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Mr. Cooper Group Reports Fourth Quarter 2022 Results

  • Reported total net income of $1 million including other mark-to-market of $58 million, equivalent to ROCE of 0.1%
  • Book value per share increased to $58.57 and tangible book value per share increased to $56.72, up 29% year-over-year
  • Servicing UPB grew to $870 billion, up 23% y/y
  • Repurchased 1.3 million shares of common stock for $54 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 $1 million or $0.01 per diluted share. Net income included other mark-to-market of $58 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 $82 million. Other items included $23 million charge due to severance and property consolidation and $10 million loss associated with equity investments, and $1 million loss in intangible amortization.

Chairman and CEO Jay Bray commented, “The Company produced exceptional results in 2022, growing the portfolio by 23% year-over-year and tangible book value per share by 29%, despite a very challenging year for the industry. This is a clear validation of our balanced business model, the investments we’ve made in technology, and the incredible talent and hard work of our people.”

Chris Marshall, Vice Chairman and President added, “Over the last year, we’ve continued to drive greater efficiencies throughout the company and especially in our servicing platform, which is key to the low-cost leadership strategy that’s driving customer growth and positioning us to deliver higher return on equity.”

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 fourth quarter, Servicing recorded pretax income of $98 million, including other mark-to-market of $58 million. The servicing portfolio ended the quarter at $870 billion in UPB. Servicing generated pretax operating income, excluding other mark-to-market, of $159 million. At quarter end, the carrying value of the MSR was $6,654 million equivalent to 162 bps of MSR UPB.

 

Quarter Ended

($ in millions)

 

Q4'22

 

Q3'22

 

$

 

BPS

 

$

 

BPS

Operational revenue

$

394

 

 

 

18.2

 

 

$

377

 

 

 

18.3

 

Amortization, net of accretion

 

(123

)

 

 

(5.7

)

 

 

(169

)

 

 

(8.2

)

Mark-to-market

 

(56

)

 

 

(2.6

)

 

 

124

 

 

 

6.0

 

Total revenues

 

215

 

 

 

9.9

 

 

 

332

 

 

 

16.1

 

Total expenses

 

(147

)

 

 

(6.8

)

 

 

(147

)

 

 

(7.1

)

Total other expenses, net

 

30

 

 

 

1.4

 

 

 

18

 

 

 

0.9

 

Income before taxes

 

98

 

 

 

4.5

 

 

 

203

 

 

 

9.9

 

Other mark-to-market

 

58

 

 

 

2.7

 

 

 

(122

)

 

 

(5.9

)

Accounting items

 

3

 

 

 

0.1

 

 

 

 

 

 

 

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

$

159

 

 

 

7.3

 

 

$

81

 

 

 

4.0

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Q4'22

 

Q3'22

MSR UPB($B)

$

411

 

 

$

396

 

Subservicing and Other UPB ($B)

 

459

 

 

 

458

 

Ending UPB ($B)

$

870

 

 

$

854

 

Average UPB ($B)

$

868

 

 

$

823

 

60+ day delinquency rate at period end

 

2.6

%

 

 

2.5

%

Annualized CPR

 

4.9

%

 

 

8.3

%

Modifications and workouts

 

14,966

 

 

 

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 reported pretax loss of $14 and pretax operating loss of $2 million.

The Company funded 12,746 loans in the fourth quarter, totaling approximately $3.2 billion UPB, which was comprised of $1.9 billion in direct-to-consumer and $1.3 billion in correspondent. Funded volume decreased 45% quarter-over-quarter, while pull through adjusted volume decreased 47% quarter-over-quarter to $2.8 billion.

 

Quarter Ended

($ in millions)

 

Q4'22

 

Q3'22

(Loss) income before taxes

$

(14

)

 

$

46

Accounting items / other

 

12

 

 

 

Pretax operating (loss) income excluding accounting items and other

$

(2

)

 

$

46

 

Quarter Ended

($ in millions)

 

Q4'22

 

Q3'22

Total pull through adjusted volume

$

2,797

 

 

$

5,276

 

Funded volume

$

3,169

 

 

$

5,741

 

Refinance recapture percentage

 

77

%

 

 

76

%

Recapture percentage

 

24

%

 

 

28

%

Purchase volume as a percentage of funded volume

 

44

%

 

 

42

%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on February 10, 2023 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

December 31, 2022

 

Three Months Ended

September 30, 2022

Revenues:

 

 

 

Service related, net

$

255

 

 

$

395

 

Net gain on mortgage loans held for sale

 

48

 

 

 

115

 

Total revenues

 

303

 

 

 

510

 

Total expenses:

 

292

 

 

 

316

 

Other income (expense), net:

 

 

 

Interest income

 

92

 

 

 

83

 

