While the company’s quarterly results underscore the challenges of the mortgage market since the Federal Reserve began easing interest rates in mid-September, PennyMac Financial Services, Inc. (NYSE: PFSI) can cheer the robust, year-over-year gains it reported yesterday.
PennyMac reported a net income of $104.5 million in the fourth quarter of 2024, a marked increase from the net loss of $36.8 million in the fourth quarter of 2023. Net income for the year totaled $312.4 million, a nearly 116% rise from $144.7 million of net income in 2023.
Total revenue in the fourth quarter was $470.1 million, up from $361.9 million one year ago.
Chairman and CEO David Spector commented on the quarterly and yearly earnings in a press release, saying that the company’s results “demonstrate both the ability of our balanced business model to generate operating returns on equity in the mid-teens in periods of higher rates, and also a substantial improvement in operating leverage from the previous year.”
In terms of total loan production in 2024, Pennymac achieved $126.5 billion in loan acquisitions and originations, a 27% increase from the previous year. On a quarterly basis, loan acquisitions and originations totaled $35.7 billion, marking a 13% quarterly rise and a 34% annual rise.
Pretax income for Pennymac’s production segment was $78 million, down 39.7% from $129.4 million in the prior quarter and up 76.4% from $44.2 million in the fourth quarter of 2023.
Concerning fourth-quarter production results by channel, Pennymac’s broker direct interest rate lock commitments (IRLCs) rose 60% annually to $4.5 billion (-17% quarterly), marking significant growth in its wholesale business.
Consumer direct IRLCs rose 129% annually to $3.7 billion (-30% quarterly); government correspondent IRLCs were flat annually at $11.1 billion (-11% quarterly); and conventional correspondent IRLCs rose 38% annually to $13.8 billion, up 68% from the previous quarter.
Meanwhile, the PennyMac Mortgage Investment Trust (NYSE: PMT) observed mixed annual returns. Correspondent acquisitions of conventional conforming and jumbo loans fulfilled for PMT reached $3.5 billion in unpaid principal balance (UPB) in the fourth quarter, down 41% from the prior quarter and up 41% from the fourth quarter of 2023.
Net income of $161 million for PMT in 2024 was 19.3% lower than $199.7 million of net income collected in 2023, driving net income attributable to common shareholders down to $119.2 million, versus $157.8 million in 2023. Net investment income of $334.2 million in 2024 was down 22% from $429 million in 2023.
“We acquired or originated $36 billion in unpaid principal balance of loans, which drove continued growth in our servicing portfolio to $666 billion in unpaid principal balance at year end,” Spector added. However, higher rates for longer resulted in notable valuation and hedging losses for Pennymac as it concerns that expanding servicing portfolio.
Servicing segment pretax income was $87.3 million, up from $3.3 million in the prior quarter and $76.6 million in the fourth quarter of 2023, which includes a pretax income loss of $67.7 million from $608.1 million in hedging losses partially offset by $540.4 million in fair value gains for mortgage servicing rights (MSRs), plus a “$13.3 million provision for losses on active loans.”
The $168.3 million of pretax servicing income, excluding valuation-related changes, was essentially unchanged from the previous quarter as "higher loan servicing fees, lower realization of mortgage servicing rights (MSR) cash flows and lower operating expenses were offset by lower earnings on custodial balances due to lower short-term interest rates.”
Pennymac’s servicing portfolio grew to $665.8 billion in UPB as of the end of 2024, up 3% from the previous quarter and 10% from December 31, 2023.
