PennyMac Targets $160 Million in Annual Expense Cuts by First Quarter of 2027
Key Facts
PennyMac Financial Services reported third-quarter results on October 29, 2026, and said it expects to reduce annual operating expenses by about $160 million by the first quarter of 2027, compared with the second quarter of 2026. The company posted net income of $29 million, or $0.54 per diluted share, and net revenue of $469 million. Adjusted net income was $56 million, adjusted diluted earnings per share were $1.05, and adjusted revenue was $502 million. The company attributed the expense cuts to expectations for a smaller loan-origination market and efficiencies from technology. In its statement, it said proactive initiatives "are expected to drive a reduction of nearly $160 million in our annual expenses" between the periods.
The comparison with the previous quarter showed a divergence between reported and adjusted measures. Third-quarter net revenue rose 6%, while net income and diluted earnings per share each increased 32% compared with the second quarter of 2026. But adjusted net income and adjusted earnings per share fell 25%, and adjusted revenue declined 11% over the same period. On an annualized basis, adjusted return on equity was 5% in the third quarter, compared with 7% in the second quarter and 17% in the third quarter of 2025. The company said adjusted return on equity in the fourth quarter is expected to remain near current levels, as expense adjustments continue through year-end.
Production segment performance reflected a decline in activity, with loan acquisitions and originations totaling $24.4 billion in unpaid principal balance in the third quarter, down 30% from the previous quarter. The segment posted a pretax loss of $7 million, compared with pretax income of $38 million in the second quarter. The chief executive said the company expects mortgage demand to remain weak because of high interest rates. He added that the company had taken "strong and proactive steps to appropriately size our platform." Investing.com reported that the average initial 30-year fixed mortgage rate rose by more than 90 basis points during the quarter, ending near 7.4%, putting pressure on refinancing demand and loan-origination volume.
By contrast, pretax income in the loan-servicing segment rose to $99 million in the third quarter, from $22 million in the previous quarter. Excluding changes in the fair value of mortgage servicing rights and net hedging results, the segment's pretax income was $132 million, compared with $99 million in the second quarter. Investing.com reported that 37% of automation initiatives were in production, while 28% were under development, and that the company had 22 artificial intelligence agents in production. These figures place the technology initiatives cited by the company among the factors related to its expense-control plan. Alongside continued weakness in the origination market, loan-servicing performance provides another part of the quarterly results picture.
The stock moved lower after the results were announced, falling 8.4% in after-hours trading on October 29 to $59, from $64.41 at the close of regular trading, according to Investing.com. After the quarter ended, the company entered into an agreement to sell $29 billion in unpaid principal balance of low-coupon conventional mortgage servicing rights. It expects to complete the sale in the fourth quarter of 2026, with proceeds of about $490 million to be used primarily to repay debt. It also said it had made progress on acquiring Cenlar's subservicing business and expects to complete the transaction in the first quarter of 2027. The board declared a quarterly cash dividend of $0.30 per share, payable on November 27 to shareholders of record on November 16, 2026.