Mr. Cooper's first quarter net income was affected by a $82 million mark-to-market hit on its mortgage servicing portfolio driven by falling interest rates through the period.
The average earnings per share estimate was $2.92, with a high of $3.24 and a low of $2.58, according to Yahoo Finance. Using the non-GAAP measurement of operating earnings per share at $2.97, the company beat Keefe, Bruyette & Wood's estimate of $2.91
But the company was well below that on a GAAP basis at $1.38 per share for the first quarter because of the servicing-related reduction.
Still, KBW analyst Bose George expected investors to have a neutral reaction to these results when it comes to the company's stock price.
The stock opened at $116.89 per share on Wednesday morning after closing at $112.07 the previous afternoon.
Mr. Cooper reported first quarter net income of $88 million as a result of the MSR value write-down, compared with net income of
Because of
Mr. Cooper is seeing the benefits from the Flagstar servicing acquisition start to flow through to its results, Chairman and CEO Jay Bray said. Its operating return on average tangible common shareholders' equity increased to 16.8% from 15.8% in the fourth quarter.
"I'm really pleased that we've moved so quickly into the 16% to 20% guidance range we shared with you just last quarter," Bray said. "The key things behind this performance remain the same, operating leverage, fee income and strong execution in our origination segment, all of this reflecting the investments we've made in technology and operations over many years."
On the servicing side, without the mark-to-market reduction, Mr. Cooper made $332 million as its portfolio grew by 33% from the first quarter last year to $1.51 trillion.
Flagstar was the biggest servicing acquisition in Mr. Cooper's history and it has now completed the onboarding of the loans as well as any team members from the seller, Bray said.
In February, Mr. Cooper disclosed it was
However, when compared with the fourth quarter of last year, the servicing portfolio was down from $1.56 trillion. Its subservicing fell to $780 billion as of March 31 from $820 billion three months prior.
"As we pointed out last quarter, we shifted about $60 billion in subserviced loans to other servicers, as was contemplated in the Flagstar transaction," said Mike Weinbach, Mr. Cooper's president. "Outside of these deboardings, our subservicing portfolio grew organically by 2% quarter over quarter."
Weinbach added Mr. Cooper is expecting its subservicing business to continue to grow, organically from existing clients, as well as from new customers it is in discussions with.
What he did not mention was any impact from the decision at the start of the second quarter by
UWM has a $240 billion MSR portfolio but it is unknown what percentage of that was handled by Mr. Cooper.
"We estimate servicing segment earnings missed us by 5 cents per share as lower fees, lower other income and higher expenses were partially offset by a lower amortization rate and $36 million of adjustments," George said in a flash note on the results. "The servicing hedge offset 72% of the negative MSR mark in the quarter, roughly in line with the company's 75% hedge target."
Those hedge gains totaled $209 million, Kurt Johnson, executive vice president and chief financial officer, said on the call.
On the origination side, George surmised that Mr. Cooper might have gained market share as volume, while down 11% from the fourth quarter, was better than industry estimates of an approximate 20% reduction. The Mortgage Bankers Association's April forecast expects
Mr. Cooper's gain on sale of 129 basis points beat George's expectations by 9 basis points.
"We estimate the origination segment beat us by 11 cents, as higher gain on loans held for sale and higher other fee income more than offset higher expenses and lower other income," George said.
On a pretax basis, the origination business made $53 million for Mr. Cooper, versus $47 million in the fourth quarter and $32 million for the first quarter last year.
Johnson added Mr. Cooper had a "slight operating loss" from the Flagstar third-party originations business which it flipped to A&D Mortgage at the end of the quarter.
Mr. Cooper originated $8.3 billion in period, down from $9.3 billion in the prior quarter but up from $2.9 billion the previous year.
The correspondent channel was responsible for $6.4 billion and direct-to-consumer $1.9 billion.
Almost half of the DTC production, 46%, were cash-out refinance transactions, while another 21% were second lien mortgages. Purchases were 20% of the volume, while rate-and-term refis made up 14%.
Speaking of refinance opportunities, Johnson pointed out that Mr. Cooper has a long runway, with 94% of its servicing customers having at least 20% equity in their properties. Its first quarter recapture rate was just above 50%, he added.
