COOP - Mr. Cooper Group Reports Third Quarter 2022 Results

October, 26 2022 07:00 AM Mr. Cooper Group Inc.

Reported total net income of $113 million including other mark-to-market of $122 million, equivalent to ROCE of 11.1%
Book value per share increased to $58.18 and Tangible book value per share increased to $56.35
Servicing UPB grew to $854 billion, up 28% y/y
Repurchased 1.1 million common shares for $50 million

Mr. Cooper Group Inc. (NASDAQ: COOP) (the “Company”), which principally operates under the Mr. Cooper® and Xome® brands, reported a third quarter net income of $113 million or $1.55 per diluted share. Net income included other mark-to-market of $122 million, which excludes fair value of excess spread accretion of $2 million. Excluding other mark-to-market and other items, the Company reported pretax operating income of $56 million. Other items included $18 million loss associated with equity investments, $5 million loss in lease breakage and other charges, and $2 million loss in intangible amortization.

Chairman and CEO Jay Bray commented, “Thanks to our balanced business model, we produced another solid quarter with rising earnings and cash flow, and strong growth in book value per share. We finished the quarter with extremely robust capital and liquidity, which will support continued prudent growth in our platform and customer base.”

Chris Marshall, Vice Chairman and President added, “The highlight of the quarter was the strong ramp in servicing earnings, which reflects not only the benefit of higher interest rates, but our industry-leading technology, scale, and process discipline. We grew the servicing portfolio with new and existing clients who appreciate our scalable and compliant platform and our demonstrated loss mitigation capabilities.”

Servicing

The Servicing segment is focused on providing a best-in-class home loan experience for our 4.1 million customers while simultaneously strengthening asset performance for investors. In the third quarter, Servicing recorded pretax income of $203 million, including other mark-to-market of $122 million. The servicing portfolio ended the quarter at $854 billion in UPB. Servicing generated pretax operating income, excluding other mark-to-market, of $81 million. At quarter end, the carrying value of the MSR was $6,408 million equivalent to 162 bps of MSR UPB.


Quarter Ended
($ in millions)
Q2'22

Q3'22

$

BPS

$

BPS
Operational revenue
$
394


19.8


$
377


18.3

Amortization, net of accretion

(199
)

(10.0
)


(169
)

(8.2
)
Mark-to-market

200


10.1



124


6.0

Total revenues

395


19.9



332


16.1

Total expenses

(143
)

(7.2
)


(147
)

(7.1
)
Total other expenses, net

(26
)

(1.3
)


18


0.9

Income before taxes

226


11.4



203


9.9

Other mark-to-market

(196
)

(9.9
)


(122
)

(5.9
)
Accounting items

—


—



—


—

Pretax operating income excluding other mark-to-market and accounting items
$
30


1.5


$
81


4.0


Quarter Ended

Q2'22

Q3'22
MSR UPB()
$
398


$
396

Subservicing and Other UPB ()

406



458

Ending UPB ()
$
804


$
854

Average UPB ()
$
796


$
823

60+ day delinquency rate at period end

2.7
%


2.5
%
Annualized CPR

11.0
%


8.3
%
Modifications and workouts

25,721



16,505

Originations

The Originations segment focuses on creating servicing assets at attractive margins by acquiring loans through the correspondent channel and refinancing existing loans through the direct-to-consumer channel. Originations earned pretax income and pretax operating income of $45 million.

The Company funded 21,487 loans in the third quarter, totaling approximately $5.7 billion UPB, which was comprised of $3.6 billion in direct-to-consumer and $2.1 billion in correspondent. Funded volume decreased 26% quarter-over-quarter, while pull through adjusted volume decreased 19% quarter-over-quarter to $5.3 billion.


Quarter Ended
($ in millions)
Q2'22

Q3'22
Income before taxes
$
61


$
45

Accounting items / other

2



—

Pretax operating income excluding accounting items and other
$
63


$
45


Quarter Ended
($ in millions)
Q2'22

Q3'22
Total pull through adjusted volume
$
6,485


$
5,276

Funded volume
$
7,767


$
5,741

Refinance recapture percentage

60
%


80
%
Recapture percentage

29
%


28
%
Purchase volume as a percentage of funded volume

37
%


42
%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on October 26, 2022 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 .

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, change in equity method investments, fair value change in equity investments 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. 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 June 30, 2022

Three Months Ended September 30, 2022
Revenues:



Service related, net
$
460


$
395

Net gain on mortgage loans held for sale

139



115

Total revenues

599



510

Total expenses:

328



316

Other income (expense), net:



Interest income

50



83

Interest expense

(111
)


(104
)
Other income (expense), net

(5
)


(20
)
Total other income (expense), net

(66
)


(41
)
Income before income tax expense

205



153

Income tax expense

54



40

Net income

151



113

Net income attributable to non-controlling interest

—



—

Net income attributable to common stockholders
$
151


$
113





Earnings per common share attributable to Mr. Cooper:



Basic
$
2.08


$
1.59

Diluted
$
2.03


$
1.55

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



Basic

72.7



71.2

Diluted

74.3



72.9







MR. COOPER GROUP INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (millions of dollars)







