Mr. Cooper Group Reports Second Quarter 2019 Financial Results

  • Generated record Originations pretax income of $118 million on record funded volume of $10 billion
  • Grew servicing portfolio to $644 billion, up 2% quarter-over-quarter
  • Xome reported pretax income of $7 million and pretax operating income of $10 million, due to significant progress in integrating Assurant Mortgage Solutions (AMS)
  • Reported pretax loss of $(117) million or EPS of $(0.96) per share driven by $(231) million mark-to-market and pretax operating income of $118 million
  • Completed integration of Pacific Union and Seterus

DALLAS--()--Mr. Cooper Group Inc. (NASDAQ: COOP) (the "Company"), which principally operates under the Mr. Cooper® and Xome® brands, reported a second quarter net loss of $(87) million, $(0.96) per diluted share, driven predominately by a net fair value mark-to-market on the MSR portfolio of $(231) million. Excluding the mark-to-market and other items, the Company reported pretax operating income of $118 million. Items excluded from operating income were $(231) million in mark-to-market, net of the add back of $26 million in fair value amortization that is included in the mark-to-market, $17 million in merger related costs, and $13 million in intangible amortization.

Chairman and CEO Jay Bray commented, “The Originations segment made a major contribution this quarter, posting record pretax profits of $118 million on record funding of $10 billion. This strong performance is the result of several years of operational focus and technology investments, as well as the Pacific Union acquisition. The Originations segment now acts as a much stronger macro hedge for our servicing operation, and we believe it will play a major role in helping us achieve our profitability and shareholder return targets.”

Chris Marshall, vice chairman and CFO added, “In addition to strong Originations results, Xome produced a significant increase in profits, reflecting the successful migration of the Assurant back-office, strong refinance-driven results in Title & Close, and third-party client wins in the Auction Exchange. We believe Xome has the potential to contribute significantly to the Company’s returns over time.”

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 second quarter, Servicing recorded pretax loss of $(135) million primarily driven by a net fair value mark-to-market on the MSR portfolio of $(231) million. During the quarter the total servicing portfolio grew 2% quarter-over-quarter to $644 billion UPB. Servicing earned pretax operating income excluding the mark-to-market of $96 million, equivalent to a servicing margin of 6.0 bps. At quarter end, the carrying value of the MSR was $3.5 billion, equivalent to 111 bps of MSR UPB, and the original cost basis was 85 bps.

 

Quarter Ended

($ in millions)

Q1'19

 

Q2'19

 

$

BPS

 

$

BPS

Operational revenue

$

324

 

22.5

 

 

$

314

 

19.6

 

Amortization, net of accretion

(23

)

(1.6

)

 

(56

)

(3.5

)

Mark-to-market

(293

)

(20.3

)

 

(231

)

(14.4

)

Total revenues

8

 

0.6

 

 

27

 

1.7

 

Expenses

(195

)

(13.6

)

 

(189

)

(11.8

)

Total other income (expenses), net

1

 

0.1

 

 

27

 

1.7

 

Loss before taxes

(186

)

(12.9

)

 

(135

)

(8.4

)

Mark-to-market

293

 

20.3

 

 

231

 

14.4

 

Accounting items

(9

)

(0.6

)

 

 

 

Pretax operating income excluding mark-to-market and accounting items

$

98

 

6.8

 

 

$

96

 

6.0

 

 

 

 

 

 

 

 

Quarter Ended

 

Q1'19

 

Q2'19

Ending UPB ($B)

$

632

 

 

$

644

 

Average UPB ($B)

$

576

 

 

$

639

 

60+ day delinquency rate

2.4

%

 

2.3

%

Annualized CPR

8.2

%

 

13.0

%

Modifications and workouts

9,590

 

 

12,108

 

 

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 $118 million, up from $45 million in the prior quarter.

Mr. Cooper funded 42,933 loans in the second quarter, totaling approximately $10.0 billion UPB comprised of $3.5 billion in direct-to-consumer, $5.8 billion in correspondent, and $0.7 billion in wholesale. Funded volume increased 76% quarter-over-quarter.

 

Quarter Ended

($ in millions)

Q1'19

 

Q2'19

 

 

 

 

Income before taxes

$

45

 

 

$

118

 

 

 

 

 

 

 

Quarter Ended

($ in millions)

Q1'19

 

Q2'19

Total pull through adjusted volume

$

5,960

 

 

$

11,197

 

Funded volume

$

5,716

 

 

$

9,996

 

Refinance recapture percentage

52

%

 

44

%

Recapture percentage

28

%

 

23

%

Purchase volume as a percentage of funded volume

52

%

 

53

%

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 $7 million, or pretax operating income excluding intangible amortization of $10 million in the second quarter.

