# PennyMac Mortgage Investment Trust: Form 10-Q for the period ended Mar 31, 2025

- Company: [PennyMac Mortgage Investment Trust](/companies/pmt.md) (CIK 1464423)
- Form: 10-Q
- Filed: 2025-04-30
- Accepted by EDGAR: Apr 30, 2025, 16:02 ET
- Period: 2025-03-31
- Accession: 0000950170-25-061012
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1464423/000095017025061012/pmt-20250331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1464423/000095017025061012/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-01-01 to 2025-03-31 | $44.5m | us-gaap:RevenuesNetOfInterestExpense |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | −$16.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | $9.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-01-01 to 2025-03-31 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-01-01 to 2025-03-31 | 86,907,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | −$594.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2025-01-01 to 2025-03-31 | $34.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2025-03-31 | $247.9m | us-gaap:Cash |
| Total assets | at 2025-03-31 | $14.88bn | us-gaap:Assets |
| Total liabilities | at 2025-03-31 | $12.97bn | us-gaap:Liabilities |
| Shareholders' equity | at 2025-03-31 | $1.90bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 82,385 characters.

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

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

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

### Our Company

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

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

We operate our business in three segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production. Non-segment activities are included in our corporate operations. Our segment and corporate activities are described below.

- The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate MBS.
- The interest rate sensitive strategies segment represents our investments in MSRs, Agency and senior non-Agency MBS and the related interest rate hedging activities.
- The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.

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

- Our corporate operations include management fees, compensation, professional services, and other amounts attributable to the Company’s corporate operations and certain interest income and expense.

### Our Investment Activities

#### Credit Sensitive Investments

CRT Arrangements

We have previously entered into loan sales arrangements with Fannie Mae pursuant to which we accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on those loans and comprise the Company’s investments in CRT arrangements.

We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an IO security payable) totaling approximately $1.1 billion at March 31, 2025.

Subordinate Credit-Linked Mortgage-Backed Securities

Subordinate credit-linked MBS provide us with a higher yield than senior MBS. However, we incur credit risk in the subordinate credit-linked MBS since they are the first securities to absorb credit losses relating to the underlying loans. During the quarter ended March 31, 2025, we retained approximately $66.0 million of subordinate credit-linked securities from our securitizations of loans secured by investment properties. As the result of the Company’s consolidation of the variable interest entities that issued the subordinate MBS as described in Note 6 – *Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities* to the consolidated financial statements included in this Report, we reflect our investments in these securities as loans at fair value net of the associated asset-backed financing.

At March 31, 2025, we held subordinate credit-linked MBS issued by nonaffiliates with fair values totaling approximately $195.1 million.

#### Interest Rate Sensitive Investments

Our interest rate sensitive investments include:

- Mortgage servicing rights. During the quarter ended March 31, 2025, we received approximately $47.0 million of MSRs as proceeds from sales of loans acquired for sale. We held approximately $3.8 billion of MSRs at fair value at March 31, 2025.
- REIT-eligible Agency, senior non-Agency, and Agency IO and PO stripped MBS. We held Agency fixed-rate pass-through, senior non-Agency, IO and PO stripped MBS with fair values totaling approximately $3.8 billion at March 31, 2025. During the quarter ended March 31, 2025, we retained approximately $29 million of investments in senior bonds, from our securitization of loans secured by investment properties. Consistent with our treatment of subordinate credit-linked MBS from our securitizations, we account for these investments as loans net of asset-backed financings.

#### Correspondent Production

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

*(in thousands)*

| Sales of loans acquired for sale: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| To nonaffiliates | $2,613,958 | $1,928,336 |
| To PennyMac Financial Services, Inc. | 20,437,666 | 16,302,059 |
|  | $23,051,624 | $18,230,395 |
| Net gains on loans acquired for sale | $12,344 | $14,518 |
| Investment activities resulting from correspondent production: |  |  |
| Receipt of MSRs as proceeds from sales of loans | $47,009 | $31,249 |
| Retention of interests in securitizations of loans secured by investment properties, net of associated asset-backed financings (1) | 94,021 | — |
| Total investments resulting from correspondent activities | $141,030 | $31,249 |

(1) The trusts issuing the securities are consolidated on our consolidated balance sheets. Therefore, our investments in these securities are shown as their underlying assets, *Loans at fair value,* with the securities held by non-affiliates being shown as *Asset-backed financings of variable interest entities at fair value.*

During the quarter ended March 31, 2025, we purchased newly originated prime credit quality residential loans with fair values totaling $24.0 billion, including $654.8 million from PLS, as compared to $18.4 billion for the quarter ended March 31, 2024, in our correspondent production business. Our loan sales included $20.4 billion and $16.3 billion of loans we sold to PLS during the quarters ended March 31, 2025 and March 31, 2024, respectively. We receive a sourcing fee based on the unpaid principal balance (“UPB”) of each loan that we sell to PLS under such arrangement, and earn interest income on the loan for the period we hold it before the sale. During the quarters ended March 31, 2025 and March 31, 2024, we received sourcing fees totaling $2.0 million and $1.6 million, respectively.

To the extent that we purchase loans that are insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or guaranteed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, we and PLS have agreed that PLS will fulfill and purchase such loans, as PLS is a Ginnie Mae approved issuer and we are not. This arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional loans. We may also sell conventional loans that we purchase to PLS subject to our and PLS's mutual agreement. During the quarter ended March 31, 2025, we sold $9.0 billion in UPB of conventional loans to PLS in order to optimize our use and allocation of capital.

Beginning in July 2025, we expect PLS will become the initial purchaser of loans from correspondent sellers and begin transferring agreed-upon volumes of such loans to us. Accordingly, we will no longer purchase government loans. We retain the right to purchase up to 100% of PLS's non-government correspondent production.

#### Taxation

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

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

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

#### Non-Cash Investment Income

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

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

*(dollars in thousands)*

| Net gains on investments and financings: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Mortgage-backed securities | $64,855 | $(38,198) |
| Loans | 28,681 | (1,278) |
| CRT arrangements | (12,648) | 36,121 |
| Interest-only security payable at fair value | (1,732) | 440 |
| Asset-backed financings at fair value | (29,423) | 7,476 |
|  | 49,733 | 4,561 |
| Net gains on loans acquired for sale (1) | 70,306 | 114,046 |
| Net loan servicing fees‒MSR valuation adjustments (2) | (81,079) | 143,922 |
|  | $38,960 | $262,529 |
| Net investment income | $44,465 | $74,205 |
| Non-cash items as a percentage of net investment income | 88% | 354% |

57

(1) Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, interest rate lock commitments (“IRLCs") and hedging derivatives held at the end of the quarter.

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

We receive or pay cash relating to:

- Our investment in MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investments;
- Loan investments when the investments are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold;
- CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangement in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid;
- MSRs in the form of loan servicing fees (including both base servicing and excess servicing spread) and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service;
- Hedging instruments when we receive or make margin deposits as the fair value of respective instruments change, when the instruments mature or when we effectively cancel the transactions through offsetting trades; and
- Our liability for representations and warranties when we repurchase loans or settle loss claims from investors.

