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PennyMac Financial Services, Inc.

PennyMac Financial Services, Inc.PFSIEarnings & Financial Report

NYSE · Financials · Mortgage Bankers & Loan Correspondents

PennyMac Financial Services, Inc. is an American residential mortgage company headquartered in Westlake Village, California. The company's business focuses on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. Pennymac operates through two subsidiaries: PennyMac Loan Services, LLC and PNMAC Capital Management, LLC. The latter manages the PennyMac Mortgage Investment Trust, a mortgage REIT.

What changed in PennyMac Financial Services, Inc.'s 10-K — 2022 vs 2023

Top changes in PennyMac Financial Services, Inc.'s 2023 10-K

292 paragraphs added · 306 removed · 224 edited across 4 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

117 edited+38 added−57 removed175 unchanged
Climate change, adverse weather conditions, man-made or natural disasters, pandemics, terrorist attacks and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service, as well as geographic areas where we conduct business.
Climate change, adverse weather conditions, man-made or natural disasters, pandemics, terrorist attacks and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service, as well as geographic areas where we conduct business.
In addition, our failure to comply with these laws, regulations and rules may result in increased costs of doing business, reduced payments by borrowers, modification of the original terms of mortgage loans, permanent forgiveness of debt, delays in the foreclosure process, increased 34 Table of Contents servicing advances, litigation, reputational damage, enforcement actions, and repurchase and indemnification obligations.
In addition, our failure to comply with these laws, regulations and rules may result in increased costs of doing business, reduced payments by borrowers, modification of 34 Table of Contents the original terms of mortgage loans, permanent forgiveness of debt, delays in the foreclosure process, increased servicing advances, litigation, reputational damage, enforcement actions, and repurchase and indemnification obligations.
Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or secondary mortgage markets or in underwriting criteria could materially and adversely affect our business, financial condition, liquidity and results of operations and our ability to make distributions to our stockholders. ​ 36 Table of Contents Our ability to generate revenue from newly originated loans that we acquire or assist PMT in acquiring is highly dependent on the fact that the Agencies have not historically acquired such loans directly from mortgage lenders, but have instead relied on banks and non-bank aggregators such as us to acquire, aggregate and securitize or otherwise sell such loans to investors in the secondary market.
Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or 36 Table of Contents secondary mortgage markets or in underwriting criteria could materially and adversely affect our business, financial condition, liquidity and results of operations and our ability to make distributions to our stockholders. ​ Our ability to generate revenue from newly originated loans that we acquire or assist PMT in acquiring is highly dependent on the fact that the Agencies have not historically acquired such loans directly from mortgage lenders, but have instead relied on banks and non-bank aggregators such as us to acquire, aggregate and securitize or otherwise sell such loans to investors in the secondary market.
To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us, which could cause us to cross default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ 37 Table of Contents The failure of PennyMac Loan Services, LLC to avail itself of an appropriate exemption from registration as an investment company under the Investment Company Act of 1940 could have a material and adverse effect on our business. ​ We intend to operate so that we, and each of our subsidiaries, are not required to register as investment companies under the Investment Company Act of 1940, as amended (“Investment Company Act”).
To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us, which could cause 37 Table of Contents us to cross default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ The failure of PennyMac Loan Services, LLC to avail itself of an appropriate exemption from registration as an investment company under the Investment Company Act of 1940 could have a material and adverse effect on our business. ​ We intend to operate so that we, and each of our subsidiaries, are not required to register as investment companies under the Investment Company Act of 1940, as amended (“Investment Company Act”).
In addition, we may not be able to adjust our operational capacity and staffing in a timely manner, or at all, in response to increases or decreases in loan production volume resulting from changes in prevailing interest rates. ​ Any of the increases or decreases discussed above could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Our mortgage banking revenues are highly dependent on macroeconomic factors and real estate market, mortgage market and financial market conditions.
In addition, we may not be able to adjust our operational capacity and staffing in a timely manner, or at all, in response to increases or decreases in loan production volume resulting from changes in prevailing interest rates. ​ Any of the increases or decreases discussed above could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Our revenues are highly dependent on macroeconomic factors and real estate market, mortgage market and financial market conditions.
To the extent any new minimum net worth, capital ratio and liquidity standards and requirements are overly burdensome, complying with such standards and requirements may have a material adverse effect on our business, financial condition and results of operations. ​ New CFPB or state rules and regulations or more stringent enforcement of existing rules and regulations by these regulators could result in enforcement actions, fines, penalties and the inherent reputational risk that results from such actions. ​ The CFPB has regulatory authority over certain aspects of our business as a result of our residential mortgage banking activities, including, without limitation, the authority to conduct investigations, bring enforcement actions, impose monetary penalties, require remediation of practices, pursue administrative proceedings or litigation, and obtain cease and desist orders for violations of applicable federal consumer financial laws.
To the extent any new minimum net worth, capital ratio and liquidity standards and requirements are overly burdensome, complying with such standards and requirements may have a material adverse effect on our business, financial condition and results of operations. ​ New CFPB or state rules and regulations or more stringent enforcement of existing rules and regulations by these regulators could result in enforcement actions, fines, penalties and the inherent reputational risk that results from such actions. ​ The CFPB and state regulators have authority over certain aspects of our business as a result of our residential mortgage banking activities, including, without limitation, the authority to conduct investigations, bring enforcement actions, impose monetary penalties, require remediation of practices, pursue administrative proceedings or litigation, and obtain cease and desist orders for violations of applicable federal consumer financial laws.
Additionally, third-party security events at our vendors or other service providers could also impact our data and operations via unauthorized access to information or disruption of services. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as the adoption of standard data protection policies.
Additionally, third party security events at our vendors or service providers could also impact our data and operations via unauthorized access to information or disruption of services. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as the adoption of standard data protection policies.
Among other things, these provisions: ​ ● authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval; ● prohibit stockholder action by written consent unless the matter as to which action is being taken has been approved by our board of directors; ● provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws (provided that, if that action adversely affects HC Partners when that entity, together with its affiliates, holds at least 5% of the voting power of our outstanding shares of capital stock, our stockholder agreements provide that such action must be approved by that entity); ● establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings; and ● prevent a sale of substantially all of our assets or completion of a merger or other business combination that constitutes a change of control without the approval of a majority of our independent directors. ​ These and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company or negatively affect the trading price of our common stock.
Among other things, these provisions: ​ ● authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval; ● prohibit stockholder action by written consent unless the matter as to which action is being taken has been approved by our board of directors; ● provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws (provided that, if that action adversely affects HC Partners when that entity, together with its affiliates, holds at least 5% of the voting power of our outstanding shares of capital stock, our stockholder agreements provide that such action must be approved by that entity); ● establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings; and ● prevent a sale of substantially all of our assets or completion of a merger or other business combination that constitutes a change of control without the approval of a majority of our independent directors. ​ 41 Table of Contents These and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company or negatively affect the trading price of our common stock.
This framework includes divisions or groups dedicated to enterprise risk management, credit risk, climate risk, corporate sustainability and ESG, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor management and internal audit, among others.
This framework includes divisions or groups dedicated to enterprise risk management, credit risk, climate risk, corporate sustainability, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor management and internal audit, among others.
Some of the factors that could negatively affect the market price or trading volume of our common stock include: ​ ● variations in our actual and anticipated financial and operating results and those expected by investors and analysts; ● changes in the manner that investors and securities analysts who provide research to the marketplace on us analyze the value of our common stock and similar companies; ● changes in recommendations or in estimated financial results published by securities analysts who provide research to the marketplace on us, our competitors or our industry; ● litigation and governmental investigations; ● increases in market interest rates that may lead purchasers of our shares to demand a higher yield; ● announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and ● general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located. ​ These broad market and industry factors may decrease the market price and trading volume of our common stock, regardless of our actual operating performance. ​ The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock into the public trading market. ​ We were founded in 2008 by members of our executive leadership team and strategic investors, including HC Partners, our largest stockholder.
Some of the factors that could negatively affect the market price or trading volume of our common stock include: ​ ● variations in our actual and anticipated financial and operating results and those expected by investors and analysts; ● changes in the manner that investors and securities analysts who provide research to the marketplace on us analyze the value of our common stock and similar companies; ● changes in recommendations or in estimated financial results published by securities analysts who provide research to the marketplace on us, our competitors or our industry; ● litigation and governmental investigations; ● increases in market interest rates that may lead purchasers of our shares to demand a higher yield; ● announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and ● general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located. ​ These broad market and industry factors may decrease the market price and trading volume of our common stock, regardless of our actual operating performance. ​ 42 Table of Contents The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock into the public trading market. ​ We were founded in 2008 by members of our executive leadership team and strategic investors, including HC Partners, our largest stockholder.
We have developed a workflow-driven, cloud-based loan acquisition platform and while we anticipate that the cloud-based system will increase scalability and produce other efficiencies, there can be no assurance that the cloud-based system will prove to be effective or that such correspondent sellers will easily adapt to the cloud-based system.
We have developed a workflow-driven, cloud-based loan acquisition platform and while we anticipate that the cloud-based platform will increase scalability and produce other efficiencies, there can be no assurance that the cloud-based platform will prove to be effective or that such correspondent sellers will easily adapt to the cloud-based platform.
Fannie Mae and Ginnie Mae MSRs are pledged to special purpose entities, each of which issues variable funding notes and term notes that are secured by such Fannie Mae or Ginnie Mae assets, as applicable, and repaid through the servicing cash flows .
Fannie Mae and Ginnie Mae MSRs are pledged to special purpose entities, each of which issues variable funding notes, term loans and term notes that are secured by such Fannie Mae or Ginnie Mae assets, as applicable, and repaid through the servicing cash flows .
Hedging instruments involve risk because they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities, and our interest rate hedging may fail to protect or could adversely affect us because, among other things: ​ ● interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; ● available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; ● the duration of the hedge may not match the duration of the related liability or asset; ● the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and ● the hedging counterparty owing the money in the hedging transaction may default on its obligation to pay. ​ In addition, we may fail to recalculate, re-adjust and execute hedges in an efficient manner.
Hedging instruments involve risk because they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities, and our interest rate hedging may fail to protect or could adversely affect us because, among other things: ​ ● interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; ● available interest rate hedging instruments may not correspond directly with the interest rate risk for which protection is sought; ● the duration of the hedge may not match the duration of the related liability or asset; ● the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and 24 Table of Contents ● the hedging counterparty owing the money in the hedging transaction may default on its obligation to pay. ​ In addition, we may fail to recalculate, re-adjust and execute hedges in an efficient manner.
Such actions may increase our cost of capital and limit or otherwise eliminate our access to capital, in which case our business, financial condition, liquidity and results of operations would be materially and adversely affected. ​ In the event that any of our financial arrangements is terminated or is not renewed, or if the principal amount that may be drawn under our funding agreements that provide for immediate funding at closing were to significantly decrease, we may be unable to find replacement financing on commercially favorable terms, or at all, which could be detrimental to our business. ​ 21 Table of Contents We finance our loans and other assets under secured financing agreements and utilize various other sources of borrowings, which exposes us to significant risk and may materially and adversely affect our business, financial condition, liquidity and results of operations. ​ We finance and, to the extent available, we intend to continue to leverage the loans produced through our loan production businesses with borrowings under repurchase agreements.
Such actions may increase our cost of capital and limit or otherwise eliminate our access to capital, in which case our business, financial condition, liquidity and results of operations would be materially and adversely affected. ​ 22 Table of Contents In the event that any of our financial arrangements is terminated or is not renewed, or if the principal amount that may be drawn under our funding agreements that provide for immediate funding at closing were to significantly decrease, we may be unable to find replacement financing on commercially favorable terms, or at all, which could be detrimental to our business. ​ We finance our loans, MSRs and other assets under secured financing agreements and utilize various other sources of borrowings, which exposes us to significant risk and may materially and adversely affect our business, financial condition, liquidity and results of operations. ​ We finance and, to the extent available, we intend to continue to leverage the loans produced through our loan production businesses with borrowings under repurchase agreements.
The unsecured senior note indentures contain additional restrictive covenants that limit our and our restricted subsidiaries’ ability to engage in specified types of transactions, including our ability and/or the ability of our restricted subsidiaries to: ​ ● pay dividends or distributions, redeem or repurchase equity, prepay subordinated debt and make certain loans or investments; ● merge or consolidate with another person or sell all or substantially all of our assets to another person; ● transfer, sell or otherwise dispose of certain assets including capital stock of subsidiaries; ● enter into transactions with affiliates; and ● allow to exist certain restrictions on the ability of non-guarantor restricted subsidiaries to pay dividends or make other payments to us. ​ If we fail to comply with the restrictive covenants and are unable to obtain a waiver or amendment, an event of default would result under the terms of our financing arrangement or could limit our ability to obtain additional financing on acceptable terms, or at all, for working capital and general corporate purposes.
The unsecured senior note indentures contain additional restrictive covenants that may limit our and our restricted subsidiaries’ ability to engage in specified types of transactions, including our ability and/or the ability of our restricted subsidiaries to: ​ ● pay dividends or distributions, redeem or repurchase equity, prepay subordinated debt and make certain loans or investments; ● merge or consolidate with another company or sell all or substantially all of our assets; ● transfer, sell or otherwise dispose of certain assets including capital stock of subsidiaries; ● enter into transactions with affiliates; and ● allow to exist certain restrictions on the ability of non-guarantor restricted subsidiaries to pay dividends or make other payments to us. ​ If we fail to comply with the restrictive covenants and are unable to obtain a waiver or amendment, an event of default would result under the terms of our financing arrangement or could limit our ability to obtain additional financing on acceptable terms, or at all, for working capital and general corporate purposes.
We may also be subject to additional curtailments to servicing and advance reimbursements if we have not satisfied VA, USDA or FHA timing, service and other regulatory requirements during the foreclosure and conveyance process.
We may also be subject to additional curtailments to servicing and advance reimbursements if we have not satisfied VA, USDA or FHA timing, service and other regulatory or investor requirements during the foreclosure and conveyance process.
Further, numerous treaties, laws and regulations have been enacted or proposed in an effort to regulate climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of “green” building codes.
Numerous treaties, laws and regulations have been enacted or proposed in an effort to regulate climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of “green” building codes.
Furthermore, MSRs and the related servicing activities are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business.
MSRs and the related servicing activities are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business.
In addition, as a result of the size of its individual equity holding it may be able to 42 Table of Contents significantly influence the outcome of all matters requiring stockholder approval, including mergers and other material transactions, and may be able to cause or prevent a change in the composition of our board of directors or a change in control of our Company that could deprive our other public stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock. ​ We have not established a minimum dividend payment level and no assurance can be given that we will be able to make dividends to our stockholders in the future at current levels or at all.
In addition, as a result of the size of its individual equity holding it may be able to significantly influence the outcome of all matters requiring stockholder approval, including mergers and other material transactions, and may be able to cause or prevent a change in the composition of our board of directors or a change in control of our Company that could deprive our other public stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock. ​ We have not established a minimum dividend payment level and no assurance can be given that we will be able to make dividends to our stockholders in the future at current levels or at all.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of and take other corporate actions. ​ 43 Table of Contents Our bylaws include an exclusive forum provision that could limit our stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or other employees. ​ Our bylaws provide that the state or federal court located within the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of and take other corporate actions. ​ Our bylaws include an exclusive forum provision that could limit our stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors, officers or other employees. ​ Our bylaws provide that the state or federal court located within the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
Inflation and future expectations of inflation could increase our operating expenses and may affect our profitability if the additional operating costs are not recoverable through increased revenues or profit margins.
Inflation and future expectations of inflation could also increase our operating expenses and may affect our profitability if the additional operating costs are not recoverable through increased revenues or profit margins.
Either of these scenarios would potentially impair PMT’s financial position and its ability to raise capital, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ​ PMT, as the owner of a substantial number of MSRs or mortgage loans that we subservice, may, under certain circumstances, terminate our subservicing contract with or without cause, in some instances with little notice and little to no compensation.
Either of these 38 Table of Contents scenarios would potentially impair PMT’s financial position and its ability to raise capital, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ​ PMT, as the owner of a substantial number of MSRs or mortgage loans that we subservice, may, under certain circumstances, terminate our subservicing contract with or without cause, in some instances with little notice and little to no compensation.
Accordingly, the exercise by any of Fannie Mae, Freddie Mac or Ginnie Mae of its rights under the applicable acknowledgment agreement could result in the extinguishment of our and the secured parties’ rights in the related collateral and result in significant losses to us. ​ We may in the future utilize other sources of borrowings, including term loans, bank credit facilities and structured financing arrangements, among others.
Accordingly, the exercise by any of Fannie Mae, Freddie Mac or Ginnie Mae of its rights under the applicable acknowledgment agreement could result in the extinguishment of our and the secured parties’ rights in the related collateral and result in significant losses to us. ​ We may in the future utilize other sources of borrowings, including bank credit facilities and structured financing arrangements, among others.
Our inability to raise such capital or obtain financing on favorable terms could materially and adversely impact our business, financial condition, liquidity and results of operations. ​ 22 Table of Contents Our financing agreements contain financial and restrictive covenants that could adversely affect our business, financial condition, liquidity and results of operations. ​ Our various financing agreements require us and/or our subsidiaries to comply with various restrictive covenants, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth.
Our inability to raise such capital or obtain financing on favorable terms could materially and adversely impact our business, financial condition, liquidity and results of operations. ​ 23 Table of Contents Our financing agreements contain financial and restrictive covenants that could adversely affect our business, financial condition, liquidity and results of operations. ​ Our various financing agreements require us and/or our subsidiaries to comply with various restrictive covenants, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth.
Section 404(b) of the Sarbanes-Oxley Act requires our auditors to formally attest to and report on the effectiveness of our internal control over financial reporting. ​ If we cannot maintain effective internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
Section 404(b) of the Sarbanes-Oxley Act requires our auditors to formally attest to and report on the effectiveness of our internal control over financial reporting. ​ If we cannot maintain effective internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decrease.
When the estimated fair value of MSRs is reduced, we could suffer a loss, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. 28 Table of Contents Changes in interest rates are a key driver of the performance of MSRs.
When the estimated fair value of MSRs is reduced, we could suffer a loss, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. 26 Table of Contents Changes in interest rates are a key driver of the performance of MSRs.
Because we are not a federally chartered depository institutions we do not benefit from exemptions to state mortgage lending, loan servicing or debt collection licensing and regulatory requirements. We are licensed in all state jurisdictions, and for those activities, where we are required to be licensed and believe it is cost effective and appropriate to become licensed.
