Key Highlights

● Third-quarter profit fell 84% to $29 million, or $0.54 per diluted share.

● The company expects to cut annualized operating expenses by $160 million by early 2027.

● Kevin Ryan will become chief financial officer on January 1, 2027.

● It agreed to sell servicing rights on $29 billion of loans for about $490 million.

PennyMac Financial Services (NYSE:PFSI) reported a steep drop in third-quarter profit after Thursday's close and announced changes at the top of its finance team. A pre-market move for the shares on Friday could not be confirmed, so no direction is described.

The numbers

PennyMac Financial earned $29 million, or $0.54 per diluted share, in the third quarter of 2026, down 84% from $182 million, or $3.37 a share, a year earlier, according to its release. It earned $0.41 a share in the second quarter. Adjusted Net Income was $56 million, or $1.05 a share. Market data listed the result as a miss of $0.22 a share versus estimates.

Total net Revenue was $469 million, down 6% from the prior quarter. The production segment posted a $7 million pretax loss, while servicing earned $99 million before tax. Corporate and other lost $49 million. Annualized Return on Equity was 3%, or 5% on an adjusted basis. Book Value per share rose to $83.85 from $83.49 in the second quarter.

Lending Volume fell sharply. Fallout-adjusted locks totaled $23.1 billion in unpaid principal balance, down 27% from the prior quarter and 37% from a year earlier. The servicing portfolio reached $737 billion, including $496 billion of owned servicing.

Cost cuts, an MSR sale and Leadership changes

Chairman and CEO David Spector said, "We expect Mortgage Demand will remain subdued due to higher interest rates." He added that "by the first quarter of 2027 we expect to have reduced our annualized operating expenses by $160 million."

After quarter-end, the company agreed to sell mortgage servicing rights on $29 billion of low-coupon conventional loans for about $490 million, mainly to pay down debt, with closing expected in the fourth quarter. Its Acquisition of subservicer Cenlar is expected to close in the first quarter of 2027. PennyMac guided for fourth-quarter adjusted ROE near current levels.

On leadership, Chief Strategy Officer Kevin Ryan will become chief financial officer on January 1, 2027. Current CFO Daniel Perotti stays through the end of 2026 and will then advise through the first quarter. President and Chief Mortgage Banking Officer Doug Jones will retire on June 30, 2027. Spector said both "have made invaluable contributions to the company, and will be greatly missed." The quarterly Dividend is $0.30 a share, payable November 27.

PennyMac trades on the New York Stock Exchange and is part of the NYSE Composite. Its results are tied closely to mortgage rates. The 10-year Treasury yield, a benchmark for mortgage pricing, was around 4.94% to 4.99% on Friday morning, according to market data, after topping 5.30% earlier in October, its highest since 2002, according to market reports. The Federal Reserve held rates this week after a September hike, and markets see high odds of another hike in December.

Higher rates suppress refinancing and purchase lending, which hurts production, but they also slow prepayments, which supports the value of servicing rights. That tension showed in the quarter, with servicing carrying the results while production slipped into a loss. The quarter-over-quarter drop in locks was larger than the decline in revenue, suggesting margins held up better than volumes, with the production revenue Margin at 76 basis points of lock volume.

Risks and what to watch

Risks include further declines in lending volume, a renewed rise in yields, delinquency trends (60-plus day delinquencies in the owned portfolio were 4.2%) and execution on the cost program and the Cenlar deal. Investors will watch Friday's Employment Cost index and next Friday's jobs report for clues on the rate path, along with the MSR sale closing.