Financial Data and Key Metrics Changes - PennyMac Financial Services reported a net income of $107 million, or $1.97 per share, for Q4 2025, with an annualized return on equity (ROE) of 10% [3][14] - For the full year 2025, pretax income increased by 38%, and net income rose by 61% compared to 2024, with a 12% return on equity and an 11% growth in book value per share [5][6] - The company generated a 10% annualized return on equity in Q4, down from 18% in Q3 due to competitive dynamics affecting production margins [4][14] Business Line Data and Key Metrics Changes - In the production segment, total volumes increased by 25%, leading to a 19% increase in pretax income, while servicing segment pretax income grew by 58% year-over-year [5][6] - Total acquisition and origination volumes in Q4 were $42 billion, up 16% from the prior quarter, with total lock volumes at $47 billion, an 8% increase [14][15] - The servicing portfolio grew to $734 billion in unpaid principal balance, with a pretax income of $37 million in the servicing segment [18][19] Market Data and Key Metrics Changes - The company serviced a combined $312 billion in loans with note rates above 5%, indicating significant refinancing opportunities as mortgage rates decline [8] - The correspondent channel margins decreased to 25 basis points from 30 basis points due to increased competition [15] Company Strategy and Development Direction - PennyMac is focusing on enhancing its consumer direct channel and investing in AI technologies to improve recapture rates and operational efficiencies [8][12] - The transition to the Vesta loan origination system is expected to be completed in Q1 2026, which will enhance operational efficiency and scalability [9][10] - The company aims to achieve mid to high teens ROEs later in the year, driven by improved production income and operational efficiencies [12][30] Management's Comments on Operating Environment and Future Outlook - Management noted that the competitive environment for refinances was stronger than historically seen during interest rate declines, impacting expected margin increases [4][27] - The company anticipates continued growth in origination volumes and recapture rates, with a focus on maintaining pricing discipline amid competitive pressures [33][34] - Management expressed confidence in the company's ability to adapt and capitalize on market opportunities, particularly with the deployment of new technologies [29][60] Other Important Information - The company declared a fourth-quarter common share dividend of $0.30 per share [14] - The hedge ratio increased to near 100%, providing greater protection against interest rate fluctuations [21][62] - The company ended the quarter with $4.6 billion in total liquidity, ensuring significant resources for opportunistic deployment [22] Q&A Session Summary Question: Discussion on increasing capacity in consumer direct - Management acknowledged that while they had anticipated increased capacity, the competitive environment was unexpectedly strong, leading to higher amortization rates [26][27] Question: Clarification on ROE guidance - Management expects origination market growth between $2.3 trillion and $2.4 trillion, with potential for margin expansion if conditions improve [32][34] Question: Insights on prepayment speeds - Management noted that prepayment speeds were higher than expected, driven by competitive dynamics across various loan types [39][44] Question: Impact of FHA delinquencies - Management explained that the increase in FHA delinquencies was seasonal and related to policy changes, expecting a return to previous levels [80][82] Question: Discussion on unsecured debt and balance sheet management - Management indicated that they are open to issuing additional unsecured debt as they continue to build equity and MSR assets [90][92]

