Nationstar Reports Second Quarter 2014 Financial Results

  Nationstar Reports Second Quarter 2014 Financial Results    *Core EPS of $0.87; core pretax income of $125 million   *GAAP EPS of $0.74; GAAP pretax of income of $106 million   *Generated $10 billion of servicing assets in Q2, including originations   *Servicing acquisition commitments for over $20 billion in Q3   *Completed Real Estate Digital transaction; integration on track  Business Wire  LEWISVILLE, Texas -- August 6, 2014  Nationstar Mortgage Holdings Inc. (NYSE: NSM) (“Nationstar”), a leading residential mortgage services company, today reported financial results for its second quarter ended June 30, 2014.  “The continued execution of our strategic plan produced growth across all of our segments and key financial metrics,” said Jay Bray, Chief Executive Officer. “Nationstar continues to deliver increasing profits and cash flows quarter over quarter by executing on our strategic initiatives. We are excited about the earnings power of our existing platforms as well as the continued build-out of our comprehensive digital real estate service offerings. Our goal is to be the premier real estate services provider to residential owners, buyers, sellers, agents and investors.”  Nationstar reported quarterly net income of $67 million, or $0.74 per share, for the second quarter, a 174% increase over the $24 million or $0.27 per share in the first quarter 2014. Nationstar generated Core EPS of $0.87 per share compared to $0.61 a share in the previous period, an increase of 43%. Core EPS excludes one-time expenses and MSR fair value adjustments. For the quarter, pretax income was $106 million and core pretax income was $125 million.  Second Quarter Business Highlights  (amounts in millions, unless otherwise noted)  In order to increase transparency and reflect how the operations are currently managed, Nationstar now presents its financials in three operating segments: Servicing, Solutionstar and Originations. Additionally, the Corporate and Other reporting unit includes corporate overhead not directly associated with the operations, the former legacy segment and interest expense associated only with the unsecured senior notes. All prior period amounts reflect the change in the reportable segments.   Servicing Segment                                                                                             Q2’14               Q1’14              % Change Total servicing                $   302             276                9    % fee income Pretax income                  $   67              $  50              34   % Core pretax                    $   86              $  79              9    % income^(1) Core pretax income             28         %        29        %        (3   )% margin Core operating profitability                  9.0                 8.2                10   % (bps)^(2) Ending UPB ($B)                $   378.4           $  384.4           (2   )% Average UPB ($B)               $   381.4           $  387.6           (2   )% 60+ day                        11.0       %        11.1      %        (1   )% delinquency rate Annualized CPR                 13.5       %        11.9      %        13   % rate (1) Excludes one-time transaction expenses related to the NRZ advance sale and MSR fair value adjustments. See reconciliation tables. (2) Excludes Solutionstar and allocations to Corporate and Other under current segmentation.   Servicing core pretax income increased 9% and core pretax income margin remained flat in the second quarter as additional investments were made in workforce management and automation during the quarter, the benefits of which are expected to accrue in the third quarter. The current expectation is for growth in both margin and core pretax income through the second half of the year principally driven by continued operational improvements as well as an increase in acquisitions. From a basis points perspective, the Servicing operations achieved 9 basis points of operating profitability.  Nationstar’s servicing portfolio, as measured by UPB, ended the second quarter nearly unchanged from first quarter levels, due to $10 billion of new servicing assets generated through acquisitions and the originations platform. Since the end of the second quarter, Nationstar already has commitments for over $20 billion in additional servicing acquisitions. Nationstar’s pipeline of acquisition opportunities totals over $300 billion in aggregate UPB.  Nationstar’s 60-plus day delinquency rate decreased slightly from the first quarter. The servicing portfolio CPR increased in the second quarter, reflective of the lower rate environment.  Solutionstar Segment  Solutionstar provides technology and data enhanced solutions to homebuyers, home sellers, real estate agents and companies engaged in the origination and / or servicing of mortgage loans. Solutionstar intends to transform the home buying experience through the utilization of a next generation real estate exchange and the delivery of high quality residential real estate services. Solutionstar principally operates two divisions:    *Real Estate Exchange - comprises our HomeSearch.com and Real Estate     Digital operational offerings which utilize the power of technology, data     analytics and the internet to deliver technologies and services that     facilitate the efficient exchange of homes through an internet based real     estate marketplace.   *Real Estate Services - comprises the Solutionstar and Veripro branded     residential services which principally include title, close, escrow,     collateral valuation and asset management services.                                                                                                               