,227		—		—		—		—		—		32,227
Total	$	5,098,087	$	968,424	$	1,497,385	$	302,616	$	305,000	$	423,500	$	1,601,162

(1)

Based on stated maturity. As discussed above, certain of the Notes payable secured by credit risk and mortgage servicing assets allow the Company to exercise optional extensions.

(2)

Contractual maturity does not reflect expected repayment as borrowers of the underlying loans generally have the right to repay their loans at any time.

Note 16—Liability for Losses Under Representations and Warranties

Following is a summary of the Company’s liability for losses under representations and warranties:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Balance, beginning of quarter	$	26,143		$	39,471
Provision for losses:
Pursuant to loan sales		254			940
Reduction in liability due to change in estimate		(6,878	)		(616	)
Losses incurred		—			(388	)
Balance, end of quarter	$	19,519		$	39,407
UPB of loans subject to representations and warranties at end of quarter	$	225,439,542		$	230,035,290

Note 17—Commitments and Contingencies

Commitments

The following table summarizes the Company’s outstanding contractual commitments:


	March 31, 2024
	(in thousands)
Commitments to purchase loans acquired for sale	$	1,086,938

Litigation

From time to time, the Company may be involved in various legal and regulatory proceedings, claims and legal actions arising in the ordinary course of business. The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on the financial condition, income, or cash flows of the Company.

Note 18—Shareholders’ Equity

Preferred Shares of Beneficial Interest

Preferred shares of beneficial interest are summarized below:


										Dividends per share, Quarter ended March 31,
Preferred Share series	Description (1)	Number of shares		Liquidation preference		Issuance discount		Carrying value		2024		2023
Fixed-rate cumulative redeemable		(in thousands, except dividends per share)
A	8.125% Issued March 2017		4,600	$	115,000	$	3,828	$	111,172	$	0.51	$	0.51
B	8.00% Issued July 2017		7,800		195,000		6,465		188,535	$	0.50	$	0.50
C	6.75% Issued August 2021		10,000		250,000		8,225		241,775	$	0.42	$	0.42
			22,400	$	560,000	$	18,518	$	541,482

(1)

Par value is $0.01 per share.

In accordance with the Articles Supplementary for each of the Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) and the Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series B Preferred Shares”), and disregarding the polling provisions contained in the Articles Supplementary for the Series A Preferred Shares and the Series B Preferred Shares that are deemed null and void in accordance with Federal Reserve rules, the applicable dividend rate for dividend periods from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, will be calculated at the dividend rate in effect for the immediately preceding dividend period. As a result, the Series A Preferred Shares and Series B Preferred Shares will continue to accumulate dividends from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, at their fixed rate then in effect and will not transition to floating reference rates.

The Series A Preferred Shares became redeemable on March 15, 2024. The Series B Preferred Shares and Series C Cumulative Redeemable Preferred Shares will not be redeemable before June 15, 2024 and August 24, 2026, respectively, except in connection with the Company’s qualification as a REIT for U.S. federal income tax purposes or upon the occurrence of a change of control. On or after the date the preferred shares become redeemable, or 120 days after the first date on which such change of control occurs, the Company

may, at its option, redeem any or all of the preferred shares at $25.00 per share plus any accumulated and unpaid dividends to, but not including, the redemption date. No preferred shares were redeemed during the quarter ended March 31, 2024.

The preferred shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless redeemed or repurchased by the Company or converted into Common Shares in connection with a change of control by the holders of the Preferred Shares.

Common Shares of Beneficial Interest

“At-The-Market” (“ATM”) Equity Offering Program

The Company periodically enters into ATM equity offering programs allowing it to offer and sell securities on an as-and-when-needed basis through designated broker-dealers. On June 15, 2021, the Company entered into a new ATM equity offering program allowing it to offer up to $200 million of its Common Shares, all of which were available for issuance as of March 31, 2024.

Common Share Repurchase Program

The Company has a Common Share repurchase program. On October 24, 2022, the Company’s board of trustees approved an increase to PMT's Common Share repurchase authorization from $400 million to $500 million before transaction fees.

The following table summarizes the Company’s Common Share repurchase activity:


	Quarter ended March 31,				Cumulative
	2024		2023		total (1)
	(in thousands)
Common Shares repurchased		—		638		29,102
Cost of Common Shares repurchased (2)	$	—	$	7,564	$	427,229

(1)

Amounts represent the Common Share repurchase program total from its inception in August 2015 through March 31, 2024.

(2)

Cumulative total cost of Common Shares repurchased includes $582,000 of transaction fees.

Note 19— Net Gains on Investments and Financings

Net gains on investments and financings are summarized below:


		Quarter ended March 31,
		2024			2023
	(in thousands)
From nonaffiliates:
Mortgage-backed securities		$	(38,198	)	$	78,218
Loans:
Held in VIEs			(1,240	)		11,017
Distressed			(38	)		451
CRT arrangements			51,655			46,278
Asset-backed financings			7,476			(10,160	)
Hedging derivatives			20,098			—
		$	39,753		$	125,804

Note 20— Net Gains on Loans Acquired for Sale

Net gains on loans acquired for sale are summarized below:


		Quarter ended March 31,
		2024			2023
	(in thousands)
From nonaffiliates:
Cash losses:
Sales of loans		$	(31,177	)	$	(72,945	)
Hedging activities			(69,956	)		(52,116	)
			(101,133	)		(125,061	)
Non-cash gains:
Receipt of MSRs in mortgage loan sale transactions			31,249			100,618
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loans sales			(254	)		(940	)
Reduction of liability due to change in estimate			6,878			616
			6,624			(324	)
Changes in fair value of loans and derivatives
Interest rate lock commitments			(2,688	)		9,027
Loans			6,295			(10,487	)
Hedging derivatives			72,566			31,372
			76,173			29,912
			114,046			130,206
Total from nonaffiliates			12,913			5,145
From PFSI ‒ cash gains			1,605			1,328
		$	14,518		$	6,473

Note 21—Net Interest Expense

Net interest expense is summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Interest income:
From nonaffiliates:
Cash and short-term investments	$	8,192		$	6,311
Mortgage-backed securities		59,771			51,139
Loans acquired for sale at fair value		11,946			36,988
Loans at fair value:
Held in consolidated variable interest entities		12,108			15,166
Distressed		8			(7	)
Deposits securing CRT arrangements		15,696			14,212
Placement fees relating to custodial funds		35,440			28,920
Other		398			290
		143,559			153,019
Interest expense:
To nonaffiliates:
Assets sold under agreements to repurchase		80,557			100,267
Mortgage loan participation purchase and sale agreements		246			293
Notes payable secured by credit risk transfer and mortgage servicing assets		64,989			54,947
Unsecured senior notes		9,684			8,380
Asset-backed financings at fair value		12,678			12,353
Interest shortfall on repayments of loans serviced for Agency securitizations		1,293			1,029
Interest on loan impound deposits		1,347			1,343
Other		733			525
		171,527			179,137
	$	(27,968	)	$	(26,118	)

Note 22—Share-Based Compensation

The Company has an equity incentive plan (“2019 Plan”) which provides for the issuance of equity based awards based on PMT’s Common Shares that may be made by the Company to its officers and trustees, and the members, officers, trustees, directors and employees of PCM, PFSI, or their affiliates and to PCM, PFSI and other entities that provide services to PMT and the employees of such other entities.

The 2019 Plan is administered by the Company’s compensation committee, pursuant to authority delegated by PMT’s board of trustees, which has the authority to make awards to the eligible participants referenced above, and to determine what form the awards will take, and the terms and conditions of the awards.

The 2019 Plan allows for the grant of restricted and performance-based share and unit awards.

The shares underlying award grants will again be available for award under the 2019 Plan if:

•

any shares subject to an award granted under the equity incentive plan are forfeited, canceled, exchanged or surrendered;

•

an award terminates or expires without a distribution of shares to the participant; or

•

shares are surrendered or withheld by PMT as payment of either the exercise price of an award and/or withholding taxes for an award.

Restricted share units have been awarded to trustees and officers of the Company and to other employees of PFSI and its subsidiaries at no cost to the grantees. Such awards generally vest over a one- to three-year period.

The following table summarizes the Company’s share-based compensation activity:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Grants:
Restricted share units		176		165
Performance share units		140		123
		316		288
Grant date fair value:
Restricted share units	$	2,522	$	2,134
Performance share units		2,007		1,581
	$	4,529	$	3,715
Vestings:
Restricted share units		149		129
Performance share units (1)		203		48
		352		177
Forfeitures:
Restricted share units		—		—
Performance share units		—		—
		—		—
Compensation expense relating to share-based grants	$	1,365	$	1,156

(1)

The actual number of performance-based restricted share units (“RSUs”) that vested during the quarter ended March 31, 2024 was 203,110 Common Shares, which is approximately 140% of the originally granted performance-based RSUs.


	March 31, 2024
	Restricted share units		Performance share units
Shares expected to vest:
Number of restricted shares units (in thousands)		278		255
Grant date average fair value per unit	$	14.09	$	14.05

Note 23—Income Taxes

The Company’s effective tax rate was (47.0)% and (56.4)% with consolidated pretax income of $32.4 million and $38.8 million for the quarters ended March 31, 2024 and March 31, 2023, respectively. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax benefit of $15.0 million on a pretax loss of $60.9 million for the quarter ended March 31, 2024. For the same period in 2023, the TRS recognized a tax benefit of $21.8 million on a pretax loss of $90.1 million. The Company’s reported consolidated pretax income was $38.8 million for the quarter ended March 31, 2023. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2024, the valuation allowance remains zero. The conclusion was primarily based on the fact that the TRS has reported cumulative GAAP income over the last three-year period ending March 31, 2024. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.

