Table of Contents
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 September 30, 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: 001-38727
PennyMac Financial Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware
83-1098934
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
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 Stock, $0.0001 par value
PFSI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 October 30, 2026
51,958,163
PENNYMAC FINANCIAL SERVICES, INC.
FORM 10-Q
September 30, 2026
TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Statements
3
PART I. FINANCIAL INFORMATION
6
Item 1.
Financial Statements (Unaudited):
Consolidated Balance Sheets
Consolidated Statements of Income
7
Consolidated Statements of Changes in Stockholders’ Equity
8
Consolidated Statements of Cash Flows
9
Notes to Consolidated Financial Statements
11
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
61
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
81
Item 4.
Controls and Procedures
82
PART II. OTHER INFORMATION
83
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
84
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“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, plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include, but are not limited to, 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 several 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, 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 20, 2026 and in our other SEC filings.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
4
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, results of operations 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.
5
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30,
December 31,
2026
2025
(in thousands, except share amounts)
ASSETS
Cash
$
233,351
301,680
Short-term investments at fair value
412,522
410,037
Principal-only stripped mortgage-backed securities at fair value pledged to creditors
514,601
722,528
Loans held for sale at fair value ($6,806,831 and $8,983,503 pledged to creditors)
6,899,041
9,123,410
Derivative assets with non-affiliates
474,241
185,518
Derivative assets with PennyMac Mortgage Investment Trust
16,456
2,257
Servicing advances, net (valuation allowance of $140,897 and $103,574; $403,929 and $406,825 pledged to creditors)
604,237
589,542
Mortgage servicing rights at fair value ($11,285,223 and $9,367,851 pledged to creditors)
11,639,077
9,598,941
Investment in PennyMac Mortgage Investment Trust at fair value
591
941
Receivable from PennyMac Mortgage Investment Trust
20,295
17,122
Loans eligible for repurchase
8,225,654
7,409,800
Other ($29,484 and $10,393 pledged to creditors)
872,020
1,026,913
Total assets
29,912,086
29,388,689
LIABILITIES
Assets sold under agreements to repurchase
8,088,489
8,794,002
Mortgage loan participation purchase and sale agreements
677,877
696,618
Notes payable secured by mortgage servicing assets
1,640,951
1,326,021
Unsecured senior notes
4,839,843
4,831,742
Derivative liabilities with non-affiliates
204,554
9,559
Derivative liabilities with PennyMac Mortgage Investment Trust
5,667
6,247
Accounts payable and accrued expenses
502,449
645,468
Payable to PennyMac Mortgage Investment Trust
77,652
116,585
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement
24,757
Income taxes payable
1,229,299
1,184,020
Liability for loans eligible for repurchase
Liability for losses under representations and warranties
38,311
34,894
Total liabilities
25,555,503
25,079,713
Commitments and contingencies – Note 18
STOCKHOLDERS’ EQUITY
Common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 51,956,403, and 52,061,346 shares, respectively
Additional paid-in capital
59,142
96,870
Retained earnings
4,297,436
4,212,101
Total stockholders' equity
4,356,583
4,308,976
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarter ended September 30,
Nine months ended September 30,
(in thousands, except earnings per share)
Revenues
Net gains on loans held for sale at fair value:
From non-affiliates
192,793
297,001
796,251
740,784
From PennyMac Mortgage Investment Trust
(2,566)
17,454
19,280
29,367
190,227
314,455
815,531
770,151
Loan origination fees:
46,926
61,138
188,890
165,861
—
558
1,537
61,696
167,398
Fulfillment fees from PennyMac Mortgage Investment Trust
3,206
6,162
13,966
17,266
Net loan servicing fees:
Owned servicing:
Loan servicing fees
479,141
460,360
1,419,282
1,313,564
Other fees
47,558
53,734
133,870
152,291
526,699
514,094
1,553,152
1,465,855
Change in fair value of mortgage servicing rights and mortgage servicing liabilities
661,430
(392,174)
284,930
(1,070,300)
Mortgage servicing rights hedging results
(947,672)
98,306
(1,340,540)
95,978
(286,242)
(293,868)
(1,055,610)
(974,322)
Net loan servicing fees - owned servicing
240,457
220,226
497,542
491,533
Subservicing:
20,449
21,012
59,812
64,386
949
3,152
Total subservicing fees
21,398
62,964
Net loan servicing fees
261,855
241,238
560,506
555,919
Net interest expense:
Interest income
210,421
248,753
661,052
660,553
Interest expense
253,902
249,900
774,334
697,559
Net interest expense
(43,481)
(1,147)
(113,282)
(37,006)
Management fees from PennyMac Mortgage Investment Trust
6,762
6,912
20,334
20,793
Results of real estate acquired in settlement of loans
(2,171)
(981)
(6,253)
(1,159)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust
(225)
(15)
(260)
65
Repricing of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement
1,092
Other
5,676
4,578
31,292
14,012
Total net revenues
468,775
632,898
1,510,724
1,508,531
Expenses
Compensation
213,384
205,314
652,597
574,843
Loan origination
69,263
69,407
242,814
182,339
Technology
52,500
44,772
143,074
127,226
Servicing
39,196
29,105
119,934
79,266
Marketing and advertising
14,188
14,016
52,163
35,837
Professional services
13,255
10,145
43,545
27,562
Occupancy and equipment
10,430
8,604
31,119
25,365
15,161
46,715
39,081
Total expenses
426,228
396,524
1,331,961
1,091,519
Income before provision for income taxes
42,547
236,374
178,763
417,012
Provision for income taxes
13,893
54,871
46,061
22,766
Net income
28,654
181,503
132,702
394,246
Earnings per share
Basic
0.55
3.51
2.55
7.64
Diluted
0.54
3.37
2.48
7.34
Weighted average shares outstanding
51,953
51,730
52,005
51,635
53,134
53,879
53,424
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Quarter ended September 30, 2026
Additional
Total
Number of
Par
paid-in
Retained
stockholders'
shares
value
capital
earnings
equity
(in thousands)
Balance, June 30, 2026
51,944
52,210
4,284,671
4,336,886
Stock-based compensation
6,846
Issuance of common stock in settlement of directors' fees
1
86
Common stock dividend ($0.30 per share)
(15,889)
Balance, September 30, 2026
51,956
Quarter ended September 30, 2025
Balance, June 30, 2025
51,672
76,991
3,955,504
4,032,500
252
14,370
58
(15,806)
Repurchase of common stock
(50)
(4,739)
Balance, September 30, 2025
51,875
86,680
4,121,201
4,207,886
Nine months ended September 30, 2026
Balance, December 31, 2025
52,061
452
12,004
279
Common stock dividends ($0.90 per share)
(47,367)
(560)
(50,011)
Nine months ended September 30, 2025
Balance, December 31, 2024
51,377
56,072
3,773,574
3,829,651
546
35,174
173
(46,619)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cash flow from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Net gains on loans held for sale at fair value
(815,531)
(770,151)
(284,930)
1,070,300
1,340,540
(95,978)
Accrual of unearned discounts on principal-only stripped mortgage-backed securities
5,320
(31,676)
Capitalization of interest on loans held for sale
(4,165)
(1,839)
Amortization of debt issuance costs
27,343
24,835
Results of real estate acquired in settlement in loans
6,253
1,159
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust
350
24
(1,092)
Stock-based compensation expense
13,356
28,531
Provision for servicing advance losses
65,536
22,100
Depreciation and amortization
41,850
41,583
Impairment of capitalized software
1,576
4,333
Amortization of operating lease right-of-use assets
13,029
10,555
Purchase of loans held for sale from non-affiliates
(69,605,430)
(26,920,281)
Origination of loans held for sale
(27,731,367)
(18,739,010)
Purchase of loans held for sale from PennyMac Mortgage Investment Trust
(52,856,500)
Purchase of loans from Ginnie Mae securities and early buyout investors
(3,322,729)
(3,412,426)
Sale to non-affiliates and principal payment of loans held for sale
89,363,924
95,792,613
Sale of loans held for sale to PennyMac Mortgage Investment Trust
12,702,942
5,673,014
Repurchase of loans subject to representations and warranties
(88,087)
(77,071)
(Increase) decrease in servicing advances
(240,485)
7,508
Increase in receivable from PennyMac Mortgage Investment Trust
(14,365)
(16,256)
Sale of real estate acquired in settlement of loans
67,890
53,576
Decrease (increase) in other assets
163,127
(53,288)
(Decrease) increase in accounts payable and accrued expenses
(165,490)
117,010
Decrease in operating lease liabilities
(12,110)
(13,846)
Decrease in payable to PennyMac Mortgage Investment Trust
(50,832)
(35,099)
Increase in income taxes payable
45,278
20,395
Net cash provided by operating activities
1,655,495
237,269
Statements continue on the next page
(Continued)
Cash flow from investing activities
(Increase) decrease in short-term investment
(2,485)
358,325
Repayment of principal-only stripped mortgage-backed securities
146,421
119,258
Net settlement of derivative financial instruments used for hedging of mortgage servicing rights
(1,349,779)
143,439
(Adjustment to sale) sale of mortgage servicing rights to non-affiliates
(6,429)
165,162
Sale of mortgage servicing rights to PennyMac Mortgage Investment Trust
14,415
1,895
Acquisition of capitalized software
(41,193)
(24,484)
Purchase of furniture, fixtures, equipment and leasehold improvements
(9,679)
(3,751)
Decrease (increase) in margin deposits
52,201
(133,835)
Net cash (used in) provided by investing activities
(1,196,528)
626,009
Cash flow from financing activities
Sale of assets under agreements to repurchase
102,173,917
101,562,221
Repurchase of assets sold under agreements to repurchase
(102,877,178)
(103,118,313)
Issuance of mortgage loan participation purchase and sale certificates
19,269,286
18,936,637
Repayment of mortgage loan participation purchase and sale certificates
(19,287,793)
(18,733,607)
Issuance of notes payable secured by mortgage servicing assets
690,000
525,000
Repayment of notes payable secured by mortgage servicing assets
(375,000)
(1,250,000)
Issuance of unsecured senior notes
2,350,000
Repayment of unsecured senior notes
(650,000)
Payment of debt issuance costs
(21,798)
(57,062)
Issuance of common stock by exercise of stock options
4,858
10,406
Payment of withholding taxes relating to stock-based compensation
(6,210)
(3,763)
Payment of dividends to holders of common stock
Net cash used in financing activities
(527,296)
(479,839)
Net (decrease) increase in cash
(68,329)
383,439
Cash at beginning of period
238,482
Cash at end of period
621,921
Supplemental cash flow information:
Cash paid for interest
777,105
700,541
Cash paid for income taxes, net
783
2,371
Non-cash investing activities:
Mortgage servicing rights received from loan sales
1,763,278
2,165,213
Unsettled portion of MSR sales
18,352
Operating right-of-use assets recognized
32,561
13,622
Non-cash financing activities:
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization
PennyMac Financial Services, Inc. (together, with its consolidated subsidiaries, unless the context indicates otherwise, “PFSI” or the “Company”) is a holding corporation and its primary assets are equity interests in Private National Mortgage Acceptance Company, LLC (“PNMAC”). The Company is the managing member of PNMAC, and it operates and controls all of the businesses and consolidates the financial results of PNMAC and its subsidiaries.
PNMAC is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PNMAC’s mortgage banking activities consist of residential mortgage loan production and servicing. PNMAC’s investment management activities and a portion of its mortgage banking activities are conducted on behalf of PennyMac Mortgage Investment Trust, a real estate investment trust that invests in residential mortgage-related assets and is separately listed on the New York Stock Exchange under the ticker symbol “PMT”. PNMAC’s primary wholly owned subsidiaries are:
PLS is approved as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”) and as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). PLS is a licensed Federal Housing Administration Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the U.S. Department of Veterans Affairs and U.S. Department of Agriculture (each of the above an “Agency” and collectively the “Agencies”).
Pending Acquisition
On February 10, 2026, the Company entered into an agreement to acquire the subservicing business of Cenlar Capital Corporation (“Cenlar”) in an all-cash transaction. The agreement was amended in August 2026 to extend the closing date and establishes a base cash purchase price of $172.5 million subject to certain purchase price adjustments primarily related to the value of certain assets and book value at closing, additional consideration associated with an extension of the closing date, and up to $85 million of contingent earnout consideration payable over three years based on subservicing loan volumes.
Cenlar’s subservicing business consists primarily of subservicing contracts for approximately 100 institutional clients. The transaction is expected to close in the first quarter of 2027, subject to customary closing conditions, including required regulatory approvals. There can be no assurance that the transaction will close as expected or at all.
Note 2—Basis of Presentation
The accompanying 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 Accounting Standards Codification for interim financial information and with the SEC’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these consolidated 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 year ended December 31, 2025.
The accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods presented, but are not necessarily indicative of income that may be expected for the full year ending December 31, 2026. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires the Company to make judgments and 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. Actual results will likely differ from those estimates.
Note 3—Concentration of Risk
A portion of the Company’s activities relate to PMT. Revenues generated from PMT (generally comprised of gains on loans held for sale, loan origination and fulfillment fees, loan servicing fees, management fees, change in fair value of investment in and dividends received from PMT, and expense allocations charged to PMT) totaled 6% and 9% of total net revenues for the quarters ended September 30, 2026 and 2025, and 8% and 9% for the nine months ended September 30, 2026 and 2025, respectively.
