Ocwen Financial Corporation, (NYSE:OCN)
(“Ocwen” or the “Company”), a leading financial
services holding company, today reported a net loss of $(111.2)
million, or $(0.90) per share, for the three months ended March 31,
2016 compared to net income of $34.4 million, or $0.27 per share,
for the three months ended March 31, 2015. Ocwen generated revenue
of $330.8 million, down (35.2)% compared to the first quarter of
the prior year, primarily driven by the impact of sales of agency
mortgage servicing rights (MSRs) and portfolio run-off in 2015.
Expenses were down $49.7 million or 13.1% compared to the first
quarter of 2015, primarily driven by the reduction in the size of
the servicing portfolio partially offset by a $21.0 million
increase in monitor costs and an $8.8 million increase in
unfavorable interest rate driven fair value changes related to GNMA
and GSE MSRs (excluding runoff). Cash Flows provided by Operating
Activities were $140.9 million for the three months ended March 31,
2016, compared to $325.0 million for the same period last year.
First Quarter 2016 Results
Pre-tax loss for the first quarter of 2016 was
$(102.1) million. Pre-tax results were impacted by a number of
significant items including but not limited to: $(32.7) million of
unfavorable interest rate driven fair value changes related to GNMA
and GSE MSRs (excluding runoff) and $(30.0) million of monitor
costs. Adjusting for these two significant items, the Pre-tax loss
was $(39.4) million. Compared to the fourth quarter of 2015,
operating expenses were down $31 million or 9% and adjusted
operating expenses were down $55 million or 17%.
Servicing recorded a $(68.3) million pre-tax
loss inclusive of the $(32.7) million MSR fair value changes. The
Lending segment recorded a $2.0 million pre-tax gain for the first
quarter of 2016 driven by higher lock volumes across the
correspondent and direct channels.
“We are pleased to see the progress of our
ongoing cost improvement efforts. Companywide we saw adjusted
operating expenses decline by $55 million or 17% from the prior
quarter. Excluding MSR fair value changes and monitoring expenses,
which we have no or limited ability to control, and our new
initiative spending, our Servicing and Corporate segments reduced
expenses by $80 million. We are focused on making further progress
on our cost goals while continuing to enhance the borrower
experience. We also remain committed to investing in our lending
businesses, which we believe will drive earnings growth in the
future,” commented Ron Faris, President and CEO of Ocwen.
“Unfortunately, $(30) million of monitor costs and $(33) million in
MSR value decline from the drop in interest rates during the
quarter negatively impacted the first quarter results,” said
Faris.
Additional Business
Highlights
- The constant pre-payment rate (CPR) decreased from 13.3% in the
fourth quarter of 2015 to 12.7% in the first quarter of 2016. In
the first quarter of 2016, prime CPR was 15.5%, and non-prime CPR
was 10.8%.
- Delinquencies decreased from 13.7% at December 31, 2015 to
13.0% at March 31, 2016, primarily driven by improved
collections and loss mitigation efforts.
- Completed 16,604 modifications in the quarter, 46% of which
were HAMP modifications. 45% of modifications included some form of
principal reduction.
- As of April 21, 2016, received trial payments from over 10,000
borrowers under initial implementation of new Streamline HAMP
program.
- In the first quarter of 2016, Ocwen originated forward and
reverse mortgage loans with unpaid principal balance (UPB) of
$788.1 million and $191.2 million, respectively.
- Our reverse mortgage portfolio ended the quarter with an
estimated $106.0 million in undiscounted future gains from future
draws on existing loans, up from an estimated $97.7 million at
December 31, 2015. Neither the anticipated future gains nor the
future funding liability are included in the Company’s financial
statements.
- Amended our Senior Secured Term Loan (SSTL) to provide
additional flexibility under financial covenants.
- Ended the first quarter with a Corporate Debt to Equity ratio
of 1 to 1. For purposes of this calculation, ‘Corporate Debt'
represents our SSTL and our senior unsecured notes debt balances
excluding adjustments for debt issuance costs and associated
discounts, while ‘Equity' means reported stockholders' equity.
- As of April 24, 2016, our new commercial lending business,
Automotive Capital Services, was operational in 12 markets across 8
states with $9.1 million in outstanding receivables.
