Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38727 PennyMac Financial Services, Inc. (Exact name of registrant as specified in its charter) Delaware (State or ot ...

4Q24 EARNINGS REPORT PennyMac Financial Services, Inc. January 2025 FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management's beliefs, estimates, projections and assumptions with respect to, among other things, our financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words ...

Financial Performance - Revenue for Q4 2024 was $470.11 million, a 29.9% YoY increase [1] - EPS for Q4 2024 was $2.88, compared to $1.76 in the same period last year [1] - Revenue missed Zacks Consensus Estimate by 10.26% ($523.86 million) [1] - EPS missed Zacks Consensus Estimate by 5.57% ($3.05) [1] Key Metrics Analysis - Net gains on loans held for sale at fair value: $222.04 million vs $222.44 million estimate, +49.3% YoY [4] - Net loan servicing fees: $189.27 million vs $240.95 million estimate, +16.6% YoY [4] - Loan servicing fees: $472.56 million vs $461.96 million estimate [4] - Management fees from PennyMac Mortgage Investment Trust: $7.15 million vs $7.73 million estimate, -1.4% YoY [4] - Fulfillment fees from PennyMac Mortgage Investment Trust: $6.36 million vs $10.32 million estimate, +28.9% YoY [4] - Loan origination fees: $57.82 million vs $46.96 million estimate, +51.9% YoY [4] - Net interest income: -$17.25 million vs -$8.50 million estimate, +210.3% YoY [4] - Other revenues: $4.72 million vs $3.87 million estimate, -23.6% YoY [4] Stock Performance - Shares returned +9.8% over the past month, outperforming Zacks S&P 500 composite's +1.2% change [3] - The stock currently has a Zacks Rank 3 (Hold) [3] Market Perspective - Investors focus on YoY changes in revenue and earnings, as well as Wall Street expectations, to guide investment decisions [2] - Key metrics provide better insight into a company's underlying performance and help project stock price performance [2]

Company Performance - PennyMac Financial (PFSI) reported quarterly earnings of $2.88 per share, missing the Zacks Consensus Estimate of $3.05 per share, but showing an increase from $1.76 per share a year ago [1] - The earnings surprise for this quarter was -5.57%, while the previous quarter saw a positive surprise of 19.52% with actual earnings of $3.49 per share against an expectation of $2.92 [2] - Revenues for the quarter were $470.11 million, missing the Zacks Consensus Estimate by 10.26%, and up from $361.94 million year-over-year [3] Market Performance - PennyMac shares have increased approximately 9.8% since the beginning of the year, outperforming the S&P 500's gain of 2.7% [4] - The current consensus EPS estimate for the upcoming quarter is $3.23 on revenues of $544.41 million, and for the current fiscal year, it is $14.23 on revenues of $2.44 billion [8] Industry Outlook - The Financial - Mortgage & Related Services industry, to which PennyMac belongs, is currently ranked in the bottom 45% of over 250 Zacks industries, indicating potential challenges ahead [9] - The performance of PennyMac's stock may be influenced by the overall outlook for the industry, as historical data shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [9]

