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Mr. Cooper Group Reports Fourth Quarter 2020 Financial Results

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·13 min read
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  • Reported $191 million net income or $2.00 per diluted share

  • Generated strong pretax operating income of $329 million, equivalent to a ROTCE of 44.1%

  • Tangible book value per share increased to $26.27 from $23.95 in the prior quarter

  • Originations segment generated pretax income of $435 million on record funded volume of $24.5 billion, up 57% quarter-over-quarter

  • Servicing portfolio grew 7% quarter-over-quarter to $626 billion

  • Redeemed $750 million of senior notes with $100 million cash and issued $650 million in new notes at 5.125%, extending liquidity runway to 6 years

  • Repurchased 1.4 million shares of common stock for $34 million

  • Quarter-end unrestricted cash of $695 million

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 $191 million or $2.00 per diluted share. Net income included a negative $6 million in mark-to-market, and $85 million expense on redemption of unsecured senior notes (debt breakage costs). Excluding the mark-to-market, fair value amortization of $26 million, debt breakage costs, and other items, the Company reported pretax operating income of $329 million. Other items were $5 million in severance charges related to corporate actions, $5 million in business shutdown costs, and $7 million of intangible amortization.

Chairman and CEO Jay Bray commented, "Strong results in the fourth quarter capped an outstanding year for Mr. Cooper. Despite all the challenges and uncertainties, we never wavered from our focus on the customer, whether it was helping people enter and exit forbearance or save money by refinancing. We enter 2021 with a strong operating and financial momentum, extremely talented and dedicated teammates, and unmatched technology and operational capacity."

Chris Marshall, Vice Chairman and CFO added, "Consistent cash flow allowed us to continue down the path of deleveraging and refinancing our senior notes, which has not only reduced our funding costs, but also leaves us in the position of having no maturities for six years. The company’s balance sheet has never been in better shape."

Servicing

The Servicing segment is focused on providing a best-in-class home loan experience for our 3.5 million customers while simultaneously strengthening asset performance for investors. In the fourth quarter, Servicing recorded pretax loss of $29 million, reflecting $6 million in mark-to-market. The total servicing portfolio ended the quarter at $626 billion UPB. Servicing generated pretax operating loss, excluding the full mark and accounting items, of $21 million, equivalent to a servicing margin of negative 1.4 bps. At quarter end, the carrying value of the MSR was $2.7 billion, equivalent to 100 bps of MSR UPB and original cost basis of 86 bps.

Quarter Ended

($ in millions)

Q3'20

Q4'20

$

BPS

$

BPS

Operational revenue

$

273

18.5

$

326

21.4

Amortization, net of accretion

(112)

(7.6)

(130)

(8.5)

Mark-to-market

(29)

(2.0)

(6)

(0.4)

Total revenues

132

8.9

190

12.5

Total expenses

(99)

(6.7)

(169)

(11.1)

Total other expenses, net

(65)

(4.4)

(50)

(3.3)

Loss before taxes

(32)

(2.2)

(29)

(1.9)

Mark-to-market

29

2.0

6

0.4

Accounting items

1

0.1

2

0.1

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

$

(2)

(0.1)

$

(21)

(1.4)

Quarter Ended

Q3'20

Q4'20

Ending UPB ($B)

$

588

$

626

Average UPB ($B)

$

591

$

608

60+ day delinquency rate at period end

5.9

%

5.8

%

Annualized CPR

30.1

%

33.1

%

Modifications and workouts

23,725

25,525

Originations

The Originations segment focuses on creating servicing assets at attractive margins by acquiring loans through the correspondent channel and refinancing existing loans in the direct-to-consumer channel. Originations earned pretax income of $435 million.

Mr. Cooper funded 85,452 loans in the fourth quarter, totaling approximately $24.5 billion UPB, which was comprised of $10.9 billion in direct-to-consumer and $13.6 billion in correspondent. Funded volume increased 57% quarter-over-quarter.

Quarter Ended

($ in millions)

Q3'20

Q4'20

Income before taxes

$

438

$

435

Quarter Ended

($ in millions)

Q3'20

Q4'20

Total pull through adjusted volume

$

19,794

$

23,706

Funded volume

$

15,598

$

24,526

Refinance recapture percentage

31

%

35

%

Recapture percentage

25

%

29

%

Purchase volume as a percentage of funded volume

16

%

18

%

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 $10 million and pretax operating income of $18 million in the fourth quarter, which excluded intangible amortization and accounting items related to business shutdown costs and severance.

