Nationstar Mortgage Holdings Inc. (NYSE: NSM) (“Nationstar”), a leading residential mortgage services company, today reported financial results for its fourth quarter and full year ended December 31, 2014.
Full Year 2014 Financial Results
Net income for the year was $221 million, or $2.45 per share, up from $217 million, or $2.40 per share for full-year 2013. Nationstar generated core EPS of $2.86 per share, up 61% from 2013, due to greater earnings contribution from core operations versus increases in the fair value of mortgage servicing rights. Core EPS was up year-over-year as a function of increased servicing earnings, significant growth in the Solutionstar business from increased property sales, valuation and title orders, and more stable originations earnings. Operating cash flow increased over 900% to $363 million for 2014.
Fourth Quarter 2014 Financial Results
Nationstar reported quarterly net income of $19 million, or $0.21 per share for the fourth quarter, down from $111 million or $1.22 per share in the third quarter. Excluding a deferred tax allowance released in the third quarter, Q3'14 net income was $68 million, or $0.75 per share. GAAP EPS in the quarter was down principally due to a $46 million non-cash MSR mark-to-market adjustment and increased amortization in our servicing segment. Core EPS for the quarter was $0.58, down from $0.80 in the third quarter. Core EPS was down principally related to increased amortization and higher servicing expenses in the quarter. Core EPS excludes one-time items and MSR fair value adjustments. We generated strong operating cash flows during the quarter of $118 million, similar to operating cash flows generated during the third quarter, indicative that the primary driver of the decrease in earnings quarter over quarter was related to non-cash items such as amortization and MSR fair value adjustments.
“Heading into 2015, growth prospects for Nationstar are significant, and we are well positioned from a capital, technology and operational perspective,” said Jay Bray, Chief Executive Officer. “Looking forward we believe customer satisfaction is a source of competitive advantage and a single customer provides extreme value to our portfolio over time. We are relentlessly focused on retaining our ‘Customers for Life’ through a robust suite of products and solutions, offered at a competitive price, with a customer-centric focus.”
Business Highlights
Servicing Segment
The servicing segment generated $327 million of core pretax earnings in 2014, up from $316 million in 2013. Servicing core margin increased year-over-year from 26% to 30% as we executed on profitability initiatives that reduced cost per loan and improved the performance of acquired portfolios. The initiatives reduced operating costs by 17%. Nationstar’s servicing portfolio ended 2014 at $381 billion, nearly in line with the 2013 ending balance despite a challenging transfer market. Nationstar completed over 80,000 workouts during 2014 that contributed to an overall decline in the 60+ day delinquency rate from 11.8% to 9.9%. The servicing portfolio CPR declined during 2014 to 13.3%, down from 14.8% in 2013. The decrease in delinquency and reduction in CPR will have a positive impact on servicing profitability over time through the extension of cash flows and a lower operating cost structure due to performing loans being less costly to service.
Solutionstar Segment
The Solutionstar segment generated $133 million of pretax earnings in 2014, up 295% from $34 million in 2013. Solutionstar margin increased year-over-year from 23% to 41% due to an increase in property sales and an increase in unit volume orders in our valuation, title and closing services as a result of the expansion in our existing client relationships. Solutionstar sold nearly 21,000 properties over the course of 2014, a 68% increase from 2013. Additionally, Solutionstar sold its first third-party property through the HomeSearch platform in the fourth quarter and has 47 agreements to sell properties on behalf of third-party clients. We expect the economics of the additional third-party business to begin to materialize in 2015.
Originations Segment
The originations segment generated $209 million of core pretax earnings in 2014, up 25% from $168 million in 2013. Originations core margin increased year-over-year from 24% to 36% as a result of the strategic decision to exit lower margin channels in late 2013, increased margins on consumer direct originated loans and maximizing capacity utilization on a single integrated platform. Nationstar funded $16.9 billion of volume in 2015, with approximately 67% of the volume from the consumer direct channel. In 2014, 28% of all originations were purchase money as compared to 17% in 2013, reflecting the broader market shift toward more purchase money originations as the housing market recovers. The recapture rate in 2014 was 34%.
2015 Outlook
Business Outlook
Nationstar acquired most of its servicing assets at, or near, historic low valuations, improved the performance of the portfolios, cross-sold additional high-quality origination and ancillary services, and increased the value and stream of portfolio cash flows, enabling Nationstar to make additional investments in other accretive opportunities. Looking forward, we believe Nationstar is one of the best positioned servicers to acquire additional servicing portfolios based on this proven track record. Ultimately, Nationstar’s success depends on our ability to work productively with our customers, regulators and investors.
During the first quarter of 2015, Nationstar has entered into new commitments to acquire $35 billion of agency servicing assets, primarily from two counterparties. Assuming a 12% annual run-off, we have already replenished 95% of the servicing annuity and are well on our way to achieving our 10%, or greater, UPB growth target for the year. Transfer activity from both banks and non-banks has increased since the end of 2014, and is expected to remain elevated over the course of 2015 when compared against 2014. In addition to growing our servicing portfolio, Nationstar continues to evaluate ways to improve efficiency, reduce delinquencies, strengthen the transfer process and increase overall profitability.
