Pennymac Reports Q4 Profit Of $107m As Origination Growth Offsets Msr Runoff

PennyMac Financial Services reported its full-year and fourth-quarter 2025 earnings on Thursday, telling investors and analysts that higher mortgage production helped offset pressure on servicing income from increased prepayment activity.

The California-based company posted a solid quarter and a strong 2025, but its growth in loan production is doing the heavy lifting. Servicing profitability is under pressure from faster prepayments, and intense competition could limit how much upside production can deliver.

PennyMac said net income totaled $106.8 million, or $1.97 per diluted share, for the quarter ending Dec. 31, on total net revenues of $538 million. Book value per share rose to $82.77, up from $81.12 at the end of the third quarter.

Dan Perotti, PennyMac’s chief financial officer, said during the company’s earnings call that the net income results included $1 million of fair value gains on mortgage servicing rights (MSRs), the net of hedges and costs.

“We capitalized on higher lock volumes driven by an initial decline in interest rates to generate an 18% annualized return on equity,” chairman and CEO David Spector said during the earnings call.

“While we generally expect production income to act as a natural hedge to this runoff, the benefit in the fourth quarter was impacted by competitive dynamics,” Spector added. “Many industry participants have also added significant capacity in anticipation of lower rates, and this excess capacity has created a more competitive origination market, limiting expected production margin increases and revenues typically associated with an interest rate rally.”

Servicing income falls sharply

PennyMac’s pretax income declined to $134.4 million, down from $236.4 million in the prior quarter but up slightly from $129.4 million in Q4 2024. The production segment reported pretax income of $127.3 million, up from $122.9 million in Q3 2025 and $78 million in Q4 2024.

Total loan acquisitions and originations, including loans fulfilled for PennyMac Mortgage Investment Trust (PMT), increased 16% from the prior quarter to $42.2 billion in unpaid principal balance (UPB).

Higher volumes in PennyMac’s consumer direct and correspondent channels supported production results, although margins declined. Total rate locks rose to $46.8 billion, up 8% from the prior quarter and 29% from a year earlier.

Correspondent acquisitions fulfilled for PMT totaled $3.7 billion in UPB, also higher than in Q3 2025 and in Q4 2024.

The servicing segment posted pretax income of $37.3 million, down sharply from $157.4 million in Q3 2025, reflecting increased runoff of MSRs as lower mortgage rates drove faster prepayments.

Excluding valuation-related items, servicing pretax income fell 70% from the prior quarter.

Net loan servicing fees declined to $149.8 million, compared to $241.2 million in Q3 2025. PennyMac said the increase in prepayments led to higher realization of MSR cash flows, partially offset by fair value gains and hedging losses.

But PennyMac’s servicing portfolio grew to $733.6 billion in unpaid principal balance, up 2% from the prior quarter and 10% from a year earlier.

Full-year performance gains

For the full year, PennyMac reported net income of $501.1 million, up from $311.4 million in 2024, representing a return on equity of 12%. Total loan production increased 25% from the year prior to $145.5 billion, while the servicing portfolio grew to $733.6 billion in UPB by year-end 2025, a 10% year-over-year uptick.

Pretax income increased to $551.4 million, up from $401 million in 2024, while total net revenue climbed to $2 billion, up from $1.6 billion in 2024.

During the year, the company issued $2.35 billion in unsecured senior notes with maturities ranging from 2032 to 2034, along with $300 million in Ginnie Mae MSR term notes due in August 2030. It also redeemed $650 million of unsecured notes and $700 million of Ginnie Mae MSR term notes.

Spector said the company’s balanced production and servicing model supported strong full-year performance despite market volatility.

“PFSI finished the year with a solid fourth quarter, generating a 10% annualized return on equity with strong production results offset by increased runoff on our MSR asset as prepayment speeds increased,” Spector said. “For the full-year 2025 … we achieved double-digit earnings growth across both operating segments, with servicing pretax income up 58% and production pretax income up 19%.”

Spector said that the results were bolstered by “significant operational momentum,” including a 25% increase in production volumes and 10% growth in the company’s servicing portfolio by UPB.