[PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis for the period ended June 30, 2025 [Item 1. Financial Statements (Unaudited)](index=8&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the quarterly period ended June 30, 2025, including balance sheets, income statements, equity changes, cash flows, and detailed notes [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets decreased to **$24.22 billion** from **$26.09 billion**, while total liabilities decreased to **$20.19 billion** from **$22.26 billion**, and total stockholders' equity increased to **$4.03 billion** from **$3.83 billion** Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$24,221,904** | **$26,086,887** | | Loans held for sale at fair value | $6,961,224 | $8,217,468 | | Mortgage servicing rights at fair value | $9,531,249 | $8,744,528 | | Loans eligible for repurchase | $4,962,535 | $6,157,172 | | **Total Liabilities** | **$20,189,404** | **$22,257,236** | | Assets sold under agreements to repurchase | $7,344,254 | $8,685,207 | | Unsecured senior notes | $4,185,012 | $3,164,032 | | Liability for loans eligible for repurchase | $4,962,535 | $6,157,172 | | **Total Stockholders' Equity** | **$4,032,500** | **$3,829,651** | [Consolidated Statements of Income](index=10&type=section&id=Consolidated%20Statements%20of%20Income) For Q2 2025, net income was **$136.5 million**, an increase from **$98.3 million** in Q2 2024, driven by higher net revenues despite a significant rise in total expenses Consolidated Statement of Income Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total net revenues | $444,730 | $406,127 | | Total expenses | $368,288 | $272,273 | | Income before income taxes | $76,442 | $133,854 | | (Benefit from) provision for income taxes | ($60,021) | $35,596 | | **Net income** | **$136,463** | **$98,258** | | Diluted EPS | $2.54 | $1.85 | [Consolidated Statements of Changes in Stockholders' Equity](index=11&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased to **$4.03 billion** as of June 30, 2025, primarily due to **$212.7 million** in net income for the six-month period, partially offset by common stock dividends Changes in Stockholders' Equity for Six Months Ended June 30, 2025 (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2024 | $3,829,651 | | Net income | $212,743 | | Stock-based compensation | $20,804 | | Common stock dividends ($0.60 per share) | ($30,813) | | **Balance, June 30, 2025** | **$4,032,500** | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to **$934.6 million** for the six months ended June 30, 2025, compared to a **$1.99 billion** use in the prior year, resulting in a **$76.3 million** net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $934,642 | ($1,990,826) | | Net cash used in investing activities | ($127,033) | ($1,520,406) | | Net cash (used in) provided by financing activities | ($883,905) | $3,168,197 | | **Net decrease in cash** | **($76,296)** | **($343,035)** | [Notes to Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the company's organization, significant risks, related party transactions, loan servicing, fair value measurements, debt, and segment reporting - The company's business is organized into two primary segments: mortgage banking (production and servicing) and investment management, with a significant portion of activities conducted on behalf of PennyMac Mortgage Investment Trust (PMT)[27](index=27&type=chunk)[28](index=28&type=chunk) - Revenues generated from PMT accounted for **10% of total net revenues** for the six months ended June 30, 2025, indicating a significant concentration of risk[34](index=34&type=chunk) - The company consolidates certain Variable Interest Entities (VIEs) used for securitization transactions involving Ginnie Mae and Fannie Mae MSRs[36](index=36&type=chunk) - The total loan servicing portfolio, including owned and subserviced loans, grew to **$699.7 billion** as of June 30, 2025, from **$665.8 billion** at the end of 2024[78](index=78&type=chunk)[81](index=81&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=87&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting key business trends such as the impact of elevated interest rates on the mortgage market, and analyzing results across segments, balance sheet changes, cash flows, liquidity, and capital resources - Elevated interest rates have constrained growth in the mortgage origination market, which is projected to increase from **$1.7 trillion** in 2024 to **$2.0 trillion** in 2025[216](index=216&type=chunk) - For Q2 2025, income before income taxes decreased by **$57.4 million** compared to Q2 2024, driven by a **$96.0 million** increase in expenses and a **$17.2 million** decrease in Net loan servicing fees, partially offset by a **$77.0 million** increase in loan production revenue[226](index=226&type=chunk)[228](index=228&type=chunk) - Total assets decreased by **$1.9 billion** from year-end 2024 to June 30, 2025, primarily due to a **$1.3 billion** decrease in loans held for sale and a **$1.2 