Technology Outlook
Nationstar is committed to transforming the home ownership experience through the deployment of new innovative technologies to make the home purchase experience simpler, accessible and transparent for all market participants.
In the first quarter of 2015, Solutionstar will deploy its next generation technology for HomeSearch.com which delivers a state-of-the-art experience to allow customers to seamlessly purchase distressed and non-distressed property listings starting with one click. This new version of HomeSearch will contain over 75% of all active MLS listings in the United States. HomeSearch offers an enticing value proposition to customers by launching the first ever end-to-end residential real estate search and transaction engine where the customer could receive up to 1% cash back at closing. Unlike traditional real estate transactions that are notoriously complicated, HomeSearch customers will be able to select a real estate agent from a panel or retain their own agent as they are effortlessly guided through the process, all while a specialist is available to answer any questions. The platform integrates all of the front and back-end services with an unbeatable value proposition of “1 click, 1 call, 1% savingsTM.."
With the launch of the next generation HomeSearch.com platform, Solutionstar will possess an industry leading real estate search and transaction portal and software ecosystem providing enhanced technology and data solutions to homebuyers, home sellers, real estate agents and companies engaged in residential real estate transactions. Solutionstar utilizes the power of technology and data analytics to deliver a comprehensive suite of end-to-end services, from front-end real estate auctions to world class back-office software and services for agents/brokers, appraisal, title, close and escrow.
Nationstar continues to invest in and develop technologies, comprising both back-office work flow processing systems as well as consumer-facing products that will be deployed over the course of 2015. We expect these technologies to have a top and bottom line impact through new revenue streams and efficiency improvements that will reduce our operating costs. Additional details on these technology initiatives will be provided in upcoming quarters.
Customers
Providing customers a best-in class experience will result in significant tangible benefits to customers, shareholders, regulators and the GSEs. Recent progress towards this goal includes the launch of the customer feedback portal that allows customers to easily provide feedback, have direct interaction with support staff, track complaint statistics, including progress towards stated goals, and provide transparency for all constituents.
The next step in improving the customer experience includes the upcoming launch of the “Customer for Life” and “Customer Select” campaigns. These initiatives represent the next evolution for engaging with customers, including providing useful data and insights, more personalized service and a strong value proposition. The Customer Select program will combine real estate and home loan services thereby potentially reducing the cost of buying, selling, or refinancing a house by thousands of dollars. These initiatives will strengthen the relationship with the next generation of homeowners by reducing transaction costs, providing timely data and insights, and automating time consuming manual processes.
Providing existing and future customers with exceptional service, technologies and products will increase the value of the servicing portfolio as a result of greater customer retention and a longer time horizon over which to deliver innovative services. Finally, a best-in-class homeownership experience will improve standing with investors, including the agencies, thereby increasing opportunities to selectively acquire additional portfolios.
Conference Call Webcast and Investor Presentation
Chief Executive Officer, Jay Bray, and Chief Financial Officer, Robert Stiles, will host a conference call for investors and analysts to discuss Nationstar’s fourth quarter and full year 2014 results and other general business matters at 9:00 a.m. ET on Thursday, February 26, 2014. To listen to the event live or in an archive which will be available for 14 days, visit the investor section of Nationstar's website at http://www.nationstarmtg.com. The conference call will also be accessible by dialing 1-866-318-8611, or 1-617-399-5130 internationally. Please use the participant passcode 79218194 to access the live conference call. An investor presentation will also be available on the investor section of Nationstar's website at http://www.nationstarmtg.com.
Non-GAAP Financial Measures
This disclaimer applies to every usage of “Core Earnings per Share” or “Core EPS”, "Core Pretax Earnings," "Core Earnings," "Operating Cash Flow" and “Servicing Core Pretax Earnings” in this release. Core EPS is a metric that is used by management to normalize earnings for one-time expenses and changes in fair value of the MSR. Core pretax earnings and core earnings are metrics used by management to exclude certain non-recurring items, and changes in the fair value of the MSR, in an attempt to provide better earnings per share comparison to prior periods. Operating Cash Flow is a metric that is used by management to provide an estimate of cash flow generated by the operating segments. Operating Cash Flow begins with pretax income and makes adjustments for cash and non-cash items including changes in the fair value of MSRs, value of capitalized servicing retained, depreciation and amortization, stock based compensation and cash taxes. Servicing core pretax earnings is a metric that is used by management to exclude certain non-recurring items to provide a better earnings per share comparison to prior periods.
About Nationstar
Based in Dallas, Texas, Nationstar earns fees through the delivery of quality servicing, origination and transaction based services related principally to single-family residences throughout the United States. Additional corporate information is available on the investors tab at www.nationstarmtg.com.