Financial Data and Key Metrics Changes - For Q4 2025, the company reported net income of $107 million, or $1.97 per share, with an annualized return on equity (ROE) of 10% [2][12] - Full year 2025 results showed a 38% increase in pretax income and a 61% increase in net income compared to 2024, with a 12% ROE and an 11% growth in book value per share [4][12] - The production segment income growth was impacted by competitive dynamics, leading to a 10% annualized ROE in Q4, down from expectations of high teens to low 20s [3][4] Business Segment Data and Key Metrics Changes - In the production segment, total volumes increased by 25%, resulting in a 19% increase in pretax income [4] - The servicing segment grew the total unpaid principal balance (UPB) of its portfolio by 10%, contributing to a 58% increase in pretax income from the prior year [4][17] - Consumer Direct volumes saw a significant increase, with originations up 68% and locks up 25% from the prior quarter, although margins were pressured by competition [15][16] Market Data and Key Metrics Changes - The company serviced a combined $312 billion in UPB of loans with note rates above 5%, indicating a significant opportunity for refinancing as rates decline [7] - The correspondent channel maintained a dominant position with total acquisitions over $30 billion in Q4, up 10% from the prior quarter, although margins decreased due to increased competition [14] Company Strategy and Development Direction - The company is focusing on technological investments, particularly in AI and the Vesta loan origination system, to enhance efficiency and capture recapture opportunities [8][10] - The strategy includes accelerating capacity to handle increased origination volumes and improving recapture rates through targeted investments [27][28] - The company aims to achieve mid to high teens ROEs by mid-year 2026, supported by operational efficiencies and market share growth [11][28] Management's Comments on Operating Environment and Future Outlook - Management noted that the competitive environment for refinances was stronger than historically seen, impacting expected margin expansion [26][39] - The company anticipates continued growth in the origination market, with expectations for production in Consumer Direct to increase [30][68] - Management expressed confidence in the ability to adapt to market conditions and improve recapture rates, despite current competitive pressures [27][56] Other Important Information - The company declared a fourth quarter common share dividend of $0.30 per share [12] - The hedge ratio was increased to near 100%, providing greater protection against interest rate declines [19][58] - The company ended the quarter with $4.6 billion in total liquidity, ensuring significant resources for opportunistic deployment [21] Q&A Session Summary Question: Discussion on increasing capacity in Consumer Direct - Management acknowledged that while they had anticipated increased capacity, the competitive environment was unexpectedly strong, leading to lower margins [25][26] Question: Insights on prepayment speeds and cash flow realization - Management noted that prepayment speeds were higher than expected, impacting margins, and they expect cash flow realization to remain consistent with Q4 levels [34][70] Question: Impact of potential G-fee reductions on the company - Management does not foresee significant G-fee reductions but is prepared to leverage capacity if such changes occur [59][60] Question: FHA delinquencies increase context - Management explained that the increase in FHA delinquencies was seasonal and related to policy changes, expecting a return to previous levels [75][77] Question: Buyback authorization status - The company has over $200 million available for buybacks, which is a tool for capital allocation [95]

Financial Data and Key Metrics Changes - PennyMac Financial Services Inc. reported a net income of $107 million, or $1.97 per share, for Q4 2025, resulting in a 10% annualized return on equity (ROE) [2][12] - For the full year 2025, pretax income increased by 38%, and net income rose by 61% compared to 2024, with a 12% return on equity and an 11% growth in book value per share [4][12] - The company generated a 10% annualized return on equity in Q4, down from an 18% annualized return in Q3 due to competitive dynamics affecting production margins [2][3] Business Segment Data and Key Metrics Changes - In the production segment, total volumes increased by 25%, leading to a 19% increase in pretax income [4] - The servicing segment saw a 10% growth in the total unpaid principal balance (UPB) of its portfolio, contributing to a 58% increase in pretax income from the previous year [4] - Total acquisition and origination volumes in Q4 were $42 billion in UPB, up 16% from the prior quarter, with total lock volumes at $47 billion, an 8% increase [12][13] Market Data and Key Metrics Changes - The company serviced a combined $312 billion in UPB of loans with note rates above 5%, indicating significant refinancing opportunities as mortgage rates decline [6] - The correspondent channel margins decreased to 25 basis points from 30 basis points in the previous quarter due to increased competition [13] - The number of brokers approved to do business with PennyMac grew to nearly 5,300, reflecting a 17% increase from year-end 2024 [15] Company Strategy and Development Direction - The company is focusing on enhancing its consumer direct channel and leveraging technology investments, particularly in AI, to improve recapture rates and operational efficiency [6][10] - The transition to the Vesta loan origination system is expected to be completed in Q1 2026, which will enhance operational efficiency and scalability [8][10] - PennyMac aims to achieve mid to high teens ROEs later in the year by improving production income and maintaining a disciplined approach to market share [11][28] Management's Comments on Operating Environment and Future Outlook - Management noted that competitive dynamics in the origination market limited expected production margin increases, despite a favorable interest rate environment [3][25] - The company anticipates that the realization of cash flows will remain consistent with Q4 levels, with expectations for continued efficiency gains in servicing [29][65] - Management expressed confidence in the company's ability to adapt to market conditions and capitalize on refinancing opportunities as rates decline [26][52] Other Important Information - The company declared a fourth-quarter common share dividend of $0.30 per share [12] - Total debt to equity at year-end was 3.6 times, with non-funding debt to equity at 1.5 times, both within targeted levels [20] - The company ended the quarter with $4.6 billion in total liquidity, providing significant resources for opportunistic deployment [20] Q&A Session Summary Question: Discussion on increasing capacity in Consumer Direct - Management acknowledged that while they had anticipated increased capacity, the competitive environment was stronger than expected, impacting margins [24][25] Question: Insights on prepayment speeds and market response - Management noted that prepayment speeds were higher than forecasted, driven by competitive dynamics across various loan types [32][35] Question: Structural changes in the industry regarding runoff and originations - Management did not declare a structural change but noted that increased capacity across the industry has affected margins [40][41] Question: Impact of G-fees and loan-level pricing on mortgage rates - Management indicated that while G-fees may not decrease significantly, they are prepared to manage various outcomes and maintain capacity [55][56] Question: First-quarter activity and near-term ROEs - Management reported a good production month in January, with expectations for recapture rates to improve as the year progresses [60][63] Question: FHA delinquencies and their impact - Management explained that the increase in FHA delinquencies was primarily due to policy changes and expected to be a temporary lag [70][72] Question: Buyback authorization status - Management confirmed that there is over $200 million available for buybacks, which they consider as part of their capital allocation strategy [92]