Q2’14       Q1’14      % Change Revenue - Real Estate Exchange                $  36       $  27       33   % Revenue - Real Estate Services                $  47       $  38       24   % Pretax income - total                         $  38       $  26       46   % Pretax income margin                          46    %     40    %     15   % Real Estate Exchange - number of              5,663       4,538       25   % properties sold                                                                         Solutionstar’s revenues increased due to a strong increase in order volume in our Real Estate Services division and the continued success of the HomeSearch.com platform in effectively marketing properties. Solutionstar’s pretax margin increased in the second quarter to 46% from 40% in the first quarter, primarily due to mix of revenues. Solutionstar’s results for all periods are reflected to adjust the referral fees typically earned by servicers.  Solutionstar sold nearly 5,700 properties in Q2’14 and expects more than 20,000 sales over the course of 2014. The number of properties under management continues to increase as a result of the successful closing of the private-label portfolio acquisitions from Bank of America in late 2013. In addition, in the second quarter Solutionstar started selling properties on behalf of third-party clients through HomeSearch.com.   Originations Segment                                                                                                 Q2’14            Q1’14            % Change Revenue                            $  165           $  130           27    % Pretax income                      $  69            $  24            188   % Core pretax income^(1)             $  69            $  40            73    % Core pretax income margin          42      %        31      %        35    % Funded volume - consumer           $  2.9           $  3.3           (12   )% direct ($B) Funded volume - total              $  4.4           $  4.7           (6    )% ($B) Application volume ($B)            $  5.0           $  3.5           43    % Locked pipeline ($B)               $  2.6           $  2.9           (10   )% Recapture percentage               32      %        51      %        (37   )% Purchase origination percentage of funded               30      %        28      %        7     % volume (1) Excludes one-time expenses related to right sizing the operations in Q1'14. See reconciliation tables.                                                                        Total originations revenue and pretax income grew sequentially principally due to an increase in gain on sale. Core pretax income margin increased 35% as a function of Nationstar’s continued focus on the consumer direct channel, which presents a significant opportunity and partially insulates volatility in volume compared to the broader market.  Nationstar's funded volume and recapture rate decreased sequentially as a result of thoughtfully originating higher margin loan products, a decline in HARP originations, and efficiently managing capacity while the operations began the migration from multiple origination platforms to a single integrated platform and process. The majority of volume in the quarter came from the consumer direct channel, which includes recapture and Greenlight. Correspondent volume was flat quarter over quarter and Nationstar continues to view the correspondent channel as a cost-effective way to acquire servicing.  Helping Homeowners  Nationstar remains committed to providing mortgage solutions to our more than 2.2 million homeowners. In the second quarter, we helped nearly 23,000 customers avoid foreclosure, including approximately 15,000 loan modifications which lower customer's payments. This also included providing collateral workouts and other repayment plans to approximately 8,000 homeowners.  We also helped 23,000 homeowners secure mortgages. The total includes approximately 6,000 homeowners whose mortgages were refinanced through the Home Affordable Refinance Program (“HARP”), which allows us to refinance a borrower with a very high loan-to-value ratio or a homeowner with negative equity in their house.  Guidance  Nationstar remains ahead of its 2014 budget and as a result is confirming its 2014 GAAP EPS guidance of $4.00 - $5.00.  Conference Call Webcast and Investor Presentation  Chief Executive Officer, Jay Bray, and Chief Financial Officer, Robert Stiles, will host a conference call for investors and analysts to discuss Nationstar’s second quarter 2014 results and other general business matters at 9:00 a.m. ET on Wednesday, August 6, 2014. 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 877-474-9502, or 857-244-7555 internationally. Please use the participant passcode 29117120 to access the live conference call. An investor presentation will also be available at http://investors.nationstarholdings.com.  Non-GAAP Financial Measures  This disclaimer applies to every usage of “Core Earnings per Share” or “Core EPS”, "Core Pretax Income", and “Servicing Core Pretax Income” in this release. Core EPS is a metric that is used by management to normalize earnings for one-time expenses and changes in fair value of the MSR. Core pretax income is a metric that is used by management to exclude certain non-recurring items, and changes in the fair value of the MSR, in an attempt to provide better earnings per share comparison to prior period. Servicing core pretax 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. Servicing core pretax income excludes one-time expenses related to the advance sale to NRZ and MSR fair value adjustments.  About Nationstar Mortgage Holdings Inc.  Based in Lewisville, Texas, Nationstar earns fees through the delivery of quality servicing, origination and transaction based services related principally to single-family residences throughout the United States. Additional corporate information is available at www.nationstarholdings.com.  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 our servicing segment’s growth and profitability; property sales in 2014; estimates of Solutionstar profitability; and estimates of fiscal year 2014 guidance for GAAP EPS. 