Forward Looking Statements
Any statements in this release that are not historical or current facts are forward looking statements. These forward looking statements include, but are not limited to, statements regarding: 2015 growth prospects, amount of acquisitions, expectations of HomeSearch, the impacts of our customer focused campaigns and our recapture rate. Servicing acquisition commitments represent a signed letter of intent or definitive agreement, but the transaction has not yet closed. 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-statements. Certain of these risks and uncertainties are described in the “Risk Factors” section of our most recent annual report and other required documents as filed with the SEC which are available at the SEC’s website at http://www.sec.gov. Nationstar undertakes no obligation to publicly update or revise any forward looking statements 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
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (dollars and shares in thousands, except per share data) | |||||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | ||||||||||||||||
| December 31, 2014 | September 30, 2014 | December 31, 2014 | December 31, 2013 | ||||||||||||||
| Revenues: | |||||||||||||||||
| Service related | $ | 295,825 | $ | 376,388 | $ | 1,375,862 | $ | 1,384,222 | |||||||||
| Net gain on mortgage loans held for sale | 153,539 | 127,936 | 597,206 | 702,763 | |||||||||||||
| Total revenues | 449,364 | 504,324 | 1,973,068 | 2,086,985 | |||||||||||||
| Total expenses and impairments | 362,623 | 327,224 | 1,357,691 | 1,402,278 | |||||||||||||
| Other income (expense): | |||||||||||||||||
| Interest income | 49,394 | 43,314 | 179,592 | 197,220 | |||||||||||||
| Interest expense | (103,692 | ) | (116,673 | ) | (516,387 | ) | (538,805 | ) | |||||||||
| Gain on disposal of property | — | 4,898 | 4,898 | — | |||||||||||||
| Gain (loss) on interest rate swaps and caps | (404 | ) | 940 | 2,404 | 3,132 | ||||||||||||
| Total other income (expense) | (54,702 | ) | (67,521 | ) | (329,493 | ) | (338,453 | ) | |||||||||
| Income before taxes | 32,039 | 109,579 | 285,884 | 346,254 | |||||||||||||
| Income tax expense / (benefit) | 12,618 | (1,700 | ) | (1 | ) | 64,860 | 129,200 | ||||||||||
| Net income | 19,421 | 111,279 | 221,024 | 217,054 | |||||||||||||
| Less: Net gain (loss) attributable to noncontrolling interests | 419 | 54 | 306 | — | |||||||||||||
| Net income attributable to Nationstar | 19,002 | 111,225 | 220,718 | 217,054 | |||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||
| Change in value of designated cash flow hedge, net of tax of ($1,183), $1,183, and $0, respectively | — | — | (1,963 | ) | 1,963 | ||||||||||||
| Comprehensive income | $ | 19,421 | $ | 111,225 | $ | 218,755 | $ | 219,017 | |||||||||
| Earnings per share: | |||||||||||||||||
| Basic earnings per share | $ | 0.22 | $ | 1.23 | $ | 2.47 | $ | 2.43 | |||||||||
| Diluted earnings per share | $ | 0.21 | $ | 1.22 | $ | 2.45 | $ | 2.40 | |||||||||
| Weighted average shares: | |||||||||||||||||
| Basic | 89,596 | 90,120 | 89,521 | 89,415 | |||||||||||||
| Dilutive effect of stock awards | 789 | 1,001 | 499 | 853 | |||||||||||||
| Diluted | 90,385 | 91,121 | 90,020 | 90,268 | |||||||||||||
| Dividends declared per share | — | — | — | — | |||||||||||||
(1) In the third quarter, Nationstar released a deferred tax valuation allowance in the amount of $44 million which resulted in a tax credit during the period. The valuation allowance was released as a result of Nationstar's recent growth and profitable results and the expectation of continued growth and profitability in the future.
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) | |||||||||||
| December 31, 2014 | September 30, 2014 | December 31, 2013 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 299,002 | $ | 269,735 | $ | 441,902 | |||||
| Restricted cash | 285,530 | 294,044 | 592,747 | ||||||||
| Mortgage servicing rights | 2,961,321 | 2,910,640 | 2,503,162 | ||||||||
| Advances | 2,546,362 | 2,770,622 | 5,002,202 | ||||||||
| Reverse mortgage interests | 2,383,647 | 1,956,952 | 1,528,000 | ||||||||
| Mortgage loans held for sale | 1,277,931 | 1,697,041 | 2,603,380 | ||||||||
| Mortgage loans held for investment | 191,569 | 195,432 | 211,050 | ||||||||
| Property and equipment | 129,611 | 121,635 | 119,185 | ||||||||
| Derivative financial instruments | 91,051 | 88,333 | 123,878 | ||||||||
| Other assets | 946,651 | 572,610 | 901,183 | ||||||||