In general, cash dividends declared by the Company will be considered ordinary income to the shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or a return of capital. For tax years beginning after December 31, 2017, the 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends.

Note 24—Earnings Per Common Share

The Company determines earnings per share using the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to Common Shares and participating securities based on their respective rights to receive dividends. The Company’s participating securities are grants of restricted share units that entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of Common Shares.

Basic earnings per share is determined by dividing net income available to common shareholders (net income reduced by preferred dividends and income attributable to the participating securities) by the weighted average Common Shares outstanding during the quarter.

Diluted earnings per share is determined by dividing net income by the weighted average number of Common Shares and dilutive securities. The Company’s potentially dilutive securities are share-based compensation awards and the Exchangeable Notes. The number of dilutive securities included in diluted earnings per share is calculated using the treasury stock method for share-based compensation awards and the if-converted method for the Exchangeable Notes.

The following table summarizes the basic and diluted earnings per share calculations:


	Quarter ended March 31,
	2024			2023
	(in thousands except per share amounts)
Net income	$	47,608		$	60,697
Dividends on preferred shares		(10,455	)		(10,455	)
Effect of participating securities—share-based compensation awards		(117	)		(140	)
Net income attributable to common shareholders		37,036			50,102
Interest on Exchangeable Notes, net of income taxes		6,363			6,352
Income attributable to participating securities		—			8
Diluted net income attributable to common shareholders	$	43,399		$	56,462
Weighted average basic shares outstanding		86,689			88,831
Dilutive securities:
Shares issuable pursuant to exchange of the Exchangeable Notes		24,328			24,328
Shares issuable under share-based compensation plan		—			229
Diluted weighted average shares outstanding		111,017			113,388
Basic earnings per share	$	0.43		$	0.56
Diluted earnings per share	$	0.39		$	0.50

Calculation of diluted earnings per share requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the diluted earnings per share calculation:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Shares issuable under share-based compensation plan		365		—

Note 25—Segments

The Company operates in four segments as described in Note 1 ‒ Organization.

The Company’s reportable segments are identified based on PMT’s investment strategies. The Company’s chief operating decision maker is its chief executive officer. The following disclosures about the Company’s business segments are presented consistent

with the way the Company’s chief operating decision maker organizes and evaluates financial information for making operating decisions and assessing performance.

Financial highlights by operating segment are summarized below:


	Credit		Interest rate
	sensitive		sensitive			Correspondent
Quarter ended March 31, 2024	strategies		strategies			production			Corporate			Total
	(in thousands)
Net investment income:
Net loan servicing fees	$	—	$	45,705		$	—		$	—		$	45,705
Net gains on investments and financings		59,591		(19,838	)		—			—			39,753
Net gains on loans acquired for sale		—		—			14,518			—			14,518
Net interest expense:
Interest income		24,209		104,179			11,891			3,280			143,559
Interest expense		23,010		134,825			12,261			1,431			171,527
		1,199		(30,646	)		(370	)		1,849			(27,968	)
Other		134		—			2,063			—			2,197
		60,924		(4,779	)		16,211			1,849			74,205
Expenses:
Loan fulfillment and servicing fees payable to PFSI		20		20,242			4,016			—			24,278
Management fees		—		—			—			7,188			7,188
Other		78		2,224			528			7,528			10,358
		98		22,466			4,544			14,716			41,824
Pretax income	$	60,826	$	(27,245	)	$	11,667		$	(12,867	)	$	32,381
Total assets at end of quarter	$	1,502,800	$	9,377,573		$	943,008		$	470,319		$	12,293,700


	Credit		Interest rate
	sensitive		sensitive			Correspondent
Quarter ended March 31, 2023	strategies		strategies			production		Corporate			Total
	(in thousands)
Net investment income:
Net loan servicing fees	$	—	$	(23,693	)	$	—	$	—		$	(23,693	)
Net gains on investments and financings		54,388		71,416			—		—			125,804
Net gains on loans acquired for sale		—		—			6,473		—			6,473
Net interest expense:
Interest income		21,394		92,083			36,927		2,615			153,019
Interest expense		17,803		125,168			35,132		1,034			179,137
		3,591		(33,085	)		1,795		1,581			(26,118	)
Other		56		—			7,844		—			7,900
		58,035		14,638			16,112		1,581			90,366
Expenses:
Loan fulfillment and servicing fees payable to PFSI		77		20,372			11,923		—			32,372
Management fees		—		—			—		7,257			7,257
Other		636		1,289			2,408		7,603			11,936
		713		21,661			14,331		14,860			51,565
Pretax income	$	57,322	$	(7,023	)	$	1,781	$	(13,279	)	$	38,801
Total assets at end of quarter	$	1,620,576	$	10,110,650		$	3,196,705	$	429,298		$	15,357,229

Note 26—Regulatory Capital and Liquidity Requirements

The Company, through PMC, is subject to financial eligibility requirements established by the Federal Housing Finance Agency for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac.

The Agencies' applicable capital and liquidity amounts and requirements are summarized below:


	Net worth (1)				Tangible net worth / total assets ratio (1)						Liquidity (1)
Measurement date	Actual		Required		Actual			Required			Actual		Required
	(dollars in thousands)
March 31, 2024	$	840,038	$	585,186		14	%		6	%	$	526,779	$	213,064
December 31, 2023	$	874,628	$	584,131		15	%		6	%	$	450,210	$	210,691

(1)

Calculated in accordance with the Agencies’ requirements.

Noncompliance with the Agencies’ capital and liquidity requirements can result in the Agencies taking various remedial actions up to and including removing the Company’s ability to sell loans to and service loans on behalf of the Agencies.

Note 27—Subsequent Events

Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period, all agreements to repurchase assets that matured before the date of this Report were extended or renewed.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read with the consolidated financial statements and the related notes of PennyMac Mortgage Investment Trust (“PMT”) included within this Quarterly Report on Form 10-Q (this “Report”).

Statements contained in this Report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Report and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Report are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated income and financial condition. Unless the context indicates otherwise, references in this Report to the words “we,” “us,” “our” and the “Company” refer to PMT and its consolidated subsidiaries.

Our Company

We are a specialty finance company that invests in mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which include CRT Agreements (“CRT Agreements”) and other CRT securities that absorb credit losses on certain of the loans we have sold. We also invest in Agency and senior non-Agency MBS, subordinate credit-linked MBS and interest-only ("IO") and principal-only ("PO") stripped MBS. We have also historically invested in distressed mortgage assets (distressed loans and real estate acquired in settlement of loans (“REO”)), which we have substantially liquidated.

We are externally managed by PNMAC Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S. mortgage assets. Our loans and MSRs are serviced by PennyMac Loan Services, LLC (“PLS”). PCM and PLS are both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.

During the quarter ended March 31, 2024, we purchased newly originated prime credit quality residential loans with fair values totaling $18.4 billion as compared to $20.4 billion for the quarter ended March 31, 2023, in our correspondent production business. To the extent that we purchase loans that are insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or guaranteed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, we and PLS have agreed that PLS will fulfill and purchase such loans, as PLS is a Government National Mortgage Association (“Ginnie Mae”) approved issuer and we are not. This arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional loans. During the quarter ended March 31, 2024, we sold $8.2 billion in unpaid principal balance (“UPB”) of conventional loans to PLS in order to optimize our use and allocation of capital.

Our purchase volume included $16.3 billion and $13.5 billion of loans we sold to PLS during the quarters ended March 31, 2024 and 2023, respectively. We receive a sourcing fee from PLS based on the UPB of each loan that we sell to PLS under such arrangement, and earn interest income on the loan for the period we hold it before the sale to PLS. During the quarter ended March 31, 2024, we received sourcing fees totaling $1.6 million, relating to $16.0 billion, in UPB of loans that we sold to PLS.

We operate our business in four segments: Credit sensitive strategies, Interest rate sensitive strategies, Correspondent production and our Corporate operations, as described below:

•

The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production, including CRT Agreements and other CRT securities (together, “CRT arrangements”), and subordinate MBS.

•

The interest rate sensitive strategies segment represents our investments in MSRs, Agency and senior non-Agency MBS and the related interest rate hedging activities.

•

The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS, both wholly-owned subsidiaries of PFSI.

We primarily sell the loans we acquire through our correspondent production activities to government-sponsored entities ("GSEs") such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or to PLS for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"), or the GSEs. Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.”

•

The corporate segment includes management fees, corporate expense amounts and certain interest income and expense.

Our Investment Activities

Credit Sensitive Investments

CRT Arrangements

We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an interest-only security payable) totaling approximately $1.2 billion at March 31, 2024.

Subordinate Credit-Linked Mortgage-Backed Securities

Subordinate credit-linked MBS provide us with a higher yield than senior securities. However, we retain credit risk in the subordinate credit-linked MBS since they are the first securities to absorb credit losses relating to the underlying loans. We sold approximately $111.0 million of our holdings of subordinate credit-linked MBS during the quarter ended March 31, 2024. We held subordinate credit-linked MBS with fair values totaling approximately $194.6 million at March 31, 2024.

As the result of the Company’s consolidation of the variable interest entities that issued the subordinate MBS as described in Note 6 – Variable Interest Entities – Subordinate Mortgage-Backed Securities to the consolidated financial statements included in this Report, we include loans underlying these and similar transactions with UPBs totaling approximately $1.7 billion on our consolidated balance sheet as of March 31, 2024.

Interest Rate Sensitive Investments

Our interest rate sensitive investments include:

•

Mortgage servicing rights. During the quarter ended March 31, 2024, we received approximately $31.2 million of MSRs as proceeds from sales of loans acquired for sale. We held approximately $4.0 billion of MSRs at fair value at

March 31, 2024.

