Ocwen Financial Corporation
Feb 22, 2017

Ocwen Financial Announces Operating Results for Fourth Quarter and Full Year 2016

WEST PALM BEACH, Fla., Feb. 22, 2017 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation, (NYSE:OCN) ("Ocwen" or the "Company"), a leading financial services holding company, today reported a net loss of $(10.4) million, or $(0.08) per share, for the three months ended December 31, 2016 compared to a net loss of $(224.3) million, or $(1.79) per share, for the three months ended December 31, 2015.  Ocwen generated revenue of $323.9 million, down 10.6% compared to the fourth quarter of the prior year, primarily driven by the impact of portfolio run-off.  Cash Flows from Operating Activities were $124.2 million for the three months ended December 31, 2016, compared to  $(192.4) million during the same period last year.

The full year net loss for 2016 was $(199.4) million, or $(1.61) per share, as compared to a loss of $(246.7) million, or $(1.97) per share for 2015.  Revenue for 2016 was $1.4 billion, a decline of $354 million, or 20.3%.  The Company generated $475 million of Cash Flows from Operating Activities in 2016 and ended the year with $257 million of cash.  At December 31, 2016, the Company had not yet paid various potential legal and regulatory settlement amounts expensed in 2016 totaling approximately $68 million.

"We are pleased with the progress the Company made in the second half of the year.  Not only did we deliver significantly improved financial performance versus the first half of the year, we continued our industry leadership in helping struggling families remain in their homes through responsible loan modifications.  We also refinanced our corporate debt, improved our cost structure and raised our servicer ratings and rankings.  In addition, we continued to make progress towards resolving our major legacy legal and regulatory issues; but more progress is needed for us to complete our stabilization process," commented Ron Faris, President and CEO of Ocwen.

Fourth Quarter and Full Year 2016 Results

Pre-tax loss for the fourth quarter of 2016 was $(10.2) million. Pre-tax results for the quarter were impacted by a number of significant items including but not limited to: $31.6 million of benefit from fair value changes related to GNMA and GSE MSRs (excluding runoff), $(16.3) million of corporate debt refinance-related expenses, $(12.5) million in potential regulatory settlement-related reserves, $(8.5) million of regulatory monitor costs and $0.6 million of other items.  Excluding these significant items, the Company had an adjusted pre-tax loss of $(5.1) million.    

The Servicing segment recorded $43.3 million of pre-tax income, inclusive of the MSR fair value changes, which was favorable compared to the prior quarter by $10.1 million.  For the full year 2016, the Servicing business recorded a $(6.5) million pre-tax loss, a decrease of only $22.4 million over 2015 as the business was successful in offsetting most of the impact of lower revenue from UPB run-off and $(75.4) million lower agency MSR sales-related gains versus 2015 by improving its cost structure in 2016 and successfully executing on the streamline HAMP modification program.

The Lending segment incurred a $(3.1) million pre-tax loss for the fourth quarter of 2016, $(6.7) million unfavorable to the prior quarter, driven by a 10% decline in volumes and lower margins.  For the full year 2016, the Lending business earned $10 million of pre-tax income, a decrease of $24 million versus 2015 driven by lower margins due to significantly lower HARP opportunities and increased expenses from investments in the business.

The Automotive Capital Services business continued to grow, increasing inventory finance gross receivables outstanding by $12 million or 45% over the third quarter of 2016.  Overall, the business increased the receivables outstanding at year-end by $37 million or 14x in 2016.  As of February 17, 2017, the business is operating in 35 markets with 68 active auto dealerships and has approved credit facilities of $91 million with these dealerships.

Additional Business Highlights

Webcast and Conference Call

Ocwen will host a webcast and conference call on Wednesday, February 22, 2017, at 5 p.m., Eastern Time, to discuss its financial results for the fourth quarter of 2016.  The conference call will be webcast live over the internet from the Company's website at www.Ocwen.com.  To access the call, 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 as well as 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 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; claims, litigation and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification and other practices, including uncertainty related to the 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 on under the False Claims Act by private parties on behalf of the United States of America regarding incentive and other payments made by government 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 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, 2016.  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.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures, such as our reference to adjusted pre-tax loss. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition. We believe these non-GAAP financial measures provide an alternative way to view certain aspects of our business that is instructive. 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 the United States. Other companies may use non-GAAP financial measures with the same or similar titles that are calculated differently to our non-GAAP financial measures. As a result, comparability may be limited. Further information may be found on Ocwen's website.