| Total assets | $ | 11,112,675 | $ | 10,877,044 | $ | 14,026,689 | |||||
| Liabilities and equity | |||||||||||
| Unsecured senior notes | $ | 2,159,231 | $ | 2,159,651 | $ | 2,444,062 | |||||
| Advance facilities | 1,901,783 | 1,601,219 | 4,550,424 | ||||||||
| Warehouse facilities | 1,572,622 | 1,931,524 | 2,433,927 | ||||||||
| Payables and accrued liabilities | 1,322,078 | 1,344,895 | 1,308,450 | ||||||||
| MSR related liabilities - nonrecourse | 1,080,465 | 1,106,993 | 1,016,284 | ||||||||
| Derivative financial instruments | 18,525 | 9,621 | 8,526 | ||||||||
| Mortgage servicing liabilities | 65,382 | 78,954 | 82,521 | ||||||||
| Participating interest financing | 1,433,145 | 1,367,382 | 1,103,490 | ||||||||
| 2014-1 HECM securitization | 259,328 | — | — | ||||||||
| Nonrecourse debt - Legacy Assets | 75,838 | 78,481 | 89,107 | ||||||||
| Total liabilities | $ | 9,888,397 | $ | 9,678,720 | $ | 13,036,791 | |||||
| Total equity | 1,224,278 | 1,198,324 | 989,898 | ||||||||
| Total liabilities and Shareholders' equity | $ | 11,112,675 | $ | 10,877,044 | $ | 14,026,689 | |||||
SERVICING SEGMENT FINANCIAL AND OPERATING METRICS (dollars in millions, unless noted) | ||||||||||||||||||||||
| 2014 | 2013 | % Change | Q4’14 | Q3’14 | % Change | |||||||||||||||||
| Total revenue | $ | 1,071 | $ | 1,237 | (13 | )% | $ | 215 | $ | 280 | (23 | )% | ||||||||||
| Pretax income | $ | 221 | $ | 441 | (50 | )% | $ | 14 | $ | 90 | (84 | )% | ||||||||||
| One-time items (1) | 57 | 81 | (31 | )% | 8 | 4 | 93 | % | ||||||||||||||
| MSR Mark | 49 | (207 | ) | (124 | )% | 46 | (1 | ) | N/A | |||||||||||||
| Core pretax income | $ | 327 | $ | 316 | 3 | % | $ | 69 | $ | 93 | (26 | )% | ||||||||||
| Core pretax income margin | 30 | % | 26 | % | 19 | % | 32 | % | 33 | % | (3 | )% | ||||||||||
| Core operating profitability (bps) | 8.5 | 10.6 | (20 | )% | 7.3 | 9.9 | (26 | )% | ||||||||||||||
| Ending UPB ($B) | $ | 381 | $ | 391 | (2 | )% | $ | 381 | $ | 378 | 1 | % | ||||||||||
| Average UPB ($B) | $ | 386 | $ | 299 | 29 | % | $ | 379 | $ | 378 | — | % | ||||||||||
| 60+ day delinquency rate | 9.9 | % | 11.8 | % | (16.1 | )% | 9.9 | % | 10.6 | % | (7 | )% | ||||||||||
| Annualized CPR rate | 13.3 | % | 14.8 | % | (10.1 | )% | 13.3 | % | 14.0 | % | (5 | )% | ||||||||||
(1) One-time items include expenses related to advance sale transactions and ramp costs associated with bulk acquisitions.
SOLUTIONSTAR SEGMENT FINANCIAL AND OPERATING METRICS (dollars in millions, unless noted) | ||||||||||||||||||||||
| 2014 | 2013 | % Change | Q4'14 | Q3'14 | % Change | |||||||||||||||||
| Revenue - Real Estate Exchange | $ | 154 | $ | 50 | 208 | % | $ | 42 | $ | 43 | (1) | % | ||||||||||
| Revenue - Real Estate Services | 168 | 96 | 75 | % | 46 | 43 | 7 | % | ||||||||||||||
| Pretax income | $ | 133 | 34 | 295 | % | $ | 34 | $ | 35 | (4 | )% | |||||||||||
| Pretax income margin | 41 | % | 23 | % | 78 | % | 39 | % | 41 | % | (5 | )% | ||||||||||
| Property sales | 20,937 | 12,456 | 68 | % | 5,514 | 5,225 | 6 | % | ||||||||||||||
| REO ending inventory | 9,062 | 7,433 | 22 | % | 9,062 | 9,639 | (6 | )% | ||||||||||||||
| 3rd party business % | 14 | % | 29 | % | (52 | )% | 17 | % | 14 | % | 19 | % | ||||||||||
ORIGINATIONS SEGMENT FINANCIAL AND OPERATING METRICS (dollars in millions, unless noted) | ||||||||||||||||||||||
| 2014 | 2013 | % Change | Q4'14 | Q3’14 | % Change | |||||||||||||||||
| Revenue | $ | 579 | $ | 712 | (19 | )% | $ | 145 | $ | 139 | 5 | % | ||||||||||
| Pretax income | 191 | 131 | 45 | % | 46 | 51 | (9 | )% | ||||||||||||||
| One-time items (1) | 19 | 37 | - | — | 3 | - | ||||||||||||||||
| Core pretax income | $ | 209 | $ | 168 | 25 | % | $ | 46 | $ | 54 | (14 | )% | ||||||||||
| Core pretax income margin | 36 | % | 24 | % | 50 | % | 32 | % | 39 | % | (18 | )% | ||||||||||
| Funded volume - consumer direct ($B) | $ | 11.3 | $ | 19.5 | (42 | )% | $ | 2.5 | $ | 2.7 | (6 | )% | ||||||||||
| Funded volume - total ($B) | $ | 16.9 | $ | 23.8 | (29 | )% | $ | 3.6 | $ | 4.1 | (12 | )% | ||||||||||
| Application volume ($B) | $ | 3.2 | $ | 5.0 | (36 | )% | $ | 3.2 | $ | 3.5 | (10 | )% | ||||||||||
| Locked pipeline ($B) | $ | 3.1 | $ | 5.0 | (37 | )% | $ | 2.8 | $ | 2.4 | 19 | % | ||||||||||
| Recapture percentage | 34 | % | 48 | % | (29 | )% | 27 | % | 29 | % | (7 | )% | ||||||||||
| Purchase origination percentage of funded volume | 28 | % | 17 | % | 65 | % | 28 | % | 31 | % | (10 | )% | ||||||||||
(1) One-time items include expenses related to sight-sizing of operations, transition to single operating platform and ramp costs.