### Business Trends

Recent actions by the U.S. government administration with respect to trade, tariffs and government cost reduction initiatives 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 growth in the size of the mortgage origination market, which is currently projected to rise from $1.7 trillion in 2024 to $2.0 trillion in 2025, according to mortgage industry economists.

Opportunity for refinancing has increased in recent periods, driven by interest rate volatility and a greater proportion of outstanding mortgage loans with note rates near current market rates. If such interest rate volatility continues, it may drive greater mortgage production activity and higher prepayment speeds than we have experienced in recent years. Additionally, recent reductions to the federal funds rate put into place by the Federal Reserve have led to a decline in the costs of floating rate borrowings and a reduction of placement fees we receive relating to custodial funds that we manage as compared to the same period in the prior year.

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 increased losses. If these effects are realized, they could negatively affect the performance of our credit-sensitive assets such as our CRT arrangements or subordinate credit-linked notes and increase losses from our representations and warranties. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help moderate the negative effects of credit performance in an economic downturn.

We are continuing to aggregate Agency eligible non-owner occupied loans and have begun to aggregate jumbo mortgage loans, and we expect to continue investing in subordinate MBS generated from the securitization of these loans in the private label market in 2025.

### Results of Operations

The following is a summary of our key performance measures:

*(dollar amounts in thousands, except per common share amounts)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Net gains on investments and financings | $62,313 | $39,753 |
| Loan production income (1) | 15,496 | 16,526 |
| Net loan servicing fees | (27,210) | 45,705 |
| Net interest expense | (6,046) | (27,968) |
| Other | (88) | 189 |
| Net investment income | 44,465 | 74,205 |
| Expenses | 50,764 | 41,824 |
| Pretax (loss) income | (6,299) | 32,381 |
| Benefit from income taxes | (15,979) | (15,227) |
| Net (loss) income | 9,680 | 47,608 |
| Dividends on preferred shares | 10,455 | 10,455 |
| Net (loss) income attributable to common shareholders | $(775) | $37,153 |
| Pretax (loss) income by segment and corporate: |  |  |
| Credit sensitive strategies | $1,110 | $60,826 |
| Interest rate sensitive strategies | (5,474) | (27,245) |
| Correspondent production | 10,127 | 11,667 |
| Corporate operations | (12,062) | (12,867) |
|  | $(6,299) | $32,381 |
| Annualized return on average common shareholders' equity | (0.2)% | 10.4% |
| (Loss) earnings per common share |  |  |
| Basic | $(0.01) | $0.43 |
| Diluted | $(0.01) | $0.39 |
| Dividends per common share | $0.40 | $0.40 |
|  | **March 31, 2025** | **December 31, 2024** |
| Total assets | $14,876,226 | $14,408,706 |
| Book value per common share | $15.43 | $15.87 |
| Closing price per common share | $14.65 | $12.59 |

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

Our results of operations decreased by $37.9 million during the quarter ended March 31, 2025, as compared to the quarter ended March 31, 2024, reflecting the effect of the increased fair value losses from our MSRs and CRT investments, partially offset by increased gains on MBS:

The decrease in pretax results is summarized below:

- Our credit sensitive strategies segment recognized a $53.5 million decrease in net gains on our CRT arrangements as market credit spreads widened (an increase in the interest rate premium demanded by investors for instruments over those that are considered “risk free”) during the quarter ended March 31, 2025 as compared to tightening in the quarter ended March 31, 2024.
- Our interest rate sensitive strategies segment recognized a $72.9 million decrease in net servicing fees resulting from increased net MSR valuation losses compared to the quarter ended March 31, 2024 caused by a decrease in market interest rates during the quarter compared to an increase in interest rates in the same period in 2024. These decreases were partially offset by an $88.4 million increase in valuation gains on MBS as well as a $15.2 million decrease in net interest expense.
- Our correspondent production segment recognized a $2.2 million decrease in our gain on sale during the quarter ended March 31, 2025, as compared to the same period in 2024, reflecting a reduction in our gain on sale margins.

### Net Investment Income

Our net investment income is summarized below:

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Net gains on investments and financings | $62,313 | $39,753 |
| Net gains on loans acquired for sale | 12,344 | 14,518 |
| Loan origination fees | 3,152 | 2,008 |
| Net loan servicing fees | (27,210) | 45,705 |
| Net interest expense | (6,046) | (27,968) |
| Other | (88) | 189 |
|  | $44,465 | $74,205 |

#### Net Gains on Investments and Financings

*Net gains on investments and financings* are summarized below:

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Mortgage-backed securities | $64,855 | $(38,198) |
| Loans at fair value | 28,681 | (1,278) |
| CRT arrangements | (1,800) | 51,655 |
| Asset-backed financings at fair value | (29,423) | 7,476 |
| Hedging derivatives | — | 20,098 |
|  | $62,313 | $39,753 |

The increase in net gains on investments for the quarter ended March 31, 2025, as compared to the same period in 2024, was primarily due to gains from our investments in MBS as interest rates decreased.

Mortgage-Backed Securities

During the quarter ended March 31, 2025, we recognized net valuation gain of $64.9 million, as compared to valuation losses of $38.2 million for the same period in 2024. The gain recognized reflects decreasing interest rates during the quarter ended March 31, 2025, as compared to increasing interest rates during the quarter ended March 31, 2024.

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

Loans at fair value held in VIEs and *Asset-backed financings at fair value* recorded a combined net valuation loss of $0.7 million during the quarter ended March 31, 2025, as compared to a net gain of $6.2 million during the quarter ended March 31, 2024. The net loss during the quarter ended March 31, 2025 reflects the losses on the asset-backed financing exceeding the gains on the underlying assets as the result of credit spread widening on our net investments secured by jumbo loans and investment properties, partially offset by the positive effect on fair value of decreasing interest rates.

CRT Arrangements

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

*(in thousands)*

| Net investment income: Net gains on investments and financings Credit risk transfer derivatives and strips: Credit risk transfer derivatives | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Realized | $2,803 | $3,409 |
| Valuation changes | (823) | 6,781 |
|  | 1,980 | 10,190 |
| Credit risk transfer strips |  |  |
| Realized | 9,777 | 11,685 |
| Valuation changes | (11,825) | 29,340 |
|  | (2,048) | 41,025 |
| Interest-only security payable at fair value - valuation changes | (1,732) | 440 |
|  | (1,800) | 51,655 |
| Interest income — Deposits securing credit risk transfer arrangements | 11,675 | 15,696 |
|  | $9,875 | $67,351 |
| Net payments made to settle losses on credit risk transfer arrangements | $1,243 | $185 |

