NSM Nationstar Mortgage Holdings Inc. (delisted)

• Quarterly GAAP net income of $7 million, $0.07 per diluted share and $43 million adjusted pretax income, $0.44 per diluted share
• Adjusted servicing profitability of 5.0 basis points (bps)
• Largest servicing portfolio in company history with $533 billion and 3.3 million customers
• Servicing GAAP pretax income of $15 million, adjusted pretax income of $65 million
• Originations GAAP pretax income of $45 million, adjusted pretax income of $46 million
• Xome GAAP pretax income of $11 million, adjusted pretax income of $12 million

Nationstar Mortgage Holdings Inc. (NYSE: NSM) today reported GAAP net income of $7 million, or $0.07 per diluted share for the third quarter 2017. On an adjusted basis, the Company reported earnings for the third quarter of $43 million, or $0.44 per diluted share.

"Nationstar continued to board new customers and grow both servicing and originations volume in the third quarter on the strength of our integrated business model and our focus on the customer," said Jay Bray, Chief Executive Officer. "We have boarded $128 billion in mortgage servicing this year while achieving solid operational results at 5 basis points in adjusted servicing profitability. We look forward to ending the year with over three million customers. Originations exceeded our target again this quarter with funded volume increasing twenty percent. We continue to focus on disciplined expense management even as we invest in our businesses, and we believe we have additional significant opportunities to drive further growth and efficiency over the long term."

Servicing

Servicing earned $15 million GAAP pretax income or $65 million adjusted pretax income (5.0 basis points). Servicing profitability increased 11% quarter-over-quarter, driven by the largest portfolio in the company's history. The Company ended the quarter with over $533 billion mortgage servicing and the lowest historical delinquency rate of 3.2%.

During the quarter the Company boarded loans totaling $58 billion, primarily subservicing portfolios with attractive returns that provide an opportunity for Nationstar to offer a variety of corresponding mortgage solutions. Through our focus on expense management, we are realizing the benefits of scale within our platform as we board these loans without an increase in labor costs from the prior quarter.

  Quarter Ended ($ in millions) Q2'17

 

Q3'17

$   BPS   $   BPS Operational $ 302   24.4 $ 299   23.0 Amortization (66 ) (5.3 ) (60 ) (4.6 ) Mark-to-market (90 )   (7.3 ) (48 )   (3.7 ) Total revenue 146 11.8 191 14.7 Expenses (175 ) (14.2 ) (185 ) (14.2 ) Total other income (expenses), net (13 )   (1.0 ) 9     0.7   Income before taxes (GAAP) (42 ) (3.4 ) 15 1.2 Mark-to-market 90 7.3 48 3.7 Adjustments 7     0.5   2     0.1   Adjusted pretax income $ 55     4.5   $ 65     5.0         Quarter Ended Q2'17   Q3'17 Ending UPB ($B) $ 498 $ 533 Average UPB ($B) $ 494 $ 521 60+ day delinquency rate 3.5 % 3.2 % Annualized CPR 14.2 % 13.8 % Annualized CPR, net of recapture 12.3 % 11.9 % Modifications and workouts 12,038 12,550  

We enter the fourth quarter with a focus on boarding the remaining $44 billion UPB of the full year's approximately $172 billion total, delivering radical service to our new customers, and exceeding our adjusted profitability target of 5.0 basis points.

Originations

The Originations segment posted $45 million GAAP pretax income or $46 million adjusted pretax income which exceeded our quarterly target of $40 million. Nationstar funded approximately $5.1 billion in loans in the third quarter, a 20% improvement over the second quarter, with 61% of the volume from the consumer direct channel.

  Quarter Ended ($ in millions) Q2'17   Q3'17 Adjusted Pretax Income: Income before taxes (GAAP) $ 53 $ 45 Adjustments   3   1 Adjusted pretax income $ 56 $ 46     Quarter Ended ($ in millions) Q2'17   Q3'17 Total pull through adjusted lock volume $ 4,200   $ 4,930 Funded volume $ 4,254 $ 5,102 Recapture percentage 24 % 24 % Purchase volume as a percentage of funded volume 29 % 36 %  

The Originations segment has posted pretax income above $40 million for fourteen out of the past fifteen quarters. Accordingly, the Company continues to make investments to further develop the purchase business by expanding channels and product offerings. Launching in the first half of next year, a digital mortgage application portal will also target new and existing customer growth.

Xome

The Xome segment posted $11 million GAAP pretax income or $12 million adjusted pretax income for the third quarter. Xome achieved property sales of 2,772, while maintaining REO inventory as third-party inflows offset sales volume.

