A mix of servicing and origination gains drove Pennymac's financial services unit to a profit that fell short of consensus estimates due largely to one-time negative fair value change.
Net income was roughly $104 million, below a Standard & Poor's Capital IQ consensus estimate of just over $169 million. It recategorized its results around servicing and
Revenue totaled $261.12 million, up from a $90.23 million estimate.
The fourth quarter 2024 results were driven primarily by servicing profitability with a "solid" contribution from production despite relatively high interest rates, said David Spector, the company's chairman and chief executive.
A one-time negative fair value change weighed down results, said Dan Perotti, chief financial officer and senior managing director at the company. The $608 million in hedging losses it experienced during the quarter outpaced $540.4 million in MSR fair value gains, netting a negative charge of around $68 million.
Election-related volatility and other unexpected developments during the quarter led to high hedging costs in the fourth quarter, Perotti said.
"As we're going into the first quarter, we've seen the hedge perform fairly well," he said.
Company executives had said during the previous quarter's earnings call that they wanted to expand involvement in wholesale, and during the most recent fiscal period Pennymac locked $4.5 billion in broker-direct loans in addition to $24.9 billion through
The company also reported locking $3.7 billion in consumer-director loans.
Pretax production income was $78 million, down from $129.4 million the prior quarter and up from $44.2 million in fourth quarter 2023.
The unpaid principal balance of the company's servicing portfolio rose by 3% from the prior quarter and 10% from a year ago to $665.8 billion.
Pretax income from servicing was $87.3 million, up from $3.3 million the previous fiscal period but down from $76.6 million a year earlier.
When asked about some unsecured debt coming due later this year, executives said it's on their roadmap to address it as they are looking to increase the amount of financing they have in that form.
Analysts also asked Pennymac about the recent election-related shift in Washington and its impact, particularly the possibility that the government-sponsored enterprises that currently buy a significant number of loans in the market could
"We, from day one, have managed this company to a range of outcomes," said Spector, noting that the company's real estate investment trust affiliate is active in private markets that could become more prominent due to GSE reform, putting it in a good position to handle such a shift.
Pennymac's REIT unit also reported earnings on Thursday, recording $31.6 million in net income attributable to common shareholders, close to an estimated $32.41 million. It had
generated $31 million in net income the previous quarter and $42.5 million a year earlier.
Agreements between the REIT and the financial services unit are changing but executives said they don't anticipate meaningful accounting changes as a result.