OPERATING CASH FLOW RECONCILIATION (dollars in millions, unless noted) | ||||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
| December 31, 2014 | September 30, 2014 | December 31, 2014 | December 31, 2013 | |||||||||||||
| GAAP pretax income | $ | 32 | $ | 110 | $ | 286 | $ | 346 | ||||||||
| Fair value adjustments / amortization | 107 | 53 | 258 | 14 | ||||||||||||
| Servicing value retained | (52 | ) | (66 | ) | (238 | ) | (248 | ) | ||||||||
| Other | 31 | 24 | 57 | (77 | ) | |||||||||||
| Operating cash flow | $ | 118 | $ | 121 | $ | 363 | $ | 35 | ||||||||
(1) Includes depreciation and amortization, stock based compensation, and cash taxes.
2015 KEY METRICS | ||||
The following are key metrics Nationstar will use to measure our performance in 2015. | ||||
| FY'15E | ||||
| Servicing | ||||
| UPB Growth | > 10% | |||
| Core Margin % | > 30% | |||
| Customer Complaint % (1) | <1.0% | |||
| Solutionstar | ||||
| Overall Earnings Growth | > 30% | |||
| % of 3rd Party Revenue | > 20% | |||
| % Non-Default Revenue Mix | < 20% | |||
| Core Margin % | >35% | |||
| Originations | ||||
| Volume ($B) - consumer direct (2) | $ | 13.0 | ||
| Recapture (% of voluntary run-off) | 45% | |||
| Operational Turn Times (3) | <45 days | |||
| Pretax Income Margin (bps) - includes secondary gains | 125 | |||
1) Customer complaint volume measures as number of complaints divided by average number of customers during the period.
2) Consumer direct includes portfolio recapture, new customer acquisition and Home Community Mortgage. Does not include correspondent.
3) Operational turn times defined as time from when application is submitted to processor to when the loan is funded.
SERVICING FEE INCOME BEFORE FAIR VALUE ADJUSTMENTS RECONCILIATION (dollars in thousands) | ||||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
December 31, |
September 30, |
December 31, |
December 31, | |||||||||||||
| Base servicing fee | $ | 223,984 | $ | 223,989 | $ | 906,491 | $ | 847,120 | ||||||||
| Loss mitigation and performance-based incentive fees | 17,550 | 15,088 | 57,219 | 47,943 | ||||||||||||
| Modification fees | 12,726 | 30,611 | 68,196 | 117,062 | ||||||||||||
| Late fees and other ancillary charges | 15,252 | 15,645 | 64,609 | 59,372 | ||||||||||||
| Reverse mortgage fees | 26,352 | 13,093 | 68,351 | 55,559 | ||||||||||||
| Other servicing fee related revenues | 23,872 | 19,960 | 113,625 | 63,306 | ||||||||||||
| Total base servicing fee income before MSR fair value adjustments | 319,736 | 318,386 | 1,278,491 | 1,190,362 | ||||||||||||
| Changes in fair value due to inputs / assumptions: | ||||||||||||||||
| MSR | (46,954 | ) | 63,449 | 2,825 | 355,586 | |||||||||||
| MSR financing liability | (6,844 | ) | (17,749 | ) | 11,598 | — | ||||||||||
| Excess spread financing | 7,600 | (44,464 | ) | (63,839 | ) | (148,852 | ) | |||||||||
| Net change in fair value due to inputs / assumptions: | (46,198 | ) | 1,236 | (49,416 | ) | 206,734 | ||||||||||
| Other changes in fair value (amortization): | ||||||||||||||||
| MSR | (71,079 | ) | (68,757 | ) | (250,204 | ) | (297,128 | ) | ||||||||
| MSR financing liability | 1,864 | 6,752 | 21,681 | — | ||||||||||||
| Excess spread financing | (4,074 | ) | 7,151 | 6,285 | 75,519 | |||||||||||
| Net other changes in fair value: | (73,289 | ) | (54,854 | ) | (222,238 | ) | (221,609 | ) | ||||||||
| Service related revenue | 200,249 | 264,768 | 1,006,837 | 1,175,487 | ||||||||||||
| Net gain on mortgage loans held for sale | 14,372 | 15,632 | 64,506 | 61,624 | ||||||||||||
| Total revenue | $ | 214,621 | $ | 280,400 | $ | 1,071,343 | $ | 1,237,111 | ||||||||
CORE EARNINGS PER SHARE RECONCILIATION (dollars and shares in thousands, except per share data) | ||||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
December 31, |
September 30, |
December 31, |
December 31, | |||||||||||||
| Net income attributable to Nationstar Inc. | $ | 19,002 | $ | 111,225 | $ | 220,718 | $ | 217,054 | ||||||||