Webcast and Conference Call
Ocwen will host a webcast and conference call on
Wednesday, April 27, 2016, at 5 p.m., Eastern Time, to discuss its
financial results for the first quarter of 2016. The conference
call will be webcast live over the internet from the Company’s
website at www.Ocwen.com, click on the “Shareholder Relations”
section. A replay of the conference call will be available via the
website approximately two hours after the conclusion of the call
and will remain available for approximately 30 days.
About Ocwen Financial
Corporation
Ocwen Financial Corporation is a financial
services holding company which, through its subsidiaries,
originates and services loans. We are headquartered in West Palm
Beach, Florida, with offices throughout the United States and in
the U.S. Virgin Islands and operations in India and the
Philippines. We have been serving our customers since 1988. We may
post information that is important to investors on our
website (www.Ocwen.com).
Note Regarding Adjusted Operating
Expenses
Adjusted Operating Expense, a non-GAAP measure,
is a supplemental metric used by management to evaluate our
Company’s underlying operating expense performance. Adjusted
Operating Expense adjusts GAAP operating expense for (1) changes in
fair value of our MSRs due to changes in market rates, valuation
inputs and other assumptions, (2) expense related to business
restructuring items such as severance expenses and lease
termination costs, (3) legal, regulatory or counterparty settlement
expenses as well as monitoring costs and (4) other expense items,
including certain non-recurring costs, that management believes do
not reflect the underlying operating expense performance of the
Company, consistent with the intent of providing management and
investors with a supplemental means of evaluating our operating
performance. A reconciliation from GAAP Operating Expense to
Adjusted Operating Expense appears in the appendix of the investor
presentation posted today on www.Ocwen.com. Adjusted Operating
Expense should not be considered an alternative to operating
expense determined in accordance with GAAP. Adjusted Operating
Expense has important limitations as an analytical tool, and should
not be considered in isolation or as a substitute for analysis of
our results as reported under GAAP. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted Operating Expense only as a supplemental metric.
Readers are cautioned not to place undue reliance on Adjusted
Operating Expense.
Forward Looking Statements
This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. These forward-looking statements may be
identified by a reference to a future period or by the use of
forward-looking terminology. Forward-looking statements by their
nature address matters that are, to different degrees, uncertain.
Our business has been undergoing substantial change which has
magnified such uncertainties. Readers should bear these factors in
mind when considering such statements and should not place undue
reliance on such statements. Forward-looking statements involve a
number of assumptions, risks and uncertainties that could cause
actual results to differ materially. In the past, actual results
have differed from those suggested by forward looking statements
and this may happen again.
Important factors that could cause actual
results to differ materially from those suggested by the
forward-looking statements include, but are not limited to, the
following: our servicer and credit ratings as well as other actions
from various rating agencies, including the impact of downgrades of
our servicer and credit ratings; adverse effects on our business as
a result of regulatory investigations or settlements; reactions to
the announcement of such investigations or settlements by key
counterparties; increased regulatory scrutiny and media attention;
uncertainty related to claims, due to rumors or otherwise,
litigation and investigations brought by government agencies and
private parties regarding our servicing, foreclosure, modification
and other practices, including uncertainty related to past, present
or future investigations and settlements with state regulators, the
CFPB, State Attorneys General, the SEC, Department of Justice or
HUD and actions brought under the False Claims Act by private
parties on behalf of the United States of America regarding
incentive and other payments made by governmental entities; any
adverse developments in existing legal proceedings or the
initiation of new legal proceedings; our ability to effectively
manage our regulatory and contractual compliance obligations; our
ability to contain and reduce our operating costs, including our
ability to successfully execute on our cost improvement initiative;
the adequacy of our financial resources, including our sources of
liquidity and ability to sell, fund and recover advances, repay
borrowings and comply with debt agreements, including the financial
and other covenants contained in them; volatility in our stock
price; the characteristics of our servicing portfolio, including
prepayment speeds along with delinquency and advance rates; our
ability to successfully modify delinquent loans, manage
foreclosures and sell foreclosed properties; uncertainty related to
legislation, regulations, regulatory agency actions, government
programs and policies, industry initiatives and evolving best
servicing practices; as well as other risks detailed in Ocwen’s
reports and filings with the SEC, including its annual report on
Form 10-K for the year ended December 31, 2015. Anyone wishing to
understand Ocwen’s business should review its SEC filings. Ocwen’s
forward-looking statements speak only as of the date they are made
and we disclaim any obligation to update or revise forward-looking
statements whether as a result of new information, future events or
otherwise.
Residential Servicing
Statistics (Unaudited)(Dollars in thousands) |
|
At or for the Three Months Ended |
March 31, 2016 |
December 31, 2015 |
September 30, 2015 |
June 30, 2015 |
March 31, 2015 |
Total unpaid principal
balance of loans and REO serviced |
$ |
237,081,036 |
|
$ |
250,966,112 |
|
$ |
288,069,149 |
|
$ |
321,670,579 |
|
$ |
382,214,002 |
|
|
|
|
|
|
|
Non-performing loans and
REO serviced as a % of total UPB (1) |
13.0 |
% |
13.7 |
% |
13.1 |
% |
13.0 |
% |
12.5 |
% |
|
|
|
|
|
|
Prepayment speed (average
CPR)(2) (3) |
12.7 |
% |
13.3 |
% |
14.7 |
% |
15.7 |
% |
13.3 |
% |
(1) Performing loans include those loans
that are less than 90 days past due and those loans for which
borrowers are making scheduled payments under loan modification,
forbearance or bankruptcy plans. We consider all other loans to be
non-performing.
(2) Constant Prepayment Rate for the prior three months.
CPR measures prepayments as a percentage of the current
outstanding loan balance expressed as a compound annual rate.
(3) Average CPR for the three months ended
March 31, 2016 includes 15.5% for prime loans and 10.8% for
non-prime loans.
Segment Results
(Unaudited)(Dollars in thousands) |
|
|
|
|
For the Three Months Ended March
31, |
|
2016 |
|
2015 |
Servicing |
|
|
|
Revenue |
$ |
307,427 |
|
|
$ |
471,125 |
|
Expenses |
276,896 |
|
|
337,911 |
|
Other expense, net |
(98,789 |
) |
|
(86,492 |
) |
Income (loss) before income
taxes |
(68,258 |
) |
|
46,722 |
|
|
|
|
|
Lending |
|
|
|
Revenue |
23,285 |
|
|
37,746 |
|
Expenses |
21,799 |
|
|
23,785 |
|
Other income, net |
514 |
|
|
2,022 |
|
Income before income taxes |
2,000 |
|
|
15,983 |
|
|
|
|
|
Corporate Items and Other |
|
|
|
Revenue |
45 |
|
|
1,608 |
|
Expenses |
29,962 |
|
|
16,697 |
|
Other expense, net |
(5,950 |
) |
|
(4,787 |
) |
Loss before income taxes |
(35,867 |
) |
|
(19,876 |
) |
|
|
|
|
Corporate Eliminations |
|
|
|
Revenue |
— |
|
|
(35 |
) |
Expenses |
— |
|
|
(35 |
) |
Other income (expense), net |
— |
|
|
— |
|
Income (loss) before income
taxes |
— |
|
|
— |
|
|
|
|
|
Consolidated income (loss) before income taxes |
$ |
(102,125 |
) |
|
$ |
42,829 |
|
OCWEN
FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS (Dollars in thousands, except per share
data) (UNAUDITED) |
|
For the Three Months Ended March
31, |
|
2016 |
|
2015 |
Revenue |
|
|
|
Servicing and subservicing
fees |
$ |
297,496 |
|
|
$ |
446,541 |
|
Gain on loans held for sale,
net |
15,572 |
|
|
44,504 |
|
Other revenues |
17,689 |
|
|
19,399 |
|
Total revenue |
330,757 |
|
|
510,444 |
|
|
|
|
|
Expenses |
|
|
|
Compensation and benefits |
96,249 |
|
|
105,144 |
|
Amortization of mortgage servicing
rights |
12,806 |
|
|
38,494 |
|
Servicing and origination |
95,692 |
|
|
101,802 |
|
Technology and communications |
26,869 |
|
|
39,351 |
|
Professional services |
70,907 |
|
|
56,931 |
|
Occupancy and equipment |
24,745 |
|
|
25,714 |
|
Other |
1,389 |
|
|
10,922 |
|
Total expenses |
328,657 |
|
|
378,358 |
|
|
|
|
|
Other income
(expense) |
|
|
|
Interest income |
4,190 |
|
|
5,575 |
|
Interest expense |
(106,089 |
) |
|
(119,396 |
) |
Gain on sale of mortgage servicing
rights, net |
1,175 |
|
|
26,406 |
|
Other, net |
(3,501 |
) |
|
(1,842 |
) |
Total other expense, net |
(104,225 |
) |
|
(89,257 |
) |
|
|
|
|
Income (loss) before
income taxes |
(102,125 |
) |
|
42,829 |
|
Income tax expense |
9,076 |
|
|
8,440 |
|
Net income
(loss) |
(111,201 |
) |
|
34,389 |
|
Net income attributable
to non-controlling interests |
(130 |
) |
|
(34 |
) |
Net income (loss)
attributable to Ocwen stockholders |
$ |
(111,331 |
) |
|
$ |
34,355 |
|
|
|
|
|
Earnings (loss)
per share attributable to Ocwen common stockholders |
|
|
|
Basic |
$ |
(0.90 |
) |
|
$ |
0.27 |
|
Diluted |
(0.90 |
) |
|
0.27 |
|
|
|
|
|
Weighted
average common shares outstanding |
|
|
|
Basic |
124,093,339 |
|
|
125,272,228 |
|
Diluted |
124,093,339 |
|
|
126,999,662 |
|
OCWEN
FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE
SHEETS (Dollars in thousands, except share
data)(UNAUDITED) |
|
March 31, 2016 |
|
December 31, 2015 |
Assets |
|
|
|
Cash |
$ |
280,513 |
|
|
$ |
257,272 |
|
Mortgage servicing rights ($732,174
and $761,190 carried at fair value) |
1,078,213 |
|
|
1,138,569 |
|
Advances, net |
317,348 |
|
|
444,298 |
|
Match funded advances |
1,720,897 |
|
|
1,706,768 |
|
Loans held for sale ($321,739 and
$309,054 carried at fair value) |
408,809 |
|
|
414,046 |
|
Loans held for investment - Reverse
mortgages, at fair value |
2,771,242 |
|
|
2,488,253 |
|
Receivables, net |
237,583 |
|
|
286,981 |
|
Premises and equipment, net |
72,323 |
|
|
57,626 |
|
Other assets ($22,501 and $14,352
carried at fair value) |
520,182 |
|
|
586,495 |
|
Total assets |
$ |
7,407,110 |
|
|
$ |
7,380,308 |
|
|
|
|
|
Liabilities and
Equity |
|
|
|
Liabilities |
|
|
|
Match funded liabilities |
$ |
1,537,096 |
|
|
$ |
1,584,049 |
|
Financing liabilities ($3,171,602
and $2,933,066 carried at fair value) |
3,319,646 |
|
|
3,089,255 |
|
Other secured borrowings, net |
718,830 |
|
|
762,411 |
|
Senior unsecured notes, net |
345,847 |
|
|
345,511 |
|
Other liabilities |
747,223 |
|
|
744,444 |
|
Total liabilities |
6,668,642 |
|
|
6,525,670 |
|
|
|
|
|
Equity |
|
|
|
Ocwen Financial Corporation (Ocwen)
stockholders’ equity |
|
|
|
Common stock, $.01 par value;
200,000,000 shares authorized; 123,853,683 and 124,774,516 shares
issued and outstanding at March 31, 2016 and December 31, 2015,
respectively |
1,239 |
|
|
1,248 |
|
Additional paid-in capital |
522,222 |
|
|
526,148 |
|
Retained earnings |
214,598 |
|
|
325,929 |
|
Accumulated other comprehensive
loss, net of income taxes |
(1,658 |
) |
|
(1,763 |
) |
Total Ocwen stockholders’
equity |
736,401 |
|
|
851,562 |
|
Non-controlling interest in
subsidiaries |
2,067 |
|
|
3,076 |
|
Total equity |
738,468 |
|
|
854,638 |
|
Total liabilities and equity |
$ |
7,407,110 |
|
|
$ |
7,380,308 |
|
OCWEN
FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CASH FLOWS (Dollars in
thousands)(UNAUDITED) |
|
For the Three Months Ended March
31, |
|
2016 |
|
2015 |
Cash flows from
operating activities |
|
|
|
Net income (loss) |
$ |
(111,201 |
) |
|
$ |
34,389 |
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities: |
|
|
|
Amortization of mortgage servicing
rights |
12,806 |
|
|
38,494 |
|
Loss on valuation of mortgage
servicing rights, at fair value |
29,293 |
|
|
33,175 |
|
Impairment of mortgage servicing
rights |
29,953 |
|
|
17,769 |
|
Gain on sale of mortgage servicing
rights |
(1,175 |
) |
|
(26,406 |
) |
Realized and unrealized losses on
derivative financial instruments |
1,496 |
|
|
1,153 |
|
Provision for bad debts |
11,382 |
|
|
14,170 |
|
Depreciation |
5,039 |
|
|
4,344 |
|
Amortization of debt issuance
costs |
3,277 |
|
|
3,755 |
|
(Gain) loss on sale of fixed
assets |
— |
|
|
— |
|
Increase in deferred tax
assets |
— |
|
|
(890 |
) |
Equity-based compensation
expense |
1,416 |
|
|
2,117 |
|
Gain on loans held for sale,
net |
(15,572 |
) |
|
(44,504 |
) |
Origination and purchase of loans
held for sale |
(1,211,076 |
) |
|
(1,036,150 |
) |
Proceeds from sale and collections
of loans held for sale |
1,165,503 |
|
|
1,142,282 |
|
Changes in assets and
liabilities: |
|
|
|
Decrease in advances and match
funded advances |
109,076 |
|
|
104,258 |
|
Decrease in receivables and other
assets, net |
84,512 |
|
|
1,330 |
|
Increase in other liabilities |
21,473 |
|
|
20,127 |
|
Other, net |
4,686 |
|
|
15,605 |
|
Net cash provided by
operating activities |
140,888 |
|
|
325,018 |
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
Origination of loans held for
investment - reverse mortgages |
(304,058 |
) |
|
(235,271 |
) |
Principal payments received on
loans held for investment - reverse mortgages |
87,237 |
|
|
26,170 |
|
Purchase of mortgage servicing
rights, net |
(4,263 |
) |
|
(3,267 |
) |
Proceeds from sale of mortgage
servicing rights |
15,305 |
|
|
49,465 |
|
Acquisition of advances in
connection with the purchase of mortgage servicing rights |
— |
|
|
— |
|
Acquisition of advances in
connection with the purchase of loans |
— |
|
|
— |
|
Proceeds from sale of advances and
match funded advances |
41,003 |
|
|
1,765 |
|
Additions to premises and
equipment |
(19,800 |
) |
|
(3,918 |
) |
Proceeds from sale of premises and
equipment |
— |
|
|
— |
|
Distributions of capital from
unconsolidated entities |
— |
|
|
— |
|
Other |
1,624 |
|
|
301 |
|
Net cash used in investing
activities |
(182,952 |
) |
|
(164,755 |
) |
|
|
|
|
|
|
|
|
|
OCWEN
FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CASH FLOWS — (continued) (Dollars in
thousands)(UNAUDITED) |
|
For the Three Months Ended March
31, |
|
2016 |
|
2015 |
Cash flows from
financing activities |
|
|
|
Repayment of match funded
liabilities |
(46,953 |
) |
|
(89,571 |
) |
Proceeds from other secured
borrowings |
1,902,472 |
|
|
1,858,258 |
|
Repayments of other secured
borrowings |
(2,014,474 |
) |
|
(2,042,969 |
) |
Payment of debt issuance costs |
(2,242 |
) |
|
(12,643 |
) |
Proceeds from sale of mortgage
servicing rights accounted for as a financing |
|
|
— |
|
Proceeds from sale of loans
accounted for as a financing |
233,174 |
|
|
238,615 |
|
Proceeds from sale of advances
accounted for as a financing |
— |
|
|
472 |
|
Repurchase of common stock |
(5,890 |
) |
|
— |
|
Proceeds from exercise of common
stock options |
406 |
|
|
413 |
|
Other |
(1,188 |
) |
|
21 |
|
Net cash provided by
financing activities |
65,305 |
|
|
(47,404 |
) |
|
|
|
|
Net increase (decrease) in
cash |
23,241 |
|
|
112,859 |
|
Cash at beginning of
year |
257,272 |
|
|
129,473 |
|
Cash at end of period |
$ |
280,513 |
|
|
$ |
242,332 |
|
|
|
|
|
Investors:
Stephen Swett
T: (203) 614-0141
E: shareholderrelations@ocwen.com
Media:
John Lovallo
T: (917) 612-8419
E: jlovallo@levick.com
Dan Rene
T: (202) 973 -1325
E: drene@levick.com
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