DALLAS--(BUSINESS WIRE)--October 29, 2020--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 $214 million or $2.18 per diluted share. Net income included $53 million in debt refinancing costs related to senior note refinanced in the quarter and a negative $29 million in mark-to-market. Excluding the mark-to-market and other items, the Company reported pretax operating income of $348 million. Items excluded from operating income were negative $29 million in mark-to-market, net of the add back of $25 million in fair value amortization that is included in the full mark-to-market, $53 million in debt breakage, $1 million in severance charges related to corporate actions, and $9 million of intangible amortization.
Chairman and CEO Jay Bray commented, “The strong earnings this quarter, including record origination fundings and a 51% operating ROTCE, are the result of our key strengths - great people, technology development as a core competency, and a business model that balances servicing and originations.”
Chris Marshall, Vice Chairman and CFO added, “We continued to strengthen the company’s balance sheet during the quarter, redeeming $100 million in senior notes, refinancing $850 million at a coupon of 5.5%, and extending our liquidity runway to almost 6 years. At the same time, we bolstered our advance funding capacity with a $900 million committed facility for Ginnie Mae MSRs and advances.”
Servicing
The Servicing segment is focused on providing a best-in-class home loan experience for our 3.4 million customers while simultaneously strengthening asset performance for investors. In the third quarter, Servicing recorded pretax loss of $32 million, reflecting a negative $29 million in mark-to-market. The total servicing portfolio ended the quarter at $588 billion UPB. Servicing earned pretax operating loss, excluding the full mark, of $2 million, equivalent to a servicing margin of negative 0.1 bps. At quarter end, the carrying value of the MSR was $2,669 million, of which $2,663 million was at fair value equivalent to 100 bps of MSR UPB and original cost basis of 86 bps.
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| Quarter Ended |
($ in millions) | Q2'20 | | Q3'20 |
| $ | | BPS | | $ | | BPS |
Operational revenue | $ | 294 | | 19.2 | | | $ | 273 | | 18.5 | |
Amortization, net of accretion | (102) | | (6.6) | | | (112) | | (7.6) | |
Mark-to-market | (261) | | (17.1) | | | (29) | | (2.0) | |
Total revenues | (69) | | (4.5) | | | 132 | | 8.9 | |
Total expenses | (122) | | (8.0) | | | (99) | | (6.7) | |
Total other expenses, net | (60) | | (3.9) | | | (65) | | (4.4) | |
Loss before taxes | (251) | | (16.4) | | | (32) | | (2.2) | |
Mark-to-market | 261 | | 17.1 | | | 29 | | 2.0 | |
Accounting items | — | | — | | | 1 | | 0.1 | |
Pretax operating income (loss) excluding mark-to-market and accounting items | $ | 10 | | 0.7 | | | $ | (2) | | (0.1) | |
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| Quarter Ended |
| Q2'20 | | Q3'20 |
Ending UPB ($B) | $ | 596 | | | $ | 588 | |
Average UPB ($B) | $ | 612 | | | $ | 591 | |
60+ day delinquency rate at period end | 4.7 | % | | 5.9 | % |
Annualized CPR | 26.0 | % | | 30.1 | % |
Modifications and workouts | 6,582 | | | 23,725 | |
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Originations
The Originations segment focuses on creating servicing assets at attractive margins by acquiring loans through the correspondent channel and principally refinancing existing loans in the direct-to-consumer channel. Originations earned pretax income of $438 million.
Mr. Cooper funded 58,140 loans in the third quarter, totaling approximately $15.6 billion UPB, which was comprised of $9.1 billion in direct-to-consumer and $6.5 billion in correspondent. Funded volume increased 45% quarter-over-quarter.
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| Quarter Ended |
($ in millions) | Q2'20 | | Q3'20 |
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Income before taxes | $ | 433 | | | $ | 438 | |
Accounting items | 1 | | | — | |
Pretax operating income excluding accounting items | $ | 434 | | | $ | 438 | |
| Quarter Ended |
($ in millions) | Q2'20 | | Q3'20 |
Total pull through adjusted volume | $ | 12,394 | | | $ | 19,794 | |
Funded volume | $ | 10,729 | | | $ | 15,598 | |
Refinance recapture percentage | 31 | % | | 31 | % |
Recapture percentage | 26 | % | | 25 | % |
Purchase volume as a percentage of funded volume | 10 | % | | 16 | % |
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 $15 million and pretax operating income of $18 million in the third quarter, which excluded intangible amortization.