 

Quarter Ended

($ in millions)

Q1'19

 

Q2'19

Income before taxes

$

8

 

 

$

7

 

Accounting items

(11

)

 

 

Intangible amortization

3

 

 

3

 

Pretax operating income excluding intangible amortization and accounting items

$

 

 

$

10

 

 

 

 

 

 

Quarter Ended

 

Q1'19

 

Q2'19

Exchange property listings sold

2,421

 

 

2,645

 

Average exchange property listings

6,275

 

 

6,693

 

Services orders completed

379,585

 

 

417,510

 

Percentage of revenue earned from third-party customers

53

%

 

53

%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on August 1, 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 3194207 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 3194207 to access the replay. The replay will be accessible through August 15, 2019 at 12:00 P.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 company and servicing segment eliminates the effects of mark-to-markets 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, 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 Originations' role in achieving profitability and shareholder return targets and Xome's significant contributions to returns. 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
March 31, 2019

 

Three Months Ended
June 30, 2019

Revenues:

 

 

 

Service related, net

$

377

 

 

$

368

 

Mark-to-market

(293

)

 

(231

)

Net gain on mortgage loans held for sale

166

 

 

262

 

Total revenues

250

 

 

399

 

 

 

 

 

Total expenses

443

 

 

492

 

 

 

 

 

Other income (expense):

 

 

 

Interest income

134

 

 

162

 

Interest expense

(189

)

 

(187

)

Other income (expenses)

15

 

 

1

 

Total other income (expenses), net

(40

)

 

(24

)

Income before income tax benefit

(233

)

 

(117

)

Income tax benefit

(47

)

 

(29

)

Net loss

(186

)

 

(88

)

Net loss attributable to non-controlling interest

 

 

(1

)

Net loss attributable to Mr. Cooper Group

$

(186

)

 

$

(87

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share attributable to common stockholders:

 

 

 

Basic

$

(2.05

)

 

$

(0.96

)

Diluted

$

(2.05

)

 

$

(0.96

)

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

 

 

 

Basic

90,828

 

 

91,054

 

Diluted

90,828

 

 

91,054

 

 

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

 

 

 

March 31, 2019

 

June 30, 2019

Assets

 

 

 

 

Cash and cash equivalents

 

$

181

 

 

$

245

 

Restricted cash

 

339

 

 

304

 

Mortgage servicing rights

 

3,488

 

 

3,511

 

Advances and other receivables, net

 

1,147

 

 

1,000

 

Reverse mortgage interests, net

 

7,489

 

 

7,110

 

Mortgage loans held for sale at fair value

 

2,170

 

 

3,422

 

Mortgage loans held for investment at fair value

 

118

 

 

114

 

Property and equipment, net

 

112

 

 

115

 

Deferred tax asset

 

1,024

 

 

1,055

 

Other assets

 

1,578

 

 

1,529

 

Total assets

 

$

17,646

 

 

$

18,405

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Unsecured senior notes, net

 

$

2,461

 

 

$

2,462

 

Advance facilities, net

 

578

 

 

567

 

Warehouse facilities, net

 

3,050

 

 

4,045

 

Payables and accrued liabilities

 

1,975

 

 

2,116

 

MSR related liabilities - nonrecourse at fair value

 

1,343

 

 

1,472

 

Mortgage servicing liabilities

 

90

 

 

80

 

Other nonrecourse debt, net

 

6,388

 

 

5,985

 

Total liabilities

 

15,885

 

 

16,727

 

Total stockholders' equity

 

1,761

 

 

1,678

 

Total liabilities and stockholders' equity

 

$

17,646

 

 

$

18,405

 

 

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

 

 

Three Months Ended for March 31, 2019

 

Servicing

 

Originations

 

Xome

 

Corporate
and Other

 

Elimination/
Reclassification⁽¹⁾

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service related, net

$

8

 

 

$

15

 

 

$

96

 

 

$

 

 

$

(35

)

 

$

84

 

Net gain on mortgage loans held for sale

 

 

131

 

 

 

 

 

 

35

 

 

166

 

Total revenues

8

 

 

146

 

 

96

 

 

 

 

 

 

250

 

Total expenses

195

 

 

104

 

 

99

 

 

45

 

 

 

 

443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest income

115

 

 

17

 

 

 

 

2

 

 

 

 

134

 

Interest expense

(114

)

 

(18

)

 

 

 

(57

)

 

 

 

(189

)

Other expense

 

 

4

 

 

11

 

 

 

 

 

 

15

 

Total other income (expense)

1

 

 

3

 

 

11

 

 

(55

)

 

 

 

(40

)

Pretax (loss) income

$

(186

)

 

$

45

 

 

$

8

 

 

$

(100

)

 

$

 

 

$

(233

)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

(47

)

Net loss attributable to common stockholders of Mr. Cooper Group

 

 

 

 

 

 

 

 

 

 

$

(186

)

Loss per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

$

(2.05

)

Diluted

 

 

 

 

 

 

 

 

 

 

$

(2.05

)

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

Pretax (loss) income

$

(186

)

 

$

45

 

 

$

8

 

 

$

(100

)

 

$

 

 

$

(233

)

Mark-to-market

293

 

 

 

 

 

 

 

 

 

 

293

 

Accounting items

(9

)

 

 

 

(11

)

 

 

 

 

 

(20

)

Merger related costs

 

 

 

 

 

 

20

 

 

 

 

20

 

Intangible amortization

 

 

 

 

3

 

 

10

 

 

 

 

13

 

Pretax income (loss), net of notable items

$

98

 

 

$

45

 

 

$

 

 

$

(70

)

 

$

 

 

$

73

 

Fair value amortization⁽²⁾

(25

)

 

 

 

 

 

 

 

 

 

(25

)

Pretax operating income (loss)

$

73

 

 

$

45

 

 

$

 

 

$

(70

)

 

$

 

 

$

48

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

(12

)

Operating income

 

 

 

 

 

 

 

 

 

 

$

36

 

ROTCE

 

 

 

 

 

 

 

 

 

 

8.7

%

¹ For Servicing segment results purposes, all revenue is attributable to servicing the portfolio. Therefore, $35 of net gain on mortgage loans is moved to service related, net for the three months ended March 31, 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 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.

 

Contacts

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

Contacts

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