Ocwen Financial Corporation
Jul 27, 2016

Ocwen Financial Announces Operating Results For Second Quarter 2016

WEST PALM BEACH, Fla., July 27, 2016 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation, (NYSE:OCN) ("Ocwen" or the "Company"), a leading financial services holding company, today reported a net loss of $(87.2) million, or $(0.71) per share, for the three months ended June 30, 2016.

Second Quarter 2016 Results

Pre-tax loss for the second quarter of 2016 was $(96.4) million, a $5.7 million improvement from the first quarter of 2016. Pre-tax results were impacted by a number of significant items including but not limited to: $(40.1) million of legal defense costs and settlement expense related to the previously disclosed settlement in principle of the two Fisher cases, $(28.1) million of monitor costs, a $(15.0) million reserve for a potential future regulatory settlement, $(11.4) million of unfavorable interest rate driven fair value changes related to GNMA and GSE mortgage servicing rights (MSRs) (excluding runoff), and $(4.3) million in interest expense under our agreements with New Residential Investment Corp. (NRZ) related to last year's S&P servicer ranking downgrade. This was the final quarter in which we will incur this NRZ-related expense. Adjusting for these items, pre-tax income was $2.5 million. In addition, for the first time since the first quarter of 2015, the Company saw an increase in revenue versus the prior quarter.

The Servicing segment recorded a $(14.7) million pre-tax loss inclusive of $(11.4) million of GNMA and GSE MSR fair value changes (excluding runoff), $(10.1) million of Fisher-related litigation expense and the $(4.3) million of NRZ-related expense noted above. This represents a $53.6 million or 78% improvement versus the first quarter of 2016.

The Lending segment, which had a 35% increase in origination volume over the first quarter of the year, recorded a $7.5 million pre-tax gain for the second quarter of 2016, a $5.5 million improvement versus the prior quarter.

The new Automotive Capital Services business continued to make progress, increasing loans outstanding by $8.6 million or 110% in the second quarter. The business is now operating in 21 markets and has approved credit facilities with 40 auto dealerships totaling $38 million.

"We are pleased to see the progress being made in our core businesses and new initiatives. We also continue to put additional legacy issues, such as the Fisher cases, behind us. While we still have more to do on various fronts, we are moving towards returning to profitability in our core operations while growing our asset-generation activities," commented Ron Faris, President and CEO.  Mr. Faris went on to say "We continue to invest in risk management, compliance, service excellence and technology. We maintain our leadership in helping families struggling with their mortgage payments as evidenced by our number one status in the Home Affordable Modification Program (HAMP) and our numerous, well-regarded community outreach efforts.  Our growth in mortgage lending and Automotive Capital Services are gratifying early indicators of potential success in new initiatives that can allow us, over time, to drive earnings growth."

Additional Business Highlights

Year-Over-Year Comparison

Ocwen generated second quarter revenue of $373.1 million, down (19.5)% compared to the second quarter of 2015.  Year-over-year results were primarily affected by the impact of sales of MSRs in 2015 and portfolio run-off. Expenses were up $32.8 million or 9.3% compared to the second quarter of 2015. Adjusting for (1) $40 million of Fisher litigation related fees and settlement expenses and a $15 million reserve for a potential future regulatory settlement recorded in the second quarter of 2016, (2) $22 million higher monitor expenses and $33 million unfavorable GNMA and GSE MSR fair value changes (driven by lower interest rates) compared to the second quarter of 2015 and (3) $15 million of strategic advisor related expenses in the second quarter of 2015, expenses were (18)% lower than the second quarter of 2015 primarily driven by the reduction in the size of the servicing portfolio as well as management focus on the Company's ongoing cost improvement initiatives. Cash Flows provided by Operating Activities were $31.3 million for the three months ended June 30, 2016, compared to $209.9 million for the same period last year, which had included $140.0 million of cash generated from the transfer of previously sold advances and $55.6 million of favorable working capital changes from loans held for sale.

The Company reported a net loss of $(198.4) million, or $(1.60) per share, for the six months ended June 30, 2016, as compared to net income of $44.3 million, or $0.35 per share, for the six months ended June 30, 2015. Ocwen generated revenue of $703.8 million for the six months ended June 30, 2016, down (27.7)% from $973.7 million for the six months ended June 30, 2015.  Expenses were $713.7 million, down $(16.9) million or (2.3)% for the six months ended June 30, 2016, compared to expenses of $730.6 million for the six months ended June 30, 2015.     Cash flows provided by Operating Activities were $172.2 million for the six months ended June 30, 2016, compared to $535.0 million for the same period last year.