•

REIT-eligible Agency, senior non-Agency, IO and PO stripped MBS. We purchased approximately $159.6 million of Agency PO stripped MBS and sold $833.4 million of fixed-rate pass-through securities during the quarter ended March 31, 2024. We held Agency fixed-rate pass-through, senior non-Agency, IO stripped and PO stripped MBS with fair values totaling approximately $3.8 billion at March 31, 2024.

Correspondent Production

Our correspondent production activities involve the acquisition and sale of newly originated prime credit quality residential loans. Correspondent production has served as the source of our investments in MSRs, private label non-Agency securitizations and CRT arrangements. Our correspondent production and resulting investment activity are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Sales of loans acquired for sale:
To nonaffiliates	$	1,928,336	$	5,587,266
To PennyMac Financial Services, Inc.		16,302,059		13,451,031
	$	18,230,395	$	19,038,297
Net gains on loans acquired for sale	$	14,518	$	6,473
Investment activities resulting from correspondent production:
Receipt of MSRs as proceeds from sales of loans	$	31,249	$	100,618

Taxation

We believe that we qualify to be taxed as a REIT and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet applicable REIT asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, our profits will be subject to income taxes and we may be precluded from qualifying as a REIT for the four tax years following the year we lose our REIT qualification.

A portion of our activities, including our correspondent production business, is conducted in our taxable REIT subsidiary (“TRS”), which is subject to corporate federal and state income taxes. Accordingly, we make a provision for income taxes with respect to the operations of our TRS. We expect that the effective rate for the provision for income taxes may be volatile in future periods. Our goal is to manage the business to take full advantage of the tax benefits afforded to us as a REIT.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required based on the consideration of all available positive and negative evidence using a “more-likely-than-not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, taxable loss carryback availability, expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal of temporary differences, and available tax planning strategies that could be implemented, if required. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.

Non-Cash Investment Income

A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments and recognition of the fair value of assets created and liabilities incurred in loan sales transactions. Because we have elected, or are required by accounting principles generally accepted in the United States (“GAAP”), to record certain of our financial assets (comprised of MBS, loans acquired for sale at fair value and loans at fair value), our derivatives and CRT strips, our MSRs, and our asset-backed financings and interest-only security payable at fair value, a substantial portion of the income or loss we record with respect to such assets and liabilities results from non-cash changes in fair value.

The amounts of net non-cash investment income items included in net investment income are as follows:


	Quarter ended March 31,
	2024			2023
	(dollars in thousands)
Net gains on investments and financings:
Mortgage-backed securities	$	(38,198	)	$	78,218
Loans:
Held in variable interest entities		(1,240	)		11,017
Distressed		(38	)		452
CRT arrangements		36,121			32,224
Interest-only security payable at fair value		440			(1,280	)
Asset-backed financings at fair value		7,476			(10,160	)
		4,561			110,471
Net gains on loans acquired for sale (1)		114,046			130,206
Net loan servicing fees‒MSR valuation adjustments (2)		143,922			(183,705	)
	$	262,529		$	56,972
Net investment income	$	74,205		$	90,366
Non-cash items as a percentage of net investment income		354	%		63	%

(1)

Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, IRLCs and hedging derivatives held at the end of the quarter.

(2)

Includes fair value changes due to changes in fair value inputs and fair value changes related to MSR derivative hedging instruments held at the end of the quarter.

We receive or pay cash relating to:

•

Our investment in MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investment;

•

Loan investments when the investments are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold;

•

CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangement in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid;

•

Hedging instruments when we receive or make margin deposits as the fair value of respective instruments change, when the instruments mature or when we effectively cancel the transactions through offsetting trades;

•

Our liability for representations and warranties when we repurchase loans or settle loss claims from investors; and

•

MSRs in the form of loan servicing fees and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service.

Results of Operations

Business Trends

Due to ongoing inflationary pressures, over the last few quarters, the U.S. Federal Reserve has maintained the federal funds rate at its highest level since 2007 and has continued to reduce the federal government’s overall holdings of Treasury and mortgage-backed securities. Elevated interest rates are expected to constrain growth in the size of the mortgage origination market from an estimated $1.4 trillion in 2023 to an estimated $1.8 trillion in 2024 according to mortgage lending industry economists.

The limited size of the mortgage origination market and sustained interest rates at higher levels continue to impact our mortgage production activities. Higher interest rates have also increased the costs of floating rate borrowings, increased interest income from placement fees we receive relating to custodial funds that we manage on deposits and loans held for sale and reduced prepayment speeds in our mortgage servicing portfolio as compared to the same time period in the prior year. We have also continued our sales of conventional loans to PLS during the three months ended March 31, 2024, and we intend to continue to sell a portion of our conventional loans to PLS throughout the remainder of 2024 to optimize our use and allocation of capital.

Elevated interest rates may also lead to a reduction in economic activity and slowing home price growth or depreciation, which could lead to increasing mortgage delinquencies or defaults and increased losses. If these effects are realized, they could negatively affect the performance of our credit-sensitive assets such as our CRT arrangements or subordinate credit-linked notes and increase losses from our representations and warranties. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help moderate the negative effects of credit performance in an economic downturn.

The following is a summary of our key performance measures:


	Quarter ended March 31,
	2024			2023
	(dollar amounts in thousands, except per common share amounts)
Net loan servicing fees	$	45,705		$	(23,693	)
Net gains on investments and financings		39,753			125,804
Loan production income (1)		16,526			14,179
Net interest expense		(27,968	)		(26,118	)
Other		189			194
Net investment income		74,205			90,366
Expenses		41,824			51,565
Pretax income		32,381			38,801
Benefit from income taxes		(15,227	)		(21,896	)
Net income		47,608			60,697
Dividends on preferred shares		10,455			10,455
Net income attributable to common shareholders	$	37,153		$	50,242
Pretax income by segment:
Credit sensitive strategies	$	60,826		$	57,322
Interest rate sensitive strategies		(27,245	)		(7,023	)
Correspondent production		11,667			1,781
Corporate		(12,867	)		(13,279	)
	$	32,381		$	38,801
Annualized return on average common shareholders' equity		10.4	%		13.9	%
Earnings per common share
Basic	$	0.43		$	0.56
Diluted	$	0.39		$	0.50
Dividends per common share	$	0.40		$	0.40

(1)

Includes net gains on sales of loans and loan origination fees.

Our consolidated net income decreased by $13.1 million during the quarter ended March 31, 2024, as compared to the quarter ended March 31, 2023, reflecting the effect of increased losses on MBS and a reduced benefit from income taxes, offset by the fair value performance of our MSRs:

The decrease in pretax results is summarized below:

•

Our credit sensitive strategies segment recognized a $5.4 million increase in net gains on our CRT arrangements as market credit spreads continued to tighten.

•

Our interest rate sensitive strategies segment recognized a $116.4 million increase in losses on MBS caused by an increase in market interest rates at the end of the quarter, offset by a $69.4 million increase in net servicing fees reflecting gains on MSRs driven by a higher interest rate and a $2.4 million decrease in net interest expense in our interest rate sensitive strategies segment compared to the quarter ended March 31, 2023.

•

Our correspondent production segment recognized an $8.0 million increase in our gain on sale during the quarter ended March 31, 2024, reflecting a reduction of our liability for representations and warranties and improved gain on sale margins.

Net Investment Income

Our net investment income is summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Net loan servicing fees	$	45,705		$	(23,693	)
Net gains on investments and financings		39,753			125,804
Net gains on loans acquired for sale		14,518			6,473
Net loan origination fees		2,008			7,706
Net interest expense		(27,968	)		(26,118	)
Other		189			194
	$	74,205		$	90,366

Net Loan Servicing Fees

Our net loan servicing fees have two primary components: fees earned for servicing loans and the effects of MSR valuation changes, net of hedging results, as summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Loan servicing fees	$	163,368		$	168,157
Effect of MSRs and hedging results		(117,663	)		(191,850	)
Net loan servicing fees	$	45,705		$	(23,693	)

Following is a summary of our loan servicing fees:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Contractually specified servicing fees	$	160,357	$	164,214
Ancillary and other fees:
Late charges		993		759
Other		2,018		3,184
		3,011		3,943
	$	163,368	$	168,157
Average MSR servicing portfolio	$	230,591,966	$	230,812,774

Loan servicing fees relate to our MSRs which are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the UPB of the loans serviced and we collect these fees from borrower payments. Other loan servicing fees are comprised primarily of borrower-contracted fees, such as late charges and reconveyance fees, and fees charged to correspondent lenders for loans repaid by the borrower shortly after purchase.

The change in contractually-specified fees during the quarter ended March 31, 2024, as compared to the same period in 2023, is due primarily to a reduction in our MSR servicing spread as a result of the securitization of a portion of the MSR servicing spread

during 2023. This reduction is offset by an increase in interest income in our MBS holdings as we retained the resulting IO stripped MBS.

We have elected to carry our servicing assets at fair value. Changes in fair value have two components: changes due to realization of the contractual servicing fees and changes due to changes in inputs used to estimate fair value. We endeavor to moderate the effects of changes in fair value attributable to changes in fair value inputs (market conditions) primarily by entering into derivatives transactions.

Changes in fair value of MSRs and hedging results are summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Change in fair value of MSRs
Changes in valuation inputs used in valuation model	$	71,570		$	(45,771	)
Recapture income from PFSI		353			485
Hedging results		(89,814	)		(54,891	)
		(17,891	)		(100,177	)
Realization of cash flows		(99,772	)		(91,673	)
	$	(117,663	)	$	(191,850	)
Average balance of mortgage servicing rights	$	3,955,320		$	3,983,193

Changes in fair value due to changes in valuation inputs used in our valuation model during the quarter ended March 31, 2024 reflect the effects of expectations for slower future prepayments of the underlying loans and higher earnings on custodial balances as a result of interest rates increasing during the quarter ended March 31, 2024, as compared to interest rates decreasing during the same period in 2023.