Quarter Ended

($ in millions)

Q3'20

Q4'20

Income before taxes

$

15

$

10

Accounting items / other

6

Intangible amortization

3

2

Pretax operating income excluding accounting items and intangible amortization

$

18

$

18

Quarter Ended

Q3'20

Q4'20

Exchange property sold

860

777

Average Exchange property listings

15,067

15,132

Title Completed Orders

223,497

205,718

Solution Completed Orders

635,059

709,121

Percentage of revenue earned from third-party customers

50

%

47

%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on February 23, 2021 at 10:00 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 4794750 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 4794750 to access the replay. The replay will be accessible through March 10, 2021 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. 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

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months Ended
September 30, 2020

Three Months Ended
December 31, 2020

Revenues:

Service related, net, excluding mark-to-market

$

256

$

243

Mark-to-market

(29)

(6)

Net gain on mortgage loans held for sale

645

716

Total revenues

872

953

Total expenses:

431

537

Other expense, net:

Interest income

56

84

Interest expense

(165)

(168)

Other expense, net

(51)

(85)

Total other expense, net

(160)

(169)

Income before income tax expense

281

247

Income tax expense

67

56

Net income

214

191

Net income attributable to non-controlling interest

5

Net income attributable to Mr. Cooper Group

209

191

Undistributed earnings attributable to participating stockholders

2

2

Net income attributable to common stockholders

$

207

$

189

Net income per share attributable to common stockholders:

Basic

$

2.26

$

2.10

Diluted

$

2.18

$

2.00

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

Basic

91.7

90.2

Diluted

95.1

94.7

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

September 30, 2020

December 31, 2020

Assets

Cash and cash equivalents

$

946

$

695

Restricted cash

229

218

Mortgage servicing rights

2,669

2,708

Advances and other receivables, net

745

940

Reverse mortgage interests, net

5,460

5,253

Mortgage loans held for sale at fair value

3,817

5,720

Property and equipment, net

114

116

Deferred tax assets, net

1,344

1,340

Other assets

6,431

7,175

Total assets

$

21,755

$

24,165

Liabilities and Stockholders' Equity

Unsecured senior notes, net

$

2,167

$

2,074

Advance and warehouse facilities, net

4,851

6,763

Payables and other liabilities

6,590

7,392

MSR related liabilities - nonrecourse at fair value

1,091

967

Mortgage servicing liabilities

44

41

Other nonrecourse debt, net

4,671

4,424

Total liabilities

19,414

21,661

Total stockholders' equity

2,341

2,504

Total liabilities and stockholders' equity

$

21,755

$

24,165

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended September 30, 2020

Servicing

Originations

Xome

Corporate/ Other

Consolidated

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

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

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 income (loss), 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.

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended December 31, 2020

Servicing

Originations

Xome

Corporate/ Other

Consolidated

Service related, net

$

87

$

37

$

113

$

$

237

Net gain on mortgage loans held for sale

103

613

716

Total revenues

190

650

113

953

Total expenses

169

218

104

46

537

Other (expense) income, net:

Interest income

57

26

1

84

Interest expense

(107

)

(23

)

(38

)

(168

)

Other income (expense), net

1

(86

)

(85

)

Total other (expense) income, net

(50

)

3

1

(123

)

(169

)

Pretax (loss) income

$

(29

)

$

435

$

10

$

(169

)

$

247

Income tax expense

56

Net income

191

Net income attributable to noncontrolling interests

Net income attributable to common stockholders of Mr. Cooper Group

191

Undistributed earnings attributable to participating stockholders

2

Net income attributable to common stockholders

$

189

Net income per share

Basic

$

2.10

Diluted

$

2.00

Non-GAAP Reconciliation:

Pretax (loss) income

$

(29

)

$

435

$

10

$

(169

)

$

247

Mark-to-market

6

6

Accounting items / other

2

6

87

95

Intangible amortization

2

5

7

Pretax (loss) income, net of notable items

(21

)

435

18

(77

)

355

Fair value amortization (1)

(26

)

(26

)

Pretax operating (loss) income

$

(47

)

$

435

$

18

$

(77

)

$

329

Income tax expense

(80

)

Operating income

$

249

ROTCE

44.1

%

(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, 2020

Servicing

Originations

Xome

Corporate/ Other

Consolidated

Service related, net

$

(115

)

$

105

$

433

$

$

423

Net gain on mortgage loans held for sale

222

2,088

2,310

Total revenues

107

2,193

433

2,733

Total expenses

539

746

389

157

1,831

Other (expense) income, net:

Interest income

237

95

2

334

Interest expense

(442

)

(78

)

(182

)

(702

)

Other income (expense), net

4

(139

)

(135

)

Total other (expense) income, net

(205

)

17

4

(319

)

(503

)

Pretax (loss) income

$

(637

)

$

1,464

$

48

$

(476

)

$

399

Income tax expense

92

Net income

307

Net income attributable to noncontrolling interests

2

Net income attributable to common stockholders of Mr. Cooper Group

305

Undistributed earnings attributable to participating stockholders

3

Net income attributable to common stockholders

$

302

Net income per share

Basic

$

3.31

Diluted

$

3.20

Non-GAAP Reconciliation:

Pretax (loss) income

$

(637

)

$

1,464

$

48

$

(476

)

$

399

Mark-to-market

679

679

Accounting items / other

7

1

6

140

154

Intangible amortization

8

24

32

Pretax income (loss), net of notable items

49

1,465

62

(312

)

1,264

Fair value amortization (1)

(110

)

(110

)

Pretax operating (loss) income

$

(61

)

$

1,465

$

62

$

(312

)

$

1,154

Income tax expense

(279

)

Operating income

$

875

ROTCE

42.5

%

(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/20210223005272/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