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| Quarter Ended |
($ in millions) | Q2'20 | | Q3'20 |
Income before taxes | $ | 12 | | | $ | 15 | |
Intangible amortization | 1 | | | 3 | |
Pretax operating income excluding intangible amortization | $ | 13 | | | $ | 18 | |
| Quarter Ended |
($ in millions) | Q2'20 | | Q3'20 |
Exchange property sold | 1,191 | | | 860 | |
Average Exchange property listings | 17,438 | | | 15,067 | |
Services orders completed | 423,974 | | | 422,935 | |
Percentage of revenue earned from third-party customers | 53 | % | | 50 | % |
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Conference Call Webcast and Investor Presentation
The Company will host a conference call on October 29, 2020 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 1498733 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 1498733 to access the replay. The replay will be accessible through November 13, 2020 at 11:59 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 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. 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, including the severity and duration of the COVID-19 pandemic; the pandemic’s impact on the U.S. and global economies; federal, state, and local governmental responses to the pandemic; borrower forbearance rates and availability of financing. 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
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MR. COOPER GROUP INC. AND SUBSIDIARIES |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(millions of dollars, except for earnings per share data) |
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| Three Months Ended
June 30, 2020 | | Three Months Ended
September 30, 2020 |
Revenues: | | | |
Service related, net, excluding mark-to-market | $ | 273 | | | $ | 256 | |
Mark-to-market | (261 | ) | | (29 | ) |
Net gain on mortgage loans held for sale | 618 | | | 645 | |
Total revenues | 630 | | | 872 | |
Total expenses: | 419 | | | 431 | |
Other expense, net: | | | |
Interest income | 76 | | | 56 | |
Interest expense | (177 | ) | | (165 | ) |
Other expense, net | — | | | (51 | ) |
Total other expense, net | (101 | ) | | (160 | ) |
Income before income tax expense | 110 | | | 281 | |
Income tax expense | 37 | | | 67 | |
Net income | 73 | | | 214 | |
Net income attributable to non-controlling interest | — | | | 5 | |
Net income attributable to Mr. Cooper Group | 73 | | | 209 | |
Undistributed earnings attributable to participating stockholders | 1 | | | 2 | |
Net income attributable to common stockholders | $ | 72 | | | $ | 207 | |
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Net income per share attributable to common stockholders: | | | |
Basic | $ | 0.78 | | | $ | 2.26 | |
Diluted | $ | 0.77 | | | $ | 2.18 | |
Weighted average shares of common stock outstanding (in millions): | | | |
Basic | 92.0 | | | 91.7 | |
Diluted | 93.0 | | | 95.1 | |
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MR. COOPER GROUP INC. AND SUBSIDIARIES |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
(millions of dollars) |
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| June 30, 2020 | | September 30, 2020 |
Assets | | | |
Cash and cash equivalents | $ | 1,041 | | | $ | 946 | |
Restricted cash | 260 | | | 229 | |
Mortgage servicing rights | 2,763 | | | 2,669 | |
Advances and other receivables, net | 668 | | | 745 | |
Reverse mortgage interests, net | 5,709 | | | 5,460 | |
Mortgage loans held for sale at fair value | 3,179 | | | 3,817 | |
Property and equipment, net | 115 | | | 114 | |
Deferred tax assets, net | 1,391 | | | 1,344 | |
Other assets | 2,174 | | | 6,431 | |
Total assets | $ | 17,300 | | | $ | 21,755 | |
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Liabilities and Stockholders' Equity | | | |
Unsecured senior notes, net | $ | 2,261 | | | $ | 2,167 | |
Advance and warehouse facilities, net | 4,506 | | | 4,851 | |
Payables and other liabilities | 2,460 | | | 6,590 | |
MSR related liabilities - nonrecourse at fair value | 1,173 | | | 1,091 | |
Mortgage servicing liabilities | 48 | | | 44 | |
Other nonrecourse debt, net | 4,707 | | | 4,671 | |
Total liabilities | 15,155 | | | 19,414 | |
Total stockholders' equity | 2,145 | | | 2,341 | |
Total liabilities and stockholders' equity | $ | 17,300 | | | $ | 21,755 | |
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UNAUDITED SEGMENT STATEMENT OF |
OPERATIONS & EARNINGS RECONCILIATION |
(millions of dollars, except for earnings per share data) |
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| Three Months Ended June 30, 2020 |
| Servicing | | Originations | | Xome | | Corporate/
Other | | Consolidated |
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Service related, net | $ | (114 | ) | | $ | 21 | | | $ | 106 | | $ | (1 | ) | | $ | | 12 |