| Net gain (loss) attributable to noncontrolling interests | 419 | 54 | 306 | — | ||||||||||||
| Net income | 19,421 | 111,279 | 221,024 | 217,054 | ||||||||||||
| Income taxes (1) | 12,618 | (1,700 | ) | 64,860 | 129,200 | |||||||||||
| Income before taxes | 32,039 | 109,579 | 285,884 | 346,254 | ||||||||||||
| One-time items (2) | 8,482 | 6,836 | 80,462 | 118,348 | ||||||||||||
| MSR mark | 46,198 | (1,236 | ) | 49,416 | (206,734 | ) | ||||||||||
| Core pretax income | 86,719 | 115,179 | 415,762 | 257,868 | ||||||||||||
| Income taxes | (34,601 | ) | (42,478 | ) | (157,990 | ) | (97,401 | ) | ||||||||
| Core income | $ | 52,118 | $ | 72,701 | $ | 257,772 | $ | 160,467 | ||||||||
| Average share count | 90,385 | 91,121 | 90,020 | 90,268 | ||||||||||||
| Core EPS | $ | 0.58 | $ | 0.80 | $ | 2.86 | $ | 1.78 | ||||||||
(1) In the third quarter, Nationstar released a deferred tax valuation allowance in the amount of $44 million which resulted in a tax credit during the period. The valuation allowance was released as a result of Nationstar's recent growth and profitable results and the expectation of continued growth and profitability in the future.
(2) 4Q'14 one-time items include legacy legal / advance reserves. 3Q'14 one-time items include gain on sale of facility in Scottsbluff, expenses related to the retirement of 10 7/8 unsecured notes, expenses related to the originations platform consolidation, expenses related to the completion of the sale of advances to NRZ, legal expenses, and severance expenses related to consolidation of servicing operations. 2013 one-time items include certain expenses related to the acquisition of the $200 billion servicing portfolio from Bank of America and other one-time expenses. These expenses include the advance hiring of servicing staff, recruiting expenses and licensing expenses, severance expenses and expenses related to the write-off of advance financing facility fees related to the advance sale to NRZ. 2014 one-time items include expenses related to right-sizing of operations, retirement of 10 7/8 unsecured notes and legacy legal / advance reserves.
SERVICING: CORE PRETAX INCOME RECONCILIATION (dollars in thousands) | ||||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
December 31, |
September 30, |
December 31, |
December 31, | |||||||||||||
| Pretax income | $ | 14,144 | $ | 89,938 | $ | 220,751 | $ | 441,401 | ||||||||
| One-time items (1) | 8,482 | 4,403 | 56,587 | 81,431 | ||||||||||||
| Changes in fair value due to inputs or assumptions | ||||||||||||||||
| MSR | 46,954 | (63,449 | ) | (2,825 | ) | (355,586 | ) | |||||||||
| MSR financing liability | 6,844 | 17,749 | (11,598 | ) | — | |||||||||||
| Excess spread | (7,600 | ) | 44,464 | 63,839 | 148,852 | |||||||||||
| Net change in fair value due to inputs or assumptions | 46,198 | (1,236 | ) | 49,416 | (206,734 | ) | ||||||||||
| Servicing core pretax income | $ | 68,824 | $ | 93,105 | $ | 326,754 | $ | 316,098 | ||||||||
(1) 4Q'14 one-time items include legacy legal / advance reserves. 3Q'14 one-time items include expenses related to the completion of the sale of advances to NRZ and severance expenses related to consolidation of servicing operations. 2014 one-time items include expenses related to right-sizing of operations and legacy legal / advance reserves. 2013 one-time items include expenses related to ramp costs associated with bulk acquisitions.
ORIGINATIONS: CORE PRETAX INCOME RECONCILIATION (dollars in thousands) | |||||||
| For the Twelve Months Ended | |||||||
| December 31, 2014 | December 31, 2013 | ||||||
| Pretax income | $ | 190,524 | $ | 130,989 | |||
| One-time items (1) | 18,733 | 36,917 | |||||
| Originations core pretax income | $ | 209,257 | $ | 167,906 | |||
(1) 2014 one-time items related to the originations platform consolidation. 2013 one-time items related to restructuring.