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—Variable Interest Entities
The Company entered into securitization transactions in which PLS transfers participation certificates in its Ginnie Mae and Fannie Mae MSRs to variable interest entities (“VIEs”) that issued variable funding notes (“VFNs”) to PLS and term debt backed by the participation certificates. PLS finances the VFNs by selling them under agreements to repurchase. The Company acts as guarantor of the VFNs and term debt. The Company determined that it is the primary beneficiary of the VIEs because as the holder of the VFNs and guarantor of the VFNs and term debt, it holds the variable interests in the VIEs. Therefore, PFSI consolidates the VIEs.
For financial reporting purposes, the MSRs financed by the consolidated VIEs are included in Mortgage servicing rights at fair value, the financing of VFNs is included in Assets sold under agreements to repurchase and the term debt is included in Notes payable secured by mortgage servicing assets on the Company’s consolidated balance sheets. This financing is described in Note 14 – Short-Term Debt and Note 15 – Long-Term Debt.
Note 5—Related Party Transactions
PennyMac Mortgage Investment Trust
Operating Activities
Mortgage Loan Production Activities and MSR Recapture
Mortgage Loan Purchase Agreement
The Company may sell newly originated loans to PMT under a mortgage loan purchase agreement. The Company has typically utilized the mortgage loan purchase agreement for the purpose of selling to PMT conforming balance non-government insured or guaranteed loans, as well as prime jumbo residential mortgage loans.
12
Under the mortgage loan purchase agreement, PMT has the right to purchase up to 100% of the non-government insured or guaranteed loans purchased by the Company through its correspondent channel at the Company’s cost plus accrued interest, less any loan administrative fees paid to the Company by the correspondent sellers and subject to quarterly fulfillment fees as described below. The Company may hold or otherwise sell correspondent loans to other investors, or to PMT at a later date, if PMT chooses not to initially purchase such loans through the correspondent channel.
MSR Recapture Agreement
Pursuant to the terms of an MSR recapture agreement by and between the Company and PMT, if the Company refinances (recaptures) mortgage loans for which PMT holds the MSRs, the Company is generally required to transfer and pay PMT 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” 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” 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. The Company has further agreed to allocate resources sufficient 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.
Mortgage Banking Services Agreement
The Company has a mortgage banking services agreement with PMT. Under the mortgage banking services agreement, the Company provides PMT with certain mortgage banking services, including fulfillment and disposition-related services, for which it receives a monthly fulfillment fee. The mortgage banking services agreement was renewed and amended to provide for the Company to assume the role of initial correspondent loan purchaser, in place of PMT, effective July 1, 2025. As a result of the new structure, the sourcing fee arrangement described below no longer has any effect for commitments to purchase correspondent loans made on or after July 1, 2025.
Fulfillment Services
Pursuant to the terms of a mortgage banking services agreement, the fulfillment fees shall not exceed the following:
13
Sourcing Fees
PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae mortgage-backed securities (“MBS”) and act as a servicer. Accordingly, through June 30, 2025, under the agreement, the Company purchased mortgage loans underwritten in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from PMT at PMT’s cost less an administrative fee plus accrued interest and 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 loan was held by PMT before purchase by the Company.
While the Company purchased these mortgage loans “as is” and without recourse of any kind from PMT, where the Company 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 PMT.
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.
Following is a summary of loan production and MSR recapture activities, between the Company and PMT:
Net (loss) gains on loans held for sale at fair value:
Net gains on loans sold to PMT (primarily cash)
382
20,799
32,892
35,394
Mortgage servicing rights recapture incurred
(2,948)
(3,345)
(13,612)
(6,027)
Sale of loans held for sale to PMT
3,324,262
3,983,322
UPB of loans recaptured
226,618
205,054
1,258,774
547,577
Tax service fees earned from PMT included in Loan origination fees
Fulfillment fee revenue
UPB of loans sold to and fulfilled for PMT subject to fulfillment fees
1,198,776
3,343,181
6,559,831
9,210,743
Sourcing fees included in cost of loans purchased from PMT
531
5,204
Unpaid principal balance of loans purchased from PMT:
Government guaranteed or insured
3,081,974
27,060,094
Conventional conforming
2,322,914
24,984,726
5,404,888
52,044,820
14
Servicing Agreement
The Company and PMT have entered into a loan servicing agreement (the “Servicing Agreement”), pursuant to which the Company provides subservicing for PMT’s MSRs and its portfolio of residential mortgage loans in exchange for servicing fees as described below:
Following is a summary of loan servicing fees earned from PMT:
Base fees
17,337
19,032
52,460
57,386
3,112
1,980
7,352
7,000
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.
Management Agreement
The Company has a management agreement with PMT (“Management Agreement”), pursuant to which the Company oversees PMT’s business affairs and for which PFSI collects a base management fee and may collect a performance incentive fee. The Management Agreement provides that:
15
For the purpose of determining the amount of the performance incentive fee:
“Net income” is defined as net income or loss attributable to PMT’s common shares of beneficial interest computed in accordance with GAAP adjusted for certain non-cash charges determined after discussions between the Company and PMT’s independent trustees and approval by a majority of PMT’s independent trustees.
“Common shareholders’ equity” is defined as shareholders’ equity less the average value of PMT’s preferred equity determined in accordance with GAAP.
“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 performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amount required for the Company to earn a performance incentive fee is adjusted cumulatively based on the performance of PMT’s net income over (or under) the Target Yield, until the net income in excess of the Target Yield exceeds the then-current cumulative high watermark amount, 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 performance incentive fee may be paid in cash or a combination of cash and PMT’s common shares of beneficial interest (subject to a limit of no more than 50% paid in common shares of beneficial interest), at PMT’s option.
In the event of termination of the Management Agreement between PMT and the Company, the Company 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 the Company, in each case during the 24-month period immediately preceding the date of termination.
Following is a summary of the base management and performance incentive fees earned from PMT:
Base management fees
Performance incentive fees
Average PMT shareholders' equity used to calculate base management fees
1,788,469
1,828,365
1,812,550
1,853,613
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.
16
Expense Reimbursement
Under the Management Agreement, PMT reimburses the Company for its organizational and operating expenses, including third-party expenses, incurred on PMT’s behalf, it being understood that the Company 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 PMT. PMT is also required to pay its pro rata portion of the rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Company and its affiliates required for PMT’s and its subsidiaries’ operations. These expenses are based on the resources the Company dedicates to investment management activities for PMT, as determined by the Company in its reasonable and good faith discretion.
The Company received reimbursements from PMT for expenses as follows:
Reimbursement of:
Expenses incurred on PMT's behalf, net
5,336
6,873
15,734
16,437
Overhead incurred by the Company
1,629
5,920
4,886
1,599
982
4,797
2,945
7,884
9,484
26,451
24,268
Payments and settlements during the period (1)
12,680
27,709
44,024
88,385
Investing Activities
Following is a summary of investing activities between the Company and PMT:
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust shares
Sale of mortgage servicing rights to PMT
4,123
Common shares of beneficial interest of PennyMac Mortgage Investment Trust:
Fair value
Number of shares
75
17
Receivable from and Payable to PMT
Amounts receivable from and payable to PMT are summarized below:
Receivable from PMT:
Servicing fees
7,477
6,669
Management fees
6,856
Allocated expenses and expenses incurred on PMT's behalf
6,056
3,161
Aggregation and securitization activities
436
Payable to PMT:
Amounts advanced by PMT to fund its servicing advances
63,064
97,485
14,588
19,100
Exchanged Private National Mortgage Acceptance Company, LLC Unitholders
The Company entered into a tax receivable agreement with certain former owners of PNMAC that provides for the payment from time to time by the Company to PNMAC’s exchanged unitholders of an amount equal to 85% of the amount of the net tax benefits, if any, that the Company is deemed to realize as a result of (i) increases in tax basis of PNMAC’s assets resulting from exchanges of ownership interests in PNMAC and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.
The Company has recorded a $24.8 million Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement as of September 30, 2026 and December 31, 2025. The Company did not make payments under the tax receivable agreement during the nine months ended September 30, 2026 and 2025.
.
Note 6—Loan Sales and Servicing Activities
Loan Sales
The Company originates, purchases and sells loans in the secondary mortgage market without recourse for credit losses. However, the Company maintains continuing involvement with the loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the loans.
The following table summarizes cash flows between the Company and transferees as a result of the sale of loans in transactions where the Company maintains continuing involvement with the loans:
Cash flows:
Sales proceeds
23,372,552
33,549,142
Servicing fees received
453,608
425,390
1,323,256
1,233,153
18
The following table summarizes the UPB of the loans sold by the Company in transactions where it maintains continuing involvement:
Unpaid principal balance of loans outstanding
483,597,939
448,035,447
Delinquent loans:
30-89 days
17,568,288
18,000,680
90 days or more:
Not in foreclosure
11,283,722
9,759,483
In foreclosure
2,016,569
1,372,545
Foreclosed
4,464
4,076
Loans in bankruptcy
2,417,966
1,968,188
Loan Servicing
The following tables summarize the Company’s loan servicing portfolio as measured by UPB:
rights owned
Subservicing
loans serviced
Investor:
Non-affiliated entities:
Originated
Purchased
12,840,389
Subserviced
11,299,508
496,438,328
507,737,836
PennyMac Mortgage Investment Trust (1)
221,974,448
Loans held for sale
6,995,211
503,433,539
233,273,956
736,707,495
30 days
13,354,710
2,057,544
15,412,254
60 days
4,741,239
604,933
5,346,172
11,464,856
1,069,773
12,534,629
2,063,762
155,142
2,218,904
7,026
3,563
10,589
31,631,593
3,890,955
35,522,548
2,489,667
423,247
2,912,914
Custodial funds managed by the Company (2)
8,365,637
3,330,465
11,696,102
19
December 31, 2025
13,999,998
Subserviced (1)
35,873,833
462,035,445
497,909,278
226,774,067
8,930,477
470,965,922
262,647,900
733,613,822
13,205,704
3,056,477
16,262,181
5,357,188
962,007
6,319,195
9,944,189
1,734,551
11,678,740
1,414,544
184,343
1,598,887
6,229
3,121
9,350
29,927,854
5,940,499
35,868,353
2,039,686
566,890
2,606,576
8,429,523
2,758,179
11,187,702
Following is a summary of the geographical distribution of loans included in the Company’s loan servicing portfolio for the top five and all other states as measured by UPB:
State
California
83,987,256
83,261,751
Texas
75,112,961
73,599,588
Florida
69,549,405
69,872,447
Virginia
36,848,355
38,282,502
Georgia
30,276,853
30,528,228
All other states
440,932,665
438,069,306
The Company is contractually responsible for making the payments required to protect the loans’ beneficial interest holders’ interests in the properties collateralizing their loans and may be required to advance amounts in excess of insurer or guarantor reimbursement limits. Therefore, the Company provides a valuation allowance on the servicing advances for these amounts to adjust their carrying values to amounts that are expected to ultimately be recovered from the loans’ insurers, guarantors, or beneficial interest holders.
20
The servicing advance valuation allowance is estimated based on relevant qualitative and quantitative information about past events, including historical collection and loss experience, current conditions, and reasonable and supportable forecasts that affect collectable amounts. The provision for losses on servicing advances is included in Servicing expense in the consolidated statements of income. Servicing advances are charged off when they are deemed unrecoverable.
The following is a summary of the allowance for losses on servicing advances:
Balance at beginning of period
128,904
82,025
103,574
85,788
Provision for losses
20,515
10,130
Charge-offs, net
(8,522)
(5,975)
(28,213)
(21,708)
Balance at end of period
140,897
86,180
Note 7—Fair Value
Most of the Company’s assets and certain of its liabilities are measured at or based on their fair values. 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 significant inputs used to determine the fair values. The fair value level assigned to an asset or liability is based on the lowest level of input that is significant to its fair value measurement. These levels are:
As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.
The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the inputs required to establish fair value at a higher level of the hierarchy become available.
