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ONITY GROUP INC. (ONIT)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue and EPS beat: Revenue $280.3M vs $248.2M consensus (+12.9% beat); Primary EPS $2.12 vs $1.91 consensus (+10.8% beat). GAAP diluted EPS was $2.03, impacted by a $4M ($0.48/sh) tax provision tied to DTA utilization planning .
  • Annualized adjusted ROE reached 25% (vs 14% in Q2), and management now expects to exceed full-year adjusted ROE guidance of 16–18% (prior: maintained) .
  • Record originations volume ($12B, +39% YoY; +26% QoQ) and steady servicing drove adjusted pre-tax income of $31M; book value per share rose to $62 (+$2.71 YoY) .
  • Risk de-risked for 2026: Rithm subservicing (10% of UPB; >50% of delinquencies) will not renew effective Jan 31, 2026; company does not expect a material FY26 impact and plans to replace earnings with more profitable relationships .

Note: Asterisks (*) denote values from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Record origination volumes ($12B) with profitability across channels; ConsumerDirect recapture performance improved, helping offset higher MSR runoff . Quote: “Record origination volume and steady servicing profitability drove increased adjusted pre-tax income…” — CEO Glen Messina .
  • Adjusted ROE acceleration to 25% (annualized), above the full-year 16–18% range, and management now expects to exceed FY25 adjusted ROE guidance . Quote: “We expect to exceed our adjusted ROE guidance for the full year” — CEO Glen Messina .
  • Effective MSR hedging and reverse assets gains limited fair-value volatility; reverse servicing rebounded to +$4M pre-tax income .

What Went Wrong

  • GAAP diluted EPS of $2.03 included a $4M ($0.48/sh) tax provision to facilitate DTA utilization; this reduced reported EPS vs Primary EPS .
  • Rithm subservicing non-renewal introduces 2026 transition complexity (consents needed on ~$8.5B UPB); portfolio carries higher delinquencies and litigation, but company expects no material FY26 impact .
  • Higher prepayment speeds increased MSR runoff in Q3, partly offset by origination recapture; management noted speeds rose and could remain elevated depending on mortgage rates .

Financial Results

Income Statement Summary

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($M)$265.7 $249.8 $246.6 $280.3
GAAP Diluted EPS ($)$2.65 $2.50 $2.40 $2.03
Net Income to Common ($M)$21.4 $21.1 $20.5 $17.7
Adjusted Pre-Tax Income ($M)$31 $25 $16 $31
GAAP ROE (After Tax)19% 19% 17% 14%
Adjusted ROE (Annualized)27% 22% 14% 25%

Variance vs Consensus (S&P Global)

MetricQ3 2025 ConsensusQ3 2025 ActualSurprise
Revenue ($M)248.2*280.3 +12.9%
Primary EPS ($)1.91*2.12*+10.8%
  • Note: S&P “Primary EPS” may differ from GAAP diluted EPS; GAAP diluted EPS was $2.03 . Values marked with * are from S&P Global.

QoQ and YoY Change

MetricQoQ (Q3’25 vs Q2’25)YoY (Q3’25 vs Q3’24)
Revenue+13.7% (from $246.6M to $280.3M) +5.5% (from $265.7M to $280.3M)
GAAP Diluted EPS-15.4% (from $2.40 to $2.03) -23.4% (from $2.65 to $2.03)

Revenue Components (mix)

Revenue Component ($M)Q3 2024Q1 2025Q2 2025Q3 2025
Servicing & Subservicing Fees211.1 203.3 211.3 217.5
Gain on Reverse Loans & HMBS, net18.0 23.8 11.9 13.0
Gain on Loans Held for Sale, net25.8 11.8 10.4 34.1
Other Revenue, net10.8 10.9 13.0 15.7
Total Revenue265.7 249.8 246.6 280.3
MSR Valuation Adjustments, net(31.5) (38.9) (27.3) (45.0)

Margins (S&P Global)

MetricQ1 2025Q2 2025Q3 2025
Net Income Margin %8.85%*8.72%*6.67%*
EBIT Margin %52.04%*55.56%*55.12%*
EBITDA Margin %52.64%*56.08%*55.55%*

Values marked with * are from S&P Global.

