Nationstar Mortgage Announces Second Quarter 2012 Financial Results

Nationstar Mortgage Holdings Inc. (NYSE:NSM) (“Nationstar”), a leading residential mortgage loan servicer, today reported net income of $36.3 million, or $0.41 per share, for the second quarter 2012 compared to $50.2 million, or $0.67 per share, in the first quarter 2012 and $1.7 million in the second quarter of 2011.

Pro-forma Q2 ’12 EPS of $0.44 was comparable to the prior quarter’s pro-forma result of $0.44, after normalizing Q1 ’12 for tax rate and share count and Q2 ’12 for Aurora ramp-up expenses. Further details of pro-forma EPS are included in a table later in this release.

On a Non-GAAP basis, adjusted EBITDA (“AEBITDA”) for operating segments grew 31% to $101.2, or $1.13 per share, for the quarter versus $77.2 million, or $1.04 per share, in the first quarter 2012. Pro-forma Q2 ’12 AEBITDA per share for operating segments of $1.18 was up 37% over the prior quarter pro-forma AEBITDA per share of $0.86, after normalizing Q1 ’12 for share count and Q2 ’12 for Aurora ramp-up expenses. Further details of AEBITDA are included in a table later in this release.

Nationstar’s revenue grew 24% to $200.0 million for the quarter from $161.7 million in the prior quarter and was up 143% from $82.2 million in the second quarter of 2011. Pre-tax income from operating segments for the quarter decreased by 8% to $56.4 million, or $0.63 per share, down from $61.4 million, or $0.82 per share, in the first quarter of 2012 and up 729% from $6.8 million in the second quarter of 2011.

Nationstar’s servicing portfolio, as measured by unpaid principal balance (“UPB”), increased significantly to $193 billion at quarter’s end from $103 billion at the end of the prior quarter. This increase is related to the acquisition of the Aurora, Metlife and Bank of America portfolios. UPB was up more than 192% over the second quarter 2011 balance of $66 billion.

“We continued to build upon our success from the first quarter and delivered another solid quarter of operating and financial results. Our ability to identify and acquire accretive portfolios demonstrates that we have the right strategy and business model to capitalize on the realignment of the $10 trillion mortgage industry,” said Jay Bray, Chief Executive Officer of Nationstar. “In the quarter, we executed on key strategic initiatives that we expect will deliver long-term value to customers and shareholders. These initiatives include the acquisition of the Aurora servicing portfolio, the launch of the preferred lender program with KB Home, and being named the ‘stalking horse’ bidder for the ResCap portfolio.”

“Our primary focus remains on improving asset performance in our portfolio by reducing delinquencies and defaults,” said Mr. Bray. “As we continue to grow the platform through strategic portfolio acquisitions, we remain committed to providing best-in-class service to our customers, recapturing value for mortgage credit owners, and creating value for our shareholders.”

Chief Financial Officer David Hisey said, “We had a strong quarter of financial results driven by the expansion of our servicing portfolio and record origination volume. On a comparative basis, our earnings were equal quarter-over-quarter, demonstrating our continued progress. We have multiple levers in place to support our continued growth in a capital-light manner. We believe we have the team, model, process and infrastructure necessary to capitalize on the growth opportunities in front of us.”

Business Segments

Servicing

Mortgage servicing fee income, before fair value adjustments, increased 25% to $109.2 million in second quarter 2012 compared to $87.5 million in the prior quarter. Total mortgage servicing fee income of $91.9 million was flat quarter-over-quarter primarily due to a fair value adjustment to mortgage servicing rights in the current quarter. In the current quarter, the servicing segment pre-tax loss was $4.7 million, versus $19.6 million of pre-tax income in the prior quarter and $3.4 million in the year-ago quarter.

The servicing segment net loss was due to a $20.9 million decrease in the fair value of mortgage servicing rights, an increase of $5.0 million of interest expense resulting from the April bond issuance, and $4.1 million of ramp expenses associated with the Aurora acquisition.

The fair value of mortgage servicing rights decreased in the current quarter by $20.9 million, or $0.23 per share, versus an increase in value of $0.5 million, or $0.01 per share, in the prior quarter. The $20.9 million decrease in fair value in the current quarter is comprised of an $11.1 million, or $0.12 per share pre-tax, mark-to-market decrease, and a $9.8 million, or $0.11 per share pre-tax, decrease in fair value primarily due to portfolio run-off.

