`
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, 2026
Or
☐
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 PreferredShares of Beneficial Interest, $0.01 Par Value
PMT/PRA
8.00% Series B Cumulative Redeemable PreferredShares of Beneficial Interest, $0.01 Par Value
6.75% Series C Cumulative Redeemable PreferredShares of Beneficial Interest, $0.01 Par Value
PMT/PRB
PMT/PRC
8.50% Senior Notes Due September 2028
PMTU
9.00% Senior Notes Due February 2030
PMTV
9.00% Senior Notes Due June 2030
PMTW
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 May 1, 2026
Common Shares of Beneficial Interest, $0.01 par value
87,202,362
PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
March 31, 2026
TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Statements
1
PART I. FINANCIAL INFORMATION
3
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
5
Consolidated Statements of Changes in Shareholders’ Equity
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
53
Our Company
Results of Operations
57
Net Investment Income
58
Expenses
65
Balance Sheet Analysis
68
Asset Acquisitions
Investment Portfolio Composition
69
Cash Flows
71
Liquidity and Capital Resources
72
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
77
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
78
PART II. OTHER INFORMATION
79
Legal Proceedings
Item 1A
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
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, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:
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, 2025, filed with the Securities and Exchange Commission (“SEC”) on February 18, 2026.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
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.
2
Item 1. Financial Statements
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31,
December 31,
2026
2025
(in thousands, except share information)
ASSETS
Cash
$
213,958
271,970
Short-term investments at fair value
187,689
190,518
Mortgage-backed securities at fair value pledged to creditors
3,765,539
4,452,859
Loans held for sale at fair value ($2,328,824 and $2,676,700 pledged to creditors, respectively)
2,349,895
2,699,398
Loans held for investment at fair value ($10,866,292 and $8,530,939 pledged to creditors, respectively)
10,867,942
8,532,644
Derivative assets with nonaffiliates ($30,174 and $32,659 pledged to creditors, respectively)
50,766
49,696
Derivative assets with PennyMac Financial Services, Inc.
3,823
6,247
Deposits securing credit risk transfer arrangements pledged to creditors
969,725
1,009,334
Mortgage servicing rights at fair value ($3,560,828 and $3,582,211 pledged to creditors, respectively)
3,623,979
3,644,702
Servicing advances ($67,604 and $78,430 pledged to creditors, respectively)
79,200
96,830
Due from PennyMac Financial Services, Inc.
16,152
19,100
Other
374,024
373,584
Total assets
22,502,692
21,346,882
LIABILITIES
Assets sold under agreements to repurchase
7,300,692
8,018,601
Notes payable secured by credit risk transfer and mortgage servicing assets
2,396,545
2,258,128
Unsecured senior notes
684,506
1,028,300
Interest-only security payable at fair value
34,232
37,650
Asset-backed financings of variable interest entities at fair value
9,903,515
7,789,303
Derivative and credit risk transfer strip liabilities with nonaffiliates at fair value
21,329
6,932
Derivative liabilities with PennyMac Financial Services, Inc.
5,886
2,257
Accounts payable and accrued liabilities
137,102
168,498
Due to PennyMac Financial Services, Inc.
17,500
17,122
Income taxes payable
129,677
127,476
Liability for losses under representations and warranties
5,152
5,284
Total liabilities
20,636,136
19,459,551
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
Common shares of beneficial interest, $0.01 par value—authorized, 500,000,000 issued and outstanding, 87,191,663 and 87,016,604 shares, respectively
872
870
Additional paid-in capital
1,927,759
1,927,804
Accumulated deficit
(603,557
)
(582,825
Total shareholders’ equity
1,866,556
1,887,331
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
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:
(in thousands)
Loans held for investment at fair value
10,866,292
8,530,939
Derivative assets
30,174
32,659
Deposits securing credit risk transfer arrangements
Other—interest receivable
39,444
35,675
11,905,635
9,608,607
Asset-backed financings of the variable interest entities at fair value
Derivative and credit risk transfer strip liabilities at fair value
4,062
5,999
Accounts payable and accrued liabilities—interest payable
9,981,253
7,868,627
4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter ended March 31,
(in thousands, except earnings per common share)
Net investment income
Net loan servicing fees:
From nonaffiliates
Contractually specified
147,592
152,199
3,367
3,917
150,959
156,116
Change in fair value of mortgage servicing rights
(61,299
(144,590
Mortgage servicing rights hedging results
(11,881
(39,944
77,779
(28,418
From PennyMac Financial Services, Inc.
5,807
1,208
Net loan servicing fees
83,586
(27,210
Net gains on loans held for sale at fair value:
22,910
10,329
—
2,015
Net gains on loans held for sale at fair value
12,344
Loan origination fees
2,375
3,152
Net (losses) gains on investments and financings
(23,063
62,313
Net interest expense:
Interest income
276,091
176,091
Interest expense
279,750
182,137
Net interest expense
(3,659
(6,046
Results of real estate acquired in settlement of loans
(48
(141
33
82,134
44,465
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees
19,723
21,729
Management fees
6,762
7,012
Loan fulfillment fees
5,737
5,290
Professional services
13,501
6,982
Compensation
2,976
2,970
Loan collection and liquidation
2,124
1,969
Safekeeping
855
1,110
Loan origination
213
686
3,348
3,016
Total expenses
55,239
50,764
Income (loss) before provision for (benefit from) income taxes
26,895
(6,299
Provision for (benefit from) income taxes
2,279
(15,979
Net income
24,616
9,680
Dividends on preferred shares of beneficial interest
10,455
Net income (loss) attributable to common shareholders
14,161
(775
Earnings (loss) per common share
Basic
0.16
(0.01
Diluted
Weighted average common shares outstanding
87,082
86,907
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Quarter ended March 31, 2026
Preferred shares
Common shares
Number of shares
Amount
Par value
Total
(in thousands, except per share amounts)
Balance at December 31, 2025
22,400
87,017
Share-based compensation
175
(45
(43
Dividends:
(10,455
Common shares ($0.40 per share)
(34,893
Balance at March 31, 2026
87,192
Quarter ended March 31, 2025
Balance at December 31, 2024
86,861
869
1,925,067
(528,918
1,938,500
150
(165
(164
(34,843
Balance at March 31, 2025
87,011
1,924,902
(564,536
1,902,718
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cash flows from operating activities
Adjustments to reconcile net income to net cash used in operating activities:
61,299
144,590
11,881
39,944
Net gains on loans held for sale
(22,910
(12,344
Net losses (gains) on investments and financings
23,063
(62,313
Accrual of unearned discounts and amortization of purchase premiums on mortgage-backed securities, loans held for investment, and asset-backed financings, net
(3,107
(10,751
Amortization of debt issuance costs
4,832
3,919
48
141
Share-based compensation expense
1,099
963
Purchase of loans held for sale from nonaffiliates
(453,220
(23,337,077
Purchase of loans held for sale from PennyMac Financial Services, Inc.
(4,380,289
(654,808
Sale to nonaffiliates and repayment of loans held for sale
2,217,203
2,613,958
Sale of loans held for sale to PennyMac Financial Services, Inc.
20,437,666
Repurchase of loans subject to representations and warranties
(3,601
(4,845
Decrease in servicing advances
17,604
20,236
Decrease in due from PennyMac Financial Services, Inc.
2,948
860
(Increase) decrease in other assets
(1,965
266,688
Decrease in accounts payable and accrued liabilities
(31,446
(33,678
Increase (decrease) in due to PennyMac Financial Services, Inc.
378
(1,008
Increase (decrease) in income taxes payable
2,201
(16,088
Net cash used in operating activities
(2,529,366
(594,267
Cash flows from investing activities
Net decrease (increase) in short-term investments
2,829
(100,960
Purchase of mortgage-backed securities
(4,000
Sale and repayment of mortgage-backed securities
666,313
102,769
Repayment of loans held for investment
523,915
42,282
Net settlement of derivative financial instruments
(1,010
2,806
Distribution from credit risk transfer arrangements
50,581
35,339
Transfer of mortgage servicing rights relating to delinquent loans to Agency
(295
(221
Sale of real estate acquired in settlement of loans
117
46
Decrease (increase) in margin deposits
27,082
(41,833
Net cash provided by investing activities
1,265,532
40,228
Statements continued on the next page
(Continued)
Cash flows from financing activities
Sale of assets under agreements to repurchase
13,713,269
34,797,503
Repurchase of assets sold under agreements to repurchase
(14,432,214
(35,096,910
Issuance of mortgage loan participation purchase and sale agreements
295,892
Repayment of mortgage loan participation purchase and sale agreements
(302,940
Issuance of notes payable secured by credit risk transfer and mortgage servicing assets
251,693
Repayment of notes payable secured by credit risk transfer and mortgage servicing assets
(111,939
(247,977
Issuance of unsecured senior notes
172,500
Repayment of unsecured senior notes
(345,000
Issuance of asset-backed financings of variable interest entities
2,691,462
940,457
Repayment of asset-backed financings of variable interest entities
(511,082
(41,256
Payment of debt issuance costs
(3,927
(6,563
Payment of dividends to preferred shareholders
Payment of dividends to common shareholders
(34,838
Payment of vested share-based compensation tax withholdings
(1,142
(1,127
Net cash provided by financing activities
1,205,822
464,286
Net decrease in cash
(58,012
(89,753
Cash at beginning of quarter
337,694
Cash at end of quarter
247,941
Supplemental cash flow information
Payments, net:
Income taxes
109
Interest
288,606
220,334
Non-cash investing activities:
Recognition of loans held for investment resulting from initial consolidation of variable interest entities
2,934,239
1,049,704
Receipt of mortgage servicing rights as proceeds from sales of loans
40,281
47,009
Non-cash financing activities:
Dividends declared, not paid
34,893
34,843
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization
PennyMac Mortgage Investment Trust (“PMT” or the “Company”) is a specialty finance company, which invests in residential mortgage-related assets. The Company operates in three reportable segments: credit sensitive strategies, interest rate sensitive strategies and aggregation and securitization (formerly referred to as correspondent production). All other activities are included in corporate:
The Company sells the loans it acquires through its aggregation and securitization activities primarily to government-sponsored enterprises ("GSEs") such as the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”). Freddie Mac and Fannie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” The Company also finances certain of the loans it aggregates through its own securitizations and retains certain senior and subordinate MBS created in the securitizations.
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
Basis of Presentation
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, 2025.
These unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations 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, 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.
Note 3—Concentration of Risks
As discussed in Note 1 – Organization above, PMT’s operating and investing activities are centered in residential mortgage-related assets, including CRT arrangements, subordinate MBS, Agency and senior Non-Agency MBS, CMOs, loans held for investment and MSRs.
The Company is exposed to fair value risk and credit risk. As a result of prevailing market conditions, including changes in market interest rates, the Company may be required to recognize losses associated with adverse changes to the fair value of its investments in MSRs, CRT arrangements, loans and MBS. The Company is exposed to credit losses arising from its investments in CRT arrangements and subordinate MBS.
