Two acquisitive mortgage bankers see first-quarter profits fall
First-quarter year-over-year results declined at a pair of mortgage bankers active in the acquisitions market as well as at the provider of the most used servicing technology.
Mr. Cooper lost $186 million in the first quarter, as it took a mark-to-market hit on the fair value of its mortgage servicing portfolio of $293 million.
This compares with a $136 million net loss in the fourth quarter of 2018. Its predecessor company, Nationstar Mortgage Holdings, reported first-quarter 2018 net income of $160 million. On July 31, 2018, Nationstar was acquired by WMIH, a shell company that formerly owned Washington Mutual.
During the first quarter, the company announced it would acquire the Seterus servicing platform from IBM, including $24 billion in servicing and an additional $24 billion in subservicing.
After the WMIH deal closed, Mr. Cooper announced the purchases of Assurant Mortgage Solutions and Pacific Union Financial.
"2019 is a year of integration and investment for Mr. Cooper, designed to set the stage for sustained growth and higher returns in the years to come," Jay Bray, chairman and CEO, said in a press release. "Notable achievements in the quarter included boarding 440,000 new servicing customers from our Pacific Union and Seterus acquisitions and making important progress in the integration of Assurant Mortgage Solutions into Xome."
Excluding the mark-to-market hit, Mr. Cooper had pretax operating income of $98 million in its servicing business, up from $88 million in the fourth quarter. Because of the acquisitions, the servicing portfolio grew to $632 billion on March 31 from $548 billion on Dec. 31, 2018.
Pretax operating income in the origination segment was $45 million, up from $16 million in the fourth quarter, with volume of $5.7 billion compared with $5.4 billion.
Xome would have had pretax income of $8 million, but an $11 million charge related to the fair value of the contingent consideration for the purchase of Assurant wiped that out. That was offset on the positive side by $3 billion of intangible amortization.
New Residential Investment, which bought Shellpoint during 2018, had net income of $145.6 million during the first quarter, compared with $348,000 in the fourth quarter and $604.3 million in the first quarter of 2018.
"During the first quarter of 2019, New Residential again demonstrated the strength of our portfolio and our ability to execute across different market environments as we grew our book value and generated stable core earnings," Michael Nierenberg, chairman, CEO and president, said in a press release. "Our results to start the year were bolstered by the performance of our bond and loan portfolios as well as by the realized benefits from Shellpoint's origination capabilities."
The company took a total impairment of $39.3 million, compared with $12.8 million in the fourth quarter.
New Residential also completed two non-qualified mortgage securitizations with a balance of $750 million.
"As I have mentioned before, we continue to see incremental opportunities to capture the full value of the mortgage asset and we intend to be opportunistic in pursuing growth opportunities that are additive to our long-term strategy and that benefit our shareholders," Nierenberg said.
In a separate press release, New Residential announced it became a minority investor in Covius Holdings, a provider of settlement and title; document and letter fulfillment; regulatory compliance; quality assurance; commercial and residential loan due diligence; and business process automation services.
Net earnings at Black Knight fell 8% from the first quarter of 2018 even as the company's revenue grew by 5%. Black Knight earned $39.3 million during the first quarter, down from $42.8 million in the fourth quarter and $42.7 million one year ago
Revenue rose to $283.1 million, compared with $270.3 million in the first quarter of 2018. But expenses also increased year-over-year, to $217.8 million from $202.1 million, with operating expenses rising to $160 million from $149.4 million.
"We had a solid start to 2019 with adjusted revenue growth of 4% and adjusted EBITDA growth of 6%, which drove margin expansion of 50 basis points to 48.4%," said Executive Chairman William Foley II. "The underlying fundamentals of our business remain strong, and we are on course to achieve the financial targets we have set for 2019."
Operating income for the software solutions business (which includes Black Knight's servicing platform and loan origination system) was $110.8 million, slightly ahead of the $110.1 million reported in the first quarter of 2018.
There was also a small increase in the operating income of its data and analytics business, to $6.1 million from $5.4 million.
But the loss in the corporate and other segment grew to $51.6 million from $47.3 million one year ago.