Because we are not a federally chartered depository institution, we do not benefit from exemptions to state mortgage lending, loan servicing or debt collection licensing and regulatory requirements. We are licensed in all state jurisdictions, and for those activities, where we are required to be licensed and believe it is cost effective and appropriate to become licensed.
An increase in required advances also may cause an increase in our interest expense and affect our liquidity as a result of increased borrowings under our financing agreements to fund any such increase in the advances. ​ We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ​ During any period in which a borrower is not making payments, we may be required under our servicing agreements in respect of our MSRs to advance our own funds to pay property taxes and insurance premiums, legal expenses and other protective advances, and may be required to advance principal and interest payments to security holders of the MBS into which the loans are sold.
An increase in required advances also may cause an increase in our interest expense and affect our liquidity as a result of increased borrowings under our financing agreements to fund any such increase in the advances. ​ 20 Table of Contents We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ​ During any period in which a borrower is not making payments, we may be required under our servicing agreements in respect of our MSRs to advance our own funds to pay property taxes and insurance premiums, legal expenses and other protective advances, and may be required to advance scheduled principal and interest payments to security holders of the MBS into which the loans are sold.
Accordingly, the management and incentive fees that we have earned in the past based on those returns should not be considered indicative of the management or incentive fees that we may earn in the future from managing those same assets or from managing other assets for PMT. ​ Changes in regulations applicable to our investment management segment could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ The legislative and regulatory environment in which we operate is constantly evolving.
Accordingly, the management and incentive fees that we have earned in the past based on those returns should not be considered indicative of the management or incentive fees that we may earn in the future from managing those same assets or from managing other assets for PMT. ​ 39 Table of Contents Changes in regulations applicable to our investment management segment could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ The legislative and regulatory environment in which we operate is constantly evolving.
The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our investor relationships. 46 Table of Contents As our reliance on rapidly changing technology has increased, so have the risks posed to our information systems, both proprietary and those provided to us by third-party service providers including cloud-based computing service providers.
The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our investor relationships. ​ As our reliance on rapidly changing technology has increased, so have the risks posed to our information systems, both proprietary and those provided to us by third party service providers including cloud-based computing service providers.
In addition, the servicer is only reimbursed for any interest accrued and unpaid from a date 60 days after the borrower’s first uncorrected failure to perform, and the interest is reimbursed at the HUD debenture interest rate that may be lower than the actual loan rate. 27 Table of Contents ● VA and USDA Guarantees - VA and USDA loans are only partially guaranteed by the government and if such loan defaults or goes into foreclosure, the VA or USDA guarantees may not fully cover all principal, interest and other fees and advances we may have incurred on the outstanding VA or USDA loan, and we may suffer a loss.
In addition, the servicer is only reimbursed for any interest accrued and unpaid from a date 60 days after the borrower’s first uncorrected failure to perform, and the interest is reimbursed at the HUD debenture interest rate that may be lower than the actual loan rate. ● VA and USDA Guarantees - VA and USDA loans are only partially guaranteed by the government and if such loan defaults or goes into foreclosure, the VA or USDA guarantees may not fully cover all principal, interest and other fees and advances we may have incurred on the outstanding VA or USDA loan, and we may suffer a loss.
These factors could impair our working relationships with government agencies and investors, expose us to litigation and regulatory action, negatively affect our ability to attract and retain customers, trading counterparties and employees, significantly harm our stock price and ability to raise capital, and adversely affect our results of operations. ​ 32 Table of Contents Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions.
These factors could impair our working relationships with government agencies and investors, expose us to litigation and regulatory action, negatively affect our ability to attract and retain customers, trading counterparties and employees, significantly harm our stock price and ability to raise capital, and adversely affect our results of operations. ​ Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions.
This may also provide borrowers with an incentive to default on their mortgage loans even if they have the ability to make principal and interest payments. ​ 26 Table of Contents Increased mortgage delinquencies, defaults and foreclosures may result in lower revenue for loans that we service for the Agencies because we only collect servicing fees from the Agencies for performing loans, and our failure to service delinquent and defaulted loans in accordance with the applicable servicing guidelines could result in our failure to benefit from available monetary incentives and/or expose us to monetary penalties and curtailments.
This may also provide borrowers with an incentive to default on their mortgage loans even if they have the ability to make principal and interest payments. ​ Increased mortgage delinquencies, defaults and foreclosures may result in lower revenue for loans that we service for the Agencies because we only collect servicing fees from the Agencies for performing loans, and our failure to service delinquent and defaulted loans in accordance with the applicable servicing guidelines could result in our failure to benefit from available monetary incentives and/or expose us to monetary penalties and curtailments.
To the extent that the current government administration takes action by proposing and/or passing regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition and results of operations. ​ The Financial Stability Oversight Council (“FSOC”) and Conference of State Bank Supervisors (“CSBS”) have been reviewing whether state chartered nonbank mortgage servicers should be subject to “safety and soundness” standards similar to those imposed by federal law on insured depository institutions, even though nonbank mortgage servicers do not have any federally insured deposit accounts.
To the extent that any government administration takes action by proposing 35 Table of Contents and/or passing regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition and results of operations. ​ The Financial Stability Oversight Council (“FSOC”) and Conference of State Bank Supervisors have been reviewing whether state chartered nonbank mortgage servicers should be subject to “safety and soundness” standards similar to those imposed by federal law on insured depository institutions, even though nonbank mortgage servicers do not have any federally insured deposit accounts.
The uncertainty regarding the continued implementation of laws and regulations and their impact on the investment management industry and us cannot be predicted with certainty at this time but will continue to be a risk for our business. ​ We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non-U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets.
The uncertainty regarding the continued implementation of laws and regulations and their impact on the investment management industry and us cannot be predicted with certainty and will continue to be a risk for our business. ​ We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non-U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets.
As a result, the cost of utilizing derivatives may reduce our income that would otherwise be available for distribution to stockholders or for other purposes, and the derivative instruments that we utilize may fail to effectively hedge our positions. We are also subject to credit risk with regard to the counterparties involved in the derivative transactions.
The cost of utilizing derivatives may reduce our income that would otherwise be available for distribution to stockholders or for other purposes, and the derivative instruments that we utilize may fail to effectively hedge our positions. We are also subject to credit risk with regard to the counterparties involved in the derivative transactions.
If we or our vendors had to curtail or cease operations in these countries due to political unrest or natural disasters and then transfer some or all of these operations to another geographic area, we could experience disruptions in service and incur significant transition costs as well as higher future overhead costs.
If we or our vendors had to curtail or 29 Table of Contents cease operations in these countries due to political unrest or natural disasters and then transfer some or all of these operations to another geographic area, we could experience disruptions in service and incur significant transition costs as well as higher future overhead costs.
As these technological advancements and investor and compliance requirements increase in the future, we will need to further develop these technological capabilities to remain competitive, and we will need to implement, execute and maintain them in an operating and regulatory environment that exposes us to significant risk. ​ 33 Table of Contents There is no assurance that we will be able to successfully adopt new technologies as critical systems and applications become obsolete and better ones become available.
As these technological advancements and investor and compliance requirements increase in the future, we will need to further develop these technological capabilities to remain competitive, and we will need to implement, execute and maintain them in an operating and regulatory environment that exposes us to significant risk. ​ There is no assurance that we will be able to successfully adopt new technologies as critical systems and applications become obsolete and better ones become available.
To the extent we are unable to keep pace with technological advances, we may be unable to compete successfully in our mortgage banking businesses and this could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ Item 1B. Unresolved Staff Comments ​ None. ​
To the extent we are unable to keep pace with technological advances, we may be unable to compete successfully in our mortgage banking businesses and this could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ Item 1B. Unresolved Staff Comments ​ None. ​ 45 Table of Contents
If our loan production volumes and profit margins significantly decrease, then our business, financial condition, liquidity and results of operations could be materially and adversely affected. 47 Table of Contents Our future success depends on our ability to continue to hire, integrate, develop and retain highly qualified personnel.
If our loan production volumes and profit margins significantly decrease, then our business, financial condition, liquidity and results of operations could be materially and adversely affected. Our future success depends on our ability to continue to hire, integrate, develop and retain highly qualified personnel.
If our current counterparties and vendors were to stop providing services to us on acceptable terms or if we had a disruption in service due to a vendor dispute, we may be unable to procure alternative services from other counterparties or vendors in a timely and efficient manner and on similarly acceptable terms, or at all.
If our current counterparties and vendors were to stop providing services to us on acceptable terms or if we had a disruption in service, we may be unable to procure alternative services from other counterparties or vendors in a timely and efficient manner and on similarly acceptable terms, or at all.
Our ability to refinance our existing financial obligations and borrow additional funds is affected by a variety of factors beyond our control including: ​ ● limitations imposed on us under our financing agreements that contain restrictive covenants and borrowing conditions, which may limit our ability to raise additional debt; ● restrictions imposed upon us by regulatory agencies that mandate certain minimum capital and liquidity requirements and additional scrutiny from such regulatory agencies; ● liquidity in the credit markets; ● prevailing interest rates; ● the strength of the lenders from which we borrow, and the regulatory environment in which they operate, including proposed capital strengthening requirements; ● limitations on borrowings from financing arrangements imposed by the amount of eligible collateral pledged, which may be less than the borrowing capacity of the credit facility; and ● accounting changes that may impact calculations of covenants in our financing arrangements. ​ We are also dependent on a limited number of banking institutions that extend us credit on terms that we have determined to be commercially reasonable.
Our ability to refinance our existing financial obligations and borrow additional funds is affected by a variety of factors beyond our control including: ​ ● limitations imposed on us under our financing agreements that contain restrictive covenants and borrowing conditions, which may limit our ability to raise additional debt; ● restrictions imposed upon us by regulatory agencies that mandate certain minimum capital and liquidity requirements; ● liquidity in the credit markets; ● prevailing interest rates; ● the strength of the lenders from which we borrow, and the regulatory environment in which they operate, including changing capital requirements; ● limitations on borrowings from financing arrangements imposed by the amount of eligible collateral pledged, which may be less than the borrowing capacity of the credit facility; and ● accounting changes that may impact calculations of covenants in our financing arrangements. ​ We are also dependent on a limited number of banking institutions and private equity firms to extend us credit on terms that we have determined to be commercially reasonable.
Any hedging activity, which is intended to limit losses, may materially and adversely affect our results of operations and cash flows. Therefore, while we may enter into such transactions seeking to reduce interest rate risk, unanticipated changes in interest rates may result in worse overall investment performance than if we had not engaged in any such hedging transactions.
Any hedging activity, which is intended to limit losses, may materially and adversely affect our financial position, operations and cash flows. Therefore, while we may enter into such transactions seeking to reduce interest rate risk, unanticipated changes in interest rates may result in worse overall investment performance than if we had not engaged in any such hedging transactions.
Sales of substantial numbers of shares of our common stock into the public trading market by HC Partners, or the perception that such sales could occur, could adversely affect the market price of our common stock and impede our ability to raise capital through the issuance of additional common stock or other equity securities. ​ 44 Table of Contents The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings. ​ As of December 31, 2022, we have an aggregate of 4.6 million shares of common stock authorized and remaining available for future issuance under our 2022 Equity Incentive Plan.
Sales of substantial numbers of shares of our common stock into the public trading market by HC Partners, or the perception that such sales could occur, could adversely affect the market price of our common stock and impede our ability to raise capital through the issuance of additional common stock or other equity securities. ​ The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings. ​ As of December 31, 2023, we have an aggregate of 4.9 million shares of common stock authorized and remaining available for future issuance under our 2022 Equity Incentive Plan.
Our liquidity needs vary significantly from time to time and may be affected by general economic conditions, industry trends, performance and many other factors outside our control. 20 Table of Contents We rely on external financial arrangements to fund mortgage loans and operate our business and our inability to refinance or enter new financial arrangements could be detrimental to our business.
Our liquidity needs vary significantly from time to time and may be affected by general economic conditions, industry trends, performance and many other factors outside our control. We rely on external financial arrangements to fund mortgage loans and operate our business and our inability to refinance or enter new financial arrangements could be detrimental to our business.
Changes in prevailing interest rates, rising inflation rates, U.S. monetary policies or other macroeconomic conditions that affect interest rates may have a detrimental effect on our business and earnings. ● Our mortgage banking revenues are highly dependent on macroeconomic factors and real estate market, mortgage market and financial market conditions. ● We may not be able to effectively manage significant increases or decreases in our loan production volume, which could negatively affect our business, financial condition, liquidity and results of operations. ● We have a substantial amount of indebtedness, which may limit our financial and operating activities, expose us to substantial increases in costs due to interest rate fluctuations, expose us to the risk of default under our debt obligations and may adversely affect our ability to incur additional debt to fund future needs. ● We rely on external financial arrangements to fund mortgage loans and operate our business and our inability to refinance or enter new financial arrangements could be detrimental to our business. ● Increases in delinquencies and defaults may adversely affect our business, financial condition, liquidity and results of operations. ● We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ● Our acquisition and ownership of mortgage servicing rights exposes us to significant risks. ● A disruption in the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may be required to indemnify the purchasers of loans that we originate, acquire or assist in the fulfillment of, or repurchase those loans, if those loans fail to meet certain criteria or characteristics or under other circumstances and we may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties they make to us. ● Failure to successfully modify, resell or refinance early buyout loans (“EBO”) or defaults of EBO loans beyond expected levels may adversely affect our business, financial condition, liquidity and results of operations. ● We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ● Climate change, adverse weather conditions, man-made or natural disasters, pandemics, terrorist attacks, and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service, as well as geographic areas where we conduct business. ● Our failure to appropriately address various issues that may give rise to reputational risk could cause harm to our business and adversely affect our earnings. ● We operate in a highly regulated industry and the continually changing federal, state and local laws and regulations could materially and adversely affect our business, financial condition, liquidity and results of operations. ● New CFPB or state rules and regulations or more stringent enforcement of existing rules and regulations by these regulators could result in enforcement actions, fines, penalties and the inherent reputational risk that results from such actions. 17 Table of Contents ● We are highly dependent on U.S. government-sponsored entities and government agencies, and any organizational or pricing changes at such entities or their regulators could materially and adversely affect our business, liquidity, financial condition and results of operations. ● We are required to have various Agency approvals and state licenses in order to conduct our business and there is no assurance we will be able to obtain or maintain those Agency approvals or state licenses. ● Our business, financial condition and results of operations may be adversely affected by the long term impact of the COVID-19 pandemic . ● We rely on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business, and the termination of, or material adverse change in, the terms of this relationship, or a material adverse change to PMT or its operations, could adversely affect our business, financial condition, liquidity and results of operations. ● A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ● Market conditions could reduce the fair value of the assets that we manage, which would reduce our management and incentive fees. ● Our failure to comply with the extensive amount of regulation applicable to our investment management segment could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may encounter conflicts of interest in trying to appropriately allocate our time and services between activities for our own account and for PMT, or in trying to appropriately allocate investment opportunities among ourselves and for PMT. ● Our risk management efforts may not be effective. ● Initiating new business activities, developing new products or significantly expanding existing business activities may expose us to new risks and increase our cost of doing business. ● Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results. ● We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations. ​ Risk Factors ​ In addition to the other information set forth in this Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, liquidity and results of operations in future periods.
Changes in prevailing interest rates, rising inflation rates, U.S. monetary policies or other macroeconomic conditions that affect interest rates may have a detrimental effect on our business and earnings. ● Our revenues are highly dependent on macroeconomic factors and real estate market, mortgage market and financial market conditions. ● We may not be able to effectively manage significant increases or decreases in our loan production volume, which could negatively affect our business, financial condition, liquidity and results of operations. ● Increases in delinquencies and defaults may adversely affect our business, financial condition, liquidity and results of operations. ● We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ● We have a substantial amount of indebtedness, which may limit our financial and operating activities, expose us to substantial increases in costs due to interest rate fluctuations, expose us to the risk of default under our debt obligations and may adversely affect our ability to incur additional debt to fund future needs. ● We rely on external financial arrangements to fund mortgage loans and operate our business and our inability to refinance or enter new financial arrangements could be detrimental to our business. ● Our acquisition and ownership of mortgage servicing rights exposes us to significant risks. ● A disruption in the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may be required to indemnify the purchasers of loans that we originate, acquire or assist in the fulfillment of, or repurchase those loans, if those loans fail to meet certain criteria or characteristics or under other circumstances and we may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties they make to us. ● We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ● Our failure to appropriately address various issues that may give rise to reputational risk could cause harm to our business and adversely affect our earnings. ● Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results. ● Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition. ● Climate change, adverse weather conditions, man-made or natural disasters, pandemics, terrorist attacks, and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service, as well as geographic areas where we conduct business. ● We operate in a highly regulated industry and the continually changing federal, state and local laws and regulations could materially and adversely affect our business, financial condition, liquidity and results of operations. 17 Table of Contents ● New CFPB or state rules and regulations or more stringent enforcement of existing rules and regulations by these regulators could result in enforcement actions, fines, penalties and the inherent reputational risk that results from such actions. ● We are highly dependent on U.S. government-sponsored entities and government agencies, and any organizational or pricing changes at such entities or their regulators could materially and adversely affect our business, liquidity, financial condition and results of operations. ● We are required to have various Agency approvals and state licenses in order to conduct our business and there is no assurance we will be able to obtain or maintain those Agency approvals or state licenses. ● We rely on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business, and the termination of, or material adverse change in, the terms of this relationship, or a material adverse change to PMT or its operations, could adversely affect our business, financial condition, liquidity and results of operations. ● A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ● Our failure to comply with the extensive amount of regulation applicable to our investment management segment could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may encounter conflicts of interest in trying to appropriately allocate our time and services between activities for our own account and for PMT, or in trying to appropriately allocate investment opportunities among ourselves and for PMT. ● Our risk management efforts may not be effective. ● Initiating new business activities, developing new products or significantly expanding existing business activities may expose us to new risks and increase our cost of doing business. ● We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations. ​ Risk Factors ​ In addition to the other information set forth in this Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, liquidity and results of operations in future periods.
These factors include prepayment speeds, interest rate changes, costs to service the loans and other market conditions. ​ We use internal financial models that utilize our understanding of inputs used by market participants to value our MSRs for purposes of financial reporting and for purposes of determining the price that we pay for portfolios of MSRs and to acquire loans for which we will retain MSRs.