Fair Value Risk
The Company carries its non-cash financial assets and MSRs at fair value with changes in fair value included in its results of operations:
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 interest-only (“IO”) ownership interests and recourse obligations based upon the securitized reference pools of loans subject to the CRT arrangements into trust entities, and the Company acquired the IO ownership interests 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 loans to the Agencies without the retention of credit risk in the case of CRT arrangements and investing in senior mortgage-backed securities in the case of subordinate MBS.
Certain of the Company's investments in CRT arrangements are structured such that loans that reach a specific number of days delinquent trigger losses chargeable to the CRT arrangements 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 those CRT arrangements 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 other investments in CRT arrangements requires PMT to absorb losses only when the reference loans realize losses.
The Company maintains cash and short-term investment balances at financial institutions in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limits. Should one or more of the financial institutions at which the Company's deposits are maintained fail, there is no guarantee as to the extent that the Company would recover the funds deposited, whether through FDIC coverage or otherwise, or the timing of any recovery.
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.
10
Operating Activities
Servicing Agreement
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, loans held in VIEs (prime servicing), and its portfolio of residential loans purchased with credit deterioration (special servicing or distressed loans).
Under the Servicing Agreement, as amended, servicing fees for all subserviced MSRs and loans are established at a per-loan monthly amount based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or Real estate acquired in settlement of loans ("REO") as shown below:
The Servicing Agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
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:
The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance ("UPB") of all refinance mortgage loans originated in such month, plus the aggregate UPB of all "preserved mortgage loans" relating to closed end second loans originated in such month, to (ii) the aggregate UPB of all mortgage loans from the portfolio that PLS has determined in good faith were refinanced in such month, plus the aggregate UPB of all "preserved mortgage loans" relating to closed end second lien loans originated in such month. For purposes of such calculation, “preserved mortgage loan” means a mortgage loan in PMT’s portfolio as to which PLS or its affiliates originated a new closed end second lien loan in a subordinate position to such mortgage loan. PFSI has further agreed to allocate sufficient resources to target a recapture rate of at least 30%.
The MSR recapture agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
11
Following is a summary of loan servicing and recapture fees earned by PLS:
Loan servicing fees:
Loans held for sale
155
223
Loans held for investment
516
168
Mortgage servicing rights
19,052
21,338
Average investment in loans:
Held for sale
2,615,661
1,997,488
Held for investment
9,695,900
2,626,335
Average MSR portfolio unpaid principal balance
214,185,523
225,515,018
Mortgage servicing rights recapture fees
Unpaid principal balance of loans recaptured
550,998
159,472
Aggregation and Securitization Activities
Mortgage Banking Services Agreement
The Company is provided fulfillment and other services for the operation of its aggregation and securitization activities under an amended and restated mortgage banking services agreement with PLS. These services include: provision of models and technology for the pricing of loans and MSRs; reviews of loan data; documentation and appraisals to assess loan quality and risk; hedging the fair value of the Company's mortgage loan inventory and commitments to purchase mortgage loans; correspondent seller performance and credit monitoring; and the sale of loans through secondary mortgage markets on behalf of the Company.
PLS assumed the role of initial correspondent loan purchaser instead of the Company effective July 1, 2025 and the Company has the right under a mortgage loan purchase agreement to purchase up to 100% of the non-government insured or guaranteed delegated correspondent loans purchased by PLS at its cost plus accrued interest, less any loan administrative fee paid to PLS by the correspondent seller, and subject to quarterly fulfillment fees as described below. PLS may hold or otherwise sell correspondent loans to other investors if the Company chooses not to purchase such loans. As a result of the revised agreement, the sourcing fee arrangement described below no longer has any effect for correspondent loan commitments entered into beginning on July 1, 2025.
Effective January 1, 2025, fulfillment fees in any quarter shall not exceed the following:
The Company does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and/or to act as a servicer for loans in Ginnie Mae MBS. Accordingly, under the mortgage banking services agreement, through June 30, 2025, PLS purchased mortgage loans underwritten in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from the Company at its cost less an administrative fee plus accrued interest and a sourcing fee ranging from one to two basis points of the UPB of the loan, generally based on the average number of calendar days the loans were held by the Company before purchase by PLS. PLS could also acquire conventional loans from the Company on the same terms upon mutual agreement between the Company and PLS.
While PLS purchased these mortgage loans “as is” and without recourse of any kind from the Company, where PLS has a claim for repurchase, indemnity or otherwise against a correspondent seller, it is entitled, at its sole expense, to pursue any such claim through or in the name of the Company.
The mortgage banking services agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
12
The Company may also purchase newly originated conforming balance non-government insured or guaranteed loans from PLS under the mortgage loan purchase agreement.
Following is a summary of our aggregation and securitization activities between the Company and PLS:
Loan fulfillment fees earned by PLS
Unpaid principal balance of loans fulfilled by PLS
2,796,544
2,781,722
Sourcing fees received from PLS included in Net gains on loans held for sale
Unpaid principal balance of loans sold to PLS:
Government guaranteed or insured
11,191,880
Conventional conforming
8,960,796
20,152,676
Purchases of loans held for sale from PLS (1)
4,380,289
654,808
Tax service fees paid to PLS
477
Management Agreement
PMT has a management agreement with PCM, pursuant to which PMT pays PCM management fees as follows:
The performance incentive fee is equal to the sum of:
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.
“Common shareholders’ equity” is defined as the average shareholder’s equity less the average GAAP carrying value of the Company’s preferred equity.
“High watermark” is the annual adjustment that reflects the amount by which the “net income” (stated as a percentage of return on “common shareholders' equity”) in that year exceeds or falls short of the lesser of 8% and the average Fannie Mae 30‑year MBS Yield (the “Target Yield”) for the year then ended. 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
13
performance incentive fee is earned, the high watermark is reset to zero. As a result, the threshold amount required for the PCM to earn a performance incentive fee is adjusted cumulatively based on the performance of the Company’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, and a performance incentive fee is earned. The high watermark is calculated based on the two years preceding the fiscal year for which the incentive fee is calculated, and will never be less than zero after including all high watermark increases and high watermark decreases over any such rolling two fiscal year period.
The base management fee is paid quarterly in arrears and the performance incentive fee is paid annually 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:
Base management fee
Performance incentive fee
Average shareholders' equity amounts used to calculate base management fee expense
1,828,237
1,895,785
The management agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
Expense Reimbursement
Under the management agreement, the Company reimburses PCM for 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, accounting, internal audit and investor relations services for the direct benefit of the Company. The Company is also required to pay a pro rata portion of the rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses (common overhead) of PCM and its affiliates required for the Company’s and its subsidiaries’ operations. These expenses are based on the resources PCM and its affiliates dedicate to investment management activities for the Company, as determined by PCM in its reasonable and good faith discretion.
Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:
Reimbursement of:
Expenses incurred on the Company’s behalf, net
6,141
4,601
1,599
1,629
Common overhead
949
981
8,689
7,211
Payments and settlements during the period (1)
18,330
28,048
14
Financing Activities
PFSI Investment in the Company
PFSI held 75,000 of the Company’s Common Shares at both March 31, 2026 and December 31, 2025.
Amounts Receivable from and Payable to PFSI
Amounts receivable from and payable to PFSI are summarized below:
December 31, 2025
Due from PFSI-Miscellaneous receivables
Due to PFSI:
6,856
6,622
6,669
Allocated expenses and costs
3,931
3,161
Aggregation and securitization costs
185
436
The Company has also transferred cash to PLS to fund loan servicing advances and REO property acquisition and preservation costs incurred 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
Servicing advances
Other assets-Real estate acquired in settlement of loans
681
655
79,881
97,485
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:
Cash flows:
Proceeds from sales
Loan servicing fees received
139,903
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:
Unpaid principal balance of loans outstanding
209,060,378
212,581,934
Collection status (Unpaid principal balance)
Delinquency:
30-89 days delinquent
2,270,470
2,583,158
90 or more days delinquent:
Not in foreclosure
1,002,603
1,025,111
In foreclosure
139,000
118,503
Bankruptcy
358,030
351,890
Custodial funds managed by the Company (1)
3,125,553
2,758,142
15
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 those loans and comprise the Company’s investments in CRT arrangements.
The Company, through 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. CRT arrangements include:
The Company placed Deposits securing credit risk transfer arrangements into subsidiary trust entities to secure its recourse obligations. The Deposits securing credit risk transfer 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 to losses 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.
Gains and losses on the derivatives, strips and the IO ownership interest sold to a nonaffiliate included in the CRT arrangements are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
16
Following is a summary of the CRT arrangements:
Net investment income:
Credit risk transfer derivatives and strips:
Credit risk transfer derivatives
Realized
2,548
2,803
Valuation changes
(2,416
(823
132
1,980
Credit risk transfer strips
8,555
9,777
1,806
(11,825
10,361
(2,048
Interest-only security payable at fair value — valuation changes
3,418
(1,732
13,911
(1,800
Interest income — Deposits securing credit risk transfer arrangements
8,892
11,675
22,803
9,875
Net payments made to settle losses on credit risk transfer arrangements
1,368
1,243
Carrying value of credit risk transfer arrangements:
Derivative assets - credit risk transfer derivatives
Derivative and credit risk transfer liabilities - credit risk transfer strips
(4,062
(5,999
(34,232
(37,650
961,605
998,344
Credit risk transfer arrangement assets pledged to secure borrowings:
Deposits securing credit risk transfer arrangements (1)
Unpaid principal balance of loans underlying credit risk transfer arrangements
18,715,937
19,517,530
Collection status (unpaid principal balance):
Delinquency
Current
18,166,705
18,908,261
363,958
413,295
90-179 days delinquent
96,209
110,486
180 or more days delinquent
62,748
57,798
Foreclosure
26,317
27,690
60,687
68,426
Subordinate and Senior Non-Agency Mortgage-Backed Securities
The Company retains or purchases subordinate and senior non-agency 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 priorities of payments and, as such, most of these inflows must be directed first to service and repay the senior securities.
17
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 subordinate MBS 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 these transactions are VIEs. The Company also has concluded that it is the primary beneficiary of certain of the VIEs as it has the power, through PLS, in its role as the servicer or sub-servicer of the underlying 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 earned on the loans owned by the VIEs as Interest income and the interest attributable to the asset-backed securities issued to nonaffiliates by the VIEs as Interest expense on its consolidated statements of operations.
Following is a summary of the Company’s investment in senior and subordinate MBS backed by assets held in consolidated VIEs:
(65,803
28,712
62,236
(29,423
133,754
33,673
120,540
28,715
9,647
4,247
Retained interests at fair value pledged to secure Assets sold under agreements to repurchase
937,680
648,159
Financing of Mortgage Servicing Assets
The Company entered into financing transactions in which it pledged participation interests in its Fannie Mae MSRs to VIEs which issued variable funding notes, term notes and term loans backed by the participation interests. The Company holds the variable funding notes and acts as guarantor of the variable funding notes, term notes and term loans. 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, the variable funding notes sold under agreements to repurchase are included in Assets sold under agreements to repurchase and the term notes and term loans are included in Notes payable secured by credit risk transfer and mortgage servicing assets on the Company’s consolidated balance sheets. These financings are described 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:
18
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 significant 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 significant 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 results of operations as they occur and more timely reflect the results of the Company’s performance.