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, performances or achievements expressed or implied by the forward-statements. Certain of these risks and uncertainties are described in the “Risk Factors” section 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 statements 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 INCOME AND COMPREHENSIVE INCOME (dollars and shares in thousands, except per share data)                                                                                          Three Months Ended                                               June 30, 2014   March 31, 2014 Revenues Servicing fee income                          $  258,099        $  240,164 Other fee income                              118,718          101,547      Total fee income                              376,817           341,711 Gain on mortgage loans held for sale          172,916          127,936      Total revenues                                549,733           469,647                                                                  Total expenses and impairments                346,711           321,133                                                                  Other income (expense) Interest income                               42,941            43,943 Interest expense                              (139,422    )     (156,600    ) Gain (loss) on interest rate swaps and        (953        )     2,821        caps Total other income (expense)                  (97,434     )     (109,836    )                                                                  Income before taxes                           105,588           38,678 Income tax expense                            (38,941     )     (15,001     ) Net income                                    66,647           23,677                                                                        Less: Net gain (loss) attributable to         192              (359        ) noncontrolling interests Net income attributable to Nationstar         $  66,455        $  24,036                                                                     Earnings per share: Basic earnings per share                      $  0.74          $  0.27      Diluted earnings per share                    $  0.74          $  0.27      Weighted average shares: Basic                                         89,465            89,342 Dilutive effect of stock awards               729              733          Diluted                                       90,194           90,075                                                                        Dividends declared per share                  —                —                                                                                           NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)                                                                                          Three Months Ended                                               June 30, 2014   March 31, 2014 Assets Cash and cash equivalents                     $  623,927        $  404,073 Restricted cash                               334,910           471,635 Accounts receivable                           2,809,436         4,057,477 Mortgage loans held for sale                  2,224,821         1,741,126 Mortgage loans held for investment, subject to nonrecourse debt - Legacy          199,125           204,392 Assets, net Reverse mortgage interests                    1,772,386         1,620,879 Mortgage servicing rights                     2,691,449         2,590,780 Property and equipment, net                   123,720           119,306 Derivative financial instruments              95,328            95,774 Other assets                                  292,672           327,121 Total assets                                  $  11,167,774     $  11,632,563                                                                  Liabilities and equity Notes payable                                 $  4,017,943      $  4,591,998 Unsecured senior notes                        2,443,962         2,444,020 Payables and accrued liabilities              1,071,626         1,189,430 Derivative financial instruments              33,116            6,377 Mortgage servicing liabilities                80,492            82,210 Nonrecourse debt - Legacy Assets              82,731            86,529 Excess spread financing (at fair value)       1,036,038         978,183 Participating interest financing              1,285,853         1,202,252 Mortgage servicing rights financing           33,452            39,737 liabilities Total liabilities                             $  10,085,213     $  10,620,736                                                                  Total equity                                  1,082,561         1,011,827 Total liabilities and equity                  $  11,167,774     $  11,632,563                                                                       SERVICING FEE INCOME BEFORE FAIR VALUE ADJUSTMENTS RECONCILIATION (dollars in thousands)                                                                                          Three Months Ended                                               June 30, 2014   March 31, 2014 Servicing fee income                          $  221,976        $  235,198 Loss mitigation and performance-based         11,570            13,012 incentive fees Modification fees                             45,157            32,808 Late fees and other ancillary charges         15,919            17,794 Reverse mortgage fees                         14,477            13,539 Other servicing fee related revenues          5,456            6,180        Total servicing fee income before MSR         314,555           318,531 fair value adjustments                                                                  Changes in fair value due to inputs / assumptions: MSR                                           6,975             (20,645     ) MSR financing liability                       31,785            4,407 Excess spread financing                       (32,078     )     5,103        Net change in fair value due to inputs        6,682             (11,135     ) / assumptions:                                                                  Other changes in fair value (amortization): MSR                                           (52,664     )     (57,704     ) MSR financing liability                       6,684             6,381 Excess spread financing                       4,942            (1,734      ) Net other changes in fair value:              (41,038     )     (53,057     )                                                                  Total servicing fee income                    