Market Overview

Nationstar Reports Fourth Quarter and Full Year 2017 Financial Results

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  • Quarterly GAAP income of $41 million, $0.41 per diluted share and $42
    million adjusted income, $0.43 per diluted share
  • Adjusted servicing profitability of 5.8 basis points (bps)
  • Servicing portfolio at $508 billion with 3.2 million customers
  • Servicing GAAP pretax income of $77 million, adjusted pretax income of
    $78 million
  • Originations GAAP pretax income of $30 million, adjusted pretax income
    of $34 million
  • Xome GAAP pretax income of $12 million, adjusted pretax income of $12
    million

Nationstar Mortgage Holdings Inc. (NYSE:NSM) today reported fourth
quarter GAAP net income of $41 million, or $0.41 per diluted share
driven principally by strong operating results in the servicing segment.
On an adjusted basis, the Company reported earnings for the fourth
quarter of $42 million, or $0.43 per diluted share.

"Nationstar had an outstanding year in 2017," said Jay Bray, Chairman
and Chief Executive Officer. "We welcomed over one million new servicing
customers, launched new origination channels, and expanded our
third-party client base at Xome®. Last month we announced our
transformational agreement to merge with WMIH Corp. and we are both
committed to continuing and accelerating our growth, leveraging our
best-in-class integrated servicing and originations platform. We have
taken considerable steps to make homeownership more rewarding for our
three million customers and we look forward to identifying additional
opportunities to enhance value for the combined company's shareholders."

Servicing

For the fourth quarter, Servicing earned $77 million GAAP pretax income
or $78 million adjusted pretax income (5.8 basis points). Adjusted
profitability increased 23% sequentially driven by decreased
amortization and lower expenses. We also continued to implement
technology and process initiatives to improve overall servicing
profitability. For the full year, the Servicing segment achieved $76
million GAAP pretax income or $248 million adjusted pretax income.

   
Quarter Ended
($ in millions) Q3'17(1)   Q4'17(2)
$   BPS   $   BPS
Operational revenue $ 295   22.6 $ 284   21.2
Amortization (60 ) (4.6 ) (55 ) (4.1 )
Mark-to-market (44 ) (3.4 )    
Total revenues 191 14.6 229 17.1
Expenses (185 ) (14.2 ) (173 ) (12.9 )
Total other income (expenses), net 9   0.7   21   1.5  
Income before taxes (GAAP) 15 1.1 77 5.7
Mark-to-market 44 3.4
Adjustments 2   0.2   1   0.1  
Adjusted pretax income $ 61   4.7   $ 78   5.8  
 

We expanded our portfolio by boarding $175 billion loans during the
year, including $145 billion of subservicing. We aim to prudently grow
the portfolio through originations, MSR, and subservicing transactions
that meet or exceed hurdle rates.

   
Quarter Ended
Q3'17   Q4'17
Ending UPB (NYSE:B) $ 533   $ 508
Average UPB (NYSE:B) $ 521 $ 536
60+ day delinquency rate 3.2 % 3.4 %
Annualized CPR 13.8 % 12.7 %
Annualized CPR, net of recapture 11.9 % 11.0 %
Modifications and workouts 12,550 29,905
 

The Company enters 2018 with strong tailwinds for the servicing segment
that we believe should continue to drive increased servicing
profitability and cash flow. Prepayments are trending lower, down 26%
year-over-year, extending the life of an average loan and increasing the
value of the servicing portfolio. Annualized CPR, net of recapture was
15% in the fourth quarter 2016 compared to an average of 13% for the
fourth quarter 2017. The Company has grown the portfolio 7%
year-over-year with predominantly high-performing loans and limited use
of capital. In 2018 Nationstar will implement initiatives designed to
leverage scale and reduce expenses. These initiatives will provide
customers with the tools, technology, and education necessary to take
full control of their home loan experience through self-service. The
Company believes adjusted servicing profitability should exceed 6.0 bps
on average for the full year 2018 based on the current annualized CPR,
net of recapture.

Originations

The Originations segment posted $30 million GAAP pretax income or $34
million adjusted pretax income in the fourth quarter. We funded
approximately $5.2 billion and recapture improved sequentially to 26%.
The decline in pretax income was driven by a shift in channel mix,
increased rates and seasonality. For the full year, Originations earned
$153 million GAAP pretax income or $163 million adjusted pretax income
and funded over $19.1 billion.

