Business Wire | Jul 29, 2021 07:00AM EDT

Mr. Cooper Group Reports Second Quarter 2021 Net Income of $439 Million

Jul. 29, 2021

DALLAS--(BUSINESS WIRE)--Jul. 29, 2021--Mr. Cooper Group Inc. (NASDAQ: COOP) (the "Company"), which principally operates under the Mr. Cooper(r) and Xome(r) brands, reported second quarter net income of $439 million or $4.85 per diluted share. Net income included a $135 million mark-to-market charge, which excludes fair value amortization of $45 million. Excluding mark-to-market and other items, the Company reported pretax operating income of $227 million. Other items were $7 million in severance charges related to corporate actions, $485 million in gain on the sale of Title365, net of transaction costs, $16 million in discontinued operations related to the reverse portfolio, and $3 million of intangible amortization.

Chairman and CEO Jay Bray commented, "Not only did we generate very solid operating returns this quarter, but also we took strategic actions, including the sale of Title365 and Reverse, which rationalize and simplify the business model, strengthen the balance sheet, and prepare us for faster growth."

Chris Marshall, Vice Chairman, President, and CFO added, "The company's balance sheet has never been stronger, with $1.2 billion in cash as of July 1, 2021 including the proceeds of the sale of Title365 and immediately accessible liquidity of $509 million. Additionally, pro forma for the sale of the Reverse portfolio, our capital ratio exceeded our previously disclosed target of 15%."

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 second quarter, Servicing recorded a pretax loss of $56 million, reflecting a total mark-to-market charge of $180 million, which included $135 million in other mark-to-market and $45 million in fair value amortization. The forward servicing portfolio ended the quarter at $654 billion UPB. Servicing generated pretax operating income, excluding the full mark-to-market and accounting items, of $125 million. At quarter end, the carrying value of the MSR was $3,307 million equivalent to 115 bps of MSR UPB and original cost basis of 86 bps.

Quarter Ended

($ in millions) Q1'21 Q2'21

$ BPS $ BPS

Operational revenue $ 370 24.0 $ 443 27.4

Amortization, net of accretion (156 ) (10.1) (158 ) (9.8)

Mark-to-market 354 22.9 (180 ) (11.1)

Total revenues 568 36.8 105 6.5

Total expenses (110 ) (7.1) (121 ) (7.5)

Total other expenses, net (48 ) (3.2) (40 ) (2.5)

Income (loss) before taxes from continuing 410 26.5 (56 ) (3.5)operations

Mark-to-market (354 ) (22.9) 180 11.1

Accounting items - - 1 0.1

Pretax operating income excluding $ 56 3.6 $ 125 7.7mark-to-market and accounting items



Quarter Ended

Q1'21 Q2'21

Ending UPB ($B) $ 629 $ 654

Average UPB ($B) $ 617 $ 647

60+ day delinquency rate at period end 5.3 % 4.5 %

Annualized CPR 30.8 % 26.0 %

Modifications and workouts 33,976 35,581

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 $207 million and pretax operating income of $213 million, which excluded $6 million in severance charges related to corporate actions.

The Company funded 83,871 loans in the second quarter, totaling approximately $22.2 billion UPB, which was comprised of $10.5 billion in direct-to-consumer and $11.7 billion in correspondent. Funded volume decreased 12% quarter-over-quarter.

Quarter Ended

($ in millions) Q1'21 Q2'21

Income before taxes from continuing operations $ 362 $ 207

Accounting items / other - 6

Pretax operating income excluding accounting items $ 362 $ 213

Quarter Ended

($ in millions)

Q1'21

Q2'21

Total pull through adjusted volume

$

23,267

$

18,358

Funded volume

$

25,133

$

22,227

Refinance recapture percentage

37

%

42

%

Recapture percentage

31

%

32

%

Purchase volume as a percentage of funded volume

12

%

24

%

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 $480 million and pretax operating loss of $4 million in the second quarter, which excluded intangible amortization and a $485 million gain, net of transactions costs, related to the sale of Title365.

Quarter Ended

($ in millions) Q1'21 Q2'21

Total pull through adjusted volume $ 23,267 $ 18,358

Funded volume $ 25,133 $ 22,227

Refinance recapture percentage 37 % 42 %

Recapture percentage 31 % 32 %

Purchase volume as a percentage of funded volume 12 % 24 %

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 $480 million and pretax operating loss of $4 million in the second quarter, which excluded intangible amortization and a $485 million gain, net of transactions costs, related to the sale of Title365.