The Company has also identified its Asset-backed financings of variable interest entities 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 that 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.
19
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:
Level 1
Level 2
Level 3
Assets:
Short-term investments
Mortgage-backed securities
3,694,110
71,429
2,347,811
2,084
1,650
Derivative assets with nonaffiliates:
Call options on interest rate futures purchase contracts
2,141
Put options on interest rate futures purchase contracts
10,859
Forward purchase contracts
1,492
Forward sale contracts
31,957
Total derivative assets with nonaffiliates before netting
13,000
33,449
76,623
Netting
(25,857
Total derivative assets with nonaffiliates after netting
Derivative assets with PennyMac Financial Services, Inc.:
1,225
Interest rate lock commitments
2,613
Total derivative assets with PennyMac Financial Services, Inc. before netting
3,838
(15
Total derivative assets with PennyMac Financial Services, Inc. after netting
200,689
16,942,887
3,731,929
20,849,633
Liabilities:
Interest-only security payable
Asset-backed financings of variable interest entities
Derivative and credit risk transfer strip liabilities with nonaffiliates:
8,491
Forward sales contracts
11,922
Total derivative liabilities with nonaffiliates before netting
20,413
(3,146
Total derivative liabilities with nonaffiliates after netting
17,267
Total derivative and credit risk transfer strip liabilities with nonaffiliates
Derivative liabilities with PennyMac Financial Services, Inc:
Total derivative liabilities with PennyMac Financial Services, Inc before netting
5,901
Total derivative liabilities with PennyMac Financial Services, Inc after netting:
9,923,943
44,180
9,964,962
20
4,380,357
72,502
2,695,817
3,581
1,705
1,289
4,109
4,113
2,381
5,398
6,494
44,551
5,145
4,605
1,784
6,389
(142
195,916
15,615,391
3,759,754
19,576,064
158
17,340
17,498
(16,565
933
142
2,399
7,806,943
45,906
7,836,142
21
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:
Assets (1)
Interest-only stripped mortgage-backed securities
Loans heldfor sale
CRT derivatives
Interestrate lockcommitments with PFSI
CRTstrips
Balance, December 31, 2025
2,348
3,751,498
Purchases and issuances
3,601
5,270
8,871
Repayments and sales
(4,107
(4,950
(16
(2,617
(8,424
(20,114
Accrual of unearned discounts
1,965
Amounts received pursuant to sales of loans
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk
Other factors
1,069
(148
(39
(3,936
(53,860
Transfers of:
Interest rate lock commitments to loans held for sale (2)
(6,955
Mortgage servicing rights relating to delinquent loans to Agency
295
Balance, March 31, 2026
(3,273
3,721,981
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2026
(219
(64,371
Liabilities
Interest-only security payable:
Change in fair value included in income arising from:
Change in instrument - specific credit risk
(3,418
Change in fair value recognized during the quarter relating to liability outstanding at March 31, 2026
22
CRTderivatives
Interestrate lockcommitments
CRT strips
Mortgageservicingrights
Balance, December 31, 2024
86,260
7,971
1,866
29,377
444
(4,060
3,867,394
3,989,252
28
4,599
4,627
(4,636
(2,678
(20
(2,883
(9,777
(19,994
Accrual of unearned discount
2,285
(2,866
130
(31
7,391
(140,034
(7,815
221
Balance, March 31, 2025
81,043
5,451
1,815
28,474
4,619
(15,885
3,770,034
3,875,551
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2025
(14
(155,530
34,222
1,732
35,954
Change in fair value recognized during the quarter relating to liability outstanding at March 31, 2025
23
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:
Fair value
Principalamount dueupon maturity
Difference
Loans held for sale:
Current through 89 days delinquent
2,347,431
2,303,642
43,789
2,696,128
2,627,441
68,687
1,177
1,234
(57
1,273
1,271
1,287
1,699
(412
1,997
2,289
(292
2,464
2,933
(469
3,270
3,560
(290
2,306,575
43,320
2,631,001
68,397
Loans held for investment:
Held in consolidated VIEs:
10,863,057
10,578,933
284,124
8,529,906
8,353,814
176,092
3,087
3,499
700
844
(144
148
195
(47
333
428
(95
3,235
3,694
(459
1,033
1,272
(239
10,582,627
283,665
8,355,086
175,853
Distressed:
362
457
371
476
(105
901
2,413
(1,512
942
2,553
(1,611
387
1,264
(877
392
1,120
(728
1,288
3,677
(2,389
1,334
3,673
(2,339
4,134
(2,484
4,149
(2,444
10,586,761
281,181
8,359,235
173,409
Following are the changes in fair value included in current period results of operations by consolidated statements of operations line item, for financial statement items accounted for under the fair value option:
Net loanservicing fees
Net interestexpense
(33,407
8,400
(25,007
(419
(9,224
(75,027
(88,849
(824
(151,391
Asset-backed financings of VIEs
66,167
65,654
69,585
24
64,855
10,070
74,925
46,511
28,681
(687
27,994
91,488
9,383
2,792
(28,055
(31,155
(29,787
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
25
30
The following table summarizes the fair value changes recognized during the quarter on assets held at quarter end that were remeasured at fair value on a nonrecurring basis:
(5
(140
The Company remeasures its REO based on fair value when it evaluates the 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 operations.
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 senior notes included in Unsecured senior notes 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 its senior notes 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 values 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. The Company estimates the fair values of its Unsecured senior notes using pricing services. The fair values and carrying values of these liabilities are summarized below:
Instrument
Carrying value
2,405,192
2,268,438
712,515
1,073,341
Valuation Governance
Most of the Company’s assets, its Asset-backed financings of variable interest entities 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 results of operations. 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 delegated
responsibility for estimating the fair values 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 subcommittee, 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 subcommittee. PFSI’s senior management valuation subcommittee 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 subcommittee 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 values of the Company’s IRLCs are developed by PFSI's capital markets risk management staff and are 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 stripped MBS:
The key inputs used in the estimation of the fair value of IO stripped MBS include option-adjusted spread ("OAS") (OAS is a component of discount rate) and prepayment speed. Significant changes to those inputs in isolation may result in significant changes in the IO stripped MBS' fair value measurements. Changes in these key inputs are not directly related.
26
Following are the key inputs used in determining the fair value of IO stripped MBS:
Fair value (in thousands)
Key inputs (1)
Option-adjusted spread (2)
Range
3.8% – 4.2%
4.7% – 4.7%
Weighted average
3.8%
4.7%
Annual total prepayment speed (3)
10.8% – 13.3%
11.0% – 13.6%
10.8%
11.0%
Equivalent life (in years)
4.0 – 7.4
4.0 – 7.7
7.4
7.6
Changes in the fair value of MBS are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
Loans
Fair value of loans is estimated based on whether the loans are saleable into active markets:
Changes in fair values of loans held for sale are included in Net gains on loans held for sale at fair value in the consolidated statements of operations. Changes in fair values of loans held for investment are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
Derivative and Credit Risk Transfer Strip Assets and Liabilities
CRT Derivatives
The Company categorizes CRT derivatives as “Level 3” fair value assets. 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
27
ownership interests. Together, the recourse obligation and the IO ownership interest comprise the CRT derivative. Fair values of the CRT derivatives are derived by deducting the balances of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair values of the certificates representing the beneficial interests in the trusts.
The Company establishes fair value of its investment in CRT Arrangements based on indications of fair value provided 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 interest and the recourse obligations. 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 (losses) gains on investments and financings in the consolidated statements of operations.
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:
(dollars in thousands)
UPB of loans in reference pools
4,046,852
4,555,682
Discount rate
8.8% – 10.1%
8.6% – 14.1%
8.8%
Voluntary prepayment speed (2)
7.4% – 8.3%
6.3% – 7.6%
7.6%
7.3%
Involuntary prepayment speed (3)
0.2% – 0.2%
0.1% – 0.3%
0.2%
0.1%
Remaining loss expectation
0.0% – 0.1%
Interest Rate Lock Commitments
The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair values 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 values 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 held for sale at fair value in the consolidated statements of operations.
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
Fair value of net (liabilities) assets (in thousands) (1)
Committed amount (in thousands)
1,338,161
1,207,859
Key inputs (2)
Pull-through rate
60.1% – 100%
50.5% – 100%
87.9%
90.9%
MSR fair value expressed as
Servicing fee multiple
1.6 – 8.4
1.7 – 8.4
5.2
5.4
Percentage of unpaid principal balance
0.4% – 2.9%
0.4% – 3.2%
1.5%
1.9%
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 loans held for sale at fair value, or Net (losses) gains on investments and financings, as applicable, in the consolidated statements of operations.
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 the recourse obligations. Together, the IO ownership interest and the recourse obligation comprise the CRT strip.
Fair values of the CRT strips are 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 (losses) gains on investments and financings in the consolidated statements of operations.
29
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:
Unpaid principal balance of loans in the reference pools
14,669,085
14,961,848
4.9% – 8.7%
5.0% – 8.6%
8.2%
8.1%
7.1% – 7.5%
7.0% – 7.5%
7.2%
7.1%
0.4% – 1.4%
0.5%
Mortgage Servicing Rights
The Company categorizes MSRs as “Level 3” fair value assets. 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 fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company uses a discounted cash flow approach to estimate the fair values of its MSRs.
Beginning in the third quarter of 2025, the Company enhanced its discounted cash flow approach to estimate the period-end fair value of its MSRs with the adoption of an OAS model. The OAS model allows the Company to account for the likelihood of interest rates moving along different paths as economic conditions change in its assessment of the fair value of MSRs as opposed to a single assumed rate path. Adoption of the OAS model did not have a significant effect on the fair value of MSRs.
The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), OAS or pricing spread (the OAS and pricing spread are components of the discount rate), and annual per-loan cost to service the underlying 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 operations.
MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (expressed as OAS or pricing spread) increase, or when the annual per-loan cost of servicing increases. 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:
MSRs recognized (in thousands)
Unpaid principal balance of underlying loans (in thousands)
2,197,665
2,594,638
Weighted average annual servicing fee rate (in basis points)
34
32
Prepayment speed (2)
8.6% – 14.9%
9.4% - 15.3%
9.4%
9.9%
Equivalent average life (in years)
3.7 – 8.7
3.7– 8.2
8.2
7.9
Pricing spread (3)
5.2% – 10.0%
5.2% - 7.3%
6.2%
5.5%
Annual per-loan cost of servicing
$69 – $113
$68 – $87
$72
$69
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:
212,198,589
215,781,639
Weighted average note interest rate
3.9%
7.0% – 25.6%
7.0% – 21.5%
8.4%
2.0 – 8.9
2.1 – 7.9
8.5
7.7
Effect on fair value (in thousands) of (3):
5% adverse change
$(49,635)
$(61,563)
10% adverse change
$(97,738)
$(120,960)
20% adverse change
$(189,634)
$(233,683)
Option-adjusted spread (4)
3.2% – 6.4%
3.6% – 6.2%
4.6%
3.6%
$(39,505)
$(30,295)
$(78,085)
$(60,089)
$(152,590)
$(118,218)
$69 – $94
$68 – $90
$68
$(15,791)
$(15,979)
$(31,582)
$(31,959)
$(63,164)
$(63,918)
31
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 the price given in a pending contract of sale, a full appraisal, or a broker’s price opinion.