21
Fair Value Accounting Elections
The Company identified its MSRs, its mortgage servicing liabilities (“MSLs”) and all of its non-cash financial assets to be accounted for at fair value so changes in fair value will be reflected in income as they occur and reflect the results of the Company’s performance more timely.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Following is a summary of assets and liabilities that are measured at fair value on a recurring basis:
Level 1
Level 2
Level 3
Assets:
Short-term investment
Principal-only stripped mortgage-backed securities
6,342,488
556,553
Derivative assets from non-affiliates:
Interest rate lock commitments
42,847
Forward purchase contracts
879
Forward sales contracts
397,504
Swaptions
277,357
Put options on interest rate futures purchase contracts
106,313
Call options on interest rate futures purchase contracts
1,899
Total derivative assets before netting
108,212
675,740
826,799
Netting
(352,558)
Total derivative assets from non-affiliates
Derivative assets from PennyMac Mortgage Investment Trust:
165
Total before netting
16,621
(165)
Total derivative assets from PennyMac Mortgage Investment Trust
Mortgage servicing rights
Investment in PennyMac Mortgage Investment Trust
521,325
7,532,994
12,254,933
19,956,529
Liabilities:
Derivative liabilities to non-affiliates:
116,358
154,556
4,506
17,236
Total return swap
901
Total derivative liabilities before netting
177,199
293,557
(89,003)
Total derivative liabilities to non-affiliates
Derivative liabilities to PennyMac Mortgage Investment Trust:
370
5,462
Total derivative liabilities to PennyMac Mortgage Investment Trust before netting
5,832
Total derivative liabilities to PennyMac Mortgage Investment Trust
Mortgage servicing liabilities
1,487
182,661
118,215
211,708
22
8,815,699
307,711
131,536
49,499
16,399
22,769
2,086
24,855
65,906
222,297
(36,779)
142
2,399
(142)
435,833
9,604,275
10,040,445
20,043,632
4,260
2,845
47,692
50,537
54,797
(45,238)
4,605
1,784
6,389
1,572
52,321
10,437
17,378
23
As shown above, certain of the Company’s loans held for sale, interest rate lock commitments (“IRLCs”), MSRs and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of assets and liabilities measured at fair value using “Level 3” inputs at either the beginning or the end of the period presented:
Interest rate lock
Mortgage
Loans held
commitments to
servicing
Assets
for sale
non-affiliates, net (1)
PMT, net (1)
rights
597,161
141,208
(2,945)
10,586,794
11,322,218
Purchases and issuances, net
1,934,754
98,864
(1,349)
2,032,269
Capitalization of interest and servicing advances
35,744
Sales and repayments, net
(676,521)
(4,123)
(680,644)
Mortgage servicing rights resulting from loan sales
395,011
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk
(878)
Other factors
24,054
(188,998)
17,451
661,395
513,902
23,176
513,024
Transfers:
From Level 3 to Level 2
(1,357,085)
To real estate acquired in settlement of loans
(676)
To loans held for sale
(124,585)
2,929
(121,656)
(73,511)
16,086
12,138,205
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2026
16,102
661,348
620,025
Quarter ended
Liabilities
Mortgage servicing liabilities:
1,522
Changes in fair value included in income
(35)
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2026
510,913
148,638
(6,485)
9,531,249
10,184,315
1,643,869
292,487
(13,533)
1,922,823
29,575
Sales and repayments
(618,968)
(185,409)
(804,377)
700,326
40,810
5,428
155,122
(11,290)
(392,224)
(242,964)
46,238
(202,154)
(1,158,543)
(183)
(469,168)
25,819
(443,349)
452,901
127,079
(5,489)
9,653,942
10,228,433
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2025
26,561
(386,363)
(238,212)
1,643
1,593
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2025
25
127,276
(2,348)
10,031,580
4,591,320
556,280
(15,577)
5,132,023
81,695
(1,525,072)
(7,987)
(1,533,059)
(537)
100,044
(60,078)
20,897
284,845
345,708
99,507
345,171
(2,996,499)
(2,109)
(696,989)
13,114
(683,875)
Changes in fair value recognized during the period relating to assets still held at September 30, 2026
14,958
284,898
242,431
Nine months ended
(85)
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2026
26
434,053
34,009
(444)
8,744,528
9,212,146
4,540,796
656,169
(21,685)
5,175,280
67,522
(1,670,736)
(1,856,145)
108,439
19,596
350,703
(23,210)
(1,070,390)
(723,301)
128,035
(614,862)
(3,046,586)
(913,802)
39,850
(873,952)
Changes in fair value recognized during the period relating to assets still held at September 30, 2025
27,716
(1,061,816)
(912,510)
1,683
(90)
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2025
27
Assets and Liabilities Measured at Fair Value under the Fair Value Option
Net changes in fair values included in income for assets and liabilities carried at fair value, as a result of management’s election of the fair value option, by income statement line item, are summarized below:
Net gains on
Net
loans held
loan
for sale at
interest
fair value
fees
expense
(53,061)
(8,847)
(61,908)
10,412
(108,100)
436,370
608,334
491,387
(381,812)
54,558
35
50
(56,186)
(5,320)
(61,506)
35,738
437,738
944,901
228,659
661,077
(1,034,652)
(89,751)
85
90
Following are the fair value and related principal amounts due upon maturity of loans held for sale:
Principal
amount
Fair
due upon
maturity
Difference
Current through 89 days delinquent
6,850,302
6,932,778
(82,476)
9,080,781
8,874,884
205,897
90 days or more delinquent:
35,436
39,267
(3,831)
32,364
35,669
(3,305)
13,303
23,166
(9,863)
10,265
19,924
(9,659)
(96,170)
192,933
28
Assets Measured at Fair Value on a Nonrecurring Basis
Following is a summary of assets that were remeasured based on fair value on a nonrecurring basis:
Other assets:
Real estate acquired in settlement of loans
21,203
Investments in closely-held entities
22,806
44,009
8,731
The following table summarizes the gains (losses) recognized on assets when they were remeasured based on fair value on a nonrecurring basis:
(3,844)
(1,487)
(8,537)
(2,898)
8,506
(31)
The Company remeasures its real estate acquired in settlement of loans (“REO”) based on fair value when it evaluates the properties for impairment. The Company evaluates its REO for impairment with reference to the property’s fair value less cost to sell. REO may be revalued after acquisition if the Company obtains greater access to the property, holds the property for an extended period, or receives indications that the property’s fair value is no longer supported by developing market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loans in the Company’s consolidated statements of income.
The Company carries certain of its private investments in closely-held entities at their cost basis because such entities are nonpublic and do not have readily observable fair values for their outstanding equity. Such holdings are carried at cost adjusted for impairment and observed price changes in orderly transactions for identical or similar investments. During the nine months ended September 30, 2026, one of the Company’s investees issued additional private equity that provided an indication of fair value of its shares and a portion of a warrant issued to the Company by that investee also vested. Accordingly, the Company recognized the change in fair value of its investment. Fair value was estimated using an option pricing method based on the implied valuation from the private equity issuance. Key inputs included time-to-liquidity, equity volatility, a risk-free discount rate and a discount for lack of marketability.
Fair Value of Financial Instruments Carried at Amortized Cost
The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by mortgage servicing assets and Unsecured senior notes are carried at amortized cost.
These liabilities are classified as “Level 3” fair value items due to the Company’s reliance on unobservable inputs to estimate their fair values. The Company has concluded that the fair values of these liabilities other than the term notes and term loans included in the Notes payable secured by mortgage servicing assets and the Unsecured senior notes approximate their carrying values due to their short terms and/or variable interest rates.
29
The Company estimates the fair value of the term notes and term loans included in Notes payable secured by mortgage servicing assets and the Unsecured senior notes using indications of fair value provided by non-affiliate brokers, pricing services and internal estimates of fair value. The fair value and carrying value of these liabilities are summarized below:
Carrying value
Term notes and term loans
1,329,206
1,325,951
1,334,248
4,482,025
5,075,675
Valuation Governance
Most of the Company’s financial assets, and all of its derivatives, MSRs, and MSLs are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and derivatives and all of its MSRs and MSLs are “Level 3” fair value assets and liabilities which require use of unobservable inputs that are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.
Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair values of these assets and liabilities to specialized staff within its 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 the Company’s senior management valuation committee, which oversees the valuations. The capital markets valuation staff monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities, including the models’ performance versus actual results, and reports those results as well as changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuations and any changes in model methods and inputs, to the Company’s senior management valuation committee. The Company’s senior management valuation committee includes the Company’s chief financial and investment officers as well as other senior members of the Company’s finance, risk management and capital markets staffs.
To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuations 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 non-affiliate brokers and published surveys.
The fair value of the Company’s IRLCs is developed by its capital markets risk management staff and is reviewed by its capital markets operations staff.
Valuation Techniques and Inputs
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:
Principal-Only Stripped Mortgage-Backed Securities
The Company categorizes principal-only stripped MBS as “Level 2” fair value financial instruments. Fair values of these securities are established based on quoted market prices for these or similar securities.
Loans Held for Sale
Most of the Company’s loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value assets. The fair values of “Level 2” fair value loans are determined using their contracted selling prices or quoted market prices or market price equivalents.
30
Certain of the Company’s loans held for sale are not saleable into active markets and are therefore categorized as “Level 3” fair value assets. Loans held for sale categorized as “Level 3” fair value assets include:
A loan becomes eligible for resale into a new Ginnie Mae guaranteed security when the loan becomes current either through completion of a modification of the loan’s terms or after three months of timely payments following either the completion of a payment deferral program or borrower reperformance and when the issuance date of the new security is at least 120 days after the date the loan was last delinquent.
The Company uses a discounted cash flow model to estimate the fair value of its “Level 3” fair value loans held for sale. The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value loans held for sale are discount rates, home price projections, voluntary prepayment/resale and total prepayment/resale speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.
Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of loans held for sale:
Fair value (in thousands)
Key inputs (1):
Discount rate:
Range
6.3% – 9.3%
5.6% – 9.3%
Weighted average
7.0%
6.3%
Twelve-month projected housing price index change:
1.1% – 1.6%
0.8% – 1.3%
1.4%
1.0%
Voluntary prepayment/resale speed (2):
6.2% – 23.9%
6.9% – 22.7%
18.4%
18.9%
Total prepayment/resale speed (3):
6.3% – 48.3%
7.0% – 37.5%
19.7%
24.1%
31
Changes in fair value of loans held for sale attributable to changes in a loan’s instrument-specific credit risk are measured with reference to the change in the respective loan’s delinquency status and performance history at period end from the later of the beginning of the period or acquisition date. Changes in fair value of loans held for sale are included in Net gains on loans held for sale at fair value in the Company’s consolidated statements of income.
Derivative Financial Instruments
Interest Rate Lock Commitments
The Company categorizes IRLCs as “Level 3” fair value assets or liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the loans and its estimate of the probability that the loans will be funded or purchased (the “pull-through rate”).
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the estimated fair values of MSRs attributable to the mortgage loans it has committed to originate or purchase. Significant changes in the pull-through rate or the MSR components of the IRLCs, in isolation, could result in significant changes in the IRLCs’ fair value measurements. 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 IRLC fair value, but increase the pull-through rate for the loan principal and interest payment cash flow component, which 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 Company’s consolidated statements of income.
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
Fair value (in thousands) (1)
(57,425)
Committed amount (in thousands)
9,361,092
13,474,638
Key inputs (2):
Pull-through rate:
7.9% – 100%
14.1% – 100%
82.7%
81.0%
Mortgage servicing rights fair value expressed as:
Servicing fee multiple:
0.0 – 8.2
1.0 – 8.7
5.1
5.4
Percentage of loan commitment amount:
0.0% – 4.6%
0.3% – 4.6%
1.8%
2.2%
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 values of hedging derivatives are included in Net gains on loans held for sale at fair value, or Net loan servicing fees—Owned servicing—Mortgage servicing rights hedging results, as applicable, in the Company’s consolidated statements of income.
32
Mortgage Servicing Rights
MSRs are categorized as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. Beginning in the third quarter of 2025, the Company enhanced the discounted cash flow approach used to estimate the period-end fair value of its MSRs with the adoption of an Option-Adjusted Spread (“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.
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—Owned servicing— Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the Company’s consolidated statements of income.
Following are the key inputs used in determining the fair value of MSRs received by the Company when it retains the obligation to service the mortgage loans it sells:
(Amount recognized and unpaid principal balance of underlying loans in thousands)
MSR and underlying loan characteristics:
Amount recognized
Unpaid principal balance
22,881,262
33,438,395
88,438,687
95,800,375
Weighted average servicing fee rate (in basis points)
39
37
42
Annual total prepayment speed (2):
6.0% – 15.0%
6.7% – 16.0%
5.9% – 16.0%
6.6% – 16.0%
7.9%
9.2%
8.0%
8.8%
Equivalent average life (in years):
3.8 – 10.7
3.7 – 10.1
3.6 – 10.7
3.7 – 10.2
9.2
8.4
9.1
8.6
Pricing spread (3):
4.5% – 12.6%
4.9% – 12.6%
5.8%
5.5%
5.7%
Per-loan annual cost of servicing:
$70 – $128
$69 – $127
$105
$98
$102
$99
33
Following is a quantitative summary of key inputs used in the valuation of the Company’s MSRs at period end and the effect on the fair value from adverse changes in those inputs:
(Fair value, unpaid principal balance of underlying
loans and effect on fair value amounts in thousands)
$ 11,639,077
$ 9,598,941
Underlying loan characteristics:
$ 496,424,490
$ 462,020,147
Weighted average note interest rate
5.1%
4.7%
4.4% – 24.1%
6.0% – 22.7%
6.7%
9.0%
2.6 – 10.7
2.5 – 9.0
9.6
8.0
Effect on fair value of (3):
5% adverse change
($118,890)
($168,856)
10% adverse change
($238,696)
($331,359)
20% adverse change
($478,300)
($638,689)
Option-adjusted spread (4):
2.3% – 13.1%
2.6% – 13.2%
4.2%
($89,281)
($95,530)
($179,859)
($189,008)
($360,732)
($370,059)
$70 – $127
$108
$106
($58,729)
($50,531)
($117,459)
($101,061)
($234,917)
($202,122)
34
Mortgage Servicing Liabilities
MSLs are categorized as “Level 3” fair value liabilities. The Company uses a discounted cash flow approach to estimate the fair value of MSLs. The key inputs used in the estimation of the fair value of MSLs include the applicable annual total prepayment speed, OAS, and the per-loan annual cost of servicing the underlying loans. Beginning in the third quarter of 2025, the Company enhanced its period-end discounted cash flow valuation of MSLs by utilizing an OAS model, which utilizes an OAS rather than a pricing spread. Changes in the fair value of MSLs are included in Net servicing fees— Owned servicing—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.
