Mr. Cooper reports lower earnings due to MSR mark, breach

Mr. Cooper reported $46 million in net income for the fourth quarter due to the impact of rate volatility on mortgage servicing rights valuations and charges from a cyberattack reduced earnings. However, the company remained profitable due to strength in other operations.

The bottom line number, which a previously reported $41 million mark-to-market loss from MSRs and $27 million in charges related to the systems breach weighed down, was reduced compared to $275 million the previous quarter but up from $1 million a year earlier. The breach interrupted certain operations for four days but not to a significant extent, according to the company.

The final results for the quarter generally confirmed preliminary pretax ones generated in connection with a well-received financing transaction. Executives said that unsecured debt financing contributes to financial soundness that helps put it in a good position as a leading servicer to bear up under growing regulatory scrutiny of large nonbanks.

"We don't have any concerns about continuing to grow the platform," Jay Bray, Mr. Cooper's chairman and CEO, said during the company's earnings call, noting that servicing is a scale business that becomes more efficient to run as it gets larger.

The financing, which provides the company with high-yield debt not due until 2032, "leaves us with a very strong liquidity runway," said Kurt Johnson, the company's executive vice president and chief financial officer.

A BTIG analyst report issued shortly after the call indicated the resource should help the company "remain acquisitive of bulk MSRs."

Results the company confirmed included $69 million in pretax income. Other numbers it affirmed included $151 million in pretax operating income, a figure which excluded the negative $27 million line item reflecting costs from the cyberattack and other one-time adjustments.

Servicing income also matched earlier numbers at $184 million on a pretax basis. Pretax operating income for servicing was  $229 million as expected. The company also had previously reported the $41 million loss on its mortgage servicing rights portfolio, net of hedge gains. 

In addition, Mr. Cooper reported that the company's total servicing portfolio, which rose to $992 million in the fourth quarter, remains likely to finally surpass its longstanding $1 trillion goal in the first quarter. 

Mr. Cooper also confirmed that its pretax origination income for the fourth quarter was $9 million. Also operating income from originations was affirmed $10 million as were the $2.7 billion fundings during the period it had reported in preliminary results.

The earnings from both the origination and servicing segments were higher than analysts at Keefe, Bruyette and Woods had anticipated, but they said in a first-take note on the latest numbers that margins in the production unit appear to have narrowed during the quarter.

"We calculate a gain-on-sale margin of 197 basis points, which was below our 212 basis point estimate," they said.

Mr. Cooper's gain-on-sale based on its 4Q earnings was down from 266 basis points the previous quarter, according to the KBW analysts.

Executives said the company is keeping an eye on margins, noting that they're subject to interest rate fluctuations, and are continuing to engage on technology-driven efficiency measures with that in mind.

"Both volumes and margins could change if interest rates surprise in either direction," said Chris Marshall, the company's departing president. But currently margins remain strong, he said.

Mike Weinbach, an industry veteran who has served in executive posts at large banks, is Mr. Cooper's new president.

Mr. Cooper's stock was trading at over $70 per share at midday on the East Coast, up from where it opened at $66.48.