Mr. Cooper Group Reports Fourth Quarter 2023 Results

Rhea-AI Summary

Mr. Cooper Group Inc. (NASDAQ: COOP) reported a net income of $46 million for the fourth quarter, with pretax operating income of $151 million. The company's servicing portfolio grew by 14% year-over-year to $992 billion. They repurchased 1.3 million shares of common stock and issued $1 billion in senior notes. The company's leadership expressed confidence in their performance and growth prospects for 2024.

Positive

• Reported net income of $46 million for the fourth quarter.
• Pretax operating income of $151 million.
• Servicing portfolio grew by 14% year-over-year to $992 billion.
• Repurchased 1.3 million shares of common stock for $72 million.
• Issued $1 billion in senior notes maturing in 2032 with a coupon of 7.125%.
• Positive sentiment from the Chairman and CEO regarding the company's performance and growth prospects.
• Servicing segment recorded pretax income of $184 million.
• Operational revenue for Servicing segment at $507 million in Q4'23.
• Originations segment earned pretax income of $9 million.
• Conference call scheduled for February 9, 2024, at 10:00 A.M. Eastern Time.

Negative

• None.

Insights

Financial Analyst

The reported net income of $46 million and the issuance of $1 billion in senior notes by Mr. Cooper Group Inc. are of considerable interest from a financial analysis perspective. The company's Return on Common Equity (ROCE) of 4.3% and operating Return on Tangible Common Equity (ROTCE) of 11.1% are key indicators of profitability and efficiency in using shareholders' equity. The growth in the servicing portfolio to $992 billion and the repurchase of 1.3 million shares for $72 million signal confidence in the company's stock value and a commitment to returning value to shareholders. The coupon rate of 7.125% on the newly issued senior notes is noteworthy, as it reflects the cost of debt financing and impacts the company's interest expense and net income.

The growth in book value per share to $66.29 and tangible book value per share to $63.67 is a positive signal for investors, as it suggests an increase in the intrinsic value of the shares. However, it is essential to assess the company's performance relative to industry benchmarks and the broader economic environment, particularly in light of the current interest rate landscape. Additionally, the company's approach to managing its servicing portfolio and the impact of market-to-market adjustments on its financials warrant careful consideration.

Market Research Analyst

Mr. Cooper Group's servicing portfolio's year-over-year growth of 14% is a strong indicator of its market position and operational success. The servicing segment's contribution to income before taxes, particularly when excluding other mark-to-market adjustments, showcases the segment's core profitability and stability. The carrying value of the MSR (Mortgage Servicing Rights) at $9,090 million, or 155 basis points (bps) of MSR UPB (Unpaid Principal Balance), is a critical metric for understanding the company's servicing segment's valuation and potential income streams.

The originations segment's performance, with a pretax income of $9 million and a decrease in funded volume by 22% quarter-over-quarter, reflects the competitive and challenging environment of the mortgage industry, especially amid rising interest rates. The refinance recapture and purchase volume percentages are important metrics for gauging customer retention and new business acquisition, respectively. Investors should monitor these trends for indications of the company's ability to sustain and grow its originations in a fluctuating rate environment.

Legal Expert

From a legal perspective, the disclosure of a $27 million impact related to a previously disclosed cyber event is significant. It highlights the potential risks associated with cyber security and the financial implications of such events. Investors should be aware of the company's risk management strategies and the steps taken to mitigate future cyber threats. This is critical not only for safeguarding the company's data but also for maintaining investor confidence and protecting the company's financial position.

The issuance of senior notes also carries legal implications, particularly in terms of compliance with securities regulations and the contractual obligations associated with debt covenants. The terms of the notes, including the maturity date and coupon rate, are legally binding and affect the company's financial strategy. Investors should consider the legal aspects of such financial instruments and their influence on the company's long-term debt profile.