Financial Performance - Net income for Q4 2024 was $104.5 million, or $1.95 per share, on revenue of $470.1 million, with book value per share increasing to $74.54[2] - Full-year 2024 net income was $311.4 million, up from $144.7 million in 2023, with pretax income increasing to $401.0 million from $183.6 million[6] - Total net revenue for 2024 was $1.6 billion, an increase of 14% from $1.4 billion in 2023[7] - Total net revenues for Q4 2024 reached $470,110,000, an increase of 14.1% from $411,834,000 in Q3 2024 and up 30.0% from $361,939,000 in Q4 2023[41] - Net income for Q4 2024 was $104,489,000, compared to $69,368,000 in Q3 2024, marking a 50.6% increase, and a significant recovery from a loss of $36,842,000 in Q4 2023[41] - Basic earnings per share for Q4 2024 was $2.04, up from $1.36 in Q3 2024 and a loss of $0.74 in Q4 2023[41] - For the full year 2024, total net revenue was $1,593,731,000, a 13.7% increase from $1,401,656,000 in 2023[43] - The company reported a net income of $311,423,000 for the year ended December 31, 2024, compared to $144,656,000 in 2023, representing a 115.5% increase[43] Loan and Servicing Activity - Total loan acquisitions and originations in Q4 2024 reached $35.7 billion in unpaid principal balance (UPB), up 13% from the prior quarter and 34% from Q4 2023[5] - The servicing portfolio grew to $665.8 billion in UPB, a 3% increase from September 30, 2024, and a 10% increase from December 31, 2023[6] - As of December 31, 2024, PennyMac Financial's total prime servicing portfolio reached $665.8 billion, an increase from $648.0 billion in the prior quarter and $607.2 billion year-over-year[18] - PennyMac Financial's production of newly originated loans in 2024 totaled $116 billion in unpaid principal balance, positioning it as a top lender in the nation[32] - Loan servicing fees from non-affiliates for the year 2024 were $1,529,452,000, compared to $1,268,650,000 in 2023, reflecting a growth of 20.5%[43] Income and Expenses - The production segment generated pretax income of $78.0 million, down from $129.4 million in the prior quarter but up from $44.2 million in Q4 2023[11] - Servicing segment pretax income was $87.3 million, significantly up from $3.3 million in the prior quarter and $76.6 million in Q4 2023[6] - Total expenses for the company were $340.7 million, up from $317.9 million in the prior quarter, primarily due to increased production and servicing segment expenses[27] - Total expenses for Q4 2024 were $340,746,000, an increase from $317,909,000 in Q3 2024 but a decrease from $416,169,000 in Q4 2023[41] - The company reported total expenses of $317,909,000 for the quarter ended September 30, 2024, an increase from $416,169,000 in the fourth quarter of 2023, indicating a decrease of 23.5%[36][37] Cash and Assets - The company's cash position improved to $238,482,000 as of December 31, 2024, compared to $145,814,000 at the end of September 2024, representing a 63.4% increase[39] - Total assets as of December 31, 2024, reached $26,086,887,000, up from $22,871,538,000 as of September 30, 2024, indicating a growth of 14.4%[39] - Total liabilities increased to $22,257,236,000 as of December 31, 2024, from $19,132,360,000 at the end of September 2024, marking a rise of 11.1%[39] Dividends and Shareholder Returns - The quarterly cash dividend was increased to $0.30 per share, a 50% increase from the previous $0.20[7] - The company declared a dividend of $0.30 per share for Q4 2024, consistent with Q3 2024 and an increase from $0.20 in Q4 2023[41] Tax and Interest - The effective tax rate was 19.2%, a decrease from the prior quarter's rate of 26.85%[28] - The company reported net interest expense of $19.5 million, compared to net interest income of $9.5 million in the prior quarter[21] - Interest income for the year 2024 was $793,566,000, up from $632,924,000 in 2023, while interest expense increased to $819,348,000 from $637,777,000[43] Market Outlook and Strategy - The company expects PMT to retain all jumbo production and 15% to 25% of total conventional conforming correspondent production in Q1 2025[13] - The company plans to continue expanding its market presence and investing in technology to enhance operational efficiency and customer service[36] Valuation and Gains - The company experienced net valuation-related losses of $67.7 million, which included MSR fair value gains of $540.4 million and hedging losses of $608.1 million[19] - The mortgage servicing rights at fair value increased to $8,744,528,000 as of December 31, 2024, compared to $7,752,292,000 as of September 30, 2024, reflecting a growth of 12.8%[39]

Core Viewpoint - Investors in PennyMac Financial Services, Inc. (PFSI) should closely monitor the stock due to significant movements in the options market, particularly the high implied volatility of the Jan 17, 2025 $30 Put option [1] Company Analysis - PennyMac Financial is currently rated as a Zacks Rank 1 (Strong Buy) in the Financial - Mortgage & Related Services industry, which ranks in the top 22% of the Zacks Industry Rank [3] - Over the last 60 days, three analysts have raised their earnings estimates for the current quarter, while one has lowered them, resulting in a net increase of the Zacks Consensus Estimate from $3.06 per share to $3.14 [3] Options Market Insights - The high implied volatility suggests that options traders are anticipating a significant price movement for PennyMac Financial shares, indicating potential upcoming events that could lead to a major rally or sell-off [2][4] - Options traders often seek to sell premium on options with high implied volatility, aiming to benefit from the decay of the option's value if the underlying stock does not move as much as expected by expiration [4]