The decrease in loan recapture income from PFSI reflects the decrease in refinancing activity in our MSR portfolio during the quarter ended March 31, 2024, as compared to the same period in 2023. We have an agreement with PFSI that requires that when PFSI refinances a loan for which we held the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒ Transactions with Related Parties – Operating Activities to the consolidated financial statements included in this Report.

Hedging results reflect valuation losses in hedges against interest rates during the quarter ended March 31, 2024, which is attributable to interest rates increasing as well as the effects of interest rate volatility on the fair value of the hedging instruments. The loss from hedging activities increased since interest rates increased during the quarter ended March 31, 2024 and decreased during the quarter ended March 31, 2023.

Changes in realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of remaining cash flows to be realized.

The following table summarizes for the dates presented collection status information for loans that are accounted for as sales where the Company maintains continuing involvement:


	March 31, 2024		December 31, 2023
	(in thousands)
UPB of loans outstanding	$	226,806,609	$	228,838,471
Collection status (UPB)
Delinquency:
30-89 days delinquent	$	1,962,219	$	2,184,500
90 or more days delinquent:
Not in foreclosure	$	868,093	$	1,029,962
In foreclosure	$	108,958	$	85,045
Bankruptcy	$	212,975	$	185,320
Custodial funds managed by the Company (1)	$	2,468,707	$	1,759,974

(1)

Following is a summary of characteristics of our MSR servicing portfolio as of March 31, 2024:


					Average
Loan type	Unpaid principal balance		Loan count		Note rate			Seasoning (months)		Remaining maturity (months)		Loan size		FICO credit score at origination		Original LTV (1)			Current LTV (1)			60+ Delinquency (by UPB)
	(Dollars and loan count in thousands)
Agency:
Fannie Mae	$	115,957,103		442		3.7	%		42		306	$	262		757		75	%		54	%		0.8	%
Freddie Mac		110,904,692		393		3.6	%		33		312	$	282		761		74	%		58	%		0.4	%
Other (2)		3,632,255		14		4.6	%		35		321	$	253		758		72	%		56	%		0.6	%
	$	230,494,050		849		3.7	%		38		309	$	271		759		75	%		56	%		0.6	%

(1)

Loan-to-value.

(2)

Represents MSRs on conventional loans sold to private investors.

Net Gains on Investments and Financings

Net gains on investments and financings are summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
From nonaffiliates:
Mortgage-backed securities	$	(38,198	)	$	78,218
Loans at fair value:
Held in consolidated variable interest entities		(1,240	)		11,017
Distressed		(38	)		451
CRT arrangements		51,655			46,278
Asset-backed financings at fair value		7,476			(10,160	)
Hedging derivatives		20,098			—
	$	39,753		$	125,804

The decrease in net gains on investments for the quarter ended March 31, 2024, as compared to the same period in 2023, was primarily due to losses from our investments in MBS as interest rates increased.

Mortgage-Backed Securities

During the quarter ended March 31, 2024, we recognized net valuation losses of $38.2 million, as compared to valuation gains of $78.2 million for the same period in 2023. The losses recognized reflect an increase in market interest rates during the quarter ended March 31, 2024, as compared to a modest decrease in interest rates during the quarter ended March 31, 2023.

Loans at Fair Value – Held in VIEs and Asset-backed Financings at Fair Value

Loans at fair value held in VIEs and Asset-backed financings at fair value recorded a combined net valuation gain of $6.2 million during the quarter ended March 31, 2024, as compared to a net gain of $857,000 during the quarter ended March 31, 2023. The net gain during the quarter ended March 31, 2024 reflects the gains on the asset-backed financing exceeding the losses on the underlying assets as the result of credit spreads tightening (a decrease in the interest rate premium demanded by investors for instruments over those that are considered “risk free”), on our net investments secured by jumbo loans and investment properties.

CRT Arrangements

The activity in and balances relating to our CRT arrangements are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Net investment income:
Net gains on investments and financings:
CRT Derivatives and strips:
CRT derivatives
Realized	$	3,409	$	3,030
Valuation changes		6,781		8,096
		10,190		11,126
CRT strips
Realized		11,685		12,304
Valuation changes		29,340		24,128
		41,025		36,432
Interest-only security payable at fair value		440		(1,280	)
		51,655		46,278
Interest income — Deposits securing CRT arrangements		15,696		14,212
	$	67,351	$	60,490

Net payments made to settle losses on CRT arrangements	$	185	$	1,257


	March 31, 2024			December 31, 2023
	(in thousands)
Carrying value of CRT arrangements:
Derivative assets - CRT derivatives	$	22,899		$	16,160
CRT strip liabilities		(17,352	)		(46,692	)
Deposits securing CRT arrangements		1,187,100			1,209,498
Interest-only security payable at fair value		(32,227	)		(32,667	)
	$	1,160,420		$	1,146,299

CRT arrangement assets pledged to secure borrowings:
Derivative assets	$	22,899		$	16,160
Deposits securing CRT arrangements (1)	$	1,187,100		$	1,209,498

UPB of loans underlying CRT arrangements	$	22,725,768		$	23,152,230
Collection status (UPB):
Delinquency
Current	$	22,187,344		$	22,531,905
30-89 days delinquent	$	363,398		$	411,991
90-180 days delinquent	$	98,415		$	120,011
180 or more days delinquent	$	48,346		$	64,647
Foreclosure	$	28,265		$	23,676
Bankruptcy	$	58,352		$	58,696

(1)

Deposits securing credit risk transfer strip liabilities also secure $17.4 million and $46.7 million in CRT strip and CRT derivative liabilities at March 31, 2024 and December 31, 2023, respectively.

The performance of our investments in CRT arrangements during the quarters ended March 31, 2024 and March 31, 2023 reflect credit spread tightening for CRT securities in the credit markets.

Net Gains on Loans Acquired for Sale

Our net gains on loans acquired for sale are summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
From non-affiliates:
Cash losses:
Sales of loans	$	(31,177	)	$	(72,945	)
Hedging activities		(69,956	)		(52,116	)
		(101,133	)		(125,061	)
Non-cash gains:
Receipt of MSRs in loan sale transactions		31,249			100,618
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loan sales		(254	)		(940	)
Reduction in liability due to change in estimate		6,878			616
		6,624			(324	)
Changes in fair value of financial instruments during the quarter:
Interest rate lock commitments		(2,688	)		9,027
Loans		6,295			(10,487	)
Hedging derivatives		72,566			31,372
		76,173			29,912
		114,046			130,206
Total from nonaffiliates		12,913			5,145
From PFSI—cash		1,605			1,328
	$	14,518		$	6,473

Interest rate lock commitments issued on loans acquired for sale:
To nonaffiliates	$	2,471,860		$	7,587,587
To PFSI		8,614,290			3,780,852
	$	11,086,150		$	11,368,439
Acquisition of loans for sale (UPB):
To nonaffiliates	$	1,771,681		$	6,628,809
To PFSI		16,356,544			13,524,332
	$	18,128,225		$	20,153,141

The changes in gain on loans acquired for sale during the quarter ended March 31, 2024, as compared to the same period in 2023, reflect the effect of a reduction in our liability for representations and warranties and increased gain on sale margins for mortgage loans partially offset by reduced volume of sales to nonaffiliates.

Non-cash elements of gain on sale of loans:

Interest Rate Lock Commitments

Our Net gains on loans acquired for sale include our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gains before we purchase the loans. These gains are reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair value of our IRLCs as the loan acquisition process progresses until we complete the acquisition or the commitment is canceled. Such adjustments are included in our Net gains on loans acquired for sale. The fair values of our IRLCs becomes part of the carrying value of our loans when we complete the purchase of the loans. The methods and key inputs we use to measure the fair value of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.

The MSRs and liability for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our results of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our income.

Mortgage Servicing Rights

The methods we use to measure and update the measurements of our MSRs as well as the effect of changes in valuation inputs on MSR fair value are detailed in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.

Liability for Losses Under Representations and Warranties

We recognize a liability for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions. The representations and warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit loss on the loans. Our credit loss may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.

We recorded a provision for losses relating to representations and warranties relating to current loan sales of $254,000 and $940,000 for the quarters ended March 31, 2024 and 2023, respectively. The decrease in the provision relating to current loan sales reflects the decrease of our loan sales volume to nonaffiliates and reduced default and loss-given default assumptions.

Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Indemnification activity (UPB):
Loans indemnified at beginning of quarter	$	12,123		$	8,108
New indemnifications		1,758			3,234
Less: indemnified loans sold, repaid or refinanced		—			748
Loans indemnified at end of quarter	$	13,881		$	10,594
Indemnified loans indemnified by correspondent lenders at end of quarter	$	5,969		$	2,149
UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter	$	4,190		$	4,043
Repurchase activity (UPB):
Loans repurchased	$	7,515		$	19,199
Less:
Loans repurchased by correspondent sellers		5,979			15,267
Loans resold or repaid by borrowers		2,788			3,901
Net loans (resolved) repurchased with losses chargeable to liability to representations and warranties	$	(1,252	)	$	31
Losses charged to liability for representations and warranties	$	—		$	388
At end of quarter:
Loans subject to representations and warranties	$	225,439,542		$	230,035,290
Liability for representations and warranties	$	19,519		$	39,407

The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers. As the outstanding balance of loans, we purchase and sell subject to representations and warranties increases, as the loans outstanding season, as our investors’ and guarantors’ loss mitigation strategies change and as our correspondent sellers’ ability and willingness to repurchase loans change, we expect that the level of repurchase activity and associated losses may increase.