280,199           254,339 Other fee income                              21,798           21,811       Total servicing revenues                      $  301,997       $  276,150                                                                         CORE EARNINGS PER SHARE RECONCILIATION (dollars and shares in thousands, except per share data)                                                                                          Three Months Ended                                               June 30, 2014   March 31, 2014 Net income attributable to Nationstar         $  66,455         $   24,036 Inc. Net gain (loss) attributable to               192              (359        ) noncontrolling interests Net income                                    66,647            23,677                                                                  Income taxes                                  38,941           15,001       Income before taxes                           105,588           38,678                                                                  One-time expenses                             25,730            39,252 MSR mark                                      (6,682     )      11,135       Core pretax income                            124,636           89,065                                                                  Income taxes (using Q2’14, Q1’14 tax          (45,966    )      (34,543     ) rate) Core income                                   78,670            54,522                                                                  Average share count                           90,194            90,075                                                                  Core EPS                                      $  0.87          $   0.61                                                                            SERVICING: CORE PRETAX INCOME RECONCILIATION (dollars in thousands)                                                                                          Three Months Ended                                               June 30, 2014   March 31, 2014 Pretax income                                 $  67,126         $   49,543 One-time expenses                             25,730            17,900 Ramp expense                                  —                 —                                                                  Changes in fair value due to inputs or assumptions MSR                                           (6,975     )      20,645 MSR financing liability                       (31,785    )      (4,407      ) Excess spread                                 32,078           (5,103      ) Net change in fair value due to inputs        (6,682     )      11,135 or assumptions                                                                 Servicing core pretax income                  $  86,174        $   78,578                                                                          ORIGINATIONS: CORE PRETAX INCOME RECONCILIATION (dollars in thousands)                                                                  Three Months Ended                                 June 30, 2014  March 31, 2014 Pretax income                   $    68,634     $    24,182 One-time expenses               —               15,852                                                 Originations core pretax income $    68,634     $    40,034                                                         Q2'14 SEGMENTATION RECONCILIATION  Previous Q2'14 Disclosure              Servicing   Solutionstar   Originations   Operating   Legacy     Total                               ^(1) Operating       $  (237 )     $   —            $   (97   )      $  (334 )     $  (12  )   $ (347 ) Expenses Core Pretax          85            —                54               139           (14     )   125 Income                                                                                                   Current Q2'14 Disclosure                 Servicing     Solutionstar     Originations     Operating     Corporate   Total                                                                               / Other Operating       $  (186 )     $   (46   )      $   (97   )      $  (328 )     $  (18  )   $ (347 ) Expenses Core Pretax          86            38               69               193           (68     )   125 Income                                                                                                     Q1'14 SEGMENTATION RECONCILIATION  Previous Q1'14 Disclosure              Servicing   Solutionstar   Originations   Operating   Legacy      Total                               ^(1) Operating       $  (206 )     $   —            $   (108  )      $  (314 )     $  (7   )     $ (321 ) Expenses Core Pretax          69            —                23               92            (3      )     89 Income                                                                                              Current Q1'14 Disclosure                 Servicing     Solutionstar     Originations     Operating     Corporate     Total                                                                               / Other Operating       $  (165 )     $   (39   )      $   (105  )      $  (310 )     $  (12  )     $ (321 ) Expenses Core Pretax          79            26               40               145           (55     )     89 Income                                                                                              (1) Solutionstar was included in servicing under previous segmentation disclosures.    SEGMENT INCOME STATEMENT (dollars in thousands)                                  For the quarter ended June 30, 2014                                                                                     Corporate                   Servicing     Originations   Solutionstar   Operating     and           Elim.         