These factors include prepayment speeds, interest rate changes, costs to service the loans and other market conditions. We use internal financial models that utilize our understanding of inputs used by market participants to value our MSRs to determine the price that we pay for portfolios of MSRs and to acquire loans for which we will retain MSRs.
Our hedging activity will vary in scope based on the level and volatility of interest rates, the type of assets held and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us.
Our hedging activity will vary in scope based on the level and volatility of interest rates and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us.
We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules 41 Table of Contents by these governmental authorities and self-regulatory organizations, as well as by U.S. and non-U.S. courts.
We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations, as well as by U.S. and non-U.S. courts.
These third party ESG ratings may be used by some investors to assist with their investment and voting decisions. Any unfavorable ESG ratings may lead to reputational damage and negative sentiment among our investors and other stakeholders.
These third party Corporate Sustainability ratings may be used by some investors to assist with their investment and voting decisions. Any unfavorable Corporate Sustainability ratings may lead to reputational damage and negative sentiment among our investors and other stakeholders.
If we are unable to satisfy a margin call, the secured parties may sell the collateral, which may result in significant losses to us. ​ Each of the secured financing arrangements pursuant to which we finance MSRs is further subject to the terms of an acknowledgement agreement with Fannie Mae, Freddie Mac or Ginnie Mae, as applicable, pursuant to which our and the secured parties’ rights are subordinate in all respects to the rights of the applicable Agency.
If we are unable to satisfy a margin call, the secured parties may sell the collateral, which may result in significant losses to us. ​ Our secured financing arrangements are subject to the terms of an acknowledgement agreement with Fannie Mae, Freddie Mac or Ginnie Mae, as applicable, pursuant to which our and the secured parties’ rights are subordinate in all respects to the rights of the applicable Agency.
An increase in prevailing interest rates could: ​ ● adversely affect our loan production volume, as refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; ● adversely affect our Ginnie Mae EBOs because loan modifications would become less economically feasible; and ● increase the cost of servicing our outstanding debt, including debt related to servicing assets and loan production. ​ A decrease in prevailing interest rates could: ● cause an increase in the expected volume of loan refinancings, which would require us to record decreases in fair value on our MSRs; and ● reduce our earnings from our custodial deposit accounts. ​ Furthermore, borrowings under our warehouse lines of credit, and MSR and servicing advance facilities are at variable rates of interest, which also expose us to interest rate risk.
An increase in prevailing interest rates could: ​ ● adversely affect our loan production volume, as refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; ● adversely affect our Ginnie Mae early buyout (“EBO”) loans because modifications would become less economically feasible; and ● increase the cost of servicing our outstanding debt, including debt related to servicing assets and loan production. ​ A decrease in prevailing interest rates could: ● cause an increase in the expected volume of loan refinancings, which would require us to record decreases in fair value on our MSRs; and ● reduce our earnings from our custodial deposit accounts. ​ Furthermore, borrowings under our warehouse lines of credit, and MSR and servicing advance facilities are [generally] at variable rates of interest, which exposes us to interest rate risk.
The members of our senior management team may have conflicts in allocating their time and services between our operations and the activities of PMT and any other entities or accounts that we may manage in the future. ​ In addition, we and the other entities or accounts that we may manage may participate in some of PMT’s investment strategies now or in the future, which may not be the result of arm’s length negotiations and may involve or later result in potential conflicts between our interests and those of PMT or such other entities.
The members of our senior management team may have conflicts in allocating their time and services between our operations and the activities of PMT and any other entities or accounts that we may manage in the future. ​ In addition, we and the other entities or accounts that we may manage may participate in some of PMT’s investment strategies now or in the future and may involve or later result in potential conflicts between our interests and those of PMT or such other entities.
Furthermore, we would remain contractually obligated to fund loans under our outstanding IRLCs without being able to sell our existing inventory of mortgage loans.
Furthermore, we would remain contractually obligated to fund loans under our 27 Table of Contents outstanding IRLCs without being able to sell our existing inventory of mortgage loans.
Factors such as the COVID-19 pandemic, inflation, deflation, unemployment, personal and business income taxes, healthcare, energy costs, domestic political issues, government shutdowns, climate change and the availability and cost of credit may contribute to increased volatility and unclear expectations for the economy in general and the real estate, mortgage market and financial markets in particular going forward.
Factors such as inflation, deflation, unemployment, personal and business income taxes, healthcare, energy costs, government shutdowns, pandemics, climate change and the availability and cost of credit may contribute to increased volatility and unclear expectations for the economy in general and the real estate, mortgage market and financial markets in particular going forward.
Any significant increase in delinquencies, defaults and foreclosures on loans that increase our servicing advances, reduce property value or otherwise delay our ability to dispose of the properties underlying the loan could have a material adverse effect on our business, financial condition, liquidity and results of operations. Our acquisition and ownership of mortgage servicing rights exposes us to significant risks.
Any significant increase in delinquencies, defaults and foreclosures on loans that increase our servicing advances, reduce property value or otherwise delay our ability to dispose of the properties underlying the loan could have a material adverse effect on our business, financial condition, liquidity and results of operations.
These statutes apply to loan origination, servicing, debt collection, marketing, use of credit reports, safeguarding of non-public, personally identifiable information about our clients, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain disclosures and notices to customers. ​ Because we are not a federally chartered depository institution, we generally do not benefit from federal pre-emption of state mortgage loan banking, loan servicing or debt collection licensing and regulatory requirements and must comply with multiple state licensing and compliance requirements.
These statutes apply to loan origination, servicing, debt collection, marketing, use of credit reports, safeguarding of non-public, personally identifiable information about our clients, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain disclosures and notices to customers. ​ Because we are not a federally chartered depository institution, we generally do not benefit from federal pre-emption of state mortgage loan banking, loan servicing or debt collection licensing and regulatory requirements and must comply with state licensing and compliance requirements in all 50 states, the District of Columbia and other U.S. territories.
This substantial indebtedness and any future indebtedness we incur could have adverse consequences and, for example, could: ● require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, including indebtedness we may incur in the future, thereby reducing the funds available for operations, capital expenditures and other general corporate purposes; ● make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including any restrictive covenants, could result in an event of default under the indentures governing the unsecured senior notes or under the agreements governing our other indebtedness which, if not cured or waived, could result in the acceleration of our indebtedness under our other debt instruments or the unsecured senior notes; ● subject us to increased sensitivity to interest rate increases; ● make us more vulnerable to economic downturns, adverse industry conditions or catastrophic events, including the COVID-19 pandemic and climate change; ● reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or ● place us at a competitive disadvantage to competitors that have relatively less debt than we have.
This substantial indebtedness and any future indebtedness we incur could have adverse consequences and, for example, could: 21 Table of Contents ● require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, including indebtedness we may incur in the future, thereby reducing the funds available for operations, capital expenditures and other general corporate purposes; ● make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including any restrictive covenants, could result in an event of default under the indentures governing the unsecured senior notes or under the agreements governing our other indebtedness which, if not cured or waived, could result in the acceleration of our indebtedness under our other debt instruments or the unsecured senior notes; ● subject us to increased sensitivity to interest rate increases; ● make us more vulnerable to economic downturns, adverse industry conditions or catastrophic events; ● reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or ● place us at a competitive disadvantage to competitors that have relatively less debt than we have. ​ In addition, our substantial level of indebtedness could limit our ability to obtain additional financing on acceptable terms, or at all, for working capital and general corporate purposes.
With respect to servicing, we face competition in areas such as fees, cost to service and service levels, including our performance in reducing delinquencies and entering into successful modifications. ​ Large commercial banks and savings institutions and other non-bank mortgage originators and servicers are increasingly competitive in the origination or acquisition of newly originated mortgage loans and the servicing of mortgage loans.
With respect to servicing, we face competition in areas such as fees, cost to service and service levels, including our performance in reducing delinquencies and entering into successful modifications. ​ Financial institutions and non-bank mortgage lenders and servicers are increasingly competitive in the origination or acquisition of newly originated mortgage loans and the servicing of mortgage loans.
System disruptions and failures caused by fire, power loss, telecommunications outages, unauthorized intrusion, malware, natural disasters and other similar events may interrupt or delay our ability to provide services to our customers.
System disruptions and failures caused by unauthorized intrusion, malware, natural disasters and other similar events may interrupt or delay our ability to provide services to our customers.
If our estimates of their value prove to be inaccurate, we may be required to write down the fair values of the MSRs which could adversely affect our business, financial condition, liquidity and results of operations. ​ Our estimates of the fair value of our MSRs is based on the cash flows projected to result from the servicing of the related mortgage loans and continually fluctuates due to a number of factors.
If our estimates prove to be inaccurate, we may be required to write down the fair values of our investments or suffer a loss that could adversely affect our business, financial condition, liquidity and results of operations. ​ Our estimates of the fair value of our MSR investment is based on the cash flows projected to result from the servicing of the related mortgage loans and continually fluctuates due to a number of factors.
If we are required to incur all or a portion of the costs arising out of litigation or investigations as a result of inadequate insurance proceeds or failure to obtain indemnification, our business, financial condition, liquidity and results of operations would be materially and adversely affected. ​ 31 Table of Contents We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ​ We have a number of counterparties and vendors, who provide us with financial, technology and other services that are critical to support our businesses.
Although we are generally indemnified by PMT, our rights to indemnification may be challenged, and if we are required to incur all or a portion of the costs arising out of litigation or investigations as a result of inadequate insurance proceeds or failure to obtain indemnification, our business, financial condition, liquidity and results of operations could be materially and adversely affected. ​ We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ​ We have a number of counterparties and vendors, who provide us with financial, technology and other services that are critical to support our businesses.
A decrease in home prices may result in higher loan-to-value ratios (“LTVs”), lower recoveries in foreclosure and an increase in loss severities above those that would have been realized had property values remained the same or continued to increase.
A decrease in home prices may result in higher loan-to-value ratios (“LTVs”), lower recoveries in foreclosure and an increase in loss severities above those that would have been realized had property values not decreased.
These banking institutions are subject to their own regulatory supervision, liquidity and capital requirements, risk management frameworks, profitability and risk thresholds and tolerances, any of which may change materially and negatively impact their business strategies, including their extension of credit to us specifically or mortgage lenders and servicers generally.
These banking institutions and private equity firms are subject to their own risk management frameworks, profitability and risk thresholds and tolerances, any of which may change materially and negatively impact their business strategies, including their extension of credit to us specifically or mortgage lenders and servicers generally.
Risks Related to Our Mortgage Banking Segment ​ Market and Financial Risks ​ Our business is significantly impacted by changes in interest rates.
Risks Related to Mortgage Production and Servicing ​ Market and Financial Risks ​ Our business is significantly impacted by changes in interest rates.
For example, although we earned performance incentive fees in prior years, in fiscal year 2022, we did not earn any performance incentive fees due to losses incurred by PMT during the associated performance measurement periods .
For example, in fiscal years 2022 and 2023, we did not earn any performance incentive fees due to losses incurred by PMT during the associated performance measurement periods .
Additionally, our existing and potential competitors may decide to modify their business models to compete more directly with our loan production and servicing models. ​ As new competitors enter these markets and as commercial banks aggressively compete for market share, our mortgage banking businesses may generate lower volumes and/or margins.
Additionally, our existing and potential competitors may decide to modify their business models to compete more directly with our loan production and servicing models. ​ As new and established competitors compete for market share, our mortgage banking businesses may generate lower volumes and/or profit margins.
Negative public opinion can also result from social media and media coverage, whether accurate or not. Our reputation may also be negatively impacted by our environmental, social and governance (“ESG”) practices and disclosures, including climate change practices and disclosures. In addition, various private third party organizations have developed ratings processes for evaluating companies on their approach to ESG matters.
Negative public opinion can also result from social media and media coverage, whether accurate or not. Our reputation may also be negatively impacted by our environmental, social, governance and other corporate sustainability practices (“Corporate Sustainability”). In addition, various private third party organizations have developed ratings processes for evaluating companies on their approach to Corporate Sustainability matters.
In addition, with respect to our MSRs, we may use MBS forward purchase and sale contracts to address exposures to smaller interest rate shifts with Treasury and interest rate swap futures, and use options and swaptions to achieve target coverage levels for larger interest rate shocks. ​ 24 Table of Contents Our hedging activity will vary in scope based on the risks being mitigated, the level of interest rates, the type of investments held, and other changing market conditions such as those resulting from the long term impact of the COVID-19 pandemic.
In addition, with respect to our MSRs, we may use MBS forward purchase and sale contracts to address exposures to smaller interest rate shifts with Treasury and interest rate swap futures, and use options and swaptions to achieve target coverage levels for larger interest rate shocks. ​ Our hedging activity will vary in scope based on the risks being mitigated, the level of interest rates, the type of investments held, and other changing market conditions.
Accordingly, if the MBS market experiences a period of illiquidity, we might be prevented from selling the loans that we produce into the secondary market in a timely manner or at favorable prices and we would be required to hold a larger inventory of loans than we have committed facilities to fund or we may be required to repay a portion of the debt secured by these assets, which could materially and adversely affect our business, financial condition and results of operations. ​ We may be required to indemnify the purchasers of loans that we originate, acquire or assist in the fulfillment of, or repurchase those loans, if those loans fail to meet certain criteria or characteristics or under other circumstances and we may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties they make to us. ​ Our contracts with purchasers of newly originated loans that we fund or acquire through our loan production business contain provisions that require us to indemnify the purchaser of the related loans or repurchase such loans under certain circumstances.
Accordingly, if the MBS market experiences a period of illiquidity, we might be prevented from selling the loans that we produce into the secondary market in a timely manner or at favorable prices and we would be required to hold a larger inventory of loans than we have committed facilities to fund or we may be required to repay a portion of the debt secured by these assets, which could materially and adversely affect our business, financial condition and results of operations. ​ We may be required to indemnify the purchasers of loans that we originate, acquire or assist in the fulfillment of, or repurchase those loans, if those loans fail to meet certain criteria or characteristics or under other circumstances and we may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties they make to us. ​ Our loan sale agreements with purchasers, including the Agencies, contain provisions that generally require us to indemnify or repurchase these loans if our representations and warranties concerning loan quality and loan characteristics are inaccurate; or the loans fail to comply with the respective Agency’s underwriting or regulatory requirements.
Our borrowings are generally repaid with the proceeds we receive from mortgage loan sales. We require new and continued financing to fund mortgage loans and operate our business. We are generally required to renew many of our financing arrangements on a regular basis, which exposes us to refinancing and interest rate risks.
We require new and continued financing to fund mortgage loans and operate our business. We are generally required to renew many of our financing arrangements on a regular basis, which exposes us to refinancing and interest rate risks.
Risks Related to Our Organizational Structure ​ HC Partners may be able to significantly influence the outcome of votes of our common stock, or exercise certain other rights pursuant to a stockholder agreement we have entered into with it, and its interests may differ from those of our other public stockholders. ​ HC Partners, our largest stockholder, has the right under a stockholder agreement to nominate up to two individuals for election to our board of directors depending on the percentage of the voting power of our outstanding shares common stock that it holds, and we are obligated to use our best efforts to cause the election of those director nominees.
Any such perceived or actual conflicts of interest could damage our reputation and materially and adversely affect our business, financial condition, liquidity and results of operations. 40 Table of Contents Risks Related to Our Organizational Structure ​ HC Partners may be able to significantly influence the outcome of votes of our common stock, or exercise certain other rights pursuant to a stockholder agreement we have entered into with it, and its interests may differ from those of our other public stockholders. ​ HC Partners, our largest stockholder, has the right under a stockholder agreement to nominate up to two individuals for election to our board of directors depending on the percentage of the voting power of our outstanding shares common stock that it holds, and we are obligated to use our best efforts to cause the election of those director nominees.
As of December 31, 2022, we had $7.0 billion of total indebtedness outstanding (approximately $5.2 billion of which was secured) and up to $6.5 billion of additional capacity under our secured borrowings and other secured debt financing arrangements.
As of December 31, 2023, we had $8.6 billion of total indebtedness outstanding (approximately $6.1 billion of which was secured) and up to $6.8 billion of additional capacity under our secured borrowings and other secured debt financing arrangements.
Expansion of our business activities may also result in our being exposed to risks to which we have not previously been exposed or may increase our exposure to certain types of risks, and we may not effectively identify, manage, monitor, and mitigate these risks as our business activities change or increase. ​ 45 Table of Contents Initiating new business activities, developing new products or significantly expanding existing business activities may expose us to new risks and increase our cost of doing business. ​ Initiating new business activities, developing new products, or significantly expanding existing business activities, such as our consumer direct and wholesale broker lending businesses, may expose us to new risks and regulatory compliance requirements.
Expansion of our business activities may also result in our being exposed to risks to which we have not previously been exposed or may increase our exposure to certain types of risks, and we may not effectively identify, manage, monitor, and mitigate these risks as our business activities change or increase. 43 Table of Contents ​ Initiating new business activities, developing new products or significantly expanding existing business activities may expose us to new risks and increase our cost of doing business. ​ Initiating new business activities, developing new products, or significantly expanding existing business activities, such as our closed-end second lien mortgage loan product, may expose us to new risks and regulatory compliance requirements.
Any such ineffective correlation may prevent us from achieving the intended hedge and expose us to risk of loss. Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures.
Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures.
Certain banking institutions have already exited, and others may in the future decide to exit the mortgage business.
Certain financial firms have already exited the mortgage lending market, and others financial firms may decide to exit the mortgage lending business in the future.
Accordingly, our failure to maintain effective internal control over financial reporting could result in misstatements of our financial results or restatements of our financial statements or otherwise have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results. ​ A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.
Changes in accounting interpretations or assumptions as well as accounting rule misinterpretations could result in differences in our financial results or otherwise have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ 30 Table of Contents Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results. ​ A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.
Any such misrepresented information could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Our counterparties may terminate our MSRs, which could adversely affect our business, financial condition, liquidity and results of operations. ​ As is standard in the industry, under the terms of our master servicing agreements with the Agencies in respect of Agency MSRs that we retain in connection with our loan production, the Agencies have the right to terminate us as servicer of the loans we service on their behalf at any time (and, in certain instances, without the payment of any termination fee) and also have the right to cause us to sell the MSRs to a third party.
