Derivative Financial Instruments

6 Months Ended

Jun. 30, 2025

Derivative Financial Instruments

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 operating 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, 2025					December 31, 2024
		Fair value					Fair value
	Notional	Derivative		Derivative		Notional	Derivative		Derivative
Derivative instrument	amount (1)	assets		liabilities		amount (1)	assets		liabilities
	(in thousands)
Not subject to master netting arrangements:
Interest rate lock commitments	10,998,207	$	143,061	$	908	7,801,677	$	56,946	$	23,381
Subject to master netting arrangements (2):
Forward purchase contracts	13,037,927		89,834		174	12,760,764		3,701		66,646
Forward sales contracts	22,218,056		2,939		159,266	23,440,334		152,526		12,854
MBS put options	500,000		—		—	450,000		3,278		—
Put options on interest rate futures purchase contracts	7,000,000		996		—	4,270,000		12,592		—
Call options on interest rate futures purchase contracts	11,525,000		33,688		—	7,600,000		3,250		—
Call options on interest rate futures sale contracts	2,800,000		—		10,063	—		—		—
Treasury futures purchase contracts	5,998,000		—		—	7,467,000		—		—
Treasury futures sale contracts	7,347,000		—		—	10,521,000		—		—
Total derivatives before netting			270,518		170,411			232,293		102,881
Netting			(89,876)		(137,908)			(119,217)		(61,981)
		$	180,642	$	32,503		$	113,076	$	40,900
Forward sale contract with PennyMac Mortgage Investment Trust	84,070	$	—	$	1,038	—	$	—	$	—
Deposits placed with (received from) derivative counterparties included in the derivative balances above, net		$	48,032				$	(57,236)

(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, 2025								December 31, 2024
			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)
Interest rate lock commitments	$	143,061	$	—	$	—	$	143,061	$	56,946	$	—	$	—	$	56,946
RJ O' Brien		24,621		—		—		24,621		15,842		—		—		15,842
Morgan Stanley Bank, N.A.		4,597		—		—		4,597		15,260		—		—		15,260
Mizuho Bank, Ltd.		2,108		—		—		2,108		1,683		—		—		1,683
South Street Securities		1,803		—		—		1,803		—		—		—		—
Bank of America, N.A.		—		—		—		—		8,221		—		—		8,221
Bank of Montreal		—		—		—		—		3,781		—		—		3,781
Athene Annuity & Life Assurance Company		—		—		—		—		2,352		—		—		2,352
BNP Paribas		—		—		—		—		2,260		—		—		2,260
Others		4,452		—		—		4,452		6,731		—		—		6,731
	$	180,642	$	—	$	—	$	180,642	$	113,076	$	—	$	—	$	113,076

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, 2025								December 31, 2024
			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)
Interest rate lock commitments	$	908	$	—	$	—	$	908	$	23,381	$	—	$	—	$	23,381
Atlas Securitized Products, L.P.		2,339,762		(2,339,762)		—		—		1,938,756		(1,938,756)		—		—
Bank of America, N.A.		1,275,935		(1,262,608)		—		13,327		1,294,213		(1,294,213)		—		—
JPMorgan Chase Bank, N.A.		808,309		(808,175)		—		134		1,220,822		(1,214,559)		—		6,263
Royal Bank of Canada		633,971		(633,971)		—		—		785,597		(785,597)		—		—
Wells Fargo Bank, N.A.		542,679		(541,545)		—		1,134		795,119		(789,305)		—		5,814
Citibank, N.A.		470,812		(470,812)		—		—		455,426		(455,426)		—		—
BNP Paribas		346,078		(345,257)		—		821		568,790		(568,790)		—		—
Morgan Stanley Bank, N.A.		320,702		(320,396)		—		306		472,659		(472,659)		—		—
Santander US Capital Markets LLC		245,158		(240,555)		—		4,603		282,077		(282,077)		—		—
Nomura Corporate Funding Americas		134,739		(134,739)		—		—		175,000		(175,000)		—		—
Goldman Sachs		98,732		(97,950)		—		782		336,894		(336,624)		—		270
Barclays Capital		80,650		(80,434)		—		216		258,559		(254,750)		—		3,809
Mizuho Bank, Ltd.		75,642		(75,642)		—		—		125,000		(125,000)		—		—
Federal National Mortgage Association		1,904		—		—		1,904		—		—		—		—
PennyMac Mortgage Investment Trust		1,038		—		—		1,038		—		—		—		—
Others		8,368		—		—		8,368		1,363		—		—		1,363
	$	7,385,387	$	(7,351,846)	$	—	$	33,541	$	8,733,656	$	(8,692,756)	$	—	$	40,900

(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	2025		2024		2025		2024
		(in thousands)
Interest rate lock commitments	Net gains on loans held for sale at fair value (1)	$	32,211	$	(1,055)	$	108,588	$	(20,841)
Hedged item:
Interest rate lock commitments and loans held for sale	Net gains on loans held for sale at fair value	$	(28,853)	$	52,955	$	(173,899)	$	105,192
Mortgage servicing rights	Net loan servicing fees–Mortgage servicing rights hedging results	$	(116,294)	$	(155,317)	$	(27,654)	$	(449,651)

(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 quarter in Note 7 – Fair Value – Assets and Liabilities Measured at Fair Value on a Recurring Basis.