Mr. Cooper Group Inc.

Good morning. Welcome to Mr. Cooper Group fourth quarter 2024 earnings conference call. At this time, all participants are listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please advise that today's conference is being recorded. I would like to hand the conference over to Mr. Cooper Group.

Good morning, and welcome to Mr. Cooper Group's fourth 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, Mike Weinbach, President, and Kurt Johnson, Executive Vice President and CFO. As a reminder, this call is being recorded. 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 risk factors 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. Good morning, everyone, and thank you for joining our call. Let's start on slide three with a review of fourth quarter results. I'll summarize, pre-tax operating income was 235 million. Operating ROTCE was 15.8%. Tangible book value grew 12% year over year to $71.61 per share. And our capital ratio was 24.4%. And liquidity was 3.4 billion. I'm exceptionally pleased with these results. These numbers demonstrate consistent, predictable performance, and what's especially notable is we delivered these results by closing on the acquisition of Flagstar's mortgage banking operations and onboarding 1.1 million customers. This is by far the largest acquisition in our history and one of the largest customer transfers in the history of the mortgage industry. Drilling down into the segments, servicing generated $318 million in pre-tax income. up 39% year-over-year. Given the low level of prepayments, we project strong cash flows from our portfolio continuing throughout 2025 and long thereafter. Originations remain resilient despite the sharp sell-off in December, generating $47 million in EBT. Funded volumes grew 38% sequentially, significantly outpacing the market, reflecting very strong execution in the correspondent channel. Thanks to the hard work of our correspondent team and the trust of our clients, we have climbed into a top five market share position. As I mentioned on our last call, our cost structure and retention make us the best buyer of MSRs in all channels. I'd like to comment on some other positives in the quarter. We proudly won the Sharp Gold Award, which is Freddie Mac's highest recognition for servicers. This award reflects our commitment to quality, risk management, and performance. Additionally, we helped several of our subservicing partners achieve goal level recognition through the strong performance we delivered on their portfolios. Our master servicing business received an upgrade from Fritch to a one minus rating, which is a huge third party endorsement. Master servicing is a business which oversees the performance of other mortgage servicers on behalf of Securitization and Whole Loan Investors. By providing high-tech solutions and exceptional personal service, our team has earned and sustained the number two position in the market. I'll add that master servicing generates valuable fee income. Mike will share some comments on how fee income is becoming a meaningful part of our revenue story. Finally, we were pleased to see Moody's place our corporate rating on positive outlook. They commented on the growing strength and scale of our franchise, our strong return on assets, and solid liquidity. And they cited our hedge program as a credit positive. Fourth quarter capped an amazing year for Mr. Cooper. And if you'll turn to slide four, you'll see that 2024 was the culmination of a three-year journey. As we all remember, 2022 ended with one of the most severe interest rate shocks on record. with the Fed tightening by 425 basis points and mortgage rates more than doubling. This shock created significant turmoil in the industry. We responded with swift and decisive action to reorient our platforms, and our nimble execution put us in position to anticipate new opportunities. If you go back to our fourth quarter 2022 investor presentation, You'll see a slide entitled, Expecting Cycle-Wide Opportunities for MSR Acquisitions, with a chart projecting a steep increase in MSR sales peaking in 2024. On the call, we explained how originators had bulked up on MSRs and were now facing a serious margin squeeze. And we pointed to strategic divestitures and the ongoing exit of banks as contributing to a supply-demand imbalance. That was a good call, and the results speak for themselves. Over the last two years, we've acquired $440 billion of MSRs at cycle-wide OAS spreads, including the HomePoint and Flagstar transactions and many other pools. Today, our portfolio stands at $1.5 trillion, representing the loans of over 6 million customers, making us the largest servicer in the U.S. by a significant margin. In fact, we are more than 50% larger than number two. We also took over the lead in subservicing. Our sizable skill and technology advantage has allowed us to generate positive operating leverage and rising returns on tangible equity. What those results don't show you, however, is the momentum we're now experiencing, the talent and enthusiasm of our people, the promise of our technology, and the depth of our competitive moat. Now turning to slide five, let me wrap up with some high level thoughts on the outlook. Given our momentum, we're increasing our ROTCE guidance range to 16 to 20% for 25 and 26, which is higher than our previous guidance of 14 to 18%. Although we are not immune to macro shifts, we have built a balanced model that is resilient in the face of interest rate volatility, and we're also well-positioned to manage through a more adverse cycle. Let's talk about what's driving our confidence in the outlook. Investing in our culture is a huge focus for us. Mr. Cooper has been certified as a great place to work for six years in a row, and we see the tangible results of our high trust culture and record low turnover. A couple of weeks ago, we held a two-day offsite for the company's senior leaders and the energy was incredible. In recent years, we've made tremendous progress improving the customer experience. But today, new technology is creating a whole new frontier of opportunities to delight and add value. We're exploring several new value propositions for our customers, some of which we plan to implement this year. AI is changing the world. And it may well be that one of the best applications for large language models is in the call center environment. Mike will update you on our agent IQ rollout, which is generating rave reviews from our team members. And I'll just add that with our SAGE-IT relationship, we are light years ahead of peers on the journey to the cloud and true real-time, anytime processing. To summarize our strategic direction over the next two years, I'd remind you of the key drivers, which you've seen us deliver on consistently. First, we will stay laser focused on unit costs, leveraging our lead in technology. Second, we'll keep investing in our origination platforms, both DTC and correspondent, to generate higher volumes and gain market share. Third, We'll grow fee revenues by winning new clients for subservicing, master servicing, and our other services businesses, and by winning larger share of wallet. And finally, we'll continue to analyze the market for acquisitions in a thoughtful and disciplined manner, looking for opportunities to create value. And with that, I'll turn the call over to our president, Mike Weinbach, to take you through our operating results.