Onity Group Inc. (NYSE: ONIT) (“Onity” or the “Company”), a leading
non-bank mortgage servicer and originator, today announced its
second quarter 2024 results and provided a business update.
The Company reported GAAP net income of $11 million for the
second quarter with an adjusted pre-tax income of $32 million (see
“Note Regarding Non-GAAP Financial Measures” below).
“I’m thrilled with the performance of the Onity platform, which
turned in powerful second quarter results reflecting increased
adjusted return on equity and enhanced book value per share, an
improved debt-to-equity ratio, and continued progress on our
strategic initiatives,” said Onity Group Chair, President and CEO
Glen Messina. “This quarter’s results provide the clearest
demonstration yet that our articulated strategy and financial
objectives are sound, and our execution is strong. We look forward
to further delivering on our commitments in the second half of the
year as we seek to close the gap on shareholder value and capture
tremendous upside potential.”
In addition to a strong second quarter, on July 26, 2024, Onity
entered into a letter of intent with Waterfall Asset Management,
LLC (“Waterfall”) to acquire reverse mortgage assets of Mortgage
Assets Management, LLC (“MAM”), a subsidiary of investment funds
managed by Waterfall. The transaction would include a reverse
mortgage servicing portfolio, which is currently subserviced by PHH
Mortgage, with a projected unpaid principal balance of
approximately $3 billion. The Company intends to issue $51.7
million in par value of new, non-convertible, cumulative preferred
stock to Waterfall in consideration of the acquisition. The
transaction is subject to appropriate regulatory approvals and
customary closing conditions and is expected to close in the second
half of 2024.
Messina commented, “We are pleased to announce the proposed
transaction with Waterfall. We expect this transaction to be
accretive to earnings and cash flows immediately upon closing,
while strengthening our position in reverse servicing as a hedge to
forward MSRs, providing incremental asset management opportunities,
and improving our capital structure. MAM has been a valued
subservicing client, and we look forward to closing the transaction
with Waterfall and pursuing future business opportunities.”
Additional Second Quarter 2024 Operating and Business
Highlights
- Rebranded to Onity Group Inc. and
began trading on the NYSE under the stock symbol “ONIT” effective
June 10, 2024
- Total ending servicing UPB of $304
billion and ending subservicing UPB of $173 billion, up 6% and 10%,
respectively, compared to December 31, 2023
- Year-over-year servicing and
originations cost structure continued to improve, down 17% and 22%,
respectively
- Originations volume of $7 billion,
up 51% compared to the first quarter 2024, demonstrating MSR
replenishment capability
- Variance between GAAP income and
adjusted pre-tax income due to unfavorable MSR fair value
adjustments driven by elevated hedge costs
- Total liquidity improved to $231
million as of June 30, 2024
- Book value per share improved to $57
as of June 30, 2024
Webcast and Conference Call
Onity will hold a conference call on Thursday, August 1, 2024,
at 8:30 a.m. (ET) to review the Company’s second quarter 2024
operating results and to provide a business update. A live audio
webcast and slide presentation for the call will be available by
visiting the Shareholder Relations page at onitygroup.com.
Participants can access the conference call by dialing (800)
343-4849 or (203) 518-9843 approximately 10 minutes prior to the
call; please reference the conference ID “Onity.” A replay of the
conference call will be available via the website approximately two
hours after the conclusion of the call. A telephonic replay will
also be available approximately three hours following the call’s
completion through August 15, 2024 by dialing (844) 512-2921 or
(412) 317-6671; please reference access code 11156410.
About Onity Group
Onity Group Inc. (NYSE: ONIT) is a leading non-bank mortgage
servicer and originator providing solutions through its primary
brands, PHH Mortgage and Liberty Reverse Mortgage. PHH Mortgage is
one of the largest servicers in the country, focused on delivering
a variety of servicing and lending programs. Liberty is one of the
nation’s largest reverse mortgage lenders dedicated to education
and providing loans that help customers meet their personal and
financial needs. We are headquartered in West Palm Beach, Florida,
with offices and operations in the United States, the U.S. Virgin
Islands, India and the Philippines, and have been serving our
customers since 1988. For additional information, please visit
onitygroup.com.
