Nationstar Mortgage Announces Third Quarter 2012 Financial Results

Before you go, we thought you'd like these...
Before you go close icon

Nationstar Mortgage Announces Third Quarter 2012 Financial Results

LEWISVILLE, Texas--(BUSINESS WIRE)-- Nationstar Mortgage Holdings Inc. (NYS: NSM) :

  • Delivered record net income of $55.1 million, or $0.61 per share
  • Pro-forma EPS of $0.64, excluding transaction-related expenses
  • Servicing portfolio UPB of $198 billion; pipeline at $600 billion
  • $30 billion bulk servicing expected to close in Q4; $10 billion in flow agreements executed
  • Second consecutive quarter of record originations volume and application pipeline
  • Strategic initiative to expand ancillary services business

Nationstar Mortgage Holdings Inc. (NYS: NSM) ("Nationstar"), a leading residential mortgage loan servicer, today reported that net income grew by 52% to $55.1 million, or $0.61 per share, for the third quarter 2012 compared to $36.3 million, or $0.41 per share, in the second quarter 2012 and a loss of $3.1 million in the third quarter of 2011.


Pro-forma Q3 '12 EPS of $0.64 was up in comparison to the prior quarter's pro-forma results of $0.44, after normalizing Q3 '12 for $3.9 million of ResCap and other transaction-related expenses. Q2 '12 pro-forma earnings excluded $4.1 million of Aurora ramp-up expenses. Further details on pro-forma EPS are included in a table later in this release.

On a Non-GAAP basis, adjusted EBITDA ("AEBITDA") for operating segments grew 22% to $123.0 million, or $1.37 per share, for the quarter versus $101.2 million, or $1.13 per share, in the second quarter 2012. Pro-forma Q3 '12 AEBITDA per share for operating segments of $1.41 was up 19% over the prior quarter pro-forma AEBITDA per share of $1.18, after normalizing for Q3 '12 for ResCap and other transaction-related expenses. Pro-forma Q2 '12 AEBITDA excluded $4.1 million of Aurora ramp-up expenses. Further details of AEBITDA are included in a table later in this release.

Nationstar's revenue grew 39% to $277.2 million for the quarter from $200.0 million in the prior quarter and was up 205% from $90.9 million in the third quarter of 2011. Pre-tax income from operating segments for the quarter increased by 47% to $82.7 million, or $0.92 per share, up from $56.4 million, or $0.63 per share, in the second quarter of 2012 and was up 1738% from $4.5 million in the third quarter of 2011.

Nationstar's servicing portfolio, as measured by unpaid principal balance ("UPB"), increased by 3% to $198 billion compared to the prior quarter. UPB was up more than 92% over the third quarter 2011 balance of $103 billion.

"We generated record net income in the quarter, and we remain focused on three major strategic goals," said Jay Bray, Chief Executive Officer of Nationstar. "First, we are committed to executing on our servicing acquisition pipeline of $600 plus billion, and we are pleased to announce that we expect $30 billion of acquisitions to close in the fourth quarter. We also executed flow agreements representing $10 billion in annual UPB, and we are targeting $25 to $50 billion of annual flow. Second, we see a significant opportunity to organically grow servicing by continued focus on recapture and expansion of our builder, wholesale, and other origination channels. Finally, we are implementing a strategic initiative to generate additional shareholder value by expanding our ancillary offering of end-to-end solutions for originations and default services."

Chief Financial Officer David Hisey said, "Our strong financial results reflect our focus on profitably growing the business as we capitalize on the many growth opportunities in front of us. We increased our operating and profit margins in both our servicing and origination segments in the third quarter. During the quarter, we were able to raise additional capital at a lower cost, which will enable us to pursue additional accretive opportunities."

Business Segments

Servicing

Mortgage servicing fee income, before fair value adjustments, increased 40% to $153.0 million in third quarter 2012 compared to $109.2 million in the prior quarter. Total mortgage servicing fee income of $135.4 million was up 58% quarter-over-quarter primarily due to generating a full quarter of revenues related to the Aurora platform. In the current quarter, the servicing segment pre-tax income was $5.5 million, versus a loss of $4.7 million in the prior quarter and a loss of $3.1 million in the year-ago quarter.

The servicing segment pre-tax income included a $22.4 million decrease in the fair value of mortgage servicing rights, $4.1 million of interest expense resulting from the July and September bond issuances that were not deployed during the quarter, and $3.9 million of deal expenses associated with ResCap and other transactions.

The fair value of mortgage servicing rights decreased in the current quarter by $22.4 million, or $0.25 per share pre-tax, versus a decrease in value of $20.9 million, or $0.23 per share pre-tax, in the prior quarter. The $22.4 million decrease in fair value in the current quarter is primarily due to portfolio run-off.

Segment AEBITDA increased by 13% in the current quarter to $42.1 million compared to $37.4 million in the second quarter 2012 and was up 69% from $24.9 million in the third quarter of 2011. AEBITDA was higher than both periods due to higher average servicing portfolio balances.

Nationstar's average portfolio UPB for the period was $159 billion which was an increase over the prior quarter average of $115 billion. In July, Nationstar completed the integration of the $63 billion Aurora servicing portfolio. 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.

In July, Nationstar completed the boarding of a $10 billion GSE forward portfolio. In September, Nationstar closed on a $6 billion GSE forward portfolio.