billion** decrease in loans eligible for repurchase[273](index=273&type=chunk) - The company's leverage ratio (Total debt / Stockholders' equity) decreased from **3.8** at year-end 2024 to **3.4** at June 30, 2025, reflecting reduced inventory financing needs[272](index=272&type=chunk)[274](index=274&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=119&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are fair value, interest rate, and prepayment risk, which are managed through a disciplined risk management framework utilizing derivative financial instruments - The company is primarily exposed to fair value, interest rate, and prepayment risk[306](index=306&type=chunk) - Rising interest rates generally have a negative effect on the fair value of IRLCs and loans held for sale, but a positive effect on the fair value of MSRs[310](index=310&type=chunk) - The company uses a variety of derivative instruments to manage risk, including MBS forward sale contracts, MBS put options, Treasury futures, and options/swaptions to hedge its MSR portfolio and loan pipeline[313](index=313&type=chunk)[314](index=314&type=chunk) MSR Fair Value Sensitivity Analysis as of June 30, 2025 (in thousands) | Change in fair value attributable to shift in: | +5% | +10% | +20% | | :--- | :--- | :--- | :--- | | Prepayment speed (adverse change) | $(155,827) | $(306,286) | $(592,174) | | Pricing spread (adverse change) | $(121,678) | $(240,330) | $(468,962) | | Annual per-loan cost of servicing (adverse change) | $(51,524) | $(103,048) | $(206,097) | [Controls and Procedures](index=123&type=section&id=Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[318](index=318&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[319](index=319&type=chunk) [PART II. OTHER INFORMATION](index=125&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other disclosures, including executive trading plans and filed exhibits [Legal Proceedings](index=125&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal and regulatory proceedings in the ordinary course of business, which management believes will not have a material adverse effect on its financial condition - The company is party to legal and regulatory proceedings arising in the ordinary course of business, but management does not expect them to have a material adverse effect on its financials[321](index=321&type=chunk) [Risk Factors](index=125&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred regarding the risk factors since the filing of the Annual Report on Form 10-K for the year ended December 31, 2024[322](index=322&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=125&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no sales of unregistered equity securities or share repurchases during Q2 2025, with **$212.3 million** remaining available for future repurchases - No unregistered equity securities were sold during the quarter ended June 30, 2025[323](index=323&type=chunk) Stock Repurchase Activity (Q2 2025) | Period | Total Shares Purchased | Average Price Paid | Approximate Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | April 2025 | 0 | $0.00 | $212,338,815 | | May 2025 | 0 | $0.00 | $212,338,815 | | June 2025 | 0 | $0.00 | $212,338,815 | | **Total** | **0** | **$0.00** | **$212,338,815** | [Other Information](index=125&type=section&id=Item%205.%20Other%20Information) On June 2, 2025, CFO Daniel Perotti adopted a Rule 10b5-1 trading plan to sell up to 35,100 common shares and 39,121 shares underlying stock options, expiring August 14, 2026 - On June 2, 2025, CFO Daniel Perotti adopted a Rule 10b5-1 trading plan to sell up to **35,100 common shares** and shares underlying **39,121 stock options**, with the plan expiring August 14, 2026[328](index=328&type=chunk) [Exhibits](index=128&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to key agreements, CEO/CFO certifications, and interactive data files (XBRL) - Filed exhibits include amendments to key agreements with PennyMac Mortgage Investment Trust, CEO/CFO certifications (Sections 302 and 906 of Sarbanes-Oxley), and XBRL data files[331](index=331&type=chunk)[334](index=334&type=chunk)

Company Performance - PennyMac Financial (PFSI) reported quarterly earnings of $1.02 per share, missing the Zacks Consensus Estimate of $3.01 per share, and down from $2.67 per share a year ago, indicating a significant decline in profitability [1][2] - The company posted revenues of $444.73 million for the quarter, which was 14.75% below the Zacks Consensus Estimate and an increase from $406.13 million year-over-year, but it has not surpassed consensus revenue estimates in the last four quarters [3] Earnings Surprises and Trends - The earnings surprise for the recent quarter was -66.11%, following a previous quarter where the earnings surprise was -52.51% [2] - Over the last four quarters, PennyMac has only surpassed consensus EPS estimates once, indicating a trend of underperformance [2] Market Performance - PennyMac shares have decreased by approximately 0.2% since the beginning of the year, contrasting with the S&P 500's gain of 7.2%, highlighting the company's underperformance relative to the broader market [4] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $3.27 on revenues of $579.18 million, and for the current fiscal year, the estimate is $12.35 on revenues of $2.12 billion [8] - The Zacks Rank for PennyMac is currently 4 (Sell), suggesting that the stock is expected to underperform the market in the near future [7] Industry Context - The Financial - Mortgage & Related Services industry, to which PennyMac belongs, is currently ranked in the bottom 12% of over 250 Zacks industries, indicating a challenging environment for companies in this sector [9]

Financial Data and Key Metrics Changes - For Q2 2025, PennyMac Financial Services Inc. reported net income of $136 million, or diluted earnings per share of $2.54, reflecting an annualized return on equity (ROE) of 14% [3][19] - Excluding fair value changes and a nonrecurring tax benefit, the annualized operating ROE was 13% [3][19] - The company declared a second quarter common share dividend of $0.30 per share [19] Business Line Data and Key Metrics Changes - Total acquisition and origination volumes were $38 billion, up 31% from the prior quarter, with $35 billion for PFSI's own account and $3 billion for fee-based fulfillment activity [20] - The servicing segment recorded pretax income of $54 million, with an increase in loan servicing fees due to growth in PFSI's MSR portfolio [25] - In the broker direct channel, originations were up almost 60% and locks were up more than 30% from the prior quarter [23] Market Data and Key Metrics Changes - The servicing portfolio totaled $700 billion in unpaid principal balance, representing 2.7 million households [5][24] - The company maintained a dominant position in correspondent lending with total acquisitions of $30 billion, up 30% from the prior quarter [20] - The broker direct market share expanded significantly, currently standing at approximately 5%, with a target of over 10% by the end of 2026 [9] Company Strategy and Development Direction - The company emphasizes a balanced business model and a comprehensive mortgage banking platform, which provides a strategic advantage in a higher interest rate environment [4][17] - There is a strong focus on artificial intelligence (AI) to enhance customer experience, unlock new revenue streams, and drive efficiency [12][16] - The company aims to capture growth in the expanding purchase market through robust correspondent lending and increasing market share in broker direct [6][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid to high teens operating ROE in the latter half of the year, citing improvements in margins and production trends [30][33] - The company anticipates continued growth in the servicing portfolio and expects lower hedge costs and greater consistency in hedge performance moving forward [27][36] - Management highlighted the importance of maintaining a strong risk management culture to ensure stability in delinquencies [69] Other Important Information - The company has launched or is developing over 35 AI tools and applications with a projected annual economic benefit of approximately $25 million [15] - The tax provision rate is expected to decrease to 25.2% from 26.7% in recent quarters due to a nonrecurring tax benefit [28] Q&A Session Summary Question: Discussion on operating ROEs and margin trends - Management noted that the operating ROE dipped to 13% due to production side margins and cross-channel activities, but expects improvement in the coming quarters [30][32] Question: Changes in hedging strategy - Management explained adjustments to the hedging approach to recognize potential recapture opportunities, targeting an 80% to 90% hedge ratio [34][36] Question: Servicing portfolio profitability - Management indicated that profitability in the servicing portfolio is expected to move toward a 9 to 10 basis point range, assuming stable rate levels [40] Question: Delinquency rates - Management confirmed that delinquency rates increased slightly but remained stable year-over-year, with a focus on judicious underwriting [67][69] Question: Update on subservicing initiatives - Management reported progress in subservicing efforts and expects good activity before the end of the year [57] Question: Loan origination expense increase - Management clarified that the increase in loan origination expenses was driven by broker direct volume, which includes broker fees [54][55]

