Ocwen Financial Corporation, (NYSE:OCN)
(“Ocwen” or the “Company”), a leading financial
services holding company, today reported GAAP net income of $9.5
million, or $0.08 per share, for the three months ended September
30, 2016.
Third Quarter 2016 Results
Pre-tax income for the third quarter of 2016 was
$2.4 million, a $98.8 million improvement from the second quarter
of 2016. Pre-tax results for the quarter include a number of
significant items, including but not limited to: $12.0 million of
gains from the execution of servicer “clean up” call rights, $5.7
million from the sale of agency mortgage servicing rights (“MSRs”)
on approximately $3.3 billion of unpaid principal balance (“UPB”),
$(15.1) million of third-party monitor costs, $(10.0) million of
additional reserves for the potential California regulatory
settlement and $(7.0) million of incremental reserves for the
previously disclosed letter dating remediation based on final
submitted claims. For the quarter, the Company generated cash from
operating activities of $178 million, an increase of $147 million
versus the prior quarter. The Company ended the quarter with $264
million in cash, up $44.6 million from June 30, 2016. As of
September 30, 2016, the Company had not yet paid various settlement
amounts, including but not limited to the $30 million Fisher
settlements announced in June and the $22 million letter dating
remediation.
The Servicing segment recorded $33.2 million of
pre-tax income on strong performance under the Making Home
Affordable streamline modification program, significant operating
cost improvements, gains from the execution of servicer “clean up”
call rights and MSR sales and continued reductions in advances and
match funded advances. This quarterly profit for the Servicing
segment represents a $47.9 million improvement versus the second
quarter of 2016.
The Lending segment recorded $3.6 million of
pre-tax income for the third quarter of 2016, a $3.9 million
decline versus the prior quarter on lower gain on sale margins.
Quarterly mortgage lending volume grew 8% over the prior
quarter.
The Automotive Capital Services business
continued to grow, increasing inventory finance receivables
outstanding by $11 million or 66%. As of October 24, our auto
inventory finance business is now operating in 32 markets with 57
active auto dealerships and has approved credit facilities of $67
million.
“We are very pleased with the financial result
this quarter, recording our first quarterly profit since the second
quarter of 2015. We saw terrific execution from our Servicing team,
which completed more than 21,000 modifications in the quarter,
successfully delivered $12.0 million of gains on servicer “clean
up” call rights transactions and continued to reduce operating
costs. Additionally, our Automotive Capital Services business
continues to grow and move closer to profitability. Our mortgage
lending business saw growth in origination volume, but we must
improve margins,” commented Ron Faris, President and CEO.
Phyllis Caldwell, who assumed the role of
independent Chairwoman of the Board of Directors of Ocwen on March
15, 2016, added, “We remain focused on putting legacy matters
behind us. We received the much awaited Standard & Poor's
upgrade to our servicer ranking in August. We continue to progress
towards a potential resolution with the California Department of
Business Oversight to end the current consent order and associated
third party auditor before year-end. We are also continuing
to achieve benchmarks and meet necessary conditions that we believe
will result in the other remaining third-party monitorships
concluding at their scheduled end dates."
Ms. Caldwell continued, "I am also proud to say
that despite some of the challenges of the past, we have continued
to invest in our corporate culture, risk management, compliance,
service excellence, and technology. We have maintained our
leadership in helping families struggling with their mortgage
payments as evidenced by our number one status in the HAMP program.
We are also making progress in building our new asset generation
businesses. Most importantly, the entire Ocwen team is devoted to
working in the best interest of homeowners and investors to deliver
positive outcomes.”
Additional Q3 2016 Business
Highlights
- Completed 21,070 modifications in the quarter, 63% of which
were HAMP modifications. 38% of modifications included some form of
principal reduction.
- Delinquencies decreased from 11.9% at June 30, 2016 to 11.4% at
September 30, 2016, primarily driven by higher collections and
loss mitigation efforts.
- In the third quarter of 2016, Ocwen originated forward and
reverse mortgage loans with unpaid principal balance of $1.2
billion and $213.0 million, respectively.
- Our reverse mortgage portfolio ended the quarter with an
estimated $97.5 million in undiscounted future gains from future
draws on existing loans. Neither the anticipated future gains nor
the future funding liability are included in the Company’s
financial statements.
- Reduced CFPB consumer complaints by 28%, the largest reduction
of any major mortgage company, for the three month period from May
to July of 2015 to the same three month period of 2016.
- Conducted successful community outreach programs with NID
Housing Counseling and NAACP in Sacramento and San Bernardino,
California and Des Moines, Washington.
- The constant pre-payment rate (CPR) increased from 14.2% in the
second quarter of 2016 to 15.0% in the third quarter of 2016.
In the third quarter of 2016, prime CPR was 19.7%, and non-prime
CPR was 12.0%.
Webcast and Conference Call
Ocwen will host a webcast and conference call on
Wednesday, October 26, 2016, at 5 p.m., Eastern Time, to discuss
its financial results for the third 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).
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 covenants, 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 Securities and Exchange Commission
(SEC), including its annual report on Form 10-K for the year ended
December 31, 2015 and its current and quarterly reports since such
date. 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 |
|
|
September 30,
2016 |
|
|
June 30,
2016 |
|
|
March 31,
2016 |
|
|
December 31,
2015 |
|
|
September 30,
2015 |
|
Total unpaid principal
balance of loans and REO serviced |
$ |
216,892,002 |
|
$ |
229,276,001 |
|
$ |
237,081,036 |
|
$ |
250,966,112 |
|
$ |
288,069,149 |
|
|
|
|
|
|
|
Non-performing loans and
REO serviced as a % of total UPB (1) |
11.4 |
% |
11.9 |
% |
13.0 |
% |
13.7 |
% |
13.1 |
% |
|
|
|
|
|
|
Prepayment speed (average
CPR)(2) (3) |
15.0 |
% |
14.2 |
% |
12.7 |
% |
13.3 |
% |
14.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
(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)
Average CPR 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 September 30, 2016
includes 19.7% for prime loans and 12.0% for non-prime loans. |
|
Segment Results
(Unaudited) |
|
|
|
|
|
|
|
|
(Dollars in
thousands) |
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended September 30, |
|
For the
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Servicing |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
319,080 |
|
|
$ |
374,936 |
|
|
$ |
951,727 |
|
|
$ |
1,269,269 |
|
Expenses |
|
204,434 |
|
|
318,439 |
|
|
741,706 |
|
|
940,764 |
|
Other expense, net |
|
(81,475 |
) |
|
(69,239 |
) |
|
(259,815 |
) |
|
(249,947 |
) |
Income (loss) before income
taxes |
|
33,171 |
|
|
(12,742 |
) |
|
(49,794 |
) |
|
78,558 |
|
|
|
|
|
|
|
|
|
|
Lending |
|
|
|
|
|
|
|
|
Revenue |
|
30,696 |
|
|
29,662 |
|
|
89,255 |
|
|
106,721 |
|
Expenses |
|
27,735 |
|
|
23,126 |
|
|
78,091 |
|
|
73,497 |
|
Other income, net |
|
628 |
|
|
2,052 |
|
|
1,958 |
|
|
5,793 |
|
Income before income taxes |
|
3,589 |
|
|
8,588 |
|
|
13,122 |
|
|
39,017 |
|
|
|
|
|
|
|
|
|
|
Corporate Items and Other |
|
|
|
|
|
|
|
|
Revenue |
|
9,672 |
|
|
348 |
|
|
22,277 |
|
|
2,709 |
|
Expenses |
|
39,509 |
|
|
46,161 |
|
|
165,556 |
|
|
104,133 |
|
Other expense, net |
|
(4,559 |
) |
|
(5,951 |
) |
|
(16,208 |
) |
|
(16,740 |
) |
Loss before income taxes |
|
(34,396 |
) |
|
(51,764 |
) |
|
(159,487 |
) |
|
(118,164 |
) |
|
|
|
|
|
|
|
|
|
Corporate Eliminations |
|
|
|
|
|
|
|
|
Revenue |
|
— |
|
|
— |
|
|
— |
|
|
(58 |
) |
Expenses |
|
— |
|
|
— |
|
|
— |
|
|
(58 |
) |
Other income (expense), net |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Income (loss) before income
taxes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) before income taxes |
|
$ |
2,364 |
|
|
$ |
(55,918 |
) |
|
$ |
(196,159 |
) |
|
$ |
(589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCWEN FINANCIAL
CORPORATION AND SUBSIDIARIES |
CONSOLIDATED
STATEMENTS OF OPERATIONS |
(Dollars in
thousands, except per share data) |
(UNAUDITED) |
|
|
|
For the
Three Months Ended September 30, |
|
For the
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Revenue |
|
|
|
|
|
|
|
|
Servicing and subservicing
fees |
|
$ |
302,235 |
|
|
$ |
360,017 |
|
|
$ |
906,993 |
|
|
$ |
1,203,541 |
|
Gain on loans held for sale,
net |
|
25,645 |
|
|
27,298 |
|
|
69,074 |
|
|
116,934 |
|
Other revenues |
|
31,568 |
|
|
17,631 |
|
|
87,192 |
|
|
58,166 |
|
Total revenue |
|
359,448 |
|
|
404,946 |
|
|
1,063,259 |
|
|
1,378,641 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
92,942 |
|
|
102,612 |
|
|
287,613 |
|
|
313,599 |
|
Amortization of mortgage servicing
rights |
|
(2,558 |
) |
|
18,108 |
|
|
18,595 |
|
|
88,188 |
|
Servicing and origination |
|
63,551 |
|
|
101,545 |
|
|
249,230 |
|
|
255,905 |
|
Technology and communications |
|
25,941 |
|
|
37,182 |
|
|
85,519 |
|
|
117,793 |
|
Professional services |
|
65,489 |
|
|
62,428 |
|
|
257,795 |
|
|
191,728 |
|
Occupancy and equipment |
|
16,760 |
|
|
31,043 |
|
|
62,213 |
|
|
85,530 |
|
Other |
|
9,553 |
|
|
34,808 |
|
|
24,388 |
|
|
65,593 |
|
Total expenses |
|
271,678 |
|
|
387,726 |
|
|
985,353 |
|
|
1,118,336 |
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
|
|
|
|
|
|
Interest income |
|
5,158 |
|
|
5,693 |
|
|
14,488 |
|
|
16,306 |
|
Interest expense |
|
(110,961 |
) |
|
(118,313 |
) |
|
(308,083 |
) |
|
(362,606 |
) |
Gain on sale of mortgage servicing
rights, net |
|
5,661 |
|
|
41,246 |
|
|
7,689 |
|
|
97,958 |
|
Other, net |
|
14,736 |
|
|
(1,764 |
) |
|
11,841 |
|
|
(12,552 |
) |
Total other expense, net |
|
(85,406 |
) |
|
(73,138 |
) |
|
(274,065 |
) |
|
(260,894 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
2,364 |
|
|
(55,918 |
) |
|
(196,159 |
) |
|
(589 |
) |
Income tax expense
(benefit) |
|
(7,110 |
) |
|
10,832 |
|
|
(7,214 |
) |
|
21,866 |
|
Net income
(loss) |
|
9,474 |
|
|
(66,750 |
) |
|
(188,945 |
) |
|
(22,455 |
) |
Net income attributable
to non-controlling interests |
|
(83 |
) |
|
(119 |
) |
|
(373 |
) |
|
(321 |
) |
Net income (loss)
attributable to Ocwen stockholders |
|
$ |
9,391 |
|
|
$ |
(66,869 |
) |
|
$ |
(189,318 |
) |
|
$ |
(22,776 |
) |
|
|
|
|
|
|
|
|
|
Income (loss)
per share attributable to Ocwen stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.08 |
|
|
$ |
(0.53 |
) |
|
$ |
(1.53 |
) |
|
$ |
(0.18 |
) |
Diluted |
|
0.08 |
|
|
(0.53 |
) |
|
(1.53 |
) |
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
123,986,987 |
|
|
125,383,639 |
|
|
123,991,343 |
|
|
125,322,742 |
|
Diluted |
|
124,134,507 |
|
|
125,383,639 |
|
|
123,991,343 |
|
|
125,322,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCWEN FINANCIAL
CORPORATION AND SUBSIDIARIES |
CONSOLIDATED
BALANCE SHEETS |
(Dollars in
thousands, except share data) |
(UNAUDITED) |
|
September
30, 2016 |
|
December
31, 2015 |
Assets |
|
|
|
Cash |
$ |
263,534 |
|
|
$ |
257,272 |
|
Mortgage servicing rights ($696,108
and $761,190 carried at fair value) |
1,036,669 |
|
|
1,138,569 |
|
Advances, net |
289,014 |
|
|
444,298 |
|
Match funded advances |
1,534,322 |
|
|
1,706,768 |
|
Loans held for sale ($302,114 and
$309,054 carried at fair value) |
339,765 |
|
|
414,046 |
|
Loans held for investment - Reverse
mortgages, at fair value |
3,339,641 |
|
|
2,488,253 |
|
Receivables, net |
279,883 |
|
|
286,981 |
|
Premises and equipment, net |
62,701 |
|
|
57,626 |
|
Other assets ($20,660 and $14,352
carried at fair value) |
439,921 |
|
|
586,495 |
|
Total assets |
$ |
7,585,450 |
|
|
$ |
7,380,308 |
|
|
|
|
|
Liabilities and
Equity |
|
|
|
Liabilities |
|
|
|
Match funded liabilities |
$ |
1,365,532 |
|
|
$ |
1,584,049 |
|
Financing liabilities ($3,719,142
and $2,933,066 carried at fair value) |
3,828,019 |
|
|
3,089,255 |
|
Other secured borrowings, net |
663,170 |
|
|
762,411 |
|
Senior unsecured notes, net |
346,511 |
|
|
345,511 |
|
Other liabilities |
718,831 |
|
|
744,444 |
|
Total liabilities |
6,922,063 |
|
|
6,525,670 |
|
|
|
|
|
Equity |
|
|
|
Ocwen Financial Corporation (Ocwen)
stockholders’ equity |
|
|
|
Common stock, $.01 par value;
200,000,000 shares authorized; 123,989,954 and 124,774,516 shares
issued and outstanding at September 30, 2016 and December 31, 2015,
respectively |
1,240 |
|
|
1,248 |
|
Additional paid-in capital |
524,725 |
|
|
526,148 |
|
Retained earnings |
136,611 |
|
|
325,929 |
|
Accumulated other comprehensive
loss, net of income taxes |
(1,500 |
) |
|
(1,763 |
) |
Total Ocwen stockholders’
equity |
661,076 |
|
|
851,562 |
|
Non-controlling interest in
subsidiaries |
2,311 |
|
|
3,076 |
|
Total equity |
663,387 |
|
|
854,638 |
|
Total liabilities and equity |
$ |
7,585,450 |
|
|
$ |
7,380,308 |
|
|
|
|
|
|
|
|
|
OCWEN FINANCIAL
CORPORATION AND SUBSIDIARIES |
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(Dollars in
thousands) |
(UNAUDITED) |
|
|
|
For the
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
Cash flows from
operating activities |
|
|
|
|
Net loss |
|
$ |
(188,945 |
) |
|
$ |
(22,455 |
) |
Adjustments to reconcile net loss
to net cash provided by operating activities: |
|
|
|
|
Amortization of mortgage servicing
rights |
|
18,595 |
|
|
88,188 |
|
Loss on valuation of mortgage
servicing rights, at fair value |
|
63,609 |
|
|
73,257 |
|
Impairment of mortgage servicing
rights |
|
37,164 |
|
|
25,052 |
|
Gain on sale of mortgage servicing
rights |
|
(7,689 |
) |
|
(97,958 |
) |
Realized and unrealized losses on
derivative financial instruments |
|
2,213 |
|
|
8,529 |
|
Provision for bad debts |
|
61,191 |
|
|
25,272 |
|
Depreciation |
|
18,277 |
|
|
13,467 |
|
Amortization of debt issuance
costs |
|
10,475 |
|
|
10,385 |
|
Gain on sale of fixed assets |
|
— |
|
|
(1,095 |
) |
Increase in deferred tax
assets |
|
— |
|
|
5,700 |
|
Equity-based compensation
expense |
|
4,000 |
|
|
5,130 |
|
Gain on loans held for sale,
net |
|
(69,074 |
) |
|
(116,934 |
) |
Origination and purchase of loans
held for sale |
|
(4,575,264 |
) |
|
(3,713,311 |
) |
Proceeds from sale and collections
of loans held for sale |
|
4,493,887 |
|
|
3,935,420 |
|
Changes in assets and
liabilities: |
|
|
|
|
Decrease in advances and match
funded advances |
|
343,129 |
|
|
491,654 |
|
Decrease (increase) in receivables
and other assets, net |
|
122,305 |
|
|
(1,899 |
) |
Increase in other liabilities |
|
4,745 |
|
|
30,726 |
|
Other, net |
|
11,802 |
|
|
14,866 |
|
Net cash provided by operating
activities |
|
350,420 |
|
|
773,994 |
|
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
Origination of loans held for
investment – reverse mortgages |
|
(1,185,565 |
) |
|
(781,002 |
) |
Principal payments received on
loans held for investment - reverse mortgages |
|
528,263 |
|
|
105,520 |
|
Purchase of mortgage servicing
rights, net |
|
(15,969 |
) |
|
(10,055 |
) |
Proceeds from sale of mortgage
servicing rights |
|
45,254 |
|
|
598,059 |
|
Proceeds from sale of advances and
match funded advances |
|
74,982 |
|
|
285,938 |
|
Additions to premises and
equipment |
|
(28,649 |
) |
|
(18,335 |
) |
Proceeds from sale of premises and
equipment |
|
— |
|
|
4,758 |
|
Other |
|
9,483 |
|
|
4,082 |
|
Net cash provided by (used in)
investing activities |
|
(572,201 |
) |
|
188,965 |
|
|
|
|
|
|
OCWEN
FINANCIAL CORPORATION AND SUBSIDIARIES |
CONSOLIDATED
STATEMENTS OF CASH FLOWS — (continued) |
(Dollars in
thousands) |
(UNAUDITED) |
|
|
|
For the
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
Cash flows from
financing activities |
|
|
|
|
Repayment of match funded
liabilities |
|
(218,517 |
) |
|
(500,401 |
) |
Proceeds from other secured
borrowings |
|
6,632,059 |
|
|
5,647,016 |
|
Repayments of other secured
borrowings |
|
(6,996,715 |
) |
|
(6,572,601 |
) |
Payment of debt issuance costs |
|
(2,242 |
) |
|
(18,610 |
) |
Proceeds from sale of loans
accounted for as a financing |
|
820,438 |
|
|
803,924 |
|
Repurchase of common stock |
|
(5,890 |
) |
|
— |
|
Proceeds from exercise of common
stock options |
|
406 |
|
|
413 |
|
Other |
|
(1,496 |
) |
|
6,501 |
|
Net cash provided by (used in)
financing activities |
|
228,043 |
|
|
(633,758 |
) |
|
|
|
|
|
Net increase in
cash |
|
6,262 |
|
|
329,201 |
|
Cash at beginning of
year |
|
257,272 |
|
|
129,473 |
|
Cash at end of
period |
|
$ |
263,534 |
|
|
$ |
458,674 |
|
|
|
|
|
|
FOR FURTHER INFORMATION CONTACT:
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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