Nationstar Mortgage Announces Record Second Quarter 2013 Financial Results

Nationstar Mortgage Announces Record Second Quarter 2013 Financial Results

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

  • Record GAAP EPS of $1.37 on net income of $123 million
  • Pro forma EPS of $1.50, excluding BofA ramp and other one-time expenses totaling $19 million
  • Well positioned for an improving economy
  • Affirm EPS guidance for '13 of $4.05 - $4.75 and '14 of $6.45 - $7.50
  • Ending servicing portfolio UPB of $318 billion; pro forma UPB of $435 billion
  • Servicing: Profitability targets on track; over $400 billion bulk acquisition pipeline
  • Originations: Record funded volume of $7.1 billion and recapture rate of 48%
  • Completed strategic acquisition of Greenlight Financial Services

Nationstar Mortgage Holdings Inc. (NYS: NSM) ("Nationstar"), a leading residential mortgage services company, today reported quarterly net income of $123.4 million, or $1.37 per share, for the second quarter 2013 compared to $62.6 million, or $0.70 per share, in the first quarter 2013 and $36.3 million, or $0.41 per share, in the second quarter 2012.


Pro forma Q2'13 EPS was $1.50, after adjusting for $19.4 million in platform ramp and one-time transaction expenses related to the previously announced servicing acquisition from Bank of America ("BofA"), the Greenlight acquisition, and the non-agency advance securitization. Pro forma Q2'13 EPS was up in comparison to both the prior quarter pro forma EPS of $0.85 and Q2'12 pro forma EPS of $0.44.

On a Non-GAAP basis, adjusted EBITDA ("AEBITDA") for operating segments grew 37% to $243.7 million, or $2.70 per share, for the current quarter versus $178.2 million, or $1.98 per share, in the first quarter 2013. In the current quarter AEBITDA margin was 40%.

Nationstar's revenue grew 40% to $603.7 million in the second quarter from $431.1 million in the prior quarter and was up 198% from $202.8 million in the second quarter of 2012. Pre-tax income from operating segments for the second quarter was $206.6 million, or $2.29 per share, up 90% from $108.7 million, or $1.21 per share, in the first quarter of 2013 and up 266% from $56.4 million, or $0.63 per share, in the second quarter of 2012. In the current quarter, pre-tax income margin from operating segments was 34%. Pro forma Q2'13 pre-tax income from operating segments was $226.0 million, or $2.50 per share.

Nationstar's servicing portfolio, as measured by unpaid principal balance ("UPB"), ended the second quarter at $318 billion. Q2'13 ending UPB was up 2% from Q1'13 ending UPB of $312 billion, and up 65% over Q2'12 ending UPB of $193 billion. Pro forma for the closing of the Bank of America PLS portfolios, of which $47 billion closed in early July and the remainder is expected to close in 2013, and other servicing under contract, Nationstar's UPB is approximately $435 billion.

"We generated strong sequential earnings across our entire platform in the second quarter," said Jay Bray, Chief Executive Officer of Nationstar. "We successfully boarded the BofA GSE and Ginnie Mae portfolios, completed the acquisition of Greenlight, and continue to make progress on building Solutionstar into a high-margin, fee-based business. Our platforms are strategically positioned to perform in an improving economy, and we continue to see compelling opportunities in the marketplace that will deliver long-term value to our shareholders."

Chief Financial Officer David Hisey said, "We executed on our strategic plan and delivered another quarter of strong financial results. Our servicing segment continues to make progress on our previously identified profitability initiatives which will generate increased earnings and higher margins. Our origination segment experienced a strong quarter of profitability due to record volume and our strategic focus on high margin channels. Solutionstar continues to experience revenue growth and is focused on scaling and diversifying its client and revenue base. We remain on track to hit our full year 2013 and 2014 earnings guidance."