 
Residential Servicing Statistics (Unaudited)
(Dollars in thousands)
 At or for the Three Months Ended
 December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Total unpaid principal balance of loans and REO serviced$209,092,130 $216,892,002 $229,276,001 $237,081,036 $250,966,112 
      
Non-performing loans and REO serviced as a % of total UPB (1)11.2%11.4%11.9%13.0% 13.7%
      
Prepayment speed (average CPR) (2), (3)15.1%15.0%14.2%12.7% 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) 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 December 31, 2016 includes 19.9% for prime loans and 12.1% for non-prime loans.

        
Segment Results (Unaudited)
(Dollars in thousands)
       
 For the Three Months Ended
December 31,
 For the Twelve Months Ended
December 31,
 2016 2015 2016 2015
Servicing       
Revenue$295,432  $344,268  $1,247,159  $1,613,537 
Expenses178,728  281,108  920,434  1,221,879 
Other expense, net(73,403) (125,785) (333,218) (375,782)
Income (loss) before income taxes43,301  (62,625) (6,493) 15,876 
        
Lending       
Revenue23,108  18,003  112,363  124,724 
Expenses26,251  24,202  104,342  97,692 
Other income, net9  1,090  1,967  6,933 
Income (loss) before income taxes(3,134) (5,109) 9,988  33,965 
        
Corporate Items and Other       
Revenue5,369  186  27,646  2,895 
Expenses32,927  54,538  198,483  158,671 
Other expense, net(22,811) (7,186) (39,019) (23,926)
Loss before income taxes(50,369) (61,538) (209,856) (179,702)
        
Corporate Eliminations       
Revenue(5)   (5) (58)
Expenses(5)   (5) (58)
Other income (expense), net       
Income (loss) before income taxes       
        
Consolidated loss before income taxes$(10,202) $(129,272) $(206,361) $(129,861)
                


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(UNAUDITED)
 
 For the Three Months Ended
December 31,
 For the Twelve Months Ended
December 31,
 2016 2015 2016 2015
Revenue       
Servicing and subservicing fees$279,627  $328,256  $1,186,620  $1,531,797 
Gain on loans held for sale, net21,317  18,035  90,391  134,969 
Other revenues22,960  16,166  110,152  74,332 
Total revenue323,904  362,457  1,387,163  1,741,098 
        
Expenses       
Compensation and benefits93,727  101,456  381,340  415,055 
Amortization of mortgage servicing rights14,383  11,006  32,978  99,194 
Servicing and origination30,571  88,655  279,801  344,560 
Technology and communications24,814  36,965  110,333  154,758 
Professional services47,791  84,665  305,586  276,393 
Occupancy and equipment17,978  27,334  80,191  112,864 
Other8,637  9,767  33,025  75,360 
Total expenses237,901  359,848  1,223,254  1,478,184 
        
Other income (expense)       
Interest income4,595  2,014  19,083  18,320 
Interest expense(104,500) (119,767) (412,583) (482,373)
Gain on sale of mortgage servicing rights, net803  (14,037) 8,492  83,921 
Other, net2,897  (91) 14,738  (12,643)
Total other expense, net(96,205) (131,881) (370,270) (392,775)
        
Loss before income taxes(10,202) (129,272) (206,361) (129,861)
Income tax expense (benefit)228  94,985  (6,986) 116,851 
Net loss(10,430) (224,257) (199,375) (246,712)
Net income (loss) attributable to non-controlling interests(14) 16  (387) (305)
Net loss attributable to Ocwen stockholders(10,444) (224,241) (199,762) (247,017)
Preferred stock dividends       
Deemed dividends related to beneficial conversion feature of preferred stock       
Net loss attributable to Ocwen common stockholders$(10,444) $(224,241) $(199,762) $(247,017)
        
Loss per share attributable to Ocwen common stockholders       
Basic$(0.08) $(1.79) $(1.61) $(1.97)
Diluted$(0.08) $(1.79) $(1.61) $(1.97)
        
Weighted average common shares outstanding       
Basic123,988,784  125,295,594  123,990,700  125,315,899 
Diluted123,988,784  125,295,594  123,990,700  125,315,899 
            


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(UNAUDITED)
 