*(in thousands)*

| Carrying value of credit risk transfer arrangements: | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Derivative assets - credit risk transfer derivatives | $28,474 | $29,377 |
| Derivative and credit risk transfer liabilities - credit risk transfer strip liabilities | (15,885) | (4,060) |
| Deposits securing credit risk transfer arrangements | 1,087,949 | 1,110,708 |
| Interest-only security payable at fair value | (35,954) | (34,222) |
|  | $1,064,584 | $1,101,803 |
| Credit risk transfer arrangement assets pledged to secure borrowings: |  |  |
| Derivative assets | $28,474 | $29,377 |
| Deposits securing credit risk transfer arrangements (1) | $1,087,949 | $1,110,708 |
| Unpaid principal balance of loans underlying credit risk transfer arrangements | $20,849,101 | $21,249,304 |
| Collection status (unpaid principal balance): |  |  |
| Delinquency |  |  |
| Current | $20,269,686 | $20,628,148 |
| 30-89 days delinquent | $382,091 | $414,605 |
| 90-180 days delinquent | $112,616 | $131,191 |
| 180 or more days delinquent | $62,902 | $51,343 |
| Foreclosure | $21,806 | $24,017 |
| Bankruptcy | $62,489 | $63,697 |

(1) *Deposits securing credit risk transfer arrangements* also secure $15.9 million and $4.1 million in CRT strip and CRT derivative liabilities at March 31, 2025 and December 31, 2024, respectively.

The performance of our investments in CRT arrangements during the quarter ended March 31, 2025 reflects credit spread widening, as compared to the quarter ended March 31, 2024, which reflected credit spread tightening.

#### Net Gains on Loans Acquired for Sale

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

*(in thousands)*

| From non-affiliates: Cash losses: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Sales of loans | $(1,915) | $(31,177) |
| Hedging activities | (58,062) | (69,956) |
|  | (59,977) | (101,133) |
| Non-cash gains: |  |  |
| Receipt of MSRs in loan sale transactions | 47,009 | 31,249 |
| Provision for losses relating to representations and warranties provided in loan sales: |  |  |
| Pursuant to loan sales | (304) | (254) |
| Reduction in liability due to change in estimate | 1,168 | 6,878 |
|  | 864 | 6,624 |
| Changes in fair value of financial instruments held at end of quarter: |  |  |
| Interest rate lock commitments | 4,174 | (2,688) |
| Loans | (13,444) | 6,295 |
| Hedging derivatives | 31,703 | 72,566 |
|  | 22,433 | 76,173 |
|  | 70,306 | 114,046 |
| Total from nonaffiliates | 10,329 | 12,913 |
| From PFSI—cash | 2,015 | 1,605 |
|  | $12,344 | $14,518 |
| Interest rate lock commitments issued on loans acquired for sale: |  |  |
| To nonaffiliates | $2,735,356 | $2,482,135 |
| To PFSI | 22,095,355 | 17,080,857 |
|  | $24,830,711 | $19,562,992 |
| Acquisition of loans for sale (unpaid principal balance): |  |  |
| To nonaffiliates | $2,781,722 | $1,771,681 |
| To PFSI | 20,223,633 | 16,356,544 |
|  | $23,005,355 | $18,128,225 |

The changes in gain on loans acquired for sale during the quarter ended March 31, 2025, as compared to the same period in 2024, reflect the effect of reduced gain on sale margins.

Non-cash elements of gain on sale of loans:

Interest Rate Lock Commitments

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

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

Mortgage Servicing Rights

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

Liability for Losses Under Representations and Warranties

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

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

We recorded a provision for losses relating to representations and warranties relating to current period loan sales of $304,000 and $254,000 for the quarters ended March 31, 2025 and 2024, respectively.

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

*(in thousands)*

| Indemnification activity (unpaid principal balance): | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Loans indemnified at beginning of quarter | $15,289 | $12,123 |
| New indemnifications | 493 | 1,758 |
| Less: indemnified loans sold, repaid or refinanced | — | — |
| Loans indemnified at end of quarter | $15,782 | $13,881 |
| Indemnified loans indemnified by correspondent lenders at end of quarter | $6,045 | $5,969 |
| UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter | $5,488 | $4,190 |
| Repurchase activity (unpaid principal balance): |  |  |
| Loans repurchased | $4,846 | $7,515 |
| Less: |  |  |
| Loans repurchased by correspondent sellers | 4,783 | 5,979 |
| Loans resold or repaid by borrowers | 2,703 | 2,788 |
| Net loans repurchased (resolved) with losses chargeable to liability to representations and warranties | $(2,640) | $(1,252) |
| Losses charged to liability for representations and warranties | $67 | $— |
| At end of quarter: |  |  |
| Loans subject to representations and warranties | $220,977,898 | $225,439,542 |
| Liability for representations and warranties | $5,955 | $19,519 |

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

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

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

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

Adjustments to our liability for representations and warranties are included as a component of our *Net gains on loans acquired for sale at fair value*. We recorded a $1.2 million reduction in liability for representations and warranties during the quarter ended March 31, 2025 due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.

#### Loan Origination Fees

Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loan

origination fees increased during the quarter ended March 31, 2025, as we purchased more loans for sale to nonaffiliates compared to the same period in 2024.

#### Net Interest Expense

Net interest expense is summarized below:

*(dollars in thousands)*

| Assets: | Quarter ended March 31, 2025 Interest income/ expense | Average balance | Interest yield/ cost % | Quarter ended March 31, 2024 Interest income/ expense | Average balance | Interest yield/ cost % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cash and short-term investments | $5,686 | $517,590 | 4.47% | $8,192 | $580,594 | 5.67% |
| Mortgage-backed securities | 58,234 | 4,059,457 | 5.83% | 59,771 | 4,143,942 | 5.80% |
| Loans acquired for sale | 33,235 | 1,997,488 | 6.77% | 11,946 | 704,809 | 6.82% |
| Loans at fair value | 33,679 | 2,626,335 | 5.21% | 12,116 | 1,425,584 | 3.42% |
| Deposits securing CRT arrangements | 11,675 | 1,101,503 | 4.31% | 15,696 | 1,200,301 | 5.26% |
|  | 142,509 | 10,302,373 | 5.63% | 107,721 | 8,055,230 | 5.38% |
| Placement fees relating to custodial funds | 32,029 |  |  | 35,440 |  |  |
| Other | 1,553 |  |  | 398 |  |  |
|  | $176,091 | $10,302,373 | 6.95% | $143,559 | $8,055,230 | 7.17% |
| Liabilities: |  |  |  |  |  |  |
| Assets sold under agreements to repurchase | $81,148 | $6,180,911 | 5.34% | $80,557 | $5,144,834 | 6.30% |
| Mortgage loan participation purchase and sale agreements | 152 | 8,653 | 7.14% | 246 | 12,731 | 7.77% |
| Notes payable secured by credit risk transfer and mortgage servicing assets | 55,255 | 2,830,048 | 7.94% | 64,989 | 2,866,504 | 9.12% |
| Unsecured senior notes | 13,613 | 708,917 | 7.81% | 9,684 | 608,500 | 6.40% |
| Asset-backed financings | 28,715 | 2,633,042 | 4.43% | 12,678 | 1,581,818 | 3.22% |
|  | 178,883 | 12,361,571 | 5.88% | 168,154 | 10,214,387 | 6.62% |
| Interest shortfall on repayments of loans serviced for Agency securitizations | 1,429 |  |  | 1,293 |  |  |
| Interest on loan impound deposits | 1,454 |  |  | 1,347 |  |  |
| Other | 371 |  |  | 733 |  |  |
|  | 182,137 | $12,361,571 | 5.99% | 171,527 | $10,214,387 | 6.75% |
|  | $(6,046) |  |  | $(27,968) |  |  |