• Reported net income of $46 million including other mark-to-market loss of $41 million, equivalent to ROCE of 4.3% and operating ROTCE of 11.1%
• Book value per share and tangible book value per share increased to $66.29 and $63.67
• Servicing portfolio grew 14% y/y to $992 billion
• Repurchased 1.3 million shares of common stock for $72 million
• Subsequent to quarter end, issued $1 billion senior notes maturing 2032 with coupon of 7.125%

DALLAS--(BUSINESS WIRE)-- Mr. Cooper Group Inc. (NASDAQ: COOP) (the “Company”), reported fourth quarter income before income tax expense of $69 and net income of $46 million. Excluding other mark-to-market and other adjustments, the Company reported pretax operating income of $151 million. Adjustments included other mark-to-market net of hedges of $41 million, $27 million related to the previously disclosed cyber event, and other items shown below in the reconciliation of GAAP and non-GAAP results.

Chairman and CEO Jay Bray commented, “The fourth quarter closed out an exceptionally productive year for Mr. Cooper, with steadily rising return on equity throughout the year and very substantial growth which puts us on the cusp of achieving our $1 trillion portfolio strategic target. We enter 2024 with robust capital and liquidity, an extremely talented and dedicated team, and enormous energy to serve customers, clients and all our other stakeholders.”

Chris Marshall, Vice Chairman added, “Operational performance this year has benefited from strong focus and vigorous execution. Accomplishments include record servicing profits and very agile performance by our originations unit despite headwinds from rising interest rates. Over the last fifteen years, we have grown in a steady, consistent, and prudent fashion, to the point that today we have earned the title of market leader. I believe we are in strong shape to excel in 2024 and beyond.”

Servicing

The Servicing segment provides a best-in-class home loan experience for our 4.6 million customers while simultaneously strengthening asset performance for investors. In the fourth quarter, Servicing recorded pretax income of $184 million, including other mark-to-market of $41 million. The servicing portfolio ended the quarter at $992 billion. Servicing generated pretax operating income, excluding other mark-to-market, of $229 million. At quarter end, the carrying value of the MSR was $9,090 million equivalent to 155 bps of MSR UPB.

	Quarter Ended
($ in millions)	Q4'23								Q3'23
	$				BPS				$				BPS
Operational revenue	$	507				21.1			$	561				25.0
Amortization, net of accretion		(151	)			(6.3	)			(160	)			(7.1	)
Mark-to-market		(40	)			(1.7	)			63				2.8
Total revenues		316				13.1				464				20.7
Total expenses		(180	)			(7.4	)			(172	)			(7.6	)
Total other expenses, net		48				1.9				69				3.0
Income before taxes		184				7.6				361				16.1
Other mark-to-market		41				1.7				(61	)			(2.7	)
Accounting items		2				0.1				—				—
Intangible amortization		2				0.1				1				—
Pretax operating income excluding other mark-to-market and accounting items	$	229				9.5			$	301				13.4
	Quarter Ended
	Q4'23								Q3'23
MSRs UPB ($B)	$					588			$					528
Subservicing and Other UPB ($B)						404								409
Ending UPB ($B)	$					992			$					937
Average UPB ($B)	$					963			$					897
60+ day delinquency rate at period end						1.9	%							1.9	%
Annualized CPR						4.0	%							5.3	%
Modifications and workouts						16,953								21,459

Originations

The Originations segment creates 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 of $9 million and pretax operating income of $10 million.

The Company funded 10,699 loans in the fourth quarter, totaling approximately $2.7 billion UPB, which was comprised of $1.2 billion in direct-to-consumer and $1.5 billion in correspondent. Funded volume decreased 22% quarter-over-quarter, while pull through adjusted volume decreased 22% quarter-over-quarter to $2.6 billion.

