Mr. Cooper Group Inc (NASDAQ:COOP) Q2 2020 Earnings Conference Call - Final Transcript

Jul 30, 2020 • 09:00 am ET

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Mr. Cooper Group Inc (NASDAQ:COOP) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Mr. Cooper Group Second Quarter 2020 Earnings Call. [Operator Instructions] After the speakers' presentation there will be a question-and-answer session. [Operator Instructions].

I would now like to introduce your host for today's program, Mr. Ken Posner, Senior Vice President of Strategic Planning and Investor Relations. Please go ahead.

Executive
Kenneth A. Posner

Good morning, and welcome to Mr. Cooper Group's Second Quarter Earnings Call. My name is Ken Posner and I'm SVP of Strategic Planning and Investor Relations. With me today are Jay Bray, Chairman and CEO; and Chris Marshall, Vice Chairman and CFO. As a quick reminder, this call is being recorded, and you can find the slides on our Investor Relations webpage at investors.mrcoopergroup.com.

During the call, we may refer to non-GAAP measures, which are reconciled to GAAP results in the appendix to the slide deck. Also, we may make forward-looking statements, which you should understand could be affected by risers that we've identified in our 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change.

I'll now turn the call over to Jay.

Executive
Jay Bray

Thanks, Ken, and good morning, everyone. Let's start, as we normally do, by reviewing the quarterly highlights on page six. We reported GAAP net income of $73 million or $0.77 per share. GAAP income was driven by a record $350 million in pretax operating income, which would be equivalent to an ROTCE of 55%. Operating income was partially offset by a noncash mark on the MSR portfolio of $261 million. This mark reflects faster prepay assumptions and a conservative, higher estimate for cost of service based on market participant opinions.

Cash flow and liquidity were extremely robust in the quarter, and this drove unrestricted cash to $1 billion, actually $1.041 billion to be precise, which was up almost $500 million sequentially. Based on this liquidity and the progress we've made in improving profitability, the Board has authorized $100 million share repurchase program, which we expect to complete over the next 12 months.

Record operating results were driven by the Originations segment, which contributed over $400 million in pretax earnings on record margins. At the moment, the entire industry is enjoying a huge tailwind but our direct-to-consumer team's execution has been flawless. Volumes and margins have remained quite strong so far in July, and we are optimistic that Originations will turn in another excellent performance in the third quarter.

The Servicing margin declined to 0.7 basis points, which was in line with what we guided you to expect. This is obviously a thin margin, but you should think of it nothing more or less than the mathematical consequences of low interest rates, which impact us in terms of higher amortization and lower interest income. Low Servicing margins go hand-in-hand with outperformance in Originations. And taken together, our overall results speak to the balance we've achieved in the Mr. Cooper business model. I'm very pleased with the operating story in Servicing,