Ocwen Financial Announces Preliminary Fourth Quarter 2019 Financial and Operating Results
- Continued strong execution against key business initiatives resulted in estimated fourth quarter 2019 pre-tax income of
$37 million , net income of$35 million , pre-tax earnings excluding income statement notables of approximately$12 million , and total shareholders’ equity of$412 million as ofDecember 31, 2019
- Company believes it remains on track to achieve pre-tax profitability, excluding income statement notables and amortization of NRZ lump-sum payments, by the third quarter 2020, assuming the Company achieves its objectives and there are no adverse changes to current market, business or industry conditions, or legal and regulatory matters
- Expect an estimated
$47 million favorable adjustment to stockholders’ equity associated with the adoption of the new credit loss accounting standard referred to as CECL in the first quarter 2020 relating to reverse mortgage tail draws
- January annualized origination volume from combined lending and flow channels of approximately
$9 billion reflects continued progress toward achieving growth targets. Increasing 2020 volume target for these channels from$10 billion to at least$15 billion
- Fourth quarter GAAP operating expenses of
$139 million ; realized preliminary estimated adjusted annualized run rate cost savings of$385 million in the fourth quarter, which significantly exceeds the target established in early 2019
- Issued approximately
$170 million of new MSR financing at competitive rates in the fourth quarter 2019, repaying$126 million of our higher cost SSTL debt as part of a transaction closed in January to amend and extend the maturity date toMay 2022
- Ocwen’s Board of Directors has authorized an up to
$5 million open market share repurchase program. The timing and execution of any related share repurchases will be subject to market conditions, among other factors. No assurances can be given as to the amount of shares, if any, that we may repurchase in any given period
Mr. Messina added, “During 2019, we completed a detailed assessment of our servicing portfolio profitability by customer and loan type to support our capital allocation process. Based on this analysis, we estimate the NRZ portfolio generated a pre-tax operating loss of approximately
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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. 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. In particular, the estimates provided in this press release are preliminary and based on currently available information and may not prove to be accurate. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, uncertainty related to our ability to execute on continuous cost re-engineering efforts and the other actions we believe are necessary for us to improve our financial performance; our ability to acquire MSRs or other assets or businesses at adequate risk-adjusted returns and at sufficient volume to achieve our growth goals, including our ability to allocate resources for investment, negotiate and execute purchase documentation and satisfy closing conditions so as to consummate such acquisitions; uncertainty related to our ability to grow our lending business and increase our lending volumes in a competitive market and uncertain interest rate environment; uncertainty relating to the future of our servicing and other contractual relationships with
Note Regarding Preliminary Financial Performance Estimates
This press release contains certain estimates relating to our fourth quarter and full year 2019 financial performance. These estimates are preliminary and may change. Our governance over the financial closing procedures for the period ended
Note Regarding Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures, such as our references to adjusted annualized run rate cost savings and pre-tax earnings excluding income statement notables. 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. Below, we present supplemental information (including reconciliations) relating to certain illustrative adjustments to GAAP expenses, and pre-tax income (loss). We believe this information is instructive as an alternative way to view certain aspects of our business. In addition, management believes that these presentations may assist investors with understanding and evaluating our cost re-engineering efforts and other initiatives to drive improved financial performance. However, the adjustments we make to GAAP expenses and pre-tax income (loss) should not be analyzed in isolation or as a substitute to analysis of our GAAP expenses and pre-tax income (loss). There are certain limitations to the analytical usefulness of the adjustments we make to GAAP expenses and pre-tax income (loss) and, accordingly, we rely primarily on our GAAP results and use these adjustments only for purposes of supplemental analysis. For example, annualization of amounts relevant to one quarter may or may not be a good indicator of the relevant full year amount due to facts or circumstances impacting the quarter or the three subsequent quarters, among other factors. 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
In the table entitled “Adjusted Annualized Run Rate Cost Savings - Expenses Excluding MSR Valuation Adjustments, net, and Expense Notables” we adjust GAAP expenses to exclude MSR Valuation Adjustments, net as well as the following expenses (Expense Notables) (1) expense related to severance, retention and other cost re-engineering actions, (2) certain significant legal and regulatory settlement expense items, (3) CFPB,
In the table entitled “Pre-Tax Earnings Excluding Income Statement Notables,” we show certain illustrative adjustments to GAAP pre-tax income/(loss) for the following factors (1) Expense Notables (excluding MSR Valuation Adjustments, net), (2) changes in fair value of our Non-Agency MSRs due to changes in interest rates, valuation inputs and other assumptions, (3) changes in fair value of our Agency MSRs due to changes in interest rates, valuation inputs and other assumptions, net of hedge position, (4) offsets to changes in fair value of our MSRs in our NRZ financing liability due to changes in interest rates, valuation inputs and other assumptions, (5) changes in fair value of our reverse lending portfolio due to changes in interest rates, valuation inputs and other assumptions (6) gains related to exercising servicer call rights, and (7) certain other costs, including pension benefits (collectively, Other) consistent with the intent of providing management and investors with a supplemental means of evaluating our pre-tax income/(loss). In addition, we also show the impact of amortization of NRZ lump-sum cash payments and Pre-Tax Earnings Excluding Income Statement Notables and Amortization of NRZ Lump-Sum Cash Payments. Amounts included within the table “Pre-Tax Earnings Excluding Income Statement Notables,” are expected to vary in each period due to changes in interest rates and other factors.