Financial Data and Key Metrics Changes - PennyMac Financial Services Inc. reported net income of $136 million for Q2 2025, translating to diluted earnings per share of $2.54, with an annualized return on equity (ROE) of 14% [3][18] - Excluding fair value changes and a non-recurring tax benefit, the annualized operating ROE was 13% [3][18] - The company declared a second quarter common share dividend of $0.30 per share [18] Business Line Data and Key Metrics Changes - The production segment reported pretax income of $58 million, down from $62 million in the prior quarter [18] - Total acquisition and origination volumes reached $38 billion, up 31% from the previous quarter, with $35 billion for PFSI's own account [19] - The servicing portfolio grew to $700 billion in unpaid principal balance, representing 2.7 million households [5][23] Market Data and Key Metrics Changes - PennyMac maintained its dominant position in correspondent lending with total acquisitions of $30 billion, up 30% from the prior quarter [19] - Broker direct originations increased nearly 60%, with locks up more than 30% from the prior quarter [21] - Consumer Direct origination volumes were up 6%, while lock volumes decreased by 2% from the prior quarter [22] Company Strategy and Development Direction - The company emphasizes a balanced business model that provides stability in a high-interest-rate environment, expecting operating returns on equity to remain in the mid to high teens if rates stay between 6.5% and 7.5% [4][17] - PennyMac is focusing on artificial intelligence (AI) to enhance customer experience, unlock new revenue streams, and drive efficiency [13][16] - The company aims to grow its market share in the broker direct channel to over 10% by the end of 2026 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in improving operating ROE in the upcoming quarters, citing recent trends in margins and production [32][34] - The company anticipates lower hedge costs and greater consistency in hedge performance moving forward [36][37] - Management highlighted the importance of maintaining strong relationships with business partners and leveraging technology to drive growth [6][7] Other Important Information - The fair value of PFSI's mortgage servicing rights (MSR) increased by $16 million, with $26 million attributed to changes in market interest rates [26] - The company ended the quarter with $4 billion in total liquidity, including cash and amounts available to draw on facilities [27] Q&A Session Summary Question: Discussion on operating ROEs and margin trends - Management noted that the operating ROE dipped to 13% due to production side margins and cross-channel activities, but they expect improvement in the latter part of the year [30][32] Question: Changes in hedging strategy - Management explained adjustments to hedging practices to better recognize recapture opportunities and expect lower costs moving forward while maintaining an 80% to 90% hedge ratio [35][36] Question: Servicing portfolio profitability - Management indicated that they expect profitability in the servicing portfolio to move toward a 9 to 10 basis point range under current rate levels [42] Question: Delinquency rates commentary - Management confirmed that delinquency rates increased slightly but remained stable year-over-year, attributing this stability to judicious underwriting practices [70][72] Question: Loan origination expense increase - Management clarified that the increase in loan origination expenses was driven by the growing broker direct volume, which includes broker fees [56][58] Question: Update on subservicing initiatives - Management reported progress in subservicing initiatives and expects to see good activity before the end of the year [60]

2Q25 EARNINGS REPORT PennyMac Financial Services, Inc. July 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 lik ...

[Q2 2025 Performance Summary](index=1&type=section&id=Q2%202025%20Performance%20Summary) [Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) PennyMac Financial Services reported a net income of $136.5 million, or $2.54 per diluted share, driven by a non-recurring tax benefit, alongside significant growth in loan production to $37.9 billion and a servicing portfolio expansion to nearly $700 billion Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Income | $136.5 million | $76.3 million | $98.3 million | | Diluted EPS | $2.54 | $1.42 | $1.85 | | Revenue | $444.7 million | $430.9 million | $406.1 million | | Pretax Income | $76.4 million | $104.2 million | $133.9 million | | Book Value Per Share | $78.04 | $75.57 | N/A | | Quarterly Dividend | $0.30 | $0.30 | $0.20 | - Total loan acquisitions and originations grew to **$37.9 billion** in unpaid principal balance (UPB), a **31% increase** from the prior quarter and a **39% increase** from Q2 2024[4](index=4&type=chunk) - The servicing portfolio grew to **$699.7 billion** in UPB, up **3%** from the prior quarter and **11%** from the prior year, now serving **2.7 million** customers[5](index=5&type=chunk)[6](index=6&type=chunk) - The company recorded a significant non-recurring tax benefit of **$81.6 million** due to state apportionment changes, which contributed **$1.52** to diluted EPS[6](index=6&type=chunk) - Financing activities included issuing **$850 million** of 7-year senior notes and redeeming **$650 million** of notes due in 2025 and **$500 million** of notes due in 2027[6](index=6&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) Management