Market Overview

Nationstar Reports Second Quarter 2018 Financial Results

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  • Quarterly GAAP income of $58 million, $0.59 per diluted share and $52
    million adjusted income, $0.53 per diluted share
  • Adjusted servicing profitability of 5.8 basis points (bps)
  • Servicing GAAP pretax income of $88 million, adjusted pretax income of
    $72 million
  • Originations GAAP pretax income of $32 million, adjusted pretax income
    of $33 million
  • Xome GAAP pretax income of $10 million, adjusted pretax income of $13
    million

Nationstar Mortgage Holdings Inc. (NYSE:NSM), which principally operates
under the Mr. Cooper® and Xome® brands, reported second quarter GAAP net
income of $58 million, or $0.59 per diluted share. On an adjusted basis,
the Company reported earnings for the second quarter of $52 million, or
$0.53 per diluted share.

"Nationstar continues to deliver solid operating results with all
segments experiencing growth. Servicing profitability is improving ahead
of expectations, and significant opportunities exist for further growth.
Originations grew in profitability and volume, and it is focused on
providing solutions for our 3.2 million customers. Xome sales and order
volumes increased with the continued addition of new third-party
clients," said Jay Bray, Chairman and Chief Executive Officer. "We have
received all required approvals for our merger transaction with WMIH and
we expect to close the merger on July 31. We appreciate the support of
our shareholders, the WMIH shareholders and our partners who have
provided these approvals. We look forward to growing our differentiated
platform and building value for our shareholders and customers."

Servicing

Servicing supports home ownership for our 3.2 million customers and
earns recurring revenues from mortgage servicing rights and
subservicing. The Servicing segment earned $88 million GAAP pretax
income or $72 million adjusted pretax income (5.8 basis points).
Adjusted pretax profitability improved 5% from the prior quarter
primarily due to lower expenses. Expenses improved by $16 million or 9%
quarter-over-quarter as a result of improved efficiencies in the segment.

Nationstar boarded $20 billion UPB, ending the second quarter at $498
billion. An estimated $65 billion UPB, consisting of both mortgage
servicing rights and subservicing, is scheduled to board in the second
half of the year. Nationstar continues to evaluate significant servicing
growth opportunities and expects to end the year with over $530 billion.

Nationstar is targeting adjusted servicing profitability in excess of
6.0 basis points on average for the full year 2018 which will be
propelled by lower prepayment environment, portfolio additions, and
continued cost savings initiatives.

                           
Quarter Ended
($ in millions) Q1'18   Q2'18
$   BPS $   BPS
Operational revenue $ 291 23.0 $ 277 22.3
Amortization (48 ) (3.8 ) (48 ) (3.9 )
Mark-to-market   152   12.1     19   1.5  
Total revenues 395 31.3 248 20.0
Expenses (182 ) (14.4 ) (166 ) (13.4 )
Total other income (expenses), net   7   0.6     6   0.5  
Income before taxes (GAAP) 220 17.6 88 7.1
Mark-to-market (152 ) (12.1 ) (19 ) (1.5 )
Adjustments         3   0.2  
Adjusted pretax income $ 69   5.5   $ 72   5.8  
 
               
Quarter Ended
Q1'18   Q2'18
Ending UPB (NYSE:B) $ 500 $ 498
Average UPB (NYSE:B) $ 504 $ 497
60+ day delinquency rate 3.2 % 2.8 %
Annualized CPR 10.7 % 12.1 %
Annualized CPR, net of recapture 8.9 % 10.5 %
Modifications and workouts 19,950 14,715
 

Originations

Originations creates servicing assets at attractive margins through
recapture of existing customers, new customer acquisitions, and
correspondent originations. The Originations segment earned $32 million
GAAP pretax income or $33 million adjusted pretax income, an increase of
32% from the prior quarter primarily attributable to higher volume and
reduced expenses.

Nationstar funded over 25,000 loans totaling approximately $5.5 billion
which was composed of $2.6 billion from the consumer direct channel and
$2.9 billion from the correspondent channel. The consumer direct channel
is primarily focused on improving cash flow and consolidating debt for
nearly 750,000 customers identified from the servicing portfolio. A new
mobile app called Home Intelligence is expected to be available to
Nationstar's 3.2 million customers later in third quarter to help them
optimize their personal balance sheets and further add volume for the
channel.

Nationstar is targeting Originations adjusted pretax income of $120
million for the full year 2018.

           
Quarter Ended
($ in millions) Q1'18   Q2'18
Income before taxes (GAAP) $ 19 $ 32
Adjustments   5   1
Adjusted pretax income $ 25 $ 33
 
   
Quarter Ended
($ in millions) Q1'18   Q2'18
Total pull through adjusted volume $ 4,862 $ 5,440
Funded volume $ 5,087 $ 5,542
Recapture percentage 27 % 22 %
Purchase volume as a percentage of funded volume 40 % 51 %
 

Xome

Xome provides real estate solutions including property disposition,
asset management, title, close, valuation, and field services to
Nationstar and third parties. The Xome segment earned $10 million GAAP
pretax income or $13 million adjusted pretax income.

Both the Exchange and Services segments experienced sequential growth as
property sales and completed order volumes increased. The Exchange
business sold over 3,700 properties in the quarter, a 16% increase from
prior quarter. Third-party listings accounted for over 45% of total
property sales as the segment continues to attract third-party business
and referral listings. During the quarter, the Exchange business added
six new institutional clients. The Services business completed over
117,000 orders in the quarter, a 5% increase from prior quarter. The
field services business continues to capture property inspection and
preservation orders and is expected to be fully ramped by the end of the
year.

Nationstar is targeting Xome adjusted pretax income of $60 million for
the full year 2018.