Webcast and Conference Call

Ocwen will host a webcast and conference call on Wednesday, July 27, 2016, at 5 p.m., Eastern Time, to discuss its financial results for the second 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, 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.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures, such as our references to adjusted pre-tax income. 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
 June 30, 2016March 31,
2016
December 31,
2015
September 30,
2015
June 30, 2015
Total unpaid principal balance of loans and REO serviced$229,276,001 $237,081,036 $250,966,112 $288,069,149 $321,670,579 
      
Non-performing loans and REO serviced as a % of total UPB (1)11.9%13.0%13.7%13.1%13.0%
                
Prepayment speed (average CPR)(2) (3)14.2%12.7%13.3%14.7%15.7%
           

(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 June 30, 2016 includes 17.9% for prime loans and 11.7% for non-prime loans.

        
        
Segment Results (Unaudited)
       
(Dollars in thousands)       
 For the Three Months Ended
June 30,
 For the Six Months Ended
June 30,
 2016 2015 2016 2015
Servicing       
Revenue$325,120  $423,207  $632,547 $894,332 
Expenses260,275  284,413  537,171  622,325 
Other expense, net(79,553) (94,215) (178,340) (180,707)
Income (loss) before income taxes(14,708) 44,579  (82,964) 91,300 
        
Lending       
Revenue35,376  39,312  58,660  77,059 
Expenses28,657  26,586  50,457  50,372 
Other income, net815  1,719  1,329  3,742 
Income before income taxes7,534  14,445  9,532  30,429 
        
Corporate Items and Other       
Revenue12,558  755  12,604  2,362 
Expenses96,086  41,276  126,047  57,971 
Other expense, net(5,696) (6,003) (11,648) (10,791)
Loss before income taxes(89,224) (46,524) (125,091) (66,400)
        
Corporate Eliminations       
Revenue  (23)   (58)
Expenses  (23)   (58)
Other income (expense), net       
Income (loss) before income taxes       
        
Consolidated income (loss) before income taxes$(96,398) $12,500  $(198,523) $55,329 


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Dollars in thousands, except per share data) 
(UNAUDITED)
 
 For the Three Months Ended
June 30,
 For the Six Months Ended
June 30,
 2016 2015 2016 2015
Revenue       
Servicing and subservicing fees$307,262  $396,983  $604,758 $843,524 
Gain on loans held for sale, net27,857  45,132  43,429  89,636 
Other revenues37,935  21,136  55,624  40,535 
Total revenue373,054  463,251  703,811  973,695 
        
Expenses       
Compensation and benefits98,422  105,843  194,671  210,987 
Amortization of mortgage servicing rights8,347  31,586  21,153  70,080 
Servicing and origination89,987  52,558  185,679  154,360 
Technology and communications32,709  41,260  59,578  80,611 
Professional services121,399  72,369  192,306  129,300 
Occupancy and equipment20,708  28,773  45,453  54,487 
Other13,446  19,863  14,835  30,785 
Total expenses385,018  352,252  713,675  730,610 
        
Other income (expense)       
Interest income5,140  5,038  9,330  10,613 
Interest expense(91,033) (124,897) (197,122) (244,293)
Gain on sale of mortgage servicing rights, net853  30,306  2,028  56,712 
Other, net606  (8,946) (2,895) (10,788)
Total other expense, net(84,434) (98,499) (188,659) (187,756)
        
Income (loss) before income taxes(96,398) 12,500  (198,523) 55,329 
Income tax expense (benefit)(9,180) 2,594  (104) 11,034 
Net income (loss)(87,218) 9,906  (198,419) 44,295 
Net income attributable to non-controlling interests(160) (168) (290) (202)
Net income (loss) attributable to Ocwen stockholders $(87,378) $9,738  $(198,709) $44,093 
        
Earnings (loss) per share attributable to Ocwen common stockholders       
Basic$(0.71) $0.08  $(1.60) $0.35 
Diluted(0.71) 0.08  (1.60) 0.35 
        
Weighted average common shares outstanding       
Basic123,893,752  125,311,133  123,993,545  125,291,788 
Diluted123,893,752  127,152,479  123,993,545  127,076,178 


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands, except share data)

(UNAUDITED)
 
