Mr. Cooper Group Reports Third Quarter 2019 Financial Results

Date : 10/31/2019 @ 11:00AM
Source : Business Wire
Stock : Mr Cooper Group Inc (COOP)
Quote : 13.35  0.24 (1.83%) @ 1:00AM
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Mr. Cooper Group Reports Third Quarter 2019 Financial Results

Mr Cooper (NASDAQ:COOP)
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2 Months : From Oct 2019 to Dec 2019

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  • Reported $83 million net income or $0.90 per share, and pretax operating income of $171 million
  • Generated record Originations pretax income of $178 million on record funded volume of $11.9 billion
  • Servicing UPB remained stable, ending the quarter at $641 billion
  • Xome reported pretax income of $14 million and pretax operating income of $13 million, with Assurant Mortgage Solutions (AMS) contributing positive results
  • Announced retirement of $100 million of unsecured senior notes due 2021, which settled in October
  • Achieved Great Place to Work certification

Mr. Cooper Group Inc. (NASDAQ: COOP) (the "Company"), which principally operates under the Mr. Cooper® and Xome® brands, reported a third quarter net income of $83 million or $0.90 per diluted share, partially offset by a net fair value mark-to-market on the MSR portfolio of $(83) million. Excluding the mark-to-market and other items, the Company reported pretax operating income of $171 million. Items excluded from pretax operating income was $(83) million in mark-to-market, net of the add back of $32 million in fair value amortization included in the full mark-to-market, $4 million gain from remeasuring contingent consideration associated with the AMS acquisition, $5 million in charges related to corporate actions, and $12 million of intangible amortization.

Chairman and CEO Jay Bray commented, “The Originations segment produced another quarter of record fundings, with strong margins, demonstrating our capability to scale up in response to refinance market conditions. At the same time, we were very pleased with continued strong performance in the Servicing segment and delighted to receive the Great Place to Work certification.”

Chris Marshall, vice chairman and CFO added, “Net income, operating profits, and cash flow were all very strong in the quarter, allowing us to move forward with our deleveraging plan and begin retiring some of our senior notes. Deleveraging will strengthen the balance sheet, improve profitability, and afford us greater financial flexibility.”

Servicing

The Servicing segment is focused on providing a best-in-class home loan experience for our 3.8 million customers while simultaneously strengthening asset performance for investors. In the third quarter, Servicing recorded pretax income of $9 million offset by a net fair value mark-to-market on the MSR portfolio of $(83) million. During the quarter the total servicing portfolio remained stable, ending the quarter at $641 billion UPB. Servicing earned pretax operating income excluding the full mark of $92 million, equivalent to a servicing margin of 5.8 bps. At quarter end, the carrying value of the MSR was $3,346 million, equivalent to 109 bps of MSR UPB, and the original cost basis was 86 bps.

 

Quarter Ended

($ in millions)

Q2'19

 

Q3'19

 

$

BPS

 

$

BPS

Operational revenue

$

314

 

19.6

 

 

$

319

 

20.0

 

Amortization, net of accretion

(56

)

(3.5

)

 

(73

)

(4.6

)

Mark-to-market

(231

)

(14.4

)

 

(83

)

(5.2

)

Total revenues

27

 

1.7

 

 

163

 

10.2

 

Expenses

(189

)

(11.8

)

 

(171

)

(10.7

)

Total other income (expenses), net

27

 

1.7

 

 

17

 

1.1

 

(Loss) income before taxes

(135

)

(8.4

)

 

9

 

0.6

 

Mark-to-market

231

 

14.4

 

 

83

 

5.2

 

Pretax operating income excluding mark-to-market

$

96

 

6.0

 

 

$

92

 

5.8

 

 

 

 

 

 

 

 

Quarter Ended

 

Q2'19

 

Q3'19

Ending UPB ($B)

$

644

 

 

$

641

 

Average UPB ($B)

$

639

 

 

$

637

 

60+ day delinquency rate

2.3

%

 

2.2

%

Annualized CPR

13.0

%

 

17.5

%

Modifications and workouts

12,108

 

 

8,792

 

Originations

The Originations segment focuses on creating servicing assets at attractive margins through existing customer relationships, correspondent, and wholesale originations. Originations earned record pretax income of $178 million, up from $118 million in the prior quarter.