ADJUSTED ANNUALIZED RUN RATE COST SAVINGS – EXPENSES EXCLUDING MSR VALUATION ADJUSTMENTS, NET, AND EXPENSE NOTABLES
($ in millions) | Q2’18 | Q4’19 | ||||||||
OCN + PHH (Annualized) |
OCN | OCN (Annualized) |
||||||||
I | Expenses - as reported in Q2’18 (a) | 1,107 | ||||||||
II | Reclassifications (b) | 5 | ||||||||
III | Deduction of MSR valuation adjustment, net | (132 | ) | |||||||
IV | Operating Expenses (Expenses excluding MSR Valuation Adjustments, net) – as reported in Q4’19 (c) | 979 | 139 | 557 | ||||||
Adjustments for Notables | ||||||||||
Re-engineering costs | (32 | ) | (14 | ) | ||||||
Significant legal and regulatory settlement expenses | (20 | ) | (3 | ) | ||||||
CFPB & state regulatory defense & escrow analysis costs | (22 | ) | (4 | ) | ||||||
NRZ consent process expenses | (2 | ) | 0 | |||||||
PHH acquisition and integration planning expenses | (8 | ) | 0 | |||||||
Expense recoveries | 23 | 15 | ||||||||
Other | (1 | ) | (0 | ) | ||||||
V | Expense Notables | (63 | ) | (7 | ) | Annualized Savings |
||||
VI | Expenses excluding MSR Valuation Adjustments, net, and Expense Notables (IV+V) | 916 | 133 | 531 | (385 | ) |
(a) Q2’18 expenses as per OCN Form 10-Q of $206 filed on July 26, 2018 and PHH Form 10-Q of $71 filed August 3, 2018 , annualized to equal $1,107 on a combined basis
(b) Reclassifications made to PHH reported expenses to conform to Ocwen presentation
(c) OCN changed the presentation of expenses in Q4’19 to separately report MSR valuation adjustments, net from operating expenses
PRE-TAX EARNINGS EXCLUDING INCOME STATEMENT NOTABLES
($ in millions) | Q2’18 | Q4’19 | ||||||
OCN + PHH (Annualized) |
OCN | OCN (Annualized) |
||||||
I | Reported Pre-tax Income / (Loss) (a) | (253 | ) | 37 | 149 | |||
Adjustments for Notables | ||||||||
Expenses Notables (from prior table) | 7 | |||||||
Non-Agency MSR FV Change (b) | (0 | ) | ||||||
Agency MSR FV Change, net of macro hedge (b) | (61 | ) | ||||||
NRZ MSR Liability FV Change (Interest Expense) | 30 | |||||||
Reverse Lending FV Change | 3 | |||||||
Other | (3 | ) | ||||||
II | Total Income Statement Notables | 72 | (25 | ) | ||||
III | Pre-Tax Income / (Loss) excluding Income Statement Notables (I+II) | (181 | ) | 12 | ||||
IV | Amortization of NRZ Lump-sum Cash Payments | (141 | ) | (26 | ) | |||
V | Pre-Tax Loss excluding Income Statement Notables and Amortization of NRZ Lump-sum Cash Payments (III+IV) (c) | (322 | ) | (14 | ) | (54 | ) |
(a) Q2’18 pre-tax loss as per respective Forms 10-Q filed on July 26, 2018 and August 3, 2018 , respectively
(b) FV changes that are driven by changes in interest rates, valuation inputs or other assumptions, net of unrealized gains / (losses) on macro hedge. Non-Agency = Total MSR excluding GNMA & GSE MSRs. Agency = GNMA & GSE MSRs
(c) Represents OCN and PHH combined pre-tax loss excluding income statement notables and amortization of NRZ lump-sum cash payments
FOR FURTHER INFORMATION CONTACT:
Investors: | Media: |
Hugo Arias | Dico Akseraylian |
T: (856) 917-0108 | T: (856) 917-0066 |
E: hugo.arias@ocwen.com | E: mediarelations@ocwen.com |
Source: Ocwen Financial Corp.