   
Quarter Ended
($ in millions) Q3'17   Q4'17
Income before taxes (GAAP) $ 45   $ 30
Adjustments 1   4
Adjusted pretax income $ 46   $ 34
 
   
Quarter Ended
($ in millions) Q3'17   Q4'17
Total pull through adjusted volume $ 4,930   $ 4,796
Funded volume $ 5,102 $ 5,152
Recapture percentage 24 % 26 %
Purchase volume as a percentage of funded volume 36 % 37 %
 

Throughout 2017 we made key investments in the correspondent, purchase
recapture and new customer acquisition channels. We believe these
expansions are critical to developing and maintaining relationships with
existing and new customers. We also plan to leverage key customer data
through our needs-based product offerings designed to restructure debt
and lower monthly payments. We believe that these investments will allow
us to grow volume and improve profitability.

Xome

Xome delivered $12 million GAAP pretax income or $12 million adjusted
pretax income in the fourth quarter. The Exchange business sold over
2,700 properties in the quarter, exiting the year with approximately
6,900 properties in inventory due to improving third-party inflows.
Quarter-over-quarter, third-party inflows increased 24% and third-party
closings now represent 17% of total sales. The Services business
continues to gain new business opportunities and this quarter we added
nine new title clients which should provide us with additional revenue
and relationships. SaaS remained consistent on a sequential basis as we
continue building our white-label product and referral program.

   
Quarter Ended
($ in millions) Q3'17   Q4'17
Income before taxes (GAAP) $ 11   $ 12
Adjustments 1    
Adjusted pretax income $ 12   $ 12  
 
Adjusted pretax income margin 18 % 18 %
 

In addition, we continue to see growth in our referral program which
launched earlier this year. Our referral relationship allows homeowners
selling their homes to have access to Xome's exchange platform, real
estate agent panel and transaction support to facilitate the lending,
title and overall closing experience. The program, launched this last
year, has 1,700 property listings and over 700 closings, presenting
opportunities for diversified non-default fee income, purchase
originations and Xome downstream services.

   
Quarter Ended
Q3'17   Q4'17
Default property listings sold 2,772   2,725
Default property listings at period end 6,764 6,886
Referral property listings sold 311 409
Xome services completed orders 99,407 96,281
Percentage of revenue earned from third-party customers 33 % 29 %
 

Key strategies for 2018 include re-entering the property inspection and
property preservation businesses in order to capture additional revenue
and clients. Orders are expected to begin in April.

Conference Call Webcast and Investor
Presentation

The Company will host a conference call on March 1, 2018 at 9:00 A.M.
Eastern Time. The conference call may be accessed by dialing
855-874-2685, or 720-634-2923 internationally. Please use the
participant passcode 1495907 to access the conference call. A
simultaneous audio webcast of the conference call will be available in
the Investor Information section of http://www.nationstarholdings.com.
A replay will also be available by dialing 855-859-2056, or 404-537-3406
internationally. Please use the passcode 1495907 to access the replay.
The replay will be accessible through March 15, 2018.

Non-GAAP Financial Measures

The Company utilizes non-GAAP (or "adjusted") 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 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 adjustments 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. Adjusted earnings (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. Adjusted earnings (loss)
also eliminates in each segment, as applicable, transition and
integration costs, gains (losses) on sales of fixed assets, certain
settlement costs that are not considered normal operational matters, and
other adjustments based on the facts and circumstances that would
provide investors a supplemental means for evaluating the Company's core
operating performance.

Important Information & Where to Find It

This communication is being made in respect of the proposed merger
transaction involving WMIH Corp. ("WMIH") and Nationstar Mortgage
Holdings Inc. ("Nationstar"). WMIH intends to file a registration
statement on Form S-4 with the SEC, which will include a joint proxy
statement of WMIH and Nationstar and a prospectus of WMIH, and each
party will file other documents regarding the proposed transaction with
the SEC. Any definitive proxy statement(s)/prospectus(es) will also be
sent to the stockholders of WMIH and/or Nationstar, as applicable,
seeking any required stockholder approval. This communication does not
constitute an offer to sell or the solicitation of an offer to buy any
securities or a solicitation of any vote or approval. Before making any
voting or investment decision, investors and security holders of WMIH
and Nationstar are urged to carefully read the entire registration
statement(s) and proxy statement(s)/prospectus(es), when they become
available, and any other relevant documents filed with the SEC, as well
as any amendments or supplements to these documents, because they will
contain important information about the proposed transaction. The
documents filed by WMIH and Nationstar with the SEC may be obtained free
of charge at the SEC's website at www.sec.gov.
In addition, the documents filed by WMIH may be obtained free of charge
from WMIH at www.wmih-corp.com,
and the documents filed by Nationstar may be obtained free of charge
from Nationstar at www.nationstarholdings.com.
Alternatively, these documents, when available, can be obtained free of
charge from WMIH upon written request to WMIH Corp., 800 Fifth Avenue,
Suite 4100, Seattle, Washington 98104, Attn: Secretary, or by calling
(206) 922-2957, or from Nationstar upon written request to Nationstar
Mortgage Holdings Inc., 8950 Cypress Waters Blvd, Dallas, TX 75019,
Attention: Corporate Secretary, or by calling (469) 549-2000.

