Ocwen Financial Corporation Announces First Quarter Financial Results
WEST PALM BEACH, Fla., May 7, 2009 -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported net income of $15.1 million or $0.24 per share for the first quarter of 2009 despite a $4.6 million net unrealized loss on loans held for resale. This compares to net income of $5.3 million or $0.08 per share for the first quarter of 2008. This increase in net income reflects significantly lower operating and interest expenses. Income from continuing operations before income taxes was $23.3 million for the first quarter of 2009 as compared to $8.4 million for the first quarter of 2008.
BUSINESS PERFORMANCE HIGHLIGHTS
* Income from operations of $42.3 million represents a 5.4% improvement over the first quarter of 2008 reflecting an 18% decline in operating expenses. * Net income of $15.1 million reflects increased process management revenues, significantly lower operating expenses, significantly lower interest expense and reduced write-offs from non-core assets. * During the quarter, Ocwen strengthened its balance sheet through a new term advance financing of $67 million, renewing a $200 million advance facility and using strong operating cash flow to repurchase $25.9 million face value of convertible notes outstanding and paying down financings associated with mortgage servicing and auction rate securities. Subsequent to quarter-end, we raised $49 million, net, in a common equity private placement, upsized and renewed a $300 million advance facility to $500 million and renewed the Investment Line financing auction rate securities until June 30, 2010. * Ocwen completed 20,651 loan modifications despite a slowdown in late March as additional details and specific guidance related to the Home Affordable Modification Plan (HMP) emerged.
Chairman and CEO William Erbey stated, "Our operations teams continue to produce strong earnings despite an extremely challenging economic environment. Furthermore, we are proud to be at the forefront of the effort to keep borrowers in their homes and increase value for investors through our participation in the HMP. Beginning in the third quarter, we expect to receive significant revenues from this program.
To prosper in this environment, we have implemented a strategic plan centered on four initiatives:
1. Maintaining our strong liquidity position and continuing to
strengthen our balance sheet;
2. Pursuing revenue opportunities;
3. Extending our quality and cost structure leadership; and
4. Completing the spin-off of Ocwen Solutions as a separate company.
"First, our unused borrowing capacity at quarter end increased 64% from December 31, 2008 to $438.7 million. With the financing activities completed since quarter-end, our unused borrowing capacity exceeds $640 million. Therefore, our focus has shifted to extending the term of our borrowings. The inclusion of servicer advances in TALF has greatly increased the prospect of additional term financing.
"Second, during the first quarter of 2009, Ocwen Asset Management initiated a special servicing arrangement with Freddie Mac, and we are encouraged by our performance on this trial portfolio. Combining this special servicing with a servicing purchase during this quarter, our portfolio grew for the first time since the third quarter of 2007. We are not satisfied, however, and are actively pursuing several initiatives to provide us with an increased supply of servicing.
"Revenue growth at Ocwen Solutions will be driven by diversifying our product offering across the mortgage lifecycle (i.e., default products) and selectively expanding our geographic footprint considering the market opportunities in each state.
"Third, our first quarter performance speaks to our quality and cost initiatives. We kept more people in their homes and returned more loans to performing status than in any prior quarter in our history while reducing operating costs by 18%. We have three programs to continuously improve quality while reducing cost by automating processes, reducing variability and improving supervisory effectiveness.
"Fourth, we anticipate filing the documents to effectuate the separation of Ocwen Solutions with the SEC in the second quarter with the expectation of completing the separation during the third quarter, subject to regulatory review."
Ocwen Asset Management
Ocwen Asset Management generated income from operations of $39.7 million, 9.8% lower than the first quarter of 2008. Income from continuing operations before income taxes for the first quarter of 2009 improved 25.7% to $20.5 million from $16.3 million in the first quarter of 2008 reflecting a $7.7 million (32.4%) decline in interest expense.
Income from continuing operations before income taxes for Servicing increased 17.6%, a $3.8 million increase over the first quarter of 2008. Servicing realized operating expense savings of 18.4%, or $7.7 million, from reduced staffing levels, lower amortization and lower compensating interest compared to the first quarter of 2008. Unpaid principal balances were lower than the first quarter of 2008, leading to a 19.1% decline in servicing and subservicing fees.
