Ocwen Financial Corp
) reported third quarter 2012 earnings of 37 cents per share,
missing the Zacks Consensus Estimate of 40 cents. However, this
compares favorably with the prior-year quarter earnings of 19
Substantial rise in the top line and stable balance sheet
position were the positives for the quarter. However, increases
in operating and interest expenses along with a decrease in
interest income were the primary dampeners.
Ocwen's net income stood at $51.4 million, striding way ahead of
$20.2 million in the prior-year quarter.
Behind the Headlines
Ocwen's total revenue witnessed an impressive growth. It surged
90.0% year over year to $232.7 million. The improvement was the
result of a substantial rise in servicing and sub-servicing fees
and 19.1% rise in other income, partly offset by a decline of
3.0% in process management fees. Total revenue also significantly
outpaced the Zacks Consensus Estimate of $228.0 million by 2.1%.
Operating expenses stood at $92.8 million, up 41.3% from the
prior-year quarter. The main reason behind this hike was the
drastic rise in compensation and benefits costs, amortization of
mortgage servicing rights, servicing and origination costs,
technology and communications expenditure, occupancy and
equipment costs and other expenses.
Interest income declined 4.7% year over year to $2.1 million,
while interest expenses leaped significantly from the prior-year
quarter to $58.4 million.
Income from operations stood at $143.4 million, expanding
substantially from $58.7 million in the year-ago quarter.
Balance Sheet and Other Developments
As of September 30, 2012, Ocwen recorded cash of $270.5 million
compared with $144.2 million as of December 31, 2011.
During the third quarter, Ocwen completed 18,135 loan
modifications (including 29.0% in Home Affordable Modification
However, total assets came in at $4.2 billion, falling 12.1% from
the year-ago period. Total stockholders' equity came in at $1.5
billion, climbing 13.4% from the prior-year quarter.
Concurrent with the earnings release, Ocwen announced an
agreement whereby it will acquire Genworth Financial Home Equity
Access, Inc. - a wing of
Genworth Financial Corporation
). The deal estimated to be worth around $22 million and the
transaction is expected to close in the first quarter of 2013.
Early in October this year, Ocwen announced the signing of a
definitive agreement to acquire Homeward Residential Holdings
Inc. - an integrated mortgage firm with prime lending and
mortgage servicing operations - from WL Ross & Co. LLC. For
this, the company will be paying about $588 million in cash and
$162 million in Ocwen convertible preferred stock. The company
will expand its operations by foraying into mortgage origination
Later in the same month, Ocwen won a bid to acquire Residential
Capital's (ResCap) mortgage-servicing rights (MSRs) in
Walter Investment Management Corp.
) for a sum of $3 billion, higher than the initial valuation of
$2.5 billion. The offer needs to be approved by the bankruptcy
court in a hearing scheduled for November 19.
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.
These will likely convert into increased profitability over time.
Additionally, the company's recent acquisitions would benefit its
financials over the long term.
Furthermore, with the ongoing deterioration of home prices, Ocwen
might get even more opportunities to acquire distressed servicing
portfolios at low prices. Despite these positives, the
persistently weak capital market, slow economic recovery and
continuously rising operating expenses remain our major concerns.
Ocwen currently retains a Zacks #2 Rank, which translates into a
short-term Buy rating. However, considering the fundamentals, we
also maintain a long-term Neutral recommendation on the
GENWORTH FINL (GNW): Free Stock Analysis
OCWEN FINL CORP (OCN): Free Stock Analysis
WALTER INV MGMT (WAC): Free Stock Analysis
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