Ocwen Financial Corporation
Oct 26, 2016

Ocwen Financial Announces Operating Results for Third Quarter 2016

WEST PALM BEACH, Fla., Oct. 26, 2016 (GLOBE NEWSWIRE) --  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

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, net289,014  444,298 
Match funded advances1,534,322  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 value3,339,641  2,488,253 
Receivables, net279,883  286,981 
Premises and equipment, net62,701  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, net663,170  762,411 
Senior unsecured notes, net346,511  345,511 
Other liabilities718,831  744,444 
Total liabilities6,922,063  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, respectively1,240  1,248 
Additional paid-in capital524,725  526,148 
Retained earnings136,611  325,929 
Accumulated other comprehensive loss, net of income taxes(1,500) (1,763)
Total Ocwen stockholders' equity661,076  851,562 
Non-controlling interest in subsidiaries2,311  3,076 
Total equity663,387  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