Segment AEBITDA increased by 7% in the current quarter to $37.4 million compared to $34.9 million in the first quarter 2012 and was up 60% from $23.4 million in the second quarter of 2011. AEBITDA was higher than both periods due to the expansion of the servicing portfolio.

Nationstar’s average boarded portfolio UPB for the period was $115 billion which was an increase over the prior quarter average of $101 billion. The Nationstar’s 60-day delinquency rate fell by 30 basis points to 11.7% of UPB, helping Nationstar decrease the cost of servicing the portfolio and earn loss-mitigation or performance fees under some service contracts.

Origination

Origination revenue was up 53% compared to the previous quarter, and 304% year-over-year, to $108.1 million for the quarter. This was predominately due to record origination volume - up 52% over the previous quarter to $1.8 billion – and widening spreads between the primary and secondary markets. The origination business allows Nationstar to profitably create servicing assets and extend the life of servicing cash flows. The origination business also helps customers by providing refinance opportunities, while providing loan investors with loss mitigation tools. Nationstar’s recapture rate in the second quarter was 43%, marking six straight quarters of increases. Expenses were higher in the quarter due to increased staffing and origination expenses related to the higher volume of loan originations.

As a result of the favorable origination environment, pre-tax operating income for the segment was $61.1 million, versus $41.8 million in the prior quarter and $3.4 million in the year-ago quarter. Segment AEBITDA was up 50% over the previous quarter and nearly 1384% year-over-year to $63.8 million.

Aurora Acquisition

In June, Nationstar closed on the acquisition of the over $63 billion Aurora servicing portfolio, which was previously announced in March. The transaction demonstrates the power of Nationstar’s platform that includes a strong capital position, the ability to service agency and non-agency loans, and strong relationships with the GSEs.

The Aurora portfolio presents the opportunity for Nationstar to increase capacity, improve loan performance and drive originations volume through recapture, further enhancing its economic value.

Agreement with ResCap

On May 14, Nationstar signed a definitive agreement to acquire certain residential mortgage servicing assets and other assets from Residential Capital, LLC and related entities (“ResCap”) in connection with ResCap’s proposed asset sale under the U.S. Bankruptcy Code. Nationstar expects to acquire $371 billion in primary mortgage servicing rights and subservicing contracts as measured by UPB.

On June 19, Nationstar was named the ‘stalking horse’ bid by the bankruptcy court, and in connection with being named the ‘stalking horse’ bidder, Nationstar and ResCap amended and restated the definitive purchase agreement as of June 28. Upon closing, expected to occur in January 2013, subject to the auction process, court and other regulatory approvals, the acquisition would result in an estimated pro-forma UPB of $550 billion.

“While the acquisition of the ResCap portfolio will be one of our primary objectives for the second half of 2012, we will continue to explore and pursue other accretive portfolio acquisitions from our $300 billion plus pipeline,” said Mr. Bray.

Detailed information on the assets being acquired and the Section 363 asset sale process are included in Nationstar’s 8-K filings which are available at http://investors.nationstarholdings.com. Information on, or accessible through, our website is not part of this release.

Adjusted EBITDA (“AEBITDA”)

This disclaimer applies to every usage of “Adjusted EBITDA” or “AEBITDA” in this presentation. Adjusted EBITDA is a key performance metric used by management in evaluating the performance of our segments. Adjusted EBITDA represents our Operating Segments' income (loss), and excludes income and expenses that relate to the financing of our senior notes, depreciable (or amortizable) asset base of the business, income taxes (if any), exit costs from our restructuring and certain non-cash items. Adjusted EBITDA also excludes results from our legacy asset portfolio and certain securitization trusts that were consolidated upon adoption of the accounting guidance eliminating the concept of a qualifying special purpose entity ("QSPE“).

Pro-forma Earnings per Share (“Pro-forma EPS”)

This disclaimer applies to every usage of pro-forma EPS in this presentation. Pro-forma EPS is a metric that is used by management to exclude certain non-recurring items in an attempt to provide a better earnings per share comparison to prior periods. Pro-forma Q2 ’12 EPS excludes certain expenses incurred in advance of the closing of the Aurora transaction. These expenses include the advance hiring of servicing staff, recruiting expenses and travel and licensing expenses. Pro-forma Q1 ’12 EPS normalizes Q1 ’12 EPS for a full quarter of taxes and share count.