64

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

*(in thousands)*

| Assets: | Quarter ended March 31, 2025 vs. Quarter ended March 31, 2024 Increase (decrease) due to changes in Rate | Volume | Total |
| --- | ---: | ---: | ---: |
| Cash and short-term investments | $(1,660) | $(846) | $(2,506) |
| Mortgage-backed securities | 189 | (1,726) | (1,537) |
| Loans acquired for sale | (89) | 21,378 | 21,289 |
| Loans at fair value | 8,285 | 13,278 | 21,563 |
| Deposits securing CRT arrangements | (2,761) | (1,260) | (4,021) |
|  | 3,964 | 30,824 | 34,788 |
| Placement fees relating to custodial funds |  |  | (3,411) |
| Other |  |  | 1,155 |
|  | $3,964 | $30,824 | $32,532 |
| Liabilities: |  |  |  |
| Assets sold under agreements to repurchase | $(13,558) | $14,149 | $591 |
| Mortgage loan participation purchase and sale agreements | (19) | (75) | (94) |
| Notes payable secured by credit risk transfer and mortgage servicing assets | (8,862) | (872) | (9,734) |
| Senior notes | 2,245 | 1,684 | 3,929 |
| Asset-backed financings | 5,793 | 10,244 | 16,037 |
|  | (14,401) | 25,130 | 10,729 |
| Interest shortfall on repayments of loans serviced for Agency securitizations |  |  | 136 |
| Interest on loan impound deposits |  |  | 107 |
| Other |  |  | (362) |
|  | (14,401) | 25,130 | 10,610 |
|  | $18,365 | $5,694 | $21,922 |

The decrease in net interest expense during the quarter ended March 31, 2025, as compared to the same period in 2024, is due to yields on our interest-earning assets decreasing slower than the cost of our interest-bearing liabilities, partially offset by a decrease in earnings from placement fees relating to custodial funds managed for borrowers and investors.

#### Net Loan Servicing Fees

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

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Loan servicing fees | $156,116 | $163,368 |
| Effect of mortgage servicing rights and hedging results | (183,326) | (117,663) |
| Net loan servicing fees | $(27,210) | $45,705 |

65

Loan Servicing Fees

Following is a summary of our loan servicing fees:

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Contractually specified servicing fees | $152,199 | $160,357 |
| Ancillary and other fees: |  |  |
| Late charges | 1,027 | 993 |
| Other | 2,890 | 2,018 |
|  | 3,917 | 3,011 |
|  | $156,116 | $163,368 |
| Average UPB of underlying loans | $225,515,018 | $230,591,966 |

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

The change in contractually-specified fees during the quarter ended March 31, 2025, is due primarily to the slight reduction in our MSR servicing portfolio, reflecting the shift of a portion of our loan sales from sales to nonaffiliates with servicing rights retained to sales to PLS that include the transfer of servicing rights to PLS.

Mortgage Servicing Rights and Hedging

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

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

*(in thousands)*

| Change in fair value of MSRs | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Changes in valuation inputs used in valuation model | $(55,831) | $71,570 |
| Recapture income from PFSI | 1,208 | 353 |
| Hedging results | (39,944) | (89,814) |
|  | (94,567) | (17,891) |
| Realization of expected cash flows | (88,759) | (99,772) |
|  | $(183,326) | $(117,663) |
| Average balance of mortgage servicing rights | $3,816,665 | $3,955,320 |

Changes in fair value due to changes in valuation inputs used in our valuation model during the quarter ended March 31, 2025 reflect the effects of expectations for faster future prepayments of the underlying loans due to decreases in interest rates during the quarter ended March 31, 2025 compared to increasing interest rates during the same period in 2024.

The increase in loan recapture income from PFSI reflects the increase in refinancing activity in our MSR portfolio during the quarter ended March 31, 2025, as compared to the same period in 2024. We have an agreement with PFSI that requires that when PFSI refinances a loan for which we held the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒ *Transactions with Related Parties – Operating Activities* to the consolidated financial statements included in this Report.

Hedging results during the quarter ended March 31, 2025, were primarily attributable to the impact of decreasing interest rates and were partially offset by fair value gains in Agency MBS.

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

Following is a summary of our loan servicing portfolio:

*(in thousands)*

|  | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| UPB of loans outstanding | $224,568,111 | $226,237,613 |
| Collection status (unpaid principal balance) |  |  |
| Delinquency: |  |  |
| 30-89 days delinquent | $2,409,343 | $2,645,952 |
| 90 or more days delinquent: |  |  |
| Not in foreclosure | $1,073,472 | $1,084,587 |
| In foreclosure | $122,489 | $106,092 |
| Bankruptcy | $300,027 | $285,163 |

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

Following is a summary of characteristics of our MSR servicing portfolio as of March 31, 2025:

*(Dollars and loan count in thousands)*

| Loan type Agency: | Unpaid principal balance | Loan count | Average Note rate | Seasoning (months) | Remaining maturity (months) | Loan size | FICO credit score at origination | Original LTV (1) | Current LTV (1) | 60+ Delinquency (by UPB) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fannie Mae | $110,253,704 | 427 | 3.8% | 52 | 297 | $258 | 757 | 75% | 52% | 1.0% |
| Freddie Mac | 109,846,374 | 392 | 3.8% | 42 | 304 | $280 | 761 | 75% | 56% | 0.6% |
| Other (2) | 4,468,033 | 16 | 5.1% | 36 | 321 | $283 | 762 | 72% | 58% | 0.7% |
|  | $224,568,111 | 835 | 3.8% | 47 | 301 | $269 | 759 | 75% | 54% | 0.8% |

(1) Loan-to-value.

(2) Represents MSRs on conventional loans sold to private investors.

### Expenses

Our expenses are summarized below:

*(in thousands)*

| Earned by PennyMac Financial Services, Inc.: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Loan servicing fees | $21,729 | $20,262 |
| Management fees | 7,012 | 7,188 |
| Loan fulfillment fees | 5,290 | 4,016 |
| Professional services | 6,982 | 1,758 |
| Compensation | 2,970 | 1,916 |
| Loan collection and liquidation | 1,969 | 1,369 |
| Safekeeping | 1,110 | 932 |
| Loan origination | 686 | 473 |
| Other | 3,016 | 3,910 |
|  | $50,764 | $41,824 |

Expenses increased $8.9 million, or 21%, during the quarter ended March 31, 2025, as compared to the same period in 2024, as discussed below.