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 establish 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 operations.
Note 8— Mortgage-Backed Securities
Following is a summary of activity in the Company’s holdings of MBS:
Balance at beginning of quarter
4,063,706
Purchases
4,000
Sales
(477,360
Repayments
(188,953
(102,769
Amortization and accrual of net purchase premiums and discounts, net
Valuation adjustments, net
Balance at end of quarter
4,035,862
Fair value of mortgage-backed securities pledged to secure Assets sold under agreements to repurchase
Following is a summary of the Company’s investments in MBS:
Security type (1)
Principalbalance or notional amount
Purchase premiums(discounts), net
Cumulativevaluationchanges
Agency fixed-rate pass-through
2,246,463
771
18,919
2,266,153
Floating rate collateralized mortgage obligations
822,780
(994
7,806
829,592
Principal-only stripped
549,048
(108,778
15,639
455,909
Senior non-Agency
142,612
(2,982
(1,174
138,456
Subordinate residential transition
3,764,903
(111,983
41,190
Interest-only stripped
333,848
(1) All MBS have maturities of more than ten years except the subordinate residential transition bond which matures between one year through five years. All MBS are pledged to secure Assets sold under agreements to repurchase.
2,805,895
(2,125
46,677
2,850,447
850,172
(1,249
7,074
855,997
610,256
(115,385
26,258
521,129
155,369
(3,039
454
152,784
4,421,692
(121,798
80,463
344,592
(1) All MBS have maturities of more than ten years and are pledged to secure Assets sold under agreements to repurchase.
Note 9—Loans Held for Sale at Fair Value
Following is a summary of the distribution of the Company’s loans held for sale at fair value:
Loan type
Held for sale to nonaffiliates—GSE eligible (1)
1,804,198
2,232,706
Jumbo
461,054
433,027
Non-qualified
82,559
30,084
Home equity lines of credit
778
Repurchased pursuant to representations and warranties
1,306
2,639
Loans pledged to secure
2,328,824
2,676,700
Note 10—Loans Held for Investment at Fair Value
Loans held for investment at fair value are comprised primarily of loans held in VIEs securing asset-backed financings as described in Note 6 –Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities.
Following is a summary of the distribution of the Company’s loans held for investment at fair value:
Loans in variable interest entities:
Agency-conforming loans secured by:
Non-owner occupied properties
7,232,212
6,332,497
Owner occupied properties
1,496,337
588,788
Fixed interest rate jumbo loans
2,137,743
1,609,654
Distressed loans
Loans held for investment pledged to secure Asset-backed financings at fair value (1)
Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities
Derivative and credit risk transfer strip assets and liabilities are summarized below:
Derivative assets with nonaffiliates
Derivative liabilities with nonaffiliates
Credit risk transfer strip liabilities
The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period results of operations.
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 are IRLCs that are created when the Company commits to purchase loans held for sale.
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:
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 held 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 held for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans held 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 strip liabilities at fair value and related margin deposits on the consolidated balance sheets:
Notional
Derivative
amount (1)
assets
liabilities
Nonaffiliates:
Hedging derivatives subject to master netting arrangements (2):
1,712,500
3,250,000
2,375,000
2,500,000
6,632,514
3,703,628
9,957,359
7,933,760
Bond futures
1,571,100
1,896,100
Swap futures
790,200
751,200
Other derivatives not subject to master netting arrangements:
455,682
Total derivative instruments before netting
PennyMac Financial Services, Inc.:
Interest rate lock commitments not subject to master netting arrangements
Forward purchase contract subject to master netting arrangement
92,618
250,638
Total derivatives before netting
Margin deposits (received from) placed with derivative counterparties included in derivative balances above, net
(22,711
21,710
Derivative assets pledged to secure:
Assets Sold Under Agreements to Repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets
(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, 2026 and December 31, 2025, 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.
35
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.
Net amount
Gross amounts
of assets
not offset in the
presented
consolidated
in the
balance sheet
balance
Financial
collateral
Net
Counterparty
sheet
instruments
received
amount
Non-affiliates:
RJ O’Brien & Associates, LLC
Bank of America, N.A.
2,261
4,745
AB Carval
2,072
J.P. Morgan Securities LLC
1,348
102
National Life Group
579
Fannie Cap Markets
417
Morgan Stanley & Co. LLC
338
3,500
Wells Fargo Securities, LLC
111
603
Nomura
59
137
Goldman Sachs & Co. LLC
950
Mizuho Financial Group
442
BNP Paribas
236
Citigroup Global Markets Inc.
217
Ellington Management
198
Metro Life Ins Co
151
Barclays Capital Inc.
103
407
255
PennyMac Financial Services, Inc.
36
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 were backed by sufficient collateral with fair values that exceeded the liability amounts recorded on the consolidated balance sheets.
of liabilities
(1)
pledged
1,090,645
(1,090,645
1,536,038
(1,536,038
1,012,219
(1,012,219
1,074,334
(1,074,334
Atlas Securitized Products, L.P.
984,628
(984,628
1,216,779
(1,216,779
Santander US Capital
973,270
(973,270
952,951
(952,933
721,550
(721,550
782,547
(782,547
466,672
(458,388
8,284
151,274
(151,274
RBC Capital Markets, L.P.
381,942
(381,942
438,781
(438,781
332,396
(331,360
1,036
431,016
(431,016
300,073
(295,956
4,117
319,500
(319,500
Nomura Holdings America, Inc
272,553
(272,553
231,308
(231,308
273,174
(272,324
850
397,162
(397,162
Daiwa Capital Markets
189,890
(189,699
191
195,268
(195,268
Bank of Montreal
145,344
(144,928
416
160,388
(160,324
64
99,518
(98,923
595
54,191
(54,191
76,637
(75,826
811
81,701
(81,701
967
851
7,321,478
(7,304,211
8,024,089
(8,023,156
Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of operations line items where such gains and losses are included:
Derivative activity
Consolidated statements of operations line
Net gains on loans held for sale (1)
(5,621
4,174
Hedged item:
Interest rate lock commitments and loans held for sale
15,071
(26,359
37
Note 12—Mortgage Servicing Rights
Following is a summary of MSRs:
MSRs resulting from loan sales
Transfers to Agency of mortgage servicing rights relating to delinquent loans
Changes in fair value:
Due to changes in inputs used in valuation model (1)
45,587
(55,831
Other changes in fair value (2)
(106,886
(88,759
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
3,560,828
3,582,211
Servicing fees relating to MSRs are recorded in Net loan servicing fees – from nonaffiliates on the Company’s consolidated statements of operations and are summarized below:
Contractually specified servicing fees
Ancillary and other fees:
Late charges
1,071
1,027
2,296
2,890
Average UPB of underlying loans
Note 13— Other Assets
Other assets are summarized below:
Margin deposits
232,767
221,310
Interest receivable
75,238
72,684
Correspondent lending receivables
10,895
7,083
Servicing fees receivable
10,327
9,586
Other receivables
27,228
25,458
1,365
1,421
16,204
36,042
Note 14— Short-Term Debt
The borrowing facilities described throughout these Notes 14 and 15 contain various covenants, including financial covenantsrelating to the Company and its subsidiaries’ net worth, debt-to-equity ratio, and liquidity. The Company believes that it was incompliance with these covenants as of March 31, 2026.
38
Following is a summary of financial information relating to assets sold under agreements to repurchase:
Weighted average interest rate (1)
4.64
%
5.21
Average balance
7,812,433
6,180,911
Total interest expense
91,392
81,148
Maximum daily amount outstanding
8,673,233
7,068,600
March 31, 2026 and 2025, respectively.
Carrying value:
Unpaid principal balance
7,304,211
8,023,156
Unamortized debt issuance costs
(3,519
(4,555
Weighted average interest rate
4.54
4.71
Available borrowing capacity (1):
Committed
553,463
595,085
Uncommitted
5,174,734
5,032,598
5,728,197
5,627,683
Margin deposits placed with counterparties included in Other assets, net
170,948
174,598
Assets securing agreements to repurchase:
Mortgage-backed securities at fair value
Loans held for sale at fair value
Credit risk transfer arrangements:
9,169
12,622
153,742
176,694
Mortgage servicing rights at fair value (2)
1,745,231
1,765,572
Servicing advances (3)
38,930
44,653
Maturities
Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:
Remaining maturity at March 31, 2026 (1)
Unpaidprincipal balance
Within 30 days
4,209,428
Over 30 to 90 days
2,387,866
Over 90 days to 180 days
153,151
Over 180 days to 1 year
55,000
Over 1 year to 2 years
498,766
Weighted average maturity (in months)
2.3
39
Amounts at Risk
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, 2026:
Loans and MSRs
Weighted-average maturity
Amounts at risk
Advances
Facility
488,626
April 29, 2026
December 10, 2027
69,951
June 25, 2026
66,920
April 7, 2026
March 3, 2027
63,918
April 12, 2026
March 13, 2028
Nomura Holdings America, Inc.
73,914
Citibank, N.A.
53,729
July 12, 2026
July 27, 2026
21,268
June 13, 2026
January 19, 2027
JPMorgan Chase & Co.
May 23, 2026
June 28, 2026
23,971
June 2, 2026
August 18, 2027
5,949
May 20, 2026
March 18, 2027
11,212
May 27, 2026
February 22, 2027
Securities
36,286
May 1, 2026
22,623
May 2, 2026
15,649
April 15, 2026
1,200
June 30, 2026
7,181
May 12, 2026
39,757
April 28, 2026
22,788
April 30, 2026
12,066
April 22, 2026
8,485
May 7, 2026
Daiwa Capital Markets America Inc.
4,891
May 5, 2026
2,079
April 23, 2026
CRT arrangements
22,080
April 24, 2026
17,349
Mortgage Loan Participation Purchase and Sale Agreement
One of the borrowing facilities secured by loans held for sale is in the form of a mortgage loan participation purchase and saleagreement. Participation certificates, each of which represents an undivided beneficial ownership interest in loans that have been pooled into a pending securitization with Freddie Mac or Fannie Mae, 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.
40
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:
8,653
5.68
152
49,266
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 TermNotes
Issuance date
Issuance amount
Unpaid principalbalance
Annual interest rate spread (1)
Maturity date
2024 3R
August 28, 2024
158,500
133,723
3.10%
September 27, 2028
2024 2R
April 4, 2024
247,000
207,556
3.35%
March 29, 2027
2024 1R
March 6, 2024
306,000
255,686
3.50%
March 1, 2027
596,965
Fannie Mae MSR Financing
The Company, through two subsidiaries, PMT ISSUER TRUST-FMSR and PMT CO-ISSUER TRUST-FMSR (together, the "Issuer Trusts"), finances MSRs relating to loans serviced for Fannie Mae guaranteed securities comprised of the base MSRs owned by PMC and the related excess servicing spread ("ESS") owned by PennyMac Holdings, LLC (“PMH”), another subsidiary of PMT, through a combination of repurchase agreements and term financing.
