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Mr. Cooper Group Reports Fourth Quarter 2019 Financial Results

·12 min read
  • Reported $461 million net income or $4.95 per diluted share, including $285 million recovery of valuation allowance and positive $102 million mark-to-market

  • Strong pretax operating income of $125 million, equivalent to a 21.1% after-tax ROTCE

  • Generated Originations pretax income of $138 million on record funded volume of $12.6 billion

  • Servicing UPB portfolio remained stable, ending the quarter at $643 billion

  • Xome reported pretax income of $9 million and pretax operating income of $14 million

  • Tangible book value per diluted share increased from $16.88 to $22.00

  • Subsequent to quarter end, called $100 million of senior notes, issued $600 million in senior notes maturing 2027 with coupon of 6.0%, and redeemed senior notes maturing 2021 and 2022

Mr. Cooper Group Inc. (NASDAQ: COOP) (the "Company"), which principally operates under the Mr. Cooper® and Xome® brands, reported a fourth quarter net income of $461 million or $4.95 per diluted share. Net income included $285 million recovery of deferred tax asset ("DTA") reserve and positive $102 million in mark-to-market. Excluding the mark-to-market and other items, the Company reported pretax operating income of $125 million. Items excluded from operating income were $102 million in mark-to-market, net of the add back of $31 million in fair value amortization that is included in the full mark-to-market, $6 million in severance charges related to corporate actions, and $12 million of intangible amortization.

Chairman and CEO Jay Bray commented, "This was a strong operating quarter with solid results in Originations and Xome and a stable quarter in servicing, capping a year of tremendous progress for the organization. We successfully delivered on our commitments to integrate recent acquisitions and improve profitability."

Chris Marshall, vice chairman and CFO, added, "In addition to delivering strong operating performance, we made progress in our balance sheet strategy by deleveraging and building liquidity, which is key to sustaining return on equity and growth over the long term."

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 fourth quarter, Servicing recorded pretax income of $189 million. The total servicing portfolio remained stable, ending the quarter at $643 billion UPB. Servicing earned pretax operating income excluding the full mark of $87 million, equivalent to a servicing margin of 5.5 bps. At quarter end, the carrying value of the MSR was $3,502 million, of which $3,496 million was at fair value equivalent to 118 bps of MSR UPB and original cost basis of 86 bps.

Quarter Ended

($ in millions)

Q3'19

Q4'19

$

BPS

$

BPS

Operational revenue

$

319

20.0

$

316

20.1

Amortization, net of accretion

(73

)

(4.6

)

(84

)

(5.3

)

Mark-to-market

(83

)

(5.2

)

102

6.4

Total revenues

163

10.2

334

21.2

Total expenses

(171

)

(10.7

)

(135

)

(8.6

)

Total other income (expenses), net

17

1.1

(10

)

(0.6

)

Income before taxes

9

0.6

189

12.0

Mark-to-market

83

5.2

(102

)

(6.5

)

Pretax operating income excluding mark-to-market

$

92

5.8

$

87

5.5

Quarter Ended

Q3'19

Q4'19

Ending UPB ($B)

$

641

$

643

Average UPB ($B)

$

637

$

630

60+ day delinquency rate at period end

2.2

%

2.0

%

Annualized CPR

17.5

%

19.1

%

Modifications and workouts

8,792

9,873

Originations

The Originations segment focuses on creating servicing assets at attractive margins through existing customer relationships, correspondent, and wholesale originations. Originations earned pretax income of $138 million.

Mr. Cooper funded 51,508 loans in the fourth quarter, totaling approximately $12.6 billion UPB comprised of $5.8 billion in direct-to-consumer, $6.2 billion in correspondent, and $0.6 billion in wholesale. Funded volume increased 5% quarter-over-quarter.

Quarter Ended

($ in millions)

Q3'19

Q4'19

Income before taxes

$

178

$

138

Quarter Ended

($ in millions)

Q3'19

Q4'19

Total pull through adjusted volume

$

12,699

$

12,537

Funded volume

$

11,911

$

12,559

Refinance recapture percentage

38

%

39

%

Recapture percentage

25

%

29

%

Purchase volume as a percentage of funded volume

39

%

32

%

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 $9 million and pretax operating income of $14 million in the fourth quarter, which excluded severance charges, and intangible amortization.

Quarter Ended

($ in millions)

Q3'19

Q4'19

Income before taxes

$

14

$

9

Accounting items / other

(4

)

3

Intangible amortization

3

2

Pretax operating income excluding intangible amortization and accounting items

$

13

$

14

Quarter Ended

Q3'19

Q4'19

Exchange properties sold

2,453

2,332

Average Exchange properties under management

6,688

11,917

Services completed orders

429,128

403,779

Percentage of revenue earned from third-party customers

53

%

51

%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on February 25, 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 2299433 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 2299433 to access the replay. The replay will be accessible through March 11, 2020 at 1:00 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 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.