  Quarter Ended ($ in millions) Q2'17   Q3'17 Adjusted Pretax Income:   Income before taxes (GAAP) $ 17 $ 11 Adjustments   (5 )   1   Adjusted pretax income $ 12   $ 12     GAAP pretax income margin 22 % 17 % Adjusted pretax income margin 16 % 18 %  

Xome continues to develop new relationships and diversify its revenue stream, evidenced by third party inventory increases of 41% quarter-over-quarter. The segment gained nine new title clients consisting of various top financial institutions, which will contribute to future earnings. The referral program launched earlier this year and is expected to generate approximately 800 closings this year.

  Quarter Ended Q2'17   Q3'17 Default property listings sold 3,074   2,772 Default property listings at period end 4,174 4,082 Xome services completed orders 107,220 99,407 Percentage of revenue earned from third-party customers 35 % 33 %  

We look forward to bolstering Xome's future prospects through the continued expansion of third-party business as well as offering new products and technologies.

Capital & Liquidity

Nationstar maintained a robust capital position with ratios well above current regulatory guidelines. Nationstar's sustained operating cash flows generated throughout the third quarter allowed the Company to purchase $26 million of unsecured senior notes due between 2018 and 2022 during the quarter. Year-to-date the Company has purchased $120 million of unsecured senior notes.

Conference Call Webcast and Investor Presentation

The Company will host a conference call on November 2, 2017 at 9:00 A.M. Eastern Time. The conference call may be accessed by dialing 855-874-2685, or 720-634-2923 internationally. Please use the participant passcode 96127627 to access the conference call.

A simultaneous audio webcast of the conference call will be available in the Investor Information section of http://www.nationstarholdings.com. A replay will also be available by dialing 855-859-2056, or 404-537-3406 internationally. Please use the passcode 96127627 to access the replay. The replay will be accessible through November 16, 2017.

Non-GAAP Financial Measures

The Company utilizes non-GAAP (or “adjusted”) financial measures as the measures provide additional information to assist investors in understanding and assessing the Company’s and our business segments’ ongoing performance and financial results, as well as assessing our prospects for future performance. The adjusted financial measures facilitate a meaningful analysis and allow more accurate comparisons of our ongoing business operations because they exclude items that may not be indicative of or are unrelated to the Company’s and our business segments’ core operating performance, and are better measures for assessing trends in our underlying businesses. These adjustments are consistent with how management views our businesses. Management uses these non-GAAP financial measures in making financial, operational and planning decisions and evaluating the Company’s and our business segment’s ongoing performance. Adjusted earnings (loss) in the servicing segment eliminates the effects of mark-to-market adjustments which primarily reflects unrealized gains or losses based on the changes in fair value measurements of MSRs and their related financing liabilities for which a fair value accounting election was made. These adjustments, which can be highly volatile and material due to changes in credit markets, are not necessarily reflective of the gains and losses that will ultimately be realized by the Company. Adjusted earnings (loss) also eliminates in each segment, as applicable, transition and integration costs, gains (losses) on sales of fixed assets, certain settlement costs that are not considered normal operational matters, and other adjustments based on the facts and circumstances that would provide investors a supplemental means for evaluating the Company’s core operating performance.

Forward Looking Statements

Any statements in this release that are not historical or current facts are forward looking statements. These forward looking statements include, but are not limited to, statements regarding our number of customers and growth prospects, Servicing's profitability and expected boardings, Originations product set and income, Xome's potential acquisitions and products, and the repayment of 2018 unsecured senior notes. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Certain of these risks and uncertainties are described in the "Business" and "Risk Factors" sections of our most recent annual report and other required documents as filed with the SEC which are available at the SEC’s website at http://www.sec.gov. Nationstar undertakes no obligation to publicly update or revise any forward looking statement or any other financial information contained herein, and the statements made in this press release are current as of the date of this release only.