Mr. Cooper funded 48,904 loans in the third quarter, totaling approximately $12 billion UPB comprised of $4.9 billion in direct-to-consumer, $6.4 billion in correspondent, and $0.6 billion in wholesale. Funded volume increased 19% quarter-over-quarter.

 

Quarter Ended

($ in millions)

Q2'19

 

Q3'19

 

 

 

 

Income before taxes

$

118

 

 

$

178

 

 

 

 

 

 

Quarter Ended

($ in millions)

Q2'19

 

Q3'19

Total pull through adjusted volume

$

11,197

 

 

$

12,699

 

Funded volume

$

9,996

 

 

$

11,911

 

Refinance recapture percentage

44

%

 

38

%

Recapture percentage

23

%

 

25

%

Purchase volume as a percentage of funded volume

53

%

 

39

%

Xome

Xome provides real estate solutions including property disposition, asset management, title, close, valuation, and field services for Mr. Cooper and third-party clients. The Xome segment recorded pretax income of $14 million, or pretax operating income of $13 million in the third quarter, which excluded accounting items related to remeasuring the contingent consideration associated with the AMS acquisition and intangible amortization.

 

Quarter Ended

($ in millions)

Q2'19

 

Q3'19

Income before taxes

$

7

 

 

$

14

 

Accounting items

 

 

(4

)

Intangible amortization

3

 

 

3

 

Pretax operating income excluding accounting items and intangible amortization

$

10

 

 

$

13

 

 

 

 

 

 

Quarter Ended

 

Q2'19

 

Q3'19

Exchange property listings sold

2,645

 

 

2,453

 

Average Exchange property listings

6,693

 

 

6,688

 

Services orders completed

417,510

 

 

429,128

 

Percentage of revenue earned from third-party customers

53

%

 

53

%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on October 31, 2019 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 9583900 to access the conference call. A simultaneous audio webcast of the conference call will be available in the Investor section of www.mrcoopergroup.com. A replay will also be available approximately two hours after the conclusion of the conference call by dialing 855-859-2056, or 404-537-3406 internationally. Please use the passcode 9583900 to access the replay. The replay will be accessible through November 14, 2019 at 11:00 A.M. Eastern Time.

Non-GAAP Financial Measures

The Company utilizes non-GAAP 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 operating 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 notable items 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. Pretax operating income (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. Pretax operating income (loss) in each segment also eliminates, as applicable, transition and integration costs, gains (losses) on sales of fixed assets, certain settlement costs that are not considered normal operational matters, intangible amortization, 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, including statements regarding the results of deleveraging. 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. Results for any specified quarter are not necessarily indicative of the results that may be expected for the full year or any future period. Certain of these risks and uncertainties are described in the "Risk Factors" section of Mr. Cooper Group's most recent annual reports and other required documents as filed with the SEC which are available at the SEC’s website at http://www.sec.gov. Mr. Cooper 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

 

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(millions of dollars, except for earnings per share data)

 

 

Three Months Ended June 30, 2019

 

Three Months Ended September 30, 2019

Revenues:

 

 

 

Service related, net – excluding mark-to-market

$

368

 

 

$

341

 

Mark-to-market

(231

)

 

(83

)

Net gain on mortgage loans held for sale

262

 

 

360

 

Total revenues

399

 

 

618

 

 

 

 

 

Total expenses

492

 

 

478

 

 

 

 

 

Other income (expense):

 

 

 

Interest income

162

 

 

163

 

Interest expense

(187

)

 

(196

)

Other income (expenses)

1

 

 

 

Total other income (expenses), net

(24

)

 

(33

)

(Loss) income before income tax (benefit) expense

(117

)

 

107

 

Income tax (benefit) expense

(29

)

 

24

 

Net (loss) income

(88

)

 

83

 

Net loss attributable to non-controlling interest

(1

)

 

(1

)

Net (loss) income attributable to Mr. Cooper Group

(87

)

 

84

 