Interest expense

 

(103

)

 

 

(104

)

Other (expense), net

 

(10

)

 

 

(20

)

Total other (expense), net

 

(21

)

 

 

(41

)

(Loss) income before income tax (benefit) expense

 

(10

)

 

 

153

 

Income tax (benefit) expense

 

(11

)

 

 

40

 

Net income

 

1

 

 

 

113

 

Net income attributable to non-controlling interest

 

 

 

 

 

Net income attributable to common stockholders

$

1

 

 

$

113

 

 

 

 

 

Earnings per common share attributable to Mr. Cooper:

 

 

 

Basic

$

0.01

 

 

$

1.59

 

Diluted

$

0.01

 

 

$

1.55

 

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

 

 

 

Basic

 

69.9

 

 

 

71.2

 

Diluted

 

71.6

 

 

 

72.9

 

MR. COOPER GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

 

 

 

 

Unaudited

 

December 31, 2022

 

September 30, 2022

Assets

 

 

 

Cash and cash equivalents

$

527

 

$

530

Restricted cash

 

175

 

 

148

Mortgage servicing rights at fair value

 

6,654

 

 

6,408

Advances and other receivables, net

 

1,019

 

 

831

Mortgage loans held for sale at fair value

 

893

 

 

1,581

Property and equipment, net

 

65

 

 

69

Deferred tax assets, net

 

703

 

 

711

Other assets

 

2,740

 

 

2,537

Total assets

$

12,776

 

$

12,815

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Unsecured senior notes, net

$

2,673

 

$

2,673

Advance and warehouse facilities, net

 

2,885

 

 

3,070

Payables and other liabilities

 

2,633

 

 

2,428

MSR related liabilities - nonrecourse at fair value

 

528

 

 

539

Total liabilities

 

8,719

 

 

8,710

Total stockholders' equity

 

4,057

 

 

4,105

Total liabilities and stockholders' equity

$

12,776

 

$

12,815

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

 

 

Three Months Ended December 31, 2022

 

Servicing

 

Originations

 

Corporate/

Other

 

Consolidated

 

 

 

 

 

 

 

 

Service related, net

$

223

 

 

$

12

 

 

$

20

 

 

$

255

 

Net gain on mortgage loans held for sale

 

(8

)

 

 

56

 

 

 

 

 

 

48

 

Total revenues

 

215

 

 

 

68

 

 

 

20

 

 

 

303

 

Total expenses

 

147

 

 

 

81

 

 

 

64

 

 

 

292

 

Other (expense) income, net:

 

 

 

 

 

 

 

Interest income

 

83

 

 

 

9

 

 

 

 

 

 

92

 

Interest expense

 

(53

)

 

 

(10

)

 

 

(40

)

 

 

(103

)

Other expense, net

 

 

 

 

 

 

 

(10

)

 

 

(10

)

Total other (expense) income, net

 

30

 

 

 

(1

)

 

 

(50

)

 

 

(21

)

Pretax income (loss)

$

98

 

 

$

(14

)

 

$

(94

)

 

$

(10

)

Income tax benefit

 

 

 

 

 

 

 

(11

)

Net income

 

 

 

 

 

 

 

1

 

Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

 

 

 

 

 

$

1

 

Net income per share

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

$

0.01

 

Diluted

 

 

 

 

 

 

$

0.01

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation:

 

 

 

 

 

 

 

Pretax income (loss)

$

98

 

 

$

(14

)

 

$

(94

)

 

$

(10

)

Other mark-to-market

 

58

 

 

 

 

 

 

 

 

 

58

 

Accounting items / other

 

3

 

 

 

12

 

 

 

18

 

 

 

33

 

Intangible amortization

 

 

 

 

 

 

 

1

 

 

 

1

 

Pretax operating income (loss)

$

159

 

 

$

(2

)

 

$

(75

)

 

$

82

 

Income tax expense(1)

 

 

 

 

 

 

 

(20

)

Operating income

 

 

 

 

 

 

$

62

 

ROTCE(2)

 

 

 

 

 

 

 

6.3

%

Average tangible book value (TBV)(3)

 

 

 

 

 

 

$

3,953

 

(1)

Assumes tax-rate of 24.2%.

(2)

Computed by dividing annualized earnings by average TBV.

(3)

Average of beginning TBV of $3,976 and ending TBV of $3,929.