AFFIRM GUIDANCE: AEBITDA and EARNINGS PER SHARE

   

For the year ending December 31,

2013 Range   2014 Range
AEBITDA per Share$10.10 - 11.75$14.70 - 17.10
Earnings per Share$4.05 - 4.75$6.45 - 7.50
 

Business Segments

Servicing

Servicing fee income of $284.6 million was up 38% versus the prior quarter. Servicing fee income before fair value adjustments increased 15% to $275.5 million in second quarter 2013 compared to $240.0 million in the prior quarter.

The average portfolio UPB for the first quarter was $315 billion, a 21% increase over the prior quarter average of $260 billion, primarily due to the closing of the Agency and Government servicing portfolios from BofA that occurred in the first quarter. Nationstar's pipeline of bulk MSR purchase opportunities is currently in excess of $400 billion in aggregate UPB. Nationstar has executed on flow agreements that are expected to produce $20 billion of UPB in annual volume, with flow servicing annual potential in excess of $55 billion of UPB as the program grows with additional clients.

Servicing pre-tax income increased 110% to $85.3 million from $40.7 million in the prior quarter and was up significantly compared to the pre-tax loss of $4.7 million in the year-ago quarter. Servicing pre-tax margin was 25% in the current quarter. Pro-forma Q2'13 servicing pretax income was $99.7 million after excluding BofA ramp and certain other one-time expenses of $14.4 million. BofA ramp expenses include the hiring of approximately 600 employees in advance of the PLS portfolio acquisitions. Servicing operating profitability as a percentage of UPB was 5 basis points excluding ramp expenses and mark to market adjustments.

As shown in the servicing fee income table appended to this release, the net change in the fair value of mortgage servicing rights and excess spread financing due to mark to market adjustments was $59.9 million. The net change in fair value due to other changes, amortization, was $50.8 million. Total servicing portfolio Q2'13 prepayments as measured by CPR were approximately 18% annualized. Prepayments were partially offset by Nationstar's record origination volume and recapture rate.

Servicing AEBITDA in the current quarter was $109.4 million compared to $100.1 million in the first quarter 2013 and $37.4 million in the second quarter of 2012. Servicing AEBITDA margin was 33% in the current quarter, and servicing AEBITDA as a percentage of UPB was 14 basis points.

Nationstar's 60 day-plus delinquency rate decreased to 11.8% of UPB, down from 13.8% in the first quarter. This decrease reflects Nationstar's continued focus on improving portfolio performance which preserves homeownership, increases value for credit owners, and lowers servicing costs.

Origination

Origination revenue increased 45% to $268.7 million in second quarter 2013 on a 109% increase in fundings of $7.1 billion. Excluding correspondent, quarterly origination volume from portfolio recapture, wholesale, and builder channels increased 81% to $5.6 billion. Nationstar's recapture rate during the first quarter increased to 48% up from 45% in the first quarter. The total application pipeline grew 56% from the prior quarter to $12.2 billion, and the locked pipeline grew 34% to $8.6 billion. Nationstar continues to expect origination volume to exceed $23 billion in 2013, and $31 billion in 2014.

In the current quarter, Nationstar originated $2.7 billion of loans under the Home Affordable Refinance Program ("HARP"), or 38% of total origination volume. Nationstar currently has more than $45 billion of HARP and refinance opportunities within its servicing portfolio.

Of the $7.1 billion in fundings, 78% were from the consumer direct/builder/wholesale channels, and 22% were from the correspondent channel. Nationstar views the correspondent channel as a way to selectively acquire servicing assets at attractive prices.

Origination pre-tax income for the quarter was a record $121.3 million, an increase of 78% from $68.0 million in the prior quarter, and up 99% from $61.1 million in the year-ago quarter. Origination pre-tax income margin was 45% in the current quarter up from 37% in the prior quarter. Pro-forma Q2'13 origination pre-tax income was $126.2 million after excluding BofA and Greenlight ramp expenses of approximately $5.0 million. Q2'13 origination pre-tax income, excluding correspondent, expressed as a percentage of funded volume, was 219 basis points, consistent with the prior quarter.