4Q25 EARNINGS REPORT 2 PennyMac Financial Services, Inc. January 2026 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. Word ...

Financial Performance - Net income for Q4 2025 was $106.8 million, or $1.97 per share, on total net revenues of $538.0 million[2]. - Full-year 2025 net income was $501.1 million, a 61% increase from $311.4 million in 2024, with a return on equity of 12%[5]. - Total net revenue for 2025 was $2.0 billion, up 25% from $1.6 billion in 2024[5]. - Net income for the quarter ended December 31, 2025, was $106,831 thousand, a decrease of 41.1% compared to $181,503 thousand in the previous quarter[35]. - Basic earnings per share for the quarter was $2.05, down from $3.51 in the previous quarter, indicating a decline of 41.7%[35]. Loan Activity - Total loan acquisitions and originations reached $42.2 billion in unpaid principal balance (UPB), up 16% from the prior quarter and 18% year-over-year[3]. - PFSI's production of newly originated loans in 2025 totaled $145 billion in UPB, maintaining its position as a top lender in the nation[29]. - Total locks, including those for PMT, were $46.8 billion in UPB, up 8% from the prior quarter and 29% from Q4 2024[3]. - Loan origination fees for the quarter increased to $68,437 thousand, up from $61,696 thousand in the previous quarter, marking an increase of 12.4%[35]. Servicing Portfolio - Servicing portfolio grew to $733.6 billion in UPB, up 2% from Q3 2025 and 10% from Q4 2024[5]. - As of December 31, 2025, PFSI's total loans serviced amounted to $733.6 billion, an increase from $665.8 billion in the fourth quarter of 2024[17]. - Revenue from net loan servicing fees totaled $149.8 million, down from $241.2 million in the prior quarter and $189.3 million in Q4 2024[18]. Income Segments - Production segment pretax income was $127.3 million, up 4% from the prior quarter and 63% from Q4 2024[3]. - The servicing segment pretax income was $37.3 million, down from $157.4 million in the prior quarter[3]. - The servicing segment pretax income was $37.3 million, a significant decrease from $157.4 million in the prior quarter and $87.3 million in Q4 2024[17]. Expenses and Liabilities - Total expenses for the company were $403.6 million, up from $396.5 million in the prior quarter due to higher expenses in both production and servicing segments[26]. - Total expenses for the quarter were $403,600 thousand, an increase from $396,524 thousand in the previous quarter, reflecting a 1.7% rise[35]. - Total liabilities rose to $25,079,713 thousand as of December 31, 2025, compared to $21,193,234 thousand in the previous quarter, reflecting a 18.4% increase[33]. Assets and Equity - Total assets increased to $29,388,689 thousand as of December 31, 2025, up from $25,401,120 thousand in the previous quarter, representing a 11.6% increase[33]. - Average PMT shareholders' equity was $1.8 billion for Q4 2025, unchanged from Q3 2025 and slightly down from Q4 2024[24]. - Retained earnings increased to $4,212,101 thousand as of December 31, 2025, compared to $4,121,201 thousand in the previous quarter[33]. Interest and Tax - Net interest expense increased to $19.2 million compared to $15.1 million in the prior quarter and $19.5 million in Q4 2024[20]. - The effective tax rate for the company was 20.5 percent, with a future expected tax provision rate of 25.1 percent[27]. Other Financial Activities - Issued $2.35 billion of unsecured senior notes with maturities ranging from 2032 to 2034[5]. - The company completed the sale of an MSR portfolio totaling $24.4 billion in UPB[5]. - The company recorded net valuation-related gains of $1.0 million, consisting of MSR fair value gains of $40.4 million and hedging losses of $39.4 million[18].