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

 

 

 

111

 

 

 

58

 

 

 

316

 

Other (expense) income, net:

 

 

 

 

 

 

 

Interest income

 

71

 

 

 

12

 

 

 

 

 

 

83

 

Interest expense

 

(53

)

 

 

(11

)

 

 

(40

)

 

 

(104

)

Other income, net

 

 

 

 

 

 

 

(20

)

 

 

(20

)

Total other (expense) income, net

 

18

 

 

 

1

 

 

 

(60

)

 

 

(41

)

Pretax income (loss)

$

203

 

 

$

46

 

 

$

(96

)

 

$

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

 

 

$

46

 

 

$

(96

)

 

$

153

 

Other mark-to-market

 

(122

)

 

 

 

 

 

 

 

 

(122

)

Accounting items / other

 

 

 

 

 

 

 

23

 

 

 

23

 

Intangible amortization

 

 

 

 

 

 

 

2

 

 

 

2

 

Pretax operating income (loss)

$

81

 

 

$

46

 

 

$

(71

)

 

$

56

 

Income tax expense

 

 

 

 

 

 

 

(14

)

Operating income(1)

 

 

 

 

 

 

$

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.

UNAUDITED SEGMENT STATEMENT OF

OPERATIONS & EARNINGS RECONCILIATION

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

 

 

Year Ended December 31, 2022

 

Servicing

 

Originations

 

Corporate/

Other

 

Consolidated

 

 

 

 

 

 

 

 

Service related, net

$

1,691

 

 

$

98

 

 

$

76

 

 

$

1,865

 

Net gain on mortgage loans held for sale

 

(33

)

 

 

632

 

 

 

 

 

 

599

 

Total revenues

 

1,658

 

 

 

730

 

 

 

76

 

 

 

2,464

 

Total expenses

 

559

 

 

 

491

 

 

 

224

 

 

 

1,274

 

Other income (expense), net:

 

 

 

 

 

 

 

Interest income

 

208

 

 

 

53

 

 

 

 

 

 

261

 

Interest expense

 

(221

)

 

 

(43

)

 

 

(160

)

 

 

(424

)

Other income, net

 

 

 

 

 

 

 

187

 

 

 

187

 

Total other income (expense), net

 

(13

)

 

 

10

 

 

 

27

 

 

 

24

 

Pretax income (loss)

$

1,086

 

 

$

249

 

 

$

(121

)

 

$

1,214

 

Income tax expense

 

 

 

 

 

 

 

291

 

Net income

 

 

 

 

 

 

 

923

 

Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

 

 

 

 

 

$

923

 

Net income per share

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

$

12.84

 

Diluted

 

 

 

 

 

 

$

12.50

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation:

 

 

 

 

 

 

 

Pretax income (loss)

$

1,086

 

 

$

249

 

 

$

(121

)

 

$

1,214

 

Other mark-to-market

 

(812

)

 

 

 

 

 

 

 

 

(812

)

Accounting items / other

 

4

 

 

 

16

 

 

 

(177

)

 

 

(157

)

Intangible amortization

 

 

 

 

 

 

 

6

 

 

 

6

 

Pretax operating income (loss)

$

278

 

 

$

265

 

 

$

(292

)

 

$

251

 

Income tax expense

 

 

 

 

 

 

 

(61

)

Operating income(1)

 

 

 

 

 

 

$

190

 

ROTCE(2)

 

 

 

 

 

 

 

4.9

%

Average tangible book value (TBV)(3)

 

 

 

 

 

 

$

3,914

 

(1)

Assumes tax-rate of 24.2%.

(2)

Computed by dividing annualized earnings by average TBV.

(3)

Average of quarterly TBV averages of $3,844 for 1Q’22, $3,906 for 2Q’22, $3,976 for 3Q’22, and $3,929 for 4Q’22.

Non-GAAP Reconciliation:

Quarter Ended

($ in millions except value per share data)

 

Q4'22

 

Q3'22

 

Q2'22

 

Q1'22

Stockholders' equity (BV)

$

4,057

 

 

$

4,105

 

 

$

4,037

 

 

$

3,977

 

Goodwill

 

(120

)

 

 

(120

)

 

 

(120

)

 

 

(120

)

Intangible assets

 

(8

)

 

 

(9

)

 

 

(11

)

 

 

(13

)

Tangible book value (TBV)

$

3,929

 

 

$

3,976

 

 

$

3,906

 

 

$

3,844

 

Ending shares of common stock outstanding (in millions)

 

69.3

 

 

 

70.6

 

 

 

 

 

 

 

 

 

 

 

 

 

BV/share

$

58.57

 

 

$

58.18

 

 

 

 

 

TBV/share

$

56.72

 

 

$

56.35

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

1

 

 

$

113

 

 

 

 

 

ROCE(1)

 

0.1

%

 

 

11.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Beginning stockholders’ equity

$

4,105

 

 

$

4,037

 

 

 

 

 

Ending stockholders’ equity

$

4,057

 

 

$

4,105

 

 

 

 

 

Average stockholders’ equity (BV)

$

4,081

 

 

$

4,071

 

 

 

 

 

(1)

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

 

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