The method we use to estimate the liability for representations and warranties is a function of our estimates of future defaults, loan repurchase rates, severity of loss in the event of default and the probability of reimbursement by the correspondent loan seller. We establish a liability at our estimate of its fair value at the time loans are sold and review our liability estimate on a periodic basis and adjust the liability for estimated losses in excess of the recorded liability.

The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying loans. We may be required to incur losses related to such representations and warranties for several periods after the loans are sold or liquidated.

We record adjustments to our liability for losses on representations and warranties as economic fundamentals change, as investor and Agency evaluations of their loss mitigation strategies (including claims under representations and warranties) change and as economic conditions affect our correspondent sellers’ ability or willingness to fulfill their recourse obligations to us. Such adjustments may be material to our financial position and income in future periods.

Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans acquired for sale at fair value. We recorded a $6.9 million reduction in liability for representations and warranties during the quarter ended March 31, 2024 due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.

Loan Origination Fees

Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. The decrease in fees during the quarter ended March 31, 2024, as compared to the same period in 2023, reflects a decrease in our purchases of loans for sale to nonaffiliates.

Net Interest Expense

Net interest expense is summarized below:


	Quarter ended March 31, 2024								Quarter ended March 31, 2023
	Interest					Interest			Interest					Interest
	income/			Average		yield/			income/			Average		yield/
	expense			balance		cost %			expense			balance		cost %
	(dollars in thousands)
Assets:
Cash and short-term investments	$	8,192		$	580,594		5.67	%	$	6,311		$	538,073		4.76	%
Mortgage-backed securities		59,771			4,143,942		5.80	%		51,139			4,464,996		4.64	%
Loans acquired for sale at fair value		11,946			704,809		6.82	%		36,988			2,359,044		6.36	%
Loans at fair value:
Held by variable interest entities		12,108			1,423,489		3.42	%		15,166			1,507,128		4.08	%
Distressed		8			2,095		1.54	%		(7	)		3,478		-0.82	%
		12,116			1,425,584		3.42	%		15,159			1,510,606		4.07	%
Deposits securing CRT arrangements		15,696			1,200,301		5.26	%		14,212			1,285,678		4.48	%
		107,721			8,055,230		5.38	%		123,809			10,158,397		4.94	%
Placement fees relating to custodial funds		35,440								28,920
Other		398								290
	$	143,559		$	8,055,230		7.17	%	$	153,019		$	10,158,397		6.11	%
Liabilities:
Assets sold under agreements to repurchase	$	80,557		$	5,144,834		6.30	%	$	100,267		$	7,242,478		5.61	%
Mortgage loan participation purchase and sale agreements		246			12,731		7.77	%		293			17,107		6.95	%
Notes payable secured by credit risk transfer and mortgage servicing assets		64,989			2,866,504		9.12	%		54,947			2,802,691		7.95	%
Unsecured senior notes		9,684			608,500		6.40	%		8,380			546,511		6.22	%
Asset-backed financings at fair value		12,678			1,581,818		3.22	%		12,353			1,411,990		3.55	%
		168,154			10,214,387		6.62	%		176,240			12,020,777		5.95	%
Interest shortfall on repayments of loans serviced for Agency securitizations		1,293								1,029
Interest on loan impound deposits		1,347								1,343
Other		733								525
		171,527		$	10,214,387		6.75	%		179,137		$	12,020,777		6.04	%
Net interest expense	$	(27,968	)						$	(26,118	)

The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below:


	Quarter ended March 31, 2024
	vs.
	Quarter ended March 31, 2023
	Increase (decrease) due to changes in
	Rate			Volume			Total
	(in thousands)
Assets:
Cash and short-term investments	$	1,335		$	546		$	1,881
Mortgage-backed securities		12,451			(3,819	)		8,632
Loans acquired for sale at fair value		2,540			(27,582	)		(25,042	)
Loans at fair value:
Held by variable interest entities		(2,277	)		(781	)		(3,058	)
Distressed		13			2			15
		(2,264	)		(779	)		(3,043	)
Deposits securing CRT arrangements		2,448			(964	)		1,484
		16,510			(32,598	)		(16,088	)
Placement fees relating to custodial funds								6,520
Other								108
		16,510			(32,598	)		(9,460	)
Liabilities:
Assets sold under agreements to repurchase		11,492			(31,202	)		(19,710	)
Mortgage loan participation purchase and sale agreement		33			(80	)		(47	)
Notes payable secured by credit risk transfer and mortgage servicing assets		8,694			1,348			10,042
Senior notes		268			1,036			1,304
Asset-backed financings at fair value		(1,154	)		1,479			325
		19,333			(27,419	)		(8,086	)
Interest shortfall on repayments of loans serviced for Agency securitizations								264
Interest on loan impound deposits								4
Other								208
		19,333			(27,419	)		(7,610	)
Increase in net interest expense	$	(2,823	)	$	(5,179	)	$	(1,850	)

The increase in net interest expense during the quarter ended March 31, 2024, as compared to the same period in 2023, is due to an increase in interest costs attributable to financing non-interest earning MSR assets, partially offset by an increase in the yields we earn on our investments in MBS and an increase in placement fee income.

Expenses

Our expenses are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees	$	20,262	$	20,449
Management fees		7,188		7,257
Loan fulfillment fees		4,016		11,923
Compensation		1,916		1,539
Professional services		1,758		1,523
Loan collection and liquidation		1,369		579
Safekeeping		932		1,116
Loan origination		473		2,178
Other		3,910		5,001
	$	41,824	$	51,565

Expenses decreased $9.7 million, or 19%, during the quarter ended March 31, 2024, as compared to the same period in 2023, primarily due to decreased expenses relating to our correspondent lending activities as discussed below.

Loan Servicing Fees

Loan servicing fees payable to PLS are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Loan servicing fees:
Loans acquired for sale at fair value	$	90	$	285
Loans at fair value		62		120
Mortgage servicing rights		20,110		20,044
	$	20,262	$	20,449
Average investment in loans:
Acquired for sale at fair value	$	704,809	$	2,359,044
At fair value	$	1,425,584	$	1,510,606
Average MSR portfolio unpaid principal balance	$	230,591,966	$	230,812,774

Loan servicing fees decreased by $187,000 during the quarter ended March 31, 2024, as compared to the same period in 2023, due to the decreases in the size of our investment in loans acquired for sale.

Management Fees

Management fees payable to PCM are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Base	$	7,188	$	7,257
Performance incentive		—		—
	$	7,188	$	7,257
Average shareholders' equity amounts used to calculate base management fee expense	$	1,927,401	$	1,962,105

Management fees decreased by $69,000 during the quarter ended March 31, 2024, as compared to the same period in 2023. This decrease reflects lower average shareholders’ equity during the quarter ended March 31, 2024, as compared to the quarter ended March 31, 2023.

Loan Fulfillment Fees

Loan fulfillment fees represent fees we pay to PLS for the services it performs on our behalf in connection with our acquisition, packaging and sale of loans. Fulfillment fees decreased $7.9 million during the quarter ended March 31, 2024, as compared to the same period in 2023. The decrease was due to a decrease in the volume of loans purchased for sale to nonaffiliates. Our loan fulfillment fee structure is described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.

Loan Origination

Loan origination expenses decreased $1.7 million, or 78%, during the quarter ended March 31, 2024, as compared to the same period in 2023, primarily reflecting a decrease in the volume of our loans purchased for sale to nonaffiliates.

Other Expenses

Other expenses are summarized below:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Common overhead allocation from PFSI	$	1,944	$	1,821
Bank service charges		492		496
Insurance		476		435
Technology		442		548
Other		556		1,701
	$	3,910	$	5,001

Income Taxes

We have elected to treat PennyMac Corp. (“PMC”), as a taxable REIT subsidiary (“TRS”). Income from a TRS is only included as a component of REIT taxable income to the extent that the TRS makes dividend distributions of income to us. A TRS is subject to corporate federal and state income tax. Accordingly, a provision for income taxes for PMC is included in the accompanying consolidated statements of income.

The Company’s effective tax rate was (47.0)% and (56.4)% with consolidated pretax income of $32.4 million and $38.8 million for the quarters ended March 31, 2024 and March 31, 2023, respectively. The Company’s TRS recognized a tax benefit of $15.0 million on a pretax loss of $60.9 million for the quarter ended March 31, 2024. For the same period in 2023, the TRS recognized a tax benefit of $21.8 million on a pretax loss of $90.1 million. The Company’s reported consolidated pretax income was $38.8 million for the quarter ended March 31, 2023. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2024, the valuation allowance remains zero as a result of cumulative GAAP income at the TRS for the three-year period ended March 31, 2024. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.

Balance Sheet Analysis

Following is a summary of key balance sheet items as of the dates presented:


	March 31,		December 31,
	2024		2023
	(in thousands)
Assets
Cash	$	126,578	$	281,085
Investments:
Short-term		343,343		128,338
Mortgage-backed securities at fair value		3,949,678		4,836,292
Loans acquired for sale at fair value		911,602		669,018
Loans at fair value		1,408,610		1,433,820
Derivative assets		62,734		177,984
Deposits securing credit risk transfer arrangements		1,187,100		1,209,498
Mortgage servicing rights		3,951,737		3,919,107
		11,814,804		12,374,057
Other		352,318		458,745
Total assets	$	12,293,700	$	13,113,887
Liabilities
Debt:
Short-term	$	5,143,593	$	5,624,558
Long-term		4,822,305		4,880,461
		9,965,898		10,505,019
Other		368,889		651,778
Total liabilities		10,334,787		11,156,797
Shareholders’ equity		1,958,913		1,957,090
Total liabilities and shareholders’ equity	$	12,293,700	$	13,113,887

Total assets decreased by approximately $820.2 million, or 6%, during the period from December 31, 2023 through March 31, 2024, primarily due to an $886.6 million reduction in Mortgage-backed securities at fair value partially offset by an increase of $242.6 million in Loans acquired for sale at fair value and a $32.6 million increase in MSRs.