Losses from continuing operations before income taxes for Loans and Residuals increased to $4.1 million as compared to a loss of $3.7 million in the first quarter of 2008. A significant factor leading to the loss was a decline in interest income received from residual securities in the first quarter of 2009 as compared to 2008.
Asset Management Vehicles incurred a $0.5 million loss from continuing operations before income taxes, an improvement over a $1.4 million loss from continuing operations in the first quarter of 2008. This improvement was primarily due to lower unrealized losses at unconsolidated subsidiaries associated with declines in the estimated market value of loans, real estate and residual securities.
Ocwen Solutions
Income from operations at Ocwen Solutions increased 25.6% to $6.7 million compared to the first quarter of 2008 due to cost reductions of 5.3% principally associated with reduced staffing levels in Financial Services. Income from continuing operations before income taxes declined to $6.2 million in the first quarter of 2009 from $12.8 million primarily due to $7.9 million in unrealized earnings at BMS Holdings, Inc., an affiliate, in the first quarter of 2008.
Mortgage Services benefited from new lines of business and higher order volumes in existing businesses as revenues increased 7.5% to $18.0 million compared to $16.8 million in the first quarter of 2008. Income from continuing operations before income taxes increased significantly to $5.1 million reflecting total operating expense reductions of 4.6%.
Revenues at Financial Services declined 11.2% to $17.3 million, compared to $19.5 million in 2008. This was primarily due to lower collection rates on contingency collections. A 4.5% decline in total operating expenses, compared to the first quarter of 2008, offset the decline in revenues resulting in a $1.3 million loss from continuing operations before income taxes.
Technology Products increased income from operations 49.8% to $2.4 million compared to the first quarter of 2008. This growth came from an 8.0% reduction in total operating expenses and a 0.9% increase in total revenues compared to the first quarter of 2008.
Corporate
Total corporate operating expenses of $4.0 million were significantly lower than the first quarter of 2008 primarily due to professional expenses incurred in relation to the terminated "go private" transaction in the first quarter of 2008. Total consolidated assets declined 9.3% from December 31, 2008 to $2,029.5 million at March 31, 2009 primarily due to a $148.9 million decrease in total advances. Total consolidated liabilities decreased 13.8% from December 31, 2008 to $1,402.8 million at March 31, 2009 primarily due to lower match funded and servicer liabilities.
Prior periods were adjusted to give effect to the required retrospective adoption of new accounting guidance which caused us to recognize additional non-cash interest expense related to the convertible notes outstanding.
Ocwen Financial Corporation is a leading asset manager and business process solutions provider specializing in loan servicing, special servicing and mortgage services. Ocwen is headquartered in West Palm Beach, Florida with offices in Arizona, California, the District of Columbia, Florida, Georgia and New York and global operations in Canada, Germany, India and Uruguay. Utilizing our state of the art technology, world-class training and six sigma processes, we provide solutions that make our clients' loans worth more. Additional information is available at www.ocwen.com.
This news 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, including, but not limited to, the securitization market and our plans to securitize loans and expectations as to the impact of rising interest rates and cost-effective resources in India. Forward-looking statements are not guarantees of future performance, and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially.
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 following: general economic and market conditions, prevailing interest or currency exchange rates, governmental regulations and policies, international political and economic uncertainty, availability of adequate and timely sources of liquidity, federal income tax rates, real estate market conditions and trends and the outcome of ongoing litigation as well as other risks detailed in OCN's reports and filings with the Securities and Exchange Commission, including its periodic report on Form 10-K for the year ended December 31, 2008 and Form 10-Q for the quarters ended March 31, June 30 and September 30, 2008 and our Forms 8-K filed during 2008. The forward-looking statements speak only as of the date they are made and should not be relied upon. OCN undertakes no obligation to update or revise the forward-looking statements.
Residential Servicing Statistics (Dollars in thousands)
At or for the three months ended
-----------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
2009 2008 2008 2008 2008
----------- ----------- ----------- ----------- -----------
Total
unpaid
principal
balance
of loans
and REO
serviced
(1) $40,789,135 $40,171,532 $41,754,368 $44,831,875 $49,319,762
Non-
per-
forming
loans and
REO
serviced
as a % of
total
UPB (1)
(2) 25.1% 24.3% 22.7% 22.4% 21.8%
Prepayment
speed
(average
CPR) 22% 25% 26% 26% 23%
(1) Excluding REO serviced pursuant to our contract with the U.S.