#### Loan Servicing Fees

Loan servicing fees payable to PLS are summarized below:

*(in thousands)*

| Loan servicing fees: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Loans acquired for sale | $223 | $90 |
| Loans at fair value | 168 | 62 |
| Mortgage servicing rights | 21,338 | 20,110 |
|  | $21,729 | $20,262 |
| Average investment in loans: |  |  |
| Acquired for sale | $1,997,488 | $704,809 |
| At fair value | $2,626,335 | $1,425,584 |
| Average MSR portfolio unpaid principal balance | $225,515,018 | $230,591,966 |
| Mortgage servicing rights recapture fees | $1,208 | $353 |
| Unpaid principal balance of loans recaptured | $159,472 | $62,073 |

Loan servicing fees increased by $1.5 million during the quarter ended March 31, 2025, as compared to the same period in 2024, due to an increase in supplemental fees relating to loan modifications and servicing of delinquent loans.

#### Management Fees

Management fees payable to PCM are summarized below:

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Base fee | $7,012 | $7,188 |
| Average shareholders' equity amounts used to calculate base management fee expense | $1,895,785 | $1,927,401 |

Management fees decreased by $176,000 during the quarter ended March 31, 2025, as compared to the same period in 2024. This decrease reflects lower average shareholders’ equity during the quarter ended March 31, 2025, as compared to the quarter ended March 31, 2024.

#### Loan Fulfillment Fees

Loan fulfillment fees represent fees we pay to PLS for the services it performs on our behalf in connection with our acquisition, packaging and sale of loans. Fulfillment fees increased $1.3 million during the quarter ended March 31, 2025, as compared to the same period in 2024. The increase was due to an increase in the volume of loans purchased for sale to nonaffiliates. Our loan fulfillment fee structure is described in Note 4 – *Transactions with Related Parties* to the consolidated financial statements included in this Report.

#### Professional services

Professional services expense increased by $5.2 million during the quarter ended March 31, 2025, as compared to the same period in 2024, due to increased legal and consulting fees as a result of our securitization activities during the quarter ended March 31, 2025.

#### Compensation

Compensation expense increased $1.1 million during the quarter ended March 31, 2025, as compared to the same period in 2024, primarily due to an increased allocation of compensation relating to support staff based on the updated terms of the management agreement as described in Note 4 – *Transactions with Related Parties* to the consolidated financial statements included in this Report. This increase was partially offset by a $1.0 million decrease in common overhead allocation from PFSI, which is included in *Other* expense.

#### Loan collection and liquidation

Loan collection and liquidation expenses increased by $600,000 during the quarter ended March 31, 2025, as compared to the same period in 2024, due to increased servicing costs related to delinquent loans serviced for the Agencies' foreclosure avoidance programs.

#### Other Expenses

Other expenses are summarized below:

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Common overhead allocation from PFSI | $982 | $1,944 |
| Bank service charges | 697 | 492 |
| Insurance | 450 | 476 |
| Technology | 415 | 442 |
| Other | 472 | 556 |
|  | $3,016 | $3,910 |

Common overhead allocation from PFSI declined by $1.0 million during the quarter ended March 31, 2025, as compared to the same period in 2024, due to changes to the allocation method included in the management agreement, described in Note 4 – *Transactions with Related Parties* to the consolidated financial statements included in this Report.

#### Income Taxes

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

The Company’s effective tax rate was 253.7% and (47.0)% with consolidated pretax loss of $6.3 million and consolidated pretax income of $32.4 million for the quarters ended March 31, 2025 and March 31,2024, respectively. The Company’s TRS recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million for the quarter ended March 31, 2025. The TRS loss was primarily due to decreases in MSR fair market values. For the same period in 2024, the TRS recognized a tax benefit of $15.0 million on a pretax loss of $60.9 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2025, the valuation allowance remains zero as a result of cumulative GAAP income at the TRS for the three-year period ended March 31, 2025. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.

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

### Balance Sheet Analysis

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

*(in thousands)*

| Assets | Management Basis (1) March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Cash and short-term investments | $452,099 | $440,892 |
| Mortgage-backed securities at fair value | 4,035,862 | 4,063,706 |
| Loans acquired for sale at fair value | 2,002,207 | 2,116,318 |
| Loans at fair value | 3,228,991 | 2,193,575 |
| Derivative assets | 45,162 | 56,840 |
| Deposits securing credit risk transfer arrangements | 1,087,949 | 1,110,708 |
| Mortgage servicing rights and servicing advances | 3,854,767 | 3,972,431 |
|  | 14,707,037 | 13,954,470 |
| Other | 169,189 | 454,236 |
| Total assets | $14,876,226 | $14,408,706 |
| Liabilities |  |  |
| Debt: |  |  |
| Short-term | $6,207,115 | $6,512,531 |
| Long-term: |  |  |
| Recourse | 3,456,490 | 3,535,650 |
| Non-recourse | 3,003,585 | 2,074,597 |
|  | 6,460,075 | 5,610,247 |
|  | 12,667,190 | 12,122,778 |
| Other | 306,318 | 347,428 |
| Total liabilities | 12,973,508 | 12,470,206 |
| Shareholders’ equity | 1,902,718 | 1,938,500 |
| Total liabilities and shareholders’ equity | $14,876,226 | $14,408,706 |

Total assets increased by approximately $467.5 million, or 3%, from December 31, 2024 to March 31, 2025, primarily due to an increase of $1.0 billion in *Loans at fair value,* offset by a decrease of $114.1 million in *Loans acquired for sale at fair value.*

### Asset Acquisitions

Our asset acquisitions are summarized below:

#### Correspondent Production

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

*(in thousands)*

| Correspondent loan purchases: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| GSE-Eligible Loans (1) | $12,194,110 | $10,080,120 |
| Government insured or guaranteed (2) | 11,449,035 | 8,328,018 |
| Jumbo loans | 348,740 | 2,589 |
|  | $23,991,885 | $18,410,727 |

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

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

During the quarter ended March 31, 2025, we purchased for sale $24.0 billion in fair value of correspondent production loans as compared to $18.4 billion during the quarter ended March 31, 2024.

#### Other Investment Activities

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

*(in thousands)*

| Credit sensitive assets: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Subordinate credit-linked securities | $— | $(111,044) |
| Loans secured by non-owner occupied properties, net of associated asset-backed financing | 65,535 | — |
|  | 65,535 | (111,044) |
| Interest rate sensitive assets: |  |  |
| Agency fixed-rate pass-through securities | — | (830,296) |
| Principal-only stripped mortgage-backed securities | — | 159,585 |
| Loans secured by non-owner occupied properties, net of associated asset-backed financing | 28,486 | — |
| Mortgage servicing rights: |  |  |
| Purchases | — | 29,441 |
| Received in loan sales | 47,009 | 31,249 |
|  | 75,495 | (610,021) |
|  | $141,030 | $(721,065) |

Our acquisitions during the quarters ended March 31, 2025 and 2024 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. We continue to identify additional means of increasing our investment portfolio through cash flow from our business activities, existing investments, borrowings, and transactions that minimize current cash outlays. However, we expect that, over time, our ability to continue our investment portfolio growth will depend on our ability to raise additional equity capital.