Financial Tables

 

NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars and shares in millions, except per share data)

    Quarter Ended June 30, 2017   September 30, 2017 Revenues:   Service related, net $ 302 $ 299 Total MTM (90 ) (48 ) Net gain on mortgage loans held for sale   167     154   Total revenues   380     406     Total expenses 369 368   Other income (expense): Interest income 139 157 Interest expense (186 ) (181 ) Other income (expenses)   7     (2 ) Total other income (expenses), net   (40 )   (26 ) Income (loss) before income tax expense (benefit) (29 ) 12 Income tax expense (benefit)   (10 )   5   Net income (loss) (19 ) 7 Net income (loss) attributable to non-controlling interests   1     —   Net income (loss) attributable to Nationstar $ (20 ) $ 7         Earnings per share attributable to common stockholders: Basic $ (0.20 ) $ 0.07   Diluted $ (0.20 ) $ 0.07   Weighted average shares of common stock outstanding Basic   98     98   Diluted   98     99    

 

NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(dollars in millions)

          June 30, 2017   September 30, 2017 Assets   Cash and cash equivalents $ 184 $ 224 Restricted cash 424 356 Mortgage servicing rights at fair value 3,051 2,961 Advances and other receivables, net 1,594 1,625 Reverse mortgage interests, net 10,604 10,299 Mortgage loans held for sale at fair value 1,543 1,646 Mortgage loans held for investment, net 148 143 Property and equipment, net 133 127 Derivative financial instruments at fair value 81 76 Other assets   515   547 Total assets $ 18,277 $ 18,004   Liabilities and Stockholders' Equity Unsecured senior notes, net $ 1,899 $ 1,873 Advance facilities, net 881 797 Warehouse facilities, net 2,523 2,774 Payables and accrued liabilities 1,122 1,188 MSR related liabilities - nonrecourse at fair value 1,134 1,066 Mortgage servicing liabilities 50 53 Derivative financial instruments at fair value 6 7 Other nonrecourse debt, net   8,997   8,569 Total liabilities 16,612 16,327 Total stockholders' equity   1,665   1,677 Total liabilities and stockholders' equity $ 18,277 $ 18,004  

         

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

(dollars in millions, except per share data)

  Quarter ended June 30, 2017 Servicing Originations Xome

Corporateand Other

Elim. Consolidated   Revenues: Service related, net $ 146 $ 15 $ 76 $ — $ (24 ) $ 213 Net gain on mortgage loans held for sale   —     143     —     —     24     167   Total revenues   146     158     76     —       380   Total expenses 175 102 67 24 — 369 Other income (expense): Interest income 123 11 — 5 — 139 Interest expense (136 ) (13 ) — (37 ) — (186 ) Other expense   —     —     8     (1 )   —     7   Total other income (expense)   (13 )   (2 )   8     (33 )   —     (40 ) Pretax income (loss) $ (42 ) $ 53   $ 17   $ (57 ) $ —   $ (29 )   Income tax expense (benefit) (10 ) Noncontrolling interest attributable to Nationstar   1   Net income (loss) attributable to Nationstar $ (20 ) Earnings per share Basic $ (0.20 ) Diluted $ (0.20 )   Adjusted Earnings: Pretax income (loss) $ (42 ) $ 54 $ 17 $ (57 ) $ — $ (29 ) MTM 90 — — — — 90 Adjustments   7     3     (5 )   1     —     6   Adjusted pretax income (loss) $ 55   $ 56   $ 12   $ (54 ) $ —   67 Income tax expense (benefit)   (25 ) Adjusted earnings (loss) $ 42   Adjusted EPS $ 0.43    

 

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

(dollars in millions, except per share data)

    Quarter ended September 30, 2017 Servicing   Originations   Xome  

Corporateand Other

  Elim.   Consolidated   Revenues: Service related, net $ 191 $ 16 $ 65 $ — $ (20 ) $ 252 Net gain on mortgage loans held for sale   —     134     —   —     20     154   Total revenues   191     150     65   —     —     406   Total expenses 185 106 54 23 — 368 Other income (expense): Interest income 141 14 — 2 — 157 Interest expense (130 ) (13 ) — (38 ) — (181 ) Other expense   (2 )   —     —   —     —     (2 ) Total other income (expense)   9     1     —   (36 )   —     (26 ) Pretax income (loss) $ 15   $ 45   $ 11 $ (59 ) $ —   $ 12   Income tax expense (benefit) 5 Noncontrolling interest attributable to Nationstar — Net income (loss) attributable to Nationstar $ 7 Earnings per share Basic $ 0.07   Diluted $ 0.07     Adjusted Earnings: Pretax income (loss) $ 15 $ 45 $ 11 $ (59 ) $ — $ 12 MTM 48 — — — — 48 Adjustments   2     1     1   3     —     7   Adjusted pretax income (loss) $ 65   $ 46   $ 12 $ (56 ) $ —   $ 67 Income tax expense (benefit)   (24 ) Adjusted earnings (loss) $ 43   Adjusted EPS $ 0.44    

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Nationstar Mortgage Holdings Inc.Megan Portacci, 469-426-3118