SEGMENT INCOME STATEMENT (dollars in thousands) | ||||||||||||||||||||||||||||
| For the quarter ended December 31, 2014 | ||||||||||||||||||||||||||||
| Servicing | Originations | Solutionstar | Operating | Corporate and Other | Elim. | Total | ||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||||
| Service related | $ | 200,249 | $ | 5,566 | $ | 87,915 | $ | 293,730 | $ | 2,438 | $ | (343 | ) | $ | 295,825 | |||||||||||||
| Net gain on mortgage loans held for sale | 14,372 | 139,517 | — | 153,889 | (350 | ) | — | 153,539 | ||||||||||||||||||||
| Total revenues | 214,621 | 145,083 | 87,915 | 447,619 | 2,088 | (343 | ) | 449,364 | ||||||||||||||||||||
| Total expenses and impairments | 185,880 | 98,994 | 54,141 | 339,015 | 23,608 | — | 362,623 | |||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||
| Interest income | 32,522 | 14,280 | — | 46,802 | 2,249 | 343 | 49,394 | |||||||||||||||||||||
| Interest expense | (46,635 | ) | (13,904 | ) | 136 | (60,403 | ) | (43,289 | ) | — | (103,692 | ) | ||||||||||||||||
| Gain on sale of property | — | — | — | — | — | — | — | |||||||||||||||||||||
| Gain (loss) on interest rate swaps and caps | (484 | ) | — | — | (484 | ) | 80 | — | (404 | ) | ||||||||||||||||||
| Total other income (expense) | (14,597 | ) | 376 | 136 | (14,085 | ) | (40,960 | ) | 343 | (54,702 | ) | |||||||||||||||||
| Pretax income (loss) | 14,144 | 46,465 | 33,910 | 94,519 | (62,480 | ) | — | 32,039 | ||||||||||||||||||||
| One-time items (1) | 8,482 | — | — | 8,482 | — | — | 8,482 | |||||||||||||||||||||
| MSR Mark | 46,198 | — | — | 46,198 | — | — | 46,198 | |||||||||||||||||||||
| Core pretax income | $ | 68,824 | $ | 46,465 | $ | 33,910 | $ | 149,199 | $ | (62,480 | ) | $ | — | $ | 86,719 | |||||||||||||
| Earnings per share | $ | 0.21 | ||||||||||||||||||||||||||
| Core earnings per share | $ | 0.58 | ||||||||||||||||||||||||||
(1) One-time items include expenses related to legacy legal / advance reserves.
SEGMENT INCOME STATEMENT (dollars in thousands) | ||||||||||||||||||||||||||||
| For the quarter ended September 30, 2014 | ||||||||||||||||||||||||||||
| Servicing | Originations | Solutionstar | Operating | Corporate and Other | Elim. | Total | ||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||||
| Service related | $ | 264,768 | $ | 25,318 | $ | 85,523 | $ | 375,609 | $ | 1,133 | $ | (354 | ) | $ | 376,388 | |||||||||||||
| Net gain on mortgage loans held for sale | 15,632 | 113,476 | — | 129,108 | (1,172 | ) | — | 127,936 | ||||||||||||||||||||
| Total revenues | 280,400 | 138,794 | 85,523 | 504,717 | (39 | ) | (354 | ) | 504,324 | |||||||||||||||||||
| Total expenses and impairments | 160,975 | 89,369 | 50,006 | 300,350 | 26,874 | - | 327,224 | |||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||
| Interest income | 18,369 | 18,903 | — | 37,272 | 5,688 | 354 | 43,314 | |||||||||||||||||||||
| Interest expense | (48,651 | ) | (17,085 | ) | (352 | ) | (66,088 | ) | (50,585 | ) | — | (116,673 | ) | |||||||||||||||
| Gain on sale of property | — | — | — | — | 4,898 | — | 4,898 | |||||||||||||||||||||
| Gain (loss) on interest rate swaps and caps | 795 | — | — | 795 | 145 | — | 940 | |||||||||||||||||||||
| Total other income (expense) | (29,487 | ) | 1,818 | (352 | ) | (28,021 | ) | (39,854 | ) | 354 | (67,521 | ) | ||||||||||||||||
| Pretax income (loss) | 89,938 | 51,243 | 35,165 | 176,346 | (66,767 | ) | — | 109,579 | ||||||||||||||||||||
| One-time items (1) | 4,403 | 2,833 | — | 7,236 | (400 | ) | — | 6,836 | ||||||||||||||||||||
| MSR Mark | (1,236 | ) | — | — | (1,236 | ) | — | — | (1,236 | ) | ||||||||||||||||||
| Core pretax income | $ | 93,105 | $ | 54,076 | $ | 35,165 | $ | 182,346 | $ | (67,167 | ) | $ | — | $ | 115,179 | |||||||||||||
| MSR Mark | $ | 1.22 | ||||||||||||||||||||||||||
| Core earnings per share | $ | 0.80 | ||||||||||||||||||||||||||
(1) One-time items include gain on sale of facility in Scottsbluff, expenses related to the retirement of 10 7/8 unsecured notes, expenses related to the originations platform consolidation, expenses related to the completion of the sale of advances to NRZ and severance expenses related to consolidation of servicing operations.
