Onity Group Inc. · NYSE:ONIT

Onity — Q2 2024 Earnings Presentation

42 slides from Onity's earnings presentation, Aug 1, 2024

  1. Slide 1: Business Update Second Quarter 2024

    Business Update Second Quarter 2024 August 1, 2024 © 2024 Onity Group Inc. All rights reserved.

  2. Slide 2: Disclaimer

    Disclaimer FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements within the correctly and comply with current or future liquidity, net worth and other including any future downgrades; as well as other risks and meaning of Section 27A of the Securities Act of 1933, as amend

  3. Slide 3: Delivering powerful results in Q2 2024

    Delivering powerful results in Q2 2024 Key Highlights Powerful second quarter results, highlighted by adjusted return on equity and debt-to-equity ratio achievements Clearest demonstration yet that our strategy and financial objectives are sound and our ability to deliver is strong Positioning Onity

  4. Slide 4: Second quarter 2024 delivered strong growth in profits and increased book value

    Second quarter 2024 delivered strong growth in profits and increased book value Highest adjusted pre-tax income in last 11 quarters Trend vs Q2’23 Earnings Portfolio Growth Liquidity and Capital Adjusted Pre-Tax Total Servicing Income(a) $32M Additions $19B Total Liquidity(d) $231M Subservicing Book

  5. Slide 5: Recent achievements are the direct result of strategic actions and execution

    Recent achievements are the direct result of strategic actions and execution Launched new products ~100% hedge and services to expand Expansion of synthetic coverage target to addressable market Expense subservicing model reduce earnings reduction and through multiple third-party volatility right-si

  6. Slide 6: Rebranded to Onity Group (NYSE: ONIT) on June 10

    Rebranded to Onity Group (NYSE: ONIT) on June 10, marking the start of a new era Signifies our transformation, growth and expansion into a balanced and diversified company with sustained double-digit ROE Reinforces our ability to execute on stated strategic and financial priorities Reflects the conf

  7. Slide 7: Financial Performance

    Financial Performance © 2024 Onity Group Inc. All rights reserved. 7

  8. Slide 8: Delivered highest adjusted pre-tax income in last 11 quarters and increased book value per share

    Delivered highest adjusted pre-tax income in last 11 quarters and increased book value per share ($M, except per share metrics) Q2’23 Q1’24 Q2’24 Financial Highlights GAAP net income 15 30 11 Robust profitability increase in 1H’24 Diluted EPS $1.95 $3.74 $1.33 • 22% adjusted pre-tax income ROE, +12p

  9. Slide 9: Seventh consecutive quarter of positive and growing adjusted pre-tax income

    Seventh consecutive quarter of positive and growing adjusted pre-tax income(a) and exceeding our 12%+ adjusted ROE guidance(b) +$18M QoQ 30 30% 28% ROE 25 25% 23 20 20% Adjusted PTI in $M Adjusted PTI ROE 15 32 15 15% 10 10% 14 5 10 11 5% 8 6 4 0 0% Q4'22 Q1'23 Q2'23 Q3'23 Q4'23 Q1'24 Q2'24 Asset Re

  10. Slide 10: Servicing profitability significantly improved over prior quarter

    Servicing profitability significantly improved over prior quarter Adjusted Pre-tax Income(a) +$11M QoQ Profitability fueled by Forward performance, powered by Forward Servicing scale and cost control Q2’24 Highlights Reverse Forward 50 47 3 +$16M Forward Servicing Adj PTI QoQ 38 21 8 +$13B Total Ser

  11. Slide 11: Originations profitability rises on higher volume, higher margin and cost discipline

    Originations profitability rises on higher volume, higher margin and cost discipline Adjusted Pre-tax Income(a) +$8M QoQ Replenishment of recent MSR sales driven by B2B generating incremental income Q2’24 Highlights 10 $7B Funded Volume +51% QoQ 9% Revenue Margin(b) YoY (+3% QoQ) 2 22% Cost per Loan

