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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