Nationstar experienced some reduction in gain on sale margins due to reduced premiums on HARP loans. Excluding correspondent, revenue as a percentage of funded loans was 474 basis points. Operating leverage and efficiencies in the quarter offset the decline in top-line gain-on-sale margins, as expenses decreased by 107 basis points, or 30%. Loan officer productivity increased by 90% in the quarter, and Nationstar anticipates further productivity gains in future periods.

Origination AEBITDA for the quarter was a record $134.3 million, an increase of 72% from $78.2 million in the first quarter of 2013, and up 111% from $63.8 million in the second quarter of 2012. Origination AEBITDA margin was 50% in the current quarter, up from 42% in the prior quarter.

Greenlight Financial Services Acquisition

In May, Nationstar completed the acquisition of the mortgage origination business of Greenlight Financial Services ("Greenlight") for up to $75 million. Greenlight, based in Irvine, California, utilizes a high-volume, rapid turn time funding model with proven experience in television, radio, and other media. The acquisition further diversifies Nationstar's origination channels and adds a low-cost, profitable source for servicing asset creation, while also providing additional capacity for HARP, recapture, and purchase money originations. Nationstar expects Greenlight to originate in excess of $8 billion annually.

Solutionstar

Solutionstar generated revenue of $38 million in the second quarter, an increase of 15% over the first quarter. Solutionstar completed over 2,400 REO dispositions in the second quarter, and expects to significantly expand the REO management business, as property sale opportunities are expected to significantly increase with the BofA private-label servicing acquisitions. Solutionstar launched the Homesearch.com platform in May 2013, which provides an online real estate marketplace for home buyers, sellers and investors to connect and conveniently complete sales transactions. Solutionstar's settlement services business completed more than 29,000 appraisals in the second quarter.

Non-GAAP Financial Measures

This disclaimer applies to every usage of "Adjusted EBITDA" or "AEBITDA", "Pro forma Earnings per Share" or "Pro Forma EPS", "Pro forma Pre-Tax Income", and "Servicing Fee Income before fair value adjustments" in this release. 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.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 Q2'13 EPS excludes certain expenses related to the acquisition of the $215 billion servicing portfolio from Bank of America, expenses related to the acquisition of Greenlight Financial Services, and expenses related to the non-agency advance receivable securitization. These expenses include the advance hiring of servicing and originations staff, recruiting expenses, travel, licensing, legal expenses, and expenses related to the write-off of facility fees on credit facilities that were retired as part of the non-agency advance receivable securitization. Pro forma pre-tax income 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 Q2'13 pre-tax income excludes certain expenses related to the acquisition of the $215 billion servicing portfolio from Bank of America, expenses related to the acquisition of Greenlight Financial Services, and expenses related to the non-agency advance receivable securitization. These expenses include the advance hiring of servicing and originations staff, recruiting expenses, travel, licensing, legal expenses, and expenses related to the write-off of facility fees on credit facilities that were retired as part of the non-agency advance receivable securitization. This disclaimer applies to every usage of pro-forma AEBITDA per share in this release. 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 Q2'13 AEBITDA per share excludes certain expenses related to the acquisition of the $215 billion servicing portfolio from Bank of America, expenses related to the acquisition of Greenlight Financial Services, and expenses related to the non-agency advance receivable securitization. These expenses include the advance hiring of servicing and originations staff, recruiting expenses, travel, licensing, legal expenses, and expenses related to the write-off of facility fees on credit facilities that were retired as part of the non-agency advance receivable securitization. Servicing fee income before fair value adjustments is a metric that is used by management in an attempt to provide a better sense of the servicing fee income prior to any changes in the fair value of servicing assets. Servicing fee income before fair value adjustments excludes fair value adjustment due to valuation inputs or assumptions for mortgage servicing rights and excess spread financing, and the fair value adjustment due to other changes in fair value for mortgage servicing rights and excess spread financing.