 June 30,
 2016
 December 31,
 2015
Assets   
Cash$218,915  $257,272 
Mortgage servicing rights ($700,668 and $761,190 carried at fair value)1,047,142  1,138,569 
Advances, net329,228  444,298 
Match funded advances1,614,447  1,706,768 
Loans held for sale ($339,687 and $309,054 carried at fair value)401,790  414,046 
Loans held for investment - Reverse mortgages, at fair value3,057,564  2,488,253 
Receivables, net307,372  286,981 
Premises and equipment, net63,057  57,626 
Other assets ($23,839 and $14,352 carried at fair value)448,737  586,495 
Total assets$7,488,252  $7,380,308 
    
Liabilities and Equity   
Liabilities   
Match funded liabilities$1,431,381  $1,584,049 
Financing liabilities ($3,431,054 and $2,933,066 carried at fair value)3,568,017  3,089,255 
Other secured borrowings, net737,512  762,411 
Senior unsecured notes, net346,179  345,511 
Other liabilities752,011  744,444 
Total liabilities6,835,100  6,525,670 
    
Equity   
Ocwen Financial Corporation (Ocwen) stockholders' equity   
Common stock, $.01 par value; 200,000,000 shares authorized; 123,986,954 and 124,774,516 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively1,240  1,248 
Additional paid-in capital524,053  526,148 
Retained earnings127,220  325,929 
Accumulated other comprehensive loss, net of income taxes(1,589) (1,763)
Total Ocwen stockholders' equity650,924  851,562 
Non-controlling interest in subsidiaries2,228  3,076 
Total equity653,152  854,638 
Total liabilities and equity$7,488,252  $7,380,308 
        


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Dollars in thousands)

(UNAUDITED)
 For the Six Months Ended
June 30,
 2016 2015
Cash flows from operating activities   
Net income (loss)$(198,419) $44,295 
Adjustments to reconcile net loss to net cash provided by operating activities:   
Amortization of mortgage servicing rights21,153  70,080 
Loss on valuation of mortgage servicing rights, at fair value59,104  48,480 
Impairment of mortgage servicing rights39,030  1,608 
Gain on sale of mortgage servicing rights, net(2,028) (56,712)
Realized and unrealized losses on derivative financial instruments2,080  7,268 
Provision for bad debts32,785  24,686 
Depreciation11,850  8,420 
Amortization of debt issuance costs6,498  7,311 
Gain on sale of fixed assets  (1,095)
Increase in deferred tax assets  (18,909)
Equity-based compensation expense3,079  3,581 
Gain on loans held for sale, net(43,429) (89,636)
Origination and purchase of loans held for sale(2,883,124) (2,314,488)
Proceeds from sale and collections of loans held for sale2,789,433  2,517,096 
Changes in assets and liabilities:   
Decrease in advances and match funded advances215,525  383,028 
Decrease (increase) in receivables and other assets, net75,208  (29,957)
Increase (decrease) in other liabilities40,951  (84,690)
Other, net2,469  14,599 
Net cash provided by operating activities172,165  534,965 
    
Cash flows from investing activities   
Origination of loans held for investment - reverse mortgages(675,665) (530,402)
Principal payments received on loans held for investment - reverse mortgages238,838  63,942 
Purchase of mortgage servicing rights, net(12,432) (6,252)
Proceeds from sale of mortgage servicing rights15,122  388,938 
Proceeds from sale of advances and match funded advances66,651  128,821 
Additions to premises and equipment(17,312) (8,038)
Proceeds from sale of premises and equipment  4,758 
Other8,179  2,158 
Net cash provided by (used in) investing activities(376,619) 43,925 
    


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Dollars in thousands)

(UNAUDITED)
 For the Six Months Ended
June 30,
 2016 2015
Cash flows from financing activities   
Repayment of match funded liabilities(152,668) (349,125)
Proceeds from other secured borrowings4,173,609  3,895,539 
Repayments of other secured borrowings(4,368,903) (4,455,813)
Payment of debt issuance costs(2,242) (18,610)
Proceeds from sale of loans accounted for as a financing522,981  532,856 
Repurchase of common stock(5,890)  
Proceeds from exercise of common stock options406  413 
Other(1,196) 6,457 
Net cash provided by (used in) financing activities166,097  (388,283)
    
Net increase (decrease) in cash(38,357) 190,607 
Cash at beginning of year257,272  129,473 
Cash at end of period$218,915  $320,080 
    
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