Undistributed earnings attributable to participating stockholders

 

 

1

 

Net (loss) income attributable to Mr. Cooper Group

$

(87

)

 

$

83

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income per share attributable to common stockholders:

 

 

 

Basic

$

(0.96

)

 

$

0.91

 

Diluted

$

(0.96

)

 

$

0.90

 

Weighted average shares of common stock outstanding (in thousands):

 

 

 

Basic

91,054

 

 

91,080

 

Diluted

91,054

 

 

92,036

 

 

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

 

 

 

June 30, 2019

 

September 30, 2019

Assets

 

 

 

 

Cash and cash equivalents

 

$

245

 

 

$

371

 

Restricted cash

 

304

 

 

271

 

Mortgage servicing rights

 

3,511

 

 

3,346

 

Advances and other receivables, net

 

1,000

 

 

967

 

Reverse mortgage interests, net

 

7,110

 

 

6,662

 

Mortgage loans held for sale at fair value

 

3,422

 

 

4,267

 

Mortgage loans held for investment at fair value

 

114

 

 

 

Property and equipment, net

 

115

 

 

113

 

Deferred tax asset

 

1,055

 

 

1,032

 

Other assets

 

1,529

 

 

1,449

 

Total assets

 

$

18,405

 

 

$

18,478

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Unsecured senior notes, net

 

$

2,462

 

 

$

2,464

 

Advance facilities, net

 

567

 

 

513

 

Warehouse facilities, net

 

4,045

 

 

4,802

 

Payables and accrued liabilities

 

2,116

 

 

2,002

 

MSR related liabilities - nonrecourse at fair value

 

1,472

 

 

1,328

 

Mortgage servicing liabilities

 

80

 

 

69

 

Other nonrecourse debt, net

 

5,985

 

 

5,533

 

Total liabilities

 

16,727

 

 

16,711

 

Total stockholders' equity

 

1,678

 

 

1,767

 

Total liabilities and stockholders' equity

 

$

18,405

 

 

$

18,478

 

 

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

(millions of dollars, except for earnings per share data)

 

 

Three Months Ended for June 30, 2019

 

Servicing

 

Originations

 

Xome

 

Corporate and Other

 

Elimination/Reclassification⁽¹⁾

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service related, net

$

27

 

 

$

20

 

 

$

108

 

 

$

 

 

$

(18

)

 

$

137

 

Net gain on mortgage loans held for sale

 

 

244

 

 

 

 

 

 

18

 

 

262

 

Total revenues

27

 

 

264

 

 

108

 

 

 

 

 

 

399

 

Total expenses

189

 

 

145

 

 

101

 

 

57

 

 

 

 

492

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest income

136

 

 

23

 

 

 

 

3

 

 

 

 

162

 

Interest expense

(109

)

 

(25

)

 

 

 

(53

)

 

 

 

(187

)

Other expense

 

 

1

 

 

 

 

 

 

 

 

1

 

Total other income (expense)

27

 

 

(1

)

 

 

 

(50

)

 

 

 

(24

)

Pretax (loss) income

$

(135

)

 

$

118

 

 

$

7

 

 

$

(107

)

 

$

 

 

$

(117

)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

(29

)

Net loss

 

 

 

 

 

 

 

 

 

 

$

(88

)

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

(1

)

Net loss attributable to common stockholders of Mr. Cooper Group

 

 

 

 

 

 

 

 

 

 

$

(87

)

Loss per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

$

(0.96

)

Diluted

 

 

 

 

 

 

 

 

 

 

$

(0.96

)

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss)

$

(135

)

 

$

118

 

 

$

7

 

 

$

(107

)

 

$

 

 

$

(117

)

Mark-to-market

231

 

 

 

 

 

 

 

 

 

 

231

 

Merger related costs

 

 

 

 

 

 

17

 

 

 

 

17

 

Intangible amortization

 

 

 

 

3

 

 

10

 

 

 

 

13

 

Pretax income (loss), net of notable items

$

96

 

 

$

118

 

 

$

10

 

 

$

(80

)

 

$

 

 

$

144

 

Fair value amortization⁽²⁾

(26

)