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 2013 results and other general business matters at 10:00 a.m. (ET) on Tuesday, August 6, 2013. 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 800-299-9086, or 617-786-2903 internationally. Please use the participant passcode 70733762 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 INCOME AND COMPREHENSIVE INCOME

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

 
Three months ended
June 30, 2013  March 31, 2013  June 30, 2012
Revenues
Servicing fee income$263,309$197,596$88,327
Other fee income 57,795  44,879  12,087 
Total fee income321,104242,475100,414
Gain on mortgage loans held for sale 282,561  188,587  102,345 
Total revenues603,665431,062202,759
 
Total expenses and impairments339,851268,571130,372
 
Other income (expense)
Interest income52,43729,60813,415
Interest expense(117,911)(92,374)(35,913)
Loss on equity investment--(477)
Gain (Loss) on interest rate swaps and caps 789  1,268  (357)
Total other income (expense)(64,685)(61,498)(23,332)
 
Income before taxes199,129100,99349,055
Income tax expense 75,669  38,377  12,780 
Net income 123,460  62,616  36,275 
Other comprehensive income, net of tax
Change in value of designated cash flow hedge1,819

-

(423)
Less: Net income attributable to noncontrolling interests -  

-

  - 
Net income and comprehensive income attributable to Nationstar Inc. 125,279  62,616  35,852 
 
Earnings per share:
Basic earnings per share$1.38 $0.70 $0.41 
Diluted earnings per share$1.37 $0.70 $0.41 
Weighted average shares:
Basic89,46289,29388,500
Dilutive effect of stock awards 890  649  1,028 
Diluted 90,352  89,942  89,528 
Dividends declared per share$- $- $- 
 
     
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 
June 30,

2013

March 31,

2013

June 30,

2012

Assets(unaudited)(unaudited)(unaudited)
Cash and cash equivalents$385,938$220,039$15,892
Restricted cash405,462360,467119,512
Accounts receivable3,448,5433,614,8272,487,991
Mortgage loans held for sale4,018,2411,703,709837,906
Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets257,168235,915238,173
Reverse mortgage interests1,086,024978,652310,074
Mortgage servicing rights1,627,3301,300,584604,819
Property and equipment, net100,69977,40739,090
Derivative financial instruments383,210182,58953,193
Other assets 275,766 211,376 189,580
Total assets$

11,988,381

$8,885,565$4,896,230
 
Liabilities and equity
Notes payable$6,168,937$3,409,886$2,412,364
Unsecured senior notes1,969,1631,669,146555,938
Payables and accrued liabilities1,222,0631,529,898639,839
Derivative financial instruments46,74526,89518,911
Mortgage servicing liabilities82,62382,93181,979
Nonrecourse debt - Legacy Assets95,72998,388106,271
Excess spread financing (at fair value)570,497498,906266,693
Participating interest financing 880,234 745,263 181,114
Total liabilities$11,035,991$8,061,313

$

4,263,109
 
Total Nationstar Inc. stockholders' equity947,400819,262633,121
Noncontrolling interest 4,990 4,990 -
Total equity 952,390 824,252 633,121
Total liabilities and equity$11,988,381$8,885,565$4,896,230
 
 
SERVICING FEE INCOME BEFORE FAIR VALUE ADJUSTMENTS RECONCILIATION

(dollars in thousands)

 
Three months ended
June 30, 2013  March 31, 2013  June 30, 2012
(unaudited)(unaudited)(unaudited)
Total servicing fee income before MSR fair value adjustments$275,460$240,010$111,448
Fair value adjustments due to valuation inputs or assumptions
Mortgage servicing rights118,36243,362(11,504)
Excess spread financing (58,471) (41,961) 125 
Net change in FV due to valuation inputs or assumptions59,8911,401(10,929)
Fair value adjustments due to other changes in fair value (amortization)
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