SEGMENT INCOME STATEMENT (dollars in thousands) | ||||||||||||||||||||||||||||
| For the fiscal year ended December 31, 2014 | ||||||||||||||||||||||||||||
| Servicing | Originations | Solutionstar | Operating | Corporate and Other | Elim. | Total | ||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||||
| Service related | $ | 1,006,837 | $ | 43,954 | $ | 321,801 | $ | 1,372,592 | $ | 4,713 | $ | (1,443 | ) | $ | 1,375,862 | |||||||||||||
| Net gain on mortgage loans held for sale | 64,506 | 535,273 | — | 599,779 | (2,573 | ) | — | 597,206 | ||||||||||||||||||||
| Total revenues | 1,071,343 | 579,227 | 321,801 | 1,972,371 | 2,140 | (1,443 | ) | 1,973,068 | ||||||||||||||||||||
| Total expenses and impairments | 697,878 | 390,497 | 188,866 | 1,277,241 | 80,450 | — | 1,357,691 | |||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||
| Interest income | 91,713 | 72,031 | — | 163,744 | 14,405 | 1,443 | 179,592 | |||||||||||||||||||||
| Interest expense | (246,099 | ) | (70,237 | ) | (360 | ) | (316,696 | ) | (199,691 | ) | — | (516,387 | ) | |||||||||||||||
| Gain on sale of property | — | — | — | — | 4,898 | — | 4,898 | |||||||||||||||||||||
| Gain (loss) on interest rate swaps and caps | 1,672 | — | — | 1,672 | 732 | — | 2,404 | |||||||||||||||||||||
| Total other income (expense) | (152,714 | ) | 1,794 | (360 | ) | (151,280 | ) | (179,656 | ) | 1,443 | (329,493 | ) | ||||||||||||||||
| Pretax income (loss) | 220,751 | 190,524 | 132,575 | 543,850 | (257,966 | ) | — | 285,884 | ||||||||||||||||||||
| One-time items (1) | 56,587 | 18,733 | — | 75,320 | 5,142 | — | 80,462 | |||||||||||||||||||||
| MSR Mark | 49,416 | — | — | 49,416 | — | — | 49,416 | |||||||||||||||||||||
| Core pretax income | $ | 326,754 | $ | 209,257 | $ | 132,575 | $ | 668,586 | $ | (252,824 | ) | $ | — | $ | 415,762 | |||||||||||||
| Earnings per share | $ | 2.45 | ||||||||||||||||||||||||||
| Core earnings per share (1) | $ | 2.86 | ||||||||||||||||||||||||||
(1) One-time items include expenses related to right-sizing of operations, retirement of 10 7/8 unsecured notes and legacy legal / advance reserves.
SEGMENT INCOME STATEMENT (dollars in thousands) | ||||||||||||||||||||||||||||
| For the fiscal year ended December 31, 2013 | ||||||||||||||||||||||||||||
| Servicing | Originations | Solutionstar | Operating | Corporate and Other | Elim. | Total | ||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||||
| Service related | $ | 1,175,487 | $ | 62,011 | $ | 146,608 | $ | 1,384,106 | $ | 1,750 | $ | (1,634 | ) | $ | 1,384,222 | |||||||||||||
| Net gain on mortgage loans held for sale | 61,624 | 650,357 | — | 711,981 | (9,218 | ) | — | 702,763 | ||||||||||||||||||||
| Total revenues | 1,237,111 | 712,368 | 146,608 | 2,096,087 | (7,468 | ) | (1,634 | ) | 2,086,985 | |||||||||||||||||||
| Total expenses and impairments | 608,978 | 589,986 | 112,739 | 1,311,703 | 90,575 | — | 1,402,278 | |||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||
| Interest income | 90,913 | 87,713 | — | 178,626 | 16,960 | 1,634 | 197,220 | |||||||||||||||||||||
| Interest expense | (279,501 | ) | (79,106 | ) | (264 | ) | (358,871 | ) | (179,934 | ) | — | (538,805 | ) | |||||||||||||||
| Gain (loss) on interest rate swaps and caps | 1,856 | — | — | 1,856 | 1,276 | — | 3,132 | |||||||||||||||||||||
| Total other income (expense) | (186,732 | ) | 8,607 | (264 | ) | (178,389 | ) | (161,698 | ) | 1,634 | (338,453 | ) | ||||||||||||||||
| Pretax income (loss) | 441,401 | 130,989 | 33,605 | 605,995 | (259,741 | ) | — | 346,254 | ||||||||||||||||||||
| One-time items (1) | 81,431 | 36,917 | — | 118,348 | — | — | 118,348 | |||||||||||||||||||||
| MSR Mark | (206,734 | ) | — | — | (206,734 | ) | — | — | (206,734 | ) | ||||||||||||||||||
| Core pretax income | $ | 316,098 | $ | 167,906 | $ | 33,605 | $ | 517,609 | $ | (259,741 | ) | $ | — | $ | 257,868 | |||||||||||||
| Earnings per share | $ | 2.40 | ||||||||||||||||||||||||||
| Core earnings per share | $ | 1.78 | ||||||||||||||||||||||||||
(1) One-time items include expenses related to ramp costs associated with bulk acquisitions and expenses related to right-sizing of operations.
Contacts:
Marshall Murphy, 469-549-3005
