Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Q4 2022 Earnings Presentation
33 slides from Onity's earnings presentation, Feb 28, 2023
Slide 1: Business Update Full Year and Fourth Quarter 2022
Business Update Full Year and Fourth Quarter 2022 February 28, 2023 © 2023 Ocwen Financial Corporation. All rights reserved.
Slide 2: Forward-Looking Statements and Non-GAAP Financial Measures
FORWARD-LOOKING STATEMENTS businesses, and the extent to which acquisitions and our other NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements within the strategic initiatives will contribute to achieving our growth objectives; This presentation contains references to no
Slide 3: Executive Summary
Executive Summary Balanced and diversified model performed $26M EPS $2.97 49% 1 well in 2022 Net Income 42% vs ‘21 BVPS $61 17% vs ‘21 Q4 Adjusted pre-tax loss improved; Q4 Adj PT $(3)M Notable Items(a) $(75)M 2 GAAP loss reflects prudent MSR valuation Loss(a) 57% vs Q3 MSR Valuation $(61)M 4.91x (0
Slide 4: Solid foundation to create value in current market environment
Solid foundation to create value in current market environment Favorable Servicing Environment Challenging Originations Market • Profitability continues to improve; record low prepayment speeds; • FNMA industry origination volume forecast(a) for 2023 $1.7T down increasing custodial income; stable de
Slide 5: Balanced and diversified business model
1 Balanced and diversified business model Net Income Improving Complementary Segment Pre-tax Income Diversified Servicing Portfolio GAAP Net Income (Loss) by Year GAAP Pre-tax Income (Loss) by Year % of Servicing UPB end of Q4’22 Subserviced Owned ~54% MSR ~46% 26 18 126 104 ($M) 90 GSE MSR 49 ~34%
Slide 6: Prudent growth adapted for the environment
2 Prudent growth adapted for the environment Robust Level of Servicing Additions Servicing Growth Driven by Capital-light Subservicing Full-Year Servicing Additions UPB Servicing UPB at Year End 152 Bulk 290 Subservicing 268 55 MSR Owned 89 189 155 5 132 57 56 91 Subservicing ($B) ($B) 55 MSR Owned
Slide 7: Industry-leading servicing operating cost structure
3 Industry-leading servicing operating cost structure Total Servicing Cost Structure Driving Continuous Improvement in Portfolio Growth Leverages Cost Improving Variable Operating Costs Structure to Enhance Profitability Total Servicing Operating Expenses as % of Avg Servicing UPB (a) Potential Impa
Slide 8: Top-tier operational performance and unmatched breadth of capabilities driving robust opportunity pipeline
Top-tier operational performance and unmatched breadth of capabilities driving 4 robust opportunity pipeline Recognized Servicing Excellence Broad Servicing Capabilities Robust opportunity pipeline Originations Profitability Drivers ✓ FNMA STAR, Freddie Mac SHARP and Forward, reverse, small balance
Slide 9: Capital partner relationships to support growth objectives
5 Capital partner relationships to support growth objectives Expand MAV Capacity MSR-X Process, 2 More Partners (ESS) • Since the upsize in mid Q4, MAV has purchased • Closed trades with two new capital partners $15B UPB to date at attractive pricing levels utilizing an excess servicing fee structur
Slide 10: Balanced business model and cost reductions offsetting market headwinds to improve adjusted pre-tax loss
Balanced business model and cost reductions offsetting market headwinds to improve adjusted pre-tax loss Q4’22 Financial Highlights Adjusted Pre-tax Income (Loss)(c) ($M, except per share metrics) Bridge Q3’22 to Q4’22 Q4’21 Q4’22 FY’21 FY’22 GAAP Net Income (Loss) (2) (80) 18 26 ($M) (9) EPS ($0.18
Slide 11: Prudent approach to MSR fair value reflects changes in interest rates and market conditions