Pro-forma AEBITDA per Share

This disclaimer applies to every usage of pro-forma AEBITDA per share in this presentation. Pro-forma AEBITDA per share is a metric that is used by management to exclude certain non-recurring items in an attempt to provide a better AEBITDA per share comparison to prior periods. Pro-forma Q2 ’12 AEBITDA per share excludes certain expenses incurred in advance of the closing of the Aurora transaction. These expenses include the advance hiring of servicing staff, recruiting expenses and travel and licensing expenses. Pro-forma Q1 ’12 AEBITDA per share normalizes Q1 ’12 EPS for a full quarter of share count.

Conference Call Webcast and Investor Presentation

Chief Executive Officer, Jay Bray, and Chief Financial Officer, David Hisey, will host a conference call for investors and analysts to discuss Nationstar’s second quarter results and other general business matters at 10:00 a.m. (ET) on Tuesday, August 14, 2012. To listen to the event live or in an archive which will be available for 14 days, visit Nationstar's website at http://investors.nationstarholdings.com. The conference call will also be accessible by dialing 800-901-5241, or 617-786-2963 internationally. Please use the participant passcode 17854611 to access the live conference call. An investor presentation will also be available at http://investors.nationstarholdings.com.

Financial Tables

 

NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(dollars and shares in thousands, except per share data)
 
Three months ended
June 30, 2012   March 31, 2012   June 30, 2011
Revenues
Servicing fee income $ 86,092 $ 83,950 $ 51,236
Other fee income   11,610     7,253     8,141  
Total fee income 97,702 91,203 59,377
Gain on mortgage loans held for sale   102,345     70,512     22,822  
Total revenues 200,047 161,715 82,199
 
Total expenses and impairments 130,372 96,577 68,402
 
Other income (expense)
Interest income 15,650 13,441 16,727
Interest expense (35,913 ) (24,980 ) (25,185 )
Loss on interest rate swaps and caps (357 ) (268 )
Fair value changes in ABS securitizations           (3,613 )
Total other income (expense) (20,620 ) (11,807 ) (12,071 )
 
Income before taxes 49,055 53,331 1,726
Income tax expense   12,780     3,145      
Net income

36,275

50,186
1,726
Other comprehensive income, net of tax
Change in value of designated cash flow hedge   (423 )       (1,210 )
Comprehensive income $ 35,852   $ 50,186   $ 516  
 
Earnings per share:
Basic earnings per share $ 0.41   $ 0.67   $ 0.02  
Diluted earnings per share $ 0.41   $ 0.67   $ 0.02  
Weighted average shares:
Basic 88,500 74,388 70,000
Dilutive effect of stock awards   1,028     173      
Diluted   89,528     74,561     70,000  
Dividends declared per share $   $   $  

     

NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)
         
June 30, March 31, June 30,
2012   2012   2011
Assets (unaudited) (unaudited) (unaudited)
Cash and cash equivalents $ 15,892 $ 355,994 $ 2,532
Restricted cash 119,512 108,854 84,331
Accounts receivable 2,487,991 521,615 468,072
Mortgage loans held for sale 837,906 378,561 262,597
Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets 238,173 241,239 255,463
Mortgage loans held for investment, subject to ABS nonrecourse debt 490,588
Reverse mortgage interests 310,074 148,365
Receivables from affiliates 13,083 13,148 7,351
Mortgage servicing rights – fair value 596,462 266,169 151,557
Mortgage servicing rights – amortized cost 8,357
Property and equipment, net 39,090 25,106 15,667
Real estate owned (REO), net 3,429 5,720 17,249
Other assets   226,261     113,991     35,335
Total assets $ 4,896,230   $ 2,178,762   $ 1,790,742
 
Liabilities and equity
Notes payable $ 2,412,364 $ 767,754 $ 604,770
Unsecured senior notes 555,938 280,568 244,759
Payables and accrued liabilities 639,839 241,317 78,764
Derivative financial instruments 18,911 7,240 8,214
Derivative financial instruments, subject to ABS nonrecourse debt 14,151
Mortgage servicing liabilities – amortized cost 81,979 17,102
Nonrecourse debt - Legacy Assets 106,271 109,794 126,026
ABS nonrecourse debt (at fair value) 447,845
Excess spread financing (at fair value) 266,693 47,324
Participating interest financing   181,114     114,322    
Total liabilities   4,263,109     1,585,421     1,524,529
 