The repurchase agreement financings for Fannie Mae MSRs and ESS are effected through the issuance of variable funding notes (a Series 2017-VF1 Note, a Series 2024-VF1 Note, a Series 2024-VF2 Note, and a Series 2025-VF1 Note, together the "FMSR VFNs") by the Issuer Trusts to PMC and PMH in exchange for participation certificates for MSRs and ESS. The FMSR VFNs are then sold by PMC and PMH 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 combined committed borrowing capacity of $1.1 billion under two-year repurchase agreement facilities.
The term financing for Fannie Mae MSRs is effected through the issuance of term notes (the “FT-1 Term Notes”) by the Issuer Trusts 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, FTL-1 Term Loans and the FMSR VFNs are secured by participation certificates relating to Fannie Mae MSRs and ESS. Creditors to the assets sold under agreements to repurchase, the FT-1Term Notes and the FTL-1 Term Notes have equal priority in claims to the collateral held by the Issuer Trusts.
41
Following is a summary of the term financing of the Company’s Fannie Mae MSRs:
Issuance
Stated
Optional extension (2)
Term Loans
2023
May 25, 2023
370,000
3.00%
May 25, 2028
May 25, 2029
Term Notes
2024
June 27, 2024
355,000
2.75%
December 27, 2027
June 26, 2028
725,000
Freddie Mac MSR and Servicing Advance Receivables Financing
The Company, through PMC and PMH, finances certain MSRs (including any related ESS) 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 maturities on various dates through August 2026. 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.
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 PMC may use 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 March 5, 2027 and has a maximum principal amount of $175 million.
Following is a summary of financial information relating to notes payable secured by credit risk transfer and mortgage servicing assets:
2,316,141
2,830,048
6.92
7.59
41,260
55,255
Unpaid principal balance:
Credit risk transfer arrangement financing
608,903
Fannie Mae mortgage servicing rights financing
Freddie Mac mortgage servicing rights and servicing advance receivable financing
1,079,635
927,943
2,401,600
2,261,846
(5,055
(3,718
6.85
6.91
Assets securing notes payable:
Mortgage servicing rights at fair value (1)
Servicing advances (1)
28,675
33,777
815,983
832,640
21,005
20,037
42
Unsecured Senior Notes
Exchangeable Senior Note
The exchangeable senior note is summarized below:
Initial issuance date
Annual interest rate
Exchange rates (1)
Maturity date (2)
May 24, 2024 (3)
366,500
8.50%
63.3332
June 1, 2029
The exchangeable senior notes are exchangeable for: (1) cash for the principal amount of the notes to be exchanged; and (2) cash, Common Shares or a combination of cash and Common Shares, at the Company’s election, for the remainder, if any, of the exchange obligation in excess of the principal amount of the notes being exchanged, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
The exchangeable senior notes are fully and unconditionally guaranteed by the Company.
Senior Notes
The senior notes are summarized below:
Annual interest rate spread
Redemption date (1)
June 2025
105,000
9.00%
June 15, 2030
June 15, 2027
February 2025
February 15, 2030
February 15, 2027
September 2023
53,500
September 30, 2028
September 30, 2025
331,000
Interest on the senior notes is payable quarterly. PMT may redeem for cash all or any portion of the 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 applicable redemption date.
The 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.
43
Following is financial information relating to the unsecured senior notes:
977,333
708,917
7.91
7.23
20,274
13,613
Exchangeable senior notes
711,500
Senior notes
697,500
1,042,500
(12,994
(14,200
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:
8,827,189
2,633,042
5.72
4.63
9,882,623
7,763,364
6.03
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 ending March 31,
2027
2028
2029
2030
2031
Thereafter
Notes payable secured by credit risk transfer and mortgage servicing assets (1)
1,542,877
503,723
539,000
Interest-only security payable at fair value (2)
Asset-backed financings at fair value (2)
13,015,955
557,223
9,916,855
44
Note 16—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
Balance, beginning of quarter
6,886
Provision for losses:
Pursuant to loan sales
310
304
Reduction in liability due to change in estimate
(442
(1,168
Losses incurred
(67
Balance, end of quarter
5,955
UPB of loans subject to representations and warranties at end of quarter
211,156,467
220,977,898
Note 17—Commitments and Contingencies
Commitments
The following table summarizes the Company’s outstanding contractual commitments:
Commitments to purchase loans held for sale from PLS
From time to time, the Company may be involved in various legal and regulatory proceedings, lawsuits and claims 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.
Litigation
On June 14, 2024, a purported shareholder of the Company’s Series A Preferred Shares and Series B Preferred Shares (each, as defined hereafter) filed a complaint in a putative class action in the United States District Court for the Central District of California (the "District Court”), captioned Roberto Verthelyi v. PennyMac Mortgage Investment Trust and PNMAC Capital Management, LLC, Case No. 2:24-cv-05028 (the “Verthelyi Action”). The Verthelyi Action alleges, among other things, that the Company (and its external investment advisor, PCM), committed unlawful and unfair acts in violation of California’s Unfair Competition Law by replacing its floating three-month London Inter-bank Offered Rate ("LIBOR") dividend rate for the Series A and Series B Preferred Shares with a fixed rate, in violation of the LIBOR Act, 12 U.S.C. § 5801 et seq., and the LIBOR Rule, 12 C.F.R. § 253 et seq.
The Verthelyi Action seeks injunctive relief requiring the Company to implement SOFR as a replacement to the three-month LIBOR rate and damages for the putative class in the form of restitution, interest, disgorgement and other relief. The Company believes it has interpreted the Articles Supplementary to its Series A and Series B Preferred Shares consistent with their terms and, more specifically, the interest rate fallback provisions contained therein, as applied under the LIBOR Act and the LIBOR rules, and that the Verthelyi Action is without merit.
On August 20, 2024, the Company filed a Motion to Dismiss that was denied by the District Court in an order dated February 26, 2025. The Company responded by filing a motion to certify the order denying the motion for interlocutory appeal, and on May 5, 2025, the District Court issued an Order Granting Certification for Interlocutory Appeal and Staying Action. The Company subsequently petitioned the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) for permission to appeal, and that petition was granted by the Ninth Circuit in an order dated July 17, 2025. The appeal is fully briefed, arguments were heard and it remains pending.
At this time, the Company does not believe that a loss related to this matter is probable or reasonably estimable. The specific factors that limit the Company’s ability to reasonably estimate a loss or range of losses are the novelty of the legal theories under California’s Unfair Competition Law, the various claims for relief, including injunctive relief, and the early stage of the proceedings and uncertainty of the outcome. Accordingly, no accrual has been recorded in the Company’s consolidated financial statements for this matter. While no assurance can be provided as to the ultimate outcome of this claim, the Company and PCM plan to vigorously defend the matter.
Pursuant to the terms of the Third Amended and Restated Management Agreement, dated as of June 30, 2020, by and between the Company and PCM, the Company has assumed the defense of PCM in the Verthelyi Action.
45
Note 18—Shareholders’ Equity
Preferred Shares of Beneficial Interest
Preferred shares of beneficial interest are summarized below:
Dividends per share, Quarter ended March 31,
Series
Description (1)
Liquidation preference
Issuance discount
(in thousands, except dividends per share)
A
8.125% Issued March 2017
4,600
115,000
3,828
111,172
0.51
B
8.00% Issued July 2017
7,800
195,000
6,465
188,535
0.50
C
6.75% Issued August 2021
10,000
250,000
8,225
241,775
0.42
560,000
18,518
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 is 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, are and will continue being calculated at the dividend rate in effect for the immediately preceding dividend period and will not transition to floating reference rates.
The Series A Preferred Shares became redeemable on March 15, 2024 and the Series B Preferred Shares became redeemable on June 15, 2024. The Series C Cumulative Redeemable Preferred Shares will not be redeemable before August 24, 2026, 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, 2026.
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
On June 14, 2024, the Company filed a shelf registration statement and a prospectus supplement, and entered into separate equity distribution agreements to sell from time to time, through an ATM equity offering program under which the counterparties will act as sales agents and/or principals, the Company’s Common Shares having an aggregate offering price of up to $200 million. As of March 31, 2026, the Company had not sold any Common Shares under the ATM equity offering program.
Common Share Repurchase Program
The Company has a Common Share repurchase program with a repurchase authorization of $500 million before transaction fees and $73.4 million available for further share repurchases.
The Company made no share repurchases during the quarter ended March 31, 2026 and has made cumulative repurchases under the Common Share repurchase program totaling $427.2 million, which includes $582,000 of transaction fees.
Note 19— Net Gains on Loans Held for Sale
Net gains on loans held for sale are summarized below:
From nonaffiliates:
Cash losses:
Sales of loans
(40,257
(1,915
Hedging activities
39,071
(58,062
(1,186
(59,977
Non-cash gains:
Receipt of MSRs in mortgage loan sale transactions
Provision for losses relating to representations and warranties provided in loan sales:
(310
(304
Reduction of liability due to change in estimate
1,168
864
Changes in fair value of loans and derivatives
13,304
(13,444
Hedging derivatives
(24,000
31,703
Total changes in fair value of loans and derivatives
(16,317
22,433
Total non-cash gains
24,096
70,306
Total from nonaffiliates
From PFSI ‒ cash gains
Note 20— Net (Losses) Gains on Investments and Financings
Net (losses) gains on investments and financings are summarized below:
Asset-backed financings
47
Note 21—Net Interest Expense
Net interest expense is summarized below:
Interest income:
Cash and short-term investments
4,976
5,686
56,249
58,234
39,563
33,235
133,759
33,679
Deposits securing CRT arrangements
Placement fees relating to custodial funds
31,448
32,029
1,204
1,553
Interest expense:
Mortgage loan participation purchase and sale agreements
Interest shortfall on repayments of loans serviced for Agency securitizations
4,430
1,429
Interest on loan impound deposits
1,696
1,454
127
Note 22—Share-Based Compensation
The Company’s equity incentive plan provides for the issuance of equity awards to the Company’s officers and trustees, as well as to employees and officers of PFSI and its affiliates and other entities or persons that provide services to the Company.
The equity incentive 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 equity awards to the eligible participants referenced above, and to determine what form the equity awards will take, and the terms and conditions of the equity awards.
The Company’s equity incentive plan allows for the grant of time-based and performance-based restricted share unit equity awards.
The shares underlying equity award grants will again be available for award under the equity incentive plan if:
Restricted share units and performance-based unit equity awards have been awarded to officers and trustees of the Company and to other employees and officers of PFSI and its affiliates 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:
Grants:
Restricted share units
321
199
Performance share units
287
608
367
Grant date fair value:
3,897
2,815
3,492
2,365
7,389
5,180
Vestings:
178
138
Performance share units (1)
101
91
279
229
Forfeitures:
Compensation expense relating to share-based grants
Shares expected to vest:
Number of restricted shares units (in thousands)
432
437
Grant date average fair value per unit
12.72
12.84
Note 23—Income Taxes
The Company’s effective tax rate was 8.5% and 253.7% with consolidated pretax income of $26.9 million and pretax loss of $6.3 million for the quarters ended March 31, 2026 and March 31, 2025, respectively. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax expense of $2.9 million on pretax income of $964,000 for the quarter ended March 31, 2026. For the same period in 2025, the TRS recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million. 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, 2026, the valuation allowance remains zero. The TRS has a significant net deferred tax liability position, which indicates the TRS will utilize all of its deferred tax assets. 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. The 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends which was made permanent under the One Big Beautiful Bill Act of 2025.