Total                                                                                     Other                                                                                                                                                                                                                                           Revenues Servicing         $ 280,199       $  212           $  5             $ 280,416       $ 275           $ (22,592 )     $ 258,099 fee income Other fee         21,798         13,689          83,359          118,846        (128      )     —              118,718    income Total fee         301,997         13,901           83,364           399,262         147             (22,592   )     376,817 income Gain on mortgage          (130      )     151,201         —               151,071        (379      )     22,224         172,916    loans held for sale Total             301,867         165,102          83,364           550,333         (232      )     (368      )     549,733 revenues                                                                                                                      Total expenses          185,690         97,084           45,510           328,284         18,427          —               346,711 and impairments                                                                                                                      Other income (expense) Interest          22,158          17,327           —                39,485          3,088           368             42,941 income Interest          (70,014   )     (16,711    )     (90        )     (86,815   )     (52,607   )     —               (139,422  ) expense Loss on interest          (1,195    )     —               —               (1,195    )     242            —              (953      ) rate swaps and caps Total other income            (49,051   )     616              (90        )     (48,525   )     (49,277   )     368             (97,434   ) (expense)                                                                                                                      Pretax income            67,126          68,634           37,764           173,524         (67,936   )     —               105,588 (loss) One time          25,730          —                —                25,730          —               —               25,730 expenses MSR Mark          (6,682    )     —               —               (6,682    )     —              —              (6,682    ) Core pretax       $ 86,174        $  68,634        $  37,764        $ 192,572       $ (67,936 )     $ —             $ 124,636 income                                                                                                                      Earnings                                                                                                            $ 0.74 per share Core earnings                                                                                                            $ 0.87 per share                                                                                                                          SEGMENT INCOME STATEMENT (dollars in thousands)                                  For the quarter ended March 31, 2014                   Servicing     Originations   Solutionstar   Operating     Corporate     Elim.         Total                                                                                     and Other                                                                                                                      Revenues Servicing         $ 254,339       $  —             $  8             254,347         $ 298           $ (14,481 )     $ 240,164 fee income Other fee         21,811         14,048          64,991          100,850        697            —              101,547    income Total fee         276,150         14,048           64,999           355,197         995             (14,481   )     341,711 income Gain on mortgage          (1,695    )     116,200         —               114,505        (672      )     14,103         127,936    loans held for sale Total             274,455         130,248          64,999           469,702         323             (378      )     469,647 revenues                                                                                                                      Total expenses          165,333         105,050          39,209           309,592         11,541          —               321,133 and impairments                                                                                                                      Other income (expense)                                                                                                                      Interest          18,664          21,521           —                40,185          3,380           378             43,943 income Interest          (80,799   )     (22,537    )     (54        )     (103,390  )     (53,210   )     —               (156,600  ) expense Loss on interest          2,556          —               —               2,556          265            —              2,821      rate swaps and caps Total other income            (59,579   )     (1,016     )     (54        )     (60,649   )     (49,565   )     378             (109,836  ) (expense)                                                                                                                      Pretax income            49,543          24,182           25,736           99,461          (60,783   )     —               38,678 (loss) One time          17,900          15,852           —                33,752          5,500           —               39,252 expenses MSR Mark          11,135         —              —               11,135        —              —             11,135     Core pretax       $ 78,578        $  40,034        $  25,736        $ 144,348       $ (55,283 )     $ —             $ 89,065 income                                                                                                                      Earnings                                                                                                            $ 0.27 per share Core earnings                                                                                                            $ 0.61 per share                                                                                                                         Contact:  Nationstar Mortgage Holdings Inc. Marshall Murphy, 469-549-3005  
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