Total equity   633,121     593,341     266,213
Total liabilities and equity $ 4,896,230   $ 2,178,762   $ 1,790,742

 

SERVICING FEE INCOME DETAIL

(dollars in thousands)
 
Three months ended
June 30, 2012   March 31, 2012   June 30, 2011
(unaudited) (unaudited) (unaudited)
Total servicing fee income before MSR fair value adjustments $ 109,222 $ 87,524 $ 60,603
Fair value adjustments on excess spread financing (2,412) (4,852)
Reverse mortgage servicing liability accretion (9) 633
MSR changes in fair value:
Due to changes in valuation inputs or assumptions (11,054) 9,368 (3,746)
Other changes in fair value (9,821) (8,873) (4,192)
Servicing fee income 85,926 83,800 52,665
 
Other fee income 5,969 7,302 3,466
Total servicing fee income $ 91,895 $ 91,102 $ 56,131

 

PRO-FORMA EARNINGS PER SHARE RECONCILIATION

(dollars in thousands)
 
Three months ended
June 30, 2012   March 31, 2012
(unaudited) (unaudited)
Net Income $ 36,275 $ 50,186
Income taxes   12,780     3,145  
Income before taxes 49,055 53,331
Aurora ramp expenses   4,136      
Pro-forma pre-tax income 53,191 53,331
 
Income taxes (using estimated Q2 ’12 tax rate)   (13,856 )   (13,893 )
Pro-forma Income $ 39,335   $ 39,438  
 
Average shares outstanding (using Q2 ’12 share count)   89,528     89,528  
   
Pro-forma EPS $ 0.44   $ 0.44  

 

PRO-FORMA OPERATING AEBITDA PER SHARE RECONCILIATION

(dollars in thousands)
 
Three months ended
June 30, 2012   March 31, 2012
(unaudited) (unaudited)
AEBITDA $ 101,201 $ 77,243
Aurora ramp expenses   4,136  
Pro-forma AEBITDA $ 105,377 $ 77,243
 
Average shares outstanding (using Q2 ’12 share count)   89,528   89,528
   
Pro-forma AEBITDA per share $ 1.18 $ 0.86

 

AEBITDA RECONCILIATION

(dollars in thousands)
 
Three months ended
Net Income/(Loss) from Operating Segments to Adjusted EBITDA Reconciliation June 30, 2012   March 31, 2012   June 30, 2011
Net income $ 36,275 $ 50,186 $ 1,726
Plus:
Net (income)/loss from Legacy Portfolio and Other 7,373 8,047 5,098
Income tax expense   12,780     3,145      
Net income/(loss) from Operating Segments 56,428 61,378 6,824
Adjust for:
Interest expense from unsecured senior notes 13,516 8,542 7,531
Depreciation and amortization 1,758 1,242 694
Change in fair value of mortgage servicing rights 20,875 (495 ) 7,938
Amortization of mortgage servicing liabilities 9 (633 )
Restructuring charges
Share-based compensation 6,353 2,395 5,238
Fair value changes on excess spread financing 2,412 4,852
Fair value changes in derivatives (150 ) (38 )
Ineffective portion of cash flow hedge           (513 )
Adjusted EBITDA $ 101,201   $ 77,243   $ 27,712  
Adjusted EBITDA per share $ 1.13   $ 1.04   $ 0.40  
Earnings per share $ 0.41   $ 0.67   $ 0.02  

 

SEGMENT AEBITDA RECONCILIATION

(dollars in thousands)
 

FOR QUARTER ENDED JUNE 30, 2012
 
Adjusted EBITDA to Net Income/(Loss) Reconciliation Servicing   Origination   Operating   Legacy   Total
       
Adjusted EBITDA $ 37,378 $ 63,823 $ 101,201 $ (7,488 ) $ 93,713
 
Interest expense on corporate notes (13,516 ) (13,516 ) (13,516 )
MSR valuation adjustment (20,875 ) (20,875 ) (20,875 )
Excess spread adjustment (2,412 ) (2,412 ) (2,412 )
Amortization of mortgage servicing obligations (9 ) (9 ) (9 )
Depreciation & amortization (1,238 ) (520 ) (1,758 ) (96 ) (1,854 )
Stock-based compensation (4,147 ) (2,206 ) (6,353 ) 718 (5,635 )
Fair value adjustment for derivatives 150 150 (507 ) (357 )
                 