Our failure to comply, or the failure of the servicer to comply, with the laws, rules or regulations to which we or they are subject by virtue of ownership of MSRs, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ Our counterparties may terminate our MSRs, which could adversely affect our business, financial condition, liquidity and results of operations. ​ As is standard in the industry, under the terms of our master servicing agreements with the Agencies in respect of Agency MSRs that we retain in connection with our loan production, the Agencies have the right to terminate us as servicer of the loans we service on their behalf at any time (and, in certain instances, without the payment of any termination fee) and also have the right to cause us to sell the MSRs to a third party.
Failure to successfully modify, resell or refinance our repurchased Ginnie Mae loans or a significant portion of the repurchased Ginnie Mae loans defaulting beyond expectations may adversely affect our business, financial condition, liquidity and results of operations. ​ We may not realize all of the anticipated benefits of potential future acquisitions of MSRs, which could adversely affect our business, financial condition, liquidity and results of operations. ​ Our ability to realize the anticipated benefits of potential future acquisitions of servicing portfolios will depend, in part, on our ability to appropriately service any such assets.
If the MSRs are terminated on a material portion of our servicing portfolio, our business, financial condition, liquidity and results of operations could be adversely affected. ​ We may not realize all of the anticipated benefits of potential future acquisitions of MSRs, which could adversely affect our business, financial condition, liquidity and results of operations. ​ Our ability to realize the anticipated benefits of potential future acquisitions of servicing portfolios will depend, in part, on our ability to appropriately service any such assets.
We are subject to minimum financial eligibility requirements established by the Agencies. For example, o n August 2022, the FHFA and Ginnie Mae announced enhanced minimum net capital and liquidity eligibility requirements for sellers, servicers and issuers that will go into effect in 2023 and 2024 .
We are subject to minimum financial eligibility requirements established by the Agencies. For example, o n August 2022, the FHFA and Ginnie Mae announced enhanced minimum net capital and liquidity eligibility requirements for sellers, servicers and issuers. Most of the requirements became effective on or before December 31, 2023.

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Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties ​ As of December 31, 2022, we have approximately 20 leased facilities in various locations throughout the United States. Our principal executive offices are located at 3043 & 3059 Townsgate Road, Westlake Village, California 91361 and total approximately 66,000 of leased square feet.
Item 2. Properties ​ As of December 31, 2023, we have approximately 15 leased facilities in various locations throughout the United States. Our principal executive offices are located at 3043 & 3059 Townsgate Road, Westlake Village, California 91361 and total approximately 66,000 of leased square feet.
We periodically review our space requirements and we look to consolidate and dispose of facilities we no longer need, as and when appropriate. ​ The financial commitments of our leases are disclosed in Note 10— Leases to our consolidated financial statements included in Item 8 of this Report. ​
We periodically review our space requirements and we look to expand into new facilities if necessary or consolidate and exit facilities we no longer need, as and when appropriate. ​ The financial commitments of our leases are disclosed in Note 12— Leases to our consolidated financial statements included in Item 8 of this Report. ​
In addition, we maintain loan production centers in California, Tennessee, Minnesota and Hawaii. ● Our investment management segment, as well as our information technology division, is primarily located in California. We believe that our current facilities are sufficient for the operation of our business.
We maintain loan production centers in California, Tennessee, Minnesota and Hawaii. ● Our investment management segment and corporate operations are primarily located in California. We believe that our current facilities are sufficient for the operation of our business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, we currently believe that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on our financial condition, results of operations, or cash flows.
The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, we currently believe that the ultimate disposition of any such pending proceedings and exposure will not have, individually or taken together, a material adverse effect on our financial condition, results of operations, or cash flows.
See Note 16 — Commitments and Contingencies , to the financial statements contained in this Report for a discussion of legal proceedings that are incorporated by reference into this Item 3. ​
See Note 18 — Commitments and Contingencies , to the financial statements contained in this Report for a discussion of legal proceedings that are incorporated by reference into this Item 3. ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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We expect that in a market shock event, multiple inputs would be affected and the effects of these changes may compound or counteract each other.
We expect that in a market shock event, multiple inputs would be affected and the effects of these changes may compound or counteract each other.
The remaining securities included in column (a) of this table are performance and time-based restricted stock units, for which no exercise price applies. ​ (2) This number includes a general pool of 4,600,000 shares of common stock authorized for future awards, initially authorized under the 2022 Equity Incentive Plan, plus, on or after January 1, 2023, and each January 1 st thereafter through January 1, 2032, by an amount equal to the lesser of (i) 1.75% of our outstanding common stock on a fully diluted basis as of the end of our immediately preceding fiscal year, (ii) 1,322,024 shares, and (iii) any lower amount determined by our board of directors. ​ (3) Represents our Equity Incentive Plans. ​ (4) We do not have any equity plans that have not been approved by our stockholders. ​ The other information required by this Item 12 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2022. ​ Item 13.
The remaining securities included in column (a) of this table are performance and time-based restricted stock units, for which no exercise price applies. ​ (2) This number includes a general pool of 4,600,000 shares of common stock authorized for future awards, initially authorized under the 2022 Equity Incentive Plan, plus, on or after January 1, 2023, and each January 1 st thereafter through January 1, 2032, by an amount equal to the lesser of (i) 1.75% of our outstanding common stock on a fully diluted basis as of the end of our immediately preceding fiscal year, (ii) 1,322,024 shares, and (iii) any lower amount determined by our board of directors. ​ (3) Represents our Equity Incentive Plans. ​ (4) We do not have any equity plans that have not been approved by our stockholders. ​ The other information required by this Item 12 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2023. ​ Item 13.
These estimates change as circumstances change and changes in these estimates are recognized in income in subsequent periods. ​ Interest Rate Lock Commitments, Mortgage Servicing Rights and Mortgage Servicing Liabilities ​ The methods and key inputs we use to measure and update our measurements of IRLCs, MSRs and MSLs is detailed in Note 6 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Annual Report. ​ Representations and Warranties ​ Our agreements with the purchasers and insurers include representations and warranties related to the loans we sell.
These estimates change as circumstances change and changes in these estimates are recognized in income in subsequent periods. ​ Interest Rate Lock Commitments, Mortgage Servicing Rights and Mortgage Servicing Liabilities ​ The methods and key inputs we use to measure and update our measurements of IRLCs, MSRs and MSLs is detailed in Note 6 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Annual Report. ​ Representations and Warranties – Loan Repurchases ​ Our agreements with the purchasers and insurers include representations and warranties related to the loans we sell.
We also receive non-cash proceeds on sale that include our estimate of the fair value of MSRs and we incur liabilities for MSLs (which represent the fair value of the costs we expect to incur in excess of the fees we receive to service the EBO loans we have resold) and for the fair value of our estimate of the losses we expect to incur relating to the representations and warranties we provide in our loan sale transactions. ​ 59 Table of Contents The MSRs, MSLs, and liability 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.
We also receive non-cash proceeds on sale that include our estimate of the fair value of MSRs and we incur liabilities for MSLs (which represent the fair value of the costs we expect to incur in excess of the fees we receive to service the EBO loans we have resold) and for the fair value of our estimate of the losses we expect to incur relating to the representations and warranties we provide in our loan sale transactions. ​ 58 Table of Contents The MSRs, MSLs, and liability 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.
As of December 31, 2022, we believe we were in compliance in all material respects with these covenants. ​ Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires PLS to maintain positive net income for at least one of the previous two consecutive quarters, or other similar measures.
As of December 31, 2023, we believe we were in compliance in all material respects with these covenants. ​ Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires PLS to maintain positive net income for at least one of the previous two consecutive quarters, or other similar measures.
Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. ​ Mortgage Servicing Rights and Mortgage Servicing Liabilities ​ MSRs and MSLs represent the fair value assigned to contracts that obligate us to service the mortgage loans on behalf of the owners of the mortgage loans in exchange for servicing fees and the right to collect certain ancillary income from the borrower.
Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurements. ​ Mortgage Servicing Rights and Mortgage Servicing Liabilities ​ MSRs and MSLs represent the fair value assigned to contracts that obligate us to service the mortgage loans on behalf of the owners of the mortgage loans in exchange for servicing fees and the right to collect certain ancillary income from the borrower.
Loan servicing fees from PMT are primarily related to PMT’s MSRs and are established at monthly per-loan amounts based on whether the loan is a fixed-rate or adjustable-rate loan and the loan’s delinquency or foreclosure status as detailed in Note 4 – Transactions with Affiliates to the consolidated financial statements included in this Annual Report.
Loan servicing fees from PMT are primarily related to PMT’s MSRs and are established at monthly per-loan amounts based on whether the loan is a fixed-rate or adjustable-rate loan and the loan’s delinquency or foreclosure status as detailed in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Annual Report.
Our borrowing activities are in the form of sales of assets under agreements to repurchase, sales of mortgage loan participation purchase and sale certificates, notes payable, a capital lease and unsecured senior notes. A significant amount of our borrowings have short-term maturities and provide for advances with terms ranging from 30 days to 270 days.
Our borrowing activities are in the form of sales of assets under agreements to repurchase, sales of mortgage loan participation purchase and sale certificates, notes payable, a capital lease and unsecured senior notes. A significant amount of our borrowings have short-term maturities and provide for advances with terms ranging from 30 days to 364 days.
Certain Relationships and Related Transactions, and Director Independence ​ The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2022. ​ Item 14.
Certain Relationships and Related Transactions, and Director Independence ​ The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2023. ​ Item 14.
Directors, Executive Officers and Corporate Governance ​ The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2022. ​ Item 11.
Directors, Executive Officers and Corporate Governance ​ The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2023. ​ Item 11.
Executive Compensation ​ The information required by this Item 11 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2022. ​ Item 12.
Executive Compensation ​ The information required by this Item 11 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2023. ​ Item 12.
Our estimate of the probability that a loan will be funded and market interest rates are updated as the loans move through the funding or purchase process and as market interest rates change and may result in significant changes in our estimates of the fair value of the IRLCs.
Market interest rates and our estimate of the probability that a loan will be funded are updated as the loans move through the funding or purchase process and as market interest rates change and these updates may result in significant changes in our estimates of the fair value of the IRLCs.
Therefore the preceding analysis is not a projection of the effects of a shock event or a change in our estimate of an input and should not be relied upon as an earnings projection. ​ Loans Held for Sale ​ We carry loans at their fair values.
Therefore this analysis is not a projection of the effects of a shock event or a change in our estimate of an input and should not be relied upon as an earnings projection. ​ Loans Held for Sale ​ We carry loans at their fair values.
The fair value risk we face is primarily attributable to interest rate risk and prepayment risk. 77 Table of Contents Interest Rate Risk Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control.
The fair value risk we face is primarily attributable to interest rate risk and prepayment risk. 75 Table of Contents Interest Rate Risk Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. ​ We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 22, 2023, expressed an unqualified opinion on those financial statements . ​ Basis for Opinion ​ The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. ​ We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 21, 2024, expressed an unqualified opinion on those financial statements . ​ Basis for Opinion ​ The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.
Other loan servicing fees are comprised primarily of fees charged to correspondent lenders relating to loans that are repaid shortly after we purchase them and borrower-contracted fees such as late charges and reconveyance fees. ​ The increases in loan servicing fees from non-affiliates and from PMT for the year ended December 31, 2022, compared to 2021 and 2020, were primarily due to growth of our loan servicing portfolio.
Other loan servicing fees are comprised primarily of borrower-contracted fees such as late charges and reconveyance fees and fees charged to correspondent lenders relating to loans that are repaid shortly after we purchase them. ​ The increases in loan servicing fees from non-affiliates for the year ended December 31, 2023, compared to 2022 and 2021, were primarily due to growth of our loan servicing portfolio.
In addition, we have issued unsecured senior notes guaranteed by certain of our restricted wholly-owned subsidiaries. ​ 74 Table of Contents Under the terms of these financing agreements, PLS is required to comply with certain financial covenants, as described further above in “Liquidity and Capital Resources,” and various non-financial covenants customary for transactions of this nature.
In addition, we have issued Unsecured Notes guaranteed by certain of our restricted wholly-owned subsidiaries. ​ 72 Table of Contents Under the terms of these financing agreements, PLS is required to comply with certain financial covenants, as described further above in “Liquidity and Capital Resources,” and various non-financial covenants customary for transactions of this nature.
We believe the most significant “Level 3” fair value inputs to the valuation of MSRs and MSLs are the pricing spread (used to develop periodic discount rates), prepayment speed and annual per-loan cost of servicing. ​ A shift in the market for MSRs and MSLs or a change in our assessment of an input to the valuation of MSRs and MSLs can have a significant effect on their fair value and in our income for the period.
We believe the most significant “Level 3” fair value inputs to the valuation of MSRs and MSLs are the pricing spread (discount rates), prepayment speed and annual per-loan cost of servicing. ​ A shift in the market for MSRs and MSLs or a change in our assessment of an input to the valuation of MSRs and MSLs can have a significant effect on their fair value and in our income for the period.
Principal Account ant Fees and Services ​ Our independent public accounting firm is Deloitte & Touche LLP, Los Angeles, CA, PCAOB Auditor ID 34. ​ The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2022. ​ ​ 83 Table of Contents PART IV
Principal Account ant Fees and Services ​ Our independent public accounting firm is Deloitte & Touche LLP, Los Angeles, CA, PCAOB Auditor ID 34. ​ The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, or will be contained in an amendment to this Report, in either case to be filed within 120 days after the end of fiscal year 2023. ​ ​ 81 Table of Contents PART IV
We estimate the fair value of IRLCs based on observable Agency MBS prices, our estimates of the fair value of the MSRs we expect to receive in the sale of the loans and the probability that we will fund or purchase the loans (the “pull-through rate”). ​ Pull-through rates and MSR fair values are based on our estimates as these inputs are difficult to observe in the marketplace.
We estimate the fair value of IRLCs based on observable Agency MBS prices, our estimates of the fair value of the MSRs we expect to receive in the sale of the loans and the probability that we will fund or purchase the loans (the “pull-through rate”). ​ 51 Table of Contents Pull-through rates and MSR fair values are based on our estimates as these inputs are difficult to observe in the marketplace.
Based on those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2022. ​ The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein. 79 Table of Contents ​ Changes in Internal Control over Financial Reporting ​ There have been no changes in internal control over financial reporting during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ​ ​ 80 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and the Board of Directors of PennyMac Financial Services, Inc. ​ Opinion on Internal Control over Financial Reporting ​ We have audited the internal control over financial reporting of PennyMac Financial Services, Inc. and subsidiaries (“the Company”) as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2023. ​ The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein. 77 Table of Contents ​ Changes in Internal Control over Financial Reporting ​ There have been no changes in internal control over financial reporting during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ​ ​ 78 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and the Board of Directors of PennyMac Financial Services, Inc. ​ Opinion on Internal Control over Financial Reporting ​ We have audited the internal control over financial reporting of PennyMac Financial Services, Inc. and subsidiaries (“the Company”) as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Upon notice from the applicable lender, we 72 Table of Contents 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. ​ Our secured financing agreements at PLS require us to comply with various financial covenants.
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. ​ Our secured financing agreements at PLS require us to comply with various financial covenants.
As summarized above, changes in fair values of “Level 1” and “Level 2” fair value assets are determinable with reference to direct quotes in active markets on the measurement date in the case of “Level 1” fair value assets, or reference to publicly available pricing inputs (such as reference interest rates and credit spreads and prices of similar assets) in the case of “Level 2” fair value assets. ​ $6.3 billion or 38% of our total assets are measured using “Level 3” fair value inputs – significant inputs where there is difficulty observing the inputs used by market participants to establish fair value.
As summarized above, changes in fair values of “Level 1” and “Level 2” fair value assets are determinable with reference to direct quotes in active markets on the measurement date in the case of “Level 1” fair value assets, or reference to publicly available pricing inputs (such as reference interest rates and credit spreads and prices of similar assets) in the case of “Level 2” fair value assets. ​ $7.7 billion or 41% of our total assets are measured using “Level 3” fair value inputs – significant inputs where there is difficulty observing the inputs used by market participants to establish fair value.
We recognize MSRs and MSLs at our estimate of the fair value of the contract to service the loans. 53 Table of Contents ​ We include changes in fair value of MSRs and MSLs in current period income as a component of Net loan servicing fees — Change in fair value of mortgage servicing rights and mortgage servicing liabilities.
We recognize MSRs and MSLs at our estimate of the fair value of the contract to service the loans. We include changes in fair value of MSRs and MSLs in current period income as a component of Net loan servicing fees — Change in fair value of mortgage servicing rights and mortgage servicing liabilities.
Our critical accounting policies primarily relate to our fair value estimates. ​ Fair Value ​ We group assets measured at or based on fair value in three levels based on the markets in which the assets are traded and the observability of the inputs used to determine fair value.
Our critical accounting policies primarily relate to our fair value estimates. ​ 49 Table of Contents Fair Value ​ We group assets measured at or based on fair value in three levels based on the markets in which the assets are traded and the observability of the inputs used to determine fair value.
From inception through December 31, 2022, we have repurchased approximately $1.7 billion of common shares under our stock repurchase program. ​ We continue to explore a variety of means of financing our business, including debt financing through bank warehouse lines of credit, bank loans, repurchase agreements, securitization transactions and corporate debt.
From inception through December 31, 2023, we have repurchased approximately $1.8 billion of common shares under our stock repurchase program. ​ We continue to explore a variety of means of financing our business, including debt financing through bank warehouse lines of credit, bank loans, repurchase agreements, securitization transactions and corporate debt.
Our senior management valuation committee includes the Company’s chief financial, risk, credit and deputy chief investment officers as well as other senior members of the Company’s finance, capital markets and risk management staff. ​ The fair value of our IRLC is developed by our Capital Markets Risk Management staff and is reviewed by our Capital Markets Operations group. ​ Following is a discussion of our approach to measuring the balance sheet items that are most affected by “Level 3” fair value estimates. ​ 51 Table of Contents Interest Rate Lock Commitments ​ Our net gains on loans held for sale include our estimates of the gains or losses we expect to realize upon the sale of loans we have contractually committed to fund or purchase but have not yet funded, purchased or sold.
Our senior management valuation committee includes the Company’s chief financial, risk, and capital markets officers as well as other senior members of the Company’s finance, capital markets and risk management staff. ​ The fair value of our IRLCs is developed by our capital markets risk management staff and is reviewed by our capital markets operations group. ​ Following is a discussion of our approach to measuring the balance sheet items that are most affected by “Level 3” fair value estimates. ​ Interest Rate Lock Commitments ​ Our net gains on loans held for sale include our estimates of the gains or losses we expect to realize upon the sale of loans we have contractually committed to fund or purchase but have not yet funded, purchased or sold.