Following are the key inputs used in estimating the fair value of MSLs:
Unpaid principal balance of underlying loans (in thousands)
13,838
15,298
Servicing fee rate (in basis points)
Annual total prepayment speed (2)
13.6%
14.2%
Equivalent average life (in years)
5.6
5.5
Option-adjusted spread (3)
9.4%
9.1%
Per-loan annual cost of servicing
768
853
Real Estate Acquired in Settlement of Loans
REO 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 income.
Note 8— Principal-Only Stripped Mortgage-Backed Securities
Following is a summary of activity in the Company’s investment in principal-only stripped MBS:
609,103
784,958
825,865
Repayments
(32,594)
(34,991)
(146,421)
(119,258)
Accrual of purchase discounts
13,642
31,676
Valuation adjustments
67,414
774,021
Following is a summary of the Company’s investment in principal-only stripped MBS:
Principal balance
721,929
868,350
Unearned discount
(156,703)
(151,382)
Cumulative valuation change
(50,625)
5,560
Fair value of principal-only stripped mortgage-backed securities pledged to secure Assets sold under agreements to repurchase
All of the Company’s principal-only stripped MBS have remaining contractual maturities of over ten years.
Note 9—Loans Held for Sale at Fair Value
Following is a summary of loans held for sale at fair value:
Mortgage type
2,912,483
2,972,372
Government-insured or guaranteed
2,451,802
5,140,921
Jumbo
685,817
699,309
Non-qualified
292,386
3,097
Closed-end second lien
309,471
156,003
Purchased from Ginnie Mae securities serviced by the Company
213,877
127,920
Repurchased pursuant to representations and warranties
33,205
23,788
Fair value of loans pledged to secure:
6,099,761
8,245,256
707,070
738,247
6,806,831
8,983,503
36
Note 10—Derivative Financial Instruments
The Company holds and issues derivative financial instruments in connection with its operating and investing activities. Derivative financial instruments are created in the Company’s loan production activities and when the Company enters into derivative transactions as part of its interest rate risk management activities:
The Company does not designate and qualify any of its derivatives for hedge accounting. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.
The Company has elected to present net derivative asset and liability positions, and cash collateral obtained from or posted to its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default. The derivatives that are not subject to a master netting arrangement are IRLCs.
Derivative Notional Amounts and Fair Value of Derivatives
The Company had the following derivative financial instruments recorded on its consolidated balance sheets:
Notional
Derivative
Derivative instrument
amounts (1)
assets
liabilities
amount (1)
Non-affiliates:
Not subject to master netting arrangements:
Subject to master netting arrangements (2):
10,253,488
14,311,234
16,369,461
22,291,811
4,050,000
12,625,000
7,750,000
9,000,000
39,998
Treasury futures purchase contracts
18,577,500
11,841,400
Treasury futures sale contracts
19,002,500
8,607,100
Total derivatives before netting
PennyMac Mortgage Investment Trust:
883,146
1,207,859
311,414
250,638
Deposits (received from) placed with derivative counterparties included in the derivative balances above, net
(263,555)
8,459
38
Derivative Assets, Financial Instruments, and Cash Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance to qualify for setoff accounting.
Gross amount not
offset in the
consolidated
Net amount
balance sheet
of assets in the
Financial
collateral
Counterparty
instruments
received
Morgan Stanley Bank, N.A.
125,507
10,673
RJ O' Brien
108,211
Bank of America, N.A.
92,392
Metro Life Insurance Co.
23,099
Citibank, N.A.
18,835
638
JPMorgan Chase Bank, N.A.
15,235
933
Goldman Sachs
8,923
1,769
Santander US Capital Markets LLC
6,317
1,723
Athene Annuity & Life Assurance Company
6,074
Ares Management Corporation
5,791
Federal National Mortgage Association
3,864
Barclays Capital
3,919
Bank of Montreal
2,676
Others
17,146
6,796
Derivative Liabilities, Financial Instruments and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount 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 are secured by sufficient collateral with fair values that exceed the liability amounts recorded on the consolidated balance sheets.
Gross amounts
not offset in the
of liabilities
in the
instruments (1)
pledged
1,787,523
(1,787,523)
1,121,585
(1,120,457)
1,128
Atlas Securitized Products, L.P.
1,648,038
(1,648,038)
3,151,222
(3,151,222)
Nomura Corporate Funding Americas
623,938
(623,938)
596,608
(596,608)
Royal Bank of Canada
602,911
(602,911)
534,163
(534,163)
Wells Fargo Bank, N.A.
524,116
(523,773)
343
650,094
(650,094)
518,198
(518,198)
767,903
(767,903)
510,505
(486,820)
23,685
229,055
(229,055)
481,931
(481,931)
168,428
(168,428)
BNP Paribas
409,794
(406,169)
3,625
342,500
(342,500)
336,917
(336,917)
444,851
(444,851)
Mizuho Bank, Ltd.
320,762
(317,004)
3,758
149,588
(149,588)
199,249
(199,249)
407,678
(407,678)
165,483
(165,483)
238,668
(238,668)
Bank of New York Mellon
52,967
3,818
4,171
8,302,508
(8,097,954)
8,810,774
(8,801,215)
Following are the gains (losses) recognized by the Company on derivative financial instruments and the consolidated statement of income lines where such gains and losses are included:
Derivative activity
Consolidated statement of income line
Net gains on loans held for sale at fair value (1)
(195,688)
(20,563)
(182,353)
88,025
Hedged item:
Interest rate lock commitments and loans held for sale
496,403
(121,130)
538,863
(295,029)
Net loan servicing fees–Owned servicing–Mortgage servicing rights hedging results
(894,611)
87,894
(1,284,354)
60,240
40
Note 11—Mortgage Servicing Rights and Mortgage Servicing Liabilities
Mortgage Servicing Rights at Fair Value
The activity in MSRs is as follows:
Additions (deductions):
MSRs resulting from loan sales
(Sales) sale adjustments to:
Non-affiliates
(183,514)
6,428
(1,895)
(14,415)
390,888
514,917
1,755,291
1,979,804
Change in fair value due to:
Changes in inputs used in valuation model (1)
936,131
(102,519)
1,237,459
(292,058)
Other changes in fair value (2)
(274,736)
(289,705)
(952,614)
(778,332)
Total change in fair value
Unpaid principal balance of underlying loans at end of period
496,424,490
470,281,735
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable secured by mortgage servicing assets
11,285,223
9,367,851
Mortgage Servicing Liabilities at Fair Value
The activity in MSLs is summarized below:
Changes in fair value due to:
(18)
(24)
(26)
(17)
(59)
(92)
17,457
41
Contractual servicing fees relating to MSRs and MSLs are recorded in Net loan servicing fees—Owned servicing—Loan servicing fees on the Company’s consolidated statements of income; other fees relating to MSRs and MSLs are recorded in Net loan servicing fees—Owned servicing—Other fees on the Company’s consolidated statements of income. Such amounts are summarized below:
Contractual servicing fees
460,359
1,313,563
Other fees:
Late charges
20,783
21,477
61,623
61,383
3,360
4,503
11,508
12,042
503,284
486,339
1,492,413
1,386,988
Note 12—Other Assets
Other assets are summarized below:
Margin deposits
231,861
407,978
Capitalized software, net
110,991
108,145
Operating lease right-of-use assets
81,254
61,757
Servicing fees receivable, net
55,721
48,279
Other servicing receivables
80,533
36,296
48,076
37,675
Prepaid expenses
47,737
50,062
Interest receivable
47,183
40,173
Margin deposits securing Assets sold under agreements to repurchase and Notes payable secured by mortgage servicing assets
29,484
10,393
Furniture, fixtures, equipment and building improvements, net
22,389
17,789
116,791
208,366
Note 13—Leases
The Company has operating lease agreements relating to its facilities. The Company’s operating lease agreements have remaining terms ranging from less than one year to eight years. Some of the operating lease agreements include options to extend the term for up to five years. None of the Company’s operating lease agreements require the Company to make variable lease payments.
The Company’s lease agreements are summarized below:
(dollars in thousands)
Lease expense:
Operating leases
5,726
4,142
16,625
12,177
Short-term leases
108
114
333
262
Sublease income
(377)
(1,132)
Net lease expense included in Occupancy and equipment expense
5,457
3,879
15,826
11,307
Other information:
Payments for operating leases
5,388
4,918
15,706
15,330
Operating lease right-of-use assets recognized
12,413
Period end weighted averages:
Remaining lease term (in years)
6.0
4.8
Discount rate
4.8%
Lease payment obligations attributable to the Company’s operating lease liabilities are summarized below:
Twelve months ended September 30,
2027
5,190
2028
17,165
2029
18,030
2030
19,537
2031
21,501
Thereafter
35,287
Total lease payments
116,710
Less imputed interest
(18,772)
Operating lease liability included in Accounts payable and accrued expenses
97,938
Note 14—Short-Term Debt
The borrowing facilities described throughout these Notes 14 and 15 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio and liquidity. Management believes that the Company was in compliance with these covenants as of September 30, 2026.
Assets Sold Under Agreements to Repurchase
The Company has multiple borrowing facilities in the form of asset sales under agreements to repurchase. These borrowing facilities are secured by principal-only stripped MBS, loans held for sale, participation certificates backed by mortgage servicing assets and margin deposits. Eligible assets are sold at advance rates based on the fair value (as determined by the lender) of the assets sold. Interest is charged at a rate based on the Secured Overnight Financing Rate (“SOFR”). Principal-only stripped MBS, loans, mortgage servicing assets and participation certificates backed by mortgage servicing assets financed under these agreements may be re-pledged by the lenders.
43
Assets sold under agreements to repurchase are summarized below:
Average balance of assets sold under agreements to repurchase
8,416,243
7,719,152
8,590,463
7,010,169
Weighted average interest rate (1)
5.50%
5.95%
5.41%
5.97%
Total interest expense
123,021
121,170
365,109
328,084
Maximum daily amount outstanding
9,249,224
8,926,829
10,648,718
Carrying value:
8,097,954
8,801,215
Unamortized debt issuance costs
(9,465)
(7,213)
Weighted average interest rate
5.56%
5.18%
Available borrowing capacity (1):
Committed
677,951
1,486,344
Uncommitted
7,670,995
3,367,758
8,348,946
4,854,102
Assets securing repurchase agreements:
Servicing advances (2)
403,929
406,825
Mortgage servicing rights (2)
10,783,414
7,968,105
Margin deposits (2)
44
Maturities
Following is a summary of maturities of outstanding advances under asset repurchase agreements by maturity date:
Remaining maturity at September 30, 2026 (1)
Within 30 days
2,242,132
Over 30 to 90 days
3,719,746
Over 90 to 180 days
664,572
Over 180 days to one year
575,735
Over one year to two years
895,769
Total assets sold under agreements to repurchase
Weighted average maturity (in months)
3.8
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) relating to the Company’s assets sold under agreements to repurchase is summarized by asset type and counterparty below as of September 30, 2026:
Loans held for sale and MSRs
Amount at risk
maturity of advances
Facility maturity
Atlas Securitized Products, L.P., Goldman Sachs Bank USA, Nomura Corporate Funding Americas and Mizuho Bank, Ltd. (1)
6,879,231
August 9, 2027
Barclays Bank PLC (2)
1,129,783
January 27, 2027
September 20, 2027
151,729
November 22, 2026
June 7, 2028
66,635
February 14, 2027
December 10, 2027
JP Morgan Chase Bank, N.A. (2)
53,587
November 30, 2026
June 25, 2028
26,411
October 24, 2026
August 10, 2027
25,862
October 21, 2026
August 4, 2027
24,758
December 30, 2026
August 13, 2027
13,174
December 4, 2026
September 30, 2027
Goldman Sachs Bank USA
12,992
December 11, 2026
March 15, 2028
12,331
October 31, 2026
August 3, 2027
11,378
December 6, 2026
June 29, 2028
9,692
November 19, 2026
May 19, 2028
45
Principal-only stripped MBS
Maturity
1,511
January 5, 2027
JP Morgan Chase Bank, N.A.
13,018
October 8, 2026
9,901
October 23, 2026
7,485
October 16, 2026
Mortgage Loan Participation Purchase and Sale Agreements
Two of the borrowing facilities secured by loans held for sale are in the form of mortgage loan participation purchase and sale agreements. Participation certificates, each of which represents an undivided beneficial ownership interest in mortgage loans that have been pooled with Ginnie Mae, Freddie Mac, or Fannie Mae, are sold to a lender pending securitization of the mortgage loans and sale of the resulting securities. A commitment to sell the securities resulting from the pending securitization between the Company and a non-affiliate is also assigned to the lender at the time a participation certificate is issued.