Prudent approach to MSR fair value reflects changes in interest rates and market conditions Forward MSR Fair Value Changes • Forward MSR fair value in Q4 declined by $65M – $17M due to rates, $48M due Due to changes in to assumptions rates, other inputs 200 0.82% 0.81% and assumptions 150 0.65% • Ou
Slide 12: Servicing profitability improved in both forward and reverse
Servicing profitability improved in both forward and reverse Business Update Servicing Profitability Drivers Adjusted Pre-tax Income(a) Subservicing UPB up 18% YoY • Reverse PTI improvement in FY’22 due to Subserviced $19 $7 $18 Reverse UPB at qtr end portfolio growth, increased operational Forward
Slide 13: Our reverse business is profitable and prudently managed
5 Our reverse business is profitable and prudently managed Adjusted Pre-tax Income (Loss)(a) Subservicing requires less liquidity and reduces risk Reverse Reverse servicing • Integrated approach gives us direct control business Servicing UPB at yr end 31 of our servicing book, enabling a more Origin
Slide 14: Originations cost reductions and reverse profitability offset lower CL and CD volumes and margins
Originations cost reductions and reverse profitability offset lower CL and CD volumes and margins, resulting in slight adjusted pre-tax loss Business Update Originations Profitability Drivers • Reverse PTI up ~ $2M QoQ due to channel / Adjusted Pre-tax Income(a) Revenue Margins(b) corporate cost red
Slide 15: Originations positioned for expected profitability when market stabilizes
Originations positioned for expected profitability when market stabilizes Achieved Cost Reduction Goals Delivered ~$50M 58 annualized origination 52 cost reduction Q4 vs Q2 42 40 Total Originations Operating Expenses as % of Origination Volume (bps) Q1'22 Q2'22 Q3'22 Q4'22 Continuing to Expand 1,303
Slide 16: Strong growth in book value and earnings per share YoY
Strong growth in book value and earnings per share YoY; we believe our recent share price is not reflective of the strength of our business 150 OCN Share Price Russell 2000 Index 140 130 120 110 100 • Book value per share at $60.68; 90 stockholder’s equity at $457M 80 70 60 Indexed to value at 12/31
Slide 17: Roadmap to FY'23 profitability
Roadmap to FY’23 profitability Originations Servicing Corporate Objectives Prior View Current View Prior View FY’23View Current Prior View Current View 1,100+ Correspondent and 1,100+ Correspondent and ~11% total runoff ~10% total runoff a) Total originations revenue (GOS, origination fees and inter
Slide 18: Wrap-Up
Wrap-Up Our goal is to be the industry’s leading mortgage servicer creating positive outcomes for homeowners, clients, investors, and communities Balanced and diversified Prudent growth adapted for the business model environment Top-tier operational performance Industry-leading servicing cost and un
Slide 19: Appendix
Appendix • Ocwen: Who We Are • Consolidated Balance Sheets (GAAP) • Condensed Balance Sheet Breakdown • Consolidated Statement of Operations (GAAP Income Statement) • Notes Regarding Non-GAAP Financial Measures • Expense Notables • Income Statement Notables • GAAP ROE Calculation • After-tax ROE Bef
Slide 20: Ocwen is a mortgage originator and servicer focused on creating positive outcomes
Ocwen is a mortgage originator and servicer focused on creating positive outcomes for clients, homeowners, investors and communities Balanced and Diversified Business Model Competitive Advantages Diversified originations sources to balance Four pillar servicing portfolio optimizes risks earnings and
Slide 21: Consolidated Balance Sheets (GAAP)
Consolidated Balance Sheets (GAAP) Assets December 31, December 31, (Dollars in millions) 2022 2021 Cash and cash equivalents 208 193 Restricted cash 66 71 Mortgage servicing rights, at fair value 2,665 2,250 Advances, net 719 773 Loans held for sale 623 929 Loans held for investment 7,511 7,208 Acc
Slide 22: Condensed Balance Sheet Breakdown