Such increased loss estimates, if recognized, would be reflected in Net gains on loans held for sale at fair value in the period we recognize the change. ​ The recent increases in market interest rates may affect certain of our correspondent sellers’ ability to honor their obligations to repurchase defective loans.
Such increased loss estimates, if recognized, would be reflected in Net gains on loans held for sale at fair value in the period we recognize the change. ​ The increases in market interest rates in recent years have affected certain of our correspondent sellers’ ability to honor their obligations to repurchase defective loans.
Adjusted EBITDA is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income, or any other performance measure calculated in accordance with GAAP. ​ We define “Adjusted EBITDA” as net income plus provision for income taxes, depreciation and amortization, excluding decrease (increase) in fair value of MSRs net of MSLs, due to changes in the valuation inputs we use in 56 Table of Contents our valuation models, increase (decrease) in fair value of excess servicing spread (“ESS”) payable to PMT, hedging losses (gains) associated with MSRs, stock-based compensation and interest expense on corporate debt or corporate revolving credit facilities and capital lease. ​ We believe that the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business.
Adjusted EBITDA is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income, or any other performance measure calculated in accordance with GAAP. ​ 55 Table of Contents We define “Adjusted EBITDA” as net income plus provision for income taxes, depreciation and amortization, excluding decrease (increase) in fair value of MSRs net of MSLs, due to changes in the valuation inputs we use in our valuation models, increase (decrease) in fair value of excess servicing spread (“ESS”) payable to PMT, hedging losses (gains) associated with MSRs, stock-based compensation and interest expense on corporate debt or corporate revolving credit facilities and capital lease and non-recurring items such as significant awards of damages against us due to litigation. ​ We believe that the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business.
As of February 17, 2023, our shares of common stock were held by 26 holders of record. ​ Our dividend level is reviewed each quarter and determined based on a number of factors, including, among other things, our earnings, our financial condition, growth outlook, the capital required to support ongoing growth opportunities and compliance with other internal and external requirements.
As of February 16, 2024, our shares of common stock were held by 23 holders of record. ​ Our dividend level is reviewed each quarter and determined based on a number of factors, including, among other things, our earnings, our financial condition, growth outlook, the capital required to support ongoing growth opportunities and compliance with other internal and external requirements.
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.
A margin deficit will generally result from a decrease in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement.
Furthermore, these market factors and the expected economic slowdown may increase the level of borrower defaults, increasing the level of repurchases we are required to make, and may make it more difficult to minimize losses on repurchased loans due to reduced opportunities to refinance loans and decreasing market values for resales of loans.
Furthermore, these market factors and a potential future economic slowdown may increase the level of borrower defaults, increasing the level of repurchases we are required to make, and may make it more difficult to minimize losses on repurchased loans due to reduced opportunities to refinance loans and decreasing fair values for resales of loans.
Stock repurchases may be effected through negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The stock repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice. ​ Item 6.
Stock repurchases may be effected through negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Exchange Act. The stock repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice.
These estimates represented approximately 217% of our gain on sale of loans at fair value for the year ended December 31, 2022, as compared to 71% and 40% in 2021 and 2020, respectively.
These estimates represented approximately 338% of our gain on sale of loans at fair value for the year ended December 31, 2023, as compared to 217% and 71% in 2022 and 2021, respectively.
The table below presents the average outstanding, maximum and ending balances: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ ​ (in thousands) ​ Average balance ​ $ 2,580,513 ​ $ 6,911,843 ​ $ 3,348,928 ​ Maximum daily balance ​ $ 7,289,147 ​ $ 10,969,029 ​ $ 9,663,995 ​ Balance at year end ​ $ 3,004,690 ​ $ 7,297,360 ​ ​ 9,663,995 ​ ​ The differences between the average and maximum daily balances on our repurchase agreements reflect the fluctuations throughout the years of our inventory as we fund and pool mortgage loans for sale in guaranteed mortgage securitizations. ​ Our debt repurchase agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit.
The table below presents the average outstanding, maximum and ending balances: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ ​ (in thousands) ​ Average balance ​ $ 3,701,448 ​ $ 2,580,513 ​ $ 6,911,843 ​ Maximum daily balance ​ $ 6,358,007 ​ $ 7,289,147 ​ $ 10,969,029 ​ Balance at year end ​ $ 3,769,449 ​ $ 3,004,690 ​ $ 7,297,360 ​ ​ The differences between the average and maximum daily balances on our repurchase agreements reflect the fluctuations throughout the years of our inventory as we fund and pool mortgage loans for sale in guaranteed mortgage securitizations. ​ Our debt repurchase agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ /s/ Deloitte & Touche LLP Los Angeles, California February 22, 2023 81 Table of Contents Item 9B.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ /s/ Deloitte & Touche LLP Los Angeles, California February 21, 2024 79 Table of Contents Item 9B.
Subject to the terms of the 2022 Equity Incentive Plan, the plan administrator will select the recipients of awards and determine, among other things, the number of shares of common stock covered by the awards and the dates upon which such awards become exercisable or any restrictions lapse, as applicable; the type of award and the exercise or purchase price and method of payment for each such award; the performance measures, if applicable, required to be satisfied prior to vesting; the vesting period for awards, risks of forfeiture and any potential acceleration of vesting or lapses in risks of forfeiture; and the duration of awards. ​ 82 Table of Contents The following table provides information about our former and current equity compensation plans as of December 31, 2022, which consist of the 2013 Equity Incentive Plan and the 2022 Equity Incentive Plan (collectively the “Equity Incentive Plans”): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (a) ​ ​ (b) ​ (c) ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ ​ remaining available for ​ ​ ​ ​ ​ ​ ​ ​ future issuance under ​ ​ ​ Number of securities to ​ Weighted average ​ equity compensation ​ ​ ​ be issued upon exercise of ​ exercise price of ​ plans (excluding ​ ​ ​ outstanding options, ​ outstanding options, ​ securities reflected in ​ Plan category warrants and rights warrants and rights (1) column (a)) (2) Equity compensation plans approved by security holders (3) ​ 5,776,124 ​ $ 32.46 ​ 4,597,788 ​ Equity compensation plans not approved by security holders (4) ​ — ​ ​ — ​ — ​ Total ​ 5,776,124 ​ $ 32.46 ​ 4,597,788 ​ (1) The weighted average exercise price set forth in this column relates only to 4,316,846 shares of stock options outstanding under our Equity Incentive Plans.
Subject to the terms of the 2022 Equity Incentive Plan, the plan administrator will select the recipients of awards and determine, among other things, the number of shares of common stock covered by the awards and the dates upon which such awards become exercisable or any restrictions lapse, as applicable; the type of award and the exercise or purchase price and method of payment for each such award; the performance measures, if applicable, required to be satisfied prior to vesting; the vesting period for 80 Table of Contents awards, risks of forfeiture and any potential acceleration of vesting or lapses in risks of forfeiture; and the duration of awards. ​ The following table provides information about our former and current equity compensation plans as of December 31, 2023, which consist of the 2013 Equity Incentive Plan and the 2022 Equity Incentive Plan (collectively the “Equity Incentive Plans”): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (a) ​ ​ (b) ​ (c) ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ ​ remaining available for ​ ​ ​ ​ ​ ​ ​ ​ future issuance under ​ ​ ​ Number of securities to ​ Weighted average ​ equity compensation ​ ​ ​ be issued upon exercise of ​ exercise price of ​ plans (excluding ​ ​ ​ outstanding options, ​ outstanding options, ​ securities reflected in ​ Plan category warrants and rights warrants and rights (1) column (a)) (2) Equity compensation plans approved by security holders (3) ​ 5,141,585 ​ $ 35.08 ​ 4,867,662 ​ Equity compensation plans not approved by security holders (4) ​ — ​ ​ — ​ — ​ Total ​ 5,141,585 ​ $ 35.08 ​ 4,867,662 ​ (1) The weighted average exercise price set forth in this column relates only to 3,856,620 shares of stock options outstanding under our Equity Incentive Plans.
Different approaches to valuing those assets or changes in inputs to measurement of these assets can have a significant effect on the amounts reported for these items including their reported balances and their effects on our income. ​ During the three years ended December 31, 2022, we recognized significant changes in the fair value of our holdings of “Level 3” fair value assets and liabilities as shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ Loans held ​ Mortgage ​ Excess ​ Mortgage ​ ​ ​ ​ ​ ​ Year ended ​ rate lock ​ for sale at ​ servicing ​ servicing ​ servicing ​ ​ ​ ​ Pre-tax December 31, ​ commitments ​ fair value ​ rights (1) ​ spread financing ​ liabilities (1) ​ Total ​ Income ​ ​ (positive (negative) effects on net revenues in thousands) ​ ​ ​ 2022 ​ $ (624,905) ​ ​ (66,639) ​ ​ 877,324 ​ ​ — ​ ​ 347 ​ $ 186,127 ​ $ 665,247 2021 ​ $ 489,547 ​ ​ 285,501 ​ ​ (136,350) ​ ​ (1,037) ​ ​ 68,020 ​ $ 705,681 ​ $ 1,359,183 2020 ​ $ 1,254,235 ​ ​ 127,780 ​ ​ (1,078,084) ​ ​ 24,970 ​ ​ (31,757) ​ $ 297,144 ​ $ 2,240,609 (1) Excludes changes in fair value attributable to realization of cash flows. ​ The changes above primarily reflect changes attributable to our observations of changes in the markets for those assets and liabilities as opposed to changes in accounting policies or approaches to the valuation of those instruments. ​ As a result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets and liabilities, we are required to make judgments regarding these items’ fair values.
Different approaches to valuing those assets or changes in inputs to measurement of these assets can have a significant effect on the amounts reported for these items including their reported balances and their effects on our income. ​ 50 Table of Contents During the three years ended December 31, 2023, we recognized significant changes in the fair value of our holdings of “Level 3” fair value assets and liabilities as shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ Loans held ​ Mortgage ​ Excess ​ Mortgage ​ ​ ​ ​ ​ ​ Year ended ​ rate lock ​ for sale at ​ servicing ​ servicing ​ servicing ​ ​ ​ ​ Pre-tax December 31, ​ commitments ​ fair value ​ rights (1) ​ spread financing ​ liabilities (1) ​ Total ​ Income ​ ​ (positive (negative) effects on net revenues in thousands) ​ ​ ​ 2023 ​ $ 130,424 ​ ​ 68,773 ​ ​ 56,757 ​ ​ — ​ ​ 50 ​ $ 256,004 ​ $ 183,631 2022 ​ $ (624,905) ​ ​ (66,639) ​ ​ 877,324 ​ ​ — ​ ​ 347 ​ $ 186,127 ​ $ 665,247 2021 ​ $ 489,547 ​ ​ 285,501 ​ ​ (136,350) ​ ​ (1,037) ​ ​ 68,020 ​ $ 705,681 ​ $ 1,359,183 (1) Excludes changes in fair value attributable to realization of cash flows. ​ The changes above primarily reflect changes attributable to our observations of changes in the markets for those assets and liabilities as opposed to changes in accounting policies or approaches to the valuation of those instruments. ​ As a result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets and liabilities, we are required to make judgments regarding these items’ fair values.
We access the capital market for long-term debt through the issuance of secured term notes and unsecured senior notes and we have an outstanding long term capital lease. The issuer under our secured term note facilities is PLS or a wholly-owned issuer trust guaranteed by PNMAC.
We access the capital market for long-term debt through the issuance of secured notes payable and Unsecured Notes. The issuer under our secured term note facilities is PLS or a wholly-owned issuer trust guaranteed by PNMAC.
These levels are: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ Percentage of ​ Level/Description ​ Carrying value of assets ​ Total assets ​ Total stockholders' equity ​ ​ ​ (in thousands) ​ ​ ​ ​ 1: Prices determined using quoted prices in active markets for identical assets or liabilities. ​ $ 45,146 ​ 0% ​ 1% ​ 2: Prices determined using other significant observable inputs.
These levels are: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ ​ ​ ​ Percentage of ​ Level/Description ​ Carrying value of assets ​ Total assets ​ Total stockholders' equity ​ ​ ​ (in thousands) ​ ​ ​ ​ 1: Prices determined using quoted prices in active markets for identical assets or liabilities. ​ $ 88,608 ​ 0% ​ 3% ​ 2: Prices determined using other significant observable inputs.
The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this Report.
When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this Report.
We believe that the most significant “Level 3” fair value input to the measurement of IRLCs is the pull-through rate. At December 31, 2022, we held $25.8 million of net IRLC assets at fair value.
We believe that the most significant “Level 3” fair value input to the measurement of IRLCs is the pull-through rate. At December 31, 2023, we held $89.6 million of net IRLC assets at fair value.
Such eligibility occurs when the repurchased loans either become current through completion of a modification of a loan’s terms or otherwise after three months of timely payments and when the issuance date of the new security is at least 120 days after the date the loan was last delinquent.
Such eligibility occurs when a repurchased loan either becomes current through completion of a modification of its terms or otherwise after three months of timely payments and when the issuance date of the new security into which the loan is placed is at least 120 days after the date the loan was last delinquent.
We establish a liability at the time loans are sold and review our liability estimate on a periodic basis. ​ In the years ended December 31, 2022, 2021, and 2020 we recorded provisions for losses under representations and warranties relating to current loan sales as a component of Net gains on loans held for sale at fair value totaling $9.6 million, $31.6 million, and $21.0 million, respectively.
We establish a liability at the time loans are sold and periodically assess the adequacy of our recorded liability. ​ In the years ended December 31, 2023, 2022, and 2021 we recorded provisions for losses under representations and warranties relating to current loan sales as a component of Net gains on loans held for sale at fair value totaling $13.0 million, $9.6 million, and $31.6 million, respectively.
Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of us. ​ ​ 3,193,780 ​ 19% ​ 92% ​ 3: Prices determined using significant unobservable inputs.
Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of us. ​ ​ 3,953,674 ​ 21% ​ 112% ​ 3: Prices determined using significant unobservable inputs.
We have assigned the responsibility for estimating the fair values of non-interest rate lock commitment “Level 3” fair value assets and liabilities to our Financial Analysis and Valuation group (the “FAV group”), which is responsible for valuing and monitoring these items and maintenance of our valuation policies and procedures for non-interest rate lock commitment (“IRLC”) assets and liabilities.
We have assigned the responsibility for estimating the fair values of non-interest rate lock commitment (“IRLC”) “Level 3” fair value assets and liabilities to our capital markets valuation staff, which is responsible for valuing and monitoring these items and maintenance of our valuation policies and procedures for non- IRLC assets and liabilities.
The reductions in the liability relating to previously sold loans resulted from those loans meeting performance criteria established by the Agencies which significantly limits the likelihood of certain repurchase or indemnification claims. ​ 60 Table of Contents Following is a summary of mortgage loan repurchase activity and the unpaid balance of mortgage loans subject to representations and warranties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) During the year: ​ ​ ​ ​ ​ ​ Indemnification activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans indemnified at beginning of year ​ $ 15,079 ​ $ 13,788 ​ $ 15,366 New indemnifications ​ ​ 24,016 ​ ​ 9,544 ​ ​ 4,544 Less indemnified loans sold, repaid or refinanced ​ ​ 3,134 ​ ​ 8,253 ​ ​ 6,122 Loans indemnified at end of year ​ $ 35,961 ​ $ 15,079 ​ $ 13,788 Repurchase activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Total loans repurchased ​ $ 93,011 ​ $ 99,496 ​ $ 58,410 Less: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans repurchased by correspondent lenders ​ ​ 32,660 ​ ​ 37,280 ​ ​ 28,658 Loans repaid by borrowers or resold with defects resolved ​ ​ 54,044 ​ ​ 25,223 ​ ​ 24,810 Net loans repurchased with losses chargeable to liability for representations and warranties ​ $ 6,307 ​ $ 36,993 ​ $ 4,942 Losses charged to liability for representations and warranties ​ $ 12,266 ​ $ 4,720 ​ $ 1,126 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unpaid principal balance of loans subject to representations and warranties ​ $ 296,774,121 ​ $ 257,369,777 ​ $ 210,222,447 Liability for representations and warranties ​ $ 32,421 ​ $ 43,521 ​ $ 32,688 ​ In the year ended December 31, 2022, we repurchased loans with unpaid principal balances totaling $93.0 million and charged $12.3 million in net incurred losses relating to repurchases against our liability for representations and warranties.
The reductions in the liability relating to previously sold loans resulted from those loans meeting performance criteria established by the Agencies which significantly limits the likelihood of certain repurchase or indemnification claims. ​ 59 Table of Contents Following is a summary of mortgage loan repurchase activity and the unpaid balance of mortgage loans subject to representations and warranties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) During the year: ​ ​ ​ ​ ​ ​ Indemnification activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans indemnified at beginning of year ​ $ 35,961 ​ $ 15,079 ​ $ 13,788 New indemnifications ​ ​ 43,469 ​ ​ 24,016 ​ ​ 9,544 Less indemnified loans sold, repaid or refinanced ​ ​ 3,706 ​ ​ 3,134 ​ ​ 8,253 Loans indemnified at end of year ​ $ 75,724 ​ $ 35,961 ​ $ 15,079 Repurchase activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Total loans repurchased ​ $ 50,327 ​ $ 93,011 ​ $ 99,496 Less: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans repurchased by correspondent lenders ​ ​ 23,327 ​ ​ 32,660 ​ ​ 37,280 Loans repaid by borrowers or resold ​ ​ 72,511 ​ ​ 54,044 ​ ​ 25,223 Net loans (resolved) repurchased with losses chargeable to liability for representations and warranties ​ $ (45,511) ​ $ 6,307 ​ $ 36,993 Losses charged to liability for representations and warranties ​ $ 5,515 ​ $ 12,266 ​ $ 4,720 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unpaid principal balance of loans subject to representations and warranties ​ $ 354,423,684 ​ $ 296,774,121 ​ $ 257,369,777 Liability for representations and warranties ​ $ 30,788 ​ $ 32,421 ​ $ 43,521 ​ In the year ended December 31, 2023, we repurchased loans with unpaid principal balances totaling $50.3 million and charged $5.5 million in net incurred losses relating to repurchases against our liability for representations and warranties.
At December 31, 2022, we held $3.2 billion of such loans. ​ ● We categorize loans that are not saleable into active markets as “Level 3” fair value assets.
At December 31, 2023, we held $3.9 billion of such loans. ​ 52 Table of Contents ● We categorize loans that are not saleable into active markets as “Level 3” fair value assets.