Note 24—Earnings (Loss) Per Common Share
The Company determines earnings per Common 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 certain grants of restricted share units that provide the recipients the nonforfeitable right to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of Common Shares.
49
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 period.
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 senior notes described in Note 15— Long-Term Debt. The number of dilutive securities included in diluted earnings per share is calculated using either the treasury stock or if-converted method (whichever is most dilutive) for share-based compensation awards and the if-converted method for the exchangeable senior notes. The number of potentially dilutive securities relating to the exchangeable senior notes is calculated based on the exchange obligation in excess of the principal amount of the exchangeable senior notes as described in Note 15— Long-Term Debt.
The following table summarizes the basic and diluted earnings per share calculations:
(in thousands except per share amounts)
Dividends on preferred shares
Effect of participating securities—share-based compensation awards
(13
Net income attributable to common shareholders
14,148
(814
Weighted average basic and diluted shares outstanding
Basic earnings (losses) per share
Diluted earnings (losses) per share
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:
Shares issuable under share-based compensation plan
461
312
Note 25—Segments
The Company operates in three segments as described in Note 1 ‒ Organization.
The Company’s reportable segments are identified based on PMT’s investment strategies. 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. The reportable segments are evaluated based on income or loss before benefit from income taxes. The chief operating decision maker uses pre-tax segments results to assess segment performance and allocate operating and capital resources among the segments. The Company’s chief operating decision maker is its chief executive officer.
50
Financial highlights by segment are summarized below:
Credit sensitive strategies
Interest rate sensitive strategies
Aggregation and securitization
Reportable segment total
Corporate
Consolidated total
Net investment income (1):
2,191
(5,758
(3,567
Credit risk transfer arrangements
16,102
(39,165
19,229
214,630
39,531
273,390
2,701
18,727
227,557
31,554
277,838
1,912
502
(12,927
7,977
(4,448
789
2,408
2,360
16,556
31,494
33,295
81,345
Expenses:
19,721
10,844
2,657
2,107
802
Other (2)
873
2,367
96
23,503
16,878
40,477
14,762
Pretax income (loss)
16,460
7,991
16,417
40,868
(13,973
Total assets at end of quarter
1,756,200
17,934,880
2,408,670
22,099,750
402,942
51
65,865
2,767
(3,509
(742
62,356
19,549
119,896
33,198
172,643
3,448
18,117
135,332
27,522
180,971
1,166
1,432
(15,436
5,676
(8,328
2,282
3,205
3,064
1,248
19,710
21,225
42,183
21,727
4,880
2,102
1,927
1,034
76
94
496
166
756
2,260
25,184
11,098
36,420
14,344
(5,474
10,127
5,763
(12,062
1,517,529
10,860,903
2,045,113
14,423,545
452,681
14,876,226
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' capital and liquidity amounts and requirements are summarized below:
Net worth (1)
Tangible net worth / total assets ratio (1)
Liquidity (1)
Actual
Required
736,807
565,233
456,161
207,798
682,481
569,435
514,626
211,818
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.
52
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 results of operations 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.
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 aggregation and securitization activities, including mortgage servicing rights (“MSRs”), senior and subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold. We also invest in Agency and senior non-Agency MBS, subordinate and credit-linked MBS, interest-only ("IO") and principal-only ("PO") stripped MBS, and Agency floating rate collateralized mortgage obligations ("CMOs").
We are externally managed by Pennymac Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S. mortgage assets. Our loan acquisitions related to our acquisitions of correspondent loans for our aggregation and securitization activities are facilitated by PennyMac Loan Services, LLC (“PLS”) which also performs servicing activities for our loans and MSRs. 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.
A significant portion of our operations involves Government-Sponsored Enterprises ("GSEs"), specifically the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae"). Freddie Mac and Fannie Mae are each referred to as an “Agency” and, collectively as the "Agencies".
We operate our business in three segments: credit sensitive strategies, interest rate sensitive strategies and aggregation and securitization (formerly referred to as correspondent production). Non-segment activities are included in our corporate operations.
Our segment and corporate activities are described below.
We sell the loans we acquire through our aggregation and securitization activities primarily to the Agencies and also sell loans to other non-affiliate entities. We also securitize certain of our loans directly and retain interests, such as senior and subordinate MBS, from these securitizations.
Our Investment Activities
Credit Sensitive Investments
CRT Arrangements
We have previously entered into loan sales arrangements with Fannie Mae pursuant to which we 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 those loans and comprise the Company’s investments in CRT arrangements.
We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an IO security payable) totaling approximately $1.0 billion at March 31, 2026.
Subordinate Mortgage-Backed Securities
Subordinate MBS provide us with a higher yield than senior MBS. However, we incur credit risk since subordinate MBS are the first securities to absorb credit losses relating to the underlying loans. We purchased $4.0 million of MBS backed by residential transition loans during the quarter ended March 31, 2026. We sold our holdings of the credit-linked securities that we account for as MBS that we purchased from nonaffiliates during the year ended 2025.
As the result of the Company’s consolidation of the variable interest entities ("VIEs") that issued certain of our holdings of subordinate MBS as described in Note 6 – Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities to the consolidated financial statements included in this Report, we reflect our investments in those securities as loans held for investment and reflect the related securities that we sell to nonaffiliates as asset-backed financings. We invested approximately $189.2 million in such non-Agency subordinate MBS during the quarter ended March 31, 2026 and we held approximately $844.1 million of such securities at March 31, 2026.
Interest Rate Sensitive Investments
During the quarter ended March 31, 2026, we received approximately $40.3 million of MSRs as proceeds from sales of loans held for sale. At March 31, 2026, we held MSRs at fair value of approximately $3.6 billion.
Agency, non-Agency and structured MBS
Our investment portfolio includes REIT-eligible Agency MBS and structured products (IO and PO stripped MBS and floating rate CMOs) and senior non-Agency MBS. During the quarter ended March 31, 2026, we sold approximately $477.4 million of our fixed-rate pass-through Agency MBS. At March 31, 2026, the total fair value of these investments was approximately $3.8 billion.
During the quarter ended March 31, 2026, we invested approximately $12.1 million in senior non-Agency MBS from our securitizations of loans secured by investment properties. We account for these investments as loans and reflect the securities we sold to nonaffiliates as asset-backed financings as described above. At March 31, 2026, we held senior non-Agency securities totaling approximately $93.6 million from our securitizations of loans secured by investment properties.
Aggregation and Securitization
Our aggregation and securitization activities involve the acquisition and sale of newly originated prime credit quality residential loans. We acquire loans on a flow basis from correspondent loan sellers facilitated by PLS, as well as through direct bulk purchases of loans from PLS or other nonaffiliate parties. Mortgage aggregation and securitization serves as the source of our investments in MSRs, non-Agency securitizations and, previously, CRT arrangements. Our sales of loans from our aggregation and securitization and investment activities are summarized below:
Sales of loans held for sale:
To nonaffiliates
To PennyMac Financial Services, Inc.
23,051,624
Investments resulting from aggregation and securitization:
Retention of interests in securitizations of loans, net of associated asset-backed financings (1)
201,301
94,021
Receipt of MSRs as proceeds from sales of loans
Total investments resulting from aggregation and securitization activities
241,582
141,030
54
Beginning in July 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such loans to us. Accordingly, we no longer purchase government loans, and we have the right to purchase up to 100% of PLS's non-government delegated correspondent production. During the quarter ended March 31, 2026, we purchased newly originated prime credit quality residential loans with fair values totaling $4.8 billion as compared to $24.0 billion for the quarter ended March 31, 2025, from our aggregation and securitization business.
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 aggregation and securitization 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 held for sale and loans held for investment), our derivatives and CRT strips, our MSRs, and our asset-backed financings and IO 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:
(610
(12,648
(34,166
49,733
Net loan servicing fees‒MSR valuation adjustments (2)
55,343
(81,079
45,273
38,960
Non-cash items as a percentage of net investment income
55
88
We receive or pay cash relating to:
Business Trends
Recent macroeconomic and federal government actions related to trade, tariffs, government cost reduction initiatives, military action, inflation, and interest rates have contributed to volatility in financial markets and uncertainty regarding the economic outlook. Elevated interest rates in recent years have constrained growth in the mortgage origination market, which mortgage industry economists currently project will increase from $1.9 trillion in 2025 to $2.3 trillion in 2026.
The opportunity for refinancing has increased, driven by interest rate volatility and a greater proportion of outstanding mortgages with note rates near current market rates. If such volatility continues, it may lead to higher mortgage production activity and increased prepayment speeds compared to recent years.
The ongoing economic uncertainty and market volatility could result in reduced economic activity and slowing home price growth or depreciation, which may increase mortgage delinquencies or defaults and negatively affect the performance of our credit-sensitive assets, including CRT arrangements and subordinate MBS, as well as 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 moderate the negative effects of credit performance in an economic downturn.
We expect to purchase a portion of PLS's conventional conforming correspondent loans and all non-Agency correspondent loans in the second quarter of 2026. We also expect to continue investing in subordinate MBS generated from non-Agency securitizations, which is expected to increase our asset-back financing of VIEs.
56
The following is a summary of our key performance measures:
(dollar amounts in thousands, except per common share amounts)
Loan production income (1)
25,285
15,496
(88
Pretax income by segment and corporate:
Corporate operations
Annualized return on average common shareholders' equity
4.2
(0.2
)%
Earnings (losses) per common share
Dividends per common share
0.40
Book value per common share
14.98
15.25
Closing price per common share
11.66
12.55
Our results of operations increased by $14.9 million during the quarter ended March 31, 2026, as compared to the quarter ended March 31, 2025, reflecting the effect of increased gains on our CRT-related investments and MSRs partially offset by increased losses on MBS.
The increase in pretax results is summarized below:
Our net investment income is summarized below:
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:
Effect of mortgage servicing rights and hedging results
(67,373
(183,326
Loan Servicing Fees
Following is a summary of our loan servicing fees:
Loan servicing fees are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the unpaid principal balance (“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, as well as incentive fees we receive from the Agencies for loss mitigation activities 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, 2026 is due primarily to the slight reduction in our MSR servicing portfolio, reflecting a reduction in the volume of loans we acquire for sale, as well as a decline in the weighted average servicing fee of the MSRs.
Mortgage Servicing Rights and Hedging
We have elected to carry our MSRs at fair value. Changes in fair value have two components: changes due to realization of the expected servicing cash flows and changes due to changes in the 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 derivative transactions.
Changes in fair value of MSRs and hedging results are summarized below:
Change in fair value of MSRs
Changes in valuation inputs used in valuation model
Recapture income from PFSI
Hedging results
39,513
(94,567
Realization of expected cash flows
Average balance of mortgage servicing rights
3,609,820
3,816,665
Changes in fair value due to changes in valuation inputs used in our valuation model are affected by the magnitude of the interest rate changes and the interest rate and prepayment sensitivities of the MSRs, which are based on the relationship of the interest rates of the underlying mortgages to the level of market interest rates. Changes in fair value due to changes in valuation inputs used in our valuation model during the quarter ended March 31, 2026 reflect the effects of expectations for slower future prepayments of the underlying loans due to increases in interest rates which extended the expected life of the servicing cash flows during the quarter ended March 31, 2026 compared to the same period in 2025.