### Investment Portfolio Composition

#### Mortgage-Backed Securities

Following is a summary of our MBS holdings:

*(dollars in thousands)*

|  | March 31, 2025 Fair value | Principal/ notional | Average Life (in years) | Coupon | December 31, 2024 Fair value | Principal/ notional | Average Life (in years) | Coupon |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Agency pass-through securities | $3,052,436 | $3,062,429 | 8.2 | 5.4% | $3,079,492 | $3,132,005 | 8.7 | 5.4% |
| Principal-only stripped securities | 604,978 | 751,942 | 5.6 | 0.1% | 596,300 | 776,455 | 6.7 | 0.1% |
| Subordinate credit-linked securities | 195,101 | 174,813 | 3.4 | 12.2% | 196,472 | 174,813 | 3.6 | 12.4% |
| Senior non-Agency securities | 102,304 | 107,436 | 8.3 | 5.0% | 105,182 | 111,479 | 9.2 | 5.1% |
| Interest-only stripped securities | 81,043 | 377,481 | 7.5 | 4.8% | 86,260 | 386,040 | 8.0 | 4.8% |
|  | $4,035,862 | $4,474,101 |  |  | $4,063,706 | $4,580,792 |  |  |

Our *Mortgage-backed securities at fair value* does not include any mortgage-backed securities held from variable interest entities that we consolidate.

#### Credit Risk Transfer Arrangements

Following is a summary of our investment in CRT arrangements:

*(in thousands)*

| Carrying value of CRT arrangements: | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Derivative assets - CRT derivatives | $28,474 | $29,377 |
| Derivative and credit risk transfer strip liabilities- CRT strips | (15,885) | (4,060) |
| Deposits securing CRT arrangements | 1,087,949 | 1,110,708 |
| Interest-only security payable at fair value | (35,954) | (34,222) |
|  | $1,064,584 | $1,101,803 |
| UPB of loans subject to credit guarantee obligations | $20,849,101 | $21,249,304 |

Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of March 31, 2025:

*(in millions)*

| UPB: | Year of origination 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Outstanding | $4,291 | $9,703 | $2,489 | $2,101 | $1,728 | $537 | $20,849 |
| Liquidations: |  |  |  |  |  |  |  |
| Balances | $1.7 | $10.5 | $61.2 | $167.9 | $125.4 | $62.5 | $429.2 |
| Losses | $— | $1.0 | $6.1 | $21.0 | $13.4 | $7.7 | $49.2 |
| Modifications (1): |  |  |  |  |  |  |  |
| Balances | $68.8 | $556.2 | $308.3 | $— | $— | $— | $933.3 |
| Losses | $2.1 | $22.8 | $17.5 | $— | $— | $— | $42.4 |
| Weighted average: |  |  |  |  |  |  |  |
| Original debt-to income ratio | 33.5% | 35.9% | 39.1% | 36.5% | 35.1% | 35.7% | 35.8% |
| Origination FICO credit score | 765 | 754 | 736 | 745 | 751 | 743 | 753 |
| Origination loan-to value ratio | 80.7% | 83.3% | 83.5% | 82.4% | 80.6% | 80.9% | 82.4% |
| Current loan-to value ratio (2) | 49.8% | 49.6% | 47.3% | 42.2% | 38.3% | 35.7% | 47.3% |

(1) Includes only modifications that generate losses according to the terms of the CRT arrangements.

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

*(in millions)*

| Distribution by state | Year of origination 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| California | $456 | $969 | $314 | $225 | $340 | $104 | $2,408 |
| Florida | 468 | 927 | 318 | 219 | 181 | 47 | 2,160 |
| Texas | 506 | 836 | 200 | 178 | 210 | 79 | 2,009 |
| Virginia | 233 | 431 | 90 | 97 | 121 | 52 | 1,024 |
| Maryland | 171 | 419 | 114 | 121 | 114 | 30 | 969 |
| Other | 2,457 | 6,121 | 1,453 | 1,261 | 762 | 225 | 12,279 |
|  | $4,291 | $9,703 | $2,489 | $2,101 | $1,728 | $537 | $20,849 |

72

*(in millions)*

| Regional geographic distribution (1) | Year of origination 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Southeast | $1,457 | $3,310 | $888 | $721 | $540 | $163 | $7,079 |
| Southwest | 1,110 | 2,130 | 466 | 410 | 314 | 110 | 4,540 |
| West | 925 | 2,019 | 627 | 463 | 494 | 144 | 4,672 |
| Northeast | 402 | 1,225 | 295 | 306 | 224 | 82 | 2,534 |
| Midwest | 397 | 1,019 | 213 | 201 | 156 | 38 | 2,024 |
|  | $4,291 | $9,703 | $2,489 | $2,101 | $1,728 | $537 | $20,849 |

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

*(in millions)*

| Collection status Delinquency | Year of origination 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Current - 89 Days | $4,270 | $9,600 | $2,434 | $2,090 | $1,723 | $535 | $20,652 |
| 90 - 179 Days | 11 | 58 | 28 | 9 | 4 | 2 | 112 |
| 180+ Days | 8 | 32 | 21 | 2 | 1 | — | 64 |
| Foreclosure | 2 | 13 | 6 | — | — | — | 21 |
|  | $4,291 | $9,703 | $2,489 | $2,101 | $1,728 | $537 | $20,849 |
| Bankruptcy | $5 | $32 | $15 | $5 | $4 | $1 | $62 |

### Cash Flows

Our cash flows for the quarters ended March 31, 2025 and 2024 are summarized below:

*(in thousands)*

|  | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Operating activities | $(594,267) | $(342,371) |
| Investing activities | 40,228 | 770,796 |
| Financing activities | 464,286 | (582,932) |
| Net cash flows | $(89,753) | $(154,507) |

Our cash flows resulted in a net decrease in cash of $89.8 million during the quarter ended March 31, 2025, as discussed below.

#### Operating activities

Cash used in operating activities totaled $594.3 million during the quarter ended March 31, 2025, as compared to cash used in our operating activities of $342.4 million during the quarter ended March 31, 2024. Cash flows from operating activities are influenced by cash flows from loans acquired for sale as shown below:

*(in thousands)*

| Operating cash flows from: | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Loans acquired for sale | $(945,106) | $(187,846) |
| Other | 350,839 | (154,525) |
|  | $(594,267) | $(342,371) |

Cash flows from loans acquired for sale primarily reflect changes in the level of production inventory as well as cash flows relating to associated hedging activities from the beginning to end of the quarters presented. Our inventory of loans held for sale increased during the quarter ended March 31, 2025, as compared to the same period in 2024, offset by other operating cash flows during 2025, which include a decrease in margin deposits of $286.5 million along with a reduction in accounts payable and accrued liabilities of approximately $33.7 million.

#### Investing activities

Net cash provided by our investing activities was $40.2 million for the quarter ended March 31, 2025, as compared to net cash provided by our investing activities of $770.8 million for the quarter ended March 31, 2024, which included significant sales of MBS.