Some of these limitations are: ● they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; ● they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt; and ● they are not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows. ​ Because of these limitations, Adjusted EBITDA measures are not intended as alternatives to net income as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. ​ The following table presents a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for each of the years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net income ​ $ 475,507 ​ $ 1,003,490 ​ $ 1,646,884 Provision for income taxes ​ ​ 189,740 ​ ​ 355,693 ​ ​ 593,725 Income before provision for income taxes ​ ​ 665,247 ​ ​ 1,359,183 ​ ​ 2,240,609 Depreciation and amortization ​ ​ 34,409 ​ ​ 28,645 ​ ​ 25,575 (Increase) decrease in fair value of MSRs net of MSLs due to changes in valuation inputs used in valuation models ​ ​ (877,671) ​ ​ 68,330 ​ ​ 1,109,841 Increase (decrease) in fair value of ESS payable to PennyMac Mortgage Investment Trust ​ ​ — ​ ​ 1,037 ​ ​ (24,970) Hedging losses (gains) associated with MSRs ​ ​ 631,484 ​ ​ 475,215 ​ ​ (918,180) Stock‑based compensation ​ ​ 42,552 ​ ​ 37,794 ​ ​ 45,105 Interest expense on corporate debt or corporate revolving credit facilities and capital lease ​ ​ 95,034 ​ ​ 70,377 ​ ​ 10,736 Adjusted EBITDA ​ $ 591,055 ​ $ 2,040,581 ​ $ 2,488,716 ​ 57 Table of Contents Comparison of the years ended December 31, 2022, 2021 and 2020 ​ Income Before Provisions for Income Taxes ​ In the year ended December 31, 2022, we recorded income before provision for income taxes of $665.2 million, a decrease of $693.9 million or 51% from 2021.
Some of these limitations are: ● they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; ● they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt; and ● they are not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows. ​ Because of these limitations, Adjusted EBITDA measures are not intended as alternatives to net income as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. ​ The following table presents a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for each of the years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) Net income ​ $ 144,656 ​ $ 475,507 ​ $ 1,003,490 Provision for income taxes ​ ​ 38,975 ​ ​ 189,740 ​ ​ 355,693 Income before provision for income taxes ​ ​ 183,631 ​ ​ 665,247 ​ ​ 1,359,183 Depreciation and amortization ​ ​ 53,214 ​ ​ 34,409 ​ ​ 28,645 Decrease (increase) in fair value of MSRs net of MSLs due to changes in valuation inputs used in valuation models ​ ​ (56,807) ​ ​ (877,671) ​ ​ 68,330 Increase in fair value of ESS payable to PennyMac Mortgage Investment Trust ​ ​ — ​ ​ — ​ ​ 1,037 Hedging losses associated with MSRs ​ ​ 236,778 ​ ​ 631,484 ​ ​ 475,215 Stock‑based compensation ​ ​ 27,582 ​ ​ 42,552 ​ ​ 37,794 Effect of fourth quarter arbitration accrual ​ ​ 158,368 ​ ​ — ​ ​ — Interest expense on corporate debt or corporate revolving credit facilities and capital lease ​ ​ 98,396 ​ ​ 95,034 ​ ​ 70,377 Adjusted EBITDA ​ $ 701,162 ​ $ 591,055 ​ $ 2,040,581 ​ 56 Table of Contents Comparison of the years ended December 31, 2023, 2022 and 2021 ​ Income Before Provisions for Income Taxes ​ In the year ended December 31, 2023, we recorded income before provision for income taxes of $183.6 million, a decrease of $481.6 million or 72% from 2022.
Loan origination fees increased $98.6 million in the year ended December 31, 2021 compared to 2020, primarily due to an increase in loan production volumes. ​ Fulfillment fees from PennyMac Mortgage Investment Trust ​ Following is a summary of our fulfillment fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (in thousands) ​ Fulfillment fee revenue ​ $ 67,991 ​ $ 178,927 ​ $ 222,200 ​ Unpaid principal balance of loans fulfilled subject to fulfillment fees ​ $ 37,090,031 ​ $ 110,003,574 ​ $ 100,389,252 ​ Average fulfillment fee rate (in basis points) ​ ​ 18 ​ ​ 16 ​ ​ 22 ​ ​ Fulfillment fees from PMT represent fees we collect for services we perform on behalf of PMT in connection with the acquisition, packaging and sale of loans.
Loan origination fees decreased $214.3 million in the year ended December 31, 2022 compared to 2021, primarily due to a decrease in loan production volumes. ​ Fulfillment fees from PennyMac Mortgage Investment Trust ​ Following is a summary of our fulfillment fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ Fulfillment fee revenue ​ $ 27,826 ​ $ 67,991 ​ $ 178,927 ​ Unpaid principal balance of loans fulfilled subject to fulfillment fees ​ $ 14,898,301 ​ $ 37,090,031 ​ $ 110,003,574 ​ Average fulfillment fee rate (in basis points) ​ ​ 19 ​ ​ 18 ​ ​ 16 ​ ​ Fulfillment fees from PMT represent fees we collect for services we perform on behalf of PMT in connection with the acquisition, packaging and sale of loans.
The FAV group submits the results of its valuations to our senior management valuation committee, which oversees the valuations.
The capital markets valuation staff submits the results of its valuations to our senior management valuation committee, which oversees the valuations.
Other Information None. ​ Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. ​ PART III ​ Item 10.
I tem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. ​ PART III ​ Item 10.
However, we believe our recorded liability is presently adequate to absorb such losses. ​ ​ ​ 61 Table of Contents Loan origination fees ​ Following is a summary of our loan origination fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (in thousands) ​ Loan origination fee revenue ​ $ 169,859 ​ $ 384,154 ​ $ 285,551 ​ Unpaid principal balance of loans purchased and originated for sale to non-affiliates ​ $ 72,025,798 ​ $ 124,594,308 ​ $ 96,200,101 ​ ​ Loan origination fees decreased $214.3 million in the year ended December 31, 2022 compared to 2021, primarily due to a decrease in loan production volumes.
However, we believe our recorded liability is presently adequate to absorb such losses. ​ ​ ​ 60 Table of Contents Loan origination fees ​ Following is a summary of our loan origination fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ Loan origination fee revenue ​ $ 146,118 ​ $ 169,859 ​ $ 384,154 ​ Unpaid principal balance of loans purchased and originated for sale to non-affiliates ​ $ 84,536,740 ​ $ 72,025,798 ​ $ 124,594,308 ​ ​ Loan origination fees decreased $23.7 million in the year ended December 31, 2023 compared to 2022, primarily due to a decrease in the volume of consumer direct loans we produced.
We held 75,000 common shares of PMT during each of the three years ended December 31, 2022. ​ Expenses ​ Compensation ​ Our compensation expense is summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (dollars in thousands) ​ Salaries and wages ​ $ 445,779 ​ $ 594,188 ​ $ 437,157 ​ Severance ​ ​ 18,797 ​ ​ 156 ​ ​ 187 ​ Incentive compensation ​ ​ 135,461 ​ ​ 248,551 ​ ​ 171,323 ​ Taxes and benefits ​ ​ 92,642 ​ ​ 119,113 ​ ​ 84,797 ​ Stock and unit-based compensation ​ ​ 42,552 ​ ​ 37,794 ​ ​ 45,105 ​ ​ ​ $ 735,231 ​ $ 999,802 ​ $ 738,569 ​ Head count: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ 5,508 ​ ​ 7,118 ​ ​ 5,313 ​ Period end ​ ​ 4,135 ​ ​ 7,208 ​ ​ 6,632 ​ ​ Compensation expense decreased $264.6 million in the year ended December 31, 2022 compared to 2021 primarily due to work force reductions necessitated by reductions in loan production in 2022 and decreased incentive compensation accruals due to reduced staffing levels and lower achievement of profitability targets.
We held 75,000 common shares of PMT during each of the three years ended December 31, 2023. ​ Expenses ​ Compensation ​ Our compensation expense is summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (dollars in thousands) ​ Salaries and wages ​ $ 369,945 ​ $ 445,779 ​ $ 594,188 ​ Severance ​ ​ 7,637 ​ ​ 18,797 ​ ​ 156 ​ Incentive compensation ​ ​ 95,790 ​ ​ 135,461 ​ ​ 248,551 ​ Taxes and benefits ​ ​ 76,010 ​ ​ 92,642 ​ ​ 119,113 ​ Stock and unit-based compensation ​ ​ 27,582 ​ ​ 42,552 ​ ​ 37,794 ​ ​ ​ $ 576,964 ​ $ 735,231 ​ $ 999,802 ​ Head count: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ 4,115 ​ ​ 5,508 ​ ​ 7,118 ​ Year end ​ ​ 3,914 ​ ​ 4,135 ​ ​ 7,208 ​ ​ 66 Table of Contents Compensation expense decreased $158.3 million and $264.6 million in the year ended December 31, 2023, and 2022, respectively, compared to 2022 and 2021, respectively, primarily due to work force reductions necessitated by reductions in loan production and decreased incentive compensation accruals due to reduced staffing levels and lower achievement of profitability targets. ​ Legal settlements ​ Legal settlement expenses increased $158.1 million for the year ended December 31, 2023 compared to 2022.
Covenants in PMT’s debt agreements are equally, or sometimes less, restrictive than the covenants described above. ​ Our unsecured senior notes contain covenants that limit our and our restricted subsidiaries’ ability to engage in specified types of transactions, including, but not limited to, the following: ● pay dividends or distributions, redeem or repurchase equity, prepay subordinated debt and make certain loans or investments; ● incur, assume or guarantee additional debt or issue preferred stock; ● incur liens on assets; ● merge or consolidate with another person or sell all or substantially all of our assets to another person; ● transfer, sell or otherwise dispose of certain assets including capital stock of subsidiaries; ● enter into transactions with affiliates; and ● allow to exist certain restrictions on the ability of our non-guarantor restricted subsidiaries to pay dividends or make other payments to us.
The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries defined in the indentures under which the Unsecured Notes were issued). ​ 71 Table of Contents Our Unsecured Notes contain covenants that limit our and our restricted subsidiaries’ ability to engage in specified types of transactions, including, but not limited to, the following: ● pay dividends or distributions, redeem or repurchase equity, prepay subordinated debt and make certain loans or investments; ● incur, assume or guarantee additional debt or issue preferred stock; ● incur liens on assets; ● merge or consolidate with another person or sell all or substantially all of our assets to another person; ● transfer, sell or otherwise dispose of certain assets including capital stock of subsidiaries; ● enter into transactions with affiliates; and ● allow to exist certain restrictions on the ability of our non-guarantor restricted subsidiaries to pay dividends or make other payments to us.
The decrease in other loan servicing fees for the year ended December 31, 2022 compared to 2021 was primarily due to a decrease in fees charged to correspondent lenders related to borrower early loan payoffs and decreased recording and release fees charged to borrowers due to lower prepayment activity we experienced in the current rising interest rate environment compared to 2021.
The decrease in other loan servicing fees for the year ended December 31, 2022 compared to 2021 was primarily due to a decrease in fees charged to correspondent lenders related to borrower early loan payoffs and decreased recording and release fees charged to borrowers due to the lower prepayment activity we experienced in the then rising interest rate environment compared to 2021. ​ Effects of Mortgage Servicing Rights and Mortgage Servicing Liabilities Net of Hedging Results ​ We have elected to carry our servicing assets and liabilities at fair value.
Our ability to pay dividends may be adversely affected for the reasons described in Item 1A of this Report in the section entitled Risk Factors . ​ Unregistered Sales of Equity Securities and Use of Proceeds ​ There were no sales of unregistered equity securities during the year ended December 31, 2022. ​ Repurchase of our Common Stock ​ The following table summarized the stock repurchase activity for the quarter ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares purchased ​ Average price paid per share Total number of shares purchased as part of publicly announced plans or program (1) ​ Approximate dollar value of shares that may yet be purchased under the plans or program (1) October 1, 2022 – October 31, 2022 ​ ​ 1,002,354 ​ $ 46.46 ​ ​ 1,002,354 ​ $ 288,048,024 November 1, 2022 – November 30, 2022 ​ ​ 71,400 ​ $ 52.51 ​ ​ 71,400 ​ $ 284,298,967 December 1, 2022 – December 31, 2022 ​ ​ 18,187 ​ $ 55.33 ​ ​ 18,187 ​ $ 283,292,664 Total ​ ​ 1,091,941 ​ $ 47.01 ​ ​ 1,091,941 ​ $ 283,292,664 (1) In August 2021, our board of directors approved an increase to our common stock repurchase program from $1 billion to $2 billion.
Our ability to pay dividends may be adversely affected for the reasons described in Item 1A of this Report in the section entitled Risk Factors . ​ 48 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds ​ There were no sales of unregistered equity securities during the year ended December 31, 2023. ​ Stock Repurchase Program ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares purchased ​ Average price paid per share Total number of shares purchased as part of publicly announced plans or program (1) ​ Approximate dollar value of shares that may yet be purchased under the plans or program (1) October 1, 2023 – October 31, 2023 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 November 1, 2023 – November 30, 2023 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 December 1, 2023 – December 31, 2023 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 Total ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 (1) In August 2021, our board of directors approved an increase to our common stock repurchase program from $1 billion to $2 billion.
Unobservable inputs reflect our judgements about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances. ​ ​ 6,347,618 ​ 38% ​ 183% ​ Total assets measured at or based on fair value (1) ​ $ 9,586,544 ​ 57% ​ 276% ​ Total assets ​ $ 16,822,584 ​ ​ ​ ​ ​ Total stockholders' equity ​ $ 3,471,049 ​ ​ ​ ​ ​ (1) Includes assets measured on both a recurring and nonrecurring basis based on the accounting principles applicable to the specific asset and whether we have elected to carry the asset at its fair value. ​ At December 31, 2022, $9.6 billion or 57% of our total assets were carried at fair value on a recurring basis and $11.5 million (real estate acquired in settlement of loans (“REO”)), were carried based on fair value on a non-recurring basis when fair value indicates evidence of impairment of individual properties. ​ 50 Table of Contents Changes in fair value of our holdings of assets carried at fair value have significant effects on our financial position and results of operations.
Unobservable inputs reflect our judgements about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances. ​ ​ 7,683,207 ​ 41% ​ 217% ​ Total assets measured at or based on fair value (1) ​ $ 11,725,489 ​ 62% ​ 331% ​ Total assets ​ $ 18,844,563 ​ ​ ​ ​ ​ Total stockholders' equity ​ $ 3,538,603 ​ ​ ​ ​ ​ (1) Includes assets measured on both a recurring and nonrecurring basis based on the accounting principles applicable to the specific asset and whether we have elected to carry the asset at its fair value. ​ At December 31, 2023, $11.7 billion or 62% of our total assets were carried at fair value on a recurring basis and $15.0 million (real estate acquired in settlement of loans (“REO”)), were carried based on fair value on a non-recurring basis when fair value indicates evidence of impairment of individual properties. ​ Changes in fair value of our holdings of assets carried at fair value have significant effects on our financial position and results of operations.
The decrease was primarily due to a $3.8 billion decrease in borrowings, partially offset by a $1.7 billion increase in liability for loans eligible for repurchase. ​ 70 Table of Contents Cash Flows ​ Our cash flows for the three years ended December 31, 2022 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (in thousands) ​ Operating ​ $ 6,033,235 ​ $ 2,563,061 ​ $ (6,198,938) ​ Investing ​ ​ (721,582) ​ (304,369) ​ 783,034 ​ Financing ​ ​ (4,323,207) ​ (2,451,380) ​ 5,760,107 ​ Net increase (decrease) in cash and restricted cash ​ $ 988,446 ​ $ (192,688) ​ $ 344,203 ​ ​ Operating activities ​ Net cash provided by (used in) operating activities totaled $6.0 billion, $2.6 billion, and $(6.2) billion in the years ended December 31, 2022, 2021, and 2020, respectively.
The increase was primarily due to a $1.6 billion increase in borrowings to fund our inventory of loans held for sale and MSRs and a $187.8 million increase in liability for loans eligible for repurchase. ​ Cash Flows ​ Our cash flows for the three years ended December 31, 2023 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ Operating ​ $ (1,582,219) ​ $ 6,033,235 ​ $ 2,563,061 ​ Investing ​ ​ (273,288) ​ (721,582) ​ (304,369) ​ Financing ​ ​ 1,465,339 ​ (4,323,207) ​ (2,451,380) ​ Net (decrease) increase in cash and restricted cash ​ $ (390,168) ​ $ 988,446 ​ $ (192,688) ​ ​ 68 Table of Contents Operating activities ​ Net cash (used in) provided by operating activities totaled $(1.6) billion, $6.0 billion, and $2.6 billion in the years ended December 31, 2023, 2022, and 2021, respectively.
In the year ended December 31, 2022, we recognized a $354.2 million net increase in fair value of MSRs and MSLs: $877.7 million of the increase due to changes in fair value inputs, partially offset by $523.5 million of reduction due to realization of cash flows underlying the fair value of MSRs. ​ We estimate fair value of MSRs and MSLs using a discounted cash flow approach.
In the year ended December 31, 2023, we recognized a $605.6 million net decrease in fair value of MSRs and MSLs: $662.4 million of decrease due to realization of cash flows underlying the fair value of MSRs, partially offset by $56.8 million of increase due to changes in fair value inputs. ​ We estimate fair value of MSRs and MSLs using a discounted cash flow approach.
Following is a quantitative summary of the effect of changes in the pull-through rate input on the fair value of IRLCs at December 31, 2022: ​ ​ ​ ​ ​ ​ Change in input (1) ​ Effect on fair value of IRLC of a change in pull-through rate ​ ​ ​ (in thousands) (20) % ​ $ (8,207) (10) % ​ $ (4,095) (5) % ​ $ (2,039) 5 % ​ $ 2,124 10 % ​ $ 4,161 20 % ​ $ 7,420 (1) The upward shift in input amount on a per-loan basis is limited to the amount of shift required to reach a 100% pull-through rate. ​ 52 Table of Contents The preceding analysis holds constant all of the other inputs to show an estimate of the effect on fair value of a change in the pull-through rate.
