Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Q2 2023 Earnings Presentation
31 slides from Onity's earnings presentation, Aug 3, 2023
Slide 1: Business Update Second Quarter 2023
Business Update Second Quarter 2023 August 3, 2023 © 2023 Ocwen Financial Corporation. All rights reserved.
Slide 2: Forward-Looking Statements and Non-GAAP Financial Measures
FORWARD-LOOKING STATEMENTS investment objectives and comply with our debt agreements, including NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements within the the financial and other covenants contained in them; increased This presentation contains references to adjuste
Slide 3: Executive Summary
Executive Summary Adjusted pre-tax income improvement driven 1 by servicing segment Adjusted Pre-tax Income(a) $23M $17M vs Q1’23 GAAP net income reflects balanced business Net Income $15M $56M 2 and resolution of legacy litigation vs Q1’23 Pre-tax Notables(a) $(6)M $38M Lower servicing UPB driven b
Slide 4: Solid foundation to create value in current industry environment
Solid foundation to create value in current industry environment Favorable Servicing Environment Challenging Originations Market • Continued record low prepayment speeds; increasing custodial • Forward origination market near decade low levels; elevated interest income; stable delinquencies rates an
Slide 5: Balanced and diversified business
1 Balanced and diversified business Servicing Driving Growth in Forward Origination Market Diversified Servicing Portfolio Adjusted Pre-tax Income(a) Improving Creates Opportunities and Mitigates Risk Servicing 2,500 0.5% Originations % of Servicing UPB end of Q2’23 2,000 0.4% Subserviced Owned 1,50
Slide 6: Prudent growth adapted for the environment
2 Prudent growth adapted for the environment Origination Increasing Mix Special Servicing Expertise Enables Opportunistic of Higher Margin Products 42% Reverse Whole Loans Purchase at Attractive Financing GNMA CL, Best Efforts, Non- • Purchased $133M UPB of reverse whole loans and REOs Delegated, CD
Slide 7: Industry-leading servicing operating cost structure
3 Industry-leading servicing operating cost structure Improving Servicing Cost Increasing Customer Satisfaction Portfolio Growth Leverages Cost Structure While Controlling Cost Structure to Enhance Profitability Servicing Operating Expenses as % of Avg Servicing UPB (a) Net Promoter Scores (NPS) Pot
Slide 8: Top-tier operational performance and unmatched breadth of capabilities
4 Top-tier operational performance and unmatched breadth of capabilities Recognized Servicing Excellence Technology Boosts Customer Experience Broad Servicing Capabilities ✓ FNMA STARTM and Freddie Mac SHARPSM ✓ Executing omnichannel technology plan ✓ Superior reverse servicing capabilities awards,
Slide 9: Capital partner relationships to support growth objectives
5 Capital partner relationships to support growth objectives Servicing UPB funded by MSR capital partners Meaningful progress in building MSR investor (including synthetic subservicing and ESS) partnerships to enable capital-light growth • MSR investor program initiated with Oaktree and MAV which ha
Slide 10: Significantly stronger Adjusted Pre-tax Income profitability driven by Servicing segment
Significantly stronger Adjusted Pre-tax Income profitability driven by Servicing segment Q2’23 Financial Highlights ($M, except per share metrics) 1. GAAP Net Income up $56M QoQ despite $(33)M MSR Valuation Q2’22 Q1’23 Q2’23 Adjustments GAAP Net Income (Loss) 10 (40) 15 a. ~$15M gain from opportunis
Slide 11: Adjusted Pre-tax Income (Loss) Bridge Q1'23 to Q2'23
Adjusted Pre-tax Income (Loss)(a) Bridge Q1’23 to Q2’23 Servicing ($M) All Segments 46 (17) ($M) Q1’23 Reverse Whole Reverse Forward Q2’23 23 Adj PTI Loan Purchase Other Adj PTI Servicing Segment up $15M QoQ driven by gain on reverse whole loans Originations Q1’23 Servicing Originations Unallocated
Slide 12: Prudently managing MSR exposure given the potential for lower mortgage interest rates
Prudently managing MSR exposure given the potential for lower mortgage interest rates Balance sheet MSRs far exceed MSRs that Managing MSR Portfolio carry interest rate risk exposure MSR Fair Value MSR Owned Servicing at 6/30/23 UPB at Quarter End 136 130 124 2 1,010 20 26 259 2,676 ESS 1,407 Excess
Slide 13: Servicing exhibited strong growth in profitability
Servicing exhibited strong growth in profitability – steady improvement in Forward and non-recurring gain in Reverse Business Update Servicing Profitability Drivers • Improvement in Forward Servicing PTI due to: Adjusted Pre-tax Income(a) Subservicing UPB Subserviced $(1) $30 $46 Reverse Forward UPB
Slide 14: Originations seeing continued client growth and expansion in higher margin products
Originations seeing continued client growth and expansion in higher margin Best Efforts and GNMA products to mitigate slightly higher QoQ loss in our Reverse business Business Update Originations Profitability Drivers • Second quarter Origination segment adjusted Adjusted Pre-tax Income(a) Revenue M
