Business Wire | Jul 30, 2020 07:00AM EDT

Mr. Cooper Group Reports Second Quarter 2020 Financial Results

Jul. 30, 2020

DALLAS--(BUSINESS WIRE)--Jul. 30, 2020--Mr. Cooper Group Inc. (NASDAQ: COOP) (the "Company"), which principally operates under the Mr. Cooper(r) and Xome(r) brands, reported a second quarter net income of $73 million or $0.77 per diluted share. Net income included a negative $261 million in mark-to-market. Excluding the mark-to-market and other items, the Company reported pretax operating income of $350 million. Items excluded from operating income were negative $261 million in mark-to-market, net of the add back of $29 million in fair value amortization that is included in the full mark-to-market, $1 million in severance charges related to the shutdown of the Wholesale division, and $7 million of intangible amortization.

Chairman and CEO Jay Bray commented, "I'm very proud of our team members, who have done a fantastic job adapting to these unprecedented conditions. Thanks to their hard work, the company produced the strongest operating results in our history, driven by record margins in our Direct-to-Consumer channel, which scaled up to accommodate huge demand. Strong origination profits not only offset pressure on the servicing margin, but also earned back the MSR mark within the same quarter, demonstrating the significant progress we've made in building a balanced and profitable business model."

Chris Marshall, Vice Chairman and CFO added, "Forbearance levels declined in the quarter, as we helped customers exit forbearance plans and resume payments with both digital solutions and world-class customer care. At the same time, we significantly increased cash on hand to $1 billion, which demonstrates the company's robust cash generation and access to liquidity, and positions us to serve as a source of strength for the mortgage market even if economic conditions turn more adverse."

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 pretax loss of $251 million, reflecting a negative $261 million in mark-to-market. The total servicing portfolio ended the quarter at $596 billion UPB. Servicing earned pretax operating income excluding the full mark of $10 million, equivalent to a servicing margin of 0.7 bps. At quarter end, the carrying value of the MSR was $2,763 million, of which $2,757 million was at fair value equivalent to 99 bps of MSR UPB and original cost basis of 86 bps.

Quarter Ended

($ in millions) Q1'20 Q2'20

$ BPS $ BPS

Operational revenue $ 313 19.7 $ 294 19.2

Amortization, net of accretion (76) (4.8) (102) (6.6)

Mark-to-market (383) (24.1) (261) (17.1)

Total revenues (146) (9.2) (69) (4.5)

Total expenses (149) (9.3) (122) (8.0)

Total other income (expenses), net (30) (1.9) (60) (3.9)

Loss before taxes (325) (20.4) (251) (16.4)

Mark-to-market 383 24.1 261 17.1

Accounting items 4 0.2 - -

Pretax operating income excluding $ 62 3.9 $ 10 0.7 mark-to-market



Quarter Ended

Q1'20 Q2'20

Ending UPB ($B) $ 629 $ 596

Average UPB ($B) $ 636 $ 612

60+ day delinquency rate at period end 1.9 % 4.7 %

Annualized CPR 19.2 % 26.0 %

Modifications and workouts 8,709 38,684

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 $433 million and pretax operating income of $434 million excluding $1 million in severance charges related to the shutdown of the Wholesale division.

Mr. Cooper funded 41,223 loans in the second quarter, totaling approximately $10.7 billion UPB which was comprised of $8.6 billion in Direct-to-Consumer, $1.9 billion in Correspondent, and $0.2 billion in Wholesale. Funded volume decreased 13% quarter-over-quarter.

Quarter Ended

($ in millions) Q1'20 Q2'20



Income before taxes $ 158 $ 433

Accounting items - 1

Pretax operating income excluding accounting items $ 158 $ 434

Quarter Ended

($ in millions) Q1'20 Q2'20

Total pull through adjusted volume $ 12,677 $ 12,394

Funded volume $ 12,359 $ 10,729

Refinance recapture percentage 38 % 31 %

Recapture percentage 30 % 26 %

Purchase volume as a percentage of funded volume 26 % 10 %

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 $12 million and pretax operating income of $13 million in the second quarter, which excluded intangible amortization.

Quarter Ended

($ in millions) Q1'20 Q2'20

Income before taxes $ 11 $ 12

Intangible amortization 2 1

Pretax operating income excluding intangible $ 13 $ 13 amortization

Quarter Ended

($ in millions) Q1'20 Q2'20

Exchange property sold 2,114 1,191

Average Exchange property listings 17,777 17,438

Services orders completed 408,734 423,974

Percentage of revenue earned from third-party 55 % 53 %customers

Conference Call Webcast and Investor Presentation

The Company will host a conference call on July 30, 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 9776505 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 9776505 to access the replay. The replay will be accessible through August 14, 2020 at 12:00 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.