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, that is based on a percentage of the purchase price. The holdback amount 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 agreements are summarized below:
Average balance
278,702
284,778
297,537
276,645
5.07%
5.62%
5.00%
5.64%
3,793
4,267
11,834
12,239
696,390
701,233
699,793
678,580
697,087
(703)
(469)
5.16%
4.94%
Fair value of loans pledged to secure mortgage loan participation purchase and sale agreements
46
Note 15—Long-Term Debt
Notes Payable Secured by Mortgage Servicing Assets
Term Notes and Term Loans
The Company, through its wholly-owned subsidiaries PNMAC, PLS and the PNMAC GMSR ISSUER TRUST (“Issuer Trust”) entered into a structured finance transaction, in which PLS pledges and/or sells to the Issuer Trust participation certificates representing beneficial interests in Ginnie Mae mortgage servicing assets pursuant to a repurchase agreement. The Issuer Trust issued VFNs to PLS (which PLS, in turn, sells under agreements to repurchase), issued secured term notes (the “Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), and has entered into a series of syndicated term loans with various lenders (the “Term Loans”).
Beneficial interests in the Agency MSR, servicing advance and margin deposit assets collectively serve as the collateral securing servicing asset facilities that issue the VFNs that are financed as Assets sold under agreements to repurchase and the Term Notes and Term Loans included in Notes payable secured by mortgage servicing assets. Creditors to the Assets sold under agreements to repurchase and the Term Notes and Term Loans have equal priority in claims to the collateral held by the Issuer Trust.
Following is a summary of the issued and outstanding Term Notes and Term Loans:
Maturity date
Issuance date
Annual interest rate spread (1)
Stated
Optional extension (2)
Term Notes:
February 29, 2024
125,000
3.20%
March 26, 2029
March 25, 2031
August 14, 2025
300,000
2.45%
August 26, 2030
August 25, 2032
May 27, 2026
2.25%
May 27, 2031
May 25, 2033
Term Loans:
February 28, 2023
480,000
3.00%
February 25, 2028
February 25, 2029
October 25, 2023
October 25, 2028
1,330,000
Freddie Mac MSR Notes Payable
The Company has note payable facilities that are secured by Freddie Mac MSRs. Interest is charged at a rate of SOFR plus a spread that is specified in the agreements. The facilities expire on various dates through August 12, 2028. The maximum amount that the Company may borrow under the notes payable is $950 million, all of which is committed, and may be reduced by other debt outstanding with the lender.
47
Notes payable secured by mortgage servicing assets are summarized below:
1,460,924
1,393,315
1,406,630
1,649,964
6.53%
7.45%
6.62%
7.72%
24,341
26,417
71,296
98,738
Unpaid principal balance:
Freddie Mac MSR notes payable
315,000
1,645,000
(4,049)
(3,979)
6.56%
6.69%
Assets pledged to secure notes payable (1):
Servicing advances
9,939,518
15,763
Unsecured Senior Notes
The Company has issued unsecured senior notes (the “Unsecured Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The Unsecured Notes are senior unsecured obligations of the Company and will rank senior in right of payment to any future subordinate indebtedness of the Company, equally in right of payment with all existing and future senior indebtedness of the Company and effectively subordinate to any existing and future secured indebtedness of the Company to the extent of the fair value of collateral securing such indebtedness.
The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries defined in the indenture under which the Unsecured Notes were issued). The guarantees are senior unsecured obligations of the guarantors and will rank senior in right of payment to any future subordinate indebtedness of the guarantors, equally in right of payment with all existing and future senior indebtedness of the guarantors and effectively subordinate to any existing and future secured indebtedness of the guarantors to the extent of the fair value of collateral securing such indebtedness. The Unsecured Notes and the guarantees are structurally subordinate to the indebtedness and liabilities of the Company’s subsidiaries that do not guarantee the Unsecured Notes.
48
Following is a summary of the Company’s outstanding Unsecured Notes:
Note interest rate
Optional redemption date (1)
(annual)
February 11, 2021
650,000
4.25%
February 15, 2029
February 15, 2024
September 16, 2021
500,000
5.75%
September 15, 2031
September 15, 2026
December 11, 2023
750,000
7.875%
December 15, 2029
December 15, 2026
May 23, 2024
7.125%
November 15, 2030
November 15, 2026
February 6, 2025
850,000
6.875%
February 15, 2033
February 15, 2028
May 1, 2025
May 15, 2032
May 15, 2028
August 7, 2025
6.750%
February 15, 2034
August 15, 2028
4,900,000
4,603,261
4,173,443
6.58%
6.42%
83,371
78,014
249,975
208,308
Unamortized debt issuance costs and premiums, net
(60,157)
(68,258)
Maturities of Long-Term Debt
Maturities of long-term debt (based on stated maturity dates) are as follows:
Notes payable secured by mortgage servicing assets (1)
250,000
1,150,000
900,000
1,050,000
1,450,000
6,545,000
49
Note 16—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
37,291
31,763
29,129
Provision for losses:
Resulting from sales of loans
5,449
4,719
15,724
12,320
Resulting from change in estimate
(3,534)
(2,365)
(10,186)
(6,000)
Losses incurred
(895)
(1,053)
(2,121)
(2,385)
33,064
Unpaid principal balance of loans subject to representations and warranties at end of period
531,948,204
472,890,874
Note 17—Income Taxes
The Company’s effective income tax rates were 32.7% and 23.2% for the quarters ended September 30, 2026 and 2025, respectively, and 25.8% and 5.5% for the nine months ended September 30, 2026 and 2025, respectively. The increase in the effective income tax rates for the quarter ended September 30, 2026 compared to the same quarter in 2025, results from a lower tax deduction recognized for stock option exercises compared to the prior period along with a decrease in pre-tax book income that magnified the impact of the Company's recurring permanent tax adjustments. The increase for the nine months ended September 30, 2026, compared to the same period in 2025 is primarily due to the non-recurrence of a $81.6 million net income tax benefit recognized in the prior period, due to the repricing of deferred tax liabilities resulting from changes to California’s apportionment rules enacted into law in June 2025 requiring the Company to apportion income to California using a single sales factor instead of a factor equally weighted among property, payroll and sales.
Note 18—Commitments and Contingencies
Commitments to Purchase and Fund Mortgage Loans
The Company’s commitments to purchase and fund loans totaled $9.4 billion as of September 30, 2026.
Legal and Regulatory Proceedings
From time to time, the Company may be a party to legal and regulatory proceedings, lawsuits and other claims arising in the ordinary course of its 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 April 9, 2025, Clayton Bradley Williams, III filed a putative class action complaint (the “Williams Complaint”) against PLS, a wholly-owned indirect subsidiary of the Company, in the United States District Court for the Middle District of North Carolina (the “North Carolina Federal Court”), captioned Clayton Bradley Williams, III v. PennyMac Loan Services, LLC, Civil Action No. 1:24-cv-00276. The Williams Complaint alleges that PLS or its agents improperly charged borrowers fees of up to $6.75 for mortgage payments made through an automated clearing house system (“Pay-to-Pay Fees”). The Williams Complaint further alleges that these fees were not authorized by the borrowers’ mortgage agreements and therefore violate the North Carolina Debt Collection Act (“NCDCA”) and the North Carolina Unfair and Deceptive Trade Practices Act (“NCUDTPA”).
The plaintiff seeks to represent a class of all persons who have a residential mortgage loan secured by property in North Carolina, serviced or subserviced by PLS, and who paid a Pay-to-Pay Fee to PLS or its agents when making a mortgage payment by debit card during the applicable statute of limitations period. The plaintiff seeks actual damages, statutory civil penalties under the NCDCA of between $500 and $4,000 per violation, treble damages under the NCUDTPA, and attorneys’ fees and costs. On December 1, 2025, the North Carolina Federal Court denied PLS’s motion to dismiss, and the matter is currently in discovery.
No assurance can be given as to the ultimate outcome of this matter or the amount of any loss PLS may incur, and any such amount could be material. PLS believes it has meritorious defenses to the plaintiff’s claims and intends to defend this matter vigorously. PLS cannot reasonably estimate the possible loss or range of loss primarily because the matter involves complex factual and legal issues, damages are uncertain, and the proceeding is at a preliminary stage, with no class certified and discovery ongoing.
Note 19—Stockholders’ Equity
The Company’s stock repurchase program provides for the repurchase of up to $2 billion of its common stock, before transaction costs and excise tax.
Following is a summary of activity under the stock repurchase program:
Cumulative
total (1)
Shares of common stock repurchased
560
34,674
Cost of shares of common stock repurchased
4,739
50,011
1,842,948
51
Note 20—Net Gains on Loans Held for Sale
Net gains on loans held for sale at fair value are summarized below:
From non-affiliates:
Cash losses:
Loans
(376,603)
(258,450)
(1,195,645)
(1,107,970)
Hedging activities
19,345
(26,139)
93,763
(442,610)
(357,258)
(284,589)
(1,101,882)
(1,550,580)
Non-cash gains:
Provisions for losses relating to representations and warranties:
Pursuant to loan sales
(5,449)
(4,719)
(15,724)
(12,320)
Reductions in liability due to changes in estimate
3,534
2,365
10,186
6,000
Changes in fair values of loans and derivatives held at end of period:
(124,415)
(828)
(122,354)
(103,135)
Hedging derivatives
477,058
(94,991)
445,100
147,581
From PennyMac Mortgage Investment Trust (1)
Note 21—Net Interest Expense
Net interest expense is summarized below:
Interest income:
Cash and short-term investments
10,385
11,698
30,947
32,624
(8,663)
13,881
(4,734)
32,424
111,420
113,039
345,424
306,158
Placement fees relating to custodial funds
96,822
109,706
288,019
287,476
457
429
1,396
1,871
Interest expense:
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations
14,506
14,855
64,001
38,687
Interest on mortgage loan impound deposits
3,680
4,370
9,103
9,214
1,190
807
3,016
2,289
52
Note 22—Stock-based Compensation
Following is a summary of the stock-based compensation activity:
Grants:
Units:
Time-based restricted share units ("RSUs")
269
261
Performance-based RSUs
260
185
Stock options
270
187
Grant date fair value:
Time-based RSUs
2,125
145
24,303
26,629
23,681
18,788
10,591
8,138
58,575
53,555
Vesting and exercise:
Time-based RSUs vested
179
189
Performance-based RSUs vested
98
Stock options exercised
250
245
388
6,445
9,929
Note 23—Disaggregation of Certain Expense Captions
Following are the disaggregation of certain expense captions:
Expense line
Amortization of capitalized software
12,464
11,220
36,771
36,014
Other (1)
39,995
29,219
104,727
86,879
Total technology expense
Depreciation
1,454
1,736
5,079
5,569
Operating lease cost
5,349
3,765
15,493
11,045
Short-term lease cost
Other (2)
3,519
2,989
10,214
8,489
Total occupancy and equipment expense
53
Note 24—Earnings Per Share
Basic earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding, assuming all dilutive securities were issued.
The Company’s potentially dilutive securities are stock-based compensation awards. The Company applies the treasury stock method to determine the diluted weighted average number of shares of common stock outstanding based on the outstanding stock-based compensation awards.
The following table summarizes the basic and diluted earnings per share calculations:
(in thousands, except per share amounts)
Weighted average shares of common stock outstanding
Effect of dilutive securities - shares issuable under stock-based compensation plan
1,181
2,149
1,419
2,099
Weighted average diluted shares of common stock outstanding
Basic earnings per share
Diluted earnings per share
Calculations of diluted earnings per share require certain potentially dilutive shares to be excluded when their inclusion in the diluted earnings per share calculation would be anti-dilutive. The following table summarizes the weighted-average number of anti-dilutive outstanding RSUs and stock options excluded from the calculation of diluted earnings per share:
(in thousands except for weighted average exercise price)
94
136
67
Performance-based RSUs (1)
263
200
222
171
Stock options (2)
641
177
451
181
Total anti-dilutive RSUs and stock options
998
377
809
419
Weighted average exercise price of anti-dilutive stock options (2)
93.26
101.76
96.29
99.50
54
Note 25—Regulatory Capital and Liquidity Requirements
The Company, through PLS, is required to maintain specified levels of capital and liquidity to remain a seller/servicer in good standing with the Agencies. Such capital and liquidity requirements generally are tied to the size of PLS’s loan servicing portfolio and loan origination volume.
The Agencies’ capital and liquidity levels and requirements, the calculations of which are specified by each Agency, are summarized below:
Requirement/Agency
Actual (1)
Requirement (1)
Capital
Fannie Mae & Freddie Mac
8,469,272
1,575,973
8,212,718
1,475,719
Ginnie Mae
8,359,462
1,682,575
8,002,181
1,616,380
HUD
2,500
Risk-based capital
%
Liquidity
793,788
699,504
1,095,507
689,782
1,243,025
510,928
1,285,660
512,613
Adjusted net worth / Total assets ratio
Tangible net worth / Total assets ratio
Noncompliance with an Agency’s requirements can result in such Agency taking various remedial actions up to and including terminating the Company’s ability to sell loans to and service loans on behalf of the respective Agency.
Note 26—Segments
The Company’s reportable segments are identified based on their unique business activities. 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 Company’s chief operating decision maker is its chief executive officer. The reportable segments are evaluated based on income or loss before provision for income taxes. The chief operating decision maker uses pre-tax segment results to assess segment performance and allocate operating and capital resources among the two reportable segments described below. The segments are separately evaluated because they represent different services.