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months Ended September 30, 2019

Three Months Ended December 31, 2019

Revenues:

Service related, net, excluding mark-to-market

$

341

$

328

Mark-to-market

(83

)

102

Net gain on mortgage loans held for sale

360

310

Total revenues

618

740

Total expenses

478

438

Other income (expense):

Interest income

163

146

Interest expense

(196

)

(207

)

Other expense, net

(1

)

Total other income (expenses), net

(33

)

(62

)

Income before income tax expense (benefit)

107

240

Income tax expense (benefit)

24

(221

)

Net income

83

461

Net loss attributable to non-controlling interest

(1

)

(2

)

Net income attributable to Mr. Cooper Group

84

463

Undistributed earnings attributable to participating stockholders

1

4

Net income attributable to common stockholders

$

83

$

459

Net income per share attributable to common stockholders:

Basic

$

0.91

$

5.03

Diluted

$

0.90

$

4.95

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

Basic

91,080

91,105

Diluted

92,036

92,599

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

September 30, 2019

December 31, 2019

Assets

Cash and cash equivalents

$

371

$

329

Restricted cash

271

283

Mortgage servicing rights

3,346

3,502

Advances and other receivables, net

967

988

Reverse mortgage interests, net

6,662

6,279

Mortgage loans held for sale at fair value

4,267

4,077

Property and equipment, net

113

112

Deferred tax asset, net

1,032

1,345

Other assets

1,449

1,390

Total assets

$

18,478

$

18,305

Liabilities and Stockholders’ Equity

Unsecured senior notes, net

$

2,464

$

2,366

Advance facilities, net

513

422

Warehouse facilities, net

4,802

4,575

Payables and other liabilities

2,002

2,016

MSR related liabilities - nonrecourse at fair value

1,328

1,348

Mortgage servicing liabilities

69

61

Other nonrecourse debt, net

5,533

5,286

Total liabilities

16,711

16,074

Total stockholders’ equity

1,767

2,231

Total liabilities and stockholders’ equity

$

18,478

$

18,305

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended September 30, 2019

Servicing

Originations

Xome

Corporate/ Other

Elimination

Consolidated

Service related, net

$

126

$

22

$

112

$

$

(2

)

$

258

Net gain on mortgage loans held for sale

37

312

11

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 income (expense), net

(1

)

3

(2

)

Total other income (expense), net

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 Mr. Cooper Group

$

84

Undistributed earnings attributable to participating stockholders

1

Net income attributable to common stockholders

$

83

Net 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(1)

(32

)

(32

)

Pretax operating income (loss)

$

60

$

178

$

13

$

(80

)

$

$

171

Income tax expense

(41

)

Operating income

$

130

ROTCE

34.5

%

(1) 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 December 31, 2019

Servicing

Originations

Xome

Corporate/ Other

Elimination

Consolidated

Service related, net

$

300

$

23

$

106

$

2

(1

)

$

430

Net gain on mortgage loans held for sale

34

276

310

Total revenues

334

299

106

2

(1

)

740

Total expenses

135

164

97

43

(1

)

438

Other income (expense):

Interest income

112

34

146

Interest expense

(126

)

(31

)

(50

)

(207

)

Other income (expense), net

4

(5

)

(1

)

Total other income (expense), net

(10

)

3

(55

)

(62

)

Pretax income (loss)

$

189

$

138

$

9

$

(96

)

$

$

240

Income tax benefit

(221

)

Net income

$

461

Net loss attributable to noncontrolling interests

(2

)

Net income attributable to Mr. Cooper Group

$

463

Undistributed earnings attributable to participating stockholders

4

Net income attributable to common stockholders

$

459

Net income per share

Basic

$

5.03

Diluted

$

4.95

Non-GAAP Reconciliation:

Pretax income (loss)

189

138

9

(96

)

$

240

Mark-to-market

(102

)

(102

)

Accounting items / other

3

3

6

Intangible amortization

2

10

12

Pretax income (loss), net of notable items

$

87

$

138

$

14

$

(83

)

$

$

156

Fair value amortization(1)

(31

)

(31

)

Pretax operating income (loss)

$

56

$

138

$

14

$

(83

)

$

$

125

Income tax expense

(30

)

Operating income

$

95

ROTCE

21.1

%

(1) 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)

Year Ended December 31, 2019

Servicing

Originations

Xome

Corporate/ Other

Elimination

Consolidated

Service related, net

$

408

$

80

$

422

$

2

$

(3

)

$

909

Net gain on mortgage loans held for sale

124

963

11

1,098

Total revenues

532

1,043

422

13

(3

)

2,007

Total expenses

690

568

398

198

(3

)

1,851

Other income (expense):

Interest income

500

98

7

605

Interest expense

(469

)

(98

)

(212

)

(779

)

Other income (expense), net

4

4

14

(7

)

15

Total other income (expense), net

35

4

14

(212

)

(159

)

Pretax (loss) income

$

(123

)

$

479

$

38

$

(397

)

$

$

(3

)

Income tax benefit

(273

)

Net income

$

270

Net loss attributable to noncontrolling interests

(4

)

Net income attributable to Mr. Cooper Group

$

274

Undistributed earnings attributable to participating stockholders

2

Net income attributable to common stockholders

$

272

Net income per share

Basic

$

2.99

Diluted

$

2.95

Non-GAAP Reconciliation:

Pretax (loss) income

(123

)

479

38

(397

)

$

(3

)

Mark-to-market

505

505

Accounting items / other

(9

)

(12

)

8

(13

)

Merger related costs

37

37

Intangible amortization

11

39

50

Pretax income (loss), net of notable items

$

373

$

479

$

37

$

(313

)

$

$

576

Fair value amortization(1)

(114

)

(114

)

Pretax operating income (loss)

$

259

$

479

$

37

$

(313

)

$

$

462

Income tax expense

(112

)

Operating income

$

350

ROTCE

21.7

%

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20200225005286/en/

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