June 30, 2022

September 30, 2022
Assets





Cash and cash equivalents
$
514


$
530

Restricted cash

115



148

Mortgage servicing rights at fair value

6,151



6,408

Advances and other receivables, net

892



831

Mortgage loans held for sale at fair value

2,072



1,581

Property and equipment, net

72



69

Deferred tax assets, net

750



711

Other assets

2,329



2,537

Total assets
$
12,895


$
12,815







Liabilities and Stockholders' Equity





Unsecured senior notes, net
$
2,672


$
2,673

Advance and warehouse facilities, net

3,407



3,070

Payables and other liabilities

2,223



2,428

MSR related liabilities - nonrecourse at fair value

556



539

Total liabilities

8,858



8,710

Total stockholders' equity

4,037



4,105

Total liabilities and stockholders' equity
$
12,895


$
12,815



UNAUDITED SEGMENT STATEMENT OF OPERATIONS & EARNINGS RECONCILIATION (millions of dollars, except for earnings per share data)



Three Months Ended June 30, 2022

Servicing

Originations

Corporate/ Other

Consolidated








Service related, net
$
414


$
24


$
22


$
460

Net gain on mortgage loans held for sale

(19
)


158



—



139

Total revenues

395



182



22



599

Total expenses

143



126



59



328

Other (expense) income, net:







Interest income

35



15



—



50

Interest expense

(61
)


(10
)


(40
)


(111
)
Other income, net

—



—



(5
)


(5
)
Total other (expense) income, net

(26
)


5



(45
)


(66
)
Pretax income
$
226


$
61


$
(82
)

$
205

Income tax expense







54

Net income







151

Net income attributable to noncontrolling interests







—

Net income attributable to common stockholders






$
151

Net income per share







Basic






$
2.08

Diluted






$
2.03









Non-GAAP Reconciliation:







Pretax income (loss)
$
226


$
61


$
(82
)

$
205

Other mark-to-market

(196
)


—



—



(196
)
Accounting items / other

—



2



5



7

Intangible amortization

—



—



1



1

Pretax operating income (loss)
$
30


$
63


$
(76
)

$
17

Income tax expense







(4
)
Operating income ⁽¹⁾






$
13

ROTCE ⁽²⁾







1.3
%
Average tangible book value (TBV) ⁽³⁾






$
3,875

⁽¹⁾

Assumes tax-rate of 24.2%.

⁽²⁾

Computed by dividing annualized earnings by average TBV.

⁽³⁾

Average of beginning TBV of $3,844 and ending TBV of $3,906.



UNAUDITED SEGMENT STATEMENT OF OPERATIONS & EARNINGS RECONCILIATION (millions of dollars, except for earnings per share data)



Three Months Ended September 30, 2022

Servicing

Originations

Corporate/ Other

Consolidated








Service related, net
$
353


$
20


$
22


$
395

Net gain on mortgage loans held for sale

(21
)


136



—



115

Total revenues

332



156



22



510

Total expenses

147



112



57



316

Other (expense) income, net:







Interest income

71



12



—



83

Interest expense

(53
)


(11
)


(40
)


(104
)
Other expense, net

—



—



(20
)


(20
)
Total other (expense) income, net

18



1



(60
)


(41
)
Pretax income (loss)
$
203


$
45


$
(95
)

$
153

Income tax expense







40

Net income







113

Net income attributable to noncontrolling interests







—

Net income attributable to common stockholders






$
113

Net income per share







Basic






$
1.59

Diluted






$
1.55









Non-GAAP Reconciliation:







Pretax income (loss)
$
203


$
45


$
(95
)

$
153

Other mark-to-market

(122
)


—



—



(122
)
Accounting items / other

—



—



23



23

Intangible amortization

—



—



2



2

Pretax operating income (loss)
$
81


$
45


$
(70
)

$
56

Income tax expense ⁽¹⁾







(14
)
Operating income






$
42

ROTCE ⁽²⁾







4.3
%
Average tangible book value (TBV) ⁽³⁾






$
3,941

⁽¹⁾

Assumes tax-rate of 24.2%.

⁽²⁾

Computed by dividing annualized earnings by average TBV.

⁽³⁾

Average of beginning TBV of $3,906 and ending TBV of $3,976.

Non-GAAP Reconciliation:
Quarter Ended
($ in millions except value per share data)
Q2'22

Q3'22
Stockholders' equity (BV)
$
4,037


$
4,105

Goodwill

(120
)


(120
)
Intangible assets

(11
)


(9
)
Tangible book value (TBV)
$
3,906


$
3,976

Ending shares of common stock outstanding ( in millions )

71.7



70.6





BV/share
$
56.34


$
58.18

TBV/share
$
54.51


$
56.35





Net income
$
151


$
113

ROCE ⁽¹⁾

15.1
%


11.1
%




Beginning stockholders’ equity
$
3,977


$
4,037

Ending stockholders’ equity
$
4,037


$
4,105

Average stockholders’ equity (BV)
$
4,007


$
4,071

⁽¹⁾

Return on Common Equity (ROCE) is computed by dividing annualized earnings by average BV.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221026005298/en/

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

Company Name:	Mr. Cooper Group Inc.
Stock Symbol:	COOP
Market:	NASDAQ
Website:	mrcoopergroup.com

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