| Derivative Financial Instruments |
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: | ● | Derivative financial instruments created in the Company’s loan production activities are IRLCs that are created when the Company commits to purchase or originate a loan for sale. |
| ● | The Company engages in interest rate risk management activities in an effort to moderate the effect of changes in market interest rates on the fair value of certain of its assets. To manage this fair value risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of reducing the risk that changes in market interest rates will result in unfavorable changes in the fair value of the Company’s IRLCs, inventory of loans held for sale and its MSRs. |
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: | | | | | | | | | | | | | | | | | | | June 30, 2026 | | December 31, 2025 | | | | | Fair value | | | | Fair value | | | Notional | | Derivative | | Derivative | | Notional | | Derivative | | Derivative | Derivative instrument | | amounts (1) | | assets | | liabilities | | amount (1) | | assets | | liabilities | | | | (in thousands) | Non-affiliates: | | | | | | | | | | | | | | | | | Not subject to master netting arrangements: | | | | | | | | | | | | | | | | | Interest rate lock commitments | | 12,053,063 | | $ | 145,095 | | $ | 3,887 | | 13,474,638 | | $ | 131,536 | | $ | 4,260 | | | | | | | | | | | | | | | | | | Subject to master netting arrangements (2): | | | | | | | | | | | | | | | | | Forward purchase contracts | | 10,704,164 | | | 10,230 | | | 9,736 | | 14,311,234 | | | 49,499 | | | 2,845 | Forward sales contracts | | 17,273,500 | | | 15,879 | | | 46,426 | | 22,291,811 | | | 16,399 | | | 47,692 | MBS put options | | 500,000 | | | — | | | — | | — | | | — | | | — | Put options on interest rate futures purchase contracts | | 11,250,000 | | | 21,453 | | | — | | 12,625,000 | | | 22,769 | | | — | Call options on interest rate futures purchase contracts | | — | | | — | | | — | | 7,750,000 | | | 2,086 | | | — | Swaptions | | 5,000,000 | | | 65,152 | | | 17,175 | | — | | | — | | | — | Total return swap | | 39,998 | | | 136 | | | — | | 39,998 | | | 8 | | | — | Treasury futures purchase contracts | | 20,226,500 | | | — | | | — | | 11,841,400 | | | — | | | — | Treasury futures sale contracts | | 20,165,000 | | | — | | | — | | 8,607,100 | | | — | | | — | Total derivatives before netting | | | | | 257,945 | | | 77,224 | | | | | 222,297 | | | 54,797 | Netting | | | | | (57,498) | | | (42,661) | | | | | (36,779) | | | (45,238) | | | | | $ | 200,447 | | $ | 34,563 | | | | $ | 185,518 | | $ | 9,559 | PennyMac Mortgage Investment Trust: | | | | | | | | | | | | | | | | | Not subject to master netting arrangements: | | | | | | | | | | | | | | | | | Interest rate lock commitments | | 1,049,341 | | | 1,234 | | | 4,179 | | 1,207,859 | | | 2,257 | | | 4,605 | | | | | | | | | | | | | | | | | | Subject to master netting arrangements (2): | | | | | | | | | | | | | | | | | Forward sales contracts | | 125,582 | | | 28 | | | 1,088 | | 250,638 | | | 142 | | | 1,784 | Total derivatives before netting | | | | | 1,262 | | | 5,267 | | | | | 2,399 | | | 6,389 | Netting | | | | | (28) | | | (28) | | | | | (142) | | | (142) | | | | | $ | 1,234 | | $ | 5,239 | | | | $ | 2,257 | | $ | 6,247 | Deposits (received from) placed with derivative counterparties included in the derivative balances above, net | | | | $ | (14,837) | | | | | | | $ | 8,459 | | | |
| (1) | Notional amounts provide an indication of the volume of the Company’s derivative activity. |
| (2) | All derivatives subject to master netting agreements are interest rate derivatives that are used as economic hedges. |
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2026 | | December 31, 2025 | | | | | Gross amount not | | | | | | Gross amount not | | | | | | | offset in the | | | | | | offset in the | | | | | | | consolidated | | | | | | consolidated | | | | | Net amount | | balance sheet | | | | Net amount | | balance sheet | | | | | of assets in the | | | | Cash | | | | of assets in the | | | | Cash | | | | | consolidated | | Financial | | collateral | | Net | | consolidated | | Financial | | collateral | | Net | Counterparty | | balance sheet | | instruments | | received | | amount | | balance sheet | | instruments | | received | | amount | | | | (in thousands) | Non-affiliates: | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate lock commitments | | $ | 145,095 | | $ | — | | $ | — | | $ | 145,095 | | $ | 131,536 | | $ | — | | $ | — | | $ | 131,536 | RJ O' Brien | | | 21,453 | | | — | | | — | | | 21,453 | | | 24,855 | | | — | | | — | | | 24,855 | Citibank, N.A. | | | 13,471 | | | — | | | — | | | 13,471 | | | 638 | | | — | | | — | | | 638 | JPMorgan Chase Bank, N.A. | | | 9,406 | | | — | | | — | | | 9,406 | | | 933 | | | — | | | — | | | 933 | Barclays Capital | | | 3,448 | | | — | | | — | | | 3,448 | | | 3,919 | | | — | | | — | | | 3,919 | Goldman Sachs | | | 1,836 | | | — | | | — | | | 1,836 | | | 1,769 | | | — | | | — | | | 1,769 | Bank of Montreal | | | 1,469 | | | — | | | — | | | 1,469 | | | 2,676 | | | — | | | — | | | 2,676 | Morgan Stanley Bank, N.A. | | | — | | | — | | | — | | | — | | | 10,673 | | | — | | | — | | | 10,673 | Santander US Capital Markets LLC | | | — | | | — | | | — | | | — | | | 1,723 | | | — | | | — | | | 1,723 | Others | | | 4,269 | | | — | | | — | | | 4,269 | | | 6,796 | | | — | | | — | | | 6,796 | | | $ | 200,447 | | $ | — | | $ | — | | $ | 200,447 | | $ | 185,518 | | $ | — | | $ | — | | $ | 185,518 | PennyMac Mortgage Investment Trust | | $ | 1,234 | | $ | — | | $ | — | | $ | 1,234 | | $ | 2,257 | | $ | — | | $ | — | | $ | 2,257 |
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2026 | | December 31, 2025 | | | | | Gross amounts | | | | | | Gross amounts | | | | | | | not offset in the | | | | | | not offset in the | | | | | Net amount | | consolidated | | | | Net amount | | consolidated | | | | | of liabilities | | balance sheet | | | | of liabilities | | balance sheet | | | | | in the | | | | Cash | | | | in the | | | | Cash | | | | | consolidated | | Financial | | collateral | | Net | | consolidated | | Financial | | collateral | | Net | Counterparty | | balance sheet | | instruments (1) | | pledged | | amount | | balance sheet | | instruments (1) | | pledged | | amount | | | | (in thousands) | Non-affiliates: | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate lock commitments | | $ | 3,887 | | $ | — | | $ | — | | $ | 3,887 | | $ | 4,260 | | $ | — | | $ | — | | $ | 4,260 | Atlas Securitized Products, L.P. | | | 1,660,310 | | | (1,660,310) | | | — | | | — | | | 3,151,222 | | | (3,151,222) | | | — | | | — | Bank of America, N.A. | | | 1,618,294 | | | (1,616,385) | | | — | | | 1,909 | | | 1,121,585 | | | (1,120,457) | | | — | | | 1,128 | Nomura Corporate Funding Americas | | | 833,017 | | | (833,012) | | | — | | | 5 | | | 596,608 | | | (596,608) | | | — | | | — | Wells Fargo Bank, N.A. | | | 737,949 | | | (731,513) | | | — | | | 6,436 | | | 650,094 | | | (650,094) | | | — | | | — | JPMorgan Chase Bank, N.A. | | | 572,548 | | | (572,076) | | | — | | | 472 | | | 767,903 | | | (767,903) | | | — | | | — | Royal Bank of Canada | | | 550,025 | | | (550,025) | | | — | | | — | | | 534,163 | | | (534,163) | | | — | | | — | Goldman Sachs | | | 471,712 | | | (471,712) | | | — | | | — | | | 168,428 | | | (168,428) | | | — | | | — | Barclays Capital | | | 459,332 | | | (459,332) | | | — | | | — | | | 229,055 | | | (229,055) | | | — | | | — | BNP Paribas | | | 452,424 | | | (452,424) | | | — | | | — | | | 342,500 | | | (342,500) | | | — | | | — | Morgan Stanley Bank, N.A. | | | 449,599 | | | (437,266) | | | — | | | 12,333 | | | 407,678 | | | (407,678) | | | — | | | — | Mizuho Bank, Ltd. | | | 238,970 | | | (238,970) | | | — | | | — | | | 149,588 | | | (149,588) | | | — | | | — | Citibank, N.A. | | | 215,499 | | | (215,499) | | | — | | | — | | | 444,851 | | | (444,851) | | | — | | | — | Santander US Capital Markets LLC | | | 203,060 | | | (201,540) | | | — | | | 1,520 | | | 238,668 | | | (238,668) | | | — | | | — | Others | | | 8,001 | | | — | | | — | | | 8,001 | | | 4,171 | | | — | | | — | | | 4,171 | | | $ | 8,474,627 | | $ | (8,440,064) | | $ | — | | $ | 34,563 | | $ | 8,810,774 | | $ | (8,801,215) | | $ | — | | $ | 9,559 | PennyMac Mortgage Investment Trust | | $ | 5,239 | | $ | — | | $ | — | | $ | 5,239 | | $ | 6,247 | | $ | — | | $ | — | | $ | 6,247 |
| (1) | Amounts represent the UPB of Assets sold under agreements to repurchase. |
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: | | | | | | | | | | | | | | | | | | | Quarter ended June 30, | | Six months ended June 30, | Derivative activity | | Consolidated statement of income line | | 2026 | | 2025 | | 2026 | | 2025 | | | | | | (in thousands) | Interest rate lock commitments | | Net gains on loans held for sale at fair value (1) | | $ | 32,326 | | $ | 32,211 | | $ | 13,335 | | $ | 108,588 | Hedged item: | | | | | | | | | | | | | | | Interest rate lock commitments
and loans held for sale | | Net gains on loans held for sale at fair value | | $ | (59,010) | | $ | (28,853) | | $ | 42,460 | | $ | (173,899) | Mortgage servicing rights | | Net loan servicing fees–Owned servicing–Mortgage servicing rights hedging results | | $ | (182,495) | | $ | (116,294) | | $ | (389,743) | | $ | (27,654) |
| (1) | Represents net change in fair value of IRLCs from the beginning to the end of the period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loans or the cancellation of the commitment are shown in the rollforward of IRLCs for the period in Note 7 – Fair Value – Assets and Liabilities Measured at Fair Value on a Recurring Basis. |
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