Ocwen Financial Corporation
Oct 31, 2013

Ocwen Financial Announces Operating Results for Third Quarter 2013

Revenue More Than Doubles to $531.2 Million
$500 Million Share Repurchase Program Announced

ATLANTA, Oct. 31, 2013 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation, (NYSE:OCN), a leading financial services holding company, today reported Net income of $67.0 million, or $0.44 per share, for the third quarter of 2013 compared to Net income of $51.4 million, or $0.37 per share, for the third quarter of 2012. Ocwen generated revenue of $531.2 million, up 128% from the third quarter of 2012. Income from operations grew by 32% to $185.0 million for the third quarter of 2013 as compared to $140.0 million for the third quarter of 2012.

Net income for the nine months ended September 30, 2013 is $188.9 million, or $1.27 per share, as compared to $115.6 million, or $0.84 per share, for the same period in 2012. Revenue in the first nine months of 2013 increased 144% from the first nine months of 2012 to a total of $1.48 billion.

Pre-tax earnings on a GAAP basis for the third quarter of 2013 were $76.3 million, a 6% decline as compared to the third quarter of 2012. Ocwen's normalized pre-tax earnings for the third quarter of 2013 were $147.0 million, an 82% increase from the third quarter of 2012. Ocwen incurred a total of $70.7 million in normalized expenses in the third quarter of 2013. There were no normalizing items in the third quarter of 2012.  

"Ocwen's revenue growth and cash-flow remain very strong with revenue from our existing portfolio trending ahead of projections," commented Bill Erbey, Ocwen's Chairman. "Notwithstanding our record revenues, revenues were suppressed due to delays, that have now been resolved, in boarding the OneWest transaction. As expected, margins were below historical levels due to the timing involved in transitioning ResCap and OneWest. We have been quite cautious in our servicing transfers making certain that we have sufficient resources to support the transition of these portfolios. In the case of OneWest, we were fully-staffed well in advance of boarding the loans. We feel very comfortable that once we have completed the ResCap transition to the Ocwen technology platform, we will return to our historical margins. Prepayment rates fell substantially in the quarter, which bodes well for future revenues. The Company's current pipeline of potential new business opportunities remains at about $400 billion in unpaid principal balance (UPB). We anticipate that at least $100 billion in UPB will be awarded by sellers before the end of the year."

Share Repurchase Program

Ocwen's Board of Directors has authorized a $500 million common stock share repurchase program. Ocwen's priorities for deployment of excess cash are: (1) supporting the growth of the Company's core servicing and lending businesses, (2) expanding into similar or complimentary businesses that meet the Company's return on capital requirements and (3) repurchasing shares. The purpose of this plan is to provide a tax efficient way to return cash to shareholders when it is deemed the shares are attractively priced.

Mr. Erbey commented, "Ocwen is substantially under-levered compared to our peers. The Company's additional debt capacity combined with the ability to raise new capital from sales to Home Loan Servicing Solutions ("HLSS") or sales of prime mortgage servicing rights ("MSRs"), as demonstrated by recently completed sales, provide ample resources to fund growth and share repurchases. Our new share repurchase program is another step towards increasing overall returns on equity."

Unless Ocwen amends the share repurchase program or repurchases the full $500 million amount by an earlier date, the share repurchase program will continue through July 2016. Purchases may be made on market or in privately negotiated transactions. Ocwen may use SEC Rule 10b5-1 plans in connection with its share repurchase program. No assurances can be given as to the amount of share repurchases, if any, Ocwen may make in any given period. Any repurchase of shares of common stock that have been issued as a result of the conversion of our Series A perpetual convertible preferred stock from the holders of such preferred stock will not count towards the $500 million threshold.    

Third Quarter 2013 Business Highlights

Subsequent Events and Updates

"Ocwen completed 32,051 modifications, which is a record high for the Company, and over 6,000 short sales and deeds-in-lieu during the third quarter," said Ron Faris, President and CEO. "Ocwen continues to seek sensible modifications and other loan resolutions that help struggling families while providing more cash-flow to mortgage investors. We are proud to have one of the best pre-foreclosure resolution rates of any servicer. The superiority of Ocwen's servicing was once again confirmed in a recently published report by Moody's that tracked over 1 million loans in default at the end of 2008 through mid-2013. Ocwen's overall performance ranked number one. These results are possible because of the unique capabilities embedded in our industry leading servicing platform." 

Mr. Faris continued, "The integration of legacy ResCap loans onto the Ocwen platform began in the third quarter with the movement of over 340,000 non-agency loans. While this represents only 22% of the legacy ResCap platform loans, these loans represent approximately 33% of legacy ResCap delinquent loans accelerating our ability to apply our programs to those loans that most need attention. Our plans call for further monthly transfers from the legacy ResCap platform through May 2014. As per our original plan, this will result in an extended period of transition-related costs."