Following is a quantitative summary of the effect of changes in the pull-through rate input on the fair value of IRLCs at December 31, 2023: ​ ​ ​ ​ ​ ​ Change in input (1) ​ Effect on fair value of IRLC of a change in pull-through rate (2) ​ ​ ​ (in thousands) (20) % ​ $ (21,086) (10) % ​ $ (10,540) (5) % ​ $ (5,266) 5 % ​ $ 3,822 10 % ​ $ 7,162 20 % ​ $ 13,541 (1) The upward shift in input amount on a per-loan basis is limited to the amount of shift required to reach a 100% pull-through rate. ​ (2) This analysis holds constant all of the other inputs to show an estimate of the effect on fair value of a change in the pull-through rate.
The decrease was primarily due to lower gains from production due to decreased production volumes and gain on sale margins and lower EBO loan redelivery gains due to reduced reperformance and modifications and diminished redelivery margins in the year ended December 31, 2022 compared to 2021 and 2020. ​ 58 Table of Contents Our net gains on loans held for sale are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (in thousands) ​ From non - affiliates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash (losses) gains: ​ ​ ​ ​ ​ ​ ​ Loans ​ $ (2,128,195) ​ $ 600,840 ​ $ 2,025,260 ​ Hedging activities ​ ​ 1,347,843 ​ ​ 443,341 ​ ​ (767,588) ​ Total cash (losses) gains ​ ​ (780,352) ​ ​ 1,044,181 ​ ​ 1,257,672 ​ Non-cash (losses) gains: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in fair value of loans and derivative financial instruments outstanding at end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments ​ ​ (296,349) ​ ​ (354,833) ​ ​ 540,376 ​ Loans ​ ​ 188,849 ​ ​ 210,961 ​ ​ (326,986) ​ Hedging derivatives ​ ​ (20,879) ​ ​ (124,200) ​ ​ 116,690 ​ ​ ​ ​ (128,379) ​ ​ (268,072) ​ ​ 330,080 ​ Mortgage servicing rights and mortgage servicing liabilities resulting from loan sales ​ ​ 1,718,094 ​ ​ 1,755,318 ​ ​ 1,114,720 ​ Provisions for losses relating to representations and warranties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pursuant to loan sales ​ ​ (9,617) ​ ​ (31,590) ​ ​ (21,035) ​ Reductions in liability due to change in estimate ​ ​ 8,451 ​ ​ 16,037 ​ ​ 8,667 ​ Total non-cash gains ​ ​ 1,588,549 ​ ​ 1,471,693 ​ ​ 1,432,432 ​ Total gains on sale from non-affiliates ​ ​ 808,197 ​ ​ 2,515,874 ​ ​ 2,690,104 ​ From PennyMac Mortgage Investment Trust (primarily cash) ​ ​ (16,564) ​ ​ (51,473) ​ ​ 50,681 ​ ​ ​ $ 791,633 ​ $ 2,464,401 ​ $ 2,740,785 ​ During the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments issued: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ By loan type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government-insured or guaranteed loans ​ $ 57,882,469 ​ $ 95,070,027 ​ $ 91,922,406 ​ Conventional conforming loans ​ ​ 22,060,564 ​ ​ 46,363,332 ​ ​ 33,682,284 ​ Jumbo loans ​ ​ 98,158 ​ ​ — ​ ​ 8,304 ​ Home equity loans ​ ​ 102,215 ​ ​ — ​ ​ — ​ Home equity lines of credit ​ ​ — ​ ​ — ​ ​ 1,676 ​ ​ ​ $ 80,143,406 ​ $ 141,433,359 ​ $ 125,614,670 ​ By production channel: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct ​ $ 18,925,722 ​ $ 58,018,371 ​ $ 39,850,344 ​ Broker direct ​ ​ 9,625,043 ​ ​ 18,920,730 ​ ​ 18,077,816 ​ Correspondent ​ ​ 51,592,641 ​ ​ 64,494,258 ​ ​ 67,686,510 ​ ​ ​ $ 80,143,406 ​ $ 141,433,359 ​ $ 125,614,670 ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans held for sale at fair value ​ $ 3,509,300 ​ $ 9,742,483 ​ $ 11,616,400 ​ Commitments to fund and purchase loans ​ $ 7,009,119 ​ $ 14,111,795 ​ $ 20,624,535 ​ ​ Non-cash elements of gain on sale of loans ​ Our gains on loans held for sale include both cash and non-cash elements.
The decrease was primarily due to lower gains from production due to decreased production volumes and gain on sale margins and lower EBO loan redelivery gains due to reduced reperformance and modifications and diminished redelivery margins in the year ended December 31, 2023 compared to 2022 and 2021. ​ 57 Table of Contents Our net gains on loans held for sale are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ From non - affiliates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash (losses) gains: ​ ​ ​ ​ ​ ​ ​ Loans ​ $ (1,337,613) ​ $ (2,128,195) ​ $ 600,840 ​ Hedging activities ​ ​ (99,515) ​ ​ 1,347,843 ​ ​ 443,341 ​ Total cash (losses) gains ​ ​ (1,437,128) ​ ​ (780,352) ​ ​ 1,044,181 ​ Non-cash gains (losses): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Changes in fair values of loans and derivative financial instruments outstanding at end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments ​ ​ 63,749 ​ ​ (296,349) ​ ​ (354,833) ​ Loans ​ ​ (71,425) ​ ​ 188,849 ​ ​ 210,961 ​ Hedging derivatives ​ ​ 146,456 ​ ​ (20,879) ​ ​ (124,200) ​ ​ ​ ​ 138,780 ​ ​ (128,379) ​ ​ (268,072) ​ Mortgage servicing rights and mortgage servicing liabilities resulting from loan sales ​ ​ 1,849,957 ​ ​ 1,718,094 ​ ​ 1,755,318 ​ Provisions for losses relating to representations and warranties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pursuant to loan sales ​ ​ (12,997) ​ ​ (9,617) ​ ​ (31,590) ​ Reductions in liability due to changes in estimate ​ ​ 9,115 ​ ​ 8,451 ​ ​ 16,037 ​ Total non-cash gains ​ ​ 1,984,855 ​ ​ 1,588,549 ​ ​ 1,471,693 ​ Total gains on sale from non-affiliates ​ ​ 547,727 ​ ​ 808,197 ​ ​ 2,515,874 ​ From PennyMac Mortgage Investment Trust (primarily cash) ​ ​ (1,784) ​ ​ (16,564) ​ ​ (51,473) ​ ​ ​ $ 545,943 ​ $ 791,633 ​ $ 2,464,401 ​ During the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments issued: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ By loan type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government-insured or guaranteed loans ​ $ 50,202,197 ​ $ 57,882,469 ​ $ 95,070,027 ​ Conventional conforming loans ​ ​ 41,388,408 ​ ​ 22,060,564 ​ ​ 46,363,332 ​ Jumbo loans ​ ​ 154,899 ​ ​ 98,158 ​ ​ — ​ Closed-end second lien mortgage loans ​ ​ 1,020,995 ​ ​ 102,215 ​ ​ — ​ ​ ​ $ 92,766,499 ​ $ 80,143,406 ​ $ 141,433,359 ​ By production channel: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct ​ $ 7,667,490 ​ $ 18,925,722 ​ $ 58,018,371 ​ Broker direct ​ ​ 11,149,351 ​ ​ 9,625,043 ​ ​ 18,920,730 ​ Correspondent ​ ​ 73,949,658 ​ ​ 51,592,641 ​ ​ 64,494,258 ​ ​ ​ $ 92,766,499 ​ $ 80,143,406 ​ $ 141,433,359 ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans held for sale at fair value ​ $ 4,420,691 ​ $ 3,509,300 ​ $ 9,742,483 ​ Commitments to fund and purchase loans ​ $ 6,349,628 ​ $ 7,009,119 ​ $ 14,111,795 ​ ​ Non-Cash Elements of Gain on Sale of Loans Held for Sale ​ Our gains on loans held for sale include both cash and non-cash elements.
Reserved ​ ​ 49 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Report. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties.
The increase in total expenses was mainly due to increases in compensation and origination expenses reflecting the growth of our direct lending production. ​ Net gains on loans held for sale at fair value ​ In our production segment, revenues reflect the effects of increasing interest rates on both demand for mortgage loans and gain on sale margins during the year ended December 31, 2022, compared to the strong demand due to the historically low interest rate environment that prevailed during 2021 and 2020. ​ In the year ended December 31, 2022, we recognized Net gains on loans held for sale at fair value totaling $791.6 million, as compared to $2.5 billion and $2.7 billion in 2021 and 2020, respectively.
The decrease was primarily due to a $2.0 billion decrease in production revenues primarily due to lower production volume and gain on sale margins across all channels, partially offset by a $768.4 million increase in Net loan servicing fees reflecting improved valuation results in our MSRs, net of hedging results, and a $487.7 million decrease in total expenses, primarily due to reductions in compensation, loan origination and servicing expenses. ​ Net gains on loans held for sale at fair value ​ In our production segment, revenues reflect the effects of increasing interest rates on both demand for mortgage loans and gain on sale margins during the years ended December 31, 2023 and 2022, compared to the strong demand due to the historically low interest rate environment that prevailed during 2021. ​ In the year ended December 31, 2023, we recognized Net gains on loans held for sale at fair value totaling $545.9 million, as compared to $791.6 million and $2.5 billion in 2022 and 2021, respectively.
At December 31, 2022, we held $257.2 million of such loans. ​ - Certain of our loans may become non-saleable into active markets due to our identification of one or more defects.
At December 31, 2023, we held $146.6 million at fair value of such loans. ​ - Certain of our loans may become non-saleable into active markets due to our identification of one or more defects or we may repurchase defective loans subject to representations and warranties.
We also recorded reductions in the liability relating to previously sold loans of $8.5 million, $16.0 million, and $8.7 million, for the years ended December 31, 2022, 2021 and 2020, respectively.
The decrease in provision relating to current loan sales from the year ended December 31, 2021 compared to the year ended December 31, 2022 reflects the decrease in our loan production in 2022. ​ We also recorded reductions in the liability relating to previously sold loans of $9.1 million, $8.5 million, and $16.0 million, for the years ended December 31, 2023, 2022 and 2021, respectively.
We expect our primary sources of liquidity to be through cash flows from business activities, proceeds from bank borrowings, proceeds from and issuance of equity or debt offerings. In addition, we utilized existing borrowing facilities to increase our cash balances to $1.3 billion at December 31, 2022.
We expect our primary sources of liquidity to be through cash flows from business activities, proceeds from bank borrowings, proceeds from and issuance of equity or debt offerings.
At December 31, 2022, we held $46.6 million of such loans. ​ We use a discounted cash flow model to estimate the fair value of “Level 3” fair value loans. The significant unobservable inputs used in the fair value measurement of our “Level 3” fair value loans held for sale are discount rates, home price projections and prepayment speeds.
The significant unobservable inputs used in the fair value measurement of our “Level 3” fair value loans held for sale are discount rates, home price projections and prepayment speeds.
Our cash flows from operating activities are primarily influenced by changes in the levels of our inventory of loans held for sale as shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ (in thousands) Cash flows from: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans held for sale ​ $ 5,676,655 ​ $ 3,102,134 ​ $ (5,326,837) Other operating sources ​ ​ 356,580 ​ ​ (539,073) ​ ​ (872,101) ​ ​ $ 6,033,235 ​ $ 2,563,061 ​ $ (6,198,938) ​ Investing activities ​ Net cash used in investing activities was $721.6 million in the year ended December 31, 2022, primarily comprised of $871.9 million in net settlement of derivative financial instruments used to hedge our investment in MSRs and $71.9 million used in acquisition of capitalized software, partially offset by a $238.7 million decrease in margin deposits. ​ Net cash used in investing activities was $304.4 million in the year ended December 31, 2021, primarily comprised of $434.4 million in net settlement of derivative financial instruments used to hedge our investment in MSRs, partially offset by a $97.7 million decrease in margin deposits. ​ Net cash provided by investing activities was $783.0 million in the year ended December 2020, primarily comprised of $913.1 million in net settlement of derivative financial instruments used to hedge our investment in MSRs, partially offset by $131.8 million increase in margin deposits. ​ Financing activities ​ Net cash used in financing activities was $4.3 billion in the year ended December 31, 2022, primarily due to a $4.5 billion decrease in short-term borrowings, which reflects decreased borrowing requirements relating to our reduced inventory of loans held for sale, and $406.1 million in repurchases of common stock, partially offset by issuance of a $650 million note payable secured by mortgage servicing rights. ​ Net cash used in financing activities was $2.5 billion in the year ended December 31, 2021, primarily due to a $2.4 billion decrease in short-term borrowings, which reflects decreased borrowing requirements relating to our inventory of loans held for sale, and a $958.2 million repurchase of common stock, partially offset by issuance of $1.2 billion of unsecured senior notes. ​ 71 Table of Contents Net cash provided by financing activities totaled $5.8 billion in the year ended December 31, 2020, primarily due to an increase of $6.1 billion in borrowings to finance the growth in our inventory of loans held for sale, partially offset by $337.5 million of repurchases of common stock and $30.9 million of dividends paid to our common stock holders. ​ Liquidity and Capital Resources ​ Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of, and margin calls relating to, our debt, and margin calls relating to hedges on our commitments to purchase or originate mortgage loans and on our MSR investments), fund new originations and purchases, and make investments as we identify them.
The increase in borrowings reflects the increase in inventory of loans held for sale and our investment in MSRs. ​ Net cash used in financing activities was $4.3 billion in the year ended December 31, 2022, primarily due to a $4.5 billion decrease in short-term borrowings, which reflects decreased borrowing requirements relating to our reduced inventory of loans held for sale, and $406.1 million in repurchases of common stock, partially offset by issuance of a $650 million note payable secured by mortgage servicing rights. ​ Net cash used in financing activities was $2.5 billion in the year ended December 31, 2021, primarily due to a $2.4 billion decrease in short-term borrowings, which reflects decreased borrowing requirements relating to our inventory of loans held for sale, and a $958.2 million repurchase of common stock, partially offset by issuance of $1.2 billion of unsecured senior notes. ​ ​ 69 Table of Contents Liquidity and Capital Resources ​ Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of, and margin calls relating to, our debt, and margin calls relating to hedges on our commitments to purchase or originate mortgage loans and on our MSR investments), fund new originations and purchases, and make investments as we identify them.
Due to the significant contraction in the mortgage market, we reduced business expenses to align with the lower mortgage production activities during the year ended December 31, 2022 and expected mortgage production activity levels in 2023. ​ ​ 55 Table of Contents Our results of operations are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (dollars in thousands except per share amounts) ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net gains on loans held for sale at fair value ​ $ 791,633 ​ $ 2,464,401 ​ $ 2,740,785 ​ Loan origination fees ​ ​ 169,859 ​ ​ 384,154 ​ ​ 285,551 ​ Fulfillment fees from PennyMac Mortgage Investment Trust ​ ​ 67,991 ​ ​ 178,927 ​ ​ 222,200 ​ Net loan servicing fees ​ ​ 951,329 ​ ​ 182,954 ​ ​ 439,448 ​ Net interest expense ​ ​ (41,365) ​ ​ (90,530) ​ ​ (24,525) ​ Management fees ​ ​ 31,065 ​ ​ 37,801 ​ ​ 34,538 ​ Other ​ ​ 15,243 ​ ​ 9,654 ​ ​ 7,600 ​ Total net revenues ​ ​ 1,985,755 ​ ​ 3,167,361 ​ ​ 3,705,597 ​ Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation ​ ​ 735,231 ​ ​ 999,802 ​ ​ 738,569 ​ Loan origination ​ ​ 173,622 ​ ​ 330,788 ​ ​ 219,746 ​ Technology ​ ​ 139,950 ​ ​ 141,426 ​ ​ 112,570 ​ Servicing ​ ​ 59,628 ​ ​ 109,835 ​ ​ 256,934 ​ Other ​ ​ 212,077 ​ ​ 226,327 ​ ​ 137,169 ​ Total expenses ​ ​ 1,320,508 ​ ​ 1,808,178 ​ ​ 1,464,988 ​ Income before provision for income taxes ​ ​ 665,247 ​ ​ 1,359,183 ​ ​ 2,240,609 ​ Provision for income taxes ​ ​ 189,740 ​ ​ 355,693 ​ ​ 593,725 ​ Net income ​ $ 475,507 ​ $ 1,003,490 ​ $ 1,646,884 ​ Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 8.96 ​ $ 15.73 ​ $ 21.91 ​ Diluted ​ $ 8.50 ​ $ 14.87 ​ $ 20.92 ​ Return on average stockholders' equity ​ ​ 13.8% ​ ​ 28.9% ​ ​ 61.4% ​ Dividends declared per share ​ $ 0.80 ​ $ 0.80 ​ $ 0.54 ​ Income before provision for income taxes by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage banking: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Production ​ $ 48,480 ​ $ 1,044,411 ​ $ 1,964,121 ​ Servicing ​ ​ 613,626 ​ ​ 306,678 ​ ​ 262,144 ​ Total mortgage banking ​ ​ 662,106 ​ ​ 1,351,089 ​ ​ 2,226,265 ​ Investment management ​ ​ 3,141 ​ ​ 8,094 ​ ​ 14,344 ​ ​ ​ $ 665,247 ​ $ 1,359,183 ​ $ 2,240,609 ​ Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") (1) ​ $ 591,055 ​ $ 2,040,581 ​ $ 2,488,716 ​ During the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments issued ​ $ 80,143,406 ​ $ 141,433,359 ​ $ 125,614,670 ​ Common stock closing per share prices: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ High ​ $ 70.10 ​ $ 70.57 ​ $ 69.49 ​ Low ​ $ 39.73 ​ $ 56.53 ​ $ 16.90 ​ At end of year ​ $ 56.66 ​ $ 70.57 ​ $ 65.62 ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments outstanding ​ $ 7,009,119 ​ $ 14,111,795 ​ $ 20,624,535 ​ Unpaid principal balance of loan servicing portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Owned: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights and liabilities ​ $ 314,600,796 ​ $ 278,385,373 ​ $ 241,268,301 ​ Loans held for sale ​ ​ 3,498,214 ​ ​ 9,430,766 ​ ​ 11,063,938 ​ ​ ​ ​ 318,099,010 ​ ​ 287,816,139 ​ ​ 252,332,239 ​ Subserviced for PMT ​ ​ 233,575,672 ​ ​ 221,892,142 ​ ​ 174,418,591 ​ ​ ​ $ 551,674,682 ​ $ 509,708,281 ​ $ 426,750,830 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net assets of PennyMac Mortgage Investment Trust ​ $ 1,962,815 ​ $ 2,367,518 ​ $ 2,296,859 ​ Book value per share ​ $ 69.44 ​ $ 60.11 ​ $ 47.80 ​ (1) To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted EBITDA as a non-GAAP measure.