WMIH and Nationstar and certain of their respective directors and
executive officers may be deemed to be participants in the solicitation
of proxies from the shareholders of WMIH and/or Nationstar, as
applicable, in favor of the approval of the merger. Information
regarding WMIH's directors and executive officers is contained in WMIH's
Annual Report on Form 10-K for the year ended December 31, 2016, its
Quarterly Report on Form 10-Q for the quarterly periods ended March 31,
2017, June 30, 2017 and September 30, 2017 and its Proxy Statement on
Schedule 14A, dated April 18, 2017, which are filed with the SEC.
Information regarding Nationstar's directors and executive officers is
contained in Nationstar's Annual Report on Form 10-K for the year ended
December 31, 2016, its Quarterly Report on Form 10-Q for the quarterly
periods ended March 31, 2017, June 30, 2017 and September 30, 2017, and
its Proxy Statement on Schedule 14A, dated April 11, 2017, which are
filed with the SEC. Additional information regarding the interests of
those participants and other persons who may be deemed participants in
the transaction may be obtained by reading the registration statement(s)
and the proxy statement(s)/prospectus(es) and other relevant documents
filed with the SEC when they become available. Free copies of these
documents may be obtained as described in the preceding paragraph.

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 Servicing's
profitability and cash flow, Originations product set and retention, and
Xome's key strategies and products. 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. Certain of these risks and
uncertainties are described in the "Business" and "Risk Factors"
sections 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 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

 
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars and shares in millions, except per share data)

 
Quarter Ended
September 30, 2017   December 31, 2017
Revenues:  
Service related, net $ 296 $ 295
Total MTM (44 )
Net gain on mortgage loans held for sale 154   142  
Total revenues 406   437  
 
Total expenses 368 366
 
Other income (expense):
Interest income 157 162
Interest expense (181 )

(174

)
Other income (expenses) (2 )

(1

)

Total other income (expenses), net (26 ) (13 )
Income before income tax expense 12 58
Income tax expense 5   17  
Net income attributable to Nationstar $ 7   $ 41  
 
 
 
 
Earnings per share attributable to common stockholders:
Basic $ 0.07   $ 0.42  
Diluted $ 0.07   $ 0.41  
Weighted average shares of common stock outstanding:
Basic 98   98  
Diluted 99   99  

 

 

 

   
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(dollars in millions)

     
September 30, 2017   December 31, 2017
 

Assets

Cash and cash equivalents $ 224 $ 215
Restricted cash 356 360
Mortgage servicing rights at fair value 2,961 2,941
Advances and other receivables, net 1,625 1,706
Reverse mortgage interests, net 10,299 9,984
Mortgage loans held for sale at fair value 1,646 1,891
Mortgage loans held for investment, net 143 139
Property and equipment, net 127 121
Derivative financial instruments at fair value 76 65
Other assets 547   614
Total assets $ 18,004   $ 18,036
 

Liabilities and Stockholders' Equity

Unsecured senior notes, net $ 1,873 $ 1,874
Advance facilities, net 797 855
Warehouse facilities, net 2,774 3,285
Payables and accrued liabilities 1,188 1,234
MSR related liabilities - nonrecourse at fair value 1,066 1,006
Mortgage servicing liabilities 53 41
Derivative financial instruments at fair value 7 5
Other nonrecourse debt, net 8,569   8,014
Total liabilities 16,327 16,314
Total stockholders' equity 1,677   1,722
Total liabilities and stockholders' equity $ 18,004   $ 18,036
 

 
UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION

(dollars in millions, except per share data)

 
Quarter ended September 30, 2017
      Corporate    
Servicing Originations Xome and Other Elim. Consolidated
 