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. The increase in loan recapture income from PFSI reflects elevated refinancing activity within our MSR portfolio due to declines and volatility in interest rates before the end of the quarter ended March 31, 2026, when interest rates were lower.
Hedging results during the quarter ended March 31, 2026 were primarily attributable to the impact of increasing interest rates as well as the embedded costs of maintaining the hedge positions. Our hedging activities are intended to manage our net exposure across all interest rate sensitive strategies, which include MSRs, MBS and related tax effects.
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 as well as realized prepayment performance.
Following is a summary of our loan servicing portfolio:
UPB of loans outstanding
Collection status (unpaid principal balance)
2,295,456
2,605,536
1,009,465
1,032,221
139,801
118,768
362,786
355,808
Following is a summary of characteristics of our MSR servicing portfolio as of March 31, 2026:
Average
Loan count
Note rate
Seasoning (months)
Remainingmaturity (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:
Freddie Mac
104,697,213
380
3.9
296
276
762
75
0.6
Fannie Mae
102,946,525
3.8
62
288
253
757
1.0
4,554,851
315
301
763
0.8
293
265
760
Net Gains on Loans Held for Sale
Our net gains on loans held for sale are summarized below:
Receipt of MSRs in loan sale transactions
Changes in fair value of financial instruments held at end of quarter:
From PFSI—cash
Interest rate lock commitments issued on loans held for sale (unpaid principal balance):
3,706,378
2,735,356
To PFSI
22,095,355
24,830,711
Acquisition of loans for sale (unpaid principal balance):
445,426
4,296,778
20,223,633
4,742,204
23,005,355
The changes in Net gains on loans held for sale at fair value during the quarter ended March 31, 2026, as compared to the same period in 2025, were primarily driven by higher correspondent lock volumes and margins, including higher volumes of jumbo loans, as well as favorable non-Agency execution.
60
Non-cash elements of gain on sale of loans:
Our Net gains on loans held 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 values of our IRLCs as the loan acquisition process progresses until we complete the acquisitions or the commitments are canceled. Such adjustments are included in our Net gains on loans held for sale at fair value. The fair values of our IRLCs become part of the carrying values of our loans when we complete the purchases of the loans. The methods and key inputs we use to measure the fair values 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 liabilities 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 consolidated statements of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our income.
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 liabilities 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 we provide 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 laws.
In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects, reimburse the investor for its loss or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit losses on the loans. Our credit losses 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 period loan sales of $310,000 and $304,000 for the quarters ended March 31, 2026 and 2025, respectively.
61
Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties:
Indemnification activity (unpaid principal balance):
Loans indemnified at beginning of quarter
16,207
15,289
New indemnifications
675
493
Less: indemnified loans sold, repaid or refinanced
Loans indemnified at end of period
16,882
15,782
Indemnified loans indemnified by correspondent lenders at end of quarter
6,045
UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter
6,108
5,488
Repurchase activity (unpaid principal balance):
Loans repurchased
4,846
Less:
Loans repurchased by correspondent sellers
3,611
4,783
Loans resold or repaid by borrowers
1,286
2,703
Net loans (resolved) repurchased with losses chargeable to liability to representations and warranties
(1,296
(2,640
Losses charged to liability for representations and warranties
67
At end of quarter:
Loans subject to representations and warranties
Liability for representations and warranties
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, severities of loss in the event of default and the probabilities of reimbursement by the correspondent loan sellers. We establish a liability at our estimate of its fair value at the time loans are sold and review the adequacy of our recorded liability on a periodic basis.
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 and guarantor 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 results of operations in future periods.
Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans held for sale at fair value. We recorded a $0.4 million and $1.2 million reduction in liability for representations and warranties during the quarters ended March 31, 2026 and 2025, respectively, 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. Loan origination fees decreased during the quarter ended March 31, 2026, reflecting an overall decrease in our purchase volume of loans for sale. The reduction is related to activity-based expenses, including tax service fees and boarding fees associated with loans held for sale.
The decrease in net gains on investments for the quarter ended March 31, 2026, as compared to the same period in 2025, was primarily due to losses from our investments in MBS as interest rates increased, partially offset by increased gains in our CRT arrangements as credit spreads tightened during the quarter ended March 31, 2026, as compared to the quarter ended March 31, 2025.
During the quarter ended March 31, 2026, we recognized net valuation losses of $33.4 million, as compared to valuation gains of $64.9 million for the same period in 2025. The loss recognized reflects increasing interest rates during the quarter ended March 31, 2026, as compared to decreasing interest rates during the quarter ended March 31, 2025.
Loans Held for Investment at Fair Value – Held in VIEs and Asset-backed Financings at Fair Value
Loans held for investment held in VIEs and Asset-backed financings of variable interest entities at fair value recorded combined net valuation losses of $3.6 million during the quarter ended March 31, 2026, as compared to a net loss of $0.7 million during the quarter ended March 31, 2025. The net loss during the quarter ended March 31, 2026 reflects the losses on the underlying assets exceeding the gains on the asset-backed financing as the result of increasing interest rates, which unfavorably affected the fair value of our net investments.
The activity in and balances relating to our CRT arrangements are summarized below:
63
The performance of our investments in CRT arrangements during the quarter ended March 31, 2026 reflects credit spread tightening during the quarter ended March 31, 2026 as compared to credit spreads widening during the quarter ended March 31, 2025.
Net Interest Expense
Net interest expense: is summarized below:
income/
yield/
expense
cost %
572,549
3.52
517,590
4.47
4,268,685
5.34
4,059,457
5.83
6.13
6.77
5.59
999,630
3.61
1,101,503
4.31
243,439
18,152,425
5.44
142,509
10,302,373
5.63
6.17
6.95
4.74
7.14
7.22
7.94
8.41
7.81
5.54
4.43
273,497
19,933,096
5.56
178,883
12,361,571
5.88
5.69
5.99
The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below:
vs.
Increase (decrease)due to changes in
Rate
Volume
(1,276
566
(710
(4,949
2,964
(1,985
(3,302
9,630
6,328
2,637
97,443
100,080
(1,776
(1,007
(2,783
(8,666
109,596
100,930
(581
(349
100,000
(9,674
19,918
10,244
(61
(60
(121
(4,641
(9,354
(13,995
1,130
5,531
6,661
8,781
83,044
91,825
(4,465
99,079
94,614
3,001
242
(244
97,613
(4,201
10,517
2,387
The decrease in net interest expense during the quarter ended March 31, 2026, as compared to the same period in 2025, is due to an increased volume of interest earning assets held for investment and decreased costs of repurchase agreement financing in relation to the long-lived assets they finance, along with reduced note payable financing of MSRs and CRT arrangements.
Our expenses are summarized below:
Expenses increased $4.5 million, or 9%, during the quarter ended March 31, 2026, as compared to the same period in 2025, as discussed below.
Loan servicing fees payable to PLS are summarized below:
Loan servicing fees decreased by $2.0 million during the quarter ended March 31, 2026, as compared to the same period in 2025, reflecting a decrease in the MSR portfolio as well as reduction in the subservicing fee rate implemented in October 2025, as described in Note 4—Transactions with Related Parties to the consolidated financial statements included in this Report.
Management Fees
Management fees payable to PCM are summarized below:
Base fee
Management fees decreased by $250,000 during the quarter ended March 31, 2026, as compared to the same period in 2025. This decrease reflects the effect of the decrease in our average shareholders’ equity on our base management fee.
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 increased by $0.4 million during the quarter ended March 31, 2026, as compared to the same period in 2025. The increase was due to the increase in the volume of loans purchased for sale to nonaffiliates and an increase in our non-Agency sales and securitizations. Our loan fulfillment fee structure is described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Professional services expense increased by $6.5 million during the quarter ended March 31, 2026, as compared to the same period in 2025, due to increased legal and consulting fees in support of the increase in our securitization activities.
Loan collection and liquidation expenses increased by $155,000 during the quarter ended March 31, 2026, as compared to the same period in 2025, due to increased servicing costs related to delinquent loans serviced for the Agencies' foreclosure avoidance programs.
66
Other Expenses
Other expenses are summarized below:
Bank service charges
1,015
697
Common overhead allocation from PFSI
982
Technology
489
415
Insurance
486
450
409
472
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 operations.
The Company’s effective tax rate was 8.5% and 253.7% with consolidated pretax income of $26.9 million and pretax loss of $6.3 million for the quarters ended March 31, 2026 and March 31, 2025, respectively. The Company’s TRS recognized a tax expense of $2.9 million on pretax income of $964,000 for the quarter ended March 31, 2026. For the same period in 2025, the TRS recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million. 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.
Following is a summary of key balance sheet items as of the dates presented:
Assets
401,647
462,488
54,589
55,943
Mortgage servicing rights and servicing advances
3,703,179
3,741,532
22,112,516
20,954,198
390,176
392,684
Debt:
Short-term
Long-term:
Recourse
3,081,051
3,286,428
Non-recourse
9,937,747
7,826,953
13,018,798
11,113,381
20,319,490
19,131,982
316,646
327,569
Shareholders’ equity
Total assets increased by approximately $1.2 billion, or 5%, from December 31, 2025 to March 31, 2026, primarily due to an increase of $2.3 billion in Loans held for investment at fair value, offset by a reduction of $687.3 million in Mortgage-backed securities at fair value and a decrease of $349.5 million in Loans held for sale at fair value. The increase in Loans held for investments at fair value reflect the Company’s ongoing securitizations of loans in non-Agency securitizations. As described in Note 6 – Variable Interest Entities to the consolidated financial statements included in this Report, such transactions are accounted for as on-balance sheet financings, with the loans included in Loans held for investment at fair value and the securities sold treated as Asset-backed financings of variable interest entities at fair value.
Our asset acquisitions are summarized below:
Following is a summary of our acquisitions of mortgage loans for our aggregation and securitization activities at fair value:
Aggregation and securitization loan purchases:
GSE-eligible loans (1)
3,656,582
12,194,110
1,087,312
348,740
89,615
Government insured or guaranteed (2)
11,449,035
4,833,509
23,991,885
During the quarter ended March 31, 2026, we purchased for sale $4.8 billion in fair value of loans related to our aggregation and securitization activities as compared to $24.0 billion during the quarter ended March 31, 2025. The decrease in loan purchases relates to PFSI's assumption of the role of initial purchaser of correspondent loans starting July 1, 2025 as described in Note 4—Transactions with Related Parties to the consolidated financial statements included in this Report.
Other Investment Activities
Following is a summary of our net acquisitions (sales) of mortgage-related investments held in our credit sensitive strategies and interest rate sensitive strategies segments:
Credit sensitive assets:
Loans secured by owner-occupied properties and jumbo loans, net of associated asset-backed financing (subordinate MBS)
189,240
65,535
Subordinate bond secured by residential transition loans
193,240
Interest rate sensitive assets:
Mortgage servicing rights received in loan sales
Loans secured by owner occupied properties, net of associated asset-backed financing (senior MBS)
12,061
28,486
Agency fixed-rate pass-through securities
(425,018
75,495
(231,778
Our acquisitions during the quarters ended March 31, 2026 and 2025 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.