The Company conducts its business in two operating and reportable segments, production and servicing:
55
Financial performance and results by segment are as follows:
Production
Reportable segment total
Corporate and other
Consolidated total
Revenues: (1)
176,470
13,757
Loan origination fees
Net interest income (expense):
107,217
102,990
210,207
214
90,139
163,763
17,078
(60,773)
(43,695)
113
(2,058)
5,338
3,280
243,793
212,668
456,461
12,314
Expenses:
123,905
52,951
176,856
36,528
32,834
10,820
43,654
8,846
11,034
63
11,097
3,091
5,660
2,213
7,873
5,382
5,606
2,776
8,382
2,048
2,897
5,767
8,664
5,348
251,199
113,786
364,985
61,243
Income (loss) before provision for income taxes
(7,406)
98,882
91,476
(48,929)
Segment assets at end of quarter
7,054,672
22,731,905
29,786,577
125,509
Acquisition of:
Capitalized software
3,042
2,062
5,104
7,381
12,485
Furniture, fixtures, equipment and building improvements
1,697
2,143
3,840
4,054
10,831
1,079
11,910
554
Depreciation and amortization of furniture, fixtures, equipment and building improvements
899
373
1,272
182
56
280,092
34,363
111,332
137,098
248,430
323
97,680
152,220
13,652
(15,122)
(1,470)
172
(980)
(808)
4,390
3,582
361,774
259,499
621,273
11,625
114,491
166,552
38,762
30,841
40,971
3,801
12,342
466
12,808
1,208
3,493
1,799
5,292
4,853
2,625
6,958
1,646
3,985
5,912
9,897
5,264
238,892
102,098
340,990
55,534
122,882
157,401
280,283
(43,909)
7,784,267
17,555,497
25,339,764
61,356
25,401,120
8,115
8,201
1,205
503
1,708
367
2,075
9,594
1,475
11,069
151
931
600
1,531
205
57
732,701
82,830
339,311
321,038
660,349
703
290,548
483,786
48,763
(162,748)
(113,985)
3,477
(2,776)
27,555
24,779
Total net revenue
987,797
474,335
1,462,132
48,592
406,109
157,122
563,231
89,366
92,977
30,417
123,394
19,680
35,060
710
35,770
16,393
16,332
6,652
22,984
20,561
17,098
7,845
24,943
6,176
12,799
18,396
31,195
15,520
823,189
341,076
1,164,265
167,696
164,608
133,259
297,867
(119,104)
Segment assets at end of period
11,255
4,449
15,704
25,489
41,193
4,783
2,932
7,715
1,964
9,679
31,320
3,944
35,264
1,507
3,021
1,212
4,233
846
671,198
98,953
Net interest (expense) income:
300,825
358,355
659,180
1,373
267,828
429,731
32,997
(71,376)
(38,379)
435
420
13,590
14,010
889,294
583,481
1,472,775
35,756
317,816
156,315
474,131
100,712
83,782
30,020
113,802
13,424
30,641
1,223
31,864
3,973
10,172
5,278
15,450
12,112
12,570
8,085
20,655
4,710
9,361
15,740
25,101
13,980
646,681
295,927
942,608
148,911
242,613
287,554
530,167
(113,155)
20,494
3,904
24,398
24,484
2,009
872
2,881
870
3,751
30,990
4,676
35,666
348
2,875
1,897
4,772
797
59
Note 27—Subsequent Events
Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period:
60
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
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 Quarterly Report on Form 10-Q to the words “we,” “us,” “our” and the “Company” refer to PFSI and its subsidiaries.
Our Company
We are a specialty financial services firm primarily focused on the production and servicing of U.S. residential mortgage loans (activities which we refer to as mortgage banking) and the management of investments related to the U.S. mortgage market. We believe that our operating capabilities, specialized expertise, access to long-term investment capital, and the experience of our management team across all aspects of the mortgage business allow us to profitably engage in mortgage banking and investing activities and capitalize on other related opportunities as they arise in the future.
Our primary assets are equity interests in Private National Mortgage Acceptance Company, LLC (“PNMAC”). We are the managing member of PNMAC, and we operate and control all of the businesses and affairs of PNMAC, and consolidate the financial results of PNMAC and its subsidiaries. We conduct our business in two segments: production and servicing:
Our principal mortgage banking subsidiary, PennyMac Loan Services, LLC (“PLS”), is a non-bank producer and servicer of mortgage loans in the United States. PLS is a seller/servicer for the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each of which is a government sponsored entity. PLS is also an approved issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”), a lender of the Federal Housing Administration (“FHA”), and a lender/servicer of the U.S. Department of Veterans Affairs (“VA”) and the U.S. Department of Agriculture (“USDA”). We refer to each of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA and USDA as an “Agency” and collectively as the “Agencies.” PLS is able to service loans in all 50 states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands, and originate loans in all 50 states and the District of Columbia, either because PLS is properly licensed in a particular jurisdiction or exempt or otherwise not required to be licensed in that jurisdiction.
Our investment management subsidiary is Pennymac Capital Management, LLC (“PCM”), a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM has an investment management contract with PMT.
Business Trends
Recent macroeconomic trends and U.S. federal government administration actions with respect to trade, tariffs, government cost reduction efforts and foreign military action have led to significant volatility in financial markets and uncertainty regarding the economic outlook, including inflation and interest rates. Elevated interest rates in recent years have constrained the mortgage origination market, which is currently projected to increase from $1.9 trillion in 2025 to $2.1 trillion in 2026 according to mortgage industry economists, although recent increases in interest rates may lead to a reduction in origination estimates for 2026.
Recent increases in interest and mortgage rates have significantly limited consumers’ opportunity for refinancing. If mortgage rates remain at recent levels or continue to increase, mortgage production activity and prepayment speeds will continue to decrease from levels observed in late 2025 and early 2026. Increases in the Federal Reserve’s federal funds rate have increased the costs of floating rate borrowings and placement fees we receive in relation to custodial funds that we manage as compared to prior periods. Market indicators currently suggest that the Federal Reserve will continue increasing short-term interest rates. The current period of economic uncertainty and market volatility may also lead to a reduction in economic activity and slowing home price growth or depreciation, which could lead to increasing mortgage delinquencies or defaults and increase losses from the representations and warranties we provide in our loan sales transactions.
Due to decreasing mortgage production volumes and improving process efficiencies due to technology enhancements, we implemented cost reduction measures in the third quarter of 2026 to reduce expenses, and expect to continue to reduce expenses through early 2027.
We expect to sell all of our non-agency correspondent production and none of our conventional conforming correspondent production to PMT in the fourth quarter of 2026.
On October 20, 2026, we entered into an agreement to sell a portfolio of conventional MSRs with an aggregate UPB of approximately $28.9 billion. The transaction is expected to close in the fourth quarter 2026 and we may sell additional MSR portfolios in future periods.
62
Results of Operations
Our results of operations are summarized below:
(dollars in thousands, except per share amounts)
Revenues:
Loan production revenues (1)
240,359
382,313
1,018,387
954,815
10,042
10,494
45,113
34,803
37,697
33,910
121,379
92,008
Annualized return on average stockholders' equity
2.6%
17.7%
4.1%
13.2%
Dividends declared per share
0.30
0.90
Income before provision for income taxes by reportable segment and corporate and other:
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") (3)
182,346
334,798
637,335
877,155
During the period:
Interest rate lock commitments issued (2)
25,294,094
38,820,607
99,694,192
109,875,011
Unpaid principal balance of loans originated and purchased by PFSI and fulfilled for PMT
24,380,397
37,422,020
96,310,581
103,885,896
At end of period:
Interest rate lock commitments outstanding
9,331,092
12,761,881
Unpaid principal balance of loan servicing portfolio:
Owned:
Mortgage servicing rights and liabilities
470,299,192
7,303,091
477,602,283
Subserviced for:
PMT
209,763,606
227,101,009
11,863,843
Interim servicing
12,210,842
65,286
239,030,138
716,632,421
Book value per share
83.85
81.12
We define “Adjusted EBITDA” as net income plus provision for income taxes, depreciation and amortization, excluding decrease (increase) in fair value of mortgage servicing rights (“MSRs”) net of mortgage servicing liabilities (“MSLs”) due to changes in the valuation inputs we use in our valuation models, hedging (gains) losses associated with MSRs, principal-only stripped mortgage-backed securities (“MBS”) valuation-related accrual changes, provision for (reversal of) losses on active loans, stock-based compensation, interest expense on corporate debt or corporate revolving credit facilities and capital lease and certain unusual or non-recurring items.
We believe that the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. However, other companies may define Adjusted EBITDA differently, and as a result, our measures of Adjusted EBITDA may not be directly comparable to those of other companies.
Adjusted EBITDA measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
Because of these limitations, Adjusted EBITDA measures are not intended as alternatives to net income as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
The following table presents a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods indicated:
13,918
12,956
Principal-only stripped MBS valuation-related accretion changes
15,831
(6,751)
31,349
(7,653)
(Increase) decrease in fair value of MSRs net of MSLs due to changes in valuation inputs used in valuation models
(936,149)
102,495
(1,237,485)
292,060
Hedging losses (gains) associated with MSRs
947,672
(98,306)
Valuation gains relating to investment in closely held entity
(8,506)
Provision for (reversal of) losses on active loans
6,223
87
20,595
(6,708)
Stock‑based compensation
Interest expense on corporate debt
Cenlar acquisition related expenses
2,488
6,898
Adjusted EBITDA
64
Income Before Provisions for Income Taxes
For the quarter ended September 30, 2026, income before income taxes decreased $193.8 million compared to the same quarter in 2025. The decrease was primarily due to a $142.0 million decrease in loan production revenue due to lower volume across all production channels and a $42.3 million increase in net interest expense.
For the nine months ended September 30, 2026, income before income taxes decreased $238.2 million compared to the same period in 2025. The decrease was primarily due to increases in compensation expense of $77.8 million, origination expense of $60.5 million, servicing expense of $40.7 million, other expense of $29.4 million and net interest expense of $76.3 million, partially offset by a $63.6 million increase in loan production revenue due to higher volume in the broker and consumer direct channels and a $10.3 million increase in other income.
Net Gains on Loans Held for Sale at Fair Value
In our production segment, revenues reflect the effects of higher mortgage market volumes and increased share in our broker direct lending channel during the nine months ended September 30, 2026 compared to the same period in 2025. During the quarter and nine months ended September 30, 2026, we recognized Net gains on loans held for sale at fair value totaling $190.2 million and $815.5 million, respectively, representing a decrease of $124.2 million during the quarter ended September 30, 2026 compared to the same period in 2025, and an increase of $45.4 million during the nine month ended September 30, 2026 compared to the same period in 2025.
Our net gains on loans held for sale are summarized below:
Total cash losses
Changes in fair values of loans and derivative financial instruments outstanding at end of period:
156,955
(116,382)
140,393
132,471
Total non-cash gains
550,051
581,590
1,898,133
2,291,364
Total gains on sale from non-affiliates
Interest rate lock commitments issued (1):
By loan type:
11,224,322
16,620,278
48,226,349
50,944,892
11,106,498
19,742,694
42,373,725
52,656,502
1,499,945
1,819,548
5,874,896
4,421,861
710,329
1,376,547
753,000
638,087
1,842,675
1,851,756
By production channel:
Correspondent
15,255,493
24,901,402
56,257,275
75,654,691
Broker direct
6,128,859
7,967,470
24,187,435
20,597,288
Consumer direct
3,909,742
5,951,735
19,249,482
13,623,032
Loans held for sale at fair value
7,490,473
Commitments to fund and purchase loans
66
Non-Cash Elements of Gain on Sale of Loans Held for Sale
Our gains on loans held for sale include both cash and non-cash elements. We recognize a significant portion of our gains on loans held for sale when we make commitments to purchase or fund mortgage loans. Therefore, we recognize a substantial portion of our net gains before we fund or purchase the loans. We recognize this gain in the form of interest rate lock commitment (“IRLC”) derivatives. We adjust our initial gain amount as the loan purchase or origination process progresses until the loan is either funded or cancelled.
We also receive non-cash proceeds on sale that include our estimate of the fair value of MSRs and we incur MSLs (which represent the fair value of the costs we expect to incur in excess of the fees we receive for delinquent loans we have bought out of Ginnie Mae guaranteed securities and have resold to and service for investors) and we recognize the fair value of our estimate of the losses we expect to incur relating to the representations and warranties we provide in our loan sale transactions.
The MSRs, MSLs, 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 represented approximately 207% and 216% of our gains on sales of loans held for sale at fair value for the quarter and nine months ended September 30, 2026, respectively, as compared to 222% and 280% for the same periods in 2025. These estimates change as circumstances change and changes in these estimates are recognized in income in subsequent periods. Subsequent changes in the fair value of our MSRs may significantly affect our income.
Interest Rate Lock Commitments, Mortgage Servicing Rights and Mortgage Servicing Liabilities
The methods and key inputs we use to measure and update our measurements of IRLCs, MSRs and MSLs are detailed in Note 7 – Fair Value – Valuation Techniques and Inputs to the consolidated financial statements included in this Quarterly Report.
Representations and Warranties
Our agreements with purchasers and insurers include representations and warranties related to the loans we sell. The representations and warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.
In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects or indemnify the purchaser or insurer. In such cases, we bear any subsequent credit loss on the loans. Our credit loss may be reduced by any recourse we have to correspondent originators that 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 related repurchase losses from that correspondent seller.
Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current unpaid principal balance (“UPB”) of loans sold by us and subject to representation and warranty liability to date represents the maximum exposure to repurchases related to representations and warranties.