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, and includes
statements in this press release regarding delivering on our
commitments in the second half of the year and capturing potential
upside, and the expected closing of our pending acquisition of
reverse mortgage assets of MAM and the potential benefits of such
acquisition. Forward-looking statements by their nature address
matters that are, to different degrees, uncertain. 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.
Important factors that could cause actual results to differ
materially from those suggested by the forward-looking statements
include, but are not limited to, the timing for the closing of our
transaction with Waterfall and its impact on our business and
financial results; the potential for ongoing disruption in the
financial markets and in commercial activity generally as a result
of U.S. and global political events, changes in monetary and fiscal
policy, and other sources of instability; the impacts of inflation,
employment disruption, and other financial difficulties facing our
borrowers; the timing and terms on which we will refinance our
senior corporate debt; the adequacy of our financial resources,
including our sources of liquidity and ability to sell, fund and
recover servicing advances, forward and reverse whole loans, future
draws on existing reverse loans, and HECM and forward loan buyouts
and put backs, as well as repay, renew and extend borrowings,
borrow additional amounts as and when required, meet our MSR or
other asset investment objectives and comply with our debt
agreements, including the financial and other covenants contained
in them; our ability to interpret correctly and comply with current
or future liquidity, net worth and other financial and other
requirements of regulators, the Federal National Mortgage
Association (Fannie Mae), and Federal Home Loan Mortgage
Corporation (Freddie Mac) (together, the GSEs), and the Government
National Mortgage Association (Ginnie Mae), including our ability
to identify and implement a cost-effective response to Ginnie Mae’s
risk-based capital requirements that take effect in late 2024; our
ability to timely reduce operating costs, or generate offsetting
revenue, in proportion to the industry-wide decrease in
originations activity; the impact of cost-reduction initiatives on
our business and operations; the impact our rebranding initiative;
the amount of senior debt or common stock or that we may repurchase
under any repurchase programs, the timing of such repurchases, and
the long-term impact, if any, of repurchases on the trading price
of our securities or our financial condition; breach or failure of
Onity’s, our contractual counterparties’, or our vendors’
information technology or other security systems or privacy
protections, including any failure to protect customers’ data,
resulting in disruption to our operations, loss of income,
reputational damage, costly litigation and regulatory penalties;
our reliance on our technology vendors to adequately maintain and
support our systems, including our servicing systems, loan
originations and financial reporting systems, and uncertainty
relating to our ability to transition to alternative vendors, if
necessary, without incurring significant cost or disruption to our
operations; the extent to which MAV, other transactions and our
enterprise sales initiatives will generate additional subservicing
volume, and result in increased profitability; MAV’s continued
ownership of its MSR portfolio, and any impact on our subservicing
income as a result of the sale of MAV’s MSRs; the future of our
long-term relationship with Rithm Capital Corp. (Rithm); the timing
and amount of presently anticipated forward and reverse loan
boarding; our ability to close acquisitions of MSRs and other
transactions, including the ability to obtain regulatory approvals;
our ability to grow our reverse servicing business; our ability to
retain clients and employees of acquired businesses, and the extent
to which acquisitions and our other strategic initiatives will
contribute to achieving our growth objectives; increased servicing
costs based on increased borrower delinquency levels or other
factors; uncertainty related to past, present or future claims,
litigation, cease and desist orders and investigations regarding
our servicing, foreclosure, modification, origination and other
practices brought by government agencies and private parties,
including state regulators, the Consumer Financial Protection
Bureau (CFPB), State Attorneys General, the Securities and Exchange
Commission (SEC), the Department of Justice or the Department of
Housing and Urban Development (HUD); the reactions of key
counterparties, including lenders, the GSEs and Ginnie Mae, to our
regulatory engagements and litigation matters; increased regulatory
scrutiny and media attention; any adverse developments in existing
legal proceedings or the initiation of new legal proceedings; our
ability to effectively manage our regulatory and contractual
compliance obligations; our ability to comply with our servicing
agreements, including our ability to comply with the requirements
of the GSEs and Ginnie Mae and maintain our seller/servicer and
other statuses with them; our ability to fund future draws on
existing loans in our reverse mortgage portfolio; our servicer and
credit ratings as well as other actions from various rating
agencies, including any future downgrades; as well as other risks
and uncertainties detailed in our reports and filings with the SEC,
including our annual report on Form 10-K for the year ended
December 31, 2023. Anyone wishing to understand Onity’s business
should review our SEC filings. Our forward-looking statements speak
only as of the date they are made and, we disclaim any obligation
to update or revise forward-looking statements whether as a result
of new information, future events or otherwise.