Asset Acquisitions

Our asset acquisitions are summarized below.

Correspondent Production

Following is a summary of our correspondent production acquisitions at fair value:


	Quarter ended March 31,
	2024		2023
	(in thousands)
Correspondent loan purchases:
GSE-Eligible Loans (1)	$	10,080,120	$	10,755,072
Government insured or guaranteed (2)		8,328,018		9,661,960
Jumbo loans		2,589		—
Advances to home equity lines of credit		—		46
	$	18,410,727	$	20,417,078

(1)

(2)

The Company sells all of its loans eligible for inclusion in Ginnie Mae securities to PLS. The Company is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed loans. The Company earns a sourcing fee for all loans that it purchases from correspondent sellers and subsequently sells to PLS as described in Note 4 – Transactions with Related Parties – Operating activities – Correspondent Production Activities.

During the quarter ended March 31, 2024, we purchased for sale $18.4 billion in fair value of correspondent production loans as compared to $20.4 billion during the quarter ended March 31, 2023.

Other Investment Activities

Following is a summary of our (sales) acquisitions of mortgage-related investments held in our credit rate sensitive strategies and interest rate sensitive strategies segments:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Credit sensitive assets:
Subordinate credit-linked securities	$	(111,044	)	$	12,392

Interest rate sensitive assets:
Agency fixed-rate pass-through securities (net of sales)		(830,296	)		142,660
Interest-only and principal-only stripped mortgage-backed securities		159,585			—
Mortgage servicing rights:
Purchased		29,441			—
Received in loan sales		31,249			100,618
		(610,021	)		243,278
	$	(721,065	)	$	255,670

Our acquisitions during the quarters ended March 31, 2024 and 2023 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. We continue to identify additional means of increasing our investment portfolio through cash flow from our business activities, existing investments, borrowings, and transactions that minimize current cash outlays. However, we expect that, over time, our ability to continue our investment portfolio growth will depend on our ability to raise additional equity capital.

Investment Portfolio Composition

Mortgage-Backed Securities

Following is a summary of our MBS holdings:


	March 31, 2024									December 31, 2023
					Average									Average
	Fair		Principal/		Life					Fair		Principal/		Life
	value		notional		(in years)		Coupon			value		notional		(in years)		Coupon
	(dollars in thousands)
Agency pass-through securities	$	3,335,086	$	3,367,176		7.8		5.4	%	$	4,270,056	$	4,311,342		7.6		5.1	%
Subordinate credit-linked securities		194,558		174,813		4.4		13.2	%		301,180		275,963		4.3		12.4	%
Senior non-Agency securities		113,925		121,791		8.2		5.1	%		117,489		124,771		7.0		5.1	%
Interest-only stripped securities		94,667		413,762		7.6		4.9	%		94,231		419,791		7.3		4.9	%
Principal-only stripped securities		211,442		263,964		4.3		0.1	%		53,336		65,573		3.3
	$	3,949,678	$	4,341,506						$	4,836,292	$	5,197,440

Credit Risk Transfer Arrangements

Following is a summary of our investment in CRT arrangements:


	March 31, 2024			December 31, 2023
	(in thousands)
Carrying value of CRT arrangements:
Derivative assets - CRT derivatives	$	22,899		$	16,160
Derivative and credit risk transfer strip liabilities- CRT strips		(17,352	)		(46,692	)
Deposits securing CRT arrangements		1,187,100			1,209,498
Interest-only security payable at fair value		(32,227	)		(32,667	)
	$	1,160,420		$	1,146,299
UPB of loans subject to credit guarantee obligations	$	22,725,768		$	23,152,230

Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of March 31, 2024:


	Year of origination
	2020		2019		2018		2017		2016		2015		Total
	(in millions)
UPB:
Outstanding	$	4,634	$	10,574	$	2,730	$	2,310	$	1,887	$	591	$	22,726
Liquidations:
Balances	$	0.6	$	6.8	$	57.1	$	160.1	$	120.4	$	61.0	$	406.0
Losses	0.0		$	0.8	$	5.8	$	19.9	$	12.7	$	7.4	$	46.6
Modifications:
Balances	$	67.5	$	551.8	$	305.0	$	—	$	—	$	—	$	924.3
Losses	$	1.5	$	15.9	$	12.3	$	—	$	—	$	—	$	29.7


	Year of origination
Original debt-to income ratio	2020			2019			2018			2017			2016			2015			Total
	(in millions)
<25%	$	952		$	1,569		$	248		$	287		$	280		$	64		$	3,400
25 - 30%		744			1,337			221			265			256			65			2,888
30 - 35%		817			1,619			319			357			325			88			3,525
35 - 40%		807			1,894			439			420			356			107			4,023
40 - 45%		799			2,294			648			593			498			161			4,993
>45%		515			1,861			855			388			172			106			3,897
	$	4,634		$	10,574		$	2,730		$	2,310		$	1,887		$	591		$	22,726
Weighted average		33.5	%		35.8	%		39.0	%		36.5	%		35.0	%		35.7	%		35.7	%


	Year of origination
Origination FICO credit score	2020		2019		2018		2017		2016		2015		Total
	(in millions)
600 - 649	$	31	$	145	$	65	$	28	$	17	$	10	$	296
650 - 699		226		999		580		349		231		115		2,500
700 - 749		1,094		3,112		965		788		595		181		6,735
750 or greater		3,276		6,291		1,113		1,141		1,044		285		13,150
Not available		7		27		7		4		—		—		45
	$	4,634	$	10,574	$	2,730	$	2,310	$	1,887	$	591	$	22,726
Weighted average		765		754		736		745		751		743		753


	Year of origination
Origination loan-to value ratio	2020			2019			2018			2017			2016			2015			Total
	(in millions)
<80%	$	2,192		$	3,742		$	873		$	752		$	770		$	241		$	8,570
80-85%		772			2,028			644			653			508			154			4,759
85-90%		298			595			125			119			105			35			1,277
90-95%		418			1,116			315			281			208			63			2,401
95-100%		954			3,093			773			505			296			98			5,719
	$	4,634		$	10,574		$	2,730		$	2,310		$	1,887		$	591		$	22,726
Weighted average		80.7	%		83.3	%		83.5	%		82.5	%		80.6	%		80.9	%		82.4	%


	Year of origination
Current loan-to value ratio (1)	2020			2019			2018			2017			2016			2015			Total
	(in millions)
<80%	$	4,617		$	10,513		$	2,714		$	2,309		$	1,887		$	591		$	22,631
80-85%		11			39			9			1			—			—			60
85-90%		4			13			4			—			—			—			21
90-95%		1			4			1			—			—			—			6
95-100%		1			3			2			—			—			—			6
>100%		—			2			—			—			—			—			2
	$	4,634		$	10,574		$	2,730		$	2,310		$	1,887		$	591		$	22,726
Weighted average		52.7	%		52.4	%		49.9	%		44.8	%		40.8	%		38.2	%		50.1	%

(1) Based on current UPB compared to estimated fair value of the property securing the loan.


	Year of origination
Distribution by state	2020		2019		2018		2017		2016		2015		Total
	(in millions)
California	$	482	$	1,040	$	342	$	245	$	364	$	110	$	2,583
Florida		509		1,016		350		240		201		52		2,368
Texas		551		916		218		195		234		90		2,204
Virginia		249		472		99		107		131		58		1,116
Maryland		182		450		124		133		125		33		1,047
Other		2,661		6,680		1,597		1,390		832		248		13,408
	$	4,634	$	10,574	$	2,730	$	2,310	$	1,887	$	591	$	22,726


	Year of origination
Regional geographic distribution (1)	2020		2019		2018		2017		2016		2015		Total
	(in millions)
Northeast	$	433	$	1,318	$	321	$	338	$	244	$	88	$	2,742
Southeast		1,573		3,624		980		794		593		182		7,746
Midwest		431		1,111		234		219		171		42		2,208
Southwest		1,207		2,334		512		450		349		123		4,975
West		990		2,187		683		509		530		156		5,055
	$	4,634	$	10,574	$	2,730	$	2,310	$	1,887	$	591	$	22,726

(1)

Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT, VI; Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, WV; Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD, WI; Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX, UT; and West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.


	Year of origination
Collection status	2020		2019		2018		2017		2016		2015		Total
	(in millions)
Delinquency
Current - 89 Days	$	4,619	$	10,485	$	2,683	$	2,298	$	1,878	$	590	$	22,553
90 - 179 Days		8		45		26		10		8		1		98
180+ Days		5		28		13		1		1		—		48
Foreclosure		2		16		8		1		—		—		27
	$	4,634	$	10,574	$	2,730	$	2,310	$	1,887	$	591	$	22,726
Bankruptcy	$	3	$	27	$	16	$	5	$	7	$	—	$	58

Cash Flows

Our cash flows for the quarters ended March 31, 2024 and 2023 are summarized below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Operating activities	$	(342,371	)	$	(1,276,212	)
Investing activities		770,796			(122,743	)
Financing activities		(582,932	)		1,405,761
Net cash flows	$	(154,507	)	$	6,806

Our cash flows resulted in a net decrease in cash of $154.5 million during the quarter ended March 31, 2024, as discussed below.

Operating activities

Cash used in operating activities totaled $342.4 million during the quarter ended March 31, 2024, as compared to cash used in our operating activities of $1.3 billion during the quarter ended March 31, 2023. Cash flows from operating activities are influenced by cash flows from loans acquired for sale as shown below:


	Quarter ended March 31,
	2024			2023
	(in thousands)
Operating cash flows from:
Loans acquired for sale	$	(187,846	)	$	(1,397,980	)
Other		(154,525	)		121,768
	$	(342,371	)	$	(1,276,212	)

Cash flows from loans acquired for sale primarily reflect changes in the level of inventory from the beginning to end of the periods presented. Our inventory of loans held for sale increased at a slower rate during the quarter ended March 31, 2024, as compared to a decrease during the same period in 2023.