attributed solid financial performance to a multi-channel production approach and organic servicing portfolio growth, emphasizing broad AI implementation for efficiency gains and long-term stockholder value - The company's multi-channel production approach is credited with maintaining a leading market position, resulting in nearly **$40 billion** in UPB of mortgage loan acquisitions and originations in Q2[5](index=5&type=chunk) - A key strategic initiative is the broad implementation of artificial intelligence (AI) across both production and servicing operations, which is expected to unlock significant efficiency gains[5](index=5&type=chunk) - Management expressed excitement about future opportunities, citing strong core operations and the anticipated benefits from AI implementation[5](index=5&type=chunk) [Segment Performance](index=3&type=section&id=Segment%20Performance) [Segment Pretax Income Summary](index=3&type=section&id=Segment%20Pretax%20Income%20Summary) Production and Servicing segments were primary profit contributors with pretax incomes of $57.8 million and $54.2 million respectively, while Corporate and Other recorded a $35.5 million loss, leading to a consolidated pretax income of $76.4 million Q2 2025 Pretax Income by Segment (in thousands) | Segment | Revenue | Expenses | Pretax Income (Loss) | | :--- | :--- | :--- | :--- | | Production | $279,581 | $221,793 | $57,788 | | Servicing | $153,399 | $99,247 | $54,152 | | Corporate and Other | $11,750 | $47,248 | $(35,498) | | **Total** | **$444,730** | **$368,288** | **$76,442** | [Production Segment](index=3&type=section&id=Production%20Segment) The Production segment's pretax income was $57.8 million, driven by a 13% revenue increase to $279.6 million from higher loan production volumes of $37.9 billion UPB, despite a 19% rise in expenses Production Segment Performance | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Pretax Income | $57.8 million | $61.9 million | $55.2 million | | Revenue | $279.6 million | N/A | N/A | | Total Loan Production (UPB) | $37.9 billion | N/A | N/A | | Total Locks (UPB) | $43.1 billion | N/A | N/A | - Revenue growth was primarily due to higher overall volumes. Net gains on loans held for sale increased to **$204.0 million** from **$187.1 million** in the prior quarter[10](index=10&type=chunk)[11](index=11&type=chunk) - Segment expenses increased by **19%** from the prior quarter to **$221.8 million**, mainly driven by higher loan origination expenses tied to increased broker compensation[15](index=15&type=chunk) - Fulfillment fees from PMT rose to **$5.8 million**, up **10%** from the prior quarter, due to higher conventional acquisition volumes. A renewed agreement effective July 1, 2025, modifies the loan acquisition process with PMT[12](index=12&type=chunk)[13](index=13&type=chunk) [Servicing Segment](index=5&type=section&id=Servicing%20Segment) The Servicing segment's pretax income declined to $54.2 million, despite portfolio growth to $699.7 billion UPB, primarily due to $93.2 million in net valuation-related losses, including $109.1 million in hedging losses Servicing Portfolio UPB (in billions) | Portfolio Type | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Owned MSR | $469.9 | $449.1 | $402.6 | | Subserviced | $229.7 | $231.1 | $230.2 | | **Total Serviced** | **$699.7** | **$680.2** | **$632.7** | - Servicing segment pretax income was **$54.2 million**, down from **$76.0 million** in Q1 2025 and **$90.7 million** in Q2 2024[17](index=17&type=chunk) - Net valuation-related losses totaled **$93.2 million**, consisting of **$15.9 million** in MSR fair value gains more than offset by **$109.1 million** in hedging losses. Hedging was negatively impacted by extreme rate volatility in April[6](index=6&type=chunk)[18](index=18&type=chunk) - Excluding valuation changes, pretax income was **$143.7 million**, down **16%** from the prior quarter, as higher servicing fees were offset by increased realization of MSR cash flows and interest expense[4](index=4&type=chunk) [Corporate and Other](index=7&type=section&id=Corporate%20and%20Other) The Corporate and Other segment reported a pretax loss of $35.5 million, with revenues of $11.8 million primarily from base management fees and total expenses of $47.2 million Corporate and Other Performance (in millions) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Pretax Loss | $(35.5) | $(33.7) | $(12.0) | | Total Revenues | $11.8 | N/A | $23.1 | | - Base Management Fees | $6.9 | $7.0 | $7.1 | | - Performance Incentive Fees | $0.0 | $0.0 | $0.0 | | Total Expenses | $47.2 | $46.1 | $35.1 | [Consolidated Financial Details](index=8&type=section&id=Consolidated%20Financial%20Details) [Consolidated Expenses](index=8&type=section&id=Consolidated%20Expenses) Total consolidated expenses increased to $368.3 million, primarily driven by higher loan origination expenses due to increased production volumes - Total expenses were **$368.3 million**, up from **$326.7 million** in Q1 2025[25](index=25&type=chunk) - The