Note Regarding Non-GAAP Financial Measures
This press release contains references to adjusted pre-tax
income (loss), a non-GAAP financial measure.
We believe this non-GAAP financial measure provides a useful
supplement to discussions and analysis of our financial condition,
because it is a measure that management uses to assess the
financial performance of our operations and allocate resources. In
addition, management believes that this presentation may assist
investors with understanding and evaluating our initiatives to
drive improved financial performance. Management believes,
specifically, that the removal of fair value changes of our net MSR
exposure due to changes in market interest rates and assumptions
provides a useful, supplemental financial measure as it enables an
assessment of our ability to generate earnings regardless of market
conditions and the trends in our underlying businesses by removing
the impact of fair value changes due to market interest rates and
assumptions, which can vary significantly between periods. However,
this measure should not be analyzed in isolation or as a substitute
to analysis of our GAAP pre-tax income (loss) nor a substitute for
cash flows from operations. There are certain limitations to the
analytical usefulness of the adjustments we make to GAAP pre-tax
income (loss) and, accordingly, we use these adjustments only for
purposes of supplemental analysis. Non-GAAP financial measures
should be viewed in addition to, and not as an alternative for,
Onity’s reported results under accounting principles generally
accepted in the United States. Other companies may use non-GAAP
financial measures with the same or similar titles that are
calculated differently to our non-GAAP financial measures. As a
result, comparability may be limited. Readers are cautioned not to
place undue reliance on analysis of the adjustments we make to GAAP
pre-tax income (loss).
Notables
In the table below, we adjust GAAP pre-tax income (loss) for the
following factors: MSR valuation adjustments, expense notables, and
other income statement notables. MSR valuation adjustments are
comprised of changes to Forward MSR and Reverse mortgage valuations
due to rates and assumption changes. Expense notables include
significant legal and regulatory settlement expenses, expense
recoveries, severance and retention costs, LTIP stock price
changes, consolidation of office facilities and other expenses
(such as costs associated with strategic transactions). Other
income statement notables include non-routine transactions that are
not categorized in the above.
|
(Dollars in millions) |
Q2’24 |
Q1’24 |
Q2’23 |
|
I |
Reported Net Income (Loss) |
11 |
30 |
15 |
|
|
A. Income Tax Benefit (Expense) |
(3) |
(2) |
(1) |
|
II |
Reported Pre-Tax Income (Loss) [I – A] |
14 |
32 |
16 |
|
|
Forward MSR Valuation Adjustments due to rates and assumption
changes, net (a)(b)(c) |
(13) |
18 |
(23) |
|
|
Reverse Mortgage Fair Value Change due to rates and assumption
changes (b)(d) |
(3) |
2 |
(10) |
|
III |
Total MSR Valuation Adjustments due to rates and assumption
changes, net |
(16) |
20 |
(33) |
|
|
Significant legal and regulatory settlement expenses |
2 |
(2) |
28 |
|
|
Expense Recoveries |
- |
- |
- |
|
|
Severance and retention (e) |
(1) |
(2) |
(1) |
|
|
LTIP stock price changes (f) |
1 |
3 |
(1) |
|
|
Office facilities consolidation |
0 |