Revenues:
Service related, net $ 191 $ 16 $ 65 $ $ (20 ) $ 252
Net gain on mortgage loans held for sale   134       20   154  
Total revenues 191   150   65       406  
Total expenses 185 106 54 23 368
Other income (expense):
Interest income 141 14 2 157
Interest expense (130 ) (13 ) (38 ) (181 )
Other expense (income) (2 )         (2 )
Total other income (expense) 9   1     (36 )   (26 )
Pretax income (loss) $ 15   $ 45   $ 11   $ (59 ) $   $ 12
 
Income tax expense 5
Net income attributable to Nationstar $ 7  
Earnings per share
Basic $ 0.07  
Diluted $ 0.07  
 
Adjusted Earnings:
Pretax income (loss) $ 15 $ 45 $ 11 $ (59 ) $ $ 12
MTM (1) 44 44
Adjustments 2   1   1   3     7  
Adjusted pretax income (loss) $ 61   $ 46   $ 12   $ (56 ) $   $ 63
Income tax expense (23 )
Adjusted earnings $ 40  
Adjusted diluted EPS $ 0.41  
 

(1)

  We reevaluated the presentation related to certain GNMA early buyout
activities and reclassified these items from operational revenues to
mark-to-market revenues. The effect of this change is a $4 million
reduction in adjusted pretax income for the third quarter 2017
versus the prior presentation. GAAP income before taxes and cash
flow were not affected by this reclassification.
 

 
UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION

(dollars in millions, except per share data)

 
Quarter ended December 31, 2017
      Corporate    
Servicing Originations Xome and Other Elim. Consolidated
 
REVENUES:
Service related, net $ 229 $ 16 $ 66 $ 1 $ (16 ) $ 295
Net gain on mortgage loans held for sale   126       16   142  
Total revenues 229   142   $ 65   1     437  
Total expenses 173 113 54 26 366
Other income (expense):
Interest income 143 16 3 162
Interest expense (121 ) (15 ) (38 ) (174 )
Other expense (1 )   1   (1 )   (1 )
Total other income (expense) 21   1   1   (36 )   (13 )
Pretax income (loss) $ 77   $ 30   $ 12   $ (61 ) $   $ 58
 
Income tax expense (17 )
Net income attributable to Nationstar $ 41  
Earnings per share
Basic $ 0.42  
Diluted $ 0.41  
 
Adjusted Earnings:
Pretax income (loss) $ 77 $ 30 $ 12 $ (61 ) $ $ 58
MTM (2)
Adjustments 1   4     3     8  
Adjusted pretax income (loss) $ 78   $ 34   $ 12   $ (57 ) $   66
Income tax expense (24 )
Adjusted earnings $ 42  
Adjusted diluted EPS $ 0.43  
 
(2)   We reevaluated the presentation related to certain GNMA early buyout
activities and reclassified these items from operational revenues to
mark-to-market revenues. The effect of this change is a $4 million
reduction in adjusted pretax income for the fourth quarter 2017
versus the prior presentation. GAAP income before taxes and cash
flow were not affected by this reclassification.
 

 
UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION

(dollars in millions, except per share data)

 
Year ended December 31, 2017
      Corporate    
Servicing Originations Xome and Other Elim. Consolidated
 
REVENUES:
Service related, net $ 766 $ 63 $ 291 $ 2 $ (79 ) $ 1,043
Net gain on mortgage loans held for sale   528       79   607  
Total revenues 766   591   $ 291   2     1,650  
Total expenses 691 439 247 98 1,475
Other income (expense):
Interest income 527 55 15 597
Interest expense (523 ) (54 ) (154 ) (731 )
Other expense (income) (3 )   9   (3 )   3  
Total other income (expense) 1   1   9   (142 )   (131 )
Pretax income (loss) $ 76   $ 153   $ 53   $ (238 ) $   $ 44
 
Income tax expense 13
Net income attributable to noncontrolling interest 1
Net income attributable to Nationstar $ 30  
Earnings per share
Basic $ 0.31  
Diluted $ 0.30  
 
Adjusted Earnings:
Pretax income (loss) $ 76 $ 153 $ 53 $ (238 ) $ $ 44
MTM (3) 160 160
Adjustments 12   10   (5 ) 11     28  
Adjusted pretax income (loss) $ 248   $ 163   $ 48   $ (227 ) $   232
Income tax expense 85  
Adjusted earnings $ 147  
Adjusted diluted EPS $ 1.48  
 
(3)   We reevaluated the presentation related to certain GNMA early buyout
activities and reclassified these items from operational revenues to
mark-to-market revenues. The effect of this change is a $20 million
reduction in adjusted pretax income for 2017 versus the prior
presentation. GAAP income before taxes and cash flow were not
affected by this reclassification.
 

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