Pre-Tax Income (4,669 ) 61,097 56,428 (7,373 ) 49,055
 
Income Tax (12,780 )
                 
Net Income                         $ 36,275  
 
Average shares outstanding 89,528 89,528 89,528 89,528 89,528
                 
Earnings per share                 $ 0.41  
Pre-Tax Income per share $ (0.05 )   $ 0.68     $ 0.63     $ (0.08 )   $ 0.55  
AEBITDA per share $ 0.42     $ 0.71     $ 1.13     $ (0.08 )   $ 1.05  
 

FOR QUARTER ENDED MARCH 31, 2012
 
Adjusted EBITDA to Net Income/(Loss) Reconciliation Servicing   Origination   Operating   Legacy   Total
 
Adjusted EBITDA $ 34,850 $ 42,393 $ 77,243 $ (7,453 ) $ 69,790
 
Interest expense on corporate notes (8,542 ) (8,542 ) (8,542 )
MSR valuation adjustment 495 495 495
Excess spread adjustment (4,852 ) (4,852 ) (4,852 )
Amortization of mortgage servicing obligations 633 633 633
Depreciation & amortization (860 ) (382 ) (1,242 ) (288 ) (1,530 )
Stock-based compensation (2,155 ) (240 ) (2,395 ) (2,395 )
Fair value adjustment for derivatives 38 38 (306 ) (268 )
                 
Pre-Tax Income 19,607 41,771 61,378 (8,047 ) 53,331
 
Income Tax (3,145 )
                 
Net Income                         $ 50,186  
 
Average shares outstanding 74,561 74,561 74,561 74,561 74,561
                 
Earnings per share                 $ 0.67  
Pre-Tax Income per share $ 0.26     $ 0.56     $ 0.82     $ (0.11 )   $ 0.71  
AEBITDA per share $ 0.47     $ 0.57     $ 1.04     $ (0.10 )   $ 0.94  
 

FOR QUARTER ENDED JUNE 30, 2011
 
Adjusted EBITDA to Net Income/(Loss) Reconciliation Servicing   Origination   Operating   Legacy   Total
       
Adjusted EBITDA $ 23,381 $ 4,331 $ 27,712 $ (4,958 ) $ 22,754
 
Interest expense on corporate notes (7,466 ) (65 ) (7,531 ) (7,531 )
MSR valuation adjustment (7,938 ) (7,938 ) (7,938 )
Excess spread adjustment
Amortization of mortgage servicing obligations
Depreciation & amortization (396 ) (298 ) (694 ) (115 ) (809 )
Stock-based compensation (4,695 ) (543 ) (5,238 ) (25 ) (5,263 )
Fair value adjustment for derivatives 513 513 513
                 
Pre-Tax Income 3,399 3,425 6,824 (5,098 ) 1,726
 
Income Tax
                 
Net Income                         $ 1,726  
 
Average shares outstanding 70,000 70,000 70,000 70,000 70,000
                 
Earnings per share                 $ 0.02  
Pre-Tax Income per share $ 0.05     $ 0.05     $ 0.10     $ (0.07 )   $ 0.02  
AEBITDA per share $ 0.33     $ 0.06     $ 0.40     $ (0.07 )   $ 0.33  
 

About Nationstar Mortgage Holdings Inc.

Based in Lewisville, Texas, Nationstar currently services over one million residential mortgages totaling $193 billion in unpaid principal balance. In addition, Nationstar operates an integrated loan origination platform, enabling Nationstar to mitigate servicing portfolio run-off and improve credit performance for loan investors. Nationstar currently employs approximately 4,000 people, entirely based in the United States.

Forward Looking Statements

Any statements in this release that are not historical or current facts are forward-looking statements. Forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward-looking statements convey Nationstar’s current expectations or forecasts of future events. When used in this release, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “target,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies, and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Nationstar’s actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Certain of these risks and uncertainties are described in the “Risk Factors” section of Nationstar Mortgage LLC’s Annual Report on Form 10-K for the year ended December 31, 2011, and other required reports, as filed with the SEC, which are available at the SEC’s website at http://www.sec.gov. We caution you not to place undue reliance on these forward-looking statements that speak only as of the date they were made. Unless required by law, Nationstar undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date of this release.

Copyright Business Wire 2010

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