Slide 15: We believe our share price is not reflective of the strength of our business
We believe our share price is not reflective of the strength of our business, especially with a positive adjusted pre-tax income 150 OCN Share Price Peer Group(a) Russell 2000 Index 140 130 • Stock outperforming peers, 19 120 percentage points more growth from 110 year-end 2020 to 7/31/23 100 90 80
Slide 16: Wrap-Up
Wrap-Up As we continue to execute our business strategy, we believe we are well-positioned to navigate the market environment ahead and deliver long-term value for our shareholders Balanced and diversified Prudent growth adapted for the business environment Top-tier operational performance Industry-
Slide 17: Appendix
Appendix • Ocwen: Who We Are • Condensed Consolidated Balance Sheets (GAAP) • Condensed Balance Sheet Breakdown • Condensed Consolidated Statement of Operations (GAAP Income Statement) • Notes Regarding Non-GAAP Financial Measures • Notables • GAAP ROE Calculation • Adjusted Pre-tax Income ROE Calcu
Slide 18: 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 Competitive Advantages Diversified originations sources to balance Four pillar servicing portfolio optimizes risks earnings and drive
Slide 19: Condensed Consolidated Balance Sheets (GAAP)
Condensed Consolidated Balance Sheets (GAAP) Assets June 30, March 31, June 30, (Dollars in millions) 2022 2023 2023 Cash and cash equivalents 256 217 213 Restricted cash 67 39 119 Mortgage servicing rights, at fair value 2,486 2,581 2,676 Advances, net 647 657 603 Loans held for sale 687 849 1,357
Slide 20: Condensed Balance Sheet Breakdown
Condensed Balance Sheet Breakdown Balance sheet breakdown Total in $M, at 6/30/23 Rithm, MAV & GAAP GNMA All Other Pledged HECM EBO others MSR Cash 213 213 Loans 9,037 7,486 1,551 MSRs 2,676 1,010 1,666 Advances 603 603 Other assets 687 247 440 Total Assets 13,216 1,010 7,486 247 4,473 HMBS borrowin
Slide 21: 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) Jun 30, 2022 Mar 31, 2023 Jun 30, 2023 Revenue Servicing and subservicing fees 215 232 238 Gain on reverse loans held for investment and HMBS-related borrowings,
Slide 22: 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
Slide 23: Notables
Notables a) MSR Valuation Adjustments that are due to changes in market interest rates, valuation inputs or other (Dollars in millions) Q2’22 Q1’23 Q2’23 assumptions, net of overall fair value gains / (losses) on MSR hedge, including FV changes of Pledged MSR liabilities associated with MSR transfer
Slide 24: GAAP ROE Calculation
GAAP ROE Calculation In $M Q2’22 Q1’23 Q2’23 I Reported Net Income (Loss) 10 (40) 15 II Annualized Net Income (Loss) [I * 4] 41 (161) 62 Equity A Beginning Period Equity 534 457 416 B Ending Period Equity 544 416 434 III Average Equity [(A + B) / 2] 539 436 425 IV GAAP ROE [II / III] 8% (37%) 15% Oc
Slide 25: Adjusted Pre-Tax Income ROE Calculation
Adjusted Pre-Tax Income ROE Calculation In $M Q2’22 Q1’23 Q2’23 I Reported Net Income (Loss) 10 (40) 15 II Notable Items 47 (44) (6) III Income Tax Benefit (Expense) 1 (2) (1) IV Annualized Adjusted Pre-tax Income (Loss) (151) 23 91 [(I – II – III) * 4] Equity A Beginning Period Equity 534 457 416 C
Slide 26: 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) Q2’22 Q1’23 Q2’23 I Reported Net Income (Loss) 10 (40) 15 II Notable Items 47 (44) (6) III Income Tax Benefit (Expense) 1 (2) (1) IV Adjusted Pre-tax Income (Loss)(a) (I – II – III) (38) 6 23 Weighted
Slide 27: Fully Diluted Share and Equity Data
Fully Diluted Share and Equity Data(a) As of 6/30/23 Equity in $M Shares I. Basic Equity and Outstanding Shares $433.8 7,677,008 II. Awards & Options $0.5 751,836 III. Diluted Equity and Shares [ I + II ] $434.2 8,428,844 IV. Warrants(b) $38.1 1,466,016 V. Fully Diluted Equity and Shares [ III + IV
Slide 28: MSR Valuation Assumptions – Forward Owned MSRs
MSR Valuation Assumptions – Forward Owned MSRs As of 3/31/2023 As of 6/30/2023 ($ in M) FN/ FH FHA/ VA Non-Agency Total Retained FN/ FH FHA/ VA Non-Agency Total Retained UPB 99,239 13,881 14,478 127,598 99,323 14,647 14,094 121,064 Loan Count (000s) 391 88 92 571 363 89 90 543 Fair Value 1,358 197 1
Slide 29: End Notes
End Notes SLIDE 3 SLIDE 10 (cont’d) SLIDE 13 a) See slides 22-26 for discussion of non-GAAP measures including c) MSR Valuation Adjustments that are due to changes in market interest a) See slides 22-26 for discussion of non-GAAP measures notable items rates, valuation inputs or other assumptions, n
Slide 30: End Notes
End Notes SLIDE 23 SLIDE 23 (cont’d) a) MSR Valuation Adjustments that are due to changes in market interest f) Includes costs associated with strategic transactions including rates, valuation inputs or other assumptions, net of overall fair value transaction costs related to the reverse subservicin
Slide 31: Abbreviations
Abbreviations • ABC: Appraisal Based Claim • Fwd: Forward Mortgage • Perf: Performing Loan • AUM: Assets Under Management • GAAP: Generally Accepted Accounting Principles • PLS: Private Label Securities • BK: Bankruptcy • Ginnie Mae: Government National Mortgage Association • PHH: PHH Mortgage Corpo