PennyMac Financial Services, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Reported net income of $29 million ($0.54 diluted EPS) on total net revenues of $469 million, compared to $182 million ($3.37 diluted EPS) and $633 million in the prior year quarter.
• Adjusted net income was $56 million ($1.05 adjusted diluted EPS) on adjusted net revenues of $502 million, down from $180 million ($3.33 adjusted diluted EPS) and $630 million in the prior year quarter.
• Total net revenues decreased 26% year-over-year and 6% quarter-over-quarter (Q/Q).
• Net income decreased 84% year-over-year and increased 32% Q/Q.
• Annualized return on equity (ROE) was 3%, up from 2% in the prior quarter but down 15 percentage points year-over-year.
• Annualized adjusted ROE was 5%, down 2 percentage points Q/Q and 12 percentage points year-over-year.
• Book value per share was $83.85, up 3% from September 30, 2025.
• Cash dividends declared were $0.30 per share, unchanged from the prior quarter and prior year.
• Adjusted EBITDA was $182 million for the quarter.

Guidance and Future Outlook:

• Management expects fourth quarter adjusted ROE to remain near current levels due to a smaller origination market and ongoing expense adjustments.
• Aggressive steps are being taken to right-size the platform, with a target to reduce annualized operating expenses by $160 million from the second quarter of 2026 by the first quarter of 2027.
• Management anticipates mortgage demand will remain subdued due to higher interest rates.
• The company plans to close the acquisition of Cenlar's subservicing business in early 2027.
• Accelerated deployment of AI across production workflows is expected to capture significant operating leverage when market volumes rebound.

Business Segments and Product Lines:

• Production Segment: Reported a pretax loss of $7 million, compared to a pretax income of $38 million in the prior quarter and $123 million in the prior year quarter.
  • Total fallout adjusted locks were $23.1 billion, down 27% Q/Q and 37% year-over-year.
  • Total acquisitions and originations were $24.4 billion, down 30% Q/Q and 33% year-over-year.
  • Production revenue margins were 76 basis points of total fallout adjusted locks, down slightly from 77 basis points in the prior quarter.
  • Consumer direct, broker direct, and correspondent volumes declined across the board due to lower refinance volumes and a smaller origination market.
• Servicing Segment: Reported pretax income of $99 million, up from $22 million in the prior quarter but down from $157 million in the prior year quarter.
  • Pretax income excluding MSR fair value changes net of hedge results was $132 million, up from $99 million in the prior quarter and down from $155 million in the prior year quarter.
  • Owned servicing portfolio totaled $496 billion in UPB at September 30, 2026, up 6% from the prior year.
  • Loan servicing fees were $548 million, up 2% year-over-year.
  • MSR fair value changes net of hedge results were a loss of $34 million, compared to a loss of $77 million in the prior quarter and a gain of $3 million in the prior year quarter.
  • Actual CPR for the owned portfolio was 8.1%, down from 11.6% in the prior quarter.
• Corporate and Other: Reported a pretax loss of $49 million, compared to a loss of $29 million in the prior quarter and $44 million in the prior year quarter.

Market and Competitive Landscape:

• The industry is experiencing a contraction in origination activity coupled with margin pressure near the end of the quarter.
• The origination market is described as smaller, with highly competitive environments impacting correspondent volumes.
• Higher mortgage rates are driving lower refinance volumes and subdued mortgage demand.
• Recent changes to FHA and VA loss mitigation programs have altered the timing and volume of buyout and redelivery opportunities.

Risks and Challenges:

• Higher interest rates are negatively impacting mortgage demand and production volumes.
• The company faces margin pressure in the production segment.
• Significant volatility in MSR fair value changes and hedging results impacts reported earnings.
• Increased credit losses and provisions for defaulted loans were noted in the servicing segment.
• The company is executing on expense reductions to right-size its platform in response to market conditions.

Management Commentary and Tone:

• Chairman and CEO David Spector described the servicing business as delivering strong profitability while noting the production segment's loss was due to industry-wide contraction and margin pressure.
• Management expressed confidence in the leadership team and deep bench of talent to drive long-term value.
• Spector highlighted strategic catalysts to optimize returns on capital, including the sale of low-rate MSRs and the Cenlar acquisition.
• Management emphasized a proactive approach to right-sizing the platform to align with the current market environment.

Other Key Points:

• Leadership Changes: Doug Jones, President and Chief Mortgage Banking Officer, will retire on June 30, 2027. Kevin Ryan, currently Chief Strategy Officer, will assume the role of Chief Financial Officer effective January 1, 2027.
• MSR Sale: Subsequent to quarter-end, the company agreed to sell $29 billion in UPB of low-rate conventional MSRs where recapture opportunities are limited, with expected proceeds of $490 million.
• Capital Deployment: Proceeds from the MSR sale will be used to reduce higher-cost debt and repurchase common shares while the stock trades at a sizable discount to book value.
• Acquisition: Progress continues on the acquisition of Cenlar's subservicing business, expected to close in the first quarter of 2027.
• Liquidity: Total liquidity was $3.526 billion at September 30, 2026, representing 30% of MSR fair value.
• Debt: Carrying value of total debt was $15.247 billion, up 9% year-over-year. Non-funding debt to tangible equity ratio was 2.0x.