Ocwen Reports Record Earnings - Analyst Blog
May 03 2013 - 5:10AM
Zacks
Though Ocwen Financial Corp (OCN) lagged the
first-quarter 2013 Zacks Consensus Estimate by approximately 15%,
it reported record earnings. The company’s adjusted earnings came
in at 64 cents per share, up from the prior-year quarter number of
25 cents.
On a year-over-year basis, the results benefited from impressive
top-line growth and a rise in interest income, partially offset by
increased operating and interest expenses. Moreover, a strong
balance sheet and good liquidity were the tailwinds.
After considering certain non-recurring items, Ocwen’s net income
was $45.1 million or 31 cents per share, way above $19.3 million or
14 cents per share in the prior-year quarter.
Behind the Headlines
Ocwen’s total revenue witnessed significant growth on a
year-over-year basis to $406.7 million, from $164.5 million in the
prior-year quarter. This rise in total revenue was driven by
increased servicing and sub-servicing fees, gain on loans held for
sale and other income. Total revenue also surpassed the Zacks
Consensus Estimate of $366.0 million.
Operating expenses were $243.5 million, up substantially from $86.1
million in the year-ago quarter. The increase was due to higher
compensation and benefits costs, amortization of mortgage servicing
rights, servicing and origination costs, technology and
communications expenditures, occupancy and equipment costs as well
as other expenses.
Interest income rose significantly year over year to $5.2 million,
while interest expenses leaped 99.1% from the prior-year quarter to
$93.4 million.
Income from operations came in at $163.1 million, rising
significantly from $78.4 million in the year-ago quarter.
As of Mar 31, 2013, Ocwen recorded cash of $663.4 million, up from
$220.1 million as of Dec 31, 2012. Further, total assets came in at
$7.2 billion, surging 27.7% from $5.6 billion as of Dec 31,
2012.
Other Developments
In the first quarter, Ocwen completed 24,184 loan modifications,
with Home Affordable Modification Program (HAMP) constituting 34%
of the completed modifications. The company expects the quarterly
modification volume to rise as modification programs are applied to
the newly acquired servicing portfolios.
In Apr 2013, Ocwen closed the deal to acquire Genworth Financial
Home Equity Access, Inc. from Genworth Financial,
Inc. (GNW) for approximately $22 million in cash. In the
same month, Ocwen also completed the acquisition of $84.6 billion
worth of Fannie Mae mortgage servicing rights (MSRs) from Ally
Bank.
In Mar 2013, Ocwen sold $703 million worth of servicing advances as
well as the rights to receive servicing fees on about $15.9 billion
of unpaid principal balances (UPB) to Home Loan Servicing
Solutions, Ltd. (HLSS).
In Feb 2013, Ocwen acquired Residential Capital LLC’s MSRs in
collaboration with Walter Investment Management
Corp. (WAC). The company shelled out $2.1 billion for the
deal, subject to post-closing adjustments.
Our Take
Although the near-term outlook remains cautious owing to market
volatility and subprime MSR market contraction, Ocwen remains
committed to new business acquisitions and loan modifications.
Going forward, these will likely garner increased profitability.
Additionally, the company’s recent acquisitions will benefit its
financials in the long term.
Notably, with the ongoing fall in home prices, Ocwen might get even
more opportunities to acquire distressed servicing portfolios at
low prices. Despite these positives, the weak capital market,
sluggish economic recovery and persistently rising operating
expenses remain our major concerns.
Ocwen currently carries a Zacks Rank #2 (Buy).
GENWORTH FINL (GNW): Free Stock Analysis Report
HOME LOAN SERVC (HLSS): Free Stock Analysis Report
OCWEN FINL CORP (OCN): Free Stock Analysis Report
WALTER INV MGMT (WAC): Free Stock Analysis Report
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