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Net gain on mortgage loans held for sale | 45 | | | 573 | | | — | | — | | | 618 | |
Total revenues | (69 | ) | | 594 | | | 106 | | (1 | ) | | 630 | |
Total expenses | 122 | | | 167 | | | 95 | | 35 | | | 419 | |
Other (expense) income, net: | | | | | | | | | |
Interest income | 57 | | | 19 | | | — | | — | | | 76 | |
Interest expense | (117 | ) | | (13 | ) | | — | | (47 | ) | | (177 | ) |
Other income (expense), net | — | | | — | | | 1 | | (1 | ) | | — | |
Total other (expense) income, net | (60 | ) | | 6 | | | 1 | | (48 | ) | | (101 | ) |
Pretax (loss) income | $ | (251 | ) | | $ | 433 | | | $ | 12 | | $ | (84 | ) | | $ | 110 | |
Income tax expense | | | | | | | | | 37 | |
Net income | | | | | | | | | 73 | |
Net income attributable to noncontrolling interests | | | | | | | | | — | |
Net income attributable to common stockholders of Mr. Cooper Group | | | | | | | | | 73 | |
Undistributed earnings attributable to participating stockholders | | | | | | | | | 1 | |
Net income attributable to common stockholders | | | | | | | | | $ | 72 | |
Net income per share | | | | | | | | | |
Basic | | | | | | | | | $ | 0.78 | |
Diluted | | | | | | | | | $ | 0.77 | |
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Non-GAAP Reconciliation: | | | | | | | | | |
Pretax (loss) income | $ | (251 | ) | | $ | 433 | | | $ | 12 | | $ | (84 | ) | | $ | 110 | |
Mark-to-market | 261 | | | — | | | — | | — | | | 261 | |
Accounting items / other | — | | | 1 | | | — | | — | | | 1 | |
Intangible amortization | — | | | — | | | 1 | | 6 | | | 7 | |
Pretax income (loss), net of notable items | 10 | | | 434 | | | 13 | | (78 | ) | | 379 | |
Fair value amortization (1) | (29 | ) | | — | | | — | | — | | | (29 | ) |
Pretax operating (loss) income | $ | (19 | ) | | $ | 434 | | | $ | 13 | | $ | (78 | ) | | $ | 350 | |
Income tax expense | | | | | | | | | (85 | ) |
Operating income | | | | | | | | | $ | 265 | |
ROTCE | | | | | | | | | | | 55.0 | % |
(1) Amount represents additional amortization required under the fair value amortization method over the cost amortization method. |
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UNAUDITED SEGMENT STATEMENT OF |
OPERATIONS & EARNINGS RECONCILIATION |
(millions of dollars, except for earnings per share data) |
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| Three Months Ended September 30, 2020 |
| Servicing | | Originations | | Xome | | Corporate/
Other | | Consolidated |
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Service related, net | $ | 92 | | | $ | 27 | | | $ | 108 | | $ | — | | | $ | 227 | |
Net gain on mortgage loans held for sale | 40 | | | 605 | | | — | | — | | | 645 | |
Total revenues | 132 | | | 632 | | | 108 | | — | | | 872 | |
Total expenses | 99 | | | 195 | | | 94 | | 43 | | | | 431 |
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Other (expense) income, net: | | | | | | | | | |
Interest income | 40 | | | 16 | | | — | | — | | | 56 | |
Interest expense | (105 | ) | | (15 | ) | | — | | (45 | ) | | (165 | ) |
Other income (expense), net | — | | | — | | | 1 | | (52 | ) | | (51 | ) |
Total other (expense) income, net | (65 | ) | | 1 | | | 1 | | (97 | ) | | (160 | ) |
Pretax (loss) income | $ | (32 | ) | | $ | 438 | | | $ | 15 | | $ | (140 | ) | | $ | 281 | |
Income tax expense | | | | | | | | | 67 | |
Net income | | | | | | | | | 214 | |
Net income attributable to noncontrolling interests | | | | | | | | | 5 | |
Net income attributable to common stockholders of Mr. Cooper Group | | | | | | | | | 209 | |
Undistributed earnings attributable to participating stockholders | | | | | | | | | 2 | |
Net income attributable to common stockholders | | | | | | | | | $ | 207 | |
Net income per share | | | | | | | | | |
Basic | | | | | | | | | $ | 2.26 | |
Diluted | | | | | | | | | $ | 2.18 | |
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Non-GAAP Reconciliation: | | | | | | | | | |
Pretax (loss) income | $ | (32 | ) | | $ | 438 | | | $ | 15 | | $ | (140 | ) | | $ | 281 | |
Mark-to-market | 29 | | | — | | | — | | — | | | 29 | |
Accounting items / other | 1 | | | — | | | — | | 53 | | | 54 | |
Intangible amortization | — | | | — | | | 3 | | 6 | | | 9 | |
Pretax (loss) income, net of notable items | (2 | ) | | 438 | | | 18 | | (81 | ) | | 373 | |
Fair value amortization (1) | (25 | ) | | — | | | — | | — | | | (25 | ) |
Pretax operating (loss) income | $ | (27 | ) | | $ | 438 | | | $ | 18 | | $ | (81 | ) | | $ | 348 | |
Income tax expense | | | | | | | | | (84 | ) |
Operating income | | | | | | | | | $ | 264 | |
ROTCE | | | | | | | | | | 50.9 | % |
(1) Amount represents additional amortization required under the fair value amortization method over the cost amortization method. |