#### Financing activities

Net cash provided by our financing activities was $464.3 million for the quarter ended March 31, 2025, as compared to net cash used in our financing activities of $582.9 million for the quarter ended March 31, 2024. This change primarily reflects

the increase in borrowings required to finance the increase in inventory of loans held for sale during the quarter ended March 31, 2025.

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

### Liquidity and Capital Resources

Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from correspondent sellers, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and make distributions to our shareholders. We generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our shareholders to qualify as a REIT under the Internal Revenue Code of 1986. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

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

On March 15, 2024, the Company, PMT ISSUER TRUST-FMSR and PMT CO-ISSUER TRUST-FMSR (together, the

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

On April 4, 2024, we issued in a private offering $247 million aggregate principal amount of CRT term notes that mature on March 29, 2027 at a rate of 3.35% over the Secured Overnight Financing Rate.

On May 24, 2024 and June 4, 2024, PMC issued in a private offering $216.5 million aggregate principal amount of exchangeable senior notes due 2029 (the “2029 Exchangeable Notes”) that mature on June 1, 2029 at a rate of 8.500% per year. The 2029 Exchangeable Notes are fully and unconditionally guaranteed by PMT. Upon exchange, PMC will pay cash up to the aggregate principal amount of the Exchangeable Notes to be exchanged and pay or deliver, as the case may be, cash, Common Shares, or a combination thereof, at PMT’s election, in respect of the remainder, if any, of its exchange obligation in excess of the aggregate principal amount of the 2029 Exchangeable Notes to be exchanged. The exchange rate initially equals 63.3332 Common Shares per $1,000 principal amount of the 2029 Exchangeable Notes.

On June 27, 2024, the Company, the Issuer Trusts, PMC and PMH issued an aggregate principal amount of $355 million in secured term notes (the “Series 2024-FT1 Term Notes”) as part of the structured finance transaction that PMC and PMH use to finance Fannie Mae MSRs and related excess servicing spread and servicing advance receivables. The initial 3.5 year term of the Series 2024-FT1 Term Notes is set to mature on December 27, 2027, unless the Company exercises a six-month optional extension.

On December 20, 2024, the Company, the Issuer Trusts, PMC and PMH entered into a secured term note (the “Series 2024-VF2 Note”) with Citibank, N.A., as part of the structured finance transaction that PMC uses to finance Fannie Mae mortgage servicing rights and related excess servicing spread and servicing advance receivables. The initial term of the Series 2024-VF2 Note is set to expire on June 26, 2026 and the maximum principal balance of the Series 2024-VF2 Note is $1 billion and the aggregate committed amount is $500 million.

Debt Financing

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

Our debt financing is summarized below:

*(in thousands except for debt-to equity amounts)*

| Assets | March 31, 2025 Assets (1) Consolidated | Adjustments for VIE Financing | Excluding VIE Financing | Financing Assets sold under agreements to repurchase | Mortgage loan participation purchase and sale agreements | Notes payable secured by CRT arrangements and MSRs | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cash and short-term investments | $452,099 | $— | $452,099 | $— | $— | $— | $— |
| Mortgage-backed securities at fair value |  |  |  |  |  |  |  |
| Agency-backed securities | 3,738,457 | — | 3,738,457 | 3,590,368 | — | — | 3,590,368 |
| Non-consolidated subordinate credit-linked securities | 195,101 | — | 195,101 | 139,899 | — | — | 139,899 |
| Senior non-Agency securities | 102,304 | — | 102,304 | 95,099 | — | — | 95,099 |
| Credit risk transfer securities relating to consolidated variable interest entities | — | 1,064,584 | 1,064,584 | 129,227 | — | 649,921 | 779,148 |
| Subordinate credit-linked and senior non-agency securities relating to consolidated VIEs | — | 226,874 | 226,874 | 182,559 | — | — | 182,559 |
|  | 4,035,862 | 1,291,458 | 5,327,320 | 4,137,152 | — | 649,921 | 4,787,073 |
| Loans acquired for sale at fair value | 2,002,207 | — | 2,002,207 | 1,811,155 | 4,576 | — | 1,815,731 |
| Loans at fair value | 3,228,991 | (3,227,176) | 1,815 | — | — | — | — |
| Derivative assets | 45,162 | (28,474) | 16,688 | — | — | — | — |
| Deposits securing credit risk transfer arrangements | 1,087,949 | (1,087,949) | — | — | — | — | — |
| Mortgage servicing rights and servicing advances | 3,854,767 | 32,314 | 3,887,081 | 254,232 | — | 2,033,447 | 2,287,679 |
|  | 14,707,037 | (3,019,827) | 11,687,210 | 6,202,539 | 4,576 | 2,683,368 | 8,890,483 |
| Other | 169,189 | — | 169,189 | — | — | — | — |
| Total assets and secured financing | $14,876,226 | $(3,019,827) | $11,856,399 | $6,202,539 | $4,576 | $2,683,368 | 8,890,483 |
| Unsecured debt |  |  |  |  |  |  | 773,122 |
| Debt excluding non-recourse |  |  |  |  |  |  | 9,663,605 |
| Debt in consolidated variable interest entities |  |  |  |  |  |  | 3,003,585 |
| Total debt |  |  |  |  |  |  | $12,667,190 |
| Equity |  |  |  |  |  |  | $1,902,718 |
| Debt-to equity ratio: |  |  |  |  |  |  |  |
| Excluding non-recourse debt (2) |  |  |  |  |  |  | 5.1:1 |
| Total (3) |  |  |  |  |  |  | 6.7:1 |

(1) This balance sheet has been adjusted from GAAP to deconsolidate the loan and CRT VIEs to provide investors with a more creditor-aligned view of how our debt relates to the assets we finance with debt in the securitized form the assets are financed. The adjusted balance sheet information should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP.

(2) Total borrowings reduced by asset-backed financings and interest-only security payable, divided by shareholders’ equity.

(3) Total borrowings divided by shareholders’ equity.

Sales of Assets Under Agreements to Repurchase

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

*(in thousands)*

| Assets sold under agreements to repurchase | Quarter ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Average balance outstanding | $6,180,911 | $5,144,834 |
| Maximum daily balance outstanding | $7,068,600 | $6,494,643 |
| Ending balance | $6,210,008 | $5,122,203 |

The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent production business. The total facility size of our *Assets sold under agreements to repurchase* was approximately $11.9 billion at March 31, 2025.

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

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

- The transactions relating to loans and REO under agreements to repurchase generally provide for terms of approximately one to two years;
- The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year;
- The transactions relating to assets under notes payable provide for terms ranging from two to five years; and
- All repurchase agreements that matured between March 31, 2025 and the date of this Report have been renewed, extended or replaced.