(0) |
0 |
|
|
Other expense notables (g) |
(1) |
(1) |
0 |
|
|
B. Total Expense Notables |
1 |
(2) |
28 |
|
|
C. Other Income Statement Notables (h) |
(3) |
(0) |
(1) |
|
IV |
Total Other Notables [B + C] |
(2) |
(2) |
27 |
|
V |
Total Notables (i) [III +
IV] |
(18) |
18 |
(6) |
|
VI |
Adjusted Pre-Tax Income (Loss) [II – V] |
32 |
14 |
23 |
|
a) |
|
MSR Valuation Adjustments that are due to changes in market
interest rates, valuation inputs or other assumptions, net of
overall fair value gains / (losses) on MSR hedge, including FV
changes of Pledged MSR liabilities associated with MSR transferred
to MAV, RITM and others and ESS financing liabilities that are due
to changes in market interest rates, valuation inputs or other
assumptions, a component of MSR valuation adjustment, net |
| |
|
|
| b) |
|
The changes in fair value due to
market interest rates were measured by isolating the impact of
market interest rate changes on the valuation model output as
provided by our third-party valuation expert |
| |
|
|
| c) |
|
Beginning with the three months
ended March 31, 2023, for purposes of calculating Income Statement
Notables and Adjusted Pre-Tax Income (Loss), we changed the
methodology used to calculate MSR Valuation Adjustments due to
rates and assumption changes to exclude actual-to-model variances
of realization of cash flows, or runoff; the presentation of past
periods has been conformed to the current presentation; if we had
used the methodology employed prior to Q1’23, Forward MSR Valuation
Adjustments due to rates and assumption changes, net would have
been $2M for Q2’24, $28M for Q1’24, and $(14)M for Q2’23; Adjusted
PTI (Loss) would have been $17M for Q2’24, $4M for Q1’24, and $13M
for Q2’23; see slide titled “Note Regarding Non-GAAP Financial
Measures” for more information |
| |
|
|
| d) |
|
FV changes of loans HFI and HMBS
related borrowings due to market interest rates and assumptions, a
component of gain on reverse loans held for investment and
HMBS-related borrowings, net |
| |
|
|
| e) |
|
Severance and retention due to
organizational rightsizing or reorganization |
| |
|
|
| f) |
|
Long-term incentive program
(LTIP) compensation expense changes attributable to stock price
changes during the period |
| |
|
|
| g) |
|
Includes costs associated with
but not limited to rebranding and other strategic initiatives |
| |
|
|
| h) |
|
Contains non-routine transactions
including but not limited to gain on debt extinguishment and fair
value assumption changes on other investments recorded in other
income/expense |
| |
|
|
| i) |
|
Certain previously presented
notable categories with nil numbers for each period shown have been
omitted |
| |
Adjusted Pre-Tax Income (Loss) ROE
Calculation
|
(Dollars in millions) |
Q2’24 |
Q1’24 |
Q2’23 |
|
I |
Reported Net Income (Loss) |
11 |
30 |
15 |
|
II |
Notable Items |
(18) |
18 |
(6) |
|
III |
Income Tax Benefit (Expense) |
(3) |
(2) |
(1) |
|
IV |
Adjusted Pre-Tax Income (Loss) [I – II – III] |
32 |
14 |
23 |
|
V |
Annualized Adjusted Pre-tax Income (Loss) [IV *
4] |
127 |
56 |
91 |
|
|
Equity |
|
|
|
|
|
A Beginning Period Equity |
432 |
402 |
416 |
|
|
C Ending Period Equity |
446 |
432 |
434 |
|
|
D Equity Impact of Notables |
18 |
(18) |
6 |
|
|
B Adjusted Ending Period Equity [C + D] |
464 |
414 |
440 |
|
VI |
Average Adjusted Equity [(A + B) / 2] |
448 |
408 |
428 |
|
VII |