The level of the liability for losses under representations and warranties is difficult to estimate and requires considerable judgment. The level of loan repurchase losses is dependent on economic factors, purchaser or insurer loss mitigation strategies, and other external conditions that may change over the lives of the underlying loans. Our estimate of the liability for representations and warranties is developed by our credit risk administration staff and reviewed by our Management Risk Committee that includes our senior executives and senior management in our loan production, loan servicing, and credit risk management areas.
The method used to estimate our losses on representations and warranties is a function of our estimate of future defaults, loan repurchase rates, the severity of loss in the event of default, if applicable, and the probability of reimbursement by the correspondent loan seller. We establish a liability at the time loans are sold and periodically assess the adequacy of our recorded liability.
We recorded provisions for losses under representations and warranties relating to current loan sales as a component of Net gains on loans held for sale at fair value totaling $5.4 million and $15.7 million for the quarter and nine months ended September 30, 2026, respectively, compared to $4.7 million and $12.3 million for the same periods in 2025. The increases in the provision relating to current loan sales were primarily attributable to a change in the mix of loans sold for the quarter and nine months ended September 30, 2026 compared to the same periods in 2025.
We also recorded reductions in the liability of $3.5 million and $10.2 million for the quarter and nine months ended September 30, 2026, respectively, compared to $2.4 million and $6.0 million for the same periods in 2025. The reductions in the liability resulted from previously sold loans meeting performance criteria established by the Agencies which significantly limit the likelihood of certain repurchase or indemnification claims.
Following is a summary of loan repurchase and loss activity:
Indemnification activity:
Loans indemnified at beginning of period
120,711
116,033
120,130
101,867
New indemnifications
11,729
7,005
25,063
25,408
Less indemnified loans sold, repaid or refinanced
4,206
1,044
16,959
5,281
Loans indemnified at end of period
128,234
121,994
Repurchase activity:
Total loans repurchased
31,631
31,711
88,044
77,071
Less:
Loans repurchased by correspondent lenders
14,478
19,022
46,911
50,099
Loans repaid by borrowers or resold
18,107
18,509
28,845
27,162
Net loans (resolved) repurchased with losses chargeable to liability for representations and warranties
(954)
(5,820)
12,288
(190)
Losses charged to liability for representations and warranties
895
1,053
2,121
2,385
Unpaid principal balance of loans subject to representations and warranties
Liability for representations and warranties
During the quarter and nine months ended September 30, 2026, we repurchased loans totaling $31.6 million and $88.0 million, respectively. We charged losses of $895,000 and $2.1 million against the liability during the quarter and nine months ended September 30, 2026, respectively. Our losses arising from representations and warranties have historically been minimized by our ability to either recover most of the losses from our correspondent sellers or from our ability to profitably refinance and resell repurchased loans.
Elevated interest rate levels may affect certain of our correspondent sellers’ ability to honor their obligations to repurchase defective loans, may increase the level of borrower defaults and may increase the level of repurchases we are required to make. We expect these developments may increase the losses we incur in relation to our recorded liability for representations and warranties compared to our historical experience. However, we believe our recorded liability is presently adequate to absorb such losses.
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Loan Origination Fees
Loan origination fees decreased $14.8 million during the quarter ended September 30, 2026 compared to the same period in 2025 primarily due to a decrease in production volumes across all lending channels. Loan origination fees increased $21.5 million during the nine months ended September 30, 2026 compared to the same period in 2025 primarily due to an increase in production volumes in the broker and consumer direct lending channels.
Fulfillment Fees from PennyMac Mortgage Investment Trust
Fulfillment fees from PMT represent fees we collect for services we perform on behalf of PMT in connection with the acquisition, packaging, sale and securitization of loans. The fulfillment fees are calculated based on the number of loans we fulfill for PMT.
Fulfillment fees decreased $3.0 million and $3.3 million during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025; the decrease was primarily due to a decrease in correspondent loan production volumes for PMT’s account.
Net Loan Servicing Fees
Our net loan servicing fee income has two primary components: fees earned for servicing the loans and the effects of MSR and MSL valuation changes, net of hedging results, as summarized below:
Servicing fees:
Owned servicing
548,097
535,106
1,616,116
1,530,241
Effects of MSRs and MSLs net of hedging results
Loan Servicing Fees
Following is a summary of our loan servicing fees:
Other:
23,993
24,785
72,115
70,811
23,565
28,949
61,755
81,480
Average UPB of loans serviced:
492,184,580
470,315,815
480,827,178
452,447,211
230,954,254
231,174,240
237,008,434
231,036,334
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Loan servicing fees from owned servicing generally relate to our MSRs which are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the UPB of the loan serviced and we collect these fees from borrower payments. Loan servicing fees from subservicing are primarily related to PMT’s MSRs and are established at monthly per-loan amounts based on whether the loan is a fixed-rate or adjustable-rate loan and the loan’s delinquency or foreclosure status as detailed in Note 5– Related Party Transactions to the consolidated financial statements included in this Quarterly Report. Subservicing fees from non-affiliates are based upon rates negotiated between the Company and the owner of the servicing rights at the time a subservicing agreement is entered into. Other loan servicing fees are comprised primarily of borrower-contracted fees such as late charges and reconveyance fees.
Loan servicing fees from owned servicing increased during the quarter and nine months ended September 30, 2026 compared to the same periods in 2025. The increases were primarily due to growth of our loan servicing portfolio. Other servicing fees decreased primarily due to decreased incentives received for loss mitigation activities.
Effects of Mortgage Servicing Rights and Mortgage Servicing Liabilities
We have elected to carry our servicing assets and liabilities at fair value. Changes in fair value have two components: changes due to realization of cash flows of the MSRs and MSLs and changes due to changes in market inputs used to estimate the fair value of MSRs and MSLs. We endeavor to moderate the effects of changes in fair value arising from changes in market inputs by entering into derivatives transactions and holding principal-only stripped MBS.
Change in fair value of MSRs and MSLs and the related hedging results are summarized below:
MSR and MSL valuation changes and hedging results:
Changes in fair value attributable to changes in fair value inputs
936,149
(102,495)
1,237,485
(292,060)
Hedging results
(11,523)
(4,189)
(103,055)
(196,082)
Changes in fair value attributable to realization of cash flows
(274,719)
(289,679)
(952,555)
(778,240)
Total change in fair value of mortgage servicing rights and mortgage servicing liabilities net of hedging results
Average balances:
11,109,443
9,699,217
10,448,248
9,288,041
1,508
1,622
1,540
1,642
Changes in fair value of MSRs attributable to changes in fair value inputs increased during the quarter and nine months ended September 30, 2026 compared to the same periods in 2025 due to increases in interest rates during the quarter and nine months ended September 30, 2026 as compared to flat to decreasing interest rates during the same periods in 2025. Increasing interest rates reduce the rate of prepayments of the underlying loans, which increases the cash flows expected from the servicing rights, while decreasing interest rates have the opposite effect.
Hedging results reflect valuation losses offsetting the valuation gains from increasing interest rates in the quarter and nine months ended September 30, 2026 compared with interest rate decreases in the same periods in 2025.
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Changes in fair value attributable to realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of the remaining cash flows to be realized. Realization of cash flows decreased during the quarter ended September 30, 2026 compared to the period in 2025, primarily due to slower prepayment speeds, and increased during the nine months ended September 30, 2026 compared to the same period in 2025, primarily due to faster average prepayment speeds and the growth in our investment in MSRs.
Following is a summary of our loan servicing portfolio:
Purchased and assumed
11,616,738
24,257,095
Total loans serviced
Delinquencies:
18,095,949
18,562,892
90 days or more
13,535,644
11,364,962
2,662,477
4,018,484
1,228,478
1,922,015
Following is a summary of characteristics of our MSR and MSL servicing portfolio as of September 30, 2026:
Average
Loan type
Loan count
Note rate
Age (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)
Government insured or guaranteed (2):
FHA
172,853,949
776,824
5.0%
315
223
687
92%
72%
7.8%
VA
124,320,636
430,410
4.4%
316
289
735
91%
73%
1.9%
USDA
20,643,775
137,182
297
150
98%
66%
5.6%
Government-sponsored entities:
Fannie Mae
66,529,100
202,235
5.3%
314
329
763
76%
64%
0.7%
Freddie Mac
89,126,015
247,160
6.0%
328
361
762
78%
70%
0.8%
Closed-end second lien mortgage loans
3,520,842
44,715
8.9%
247
79
745
20%
19%
0.4%
Other (3)
19,444,011
44,091
6.6%
344
441
775
75%
71%
0.2%
1,882,617
317
264
727
86%
3.7%
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Net Interest Expense
Following is a summary of net interest expense:
Cash and short-term investment
Short-term debt
126,814
125,437
376,943
340,323
Long-term debt
107,712
104,431
321,271
307,046
Net interest expense increased $42.3 million and $76.3 million during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increase for the quarter ended September 30, 2026 compared to the same period in 2025 was primarily due to a decrease in interest income on principal-only stripped MBS, a decrease in placement fees related to custodial funds and an increase in interest expense on borrowings. The increase for the nine months ended September 30, 2026 compared to the same period in 2025 was primarily due to a decrease in interest income on principal-only stripped MBS, an increase in interest on borrowings attributable to the Company financing a larger investment in MSRs and increased interest shortfalls on repayments of loans serviced for Agency securitizations during 2026, partially offset by an increase in interest income from loans held for sale.
Management Fees from PennyMac Mortgage Investment Trust
Management fees decreased $150,000 and $459,000 during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025, due to decreases in PMT’s average shareholders’ equity which is the basis for the base management fees.
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Compensation expenses are summarized below:
Salaries and wages
134,434
121,540
412,653
342,379
Incentive compensation
47,123
51,165
144,169
135,315
Taxes and benefits
25,382
22,680
82,419
68,618
Stock and unit-based compensation
Head count:
5,263
4,888
5,414
4,644
Period end
5,014
5,025
Compensation expenses increased $8.1 million and $77.8 million during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases were primarily due to an increase in average head count.
Loan Origination
Loan origination expenses decreased $144,000 during the quarter ended September 30, 2026 and increased $60.5 million for the nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increase for the nine months ended September 30, 2026 compared to the same period in 2025 was primarily due to higher origination volumes in the broker and consumer direct lending channel during the first six months of 2026.
Technology expenses increased $7.7 million and $15.8 million during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases were primarily due to an increase in software license and artificial intelligence related expenses intended to enhance process efficiencies.
Servicing expenses increased $10.1 million and $40.7 million during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases were primarily due to increases in provision for losses on servicing advances resulting from higher delinquent loan balances.
Marketing and advertising expenses increased $172,000 and $16.3 million during the quarter and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases were primarily due to additional marketing expenses incurred as an Official Supporter of Team USA, including marketing during the 2026 Winter Olympics.
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Provision for Income Taxes
Our effective income tax rates were 32.7% and 23.2% for the quarters ended September 30, 2026 and 2025, respectively, and 25.8% and 5.5% for the nine months ended September 30, 2026 and 2025, respectively. The increase in the effective income tax rates for the quarter ended September 30, 2026, compared to the same quarter in 2025, results from a lower tax deduction recognized for stock option exercises compared to the prior period along with a decrease in pre-tax book income that magnified the impact of our recurring permanent tax adjustments. The increase for the nine months ended September 30, 2026, compared to the same period in 2025, is primarily due to the non-recurrence of a $81.6 million net income tax benefit recognized in the prior year period, due to the repricing of deferred tax liabilities resulting from changes to California’s apportionment rules enacted into law in June 2025 requiring the Company to apportion income to California using a single sales factor instead of a factor equally weighted among property, payroll and sales.
Balance Sheet Analysis
Following is a summary of key balance sheet items as of the dates presented:
645,873
711,717
Derivative assets
490,697
187,775
Servicing advances, net
Mortgage servicing rights at fair value
Investments in and advances to affiliates
20,886
18,063
LIABILITIES AND STOCKHOLDERS' EQUITY
8,766,366
9,490,620
6,480,794
6,157,763
15,247,160
15,648,383
853,390
837,510
Stockholders' equity
Leverage ratios:
Total debt / Stockholders' equity
3.5
3.6
Total debt / Tangible stockholders' equity (1)
3.7
Total assets increased $523.4 million from $29.4 billion at December 31, 2025 to $29.9 billion at September 30, 2026. The increase was primarily due to an increase of $2.0 billion of mortgage servicing rights at fair value and an increase of $815.9 million of loans eligible for repurchase, partially offset by a decrease of $2.2 billion in loans held for sale at fair value.
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Total liabilities increased $475.8 million from $25.1 billion at December 31, 2025 to $25.6 billion at September 30, 2026. The increase was primarily due to an increase of $815.8 million in liability for loans eligible for repurchase and an increase of $323.0 million in long-term MSR financing, partially offset by a decrease of $724.3 million in short-term borrowings due to a decrease in loans held for sale. As a result of our decreased inventory financing requirements, our leverage ratios slightly decreased during the period ended September 30, 2026 from December 31, 2025.
Cash Flows
Our cash flows are summarized below:
Change
Operating
1,418,226
Investing
(1,822,537)
Financing
(47,457)
Net decrease in cash
(451,768)
The net decrease in cash of $68.3 million during the nine months ended September 30, 2026 is discussed below.