   
Quarter Ended
($ in millions) Q1'18   Q2'18
Income before taxes (GAAP) $ 22 $ 10
Adjustments   (8 )   3
Adjusted pretax income $ 14   $ 13
 
   
Quarter Ended
Q1'18     Q2'18  
Exchange property listings sold 3,202   3,720
Exchange property listings at period end 7,594 7,417
Services orders completed 111,339 117,093
Percentage of revenue earned from third-party customers 27 % 28 %
 

Conference Call Webcast and Investor
Presentation

The Company will host a conference call on July 17, 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 7668739 to access the conference call. A
simultaneous audio webcast of the conference call will be available in
the Investor Information section of www.nationstarholdings.com.
A replay will also be available by dialing 855-859-2056, or 404-537-3406
internationally. Please use the passcode 7668739 to access the replay.
The replay will be accessible through July 31, 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 pre-tax 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. Adjusted pre-tax income
(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.

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 estimates of
Servicing's profitability, growth and Originations and Xome adjusted
pre-tax income. 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 "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

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

 
             
Quarter Ended
March 31, 2018 June 30, 2018
Revenues:
Service related, net $ 312 $ 298
Mark-to-market 152 19
Net gain on mortgage loans held for sale   124     127  
Total revenues   588     444  
 
Total expenses 364 339
 
Other income (expense):
Interest income 145 140
Interest expense (171 ) (164 )
Other income (expenses)   8     (2 )
Total other income (expenses), net   (18 )   (26 )
Income before income tax expense 206 79
Income tax expense   46     21  
Net income attributable to Nationstar $ 160   $ 58  
 
Earnings per share attributable to common stockholders:
Basic $ 1.63   $ 0.59  
Diluted $ 1.61   $ 0.59  
Weighted average shares of common stock outstanding (in thousands):
Basic   97,873     98,203  
Diluted   99,111     99,130  
 

   
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(millions of dollars)

 
         
Quarter Ended
March 31, 2018 June 30, 2018
Assets
Cash and cash equivalents $ 187 $ 185
Restricted cash 365 310
Mortgage servicing rights 3,194 3,356
Advances and other receivables, net 1,424 1,317
Reverse mortgage interests, net 10,225 9,477
Mortgage loans held for sale at fair value 1,589 1,635
Mortgage loans held for investment, net 136 132
Property and equipment, net 123 123
Derivative financial instruments at fair value 65 62
Other assets   556   593
Total assets $ 17,864 $ 17,190
 
Liabilities and Stockholders' Equity
Unsecured senior notes, net $ 1,859 $ 1,815
Advance facilities, net 562 516
Warehouse facilities, net 3,161 3,086
Payables and accrued liabilities 1,235 1,288
MSR related liabilities - nonrecourse at fair value 1,035 1,063
Mortgage servicing liabilities 30 27
Derivative financial instruments at fair value 9 9
Other nonrecourse debt, net   8,091   7,445
Total liabilities 15,982 15,249
Total stockholders' equity   1,882   1,941
Total liabilities and stockholders' equity $ 17,864 $ 17,190
 

           
UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION

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

 
                                             
Quarter ended March 31, 2018
Servicing Originations Xome Corporate and Other Elim. Consolidated
 
REVENUES:
Service related, net $ 395 $ 15 $ 65 $ $ (11 ) $ 464
Net gain on mortgage loans held for sale       113             11     124  
Total revenues   395     128     65             588  
Total expenses 182 109 52 21 364
Other income (expense):
Interest income 126 15 4 145
Interest expense (118 ) (15 ) (38 ) (171 )
Other expense   (1 )       9             8  
Total other income (expense)   7         9     (34 )       (18 )
Pretax income (loss) $ 220   $ 19   $ 22   $ (55 ) $   $ 206
 
Income tax expense (46 )
Net income attributable to Nationstar $ 160  
Earnings per share
Basic $ 1.63  
Diluted $ 1.61  
 
Adjusted Earnings:
Pretax income (loss) $ 220 $ 19 $ 22 $ (55 ) $ $ 206
MTM (152 ) (152 )
Adjustments       5     (8 )   6         3  
Adjusted pretax income (loss) $ 69   $ 25   $ 14   $ (49 ) $   $ 58
Income tax expense   (14 )
Adjusted earnings $ 44  
Adjusted diluted EPS $ 0.44  
 

Notes: Items may not sum due to rounding

 

           
UNAUDITED SEGMENT STATEMENT OF
OPERATIONS & EARNINGS RECONCILIATION

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

 
                                           
Quarter ended June 30, 2018
Servicing Originations Xome Corporate and Other Elim. Consolidated
 
REVENUES:
Service related, net $ 248 $ 17 $ 62 $ 1 $ (11 ) $ 317
Net gain on mortgage loans held for sale       116           11     127  
Total revenues   248     133   $ 62   1         444  
Total expenses 166 102 52 19 339
Other income (expense):
Interest income 121 17 2 140
Interest expense (115 ) (16 ) (33 ) (164 )
Other expense             (2 )       (2 )
Total other income (expense)   6     1       (33 )       (26 )
Pretax income (loss) $ 88   $ 32   $ 10 $ (51 ) $   $ 79
 
Income tax expense (21 )
Net income attributable to Nationstar $ 58  
Earnings per share
Basic $ 0.59  
Diluted $ 0.59  
 
Adjusted Earnings:
Pretax income (loss) $ 88 $ 32 $ 10 $ (51 ) $ $ 79
MTM (19 ) (19 )
Adjustments   3     1     3   2         9  
Adjusted pretax income (loss) $ 72   $ 33   $ 13 $ (49 ) $   $ 69
Income tax expense   (17 )
Adjusted earnings $ 52  
Adjusted diluted EPS $ 0.53  
 

Notes: Items may not sum due to rounding

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