increase was primarily driven by higher loan origination expenses, which grew to **$68.8 million** from **$44.1 million** in the prior quarter due to higher volumes[25](index=25&type=chunk)[37](index=37&type=chunk) [Income Taxes](index=8&type=section&id=Income%20Taxes) The company recorded a $60.0 million tax benefit, primarily from an $81.6 million non-recurring benefit due to state apportionment changes, reducing the future tax provision rate to 25.2% - A tax benefit of **$60.0 million** was recorded for Q2 2025, compared to a provision of **$27.9 million** in Q1 2025[26](index=26&type=chunk)[37](index=37&type=chunk) - The benefit was driven by a non-recurring item of **$81.6 million** related to repricing deferred tax liabilities from state apportionment changes[26](index=26&type=chunk) - The company's expected future tax provision rate is now **25.2%**, down from **26.7%** in recent quarters[26](index=26&type=chunk) [Consolidated Balance Sheet Summary](index=12&type=section&id=Consolidated%20Balance%20Sheet%20Summary) Total assets increased to $24.2 billion, driven by higher MSRs at $9.5 billion, with total liabilities reaching $20.2 billion and stockholders' equity growing to $4.0 billion Key Balance Sheet Items (in billions) | Account | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $24.22 | $23.87 | $21.58 | | Mortgage Servicing Rights (MSRs) | $9.53 | $8.96 | $7.92 | | Total Liabilities | $20.19 | $19.97 | $17.92 | | Total Stockholders' Equity | $4.03 | $3.90 | $3.66 | [Consolidated Income Statement Summary](index=13&type=section&id=Consolidated%20Income%20Statement%20Summary) Total net revenues reached $444.7 million, leading to $76.4 million in income before taxes, and a $60.0 million tax benefit resulted in a net income of $136.5 million Consolidated Income Statement Highlights (in millions) | Account | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total Net Revenues | $444.7 | $430.9 | $406.1 | | Total Expenses | $368.3 | $326.7 | $272.3 | | Income Before Taxes | $76.4 | $104.2 | $133.9 | | (Benefit from) Provision for Taxes | $(60.0) | $27.9 | $35.6 | | **Net Income** | **$136.5** | **$76.3** | **$98.3** | [Appendix](index=9&type=section&id=Appendix) [About the Company](index=9&type=section&id=About%20the%20Company) PennyMac Financial Services is a leading U.S. mortgage loan production and servicing firm, with $134 billion in originations over the past twelve months and a $700 billion servicing portfolio as of June 30, 2025 - The company is a leader in the U.S. residential mortgage industry, focusing on production and servicing of U.S. mortgage loans[29](index=29&type=chunk) - As of June 30, 2025, PennyMac Financial serviced loans totaling **$700 billion** in UPB and originated **$134 billion** in UPB in the preceding twelve months[29](index=29&type=chunk) [Conference Call Information](index=9&type=section&id=Conference%20Call%20Information) A conference call and live audio webcast to discuss Q2 2025 financial results will be held on July 22, 2025, at 5:00 p.m. ET, with materials available on the company's Investor Relations website - A conference call and webcast to review financial results is scheduled for **5:00 p.m. Eastern Time** on Tuesday, July 22, 2025[28](index=28&type=chunk) - Presentation materials and the webcast can be accessed on the Investor Relations section of the company's website, pfsi.pennymac.com[28](index=28&type=chunk) [Forward-Looking Statements](index=10&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements subject to risks and uncertainties, including interest rate changes and regulatory shifts, with no obligation for the company to update them - The report includes forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[31](index=31&type=chunk) - Key risk factors include interest rate changes, macroeconomic conditions, regulatory changes, and dependence on U.S. government-sponsored entities[31](index=31&type=chunk)

Financial Performance - For the quarter ended March 31, 2025, total net revenues increased to $430.9 million, up 41% from $305.7 million in the same quarter of 2024[208] - Loan production revenues rose to $272.9 million, a 34% increase from $202.8 million year-over-year[208] - Net loan servicing fees increased by 63% to $164.3 million compared to $101.0 million in the prior year[208] - Net income for the quarter was $76.3 million, representing a 94% increase from $39.3 million in Q1 2024[208] - Adjusted EBITDA for the quarter was $288.0 million, up 27% from $227.7 million in the same quarter of the previous year[212] Loan and Servicing Metrics - The unpaid principal balance of loans produced or fulfilled for PMT reached $28.9 billion, an increase from $21.4 billion in Q1 2024[208] - Interest rate lock commitments issued during the quarter totaled $31.5 billion, compared to $22.6 billion in the same quarter of 2024[208] - The mortgage servicing rights and liabilities owned amounted to $442.2 billion, up from $381.5 billion year-over-year[208] - Net gains on loans held for