Nationstar's 60 plus day delinquency rate increased to 15.1% of UPB, up from 11.7% in the second quarter. This increase is related to the boarding of the Aurora and Bank of America portfolios which each had a higher delinquency percentage than the remainder of the servicing. Excluding the Aurora and Bank of America portfolios, the 60-day delinquency rate was unchanged from the second quarter at 11.7%.

Origination

Origination revenue was up 25% compared to the previous quarter, and 304% year-over-year, to $135.2 million for the quarter. This was predominately due to record origination volume - up 1% over the previous quarter to $1.82 billion - and wide spreads between the primary and secondary markets. The total application pipeline grew to a record level of $5.5 billion at the end of the quarter, and locked applications ended the quarter at $4.4 billion. 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.

As a result of the favorable origination environment, pre-tax income for the segment was a record $77.1 million, versus $61.1 million in the prior quarter and $7.6 million in the year-ago quarter. Segment AEBITDA was up 27% over the previous quarter and nearly 899% year-over-year to a record level of $80.9 million. Expenses were higher in the quarter due to increased staffing and origination expenses related to the higher volume of loan originations.

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, and 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 Q3 '12 EPS excludes certain expenses related to ResCap and other transactions. These expenses include the advance hiring of servicing staff, recruiting expenses and travel and licensing expenses. Pro-forma Q2 '12 EPS excluded certain expenses incurred in advance of the closing of the Aurora transaction.

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 Q3 '12 AEBITDA per share excludes certain expenses related ResCap and other transactions. These expenses include the advance hiring of servicing staff, recruiting expenses and travel and licensing expenses. Pro-forma Q2 '12 AEBITDA per share excluded certain expenses incurred in advance of the Aurora transaction.

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 third quarter results and other general business matters at 10:00 a.m. (ET) on Tuesday, November 6, 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 866-788-0545, or 857-350-1683 internationally. Please use the participant passcode 83308800 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
September 30, 2012  June 30, 2012  September 30, 2011
Revenues
Servicing fee income$135,504$86,092$53,031
Other fee income 2,396  11,610  7,660 
Total fee income137,90097,70260,691
Gain on mortgage loans held for sale 139,259  102,345  30,232 
Total revenues277,159200,04790,923
 
Total expenses and impairments154,828130,37283,194
 
Other income (expense)
Interest income23,54215,65016,201
Interest expense(65,015)(35,913)(26,376)
Loss on interest rate swaps and caps(1,077)(357)-
Fair value changes in ABS securitizations -  -  (654)
Total other income (expense)(42,550)(20,620)(10,829)
 
Income before taxes79,78149,055(3,100)
Income tax expense 24,714  12,780  - 
 
Net income55,067

36,275

(3,100)
Other comprehensive income, net of tax
Change in value of designated cash flow hedges-(423)-
Reclassification adjustments for gain (loss) 423  -  - 
Comprehensive income$55,490 $35,852 $(3,100)
 
Earnings per share:
Basic earnings per share$0.62 $0.41 $(0.04)
Diluted earnings per share$0.61 $0.41 $(0.04)
Weighted average shares:
Basic89,16888,50070,000
Dilutive effect of stock awards 597  1,028  - 
Diluted 89,765  89,528  70,000 
Dividends declared per share$- $- $- 
       

NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS  

(dollars in thousands)

       
September 30,June 30,September 30,
201220122011
Assets(unaudited)(unaudited)(unaudited)
Cash and cash equivalents$430,815$15,892$24,005
Restricted cash258,858119,51272,813
Accounts receivable2,852,9852,487,991471,474
Mortgage loans held for sale703,214837,906377,932
Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets238,178238,173246,159
Mortgage loans held for investment, subject to ABS nonrecourse debt--477,748
Reverse mortgage interests452,886310,074-
Receivables from affiliates13,30113,0836,082
Mortgage servicing rights - fair value592,692596,462246,916
Mortgage servicing rights - amortized cost8,0368,357-
Property and equipment, net48,71439,09020,990
Real estate owned (REO), net3,1933,42915,411
Other assets 338,359 226,261 44,795
Total assets$5,941,231$4,896,230$2,004,325
 
Liabilities and equity
Notes payable$2,532,316$2,412,364$738,783
Unsecured senior notes1,062,423555,938245,109
Payables and accrued liabilities762,268639,839177,452
Derivative financial instruments37,83518,91115,778
Derivative financial instruments, subject to ABS nonrecourse debt--11,889
Mortgage servicing liabilities82,31381,979-
Nonrecourse debt - Legacy Assets101,898106,271116,200
ABS nonrecourse debt (at fair value)--434,326
Excess spread financing (at fair value)255,484266,693-
Participating interest financing 415,448 181,114 -
Total liabilities 5,249,985 4,263,109 1,739,537
 
Total equity 691,246 633,121 264,788
Total liabilities and equity$5,941,231$4,896,230$2,004,325
  

SERVICING FEE INCOME DETAIL

(dollars in thousands)

 
Three months ended
September 30, 2012  June 30, 2012  September 30, 2011
(unaudited)(unaudited)(unaudited)
Total servicing fee income before MSR fair value adjustments$152,963$109,222$

73,255

Fair value adjustments on excess spread financing2,213(2,412)-
Reverse mortgage servicing amortization/accretion2,652(9)-
MSR changes in fair value (22,430) (20,875) (19,035)
Servicing fee income 135,398  85,926  

54,220

 
 
Other fee income 6,457  5,969  

3,772

 
Total servicing fee income$141,855 $91,895 $57,992 
Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners

Gift Finder Promo
More to Explore