Nationstar Mortgage Announces Third Quarter 2012 Financial Results

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 income

137,900

97,702

60,691

Gain on mortgage loans held for sale

139,259

102,345

30,232

Total revenues

277,159

200,047

90,923

Total expenses and impairments

154,828

130,372

83,194

Other income (expense)

Interest income

23,542

15,650

16,201

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 taxes

79,781

49,055

(3,100

)

Income tax expense

24,714

12,780

-

Net income

55,067

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:

Basic

89,168

88,500

70,000

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,

2012

2012

2011

Assets

(unaudited)

(unaudited)

(unaudited)

Cash and cash equivalents

$

430,815

$

15,892

$

24,005

Restricted cash

258,858

119,512

72,813

Accounts receivable

2,852,985

2,487,991

471,474

Mortgage loans held for sale

703,214

837,906

377,932

Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets

238,178

238,173

246,159

Mortgage loans held for investment, subject to ABS nonrecourse debt

-

-

477,748

Reverse mortgage interests

452,886

310,074

-

Receivables from affiliates

13,301

13,083

6,082

Mortgage servicing rights - fair value

592,692

596,462

246,916

Mortgage servicing rights - amortized cost

8,036

8,357

-

Property and equipment, net

48,714

39,090

20,990

Real estate owned (REO), net

3,193

3,429

15,411

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 notes

1,062,423

555,938

245,109

Payables and accrued liabilities

762,268

639,839

177,452

Derivative financial instruments

37,835

18,911

15,778

Derivative financial instruments, subject to ABS nonrecourse debt

-

-

11,889

Mortgage servicing liabilities

82,313

81,979

-

Nonrecourse debt - Legacy Assets

101,898

106,271

116,200

ABS nonrecourse debt (at fair value)

-

-

434,326

Excess spread financing (at fair value)

255,484

266,693

-

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 financing

2,213

(2,412

)

-

Reverse mortgage servicing amortization/accretion

2,652

(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