 

 

 

 

 

 

 

 

 

(26

)

Pretax operating income (loss)

$

70

 

 

$

118

 

 

$

10

 

 

$

(80

)

 

$

 

 

$

118

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

(29

)

Operating income

 

 

 

 

 

 

 

 

 

 

$

89

 

ROTCE

 

 

 

 

 

 

 

 

 

 

23.8

%

⁽¹⁾ For Servicing segment results purposes, all revenue is attributable to servicing the portfolio. Therefore, $18 of net gain on mortgage loans is moved to service related, net for the three months ended June 30, 2019. For consolidated results purposes, these amounts were reclassed to net gain on mortgage loans held for sale.

⁽²⁾ Amount represents additional amortization required under the fair value amortization method over the cost amortization method.

 

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

(millions of dollars, except for earnings per share data)

 

 

Three Months Ended for September 30, 2019

 

Servicing

 

Originations

 

Xome

 

Corporate and Other

 

Elimination/Reclassification⁽¹⁾

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Service related, net

$

163

 

 

$

22

 

 

$

112

 

 

$

 

 

$

(39

)

 

$

258

 

Net gain on mortgage loans held for sale

 

 

312

 

 

 

 

11

 

 

37

 

 

360

 

Total revenues

163

 

 

334

 

 

112

 

 

11

 

 

(2

)

 

618

 

Total expenses

171

 

 

155

 

 

101

 

 

53

 

 

(2

)

 

478

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest income

137

 

 

24

 

 

 

 

2

 

 

 

 

163

 

Interest expense

(120

)

 

(24

)

 

 

 

(52

)

 

 

 

(196

)

Other expense

 

 

(1

)

 

3

 

 

(2

)

 

 

 

 

Total other income (expense)

17

 

 

(1

)

 

3

 

 

(52

)

 

 

 

(33

)

Pretax income (loss)

$

9

 

 

$

178

 

 

$

14

 

 

$

(94

)

 

$

 

 

$

107

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

24

 

Net income

 

 

 

 

 

 

 

 

 

 

$

83

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

(1

)

Net income attributable to common stockholders of Mr. Cooper Group

 

 

 

 

 

 

 

 

 

 

$

84

 

Undistributed earnings attributable to participating stockholders

 

 

 

 

 

 

 

 

 

 

1

 

Net income attributable to Mr. Cooper Group

 

 

 

 

 

 

 

 

 

 

$

83

 

Income per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

$

0.91

 

Diluted

 

 

 

 

 

 

 

 

 

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss)

$

9

 

 

$

178

 

 

$

14

 

 

$

(94

)

 

$

 

 

$

107

 

Mark-to-market

83

 

 

 

 

 

 

 

 

 

 

83

 

Accounting items / other

 

 

 

 

(4

)

 

5

 

 

 

 

1

 

Intangible amortization

 

 

 

 

3

 

 

9

 

 

 

 

12

 

Pretax income (loss), net of notable items

$

92

 

 

$

178

 

 

$

13

 

 

$

(80

)

 

$

 

 

$

203

 

Fair value amortization⁽²⁾

(32

)

 

 

 

 

 

 

 

 

 

(32

)

Pretax operating income (loss)

$

60

 

 

$

178

 

 

$

13

 

 

$

(80

)

 

$

 

 

$

171

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

(41

)

Operating income

 

 

 

 

 

 

 

 

 

 

$

130

 

ROTCE

 

 

 

 

 

 

 

 

 

 

34.5

%

⁽¹⁾ For Servicing segment results purposes, all revenue is attributable to servicing the portfolio. Therefore, $37 of net gain on mortgage loans is moved to service related, net for the three months ended September 30, 2019. For consolidated results purposes, these amounts were reclassed to net gain on mortgage loans held for sale.

⁽²⁾ Amount represents additional amortization required under the fair value amortization method over the cost amortization method.

 

Investor Contact: Kenneth Posner, SVP Strategic Planning and Investor Relations (469) 426-3633 Shareholders@mrcooper.com

Media Contact: Christen Reyenga, VP Corporate Communications MediaRelations@mrcooper.com

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