  12. Slide 12: Accelerating growth through capital-light subservicing and disciplined MSR management

    Accelerating growth through capital-light subservicing and disciplined MSR management Managing owned MSRs(a) to targeted Driving capital-light organic growth investment range $99B gross subservicing adds in last 24 months(b) 305 Servicing Avg 288 of subservicing adds through capital partnerships UPB

  13. Slide 13: Letter of intent for acquisition of reverse mortgage assets from Waterfall

    Entered into letter of intent for the acquisition of reverse mortgage assets from Waterfall Asset Management Transaction Summary unpaid principal ~$3B balance of assets • Cash and proceeds allocated to retire corporate debt • Non-convertible preferred stock transaction with cumulative 7.875% dividen

  14. Slide 14: Ongoing deleveraging effort positioning us for a cost-effective debt refinance

    Ongoing deleveraging effort positioning us for a cost-effective debt refinance Achieved ≤ 3.9X leverage ratio(a) guidance ahead of schedule debt / equity ✓ Repurchased $47M in corporate debt YTD and at period end reduced MSR financing ✓ Waterfall transaction accelerates deleveraging initiative, expe

  15. Slide 15: Strategy and Priorities

    Strategy and Priorities © 2024 Onity Group Inc. All rights reserved. 15

  16. Slide 16: Onity Group is a leading residential mortgage servicer and originator

    Onity Group is a leading residential mortgage servicer and originator dedicated to creating positive outcomes for clients, homeowners, and investors Our Strategy Our Financial Objectives 1. Balance and diversification ❖ Sustain adjusted PTI(c) performance 2. Prudent capital-light growth ❖ Reduce ear

  17. Slide 17: Balanced and diversified business performing through the interest rate cycle

    Balanced and diversified business performing through the interest rate cycle Servicing and Originations balance each other through changing interest rates Adjusted pre-tax 199 income(a) annualized Servicing driving adjusted PTI, generating 145 147 cash flows above model expectations (0) Originations

  18. Slide 18: Well positioned for lower interest rate environment

    Well positioned for lower interest rate environment Our portfolio exposure to refinancing Broad origination capability to support aligned with industry(a) portfolio replenishment 67% 1.7x Industry average recapture rate 62% • 41% Q2’24 for ONIT vs. 24% industry average(b) • Upside to performing at b

  19. Slide 19: Strong and scalable servicing platform with industry-leading performance

    Strong and scalable servicing platform with industry-leading performance Industry Best Practice Cost Structure Industry Top-Tier Operational Performance FY’23 fully-loaded cost per loan(a) Awarded for 3 Consecutive Years Onity Servicing vs Large vs Large Cost Per Loan Non-Banks Banks Awarded for 202

  20. Slide 20: We believe our share price has substantial upside

    We believe our share price has substantial upside 1.3x of ONIT book value Share Price Against Key Metrics(a) Onity share price trades at substantial discount to a variety of metrics: $57 • Book value per share (BVPS) $50 • Sell-side research price targets $40 • Premium to book value like some peers

  21. Slide 21: Positioned to deliver strong results in 2024 and beyond

    Positioned to deliver strong results in 2024 and beyond SUSTAINED OPERATIONAL PROFITABILITY EXCELLENCE Robust Increase Leading Cost Structure and in 1H’24 Strong Operating Leverage PRUDENT CAPITAL- DELEVERAGING THE LIGHT GROWTH BALANCE SHEET Organic Growth That Reducing Debt While Emphasizes Subserv

  22. Slide 22: Appendix

    Appendix © 2024 Onity Group Inc. All rights reserved. 22

  23. Slide 23: Appendix

    Appendix ► Onity Group: Who We Are ► GAAP ROE Calculation ► Servicing Portfolio Diversity / MSR to ► Adjusted Pre-tax Income (Loss) ROE be Hedged Calculation ► Originations Detail by Channel ► Adjusted Pre-tax Income (Loss) and Weighted Average Shares Outstanding ► Operating Efficiency by Segment ►