If interest rates decrease and mortgage volumes increase in 2024 as industry economists project, certain of the trends observed in our business in 2023 may begin to soften or reverse. ​ 54 Table of Contents Results of Operations ​ ​ Our results of operations are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (dollars in thousands except per share amounts) ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan production revenues ​ $ 719,887 ​ $ 1,029,483 ​ $ 3,027,482 ​ Net loan servicing fees ​ ​ 642,600 ​ ​ 951,329 ​ ​ 182,954 ​ Net interest expense ​ ​ (4,853) ​ ​ (41,365) ​ ​ (90,530) ​ Management fees from PennyMac Mortgage Investment Trust ​ ​ 28,762 ​ ​ 31,065 ​ ​ 37,801 ​ Other ​ ​ 15,260 ​ ​ 15,243 ​ ​ 9,654 ​ Total net revenues ​ ​ 1,401,656 ​ ​ 1,985,755 ​ ​ 3,167,361 ​ Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation ​ ​ 576,964 ​ ​ 735,231 ​ ​ 999,802 ​ Legal settlements ​ ​ 162,770 ​ ​ 4,649 ​ ​ (4) ​ Technology ​ ​ 143,152 ​ ​ 139,950 ​ ​ 141,426 ​ Loan origination ​ ​ 114,500 ​ ​ 173,622 ​ ​ 330,788 ​ Servicing ​ ​ 69,433 ​ ​ 59,628 ​ ​ 109,835 ​ Other ​ ​ 151,206 ​ ​ 207,428 ​ ​ 226,331 ​ Total expenses ​ ​ 1,218,025 ​ ​ 1,320,508 ​ ​ 1,808,178 ​ Income before provision for income taxes ​ ​ 183,631 ​ ​ 665,247 ​ ​ 1,359,183 ​ Provision for income taxes ​ ​ 38,975 ​ ​ 189,740 ​ ​ 355,693 ​ Net income ​ $ 144,656 ​ $ 475,507 ​ $ 1,003,490 ​ Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 2.89 ​ $ 8.96 ​ $ 15.73 ​ Diluted ​ $ 2.74 ​ $ 8.50 ​ $ 14.87 ​ Return on average stockholders' equity ​ ​ 4.1% ​ ​ 13.8% ​ ​ 28.9% ​ Dividends declared per share ​ $ 0.80 ​ $ 0.80 ​ $ 0.80 ​ Income before provision for income taxes by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage banking: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Production ​ $ 69,325 ​ $ 48,480 ​ $ 1,044,411 ​ Servicing ​ ​ 109,669 ​ ​ 613,626 ​ ​ 306,678 ​ Total mortgage banking ​ ​ 178,994 ​ ​ 662,106 ​ ​ 1,351,089 ​ Investment management ​ ​ 4,637 ​ ​ 3,141 ​ ​ 8,094 ​ ​ ​ $ 183,631 ​ $ 665,247 ​ $ 1,359,183 ​ Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") (1) ​ $ 701,162 ​ $ 591,055 ​ $ 2,040,581 ​ During the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments issued ​ $ 92,766,499 ​ $ 80,143,406 ​ $ 141,433,359 ​ Common stock closing per share prices: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ High ​ $ 92.93 ​ $ 70.10 ​ $ 70.57 ​ Low ​ $ 55.82 ​ $ 39.73 ​ $ 56.53 ​ At end of year ​ $ 88.37 ​ $ 56.66 ​ $ 70.57 ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments outstanding ​ $ 6,349,628 ​ $ 7,009,119 ​ $ 14,111,795 ​ Unpaid principal balance of loan servicing portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Owned: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights and liabilities ​ $ 370,269,011 ​ $ 314,600,796 ​ $ 278,385,373 ​ Loans held for sale ​ ​ 4,294,689 ​ ​ 3,498,214 ​ ​ 9,430,766 ​ ​ ​ ​ 374,563,700 ​ ​ 318,099,010 ​ ​ 287,816,139 ​ Subserviced for PMT ​ ​ 232,653,069 ​ ​ 233,575,672 ​ ​ 221,892,142 ​ ​ ​ $ 607,216,769 ​ $ 551,674,682 ​ $ 509,708,281 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net assets of PennyMac Mortgage Investment Trust ​ $ 1,957,090 ​ $ 1,962,815 ​ $ 2,367,518 ​ Book value per share ​ $ 70.52 ​ $ 69.44 ​ $ 60.11 ​ (1) To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted EBITDA as a non-GAAP measure.
The decrease was primarily due to fulfillment fee structure changes, which generally reduced the fulfillment fees per loan fulfilled, and an increase in discretionary reductions in the fulfillment fee rate in the year ended December 31, 2021 compared to 2020. ​ Net loan servicing fees ​ Our net loan servicing fee income has two primary components: fees earned for servicing the loans and the effects of MSR and MSL valuation changes, net of hedging results as summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Loan servicing fees ​ $ 1,228,637 ​ $ 1,075,112 ​ $ 998,291 Effects of MSRs and MSLs ​ ​ (277,308) ​ ​ (892,158) ​ ​ (558,843) Net loan servicing fees ​ $ 951,329 ​ $ 182,954 ​ $ 439,448 62 Table of Contents Loan Servicing Fees ​ Following is a summary of our loan servicing fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) From non-affiliates ​ $ 1,054,828 ​ $ 875,570 ​ $ 814,646 From PennyMac Mortgage Investment Trust ​ ​ 81,915 ​ ​ 80,658 ​ ​ 67,181 Other ​ ​ ​ ​ ​ ​ ​ ​ ​ Late charges ​ ​ 48,166 ​ ​ 34,957 ​ ​ 41,100 Other ​ ​ 43,728 ​ ​ 83,927 ​ ​ 75,364 ​ ​ ​ 91,894 ​ ​ 118,884 ​ ​ 116,464 ​ ​ $ 1,228,637 ​ $ 1,075,112 ​ $ 998,291 Average loan servicing portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ MSRs and MSLs ​ $ 297,207,950 ​ $ 258,759,523 ​ $ 235,567,838 Subserviced for PMT ​ $ 226,817,005 ​ $ 202,047,495 ​ $ 151,379,311 ​ Loan servicing fees from non-affiliates generally relate to our MSRs which are primarily related to servicing we provide for loans included in Agency securitizations.
We charge fulfillment fees based on the number of loans we lock and fulfill for PMT. ​ Fulfillment fees decreased $40.2 million and $110.9 million in the years ended December 31, 2023 and 2022, respectively, compared to 2022 and 2021, respectively, primarily due to decreases in correspondent loan production volumes for PMT’s account which reflects our purchases of conventional correspondent loans from PMT. ​ Net loan servicing fees ​ Our net loan servicing fee income has two primary components: fees earned for servicing the loans and the effects of MSR and MSL valuation changes, net of hedging results as summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) Loan servicing fees ​ $ 1,484,946 ​ $ 1,228,637 ​ $ 1,075,112 Effects of MSRs and MSLs net of hedging results ​ ​ (842,346) ​ ​ (277,308) ​ ​ (892,158) Net loan servicing fees ​ $ 642,600 ​ $ 951,329 ​ $ 182,954 61 Table of Contents Loan Servicing Fees ​ Following is a summary of our loan servicing fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) From non-affiliates ​ $ 1,268,650 ​ $ 1,054,828 ​ $ 875,570 From PennyMac Mortgage Investment Trust ​ ​ 81,347 ​ ​ 81,915 ​ ​ 80,658 Other: ​ ​ ​ ​ ​ ​ ​ ​ ​ Late charges ​ ​ 65,781 ​ ​ 48,166 ​ ​ 34,957 Other ​ ​ 69,168 ​ ​ 43,728 ​ ​ 83,927 ​ ​ ​ 134,949 ​ ​ 91,894 ​ ​ 118,884 ​ ​ $ 1,484,946 ​ $ 1,228,637 ​ $ 1,075,112 Average loan servicing portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ MSRs and MSLs ​ $ 338,373,762 ​ $ 297,207,950 ​ $ 258,759,523 Subserviced for PMT ​ $ 234,303,254 ​ $ 226,817,005 ​ $ 202,047,495 ​ Loan servicing fees from non-affiliates generally relate to our MSRs which are primarily related to servicing we provide for loans included in Agency securitizations.
The increase is primarily due to $3.0 million of performance incentive fees earned as a result of PMT’s increased profitability during one of the twelve-month measurement periods used to measure PMT’s profitability during 2021 compared to 2020. ​ 67 Table of Contents Change in Fair Value of Investment in and Dividends Received from PMT ​ The results of our holdings of common shares of PMT, which is included in Changes in fair value of investment in, and dividends received from PMT are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (in thousands) ​ Dividends from PennyMac Mortgage Investment Trust ​ $ 136 ​ $ 141 ​ $ 114 ​ Change in fair value of investment in PennyMac Mortgage Investment Trust ​ ​ (371) ​ ​ 195 ​ ​ (567) ​ Dividends received and change in fair value ​ $ (235) ​ $ 336 ​ $ (453) ​ Fair value of PennyMac Mortgage Investment Trust shares at end of year ​ $ 929 ​ $ 1,300 ​ $ 1,105 ​ ​ Change in fair value of investment in and dividends received from PMT decreased $571,000 in the year ended December 31, 2022 compared to 2021 and increased $789,000 in the year ended December 31, 2021 compared to 2020, primarily due to changes in the fair value of our investment in PMT.
Management fees decreased $6.7 million in the year ended December 31, 2022 compared to 2021, reflecting the decrease in PMT’s average shareholders’ equity upon which its base management fees are based and a decrease in performance incentive fees. ​ Change in Fair Value of Investment in and Dividends Received from PMT ​ The results of our holdings of common shares of PMT, which is included in Changes in fair value of investment in, and dividends received from PMT are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ Dividends from PennyMac Mortgage Investment Trust ​ $ 120 ​ $ 136 ​ $ 141 ​ Change in fair value of investment in PennyMac Mortgage Investment Trust ​ ​ 192 ​ ​ (371) ​ ​ 195 ​ Dividends received and change in fair value ​ $ 312 ​ $ (235) ​ $ 336 ​ Fair value of PennyMac Mortgage Investment Trust shares at end of year ​ $ 1,121 ​ $ 929 ​ $ 1,300 ​ ​ Change in fair value of investment in and dividends received from PMT increased $547,000 in the year ended December 31, 2023 compared to 2022 and decreased $571,000 in the year ended December 31, 2022 compared to 2021, primarily due to changes in the fair value of our investment in PMT.
We endeavor to moderate the effects of changes in fair value by entering into derivatives transactions and, until March of 2021, by financing certain of our purchases of MSRs with the sale of a portion of the MSR assets’ cash flows to PMT in the form of ESS certificates. ​ 63 Table of Contents Change in fair value of MSR, MSL and ESS and the related hedging results are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) MSR and MSL valuation changes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Realization of cash flows ​ $ (523,495) ​ $ (347,576) ​ $ (392,152) Other changes in fair value of mortgage servicing rights and mortgage servicing liabilities ​ ​ 877,671 ​ ​ (68,330) ​ ​ (1,109,841) ​ ​ ​ 354,176 ​ ​ (415,906) ​ ​ (1,501,993) Change in fair value of excess servicing spread ​ ​ — ​ ​ (1,037) ​ ​ 24,970 Hedging results ​ ​ (631,484) ​ ​ (475,215) ​ ​ 918,180 Total change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread financing net of hedging results ​ $ (277,308) ​ $ (892,158) ​ $ (558,843) Average balances: ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights ​ $ 5,117,835 ​ $ 3,347,980 ​ $ 2,404,621 Mortgage servicing liabilities ​ $ 2,397 ​ $ 55,623 ​ $ 32,071 Excess servicing spread financing ​ $ — ​ $ 21,563 ​ $ 153,768 At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights ​ $ 5,953,621 ​ $ 3,878,078 ​ $ 2,581,174 Mortgage servicing liabilities ​ $ 2,096 ​ $ 2,816 ​ $ 45,324 Excess servicing spread financing ​ $ — ​ $ — ​ $ 131,750 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Changes in realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of the remaining cash flows to be realized.
We endeavor to moderate the effects of changes in fair value by entering into derivatives transactions and, until March of 2021, by financing certain of our purchases of MSRs with the sale of a portion of the MSR assets’ cash flows to PMT in the form of ESS. ​ 62 Table of Contents Change in fair value of MSR, MSL and ESS and the related hedging results are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) MSR and MSL valuation changes and hedging results: ​ ​ ​ ​ ​ ​ ​ ​ ​ Changes in fair value attributable to changes in fair value inputs ​ $ 56,807 ​ $ 877,671 ​ $ (68,330) Hedging results ​ ​ (236,778) ​ ​ (631,484) ​ ​ (475,215) Change in fair value of excess servicing spread ​ ​ — ​ ​ — ​ ​ (1,037) ​ ​ ​ (179,971) ​ ​ 246,187 ​ ​ (544,582) Changes in fair value attributable to realization of cash flows ​ ​ (662,375) ​ ​ (523,495) ​ ​ (347,576) Total change in fair value of mortgage servicing rights and mortgage servicing liabilities net of hedging results ​ $ (842,346) ​ $ (277,308) ​ $ (892,158) Average balances: ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights ​ $ 6,552,321 ​ $ 5,117,835 ​ $ 3,347,980 Mortgage servicing liabilities ​ $ 1,938 ​ $ 2,397 ​ $ 55,623 Excess servicing spread financing ​ $ — ​ $ — ​ $ 21,563 At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights ​ $ 7,099,348 ​ $ 5,953,621 ​ $ 3,878,078 Mortgage servicing liabilities ​ $ 1,805 ​ $ 2,096 ​ $ 2,816 ​ Changes in fair value of MSRs and MSLs attributable to changes in fair value inputs decreased in the year ended December 31, 2023 compared to 2022 primarily due to the smaller increase in interest rates in 2023 as compared to 2022.
Therefore the preceding analyses are not projections of the effects of a shock event or a change in our estimate of an input and should not be relied upon as earnings projections. ​ 54 Table of Contents Results of Operations ​ Business Trends ​ Due to significant inflationary pressures, the U.S.
Therefore these analyses are not projections of the effects of a shock event or a change in our estimate of an input and should not be relied upon as earnings projections. ​ Accounting Developments ​ Refer to Note 3 – Significant Accounting Policies ‒ Recently Issued Accounting Pronouncements to our consolidated financial statements for a discussion of recent accounting developments and the expected effect on the Company. ​ Business Trends ​ Due to significant inflationary pressures, the U.S.
The decrease in loans held for sale at fair value was primarily due to lower loan production volume in 2022. ​ Total liabilities decreased by $2.0 billion from $15.4 billion as of December 31, 2021 to $13.4 billion at December 31, 2022.
The increase was primarily due to a $1.1 billion increase in MSRs and a $911.4 million increase in loans held for sale at fair value. ​ Total liabilities increased by $1.9 billion from $13.4 billion as of December 31, 2022 to $15.3 billion at December 31, 2023.
The decrease in refinancing activity in our MSR portfolio caused the decrease in the interest shortfall; and ● an increase of $16.6 million in interest income from cash balances reflecting increasing interest rates; partially offset by ● a decrease of $103.1 million in interest income from loans held for sale reflecting lower average levels of inventory; and ● an increase of $9.2 million in interest expense on borrowings due to the higher interest rate environment. ​ Net interest expense increased $66.0 million in the year ended December 31, 2021 compared to 2020.
The decrease in refinancing activity in our MSR portfolio caused the decrease in the interest shortfall; ● an increase of $16.6 million in interest income from cash balances reflecting increasing interest rates; partially offset by ● a decrease of $103.1 million in interest income from loans held for sale reflecting lower average levels of inventory; and ● an increase of $9.2 million in interest expense on borrowings due to the higher interest rate environment. 65 Table of Contents Management fees ​ Management fees are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) Base management $ 28,762 $ 31,065 $ 34,794 Performance incentive ​ ​ — ​ ​ — ​ ​ 3,007 ​ ​ $ 28,762 ​ $ 31,065 ​ $ 37,801 Average of net assets of PMT during the year ​ $ 1,917,642 ​ $ 2,079,851 ​ $ 2,348,395 ​ Management fees decreased $2.3 million in the year ended December 31, 2023 compared to 2022, reflecting the decrease in PMT’s average shareholders’ equity upon which its base management fees are based.
At December 31 2022, we held $42.0 million of such loans. ​ - There is no active market with observable inputs that are significant to the estimation of the fair value of home equity loans we produce.
At December 31 2023, we held $10.0 million at fair value of such loans. ​ - The closed-end second lien mortgage loans we produce do not have an active market with observable inputs that are significant to the estimation of their fair value.
Share repurchases may be effected through open market purchases or privately negotiated transactions in accordance with applicable rules and regulations. The stock repurchase program does not have an expiration date and the authorization does not obligate us to acquire any particular amount of common stock.
The stock repurchase program does not have an expiration date and the authorization does not obligate us to acquire any particular amount of common stock.
(2) The borrowing facilities with Credit Suisse First Boston Mortgage Capital LLC and Citibank, N.A. are in the form of asset sales under agreements to repurchase. ​ All debt financing arrangements that matured between December 31, 2022 and the date of this Annual Report have been renewed or extended and are described in Note 12 — Short-Term Borrowings to the accompanying consolidated financial statements. ​ Item 7A.
(“Atlas SP”), Atlas Securitized Products Investments 3, L.P., Atlas Securitized Products Funding 2, L.P., and Nexera Holding LLC. ​ All debt financing arrangements that matured between December 31, 2023 and the date of this Annual Report have been renewed or extended and are described in Note 14 — Short-Term Borrowings to the accompanying consolidated financial statements. ​ Item 7A.
The reduction reflects the improvements in the performance of our servicing portfolio due to the resolution of delinquent loans relating to the COVID-19 pandemic. ​ Technology ​ Technology expense decreased $1.5 million in the year ended December 31, 2022 compared to 2021 and increased $28.9 million in the year ended December 31, 2021 compared to 2020.
The reduction also reflects the improvements in the performance of our servicing portfolio due to the resolution of delinquent loans relating to the COVID-19 pandemic. ​ Provision for income taxes ​ For the years ended December 31, 2023, 2022 and 2021, our effective income tax rates were 21.2%, 28.5%, and 26.2%, respectively.

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