PennyMac Financial Services, Inc. Q3 FY2025 earnings call

• Balanced business model with consistent servicing strength, 18% operating ROE. Strategic transaction of selling $12 billion MSRs to Annaly, retaining subservicing, recapture, etc. - Dominant in correspondent lending (20% market share in first 9 months of 2025), broker direct market share ~6% with potential to grow to 10% by 2026, consumer direct benefiting from refinance potential with multiyear tech investments. - MSR fair value declines offset by hedging, operating ROE converged with GAAP ROE due to hedge adjustments, expecting hedge costs to remain contained.

Production: Pretax income was $123 million, more than twice the prior quarter's $58 million. Total acquisition and origination volumes were $36 billion in unpaid principal balance, down 4% from prior quarter. Correspondent lending had total acquisitions of $28 billion, down 7% from prior quarter. Broker direct originations up 6% and locks up 11% from prior quarter. Consumer direct origination volumes up 12% and lock volumes up 57% from prior quarter. Servicing: Servicing portfolio ended at $717 billion in unpaid principal balance. Pretax income was $158 million, nearly 3x prior quarter. Loan servicing fees up due to growth in MSR portfolio. Custodial funds managed averaged $8.5 billion in Q3, up from $7.5 billion in Q2.

• Annualized operating returns on equity expected to average high-teens to low 20s through 2026 if mortgage rates between 6%-6.5% and delinquencies stable. - Expect hedge costs to remain contained, expecting results closer to targeted 85%-90% hedge ratio.

• Impact of government shutdown on FHA business, with a few thousand borrowers in forbearance and increased calls, but technology allows adaptation.

Q: On operating ROEs and fourth quarter expectations, would you expect fourth quarter ROEs to be more towards low-20s range?

A: Daniel Perotti said overall if rates stay, operating ROE could be higher but seasonal factors may cause some lag.

Q: Trend in rate locks in fourth quarter?

A: Daniel Perotti said uptick in volumes across channels, especially direct and consumer direct.

Q: Margin trends in different channels?

A: Daniel Perotti said consumer direct mix issue, correspondent and broker margins up due to margin discipline.

Q: Share repurchases and MSR sale impact?

A: Daniel Perotti said share repurchases and MSR sale part of capital allocation, will continue if attractive.

Q: Servicing portfolio responsiveness and recapture performance?

A: David Spector said recapture rates up, Daniel Perotti said responsiveness slightly higher than historical.

Q: Community banks consolidation impact?

A: David Spector said consolidation may benefit, we focus on organic growth.

Q: Broker direct channel changes and industry consolidation?

A: David Spector said rapid ascent in broker direct due to tech and focus, expect continued growth and 10% market share by 2026.