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, 2020 2020

Revenues:

Service related, net, excluding mark-to-market $ 330 $ 273

Mark-to-market (383) (261)

Net gain on mortgage loans held for sale 331 618

Total revenues 278 630

Total expenses: 444 419

Other expense, net:

Interest income 118 76

Interest expense (192) (177)

Other income, net 1 -

Total other expenses, net (73) (101)

(Loss) income before income tax (benefit) (239) 110 expense

Income tax (benefit) expense (68) 37

Net (loss) income (171) 73

Net loss attributable to non-controlling (3) - interest

Net (loss) income attributable to Mr. Cooper (168) 73 Group

Undistributed earnings attributable to - 1 participating stockholders

Net (loss) income attributable to common $ (168) $ 72 stockholders





Net (loss) income per share attributable to common stockholders:

Basic $ (1.84) $ 0.78

Diluted $ (1.84) $ 0.77

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

Basic 91.4 92.0

Diluted 91.4 93.0

MR. COOPER GROUP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

March 31, 2020 June 30, 2020

Assets

Cash and cash equivalents $ 579 $ 1,041

Restricted cash 266 260

Mortgage servicing rights 3,115 2,763

Advances and other receivables, net 685 668

Reverse mortgage interests, net 5,955 5,709

Mortgage loans held for sale at fair value 3,922 3,179

Property and equipment, net 111 115

Deferred tax assets, net 1,411 1,391

Other assets 1,569 2,174

Total assets $ 17,613 $ 17,300



Liabilities and Stockholders' Equity

Unsecured senior notes, net $ 2,259 $ 2,261

Advances facilities, net 489 475

Warehouse facilities, net 4,551 4,031

Payables and other liabilities 1,965 2,460

MSR related liabilities - nonrecourse at fair 1,285 1,173 value

Mortgage servicing liabilities 53 48

Other nonrecourse debt, net 4,945 4,707

Total liabilities 15,547 15,155

Total stockholders' equity 2,066 2,145

Total liabilities and stockholders' equity $ 17,613 $ 17,300

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

Three Months Ended March 31, 2020

Corporate/ Servicing Originations Xome Consolidated Other



Service related, $ (180) $ 20 $ 106 $ 1 $ (53) net

Net gain onmortgage loans 34 297 - - 331 held for sale

Total revenues (146) 317 106 1 278

Total expenses 149 166 96 33 444

Other income (expense), net:

Interest income 83 34 - 1 118

Interest expense (113) (27) - (52) (192)

Other income, net - - 1 - 1

Total otherincome (expense), (30) 7 1 (51) (73) net

Pretax (loss) $ (325) $ 158 $ 11 $ (83) $ (239) income

Income tax (68) benefit

Net loss (171)

Net lossattributable to (3) noncontrollinginterests

Net lossattributable tocommon (168)

stockholders ofMr. Cooper Group

Undistributedearningsattributable to -

participatingstockholders

Net lossattributable to $ (168) commonstockholders

Net loss per share

Basic $ (1.84)

Diluted $ (1.84)



Non-GAAP Reconciliation:

Pretax (loss) $ (325) $ 158 $ 11 $ (83) $ (239) income

Mark-to-market 383 - - - 383

Accounting items 4 - - - 4 / other

Intangible - - 2 7 9 amortization

Pretax income(loss), net of 62 158 13 (76) 157 notable items

Fair value (30) - - - (30) amortization ^(1)

Pretax operating $ 32 $ 158 $ 13 $ (76) $ 127 income (loss)

Income tax (31) expense

Operating income $ 96

ROTCE 19.6 %

^(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 June 30, 2020

Corporate/ Servicing Originations Xome Consolidated Other



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

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

Total revenues (69) 594 106 (1) 630

Total expenses 122 167 95 35 419

Other income (expense), net:

Interest income 57 19 - - 76

Interest expense (117) (13) - (47) (177)

Other income - - 1 (1) - (expense), net

Total otherincome (expense), (60) 6 1 (48) (101) net

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

Income tax 37 expense

Net income 73

Net lossattributable to - noncontrollinginterests

Net incomeattributable tocommon 73

stockholders ofMr. Cooper Group

Undistributedearningsattributable to 1

participatingstockholders

Net incomeattributable to $ 72 commonstockholders

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 (85) expense

Operating income $ 265

ROTCE 55.0 %

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

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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