KPIs

KPIQ1 2025Q2 2025Q3 2025
Originations Volume ($B)$7.0 $9.4 $12.0
Avg Servicing UPB ($B)$305 $307 $312
Avg Owned Servicing UPB ($B)$—$153 $159
Book Value/Share ($)$58 $60 $62
Liquidity ($M)$239 $218 $221

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted ROEFY 202516%–18% Expect to exceed range Raised (qualitatively)
Servicing/Total UPB GrowthFY 202510%+ 5%–10% Lowered
DTA Valuation AllowanceFY 2025Some or all of ~$180M could be released by YE25 Expect to release a significant portion by YE25; Q3 included $4M ($0.48/sh) tax provision to support utilization More confident; planning actions initiated
Subservicing Additions Outlook2H25 & 1H26—2H25 additions ~$32B; 1H26 additions from these clients >2x 1H25 New disclosure
Rithm Subservicing2026Long-term relationship uncertain Non-renewal; transfer expected Q1–Q2’26; not material for FY’26 Clarified; de-risked mix

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Adjusted ROE trajectoryQ1: 22% annualized; guidance 16–18% . Q2: 14%; guidance maintained .25% annualized; expect to exceed FY guide .Improving
Originations & RecaptureQ1: +53% YoY volume; recapture outperformance building . Q2: +35% YoY; April volatility hit margins; CD strong .Record $12B; recapture 1.8x YoY; gain on loans HFS up to $34.1M .Improving
Servicing & HedgingQ1: Effective hedge; reverse as operational hedge . Q2: Hedge target 80–100% post-April .Hedge continues to perform; MSR FV volatility minimized .Stable/Positive
Prepay Speeds/MSR RunoffQ1: Lower runoff aided results . Q2: Higher speeds increased runoff .Speeds up; runoff increased but offset by originations .Mixed headwind
DTA Valuation AllowanceQ1: ~$180M VA; potential release by YE25 . Q2: Reiterated .Expect significant release by YE25; tax provision in Q3 .Increasing clarity
Rithm SubservicingQ1: Long-term relationship uncertainty . Q2: Future of relationship flagged .Non-renewal; <5% of adj revenue; uneconomic; expected to replace .Transition/de-risk

Management Commentary

  • “Our balanced business delivered sustained results… Record origination volume and steady servicing profitability drove increased adjusted pre-tax income versus the second quarter and continued book value growth.” — CEO Glen Messina .
  • “We now expect to exceed our 2025 adjusted ROE guidance.” — CFO Sean O’Neill .
  • On Rithm: “The portfolio is… mainly pre-2008 subprime… high cost of servicing and declining profitability… we do not expect the removal of these loans to have a material financial impact for the full year of 2026.” — CEO Glen Messina .
  • “GAAP net income and EPS reflect a $4 million, or $0.48 per share, tax provision expense related to tax planning strategies to support future utilization of our deferred tax asset.” — CEO Glen Messina .

Q&A Highlights

  • Rithm exit economics: Portfolio ~25% of its size 5 years ago; “one of our lowest-margin portfolios”; after corporate allocations it lost money in the last two quarters; company confident in replacing with higher-margin business .
  • DTA release implications: If fully released, expect effective tax rate akin to normal corporate taxpayer (21% federal plus states); equity increases, raising the capital base for ROE math .
  • Hedging posture post-VA: No material change; hedging is driven by protecting GAAP earnings/equity and liquidity considerations; hedge coverage reviewed dynamically .
  • Prepayment speeds: Uptick in Q3; outlook depends on 30-year mortgage rates; industry forecasts imply Q4 volumes roughly consistent with Q3 with more refis vs purchases .

Estimates Context

  • Q3 2025 beats: Revenue $280.3M vs $248.2M consensus (+12.9%); Primary EPS $2.12 vs $1.91 (+10.8%) . GAAP diluted EPS was $2.03 (press release) .
  • Next quarter (Q4 2025) consensus: Revenue $256.2M*, Primary EPS $2.50* (rounded). Values marked with * are from S&P Global.

Key Takeaways for Investors

  • Positive estimate revisions likely: Strong revenue/EPS beats, record origination volume, and raised (qualitative) ROE outlook should support upward estimate revisions and sentiment into Q4 and FY25/26*. .
  • 2026 de-risking: Rithm non-renewal removes a low-margin, high-delinquency book; management plans cost adjustments and backfilling with more profitable consumer/commercial relationships .
  • Balanced model working: Originations strength offset MSR runoff as speeds rose; hedging remains effective; reverse servicing rebounded to profitability .
  • Capital/Tax catalyst: Expected significant DTA VA release by YE25 increases equity and may lift effective tax rate; short-term EPS optics could differ (Primary vs GAAP) but balance sheet strengthens .
  • Book value compounding: BVPS up to $62; management continues to emphasize book value growth and ROE discipline .
  • Watch Q4 mix: If refi share rises, expect higher speeds and runoff but stronger origination margins/volumes; operational recapture is a key buffer .
  • Subservicing pipeline: 2H25 additions ~$32B and momentum into 1H26 signal continued scale and operating leverage in servicing .

S&P Global data disclaimer: Values marked with * are retrieved from S&P Global.

Citations:

  • Q3 2025 8-K/Press Release:
  • Q3 2025 Earnings Call:
  • Q2 2025 8-K/Press Release & Call:
  • Q1 2025 8-K/Press Release & Call: