OCWEN FINANCIAL CORPORATION - Net income of
$15 million , an improvement of$56 million from Q1’23 - Adjusted pre-tax income of
$23 million , up$17 million over Q1’23 - Total liquidity of
$233 million as ofJune 30, 2023 , an increase of 6% overDecember 31, 2022 - Favorable ruling in legacy
CFPB matter stands; case remains closed
The Company reported GAAP net income of
Messina continued, “We have built a resilient, agile and balanced business that is effectively navigating a dynamic market environment, and we believe we are well-positioned to deliver shareholder value.”
Additional Second Quarter 2023 Operating and Business Highlights
- Generated
$15 million pre-tax gain on opportunistic reverse asset transaction - Book value per share of
$57 as ofJune 30, 2023 - Increased mix of higher margin products to 42% of owned MSR originations compared to 31% in Q1’23
- Total servicing UPB of
$289 billion and total subservicing UPB of$158 billion , down 3% and 2%, respectively, compared to Q1’23 - Year to date,
MSR Asset Vehicle LLC (“MAV”) has purchased or scheduled to close MSRs totaling$9 billion UPB net of sales - Total subservicing UPB of
$118 billion added in last 24 months;$15-$25 billion UPB in subservicing additions targeted in Q2’23 through Q1’24
Webcast and Conference Call
Ocwen will hold a conference call on
About
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 are typically identified by words such as “expect”, “believe”, “foresee”, “anticipate”, “intend”, “estimate”, “goal”, “strategy”, “plan” “target” and “project” or conditional verbs such as “will”, “may”, “should”, “could” or “would” or the negative of these terms, although not all forward-looking statements contain these words, and includes statements in this press release regarding our growth opportunities. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. 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 impact of recent failures and re-organizations of banking institutions and continued uncertainty in the banking industry; the potential for ongoing disruption in the financial markets and in commercial activity generally as a result of international events, changes in monetary and fiscal policy, and other sources of instability; the impacts of inflation, employment disruption, and other financial difficulties facing our borrowers; our ability to timely reduce operating costs, or generate offsetting revenue, in proportion to the recent industry-wide decrease in originations activity; the impact of cost-reduction initiatives on our business and operations; the extent to which MAV, other transactions and our enterprise sales initiatives will generate additional subservicing volume, increase market share within the subservicing market, and result in increased profitability; the timing and amount of presently anticipated forward and reverse loan boarding; our ability to close acquisitions of MSRs and other transactions, including the ability to obtain regulatory approvals; our ability to continue to grow our reverse servicing business; our ability to retain clients and employees of acquired businesses, and the extent to which acquisitions and our other strategic initiatives will contribute to achieving our growth objectives; the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover servicing advances, forward and reverse whole loans, and HECM and forward loan buyouts and put backs, as well as repay, renew and extend borrowings, borrow additional amounts as and when required, meet our MSR or other asset investment objectives and comply with our debt agreements, including the financial and other covenants contained in them; increased servicing costs based on increased borrower delinquency levels or other factors; the future of our long-term relationship with Rithm Capital Corp. (Rithm); MAV’s continued ownership of its MSR portfolio following the end of MAV’s investment commitment period, and any impact on our subservicing income as a result of the sale of MAV’s MSRs; uncertainty related to past, present or future claims, litigation, cease and desist orders and investigations regarding our servicing, foreclosure, modification, origination and other practices brought by government agencies and private parties, including state regulators, the
Note Regarding Non-GAAP Financial Measures
This press release contains references to adjusted pre-tax income (loss), a non-GAAP financial measure.
We believe this non-GAAP financial measure provides a useful supplement to discussions and analysis of our financial condition, because it is a measure that management uses to assess the financial performance of our operations and allocate resources. In addition, management believes that this presentation may assist investors with understanding and evaluating our initiatives to drive improved financial performance. Management believes, specifically, that the removal of fair value changes of our net MSR exposure due to changes in market interest rates and assumptions provides a useful, supplemental financial measure as it enables an assessment of our ability to generate earnings regardless of market conditions and the trends in our underlying businesses by removing the impact of fair value changes due to market interest rates and assumptions, which can vary significantly between periods. However, this measure should not be analyzed in isolation or as a substitute to analysis of our GAAP pre-tax income (loss) nor a substitute for cash flows from operations. There are certain limitations to the analytical usefulness of the adjustments we make to GAAP pre-tax income (loss) and, accordingly, we use these adjustments only for purposes of supplemental analysis. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Ocwen’s reported results under accounting principles generally accepted in
Notables
Beginning with the three months ended
In the table below, we adjust GAAP pre-tax income (loss) for the following factors: MSR valuation adjustments, expense notables, and other income statement notables. MSR valuation adjustments are comprised of changes to Forward MSR and Reverse mortgage valuations due to rates and assumption changes. Expense notables include significant legal and regulatory settlement expenses, expense recoveries, severance and retention costs, LTIP stock price changes, consolidation of office facilities and other expenses (such as costs associated with strategic transactions). Other income statement notables include non-routine transactions that are not categorized in the above.
For Q2’23, Expense Notables and Income Statement Notables, previously presented in separate tables, are presented in a single table for ease of reading; there were no changes to the categories or calculation of Notables presented.
| (Dollars in millions) | Q2'22 | Q1’23 | Q2’23 | |||||||||||
| I | Reported Net Income (Loss) | 10 | (40 | ) | 15 | |||||||||
| Income Tax Benefit (Expense) | 1 | (2 | ) | (1 | ) | |||||||||
| II | Reported Pre-Tax Income (Loss) | 9 | (38 | ) | 16 | |||||||||
| Forward MSR Valuation Adjustments due to rates and assumption changes, net(a)(b)(c) | 70 | (46 | ) | (23 | ) | |||||||||
| Reverse Mortgage Fair Value Change due to rates and assumption changes (b)(d) | (25 | ) | 7 | (10 | ) | |||||||||
| III | Total MSR Valuation Adjustments due to rates and assumption changes, net | 46 | (39 | ) | (33 | ) | ||||||||
| Significant legal and regulatory settlement expenses | 6 | (2 | ) | 28 | ||||||||||
| Expense recoveries | 0 | 0 | - | |||||||||||
| Severance and retention (e) | (5 | ) | (4 | ) | (1 | ) | ||||||||
| LTIP stock price changes (f) | (0 | ) | 2 | (1 | ) | |||||||||
| Office facilities consolidation | - | (0 | ) | 0 | ||||||||||
| Other expense notables (g) | 0 | 0 | 0 | |||||||||||
| A | Total Expense Notables | 1 | (4 | ) | 28 | |||||||||
| B | Other Income Statement Notables (h) | 1 | (1 | ) | (1 | ) | ||||||||
| IV | Total Other Notables [A + B] | 2 | (5 | ) | 27 | |||||||||
| V | Total Notables (i) [III + IV] | 47 | (44 | ) | (6 | ) | ||||||||
| VI | Adjusted Pre-tax Income (Loss) [II – V] | (38 | ) | 6 | 23 | |||||||||
(a) MSR Valuation Adjustments that are due to changes in market interest rates, valuation inputs or other assumptions, net of overall fair value gains / (losses) on MSR hedge, including FV changes of Pledged MSR liabilities associated with MSR transferred to Rithm Capital Corp and MAV that are due to changes in market interest rates, valuation inputs or other assumptions, a component of MSR valuation adjustment, net, the adjustment does not include valuation gains on MSR purchases of