Core Insights - PennyMac Financial Services, Inc. (PFSI) reported a net income of $106.8 million for Q4 2025, translating to $1.97 per diluted share, with total net revenues of $538.0 million. The book value per share increased to $82.77 from $81.12 as of September 30, 2025 [1][4]. Q4 2025 Highlights - Pretax income was $134.4 million, down from $236.4 million in the prior quarter but up from $129.4 million in Q4 2024 [4]. - Total loan acquisitions and originations reached $42.2 billion in unpaid principal balance (UPB), marking a 16% increase from the prior quarter and an 18% increase from Q4 2024 [4]. - The servicing portfolio grew to $733.6 billion in UPB, up 2% from September 30, 2025, and up 10% from December 31, 2024 [15][4]. Full-Year 2025 Highlights - Net income for the full year was $501.1 million, up from $311.4 million in 2024, representing a return on equity of 12% [4]. - Total net revenue for 2025 was $2.0 billion, an increase from $1.6 billion in 2024 [4]. - Total loan production for the year was $145.5 billion in UPB, a 25% increase from 2024 [4]. Production Segment - The production segment's pretax income was $127.3 million, up from $122.9 million in the prior quarter and $78.0 million in Q4 2024 [4][9]. - Production segment net revenues totaled $371.0 million, reflecting a 3% increase from the prior quarter and a 42% increase from Q4 2024 [9]. - Total locks, including those for PennyMac Mortgage Investment Trust (PMT), were $46.8 billion in UPB, up 8% from the prior quarter and 29% from Q4 2024 [4]. Servicing Segment - Servicing segment pretax income was $37.3 million, down from $157.4 million in the prior quarter and $87.3 million in Q4 2024 [15]. - Net loan servicing fees totaled $149.8 million, down from $241.2 million in the prior quarter and $189.3 million in Q4 2024 [17]. - The servicing segment's expenses totaled $116.6 million, up from $102.1 million in the prior quarter, primarily due to increased provisions for losses on active loans [20]. Corporate and Other - The pretax loss for Corporate and Other was $30.2 million, down from $43.9 million in the prior quarter and $35.9 million in Q4 2024 [21]. - Corporate and Other net revenues totaled $13.1 million, consisting of $6.9 million in management fees and $6.0 million in other revenue [22]. - Total expenses for Corporate and Other were $43.4 million, down from $55.5 million in the prior quarter [23].

Group 1 - President Trump announced plans to instruct representatives to buy $200 billion in mortgage bonds, aiming to lower rates for homebuyers and reduce monthly payments [1][2] - Following the announcement, shares of mortgage lenders, particularly PennyMac Financial Services, surged, with PennyMac's stock climbing 6.4% intraday [3] - PennyMac has a market capitalization of $7.60 billion and specializes in loan origination, servicing, and investment management [3][4] Group 2 - Lower rates are expected to boost mortgage originations and servicing, with PennyMac's stock outperforming broader indices, gaining 52% over the past 52 weeks and 46.27% over the past six months [5] - PennyMac's stock reached a 52-week high of $146.68 on January 9, following the announcement, and has risen 9% over the past five days [5] - The company's price-to-non-GAAP-earnings ratio is 9.61x, which is lower than the industry average of 11.57x, indicating a relatively cheaper valuation [6] Group 3 - PennyMac reported strong third-quarter results for fiscal 2025, with total net revenues increasing by 53.7% year-over-year to $632.90 million, driven by a 218.1% increase in net loan servicing fees [7]