sale totaled $221.0 million for the quarter ended March 31, 2025, compared to $162.4 million for the same quarter in 2024, representing a year-over-year increase of 36%[216] - Loans held for sale at fair value at the end of the quarter were $7.1 billion, compared to $5.2 billion at the end of the same quarter in 2024, indicating a 36% increase[216] Provisions and Liabilities - Provisions for losses relating to representations and warranties were $3.5 million for the quarter ended March 31, 2025, down from $4.0 million in the same quarter of 2024, showing a decrease of 12.5%[227] - The unpaid principal balance of loans subject to representations and warranties increased to $430.9 billion as of March 31, 2025, compared to $366.1 billion in the same quarter of 2024, a rise of 17.7%[228] - The company recorded a liability for representations and warranties of $30.8 million at the end of the quarter, compared to $30.0 million at the end of the same quarter in 2024, reflecting a slight increase[228] Expenses and Cash Flow - Net interest expense increased by $8.9 million to $(18,211) thousand for the quarter ended March 31, 2025, primarily due to higher interest expenses on borrowings[244] - Compensation expenses rose by $35.6 million to $181,988 thousand for the quarter ended March 31, 2025, driven by increased headcount and incentive compensation[246] - Loan origination expenses increased by $13.5 million for the quarter ended March 31, 2025, reflecting higher origination volumes[248] - Operating cash flow for the quarter ended March 31, 2025, was $1.1 billion, a significant increase of $1.96 billion compared to a cash outflow of $897.9 million in the same quarter of 2024[258] - Net cash provided by investing activities was $30.4 million for the quarter ended March 31, 2025, compared to a net cash outflow of $782.6 million in the same quarter of 2024[259] Debt and Financing - The company has a stock repurchase program allowing for the repurchase of up to $2 billion, with approximately $1.8 billion repurchased as of March 31, 2025[272] - The average balance of repurchase agreements for the quarter ended March 31, 2025, was $6.1 billion, up from $3.5 billion in the same quarter of 2024[264] - The company issued $850 million in unsecured senior notes at a 6.875% interest rate due in 2033[264] - Total outstanding indebtedness as of March 31, 2025, amounts to $5,919,844 thousand, with a maturity date of March 18, 2026[285] - The company has unsecured notes totaling $750,000 thousand maturing on December 15, 2029, and $650,000 thousand maturing on November 15, 2030[284] Risk Management - Interest rate risk is a significant concern, affecting both the fair value of mortgage-related investments and the interest income earned[291] - The company utilizes derivative financial instruments to manage interest rate risk, aiming to minimize hedging expenses while maximizing loss coverage[295] - The company’s risk management strategies are reviewed daily within a disciplined framework to mitigate the effects of interest rate changes[296] Market Outlook - The company expects the mortgage origination market to rise from $1.7 trillion in 2024 to $2.0 trillion in 2025[204] - The company continued its acquisition of conventional loans from PMT and plans to purchase more through Q2 2025[206]

Group 1 - PennyMac Financial (PFSI) reported revenue of $430.9 million for Q1 2025, a 41% year-over-year increase, but fell short of the Zacks Consensus Estimate of $537.99 million by 19.91% [1] - The company's EPS for the quarter was $1.42, down from $2.48 a year ago, representing an EPS surprise of -52.51% against the consensus estimate of $2.99 [1] - Over the past month, PennyMac's shares returned -8.5%, slightly better than the Zacks S&P 500 composite's -8.9% change, with a Zacks Rank 4 (Sell) indicating potential underperformance [3] Group 2 - Net interest income was reported at -$18.21 million, significantly worse than the average estimate of -$3.66 million, but showed a year-over-year change of +94.9% [4] - Loan servicing fees amounted to $488.47 million, exceeding the average estimate of $483.14 million, with a year-over-year increase of +15.2% [4] - Net gains on loans held for sale at fair value were $221.04 million, below the average estimate of $243.05 million, but represented a +36.1% year-over-year change [4] - Management fees from PennyMac Mortgage Investment Trust were $7.01 million, slightly below the average estimate of $7.17 million, reflecting a -2.5% year-over-year change [4] - Loan origination fees reached $46.61 million, surpassing the average estimate of $43.67 million, with a year-over-year increase of +28.2% [4] - Net loan servicing fees were reported at $164.29 million, significantly lower than the average estimate of $242.12 million, but showed a +62.7% year-over-year change [4] - Fulfillment fees from PennyMac Mortgage Investment Trust were $5.29 million, slightly above the average estimate of $5 million, with a year-over-year increase of +31.7% [4]

