Ocwen Financial Corp
) 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.
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.
) 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.
In Feb 2013, Ocwen acquired Residential Capital LLC's MSRs in
Walter Investment Management Corp.
). The company shelled out $2.1 billion for the deal, subject to
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).
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