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our *Assets sold under agreements to repurchase* is summarized by counterparty below as of March 31, 2025:

*(in thousands)*

| Counterparty | Amount at risk |
| --- | ---: |
| Goldman Sachs & Co. LLC | $205,137 |
| Atlas Securitized Products, L.P. | 111,459 |
| Citibank, N.A. | 102,561 |
| Bank of America, N.A. | 91,492 |
| JPMorgan Chase & Co. | 57,789 |
| Barclays Capital Inc. | 50,105 |
| Wells Fargo Securities, LLC | 20,331 |
| Santander US Capital | 18,376 |
| Morgan Stanley & Co. LLC | 17,293 |
| RBC Capital Markets, L.P. | 16,948 |
| Bank of Montreal | 7,338 |
| BNP Paribas | 5,206 |
| Mizuho Financial Group | 5,112 |
| Nomura Holdings America, Inc. | 4,337 |
| Daiwa Capital Markets America Inc. | 4,190 |
|  | $717,674 |

Senior Notes

In February 2025, the Company issued $172.5 million principal amount of unsecured 9.00% senior notes due

February 15, 2030 (the "2030 Senior Notes”) and in September 2023, the Company issued $53.5 million principal amount of unsecured

8.50% senior notes due September 30, 2028 (the "2028 Senior Notes”). The 2030 Senior Notes and the 2028 Senior Notes are referred

to collectively as the “Senior Notes”.

On or after February 15, 2027, we may redeem for cash all or any portion of the 2030 Senior Notes and on or after September 30, 2025, we may redeem for cash all or any portion of the 2028 Senior Notes, at our option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No “sinking fund” will be provided for the Senior Notes.

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

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

- rank equal in right of payment to any of PMC’s existing and future unsecured and unsubordinated indebtedness and guarantees of PMC;
- be effectively subordinated in right of payment to any of PMC’s existing and future secured indebtedness and secured guarantees to the extent of the value of the assets securing such indebtedness or guarantees; and
- be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) and (to the extent not held by PMC) preferred stock, if any, of PMC’s subsidiaries and of any entity PMC accounts for using the equity method of accounting.

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

*(in thousands)*

|  | March 31, 2025 |
| --- | ---: |
| Loans acquired for sale at fair value | $2,002,207 |
| Mortgage servicing rights at fair value | 3,802,348 |
| Other assets |  |
| From nonaffiliates | 555,094 |
| From PFSI | 15,123 |
| From non-issuer or non-guarantor subsidiaries (1) | 409,932 |
| Total assets | $6,784,704 |
| Total liabilities |  |
| Payable to nonaffiliates | $1,782,281 |
| Payable to non-issuer or non-guarantor subsidiaries | 4,717,676 |
| Payable to PFSI | 20,287 |
|  | $6,520,244 |

*(in thousands)*

| Net investment income | Quarter ended March 31, 2025 |
| --- | ---: |
| From nonaffiliates | $8,176 |
| From PFSI | 3,223 |
| From non-issuer or non-guarantor subsidiaries (1) | (55,528) |
| **Expenses** |  |
| From nonaffiliates | 11,341 |
| From PFSI | 32,101 |
| Pre-tax loss | (87,571) |
| Benefit from income taxes | (21,411) |
| Net loss | $(66,160) |

(1) Excludes equity in earnings of non-guarantor subsidiaries.

Debt Covenants

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

- a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 million in unrestricted cash and cash equivalents among our Operating Partnership and its consolidated subsidiaries; a minimum of $25 million in unrestricted cash and cash equivalents between PMC and PMH; a minimum of $25 million in unrestricted cash and cash equivalents at PMC; and a minimum of $10 million in unrestricted cash and cash equivalents at PMH;
- a minimum tangible net worth for the Company of $1.25 billion; a minimum tangible net worth for our Operating Partnership of $1.25 billion; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $300 million;
- a maximum ratio of total indebtedness to tangible net worth of less than 10:1 for PMC and PMH and 10:1 for the Company and our Operating Partnership; and
- at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing debt financing agreements.

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

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

- a minimum in unrestricted cash and cash equivalents of $100 million;
- a minimum tangible net worth of $1.25 billion;
- a maximum ratio of total indebtedness to tangible net worth of 10:1; and
- at least one other warehouse or repurchase facility that finances amounts and assets that are similar to those being financed under certain of our existing secured financing agreements.

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

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

Regulatory Capital and Liquidity Requirements

In addition to the financial covenants imposed upon us and PLS as our servicer under our debt financing agreements, we, through PMC and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae, Freddie Mac, and Ginnie Mae for their approved single-family issuers, and Ginnie Mae has also issued risk-based capital requirements. We believe that we and our servicer, PLS, are in compliance with the applicable FHFA and Ginnie Mae requirements as of March 31, 2025.

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

### Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

#### Off-Balance Sheet Arrangements

As of March 31, 2025, we have not entered into any off-balance sheet arrangements.

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

### Critical Accounting Estimates

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

Our Annual Report on Form 10-K for the year ended December 31, 2024 contains a discussion of our critical accounting policies, which utilize relevant critical accounting estimates.

## Market risk

As filed, 4,162 characters.

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

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

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

#### Mortgage-backed securities at fair value

The following table summarizes the estimated change in fair value of our mortgage-backed securities as of March 31, 2025, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:

|  |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Interest rate shift in basis points** | **-200** | **-75** | **-50** | **50** | **75** | **200** |
|  | **(in thousands)** |  |  |  |  |  |
| Change in fair value | $151,913 | $128,373 | $93,935 | $(111,893) | $(171,231) | $(492,504) |

#### Mortgage Servicing Rights

The following tables summarize the estimated change in fair value of MSRs as of March 31, 2025, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing:

|  |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Change in fair value attributable to shift in:** | **-20%** | **-10%** | **-5%** | **+5%** | **+10%** | **+20%** |
|  | **(in thousands)** |  |  |  |  |  |
| Pricing spread | $198,314 | $96,718 | $47,770 | $(46,630) | $(92,156) | $(180,040) |
| Prepayment speed | $235,450 | $113,656 | $55,865 | $(54,038) | $(106,340) | $(206,073) |
| Annual per-loan cost of servicing | $65,905 | $32,952 | $16,476 | $(16,476) | $(32,952) | $(65,905) |

79

#### CRT Arrangements

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

|  |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Pricing spread shift in basis points** | **-100** | **-50** | **-25** | **25** | **50** | **100** |
|  | **(in thousands)** |  |  |  |  |  |
| Change in fair value | $37,581 | $18,522 | $9,195 | $(9,064) | $(18,001) | $(35,501) |

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

|  |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Property value shift in %** | **-15%** | **-10%** | **-5%** | **5%** | **10%** | **15%** |
|  | **(in thousands)** |  |  |  |  |  |
| Change in fair value | $(9,553) | $(5,739) | $(2,604) | $2,161 | $3,957 | $5,446 |

## Controls and procedures

As filed, 2,136 characters.

### Disclosure Controls and Procedures

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

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

### Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 189 characters.

There are no material changes from the risk factors set forth under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025.

Filed Apr 30, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-061012. Last ingested by Listed: Oct 30, 2026, 13:57 ET. No prices; not investment advice.