Adjusted Pre-Tax Income (Loss) ROE [V / VI] |
28.3% |
13.8% |
21.2% |
Condensed Consolidated Balance Sheets
|
Assets (Dollars in millions) |
June 30, 2024 |
March 31, 2024 |
June 30, 2023 |
| Cash and cash equivalents |
203.1 |
185.1 |
213.4 |
| Restricted cash |
46.3 |
66.1 |
119.1 |
| Mortgage servicing rights (MSRs), at fair value |
2,327.7 |
2,374.7 |
2,675.7 |
| Advances, net |
550.6 |
602.7 |
602.7 |
| Loans held for sale |
1,107.0 |
1,028.9 |
1,356.5 |
| Loans held for investment, at fair value |
8,227.8 |
8,130.5 |
7,680.7 |
| Receivables, net |
153.4 |
152.1 |
188.6 |
| Investment in equity method investee |
31.3 |
37.6 |
34.6 |
| Premises and equipment, net |
12.3 |
11.8 |
16.9 |
| Other assets |
84.3 |
84.3 |
80.5 |
| Contingent loan repurchase asset |
341.0 |
416.3 |
247.1 |
| Total
Assets |
13,084.7 |
13,090.1 |
13,216.0 |
|
Liabilities & Stockholders’ Equity
(Dollars in millions) |
June 30, 2024 |
March 31, 2024 |
June 30, 2023 |
| Home Equity Conversion Mortgage-Backed Securities (HMBS)
related borrowings, at fair value |
8,035.4 |
7,945.0 |
7,486.4 |
| Other financing liabilities, at fair value |
845.9 |
906.8 |
1,274.0 |
| Advance match funded liabilities |
405.0 |
440.2 |
430.4 |
| Mortgage loan financing facilities, net |
1,190.5 |
1,108.9 |
1,515.0 |
| MSR financing facilities, net |
927.7 |
964.1 |
864.8 |
| Senior notes, net |
555.2 |
552.0 |
605.0 |
| Other Liabilities |
337.9 |
324.7 |
359.5 |
| Contingent loan
repurchase liability |
341.0 |
416.3 |
247.1 |
| Total
Liabilities |
12,638.4 |
12,658.0 |
12,782.2 |
| Total
Stockholders’ Equity |
446.2 |
432.1 |
433.8 |
| Total
Liabilities and Stockholders’ Equity |
13,084.7 |
13,090.1 |
13,216.0 |
Condensed Consolidated Statements of
Operations
|
(Dollars in millions) |
Three Months Ended |
|
June 30, 2024 |
March 31, 2024 |
June 30, 2023 |
|
Revenue |
|
|
|
| Servicing and subservicing fees |
210.8 |
204.5 |
237.6 |
| Gain on reverse loans held for investment and HMBS-related
borrowings, net |
8.5 |
15.4 |
0.7 |
| Gain on loans held for sale, net |
16.5 |
10.9 |
25.3 |
| Other revenue,
net |
10.6 |
8.3 |
8.5 |
| Total
revenue |
246.4 |
239.1 |
272.0 |
| MSR valuation adjustments, net |
(32.7) |
(11.6) |
(48.9) |
| Operating expenses |
|
|
|
| Compensation and benefits |
55.0 |
53.6 |
57.7 |
| Servicing and origination |
13.9 |
15.0 |
17.6 |
| Technology and communications |
13.0 |
12.7 |
13.0 |
| Professional services |
10.7 |
12.0 |
(16.9) |
| Occupancy, equipment and mailing |
7.5 |
7.7 |
7.7 |
| Other expenses |
3.9 |
3.4 |
5.1 |
| Total
operating expenses |
104.0 |
104.4 |
84.3 |
| Other income (expense) |
|
|
|
| Interest income |
22.5 |
17.5 |
20.3 |
| Interest expense |
(73.1) |
(67.4) |
(68.3) |
| Pledged MSR liability expense |
(46.1) |
(44.9) |
(73.0) |
| Earnings of equity method investee |
3.1 |
2.7 |
2.9 |
| Gain on extinguishment of debt |
- |
1.4 |
- |
| Other, net |
(2.7) |
(0.6) |
(4.4) |
| Other income
(expense), net |
(96.2) |
(91.3) |
(122.5) |
| Income (loss) before income taxes |
13.5 |
31.8 |
16.3 |
| Income tax
expense |
3.0 |
1.7 |
0.9 |
| Net Income
(loss) |
10.5 |
30.1 |
15.5 |
| Basic EPS |
$1.34 |
$3.91 |
$2.02 |
| Diluted EPS |
$1.33 |
$3.74 |
$1.95 |
| |
For Further Information Contact:
Dico Akseraylian, SVP, Corporate Communications
(856) 917-0066
mediarelations@onitygroup.com
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