  24. Slide 24: Onity Group is a mortgage originator and servicer

    Onity Group is a mortgage originator and servicer focused on creating positive outcomes for clients, homeowners, investors and communities Business Model Competitive Advantages Originations Servicing Asset Management ✓ Balanced business built to deliver results Balances earnings and drives Generates

  25. Slide 25: Diversified servicing portfolio mitigates risk

    Diversified servicing portfolio mitigates risk MSR to be hedged % of Servicing UPB GAAP MSR Fair Value end of Q2’24 GSE MSR end of period ~30% Fannie 2,328 Subservicing Other Owned MSR(a) ~57% Subserv ~43% 590 251 Freddie MAV 1,487 PLS MSR ($M) ~4% Q2'24 RITM Reverse (b) Rithm, MAV and other pledged

  26. Slide 26: Originations detail by channel: MSR bulk sales in 1H'24

    Higher funded volumes in B2B driven by Owned MSR replenishment strategy after MSR bulk sales in 1H’24 Funded Volume & Revenue Margin(a) by Channel revenue margin (bps) Fwd CL + Co-Issue Consumer Direct Reverse 6.6B 158M 183M 184M 166M 4.4B 4.3B 32 112M 96M 412 27 23 420 414 423 309 264 Q2'23 Q1'24 Q

  27. Slide 27: Scale and diligent cost management improving operating efficiency

    Scale and diligent cost management improving operating efficiency Originations Servicing 50 94% 200 91% 83% 40 71% 68% 150 49% 62% 66% 45% 43% 44% 30 52% 100 20 31% 30% 28% 29% 50 10 0 0 ($M) Q1'22 Q2'22 Q3'22 Q4'22 Q3'23 Q4'23 Q1'24 Q2'24 ($M) Q4'21 Q1'22 Q2'22 Q3'22 Q3'23 Q4'23 Q1'24 Q2'24 Opex Re

  28. Slide 28: Condensed Consolidated Balance Sheets (GAAP)

    Condensed Consolidated Balance Sheets (GAAP) Assets June 30, March 31, June 30, (Dollars in millions) 2023 2024 2024 Cash and cash equivalents 213 185 203 Restricted cash 119 66 46 Mortgage servicing rights (MSRs), at fair value 2,676 2,375 2,328 Advances, net 603 603 551 Loans held for sale 1,357 1

  29. Slide 29: Condensed Balance Sheet Breakdown

    Condensed Balance Sheet Breakdown Balance Sheet Breakdown Rithm, MAV & Assets Total GAAP other pledged Reverse GNMA All (Dollars in millions) June 30, 2024 Mortgages EBO others MSR(a) Cash and cash equivalents 203 203 Restricted cash 46 46 Mortgage servicing rights (MSRs), at fair value 2,328 590 1,

  30. Slide 30: Condensed Consolidated Statement of Operations (GAAP Income Statement)

    Condensed Consolidated Statement of Operations (GAAP Income Statement) 3 Months Ended 3 Months Ended 3 Months Ended (Dollars in millions) June 30, 2023 March 31, 2024 June 30, 2024 Revenue Servicing and subservicing fees 238 205 211 Gain on reverse loans held for investment and HMBS-related borrowin

  31. Slide 31: Note Regarding Non-GAAP Financial Measures

    Note Regarding Non-GAAP Financial Measures In the following slides, we present supplemental information (including reconciliations) relating to certain illustrative adjustments to GAAP pre-tax income (loss). We believe these non-GAAP financial measures provide a useful supplement to discussions and

  32. Slide 32: Notables and Adjusted Pre-tax Income (Loss) Calculation

    Notables and Adjusted Pre-tax Income (Loss) Calculation (Dollars in millions) Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 I Reported Net Income (Loss) (80) (40) 15 8 (47) 30 11 A Income Tax Benefit (Expense) (1) (2) (1) (1) (2) (2) (3) II Reported Pre-Tax Income (Loss) [ I – A ] (79) (38) 16 10 (46) 3

