Mr. Cooper Group Reports Fourth Quarter 2022 Results

By: Mr. Cooper Group Inc. via Business Wire

February 10, 2023 at 07:00 AM EST

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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Contacts

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