Business Wire | Oct 29, 2020 07:00AM EDT

Mr. Cooper Group Reports Third Quarter 2020 Financial Results

Oct. 29, 2020

DALLAS--(BUSINESS WIRE)--Oct. 29, 2020--Mr. Cooper Group Inc. (NASDAQ: COOP) (the "Company"), which principally operates under the Mr. Cooper(r) and Xome(r) 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.

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 $ 10 0.7 $ (2) (0.1) mark-to-market and accounting items



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

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.

Quarter Ended

($ in millions) Q2'20 Q3'20



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.

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.

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

%

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

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 %

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

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 June 30, 2020 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 - 5 interest

Net income attributable to Mr. Cooper Group 73 209

Undistributed earnings attributable to 1 2 participating stockholders

Net income attributable to common stockholders $ 72 $ 207





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

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

June 30, September 30, 2020 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



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 1,173 1,091 value

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

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended June 30, 2020

Corporate Servicing Originations Xome / Consolidated Other



Service related, $ (114 ) $ 21 $ 106 $ (1 ) $ 12net

Net gain onmortgage loans held 45 573 - - 618 for sale

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 - - 1 (1 ) - (expense), net

Total other(expense) income, (60 ) 6 1 (48 ) (101 )net

Pretax (loss) $ (251 ) $ 433 $ 12 $ (84 ) $ 110 income

Income tax expense 37

Net income 73

Net incomeattributable to - noncontrollinginterests

Net incomeattributable to 73 common stockholdersof Mr. Cooper Group

Undistributedearningsattributable to 1 participatingstockholders

Net incomeattributable to $ 72 common stockholders

Net income per share

Basic $ 0.78

Diluted $ 0.77



Non-GAAP Reconciliation:

Pretax (loss) $ (251 ) $ 433 $ 12 $ (84 ) $ 110 income

Mark-to-market 261 - - - 261

Accounting items / - 1 - - 1 other

Intangible - - 1 6 7 amortization

Pretax income(loss), net of 10 434 13 (78 ) 379 notable items

Fair value (29 ) - - - (29 )amortization ^(1)

Pretax operating $ (19 ) $ 434 $ 13 $ (78 ) $ 350 (loss) income

Income tax expense (85 )

Operating income $ 265

ROTCE 55.0 %

^(1) Amount represents additional amortization required under the fair valueamortization 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 September 30, 2020

Servicing Originations Xome Corporate/ Consolidated Other



Service related, $ 92 $ 27 $ 108 $ - $ 227 net

Net gain onmortgage loans held 40 605 - - 645 for sale

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 - - 1 (52 ) (51 )(expense), net

Total other(expense) income, (65 ) 1 1 (97 ) (160 )net

Pretax (loss) $ (32 ) $ 438 $ 15 $ (140 ) $ 281 income

Income tax expense 67

Net income 214

Net incomeattributable to 5 noncontrollinginterests

Net incomeattributable to 209 common stockholdersof Mr. Cooper Group

Undistributedearningsattributable to 2 participatingstockholders

Net incomeattributable to $ 207 common stockholders

Net income per share

Basic $ 2.26

Diluted $ 2.18



Non-GAAP Reconciliation:

Pretax (loss) $ (32 ) $ 438 $ 15 $ (140 ) $ 281 income

Mark-to-market 29 - - - 29

Accounting items / 1 - - 53 54 other

Intangible - - 3 6 9 amortization

Pretax (loss)income, net of (2 ) 438 18 (81 ) 373 notable items

Fair value (25 ) - - - (25 )amortization ^(1)

Pretax operating $ (27 ) $ 438 $ 18 $ (81 ) $ 348 (loss) income

Income tax expense (84 )

Operating income $ 264

ROTCE 50.9 %

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20201029005395/en/

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