Investing activities

Net cash provided by our investing activities was $770.8 million for the quarter ended March 31, 2024, as compared to net cash used in our investing activities of $122.7 million for the quarter ended March 31, 2023, primarily due to our net sale of MBS.

Financing activities

Net cash used in our financing activities was $582.9 million for the quarter ended March 31, 2024, as compared to net cash provided by our financing activities of $1.4 billion for the quarter ended March 31, 2023. This change primarily reflects the repayment of financing related to our net sale of MBS.

As discussed below in Liquidity and Capital Resources, our Manager continually evaluates and pursues additional sources of financing to provide us with future investing capacity. We do not raise equity or enter into borrowings for the purpose of financing the payment of dividends. We believe that our cash earnings are adequate to fund our operating expenses and dividend payment requirements. However, we manage our liquidity in the aggregate and are reinvesting our cash flows in new investments as well as using such cash to fund our dividend requirements.

Liquidity and Capital Resources

Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from correspondent sellers, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and make distributions to our shareholders. We generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our shareholders to qualify as a REIT under the Internal Revenue Code. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

We expect our primary sources of liquidity to be cash flows from our investment portfolio, including cash earnings on our investments, cash flows from business activities, liquidation of existing investments and proceeds from borrowings and/or additional equity offerings. When we finance a particular asset, the amount borrowed is less than the asset’s fair value and we must provide the cash in the amount of such difference. Our ability to continue making investments is dependent on our ability to invest the cash representing such difference.

On March 15, 2024, the Company, the Issuer Trusts, PMT and PennyMac Holdings, LLC (“PMH”) entered into a Series 2024-VF1 Note with Goldman Sachs Bank, USA, as part of the structured finance transaction that PMC uses to finance Fannie Mae mortgage servicing rights and related excess servicing spread and servicing advance receivables. The initial two-year term of the Series 2024-VF1 Note is set to expire on March 15, 2026, at which point the Series 2024-VF1 Note amortizes over 12 months prior to termination.

Debt Financing

Our current debt financing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. We make collateralized borrowings in the form of sales of assets under agreements to repurchase, loan participation purchase and sale agreements and notes payable, including secured term financing for our MSRs and our CRT arrangements that have allowed us to match the term of our borrowings more closely to the expected lives of the assets securing those borrowings. We have also borrowed money by issuing unsecured senior notes.

Our debt financing is summarized below:


	Assets financed
Financing	MBS		Loans acquired for sale		Loans at fair value		CRT assets		Servicing assets (1)		REO		Total
	(in thousands)
Borrowings
Short term
Assets sold under agreements to repurchase	$	3,784,828	$	833,152	$	66,880	$	52,160	$	381,357	$	—	$	5,118,377
Mortgage loan participation purchase and sale agreements		—		25,216		—		—		—		—		25,216
Long term
Notes payable secured by CRT arrangements and MSRs		—		—		—		766,104		2,113,921		—		2,880,025
Asset-backed financings at fair value		—		—		1,308,680		—		—		—		1,308,680
Interest-only security payable		—		—		—		32,227		—		—		32,227
Total secured borrowings		3,784,828		858,368		1,375,560		850,491		2,495,278		—		9,364,525
Unsecured senior notes														601,373
Total borrowings	$	3,784,828	$	858,368	$	1,375,560	$	850,491	$	2,495,278	$	—		9,965,898
Shareholders' equity														1,958,913
Total financing													$	11,924,811

Assets pledged to secure borrowings	$	3,949,678	$	903,963	$	1,406,774	$	1,209,999	$	4,006,800	$	1,891	$	11,479,105
Debt-to-equity ratio:
Excluding non-recourse debt													4.4:1
Total													5.1:1

(1)

Amounts pledged to secure borrowings include pledged servicing advances.

Sales of Assets Under Agreements to Repurchase

Our repurchase agreements represent the sales of assets together with agreements for us to buy back the assets at a later date. Following is a summary of the activities in our repurchase agreements financing:


	Quarter ended March 31,
Assets sold under agreements to repurchase	2024		2023
	(in thousands)
Average balance outstanding	$	5,144,834	$	7,242,478
Maximum daily balance outstanding	$	6,494,643	$	9,107,074
Ending balance	$	5,122,203	$	8,114,108

The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent production business. The total facility size of our Assets sold under agreements to repurchase was approximately $11.1 billion at March 31, 2024.

Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to either renew these facilities in advance of maturity in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.

As discussed above, all of our repurchase agreements, and mortgage loan participation purchase and sale agreements have short-term maturities:

•

The transactions relating to loans and REO under agreements to repurchase generally provide for terms of approximately one to two years;

•

The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year;

•

The transactions relating to assets under notes payable provide for terms ranging from two to five years; and

•

All repurchase agreements that matured between March 31, 2024 and the date of this Report have been renewed, extended or replaced.

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our Assets sold under agreements to repurchase is summarized by counterparty below as of March 31, 2024:


Counterparty	Amount at risk
	(in thousands)
Atlas Securitized Products, L.P.	$	213,240
Citibank, N.A.		209,600
Goldman Sachs & Co. LLC		74,723
JPMorgan Chase & Co.		45,822
Bank of America, N.A.		27,765
Wells Fargo Securities, LLC		26,513
Barclays Capital Inc.		26,064
Santander US Capital		11,038
RBC Capital Markets, L.P.		7,557
Daiwa Capital Markets America Inc.		6,314
Nomura Holdings America, Inc.		3,423
Morgan Stanley & Co. LLC		2,333
Mizuho Financial Group		1,746
BNP Paribas		1,436
	$	657,574

Unsecured Senior Notes

In September 2023, we issued $53.5 million principal amount of our unsecured 8.50% senior notes due September 30, 2028 (the “2023 Senior Notes”). The 2023 Senior Notes bear interest at a rate of 8.50% per year payable quarterly.

On or after September 30, 2025, we may redeem for cash all or any portion of the 2023 Senior Notes, at our option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No “sinking fund” will be provided for the 2023 Senior Notes.

The 2023 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal of and interest on the 2023 Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise (the “PMC Guarantee”). PMC’s operations and investing activities are centered in residential mortgage-related assets, including the creation of and investment in MSRs.

Under the terms of the PMC Guarantee, holders of the 2023 Senior Notes will not be required to exercise their remedies against us before they proceed directly against PMC. PMC’s obligations under the guarantee are limited to the maximum amount that will not, after giving effect to all other contingent and fixed liabilities of PMC, result in the guarantee constituting a fraudulent transfer or conveyance. The PMC Guarantee will:

•

rank equal in right of payment to any of PMC’s existing and future unsecured and unsubordinated indebtedness and guarantees of PMC;

•

be effectively subordinated in right of payment to any of PMC’s existing and future secured indebtedness and secured guarantees to the extent of the value of the assets securing such indebtedness or guarantees; and

•

be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) and (to the extent not held by PMC) preferred stock, if any, of PMC’s subsidiaries and of any entity PMC accounts for using the equity method of accounting.

The following summarized financial information for PMT and PMC is presented on a combined basis. Intercompany balances and transactions between PMT and PMC have been eliminated:


	March 31, 2024
	(in thousands)
Loans acquired for sale at fair value	$	911,602
Mortgage servicing rights at fair value		3,961,112
Other assets
From nonaffiliates		713,775
From PFSI		—
From non-issuer or non-guarantor subsidiaries		605,560
Total assets	$	6,192,049

Total liabilities
Payable to nonaffiliates	$	1,807,110
Payable to non-issuer or non-guarantor subsidiaries		3,924,390
Payable to PFSI		22,036
	$	5,753,536


	Quarter ended
	March 31, 2024
	(in thousands)
Net investment income
From nonaffiliates	$	17,087
From PFSI		1,958
From non-issuer or non-guarantor subsidiaries (1)		(66,798	)
Expenses
From nonaffiliates		3,687
From PFSI		30,532
Pre-tax income		(81,972	)
Provision for income taxes		(20,206	)
Net income	$	(61,766	)

(1)

Excludes equity in earnings of non-guarantor subsidiaries.

Debt Covenants

Our debt financing agreements require us and certain of our subsidiaries to comply with various financial covenants. As of the filing of this Report, these financial covenants include the following:

•

a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 million in unrestricted cash and cash equivalents among our Operating Partnership and its consolidated subsidiaries; a minimum of $25 million in unrestricted cash and cash equivalents between PMC and PMH; a minimum of $25 million in unrestricted cash and cash equivalents at PMC; and a minimum of $10 million in unrestricted cash and cash equivalents at PMH;

•

a minimum tangible net worth for the Company of $1.25 billion; a minimum tangible net worth for our Operating Partnership of $1.25 billion; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $300 million;

•

a maximum ratio of total indebtedness to tangible net worth of less than 10:1 for PMC and PMH and 8.5:1 for the Company and our Operating Partnership; and

•

at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing debt financing agreements.

Although these financial covenants limit the amount of indebtedness we may incur and impact our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose.

PLS is also subject to various financial covenants, both as a borrower under its own financing arrangements and as our servicer under certain of our debt financing agreements. The most significant of these financial covenants currently include the following:

•

a minimum in unrestricted cash and cash equivalents of $100 million;

•

a minimum tangible net worth of $1.25 billion;

•

a maximum ratio of total indebtedness to tangible net worth of 10:1; and

•

at least one other warehouse or repurchase facility that finances amounts and assets that are similar to those being financed under certain of our existing secured financing agreements.

Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires us to maintain positive net income for at least one (1) of the previous two consecutive quarters, or other similar measures. For the most recent fiscal quarter, the Company is compliant with all such conditions. However, we may be required to obtain waivers from certain lenders in the future if this condition precedent is not met.

Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement, although in some instances we may agree with the lender upon certain thresholds (in dollar amounts or percentages based on the market value of the assets) that must be exceeded before a margin deficit will arise. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.

Regulatory Capital and Liquidity Requirements

In addition to the financial covenants imposed upon us and PLS as our servicer under our debt financing agreements, we, through PMC and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae, Freddie Mac, and Ginnie Mae for its approved single-family issuers.

Ginnie Mae has issued risk-based capital requirements which will be effective December 31, 2024. We believe that PLS is in compliance with the Agency's pending requirements as of March 31, 2024.

Our Manager continues to explore a variety of additional means of financing our business, including debt financing through bank warehouse lines of credit, repurchase agreements, term financing, securitization transactions and unsecured debt and equity offerings. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements

As of March 31, 2024, we have not entered into any off-balance sheet arrangements.

Our management, servicing, and loan fulfillment fee agreements are described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.

All debt financing arrangements that matured between March 31, 2024 and the date of this Report have been renewed, extended or replaced.

Critical Accounting Estimates

Preparation of financial statements in compliance with GAAP requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Certain of these estimates significantly influence the portrayal of our financial condition and results, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates.

Our Annual Report on Form 10-K for the year ended December 31, 2023 contains a discussion of our critical accounting policies, which utilize relevant critical accounting estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, real estate values and other market-based risks. The primary market risks that we are exposed to are real estate risk, credit risk, interest rate risk, prepayment risk, inflation risk and market value risk.

Our primary trading asset is our inventory of loans acquired for sale. We believe that such assets’ fair values respond primarily to changes in the market interest rates for comparable recently-originated loans. Our other market-risk assets are a substantial portion of our investments and are primarily comprised of MSRs, CRT arrangements and MBS. We believe that the fair values of MSRs and MBS also respond primarily to changes in the market interest rates for comparable loans or yields on MBS. Changes in interest rates are reflected in the prepayment speeds underlying these investments and in the pricing spread (an element of the discount rate) used in their valuation. We believe that the primary market risks to the fair values of our investment in CRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such arrangements.

The following sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes to other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect our overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the following estimates should not be viewed as earnings forecasts.

Mortgage-backed securities at fair value

The following table summarizes the estimated change in fair value of our mortgage-backed securities as of March 31, 2024, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:


Interest rate shift in basis points	-200		-75		-50		50			75			200
	(in thousands)
Change in fair value	$	111,422	$	91,931	$	66,044	$	(78,131	)	$	(120,091	)	$	(341,540	)

Mortgage Servicing Rights

The following tables summarize the estimated change in fair value of MSRs as of March 31, 2024, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing:


Change in fair value attributable to shift in:	-20%		-10%		-5%		+5%			+10%			+20%
	(in thousands)
Pricing spread	$	206,897	$	100,887	$	49,825	$	(48,628	)	$	(96,098	)	$	(187,715	)
Prepayment speed	$	230,268	$	111,177	$	54,652	$	(52,875	)	$	(104,063	)	$	(201,702	)
Annual per-loan cost of servicing	$	69,023	$	34,512	$	17,256	$	(17,256	)	$	(34,512	)	$	(69,023	)

CRT Arrangements

Following is a summary of the effect on fair value of various changes to the pricing spread input used to estimate the fair value of our CRT arrangements given several shifts in pricing spread:


Pricing spread shift in basis points	-100		-50		-25		25			50			100
	(in thousands)
Change in fair value	$	42,720	$	21,036	$	10,438	$	(10,280	)	$	(20,407	)	$	(40,213	)

Following is a summary of the effect on fair value of various instantaneous changes in home values from those used to estimate the fair value of our CRT arrangements given several shifts:


Property value shift in %	-15%			-10%			-5%			5%		10%		15%
	(in thousands)
Change in fair value	$	(11,653	)	$	(6,966	)	$	(3,154	)	$	2,632	$	4,769	$	6,553

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business. As of March 31, 2024, we were not involved in any material legal actions, claims or proceedings.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Item 1A. For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 22, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the quarter ended March 31, 2024.

The following table provides information about our repurchases of common shares of beneficial interest (“Common Shares”) during the quarter ended March 31, 2024:


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (1)		Amount available for future share repurchases under the plans or programs (1)
	(in thousands, except average price paid per share)
January 1, 2024 – January 31, 2024		—	$	—		—	$	73,353
February 1, 2024 –February 29, 2024		—	$	—		—	$	73,353
March 1, 2024 – March 31, 2024		—	$	—		—	$	73,353

(1)

On October 24, 2022, the Company’s board of trustees approved an increase to the Company’s Common Share repurchase authorization from $400 million to $500 million (the “share repurchase program”). The share repurchase program does not require the Company to purchase a specific number of Common Shares, and the timing and amount of any Common Shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Common Share repurchases may be effected through privately negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Exchange Act. The share repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

During the quarter ended March 31, 2024, none of our trustees or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

Item 6. Exhibits


		Incorporated by Reference from the Below-Listed Form (Each Filed under SEC File Number 001-34416)
Exhibit No.	Exhibit Description	Form	Filing Date

3.1	Declaration of Trust of PennyMac Mortgage Investment Trust, as amended and restated.	10-Q	November 6, 2009

3.2	Second Amended and Restated Bylaws of PennyMac Mortgage Investment Trust	8-K	March 16, 2018

3.3	Articles Supplementary classifying and designating the 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.	8-A	March 7, 2017

3.4	Articles Supplementary classifying and designating the 8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.	8-A	June 30, 2017

3.5	Articles Supplementary classifying and designating the 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest.	8-A	August 20, 2021

10.1	Series 2024-VF1 Indenture Supplement, dated March 15, 2024, by and among PMT ISSUER TRUST - FMSR, PMT CO-ISSUER TRUST I - FMSR, Citibank, N.A., PennyMac Corp., PennyMac Holdings, LLC, and Goldman Sachs Bank, USA.	8-K	March 20, 2024

10.2	Master Repurchase Agreement, dated as of March 15, 2024, among PMC FMSR VFN Funding, LLC, PMH FMSR VFN Funding, LLC, PennyMac Corp., PennyMac Holdings, LLC, the buyers from time to time party thereto, and Goldman Sachs Bank, USA.	8-K	March 20, 2024

10.3	Series 2024-VF1 Guaranty, dated March 15, 2024, by PennyMac Mortgage Investment Trust, PennyMac Corp., and PennyMac Holdings, LLC.	8-K	March 20, 2024

10.4	Amendment No. 1 to the Second Amended and Restated Master Repurchase Agreement, dated as of March 15, 2024, by and among Atlas Securitized Products, L.P., Nexera Holding LLC, Citibank, N.A., PennyMac Corp., PennyMac Holdings, LLC, and PennyMac Mortgage Investment Trust.	*

31.1	Certification of David A. Spector pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	*

31.2	Certification of Daniel S. Perotti pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	*

32.1**	Certification of David A. Spector pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	**

32.2**	Certification of Daniel S. Perotti pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	**

101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (ii) the Consolidated Statements of Income for the quarter ended March 31, 2024 and March 31, 2023, (iii) the Consolidated Statements of Changes in Shareholders' Equity for the quarter ended March 31, 2024 and March 31, 2023, (iv) the Consolidated Statements of Cash Flows for the quarter ended March 31, 2024 and March 31, 2023 and (v) the Notes to the Consolidated Financial Statements.	*

101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document



104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

† Indicates management contract or compensatory plan or arrangement.

** The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Pennymac Mortgage Investment Trust (Registrant)

Dated: May 2, 2024	By:	/s/ David A. Spector
		David A. Spector
		Chairman and Chief Executive Officer (Principal Executive Officer)

Dated: May 2, 2024	By:	/s/ Daniel S. Perotti
		Daniel S. Perotti
		Senior Managing Director and Chief Financial Officer (Principal Financial Officer)

PennyMac Mortgage Investment Trust [PMT] Filings
PennyMac Mortgage Investment Trust [PMT-PA] Filings
PennyMac Mortgage Investment Trust [PMT-PB] Filings
PennyMac Mortgage Investment Trust [PMT-PC] Filings
PennyMac Mortgage Investment Trust [PMTU] Filings
10-Q	[2024-05-02]
10-K	[2024-02-22]
10-Q	[2023-11-01]
10-Q	[2023-08-03]
10-Q	[2023-05-04]
10-K	[2023-02-24]
10-Q	[2022-11-03]
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-02-25]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-26]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-08]
10-K	[2020-02-21]
10-Q	[2019-11-01]
10-Q	[2019-08-05]
10-Q	[2019-05-03]
10-K	[2019-02-26]
10-Q	[2018-11-07]
10-Q	[2018-08-07]
10-Q	[2018-05-07]
10-K	[2018-03-01]
10-Q	[2017-11-08]
10-Q	[2017-08-08]
10-Q	[2017-05-09]
10-K	[2017-02-28]
10-Q	[2016-11-04]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-29]
10-Q	[2015-11-06]
10-Q	[2015-08-10]
10-Q	[2015-05-08]
10-K	[2015-03-02]
10-Q	[2014-11-07]
10-Q	[2014-08-11]
10-Q	[2014-05-09]
10-K	[2014-02-28]
10-Q	[2013-11-12]
10-Q	[2013-08-09]
10-Q	[2013-05-10]
10-K	[2013-02-28]
10-Q	[2012-11-09]
10-Q	[2012-08-03]
10-Q	[2012-05-04]
10-K	[2012-03-09]

Counterparty

Amount at risk

Weighted average maturity

(in thousands)

Goldman Sachs & Co. LLC

June 6, 2024