Quarter Ended

($ in millions) Q1'21 Q2'21

Income before taxes from continuing operations $ 9 $ 480

Accounting items / other 3 (485 )

Intangible amortization 1 1

Pretax operating income (loss) excluding accounting items and $ 13 $ (4 )intangible amortization

Quarter Ended

Q1'21

Q2'21

Exchange properties sold

710

659

Average Exchange properties under management

14,210

14,196

Title Completed Orders

188,356

-

Solutions Completed Orders

546,552

475,507

Percentage of revenue earned from third-party customers

48

%

36

%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on July 29, 2021 at 10:00 A.M. Eastern Time. Preregistration for the call is now available in the Investor section of www.mrcoopergroup.com. Participants will receive a toll-free dial-in number and a unique registrant ID to be used for immediate call access. A simultaneous audio webcast of the conference call will be available under the investors section on www.mrcoopergroup.com. A telephonic replay will also be available approximately two hours after the conclusion of the conference call by dialing 855-859-2056 (toll-free), or 404-537-3406 (international). Please use the passcode 6059502 to access the replay.

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. Return on tangible common equity (ROTCE) is computed by dividing net income by average tangible common equity (also known as tangible book value). Tangible common equity equals total stockholders' equity less goodwill and intangible assets. Management believes that ROTCE is a useful financial measure because it measures the performance of a business consistently and enables investors and others to assess the Company's use of equity. Tangible book value is defined as stockholders' equity less goodwill and intangible assets. Our management believes tangible book value is useful to investors because it provides a more accurate measure of the realizable value of shareholder returns, excluding the impact of goodwill and intangible assets.

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

Quarter Ended

Q1'21 Q2'21

Exchange properties sold 710 659

Average Exchange properties under management 14,210 14,196

Title Completed Orders 188,356 -

Solutions Completed Orders 546,552 475,507

Percentage of revenue earned from third-party customers 48 % 36 %

Conference Call Webcast and Investor Presentation

The Company will host a conference call on July 29, 2021 at 10:00 A.M. Eastern Time. Preregistration for the call is now available in the Investor section of www.mrcoopergroup.com. Participants will receive a toll-free dial-in number and a unique registrant ID to be used for immediate call access. A simultaneous audio webcast of the conference call will be available under the investors section on www.mrcoopergroup.com. A telephonic replay will also be available approximately two hours after the conclusion of the conference call by dialing 855-859-2056 (toll-free), or 404-537-3406 (international). Please use the passcode 6059502 to access the replay.

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. Return on tangible common equity (ROTCE) is computed by dividing net income by average tangible common equity (also known as tangible book value). Tangible common equity equals total stockholders' equity less goodwill and intangible assets. Management believes that ROTCE is a useful financial measure because it measures the performance of a business consistently and enables investors and others to assess the Company's use of equity. Tangible book value is defined as stockholders' equity less goodwill and intangible assets. Our management believes tangible book value is useful to investors because it provides a more accurate measure of the realizable value of shareholder returns, excluding the impact of goodwill and intangible assets.

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 Three Months Ended Ended March 31, June 30, 2021 2021

Revenues:

Service related, net, excluding mark-to-market $ 226 $ 172

Mark-to-market 354 (180 )

Net gain on mortgage loans held for sale 679 582

Total revenues 1,259 574

Total expenses: 454 425

Other expense, net:

Interest income 46 51

Interest expense (126 ) (119 )

Other income, net - 486

Total other (expense) income, net (80 ) 418

Income before income tax expense 725 567

Income tax expense 166 140

Net income from continuing operations 559 427

Net income from discontinued operations 2 12

Net income 561 439

Net income attributable to non-controlling - - interest

Net income attributable to Mr. Cooper Group 561 439

Undistributed earnings attributable to 5 4 participating stockholders

Net income attributable to common stockholders $ 556 $ 435



Earnings from continuing operations per common share attributable to Mr. Cooper:

Basic $ 6.20 4.91

Diluted $ 5.90 4.72

Earnings from discontinued operations per common share attributable to Mr. Cooper:

Basic $ 0.02 0.14

Diluted $ 0.02 0.13

Earnings per common share attributable to Mr. Cooper:

Basic $ 6.22 5.05

Diluted $ 5.92 4.85

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

Basic 89.5 86.1

Diluted 93.9 89.6

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

March 31, 2021 June 30, 2021

Assets

Cash and cash equivalents $ 674 $ 716

Restricted cash 176 113

Mortgage servicing rights at fair value 3,354 3,307

Advances and other receivables, net 838 837

Mortgage loans held for sale at fair value 6,351 6,961

Property and equipment, net 115 110

Deferred tax assets, net 1,228 1,118

Other assets 6,791 5,211

Assets of discontinued operations 5,186 4,935

Total assets $ 24,713 $ 23,308



Liabilities and Stockholders' Equity

Unsecured senior notes, net $ 2,074 $ 2,075

Advance and warehouse facilities, net 6,869 7,310

Payables and other liabilities 6,906 4,895

MSR related liabilities - nonrecourse at fair 957 888 value

Liabilities of discontinued operations 5,003 4,790

Total liabilities 21,809 19,958

Total stockholders' equity 2,904 3,350

Total liabilities and stockholders' equity $ 24,713 $ 23,308

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended March 31, 2021

Servicing Originations Xome Corporate Consolidated / Other



Service related, net $ 441 $ 43 $ 96 $ - $ 580

Net gain on mortgage 127 552 - - 679 loans held for sale

Total revenues 568 595 96 - 1,259

Total expenses 110 231 87 26 454

Other (expense) income, net:

Interest income 23 23 - - 46

Interest expense (71 ) (25 ) - (30 ) (126 )

Total other (expense) (48 ) (2 ) - (30 ) (80 )income, net

Pretax income (loss)from continuing $ 410 $ 362 $ 9 $ (56 ) $ 725 operations

Income tax expense 166

Net income from 559 continuing operations

Net income from 2 discontinued operations

Net income 561

Net income attributableto noncontrolling - interests

Net income attributableto common stockholders 561 of Mr. Cooper Group

Undistributed earningsattributable to 5 participatingstockholders

Net income attributable $ 556 to common stockholders

Net income per share

Basic $ 6.22

Diluted $ 5.92



Non-GAAP Reconciliation:

Pretax income (loss)from continuing $ 410 $ 362 $ 9 $ (56 ) $ 725 operations

Mark-to-market (354 ) - - - (354 )

Accounting items / - - 3 1 4 other

Intangible amortization - - 1 3 4

Pretax income (loss), 56 362 13 (52 ) 379 net of notable items

Fair value amortization (19 ) - - - (19 )^(1)

Pretax operating income(loss) from continuing $ 37 $ 362 $ 13 $ (52 ) $ 360 operations

Income tax expense (87 )

Operating income fromcontinuing operations^ $ 273 (2)

ROTCE^(3) 42.7 %

Average tangible book $ 2,555 value (TBV)^(4)

(1)

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

(2)

Assumes tax-rate of 24.2%.

(3)

Computed by dividing annualized earnings by average TBV.

(4)

Average of beginning TBV of $2,353 and ending TBV of $2,757.

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

(2) Assumes tax-rate of 24.2%.

(3) Computed by dividing annualized earnings by average TBV.

(4) Average of beginning TBV of $2,353 and ending TBV of $2,757.

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended June 30, 2021

Servicing Originations Xome Corporate/ Consolidated Other



Service related, $ (92 ) $ 45 $ 39 $ - $ (8 )net

Net gain onmortgage loans 197 385 - - 582 held for sale

Total revenues 105 430 39 - 574

Total expenses 121 226 45 33 425

Other (expense) income, net:

Interest income 25 26 - - 51

Interest expense (65 ) (23 ) - (31 ) (119 )

Other income, - - 486 - 486 net

Total other(expense) (40 ) 3 486 (31 ) 418 income, net

Pretax (loss)income from $ (56 ) $ 207 $ 480 $ (64 ) $ 567 continuingoperations

Income tax 140 expense

Net income fromcontinuing 427 operations

Net income fromdiscontinued 12 operations

Net income 439

Net incomeattributable to - noncontrollinginterests

Net incomeattributable tocommon 439 stockholders ofMr. Cooper Group

Undistributedearningsattributable to 4 participatingstockholders

Net incomeattributable to $ 435 commonstockholders

Net income per share

Basic $ 5.05

Diluted $ 4.85



Non-GAAP Reconciliation:

Pretax (loss)income from $ (56 ) $ 207 $ 480 $ (64 ) $ 567 continuingoperations

Mark-to-market 180 - - - 180

Accounting items 1 6 (485 ) - (478 )/ other

Intangible - - 1 2 3 amortization

Pretax income(loss), net of 125 213 (4 ) (62 ) 272 notable items

Fair valueamortization ^ (45 ) - - - (45 )(1)

Pretax operating(loss) income $ 80 $ 213 $ (4 ) $ (62 ) $ 227 from continuingoperations

Income tax (55 )expense^(2)

Operating incomefrom continuing $ 172 operations

ROTCE^(3) 23.1 %

Average tangiblebook value (TBV) $ 2,983 ^(4)

(1)

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

(2)

Assumes tax-rate of 24.2%.

(3)

Computed by dividing annualized earnings by average TBV.

(4)

Average of beginning TBV of $2,757 and ending TBV of $3,208.

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

(2) Assumes tax-rate of 24.2%.

(3) Computed by dividing annualized earnings by average TBV.

(4) Average of beginning TBV of $2,757 and ending TBV of $3,208.

Non-GAAP Reconciliation: Quarter Ended

($ in millions except value per share data) Q1'21 Q2'21

Stockholders' equity (BV) $ 2,904 $ 3,350

Goodwill (120 ) (120 )

Intangible assets (27 ) (22 )

Tangible book value (TBV) $ 2,757 $ 3,208

Ending shares of common stock outstanding (in millions) 86.1 86.1



BV/share $ 33.71 $ 38.89

TBV/share $ 32.01 $ 37.24



Net income $ 561 $ 439

ROCE^(1) 83.0 % 56.2 %



Beginning stockholders' equity $ 2,504 $ 2,904

Ending stockholders' equity $ 2,904 $ 3,350

Average stockholders' equity (BV) $ 2,704 $ 3,127

(1)

Computed by dividing annualized earnings by average BV.

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

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