  33. Slide 33: Notables and Adjusted Pre-tax Income (Loss) Calculation

    Notables and Adjusted Pre-tax Income (Loss) Calculation (Dollars in millions) FY’21 FY’22 FY’23 1H’24 I Reported Net Income (Loss) 18 26 (64) 41 A Income Tax Benefit (Expense) 22 1 (6) (5) II Reported Pre-Tax Income (Loss) [ I – A ] (4) 25 (58) 45 Forward MSR Valuation Adjustments due to rates 11 15

  34. Slide 34: GAAP ROE Calculation

    GAAP ROE Calculation (Dollars in millions) Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 1H’24 I Reported Net Income (Loss) (80) (40) 15 8 (47) 30 11 41 II Annualized Net Income (Loss) (319) (161) 62 34 (190) 120 42 81 [ I * 4 ] for qtr, [ I * 2 ] for half Equity A Beginning Period Equity 546 457 416 43

  35. Slide 35: Adjusted Pre-Tax Income (Loss) ROE Calculation

    Adjusted Pre-Tax Income (Loss) ROE Calculation (Dollars in millions) Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 1H’24 I Reported Net Income (Loss) (80) (40) 15 8 (47) 30 11 41 II Notable Items (83) (44) (6) (0) (56) 18 (18) (0) III Income Tax Benefit (Expense) (1) (2) (1) (1) (2) (2) (3) (5) IV Adjus

  36. Slide 36: Adjusted Pre-tax Income and Weighted Average Shares Outstanding

    Adjusted Pre-tax Income (Loss) and Weighted Average Shares Outstanding (Dollars in millions) Q2’23 Q1’24 Q2’24 I Reported Net Income (Loss) 15 30 11 II Notable Items (6) 18 (18) III Income Tax Benefit (Expense) (1) (2) (3) IV Adjusted Pre-tax Income (Loss) [ I – II – III ] 22.7 14.1 31.7 Weighted Av

  37. Slide 37: Fully Diluted Share and Equity Data

    Fully Diluted Share and Equity Data(a) as of 6/30/24 Equity in $M Shares I. Basic Equity and Outstanding Shares 446.2 7,845,055 II. Awards & Options 0.3 818,621 III. Diluted Equity and Shares [ I + II ] 446.5 8,663,676 IV. Warrants(b) 38.1 1,446,016 V. Fully Diluted Equity and Shares [ III + IV ] 48

  38. Slide 38: MSR Valuation

    MSR(a) Valuation as of 6/30/2023 as of 3/31/2024 as of 6/30/2024 (b) (b) GSE Government Non-Agency Total Retained GSE Government Non-Agency Total Retained GSE Government(b) Non-Agency Total Retained ($ in M) UPB 92,323 14,647 14,094 121,064 91,288 19,797 13,370 124,455 91,501 17,416 13,038 121,955 L

  39. Slide 39: End Notes

    End Notes SLIDE 4 SLIDE 10 cont’d SLIDE 16 a) See slides 31-36 for discussion of non-GAAP measures including b) Servicing segment operating expenses (including overhead allocation) a) See slide 19 for cost structure comparison to peers notable items divided by avg UPB; beginning in Q4’23, Servicing

  40. Slide 40: End Notes

    End Notes SLIDE 24 SLIDE 32 cont’d SLIDE 33 cont’d a) Wholesale channel is reverse mortgage origination only d) FV changes of loans HFI and HMBS related borrowings due to market d) FV changes of loans HFI and HMBS related borrowings due to market interest rates and assumptions, a component of gain o

  41. Slide 41: Abbreviations

    Abbreviations • Adj: Adjusted (equal to GAAP, net of notables) • GSE: Government Sponsored Enterprise (FNMA, FHLMC) • PLS: Private Label Securities • Agency: FHLMC, FNMA, and/or GNMA • #H: Half of the fiscal year • PHH: PHH Mortgage Corporation, a wholly-owned subsidiary of ONIT • B: Billion • HECM:

  42. Slide 42: Customer first. Better together. We say. We do.

    Customer first. Better together. We say. We do.

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