"While boarding of the OneWest portfolio has been slower than usual, it is otherwise proceeding according to plan. The addition of the OneWest portfolio should also be beneficial to our lending segment as it will provide additional HARP opportunities. The Company projects that lending will generate approximately $18 to 22 million in pre-tax income in the fourth quarter of 2013 compared to $5.7 million in the third quarter, assuming interest rates and other factors remain at current levels."

About Ocwen Financial Corporation

Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, is engaged in the servicing and origination of mortgage loans. Ocwen is headquartered in Atlanta, Georgia, and has additional offices and operations in the District of Columbia, California, Florida, Iowa, New Jersey, Pennsylvania, Texas, the United States Virgin Islands, India, the Philippines and Uruguay. Utilizing proprietary technology, global infrastructure and world-class training and processes, we provide solutions that help homeowners and make our clients' loans worth more. Additional information is available at www.Ocwen.com.

Webcast and Conference call

The Company will host a webcast and conference call on Thursday, October 31, 2013, at 11 a.m. Eastern Time to discuss its financial results for the third quarter of 2013.

The conference call will be webcast live over the internet from the Company's website at www.Ocwen.com, click on the "Shareholder" section.  A replay of the conference call can also be accessed by dialing 1-203-369-1218 after 12:01 P.M. Eastern Time on Thursday, October 31, 2013, until 6:00 p.m. Eastern Time on November 8, 2013. 

Forward Looking Statements

This news 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. Forward-looking statements are not guarantees of future performance, and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially.

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: the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates; our ability to grow and adapt our business, including the availability of new loan servicing and other accretive business opportunities; our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties; our ability to effectively manage our exposure to interest rate changes; uncertainty related to general economic and market conditions, delinquency rates, home prices and disposition timelines on foreclosed properties; uncertainly related to acquisitions, including our ability to integrate the systems, procedures and personnel of acquired companies; as well as other risks detailed in Ocwen's reports and filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2012 and on Forms 10-Q for the quarters ended March 31, 2013 and June 30, 2013. The forward-looking statements speak only as of the date they are made and should not be relied upon. Ocwen undertakes no obligation to update or revise the forward-looking statements, except as required by law.

Non-GAAP Performance Measures

This news release contains references to "normalized" results and "adjusted cash flow from operations," which are non-GAAP performance measures. We believe these non-GAAP performance measures may provide additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures should be viewed in addition to, and not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States. Further information regarding these measures and reconciliation to GAAP may be found on Ocwen's website.

Residential Servicing Statistics (Dollars in thousands)
  At or for the three months ended
  September 30, June 30, March 31, December 31, September 30,
  2013 2013 2013 2012 2012
Total unpaid principal balance of loans and REO serviced  $434,819,426 $436,255,383 $467,071,661 $203,665,716 $127,066,680
Non-performing loans and REO serviced as a % of total UPB (1) 14.6% 14.4% 15.0% 23.5% 23.6%
Prepayment speed (average CPR)(2) 15.8%(3) 20.8% 20.1% 14.9% 14.3%
           
(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.
(3)       Includes average CPR of 18.0% for prime loans and 13.1% for non-prime loans. 
 
Segment Results (Dollars in thousands) (UNAUDITED)
         
  Three Months Nine Months
For the Periods Ended September 30, 2013 2012 2013 2012
Servicing        
Revenue  $496,302 $232,104 $1,381,872 $606,689
Operating expenses  305,654 88,743 795,645 252,542
Income from operations  190,648 143,361 586,227 354,147
Other expense, net   (112,620)  (59,107)  (322,960)  (163,014)
Income before income taxes  $78,028 $84,254 $263,267 $191,133
         
Lending        
Revenue  $33,539 $ — $81,180 $ —
Operating expenses  29,504 69,543
Income from operations  4,035 11,637
Other income, net  1,630 9,176
Income before income taxes  $5,665 $ — $20,813 $ —
         
Corporate Items and Other        
Revenue  $1,801 $873 $19,758 $2,736
Operating expenses  11,143 4,162 95,361 12,659
Loss from operations   (9,342)  (3,289)  (75,603)  (9,923)
Other income, net   1,924  (219)  6,643  (181)
Loss before income taxes   $ (7,418)  $ (3,508)  $ (68,960)  $ (10,104)
         
Corporate Eliminations        
Revenue   $ (402)  $ (277)  $ (492)  $ (812)
Operating expenses   (41)  (112)  (131)  (391)
Loss from operations   (361)  (165)  (361)  (421)
Other income, net  361 165 361 421
Income (loss) before income taxes  $ — $ — $ — $ —
         