 December 31,
2016
 December 31,
2015
Assets   
Cash$256,549  $257,272 
Mortgage servicing rights ($679,256 and $761,190 carried at fair value)1,042,978  1,138,569 
Advances, net257,882  444,298 
Match funded advances (related to variable interest entities (VIEs))1,451,964  1,706,768 
Loans held for sale ($284,632 and $309,054 carried at fair value)314,006  414,046 
Loans held for investment - Reverse mortgages, at fair value3,565,716  2,488,253 
Receivables, net265,720  286,981 
Deferred tax assets, net2,732   
Premises and equipment, net62,744  57,626 
Other assets ($20,007 and $14,352 carried at fair value)(amounts related to VIEs of $43,331 and $59,278)435,372  586,495 
Total assets$7,655,663  $7,380,308 
    
Liabilities and Equity   
Liabilities   
Match funded liabilities (related to VIEs)$1,280,997  $1,584,049 
Financing liabilities ($3,911,488 and $2,933,066 carried at fair value)4,012,812  3,089,255 
Other secured borrowings, net678,543  762,411 
Senior notes, net346,789  345,511 
Other liabilities ($1,550 and $0 carried at fair value)681,239  744,444 
Total liabilities7,000,380  6,525,670 
    
Equity
   
Ocwen Financial Corporation (Ocwen) stockholders' equity   
Common stock, $.01 par value; 200,000,000 shares authorized; 123,988,160 and 124,774,516 shares issued and outstanding at December 31, 2016 and 2015, respectively1,240  1,248 
Additional paid-in capital527,001  526,148 
Retained earnings126,167  325,929 
Accumulated other comprehensive loss, net of income taxes(1,450) (1,763)
Total Ocwen stockholders' equity652,958  851,562 
Non-controlling interest in subsidiaries2,325  3,076 
Total equity655,283  854,638 
Total liabilities and equity$7,655,663  $7,380,308 
        


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
 
 For the Years Ended
December 31,
 2016 2015
Cash flows from operating activities   
Net loss$(199,375) $(246,712)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Amortization of mortgage servicing rights32,978  99,194 
Loss on valuation of mortgage servicing rights, at fair value80,238  98,173 
Impairment of mortgage servicing rights10,813  17,341 
Gain on sale of mortgage servicing rights, net(8,492) (83,921)
Realized and unrealized losses on derivative financial instruments1,724  8,419 
Provision for bad debts81,079  101,226 
Depreciation25,338  19,159 
Amortization of debt discount4,177  2,680 
Amortization of debt issuance costs25,662  22,664 
Provision for valuation allowance on deferred tax assets15,639  97,069 
(Increase) decrease in deferred tax assets other than provision for valuation allowance(11,119) (28,136)
Equity-based compensation expense5,181  7,291 
Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings(26,016) (7,661)
Gain on loans held for sale, net(65,649) (103,112)
Origination and purchase of loans held for sale(6,090,432) (5,000,681)
Proceeds from sale and collections of loans held for sale5,969,812  5,125,203 
Changes in assets and liabilities:   
Decrease in advances and match funded advances452,435  531,313 
Decrease (increase) in receivables and other assets, net181,835  46,463 
Decrease in other liabilities(7,147) (109,511)
Other, net(4,020) (14,882)
Net cash provided by operating activities474,661  581,579 
    
Cash flows from investing activities   
Origination of loans held for investment - reverse mortgages(1,098,758) (1,008,065)
Principal payments received on loans held for investment - reverse mortgages243,596  151,107 
Purchase of mortgage servicing rights(17,356) (12,355)
Proceeds from sale of mortgage servicing rights47,044  686,838 
Proceeds from sale of advances and match funded advances103,017  486,311 
Issuance of automotive dealer financing notes(100,722)  
Collections of automotive dealer financing notes65,688   
Additions to premises and equipment(33,518) (37,487)
Other(610) 14,021 
Net cash provided by (used in) investing activities(791,619) 280,370 
    
    
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Dollars in thousands)
(UNAUDITED)
 For the Years Ended
December 31,
 2016 2015
Cash flows from financing activities   
Repayment of match funded liabilities, net(303,052) (506,198)
Proceeds from mortgage loan warehouse facilities and other secured borrowings9,242,671  7,170,831 
Repayments of mortgage loan warehouse facilities and other secured borrowings(9,693,108) (8,402,758)
Payment of debt issuance costs(11,136) (23,480)
Proceeds from sale of reverse mortgages (HECM loans) accounted for as a financing (HMBS-related borrowings)1,086,795  1,024,361 
Repurchase of common stock(5,890) (4,142)
Other(45) 7,236 
Net cash provided by (used in) financing activities316,235  (734,150)
    
Net increase (decrease) in cash(723) 127,799 
Cash at beginning of year257,272  129,473 
Cash at end of year$256,549  $257,272 
    

 

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