Industry Overview - The financial sector has emerged as one of the top-performing areas in the market, driven by higher interest rates, strong economic growth, and fair valuations, making financial services stocks attractive to investors [1] Company Analysis: Northern Trust - Northern Trust is a leading provider of wealth management, asset servicing, asset management, and banking solutions, known for its financial stability and client-focused services [4] - The company has received strong upgrades to its earnings estimates, resulting in a Zacks Rank 1 (Strong Buy) rating, with a 10.1% increase in current quarter earnings forecast over the last 60 days [5] - Earnings are projected to grow nearly 12% annually over the next three to five years, with a one-year forward earnings multiple of 14.4x [5] - Northern Trust's stock has been consolidating and breaking out since Q4, indicating a potential for continued rally if it holds above the breakout level [6] Company Analysis: PennyMac Financial Services - PennyMac Financial Services is a leading mortgage lender and servicer in the US, specializing in residential mortgage loans and related services, with a technology-driven approach [8] - The company also holds a Zacks Rank 1 (Strong Buy) rating, with a bargain valuation of 8.6x forward earnings compared to the industry average of 27.6x [9] - Sales growth is expected to climb 18.5% this year and 46.8% next year, while earnings are projected to jump 126.7% this year and 20.3% next year [9] - PennyMac's stock is forming a bull flag pattern, with a significant breakout potential above the $104 level [11] Investment Opportunities - Both Northern Trust and PennyMac Financial Services present compelling investment opportunities within the outperforming financial sector, offering growth, momentum, and reasonable valuations [13]

Financial Performance - Loan production revenues increased to $317,741 thousand in Q3 2024, up from $194,606 thousand in Q3 2023, representing a 63.2% year-over-year growth[235] - Total net revenues for Q3 2024 were $411,834 thousand, compared to $400,308 thousand in Q3 2023, reflecting a 0.4% increase[235] - Net income for Q3 2024 was $69,368 thousand, down from $92,870 thousand in Q3 2023, indicating a 25.4% decline[235] - Basic earnings per share decreased to $1.36 in Q3 2024 from $1.86 in Q3 2023, a decline of 26.8%[235] - Adjusted EBITDA for the quarter was $338.1 million, an increase of 71.1% from $197.5 million in the same quarter of 2023[240] - For the quarter ended September 30, 2024, net income was $69.4 million, a decrease of 25.3% compared to $92.9 million in the same period of 2023[240] Expenses and Costs - Total expenses for Q3 2024 were $317,909 thousand, compared to $273,511 thousand in Q3 2023, marking a 16.2% increase[235] - Income before provision for income taxes decreased by $32.9 million, primarily due to a $109.5 million decrease in net loan servicing fees[240] - Total expenses increased by $44.4 million for the quarter ended September 30, 2024, compared to the same period in 2023[240] - Compensation expenses rose by $14.4 million and $17.8 million during the quarter and nine months ended September 30, 2024, respectively, driven by increased stock and unit-based compensation[282] - Loan origination expenses increased by $16.3 million and $28.4 million for the quarter and nine months ended September 30, 2024, respectively, due to higher origination volumes[283] - Servicing expenses increased by $15.6 million and $27.3 million during the quarter and nine months ended September 30, 2024, primarily due to higher delinquent loan balances[284] Revenue Sources - The mortgage origination market is projected to grow from $1.5 trillion in 2023 to $2.3 trillion in 2025, driven by declining interest rates and increased refinancing activity[231] - Interest rate lock commitments issued reached $31,229,731 thousand in Q3 2024, compared to $25,091,322 thousand in Q3 2023, a 24.5% increase[235] - The unpaid principal balance of loans produced or fulfilled for PMT was $31,749,386 thousand at the end of Q3 2024, up from $24,841,907 thousand in Q3 2023, representing a 27.5% increase[235] - Net gains on loans held for sale at fair value totaled $256.8 million for the quarter, an increase of 69.5% compared to $151.4 million in the same period of 2023[244] - For the nine months ended September 30, 2024, net gains on loans held for sale at fair value reached $595.3 million, up 49.2% from $397.2 million in the same period of 2023[245] Dividends and Shareholder Returns - Dividends declared per share increased to $0.30 in Q3 2024 from $0.20 in Q3 2023, a 50% increase[235] - The company has a stock repurchase program allowing for the repurchase of up to $2 billion, with approximately $1.8 billion repurchased as of September 30, 2024[312] Assets and Liabilities - Total assets increased by $4.0 billion from $18.8 billion at December 31, 2023, to $22.9 billion at September 30, 2024[289] - Total liabilities increased to $410,051,479 as of September 30, 2024, compared to $370,269,011 at the end of December 2023, representing an increase of approximately 10.8%[66] - The average balance of repurchase agreements was $5.6 billion for the quarter ended September 30, 2024, compared to $3.2 billion for the same quarter in 2023[301] Cash Flow and Financing Activities - Net cash used in operating activities was $2.4 billion for the nine months ended September 30, 2024, compared to $2.0 billion for the same period in 2023[292] - Net cash used in investing activities totaled $1.8 billion for the nine months ended September 30, 2024, primarily due to $935.4 million in purchases of mortgage-backed securities[293] - Net cash provided by financing activities was $3.4 billion for the nine months ended September 30, 2024, reflecting an increase in borrowings[294] Risk Management - The company faces market risks primarily related to fair value risk, interest rate risk, and prepayment risk[328] - The fair value of the company's assets fluctuates primarily due to changes in interest rates, impacting its IRLCs and mortgage loans held for sale[329] - Interest rate risk is highly sensitive to various factors, including governmental policies and economic conditions, affecting both the fair value and interest income from mortgage-related investments[330] - The company engages in risk management activities to mitigate the impact of interest rate changes on asset fair value, primarily using derivative financial instruments[334] - Daily reviews of strategies are conducted within a disciplined risk management framework, utilizing various interest rate scenarios and target limits for market value and liquidity loss[335]