Condensed Balance Sheet Breakdown Balance sheet breakdown Total in $M, at 12/31/22 Rithm & GNMA All GAAP HECM MAV EBO others Cash 208 208 Loans 8,134 7,327 807 MSRs 2,665 932 1,733 Advances 719 719 Other assets 673 290 383 Total Assets 12,399 932 7,327 290 3,850 HMBS borrowings 7,327 7,327 Loan ware
Slide 23: Consolidated Statement of Operations (GAAP Income Statement)
Consolidated Statement of Operations (GAAP Income Statement) Year Ended Year Ended (Dollars in millions) Dec 31, 2022 Dec31, 2021 Revenue Servicing and subservicing fees 863 782 Gain on reverse loans held for investment and HMBS-related borrowings, net 36 80 Gain on loans held for sale, net 22 146 O
Slide 24: 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 expenses, and pre-tax income (loss). We believe these non- GAAP financial measures provide a useful supplement to d
Slide 25: Expense Notables
Expense Notables In $M Q4’21 Q3’22 Q4’22 FY’21 FY’22 I Operating Expenses (as reported) 174 141 120 609 532 Adjustments for Notables(a) Significant legal and regulatory settlement (1) (3) (1) (12) 7 expenses Expense recoveries (2) (0) (0) (3) 4 Severance and retention(b) (0) (8) (6) - (19) LTIP stoc
Slide 26: Income Statement Notables
Income Statement Notables In $M Q4’21 Q3’22 Q4’22 FY’21 FY’22 I Reported Pre-Tax Income (Loss) (4) 33 (79) (4) 25 Adjustments for Notables(a) Expense Notables (from prior slide) 19 11 13 37 5 MSR Valuation Adjustments due to rates and (11) (63) 65 (11) (130) assumption changes, net(b)(d) Reverse Fai
Slide 27: GAAP ROE Calculation
GAAP ROE Calculation In $M Q4’21 Q3’22 Q4’22 FY’21 FY’22 I Reported Net Income (Loss) (2) 37 (80) 18 26 II Annualized Net Income (Loss) [I * 4] (7) 148 (319) 18 26 Equity A Beginning Period Equity 470 544 546 415 477 B Ending Period Equity 477 546 457 477 457 III Average Equity [(A + B) / 2] 473 545
Slide 28: After-tax ROE Before Notable Items Calculation
After-tax ROE Before Notable Items Calculation In $M Q4’21 Q3’22 Q4’22 FY’21 FY’22 I Reported Net Income (Loss) (2) 37 (80) 18 26 II Notable Items (14) 41 (75) (64) 73 III Estimated Tax Impact of Notables 2 (1) (4) (2) (0) IV Annualized Net Income ex-Notables 57 (19) (32) 80 (48) [(I – II + III) * 4
Slide 29: Adjusted Pre-tax Income (Loss) and Weighted Average Shares Outstanding
Adjusted Pre-tax Income (Loss)(a) and Weighted Average Shares Outstanding In $M (share counts in M) Q4’21 Q3’22 Q4’22 FY’21 FY’22 I Reported Net Income (Loss) (2) 37 (80) 18 26 II Notable Items (14) 41 (75) (64) 73 III Income Tax Benefit (Expense) 2 4 (1) 22 1 IV Adjusted Pre-tax Income (Loss)(a) (I
Slide 30: Fully Diluted Share and Equity Data
Fully Diluted Share and Equity Data(a) As of 12/31/22 Equity in $M Shares I. Basic Equity and Outstanding Shares $456.7 7,526,117 II. Awards & Options $0.5 647,228 III. Diluted Equity and Shares [ I + II ] $457.2 8,173,345 IV. Warrants(b) $38.1 1,446,016 V. Fully Diluted Equity and Shares [ III + IV
Slide 31: MSR Valuation Assumptions – Owned MSRs
MSR Valuation Assumptions – Owned MSRs As of 9/30/2022 As of 12/31/2022 ($ in M) FN/ FH FHA/ VA Non-Agency Total Retained FN/ FH FHA/ VA Non-Agency Total Retained UPB 95,880 12,284 15,276 123,440 98,376 12,944 14,869 126,189 Loan Count (000s) 380 85 97 561 387 86 94 567 Fair Value 1,424 191 128 1,74
Slide 32: End Notes
End Notes SLIDE 3 SLIDE 10 SLIDE 14 a) Adjusted pre-tax income (loss); see slides 24-29 for discussion of non- a) See slide 27 for calculation a) See slides 24-29 for discussion of non-GAAP measures GAAP measures including notable items b) MSR FV changes that are due to changes in market interest ra
Slide 33: End Notes
End Notes SLIDE 25 SLIDE 26 SLIDE 30 a) Certain previously presented notable categories with nil numbers for a) Certain previously presented notable categories with nil numbers for a) Fully diluted share and equity data assumes cash exercise of all dilutive each quarter shown have been omitted; prio