(b) The changes in fair value due to market interest rates were measured by isolating the impact of market interest rate changes on the valuation model output as provided by our third-party valuation expert
(c) Beginning with the three months ended
(d) FV changes of loans held for investment and home equity conversion mortgage-backed securities (HMBS) related borrowings due to market interest rates and assumptions, a component of gain on reverse loans held for investment and HMBS-related borrowings, net
(e) Severance and retention due to organizational rightsizing or reorganization
(f) Long-term incentive program (LTIP) compensation expense changes attributable to stock price changes during the period
(g) Includes costs associated with strategic transactions including transaction costs related to the reverse subservicing acquisition from MAM(RMS), rebranding, and MAV upsize
(h) Includes non-routine transactions
(i) Certain previously presented notable categories with nil numbers for each quarter shown have been omitted; prior periods have been adjusted to conform with current period information
Condensed Consolidated Balance Sheet
| Assets ($ in millions) | 2022 | 2023 | 2023 | ||
| Cash and cash equivalents | 256 | 217 | 213 | ||
| Restricted Cash | 67 | 39 | 119 | ||
| Mortgage servicing rights, at fair value | 2,486 | 2,581 | 2,676 | ||
| Advances, net | 647 | 657 | 603 | ||
| Loans held for sale | 687 | 849 | 1,357 | ||
| Loans held for investment, at fair value | 7,384 | 7,669 | 7,681 | ||
| Accounts receivable, net | 178 | 200 | 189 | ||
| Investment in equity method investee | 39 | 37 | 35 | ||
| Premises and equipment, net | 19 | 19 | 17 | ||
| Other Assets | 344 | 359 | 328 | ||
| Total Assets | 12,108 | 12,627 | 13,216 |
| Liabilities & Stockholders’ Equity ($ in millions) | 2022 | 2023 | 2023 | ||
| HMBS Related Borrowings, at fair value | 7,155 | 7,471 | 7,486 | ||
| Other Financing Liabilities, at fair value | 914 | 1,153 | 1,274 | ||
| Advance match funded liabilities | 477 | 470 | 430 | ||
| Mortgage loan financing facilities | 779 | 948 | 1,515 | ||
| MSR Financings, net | 988 | 915 | 865 | ||
| Senior notes, net | 595 | 602 | 605 | ||
| Other Liabilities | 656 | 653 | 607 | ||
| Total Liabilities | 11,564 | 12,211 | 12,782 | ||
| Total Stockholders’ Equity | 544 | 416 | 434 | ||
| Total Liabilities and Stockholders’ Equity | 12,108 | 12,627 | 13,216 |
Condensed Consolidated Statement of Operations
| ($ in millions) | 2022 | 2023 | 2023 | |||||||||
| Revenue | ||||||||||||
| Servicing and subservicing fees | 215 | 232 | 238 | |||||||||
| Gain on reverse loans held for investment and HMBS-related borrowings, net | (3 | ) | 21 | 1 | ||||||||
Gain on loans held for sale, net | 1 | 3 | 25 | |||||||||
Other Revenue, net | 9 | 6 | 8 | |||||||||
| Total Revenue | 222 | 262 | 272 | |||||||||
| MSR Valuation Adjustments, net | 22 | (69 | ) | (49 | ) | |||||||
| Operating Expenses | ||||||||||||
| Compensation and benefits | 84 | 58 | 58 | |||||||||
| Servicing and origination | 19 | 16 | 18 | |||||||||
| Technology and communication | 15 | 13 | 13 | |||||||||
| Professional services | 9 | 13 | (17 | ) | ||||||||
| Occupancy and equipment | 10 | 9 | 8 | |||||||||
| Other expenses | 8 | 5 | 5 | |||||||||
| Total Operating Expenses | 144 | 114 | 84 | |||||||||
| Other Income (Expense) | ||||||||||||
| Interest income | 10 | 14 | 20 | |||||||||
| Interest expense | (38 | ) | (62 | ) | (68 | ) | ||||||
| Pledged MSR liability expense | (63 | ) | (70 | ) | (73 | ) | ||||||
| Earnings of equity method investee | 4 | 0 | 3 | |||||||||
| Other, net | (3 | ) | 1 | (4 | ) | |||||||
| Total Other Income (Expense), net | (90 | ) | (117 | ) | (123 | ) | ||||||
| Income (loss) before income taxes | 9 | (38 | ) | 16 | ||||||||
| Income tax expense (benefit) | (1 | ) | 2 | 1 | ||||||||
| Net Income (loss) | 10 | (40 | ) | 15 | ||||||||
| Basic EPS | $ | 1.12 | ($ | 5.34 | ) | $ | 2.02 | |||||
| Diluted EPS | $ | 1.11 | ($ | 5.34 | ) | $ | 1.95 | |||||
For Further Information Contact:
(856) 917-0066
mediarelations@ocwen.com
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