Group 1 - PennyMac Financial (PFSI) has experienced a significant decline of 11.4% over the past four weeks, but it is now in oversold territory, indicating a potential for trend reversal [1] - Wall Street analysts have strong consensus that PFSI will report better earnings than previously predicted, with a 7% increase in consensus EPS estimates over the last 30 days [3] - The Relative Strength Index (RSI) for PFSI is currently at 25.08, suggesting that heavy selling may be exhausting itself, which could lead to a price rebound [3] Group 2 - PFSI holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, indicating strong potential for a turnaround [4]

Financial Data and Key Metrics Changes - PennyMac Financial Services, Inc. reported net income of $69 million for Q3 2024, resulting in an annualized return on equity (ROE) of 8%. Excluding fair value changes, the annualized operating ROE was 20% [3][10] - The company declared a third quarter common share dividend of $0.30 per share, consistent with the prior quarter [10] Business Segment Data and Key Metrics Changes - The Production segment's pretax income nearly tripled from the previous quarter, reaching $108 million, driven by higher volumes across all channels, particularly in consumer direct [3][11] - Total acquisition and origination volumes were $32 billion in unpaid principal balance, up 17% from the prior quarter [11] - The Servicing segment recorded a pretax loss of $15 million, but excluding valuation-related changes, pretax income was $151 million, unchanged from the previous quarter [14] - The Investment Management segment contributed $700,000 to pretax income during the quarter, with assets under management remaining essentially unchanged [16] Market Data and Key Metrics Changes - The origination market is expected to reach total originations of $2.3 trillion in 2025, driven by declining mortgage rates [4] - The company maintained a dominant position in correspondent lending with total acquisitions of $26 billion, up from $23 billion in the prior quarter [11] Company Strategy and Development Direction - The company emphasizes a balanced and diversified business model, with leadership in both production and servicing, positioning it for continued growth regardless of interest rate fluctuations [4][9] - Investments in technology and operational enhancements are expected to drive additional operating leverage and profitability [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain strong financial performance, with expectations for annualized operating returns on equity in the high teens to low 20s in 2025 [9][23] - The management team noted that while there may be some impact from rising rates, the company is well-positioned to capitalize on opportunities in the origination market [27] Other Important Information - The fair value of PennyMac's mortgage servicing rights (MSR) decreased by $402 million due to lower market interest rates, but hedging gains offset 78% of these declines [15] - The company has $3.8 billion in total liquidity, including cash and amounts available to draw on facilities [16][62] Q&A Session Summary Question: Insights on lock volume and consumer direct post-Fed rate changes - Management noted a decrease of approximately 30% in lock volume due to higher rates, but expressed optimism about market share gains in the Broker Direct channel [17][18] Question: Near-term outlook for ROE - Management indicated that operating ROEs could remain in the mid-teens even with higher rates, with potential for higher ROEs if rates decline [22][23] Question: MSR hedge performance - The hedge covered about 80% of the MSR value changes, aligning with expectations despite higher costs due to interest rate volatility [29][30] Question: Update on subservicing opportunities - Management expects to onboard one or two smaller customers by year-end and is in discussions with larger clients [35] Question: Sustainability of servicing margins - Management anticipates maintaining servicing margins around 9.5 basis points, supported by efficiency enhancements [43][44] Question: Production segment guidance for Q4 - Management expects strong production income in Q4, although it may not match the levels seen in Q3 due to rate increases [40][41]