Core Viewpoint - PennyMac Financial (PFSI) reported quarterly earnings of $1.42 per share, significantly missing the Zacks Consensus Estimate of $2.99 per share, and down from $2.48 per share a year ago [1][2] Financial Performance - The earnings surprise for the quarter was -52.51%, with the company previously expected to post earnings of $3.05 per share but actually reporting $2.88 per share, resulting in a -5.57% surprise [2] - Revenues for the quarter were $430.9 million, missing the Zacks Consensus Estimate by 19.91%, compared to $305.66 million in the same quarter last year [3] - Over the last four quarters, the company has not been able to beat consensus revenue estimates [3] Stock Performance - PennyMac shares have declined approximately 7.8% since the beginning of the year, while the S&P 500 has decreased by 12.3% [4] - The current Zacks Rank for PennyMac is 4 (Sell), indicating expected underperformance in the near future [7] Future Outlook - The consensus EPS estimate for the upcoming quarter is $3.53 on revenues of $599.74 million, and for the current fiscal year, it is $13.57 on revenues of $2.4 billion [8] - The estimate revisions trend for PennyMac is currently unfavorable, which may impact future stock performance [7] Industry Context - The Financial - Mortgage & Related Services industry is currently ranked in the bottom 20% of over 250 Zacks industries, which may negatively affect stock performance [9]

Financial Data and Key Metrics Changes - For Q1 2025, the company reported a net loss to common shareholders of $1 million, translating to a diluted earnings per share of negative one cent [3][16] - The book value per share as of March 31 was $15.43, a modest decline from December 31 [4] - The run rate return potential reflects a quarterly average of 35 cents per share, down from 37 cents in the prior quarter [23] Business Line Data and Key Metrics Changes - The credit-sensitive strategies contributed $1 million to pre-tax income, while losses from organically created CRT investments were $5 million [16] - Interest rate-sensitive strategies reported a pre-tax loss of $5 million, with fair value declines on MSR investments amounting to $56 million [17] - Total correspondent loan acquisition volume was $23 billion in Q1, down 18% from the prior quarter [19] Market Data and Key Metrics Changes - Current third-party estimates for industry origination are projected to average $2 trillion in 2025, indicating growth in overall volumes [4] - PMT retained 21% of total conventional correspondent production in Q1, an increase from 19% in the previous quarter [20] Company Strategy and Development Direction - The company emphasizes its diversified investment portfolio and strong risk management practices to navigate the volatile interest rate environment [5] - PMT's relationship with PFSI provides competitive advantages, including access to a consistent pipeline of loans for investment [6][7] - The company plans to continue closing approximately one securitization of non-owner-occupied loans per month and one jumbo loan securitization per quarter starting in Q2 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating a volatile market, highlighting the importance of their hedging program and the structure of their debt [15][32] - The company expects to see increased correspondent activity starting at the end of April, driven by loans locked into their correspondent pipelines [45] - Management remains optimistic about the long-term performance of MSR investments, which account for approximately half of PMT's deployed equity [13] Other Important Information - PMT declared a common dividend of 40 cents per share for Q1 [4] - The company issued $173 million in unsecured senior notes due in 2030 and retired $45 million of CRT term notes [24] Q&A Session Summary Question: Changes in book value and expected ROE since quarter end - Management noted a decrease in book value by about 2 to 3% due to interest rate volatility and credit spread widening, but expressed satisfaction with their hedging program [30][31] Question: Expectation of acquiring a larger percentage of loans from PFSI - Management indicated that PMT's acquisition strategy focuses on where capital deployment is most advantageous, and they do not expect an increase in the proportion of loans retained in the back half of the year [36] Question: Outlook for dividend given lower run rate earnings - Management expects the dividend to remain stable at 40 cents, emphasizing the importance of dividend stability despite fluctuations in run rate [52][53] Question: Return expectations on new loan securitizations - Management stated that return targets on subordinate bonds have increased due to credit spread widening, with expected returns in the mid-teens [59][60] Question: Interest rate strategies and substitutes for agency MBS - Management clarified that while some securitization portions act as substitutes for agency MBS, most investments are more credit-sensitive rather than direct substitutes [66]