	Quarter Ended
($ in millions)	Q4'23			Q3'23
Income before taxes	$	9		$	29
Accounting items		1			—
Pretax operating income excluding accounting items and other	$	10		$	29

	Quarter Ended
($ in millions)	Q4'23				Q3'23
Total pull through adjusted volume	$	2,592			$	3,308
Funded volume	$	2,661			$	3,412
Refinance recapture percentage		76	%			83	%
Recapture percentage		22	%			24	%
Purchase volume as a percentage of funded volume		59	%			54	%

Conference Call Webcast and Investor Presentation

The Company will host a conference call on February 9, 2024 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, 2023				Three Months Ended September 30, 2023
Revenues:
Service related, net	$	345			$	432
Net gain on mortgage loans held for sale		59				142
Total revenues		404				574
Total expenses:		332				301
Other (expense) income, net:
Interest income		159				167
Interest expense		(159	)			(146	)
Other (expense) income, net		(3	)			58
Total other (expense) income, net		(3	)			79
Income before income tax expense		69				352
Income tax expense		23				77
Net income	$	46			$	275
Earnings per share:
Basic	$	0.71			$	4.14
Diluted	$	0.69			$	4.06
Weighted average shares of common stock outstanding (in millions):
Basic		65.1				66.4
Diluted		66.7				67.7

MR. COOPER GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars)
				Unaudited
	December 31, 2023			September 30, 2023
Assets
Cash and cash equivalents	$	571		$	553
Restricted cash		169			151
Mortgage servicing rights at fair value		9,090			8,504
Advances and other receivables, net		996			758
Mortgage loans held for sale at fair value		927			893
Property and equipment, net		53			59
Deferred tax assets, net		472			499
Other assets		1,918			2,010
Total assets	$	14,196		$	13,427
Liabilities and Stockholders' Equity
Unsecured senior notes, net	$	3,151		$	3,147
Advance and warehouse facilities, net		4,302			3,545
Payables and other liabilities		1,995			1,964
MSR related liabilities - nonrecourse at fair value		466			467
Total liabilities		9,914			9,123
Total stockholders' equity		4,282			4,304
Total liabilities and stockholders' equity	$	14,196		$	13,427

UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION
(millions of dollars, except for earnings per share data)
	Three Months Ended December 31, 2023
	Servicing				Originations				Corporate/ Other				Consolidated
Service related, net	$	307			$	16			$	22			$	345
Net gain on mortgage loans held for sale		9				51				(1	)			59
Total revenues		316				67				21				404
Total expenses		180				59				93				332
Other income (expense), net:
Interest income		148				10				1				159
Interest expense		(100	)			(9	)			(50	)			(159	)
Other income, net		—				—				(3	)			(3	)
Total other income (expense), net		48				1				(52	)			(3	)
Pretax income (loss)	$	184			$	9			$	(124	)		$	69
Income tax expense														23
Net income													$	46
Earnings per share
Basic													$	0.71
Diluted													$	0.69
Non-GAAP Reconciliation:
Pretax income (loss)	$	184			$	9			$	(124	)		$	69
Other mark-to-market		41				—				—				41
Accounting items / other		2				1				36				39
Intangible amortization		2				—				—				2
Pretax operating income (loss)	$	229			$	10			$	(88	)		$	151
Income tax expense(1)														(37	)
Operating income													$	114
Operating ROTCE(2)														11.1	%
Average tangible book value (TBV)(3)													$	4,123

(1)		Assumes tax-rate of 24.2%.
(2)		Computed by dividing annualized earnings by average TBV.
(3)		Average of beginning TBV of $4,133 and ending TBV of $4,113.

UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION
(millions of dollars, except for earnings per share data)
	Three Months Ended September 30, 2023
	Servicing				Originations				Corporate/ Other				Consolidated
Service related, net	$	392			$	18			$	22			$	432
Net gain on mortgage loans held for sale		72				70				—				142
Total revenues		464				88				22				574
Total expenses		172				58				71				301
Other income (expense), net:
Interest income		157				10				—				167
Interest expense		(88	)			(11	)			(47	)			(146	)
Other expense, net		—				—				58				58
Total other income (expense), net		69				(1	)			11				79
Pretax income (loss)	$	361			$	29			$	(38	)		$	352
Income tax expense														77
Net income													$	275
Earnings per share
Basic													$	4.14
Diluted													$	4.06
Non-GAAP Reconciliation:
Pretax income (loss)	$	361			$	29			$	(38	)		$	352
Other mark-to-market		(61	)			—				—				(61	)
Accounting items / other		—				—				(44	)			(44	)
Intangible amortization		1				—				1				2
Pretax operating income (loss)	$	301			$	29			$	(81	)		$	249
Income tax expense														(60	)
Operating income(1)													$	189
Operating ROTCE(2)														18.7	%
Average tangible book value (TBV)(3)													$	4,032