Operating activities
Net cash provided by operating activities totaled $1.7 billion during the nine months ended September 30, 2026 compared with net cash provided by operating activities of $237.3 million during the same period in 2025. Our cash flows from operating activities are primarily influenced by changes in the levels of our inventory of mortgage loans held for sale as shown below:
Cash flows from:
1,319,253
(539,661)
Other operating sources
336,242
776,930
The decrease in cash flows from other operating sources was primarily driven by an increase in servicing advances and the payment of several large accrued liabilities during the nine months ended September 30, 2026, compared to the same period in 2025.
Investing activities
Net cash used in investing activities during the nine months ended September 30, 2026 totaled $1.2 billion, primarily due to $1.3 billion in net settlement of derivative financial instruments used to hedge our investment in MSRs, partially offset by a $146.4 million repayment of principal-only stripped MBS. Net cash provided by investing activities during the nine months ended September 30, 2025 totaled $626.0 million, primarily due to a $358.3 million decrease in short-term investment, $167.1 million in sales of MSRs and $119.3 million from the repayment of principal-only stripped MBS.
Financing activities
Net cash used in financing activities totaled $527.3 million during the nine months ended September 30, 2026, primarily due to a decrease of $406.8 million in borrowings, a $50.0 million repurchase of common shares and a $47.4 million common stock dividend paid. Net cash used in financing activities totaled $479.8 million during the nine months ended September 30, 2025, primarily due to a decrease of $378.0 million in borrowings. The decreases in borrowings primarily reflects the decrease in inventory of loans held for sale for the nine months ended September 30, 2026 and 2025.
Liquidity and Capital Resources
Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of, and margin calls relating to, our debt, and margin calls relating to hedges on our commitments to purchase or originate mortgage loans and on our MSR investments), fund new originations and purchases, and make investments as we identify them. We expect our primary sources of liquidity to be through cash flows from business activities, proceeds from bank borrowings and proceeds from and issuance of equity or debt offerings. We believe that our capital resources are sufficient to meet our current liquidity requirements.
Our current borrowing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. Our primary borrowing activities are in the form of sales of assets under agreements to repurchase, sales of mortgage loan participation purchase and sale certificates, notes payable secured by mortgage servicing rights and unsecured senior notes. A significant amount of our borrowings have short-term maturities and provide for advances with terms ranging from 30 days to 364 days. Because a significant portion of our current debt facilities consist of short-term debt, we expect to 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.
Secured debt facilities for MSRs and servicing advances take various forms. Fannie Mae MSRs, Ginnie Mae MSRs and servicing advances may be pledged to special purpose entities, each of which may issue variable funding notes (“VFNs”) and term notes and term loans that are secured by such Ginnie Mae or Fannie Mae assets. Term notes are issued to qualified institutional buyers under Rule 144A of the Securities Act and term loans are syndicated to banking entities, while the VFNs are sold to bank partners under agreements to repurchase. Freddie Mac MSRs are pledged to lenders under a bi-lateral loan and security agreement.
Our repurchase agreements represent the sales of assets together with agreements for us to buy back the respective assets at a later date. The table below presents the average, maximum daily and ending balances:
Maximum daily balance
Balance at period end
7,138,415
The differences between the average and maximum daily balances on our repurchase agreements reflect the effect of fluctuations throughout the periods of our inventory as we fund and pool mortgage loans for sale in guaranteed mortgage securitizations.
Our repurchase 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 decrease in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement. 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.
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Our secured financing agreements at PLS require us to comply with various financial and other restrictive covenants. The most significant financial covenants currently include the following:
With respect to servicing performed for PMT, PLS is also subject to certain covenants under PMT’s debt agreements. Covenants in PMT’s debt agreements are equally, or sometimes less, restrictive than the covenants described above.
PFSI has issued unsecured senior notes (the “Unsecured Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries defined in the indentures under which the Unsecured Notes were issued).
Our Unsecured Notes’ indentures contain financial and other restrictive covenants that limit the Company and our restricted subsidiaries’ ability to engage in specified types of transactions, including, but not limited to the following:
Although financial and other covenants limit the amount of indebtedness that we may incur and affect 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.
We are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae, Freddie Mac, and Ginnie Mae for its approved single-family issuers, and Ginnie Mae has issued risk-based capital requirements. We believe that we are in compliance with each Agency’s requirements as of September 30, 2026.
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We have a common stock repurchase program which allows us to repurchase common shares of up to $2 billion. Share repurchases may be effected through open market purchases or privately negotiated transactions in accordance with applicable rules and regulations. The stock repurchase program does not have an expiration date and the authorization does not obligate us to acquire any particular amount of common stock. From inception through September 30, 2026, we have repurchased approximately $1.8 billion of common shares under our stock repurchase program.
We continue to explore a variety of means of financing our business, including debt financing through bank warehouse lines of credit, bank loans, repurchase agreements, securitization transactions and corporate debt. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or whether such efforts will be successful.
Debt Obligations
As described further above in “Liquidity and Capital Resources,” we currently finance certain of our assets through short-term borrowings with major financial institutions in the form of sales of assets under agreements to repurchase and mortgage loan participation purchase and sale agreements. We access the capital market for long-term debt through the issuance of secured term notes, term loans and Unsecured Notes. The issuer under our secured term note facilities is PLS or a wholly-owned issuer trust guaranteed by PNMAC. In addition, PFSI has issued Unsecured Notes guaranteed by certain of its restricted wholly-owned domestic subsidiaries.
PLS is required to comply with financial and other restrictive covenants in certain financing agreements, as described further above in “Liquidity and Capital Resources”. As of September 30, 2026, we believe PLS was in compliance in all material respects with these covenants.
Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires PLS to maintain positive net income for at least one of the previous two consecutive quarters, or other similar measures. PLS is compliant with all such conditions.
The financing agreements also contain margin call provisions that, upon notice from the applicable lender, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. 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.
In addition, the financing agreements contain events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, servicer termination events and defaults, material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for these types of transactions. The remedies for such events of default are also customary for these types of transactions and include the acceleration of the principal amount outstanding under the agreements and the liquidation by our lenders of the mortgage loans or other collateral then subject to the agreements.
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Our debt obligations have the following sizes and maturities:
Outstanding
Facility
Lender
indebtedness (1)
facility size (2)
facility (2)
Maturity date (2)
(dollar amounts in thousands)
Loans sold under agreements to repurchase
1,765,603
2,500,000
1,500,000
918,038
380,884
1,250,000
1,000,000
188,938
700,000
406,169
600,000
350,000
336,590
150,000
Barclays Bank PLC
241,820
405,000
156,931
100,000
1,350,000
162,004
Servicing assets sold under agreements to repurchase
730,000
2,331,962
435,000
550,000
325,000
200,000
October 9, 2028
245,000
January 29, 2027
155,000
August 11, 2028
Mortgage-backed securities sold under agreements to repurchase
181,608
142,889
21,920
June 9, 2027
Notes payable
GMSR 2023-GTL1 Loans
GMSR 2023-GTL2 Loans
GMSR 2024-GT1 Notes
GMSR 2025-GT1 Notes
GMSR 2026-GT1 Notes
Citibank, N.A. FHLMC MSR Facility
Goldman Sachs Bank USA FHLMC MSR Facility
August 12, 2028
Unsecured Notes - 4.25%
Unsecured Notes - 5.75%
Unsecured Notes - 7.875%
Unsecured Notes - 7.125%
Unsecured Notes - 6.875%
Unsecured Notes - 6.75%
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 September 30, 2026:
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. There have been no significant changes in our critical accounting policies and estimates during the quarter ended September 30, 2026 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
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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 fair value risk, interest rate risk and prepayment risk.
Fair Value Risk
Our IRLCs, mortgage loans held for sale, principal-only stripped MBS, MSRs and MSLs are reported at their fair values. The fair value of these assets fluctuates primarily due to changes in interest rates. The fair value risk we face is primarily attributable to interest rate risk and prepayment risk.
Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. Changes in interest rates affect both the fair value of, and interest income we earn from, our mortgage-related investments and our derivative financial instruments. This effect is most pronounced with fixed-rate mortgage assets.
In general, rising interest rates negatively affect the fair value of our IRLCs, inventory of mortgage loans held for sale, and principal-only stripped MBS and positively affect the fair value of our MSRs. Changes in interest rates significantly influence the prepayment speeds of the loans underlying our investments in MSRs, which can have a significant effect on their fair values. Changes in interest rate are most prominently reflected in the prepayment speeds of the loans underlying our investments in MSRs and the discount rate used in their valuation.
Our operating results will depend, in part, on differences between the income from our investments and our financing costs. Presently most of our secured debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index, as determined by the particular financing arrangement.
Prepayment Risk
To the extent that the actual prepayment rate on the mortgage loans underlying our MSRs differs from what we projected when we initially recognized these assets and liabilities when we measure fair value as of the end of each reporting period, the carrying value of these assets and liabilities will be affected. In general, a decrease in the principal balances of the mortgage loans underlying our MSRs or an increase in prepayment expectations will decrease our estimates of the fair value of the MSRs, thereby reducing net loan servicing income, partially offset by the beneficial effect on net loan servicing income of a corresponding reduction in the fair value of our MSLs and an increase in the fair value of our principal-only stripped MBS.
Risk Management Activities
We engage in risk management activities primarily in an effort to mitigate the effect of changes in interest rates on the fair value of our assets. To manage this price risk, we use derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of our assets, primarily prepayment exposure on our MSR investments as well as IRLCs and our inventory of loans held for sale. Our objective is to minimize our hedging expense and maximize our loss coverage based on a given hedge expense target. We do not use derivative financial instruments other than IRLCs for purposes other than in support of our risk management activities.
Our strategies are reviewed daily within a disciplined risk management framework. We use a variety of interest rate and spread shifts and scenarios and define target limits for market value and liquidity loss in those scenarios. With respect to our IRLCs and inventory of loans held for sale, we use MBS forward sale contracts to lock in the price at which we will sell the mortgage loans or resulting MBS, and further use MBS put options to mitigate the risk of our IRLCs not closing at the rate we expect. With respect to our MSRs, we seek to mitigate mortgage-based loss exposure utilizing MBS forward purchase and sale contracts and principal-only stripped MBS, address exposures to smaller interest rate shifts with Treasury and interest rate swap futures, and use options and swaptions to achieve target coverage levels for larger interest rate shocks.
Fair Value Sensitivities
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 inputs 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 tables summarize the estimated change in fair value of MSRs as of September 30, 2026, given several shifts in prepayment speeds, option adjusted spreads and annual per loan cost of servicing:
Change in fair value attributable to shift in:
-20%
-10%
-5%
+5%
+10%
+20%
Prepayment speed
441,315
229,657
116,928
(118,890)
(238,696)
(478,300)
Option adjusted spread
326,409
171,049
86,983
(89,281)
(179,859)
(360,732)
Annual per-loan cost of servicing
234,917
117,459
58,729
(58,729)
(117,459)
(234,917)
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, as amended (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 Rule 13a-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 September 30, 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, the Company may be involved in various legal and regulatory proceedings, lawsuits and other claims arising in the ordinary course of its business. See Note 18 — 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 have been no material changes from the risk factors set forth under Item 1A. For a discussion of our risk factors refer to our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 20, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended September 30, 2026.
Stock Repurchase Program
Total numberof sharespurchased
Average pricepaid per share
Total number of shares purchasedas part of publicly announced plans or program (1)
Approximate dollarvalue of shares thatmay yet bepurchased under the plans or program (1)
July 1, 2026 – July 31, 2026
157,600,979
August 1, 2026 – August 31, 2026
September 1, 2026 – September 30, 2026
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) Trading Plans
During the quarter ended September 30, 2026, none of our directors 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 of Regulation S-K).
Item 6. Exhibits
Incorporated by Referencefrom the Below-Listed Form(Each Filed under SEC FileNumber 001-35916 or001-38727)
Exhibit No.
Exhibit Description
Form
Filing Date
2.1
Contribution Agreement and Plan of Merger, dated as of August 2, 2018, by and among PennyMac Financial Services, Inc., New PennyMac Financial Services, Inc., New PennyMac Merger Sub, LLC, Private National Mortgage Acceptance Company, LLC, and the Contributors.
8-K12B
November 1, 2018
3.1
Amended and Restated Certificate of Incorporation of New PennyMac Financial Services, Inc.
3.1.1
Certificate of Amendment to Amended and Restated Certificate of Incorporation of New PennyMac Financial Services, Inc.
3.2
Amended and Restated Bylaws of PennyMac Financial Services, Inc.
8-K
March 18,
10.1
Amendment No. 2 to Fifth Amended and Restated Flow Servicing Agreement, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC, dated as of September 9, 2026.
*
10.2
Amendment No. 2 to Amended and Restated Flow Servicing Agreement, between PennyMac Corp. and PennyMac Loan Services, LLC, dated as of September 9, 2026.
10.3
Amendment No. 1 to Fourth Amended and Restated Mortgage Banking Services Agreement, between PennyMac Loan Services, LLC and PennyMac Corp., dated as of September 9, 2026.
10.4
Amendment No. 1 to Amended and Restated Mortgage Loan Purchase Agreement, between PennyMac Loan Services, LLC and PennyMac Corp., dated as of September 9, 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.
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2026, formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
*Filed herewith
**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, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements 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.
Dated: November 3, 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)