Consolidated income before income taxes  $76,275 $80,746 $215,120 $181,029
         
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(UNAUDITED)
         
  Three Months Nine Months
For the Periods Ended September 30, 2013 2012 2013 2012
Revenue        
Servicing and subservicing fees  $483,267 $223,011 $1,333,392 $578,435
Gain on loans held for sale, net  28,262 72,912
Other revenues  19,711 9,689 76,014 30,178
Total revenue  531,240 232,700 1,482,318 608,613
         
Operating expenses        
Compensation and benefits  118,054 29,759 330,679 90,546
Amortization of mortgage servicing rights  79,183 20,150 197,435 53,561
Servicing and origination  34,236 9,838 89,740 18,988
Technology and communications  38,809 11,608 102,698 31,999
Professional services  19,090 5,241 99,228 19,743
Occupancy and equipment  30,786 10,899 74,631 36,484
Other operating expenses  26,102 5,298 66,007 13,489
Total operating expenses  346,260 92,793 960,418 264,810
Income from operations 184,980 139,907 521,900 343,803
         
Other income (expense)        
Interest income  5,379 2,084 17,330 6,434
Interest expense   (110,055)  (58,417)  (303,339)  (163,660)
Gain (loss) on debt redemption  1,282  (653)  (12,556)  (653)
Other, net   (5,311)  (2,175)  (8,215)  (4,895)
Other expense, net   (108,705)  (59,161)  (306,780)  (162,774)
         
Income before income taxes  76,275 80,746 215,120 181,029
Income tax expense  9,273 29,346 26,250 65,447
Net income 67,002 51,400 188,870 115,582
Preferred stock dividends   (1,446)  (4,450)
Deemed dividend related to beneficial conversion feature of preferred stock   (4,401)  (6,573)
Net income attributable to Ocwen common stockholders $61,155 $51,400 $177,847 $115,582
         
Earnings per share attributable to Ocwen common stockholders        
Basic  $0.45 $0.38 $1.31 $0.87
Diluted  $0.44 $0.37 $1.27 $0.84
         
Weighted average common shares outstanding        
Basic 135,787,834 134,928,486 135,705,892 133,483,354
Diluted 140,057,195 138,702,881 139,747,490 138,301,865
         
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(UNAUDITED)
  September 30, December 31,
  2013 2012
Assets    
Cash  $357,486 $220,130
Loans held for sale, at fair value  335,102 426,480
Advances  946,287 184,463
Match funded advances  533,725 3,049,244
Mortgage servicing rights, at amortized cost  1,736,943 678,937
Mortgage servicing rights, at fair value  96,938 85,213
Receivables, net  223,404 137,713
Deferred tax assets, net  93,343 92,136
Goodwill and intangibles  407,620 412,866
Premises and equipment, net  56,837 33,247
Debt service accounts  45,462 88,748
Other assets  478,533 273,578
Total assets  $5,311,680 $5,682,755
     
Liabilities, Mezzanine Equity and Stockholders' Equity    
Liabilities    
Match funded liabilities  $363,012 $2,532,745
Other borrowings  2,592,591 1,096,679
Other liabilities  554,708 288,537
Total liabilities  3,510,311 3,917,961
     
Mezzanine Equity    
Series A Perpetual Convertible Preferred stock, $01 par value; 200,000 shares authorized; 62,000 and 162,000 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively; redemption value $62,000 plus accrued and unpaid dividends at September 30, 2013 59,945 153,372
     
Stockholders' Equity    
Common stock, $.01 par value; 200,000,000 shares authorized; 135,822,932 and 135,637,932 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 1,358 1,356
Additional paid-in capital  864,723 911,942
Retained earnings  882,412 704,565
Accumulated other comprehensive loss, net of income taxes   (7,069)  (6,441)
Total stockholders' equity  1,741,424 1,611,422
Total liabilities, mezzanine equity and stockholders' equity  $5,311,680 $5,682,755
     
 
Third Quarter 2013 - Normalized Pre-Tax Income Summary (Dollars in Millions)
   
   
GAAP Income before income taxes $76.3
   
Transition related operating expenses 47.7
(Primarily related to ResCap and OneWest Acquisitions)  
   
Expense related to July 1 HLSS transaction 17.9
(Incremental interest expense ahead of the OneWest closings, costs associated with early exit of financing facilities and recognition of hedge-related losses upon termination)  
   
Non-recurring legal expense 5.1
   
Normalized income before income taxes $147.0
CONTACT: Stephen Swett or Brad Cohen

         T: (203) 682-8200

         E: shareholderrelations@ocwen.com

         or

         John V. Britti

         Executive Vice President & Chief Financial Officer

         T: (561) 682-7535

         E: John.Britti@Ocwen.com