(1)		Assumes tax-rate of 24.2%.
(2)		Computed by dividing annualized earnings by average TBV.
(3)		Average of beginning TBV of $3,931 and ending TBV of $4,133.

UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION
(millions of dollars, except for earnings per share data)
	Year Ended December 31, 2023
	Servicing				Originations				Corporate/ Other				Consolidated
Service related, net	$	1,295			$	61			$	84			$	1,440
Net gain on mortgage loans held for sale		84				271				(1	)			354
Total revenues		1,379				332				83				1,794
Total expenses		664				232				276				1172
Other income (expense), net:
Interest income		491				36				1				528
Interest expense		(324	)			(37	)			(176	)			(537	)
Other expense, net		—				—				41				41
Total other income (expense), net		167				(1	)			(134	)			32
Pretax income (loss)	$	882			$	99			$	(327	)		$	654
Income tax expense														154
Net income													$	500
Earnings per share
Basic													$	7.46
Diluted													$	7.30
Non-GAAP Reconciliation:
Pretax income (loss)	$	882			$	99			$	(327	)		$	654
Other mark-to-market		(18	)			—				—				(18	)
Accounting items / other		2				1				14				17
Intangible amortization		3				—				4				7
Pretax operating income (loss)	$	869			$	100			$	(309	)		$	660
Income tax expense														(160	)
Operating income(1)													$	500
Operating ROTCE(2)														12.5	%
Average tangible book value (TBV)(3)													$	3,987

(1)		Assumes tax-rate of 24.2%.
(2)		Computed by dividing annualized earnings by average TBV.
(3)		Average of quarterly TBV averages of $3,895 for 1Q’23, $3,896 for 2Q’23, $4,032 for 3Q’23, and $4,123 for 4Q’23.

Non-GAAP Reconciliation:	Quarter Ended
($ in millions except value per share data)	Q4'23				Q3'23
Stockholders' equity (BV)	$	4,282			$	4,304
Goodwill		(141	)			(141	)
Intangible assets		(28	)			(30	)
Tangible book value (TBV)	$	4,113			$	4,133
Ending shares of common stock outstanding (in millions)		64.6				65.8
BV/share	$	66.29			$	65.38
TBV/share	$	63.67			$	62.78
Net income	$	46			$	275
ROCE(1)		4.3	%			26.2	%
Beginning stockholders’ equity	$	4,304			$	4,079
Ending stockholders’ equity	$	4,282			$	4,304
Average stockholders’ equity (BV)	$	4,293			$	4,192

(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/20240209042862/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

Source: Mr. Cooper Group Inc.

FAQ

What was Mr. Cooper Group Inc.'s reported net income for the fourth quarter?

Mr. Cooper Group Inc. reported a net income of $46 million for the fourth quarter.

How much did the servicing portfolio grow by year-over-year?

The servicing portfolio grew by 14% year-over-year to $992 billion.

What financial adjustments were made in the reported pretax operating income?

The reported pretax operating income of $151 million included adjustments such as other mark-to-market net of hedges of $41 million and $27 million related to a cyber event.

How many shares of common stock did the company repurchase and at what cost?

The company repurchased 1.3 million shares of common stock for $72 million.

When did the company issue senior notes and what was the total amount?

Subsequent to the quarter end, the company issued $1 billion in senior notes maturing in 2032 with a coupon of 7.125%.

What is the upcoming event for investors to participate in?

The company will host a conference call on February 9, 2024, at 10:00 A.M. Eastern Time.

What was the pretax income for the Originations segment in the fourth quarter?

The Originations segment earned pretax income of $9 million in the fourth quarter.