Industry Overview - The Zacks Mortgage & Related Services industry is experiencing growth due to declining mortgage rates, influenced by the Federal Reserve's interest rate cuts in 2025 and expectations for further easing this year [1][4] - The industry consists of providers of mortgage-related loans, refinancing, and loan-servicing facilities, with non-banks gaining market share as banks retreat from the mortgage business due to higher compliance and capital requirements [3] Current Trends - The 30-year fixed mortgage rate has stabilized around a low-6% range since mid-September 2025, providing relief for homebuyers and improving purchase demand [4][5] - Refinancing activity is recovering as homeowners seek to refinance into lower-rate loans, which is expected to drive higher loan origination volumes and improve fee income for industry players [6] - The competitive landscape is intensifying, with mortgage servicers facing pressure to cut prices, leading to reduced sales margins [2][7] Performance Metrics - The Zacks Mortgage & Related Services industry has outperformed the broader Zacks Finance sector and the S&P 500, gaining 54.7% over the past year compared to 23.2% and 23.4% for the sector and S&P 500, respectively [11] - The industry currently trades at a price-to-book (P/B) ratio of 6.27X, lower than the S&P 500's 8.67X, indicating a premium compared to the broader finance sector's P/B of 4.36X [14][17] Company Highlights - **PennyMac Financial Services, Inc. (PFSI)**: A specialty financial services firm benefiting from a strong servicing business and a strategic transaction with Annaly Capital Management. The Zacks Consensus Estimate for PFSI's 2025 earnings is $11.71 per share, a 1.7% increase from the previous year [20][21] - **Federal Agricultural Mortgage (AGM)**: Known as Farmer Mac, it focuses on creating a secondary market for loans to rural borrowers. AGM's 2025 earnings estimate is $17.53 per share, reflecting a 12.1% rise from the prior year [24][25] - **LendingTree, Inc. (TREE)**: An online marketplace enhancing its product offerings and focusing on improving purchase conversion rates. The Zacks Consensus Estimate for TREE's 2025 earnings is $4.79 per share, indicating a 50.2% increase from the previous year [27][30]

Core Viewpoint - PennyMac Financial (PFSI) shares experienced a significant rally of 6.4%, closing at $146.19, driven by higher trading volume and positive investor sentiment following President Trump's announcement regarding mortgage-backed securities [1][2]. Company Performance - The company is projected to report quarterly earnings of $3.23 per share, reflecting a year-over-year increase of 12.2%, with expected revenues of $599.02 million, up 27.4% from the previous year [3]. - However, the consensus EPS estimate for the quarter has been revised 1.4% lower in the last 30 days, indicating a negative trend in earnings estimate revisions, which typically does not correlate with price appreciation [4]. Industry Context - PennyMac operates within the Zacks Financial - Mortgage & Related Services industry, which is currently seeing increased investor confidence due to anticipated lower mortgage rates that could enhance loan originations and refinancing activities [2]. - Another company in the same industry, Tree.com (TREE), saw a 12.9% increase in its stock price, closing at $62.91, although it has returned -0.4% over the past month [4].

Defense Sector - The defense sector experienced significant volatility following President Trump's announcement of a proposed military budget increase to $1.5 trillion for fiscal 2027, a 50% increase from the $962 billion requested for 2026, leading to a surge in defense stocks [3][4] - Lockheed Martin's shares rose 4.3% on January 8, followed by a 4.2% increase on January 9, closing at $542.78, while Northrop Grumman and RTX also saw gains [3] - Smaller companies like Kratos Defense experienced a remarkable 13.8% increase, and defense-focused ETFs outperformed the broader market [3] Housing Market - President Trump's proposal to ban large institutional investors from purchasing single-family homes caused a decline in major stock indices, with the Dow Jones Industrial Average dropping 0.9% and the S&P 500 slipping 0.3% [5] - Shortly after, Trump announced a directive for federal agencies to purchase $200 billion in mortgage bonds to lower mortgage rates, which led to a rally in housing stocks, with Rocket Companies surging 9.65% and homebuilders like Lennar and D.R. Horton also experiencing significant gains [6][8] - Analysts expressed concerns that while bond purchases might lower mortgage yields, they could also increase housing demand, complicating the affordability issue [7] Energy Sector - The capture of Venezuelan President Nicolás Maduro and Trump's announcement of a $100 billion oil investment plan for Venezuela positively impacted major stock indexes, with energy stocks like Chevron and Exxon Mobil seeing gains [10] - However, by January 7, oil prices fell due to concerns over the long-term implications of Trump's plan to refine and sell Venezuelan crude, indicating a mixed market reaction [11] Tariffs and Legal Uncertainty - The market showed anxiety ahead of a Supreme Court ruling on Trump's tariffs, with Wall Street futures dipping as uncertainty persisted regarding the legality of these policies [13] - Kevin Hassett's expectation that the Supreme Court would side with the Trump administration on tariffs adds another layer of speculation to the ongoing legal battle, highlighting the tension between executive power and trade norms [14] Market Dynamics - The overall market remains highly reactive to Trump's pronouncements, with significant fluctuations observed across various sectors, including defense, housing, and energy, reflecting the interplay between presidential policy and economic fundamentals [15][16] - On January 9, major indices were on track for weekly gains, with the S&P 500 reaching a new all-time high of 6,966, indicating a volatile yet upward trend in the market [16]