Following is a summary of our MBS holdings:
Principal/notional
Life (in years)
Coupon
Agency pass-through
5.3
7.1
4.8
6.8
5.0
4.4
0.1
4.1
6.0
9.1
Interest-only stripped securities
7.5
Our Mortgage-backed securities at fair value does not include any mortgage-backed securities held from variable interest entities that we consolidate.
Following is a summary of our investment in CRT arrangements:
Carrying value of CRT arrangements:
Derivative assets - CRT derivatives
Derivative and credit risk transfer strip liabilities- CRT strips
UPB of loans subject to credit guarantee obligations
Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of March 31, 2026:
Year of origination
2020
2019
2018
2017
2016
2015
(in millions)
UPB:
Outstanding
3,949
8,896
2,303
2,011
1,555
18,716
Liquidations:
Balances
13.7
67.5
177.4
129.1
63.2
453.2
Losses
0.2
1.9
22.7
14.0
53.8
Modifications (1):
74.1
590.5
319.3
983.9
2.7
29.6
22.4
54.7
Weighted average:
Original debt-to income ratio
33.5
35.9
39.2
36.8
35.1
36.7
35.8
Origination:
FICO credit score
765
754
735
743
750
749
753
Loan-to value ratio
80.6
83.3
83.5
82.6
76.9
82.4
Current loan-to value ratio (2)
48.3
48.2
46.4
41.5
37.1
36.1
Distribution by state
California
425
902
299
314
2,164
Florida
430
291
208
160
1,933
Texas
182
171
186
1,753
Virginia
214
398
85
90
107
894
157
386
2,269
5,606
1,339
1,202
685
11,102
Regional geographic distribution (1)
Southeast
3,022
816
683
479
6,339
West
859
1,876
588
451
455
4,230
Southwest
1,009
1,939
395
280
4,053
Northeast
375
1,129
273
294
200
2,272
Midwest
930
196
188
1,822
70
Collection status
Current - 89 Days
8,816
2,250
1,985
1,547
18,531
90 - 179 Days
180+ Days
Our cash flows for the quarters ended March 31, 2026 and 2025 are summarized below:
Operating activities
Investing activities
Financing activities
Net cash flows
Our cash flows resulted in a net decrease in cash of $58.0 million during the quarter ended March 31, 2026, as discussed below.
Cash used in operating activities totaled $2.5 billion during the quarter ended March 31, 2026, as compared to cash used in our operating activities of $594.3 million during the quarter ended March 31, 2025. Cash flows from operating activities are influenced by cash flows from loans held for sale as shown below:
Operating cash flows from:
(2,619,907
(945,106
90,541
350,839
The primary source of negative operating cash flow from loans held for sale relates to the transfer of loans to held for investment pursuant to our securitization activities. The securitization of portions of our aggregation and securitization activities and cash received from such securitizations is accounted for as a financing activity. We may sell these loans based on market conditions before committing to securitize the loans.
Net cash provided by our investing activities was $1.3 billion for the quarter ended March 31, 2026, driven by significant sales of MBS, as compared to net cash provided by our investing activities of $40.2 million for the quarter ended March 31, 2025.
Net cash provided by our financing activities was $1.2 billion for the quarter ended March 31, 2026, as compared to net cash provided by our financing activities of $464.3 million for the quarter ended March 31, 2025. This change primarily reflects the increase in borrowings required to finance newly created investments from our ongoing securitization efforts during the quarter ended March 31, 2026.
As discussed below in Liquidity and Capital Resources, we continually evaluate 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.
Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from PLS, 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.
We expect to continue investing in subordinate MBS generated from non-Agency securitizations which are also expected to increase our VIEs' asset-backed financings.
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.
A substantial portion of our balance sheet includes assets that are shown as their underlying assets as opposed to the securitized form in which they are held. These assets and the reason for their accounting treatment are discussed in Note 6—Variable Interest Entities to the consolidated financial statements included in this Report. The following table adjusts the presentation of our balance sheet to a more creditor-aligned view of the relationship of our debt to the assets in the securitized form those assets are financed. The adjusted balance sheet information should not be considered in isolation or as a substitute for an analysis of our results as presented in compliance with GAAP.
Financing
Consolidated
Adjustments for VIE Financing (2)
Excluding VIE Financing
Assets sold under agreements torepurchase
Notes payable secured by CRTarrangements and MSRs
(in thousands except for debt-to equity amounts)
Agency-backed securities
3,623,083
3,589,576
Senior non-agency securities
134,415
2,800
Credit risk transfer securities relating to consolidated variable interest entities
115,606
595,633
711,239
Non-agency securities relating to consolidated variable interest entities
837,462
746,063
1,799,067
5,564,606
4,588,460
5,184,093
2,179,518
(10,866,292
(30,174
24,415
(969,725
125,315
3,828,494
532,714
1,800,912
2,333,626
(9,941,809
12,170,707
9,697,237
Total assets and secured financing
12,560,883
Unsecured debt
Debt excluding non-recourse
10,381,743
Debt in consolidated variable interest entities (2)
Total debt (3)
Equity
Debt-to equity ratio:
Excluding non-recourse debt (4)
5.6:1
Total (5)
10.9:1
73
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:
Average balance outstanding
Maximum daily balance outstanding
Ending balance (UPB)
6,210,008
The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales related to our aggregation and securitization activities. The total facility size of our Assets sold under agreements to repurchase was approximately $13.0 billion at March 31, 2026.
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:
All repurchase agreements that matured between March 31, 2026 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, 2026:
Amount at risk
106,237
89,543
79,567
75,114
60,910
43,348
42,705
41,320
28,737
1,094,840
74
Exchangeable Senior Notes
In May and June 2024, PMC issued $216.5 million aggregate principal amount of 8.5% Exchangeable Senior Notes due 2029 that mature on June 1, 2029 (the “exchangeable senior notes”). On December 15, 2025 and December 22, 2025, PMC separately issued $75 million principal amount (for a total of $150 million principal amount) of exchangeable senior notes. The exchangeable senior notes issued in the December 2025 offerings were issued as further reopenings of, and are part of the same series with, the exchangeable senior notes that PMC previously issued in May and June 2024. Upon completion of the December 2025 offerings, the aggregate principal amount of outstanding exchangeable senior notes was $366.5 million.
In September 2023, the Company issued $53.5 million principal amount of unsecured 8.50% senior notes due September 30, 2028 (the “2028 Senior Notes”). In February 2025, the Company issued $172.5 million principal amount of unsecured 9.00% senior notes due February 15, 2030 and in June 2025, the Company issued $105 million principal amount of unsecured 9.00% senior notes due June 15, 2030 (collectively, the “2030 Senior Notes”). The 2028 Senior Notes may be redeemed on or after September 30, 2025, the 2030 Senior Notes issued in February 2025 may be redeemed on or after February 15, 2027 and the 2030 Senior Notes issued in June 2025 may be redeemed on or after June 15, 2027, in each case at 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date. The 2028 Senior Notes and the 2030 Senior Notes are referred to collectively as the “Senior Notes”. No “sinking fund” will be provided for the Senior Notes.
The 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 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 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:
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:
Mortgage servicing rights at fair value
3,748,984
Other assets
626,525
From PFSI
18,763
From non-issuer or non-guarantor subsidiaries (1)
445,350
7,189,517
Payable to nonaffiliates
2,043,537
Payable to PFSI
5,079,387
Payable to non-issuer or non-guarantor subsidiaries
14,858
7,137,782
130,330
(106,541
29,596
16,862
28,700
45,562
Pre-tax income
(15,966
Provision for income taxes
(4,127
(11,839
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:
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:
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 their approved single-family issuers, and Ginnie Mae has also issued risk-based capital requirements. We believe that we and our servicer, PLS, are in compliance with the applicable FHFA and Ginnie Mae requirements as of March 31, 2026.
We continue 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
As of March 31, 2026, 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.
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, 2025 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 held 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, including those consolidated on our balance sheet as loans held for investment and asset-backed financing. 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.
The following table summarizes the estimated change in fair value of our mortgage-backed securities as of March 31, 2026, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:
Interest rate shift in basis points
-200
-75
-50
Change in fair value
179,162
128,047
91,559
(107,215
(164,335
(471,301
The following tables summarize the estimated change in fair value of MSRs as of March 31, 2026, 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%
Option-adjusted spread
167,914
81,911
40,461
(39,505
(78,085
(152,590
Prepayment speed
215,518
104,187
51,246
(49,635
(97,738
(189,634
63,164
31,582
15,791
(15,791
(31,582
(63,164
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
-25
100
31,788
15,680
7,788
(7,689
(15,274
(30,154
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%
5%
10%
15%
(8,843
(5,340
(2,448
2,083
3,832
5,300
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, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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. See Note 17 — Commitments and Contingencies, to the consolidated financial statements included in this Report for a discussion of legal actions, claims and proceedings that are incorporated by reference into this Item 1.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 18, 2026.
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, 2026.
The following table provides information about our repurchases of common shares of beneficial interest (“Common Shares”) during the quarter ended March 31, 2026:
Period
Totalnumber ofsharespurchased
Averageprice paidper share
Total number ofsharespurchased aspart of publiclyannounced plansor programs (1)
Amountavailable forfuture sharerepurchasesunder theplans orprograms (1)
(in thousands, except average price paid per share)
January 1, 2026 – January 31, 2026
73,353
February 1, 2026 –February 28, 2026
March 1, 2026 – March 31, 2026
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
(c) Trading Plans
As of March 31, 2026, the following trustees or Section 16 officers adopted, modified or terminated the following Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K):
On March 19, 2026, Greg Hendry, the Company’s Chief Accounting Officer, adopted a trading plan to sell up to 12,218 shares of the Company’s Common Shares. The trading plan will expire on December 31, 2026. Mr. Hendry’s trading plan was entered into during an open insider trading window and is intended to satisfy Rule 10b5-1(c) under the Exchange Act and the Company’s policies regarding insider transactions.
During the quarter ended March 31, 2026, none of our trustees or officers (as defined in Rule 16a-1(f)), informed us of the adoption, modification, or termination of any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (in each case, as defined in Item 408(a) 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.
June 30, 2017
3.5
Articles Supplementary classifying and designating the 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest.
August 20, 2021
10.1†
Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (2026).
*
10.2†
Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (Non-Employee Trustee) (2026).
10.3†
Form of Performance Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (2026).
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.
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 (ii) the Consolidated Statements of Operations for the quarter ended March 31, 2026 and March 31, 2025, (iii) the Consolidated Statements of Changes in Shareholders' Equity for the quarter ended March 31, 2026 and March 31, 2025, (iv) the Consolidated Statements of Cash Flows for the quarter ended March 31, 2026 and March 31, 2025 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 5, 2026
By:
/s/ David A. Spector
David A. Spector
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Daniel S. Perotti
Daniel S. Perotti
Senior Managing Director and Chief Financial Officer
(Principal Financial Officer)
81