Department of Veterans Affairs, which we elected not to renew
in July 2008. Transition of the remaining properties to the
new service provider was completed in October.
(2) Loans for which borrowers are making scheduled payments under
forbearance or bankruptcy plans are considered performing loans.
Non-performing loans exclude those serviced under special
servicing agreements where we have no obligation to advance.
Segment Results (In thousands)
For the three months ended March 31, 2009 2008
----------------------------------------------- -------- --------
(As adjusted)
Ocwen Asset Management
Servicing
Revenue $ 74,694 $ 86,512
Operating expenses 34,218 41,952
-------- --------
Income from operations 40,476 44,560
Other expense, net (15,280) (23,131)
-------- --------
Income from continuing operations before
income taxes 25,196 21,429
-------- --------
Loans and Residuals
Revenue -- --
Operating expenses 561 917
-------- --------
Loss from operations (561) (917)
Other expense, net (3,577) (2,741)
-------- --------
Loss from continuing operations before income
taxes (4,138) (3,658)
-------- --------
Asset Management
Revenue 537 1,051
Operating expenses 762 690
-------- --------
Income (loss) from operations (225) 361
Other expense, net (302) (1,807)
-------- --------
Loss from continuing operations before income
taxes (527) (1,446)
-------- --------
Income from continuing operations before income
taxes 20,531 16,325
-------- --------
Ocwen Solutions
Mortgage Services
Revenue 18,017 16,755
Operating expenses 12,892 13,519
-------- --------
Income from operations 5,125 3,236
Other (income) expense, net 23 (83)
-------- --------
Income from continuing operations before
income taxes 5,148 3,153
-------- --------
Financial Services
Revenue 17,318 19,499
Operating expenses 18,151 19,008
-------- --------
Income (loss) from operations (833) 491
Other expense, net (468) (468)
-------- --------
Income (loss) from continuing operations
before income taxes (1,301) 23
-------- --------
Technology Products
Revenue 10,573 10,484
Operating expenses 8,173 8,882
-------- --------
Income from operations 2,400 1,602
Other income (expense), net (76) 8,009
-------- --------
Income from continuing operations before
income taxes 2,324 9,611
-------- --------
Income from continuing operations before income
taxes 6,171 12,787
-------- --------
Corporate Items and Other
Revenue 253 5
Operating expenses 3,982 8,636
-------- --------
Loss from operations (3,729) (8,631)
Other income (expense), net 291 (12,064)
-------- --------
Loss from continuing operations before income
taxes (3,438) (20,695)
-------- --------
Corporate Eliminations
Revenue (6,802) (6,055)
Operating expenses (6,473) (5,529)
-------- --------
Loss from operations (329) (526)
Other expense, net 329 526
-------- --------
Income (loss) from continuing operations
before income taxes -- --
-------- --------
Consolidated income from continuing operations
before income taxes $ 23,264 $ 8,417
======== ========
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
For the three months ended March 31, 2009 2008
------------------------------------------ ----------- -----------
(As Adjusted)
Revenue
Servicing and subservicing fees $ 78,810 $ 98,214
Process management fees 33,692 26,950
Other revenues 2,088 3,087
----------- -----------
Total revenue 114,590 128,251
----------- -----------
Operating expenses
Compensation and benefits 28,545 30,086
Amortization of servicing rights 10,041 14,014
Servicing and origination 12,638 14,411
Technology and communications 4,808 5,270
Professional services 7,186 14,749
Occupancy and equipment 6,046 6,533
Other operating expenses 3,002 3,012
----------- -----------
Total operating expenses 72,266 88,075
----------- -----------
Income from operations 42,324 40,176
----------- -----------
Other income (expense)
Interest income 2,165 4,813
Interest expense (16,663) (26,070)
Loss on trading securities (380) (12,023)
Gain on debt repurchases 534 --
Loss on loans held for resale, net (4,554) (4,509)
Equity in earnings of unconsolidated
entities 27 6,955
Other, net (189) (925)
----------- -----------
Other expense, net (19,060) (31,759)
----------- -----------
Income from continuing operations before
income taxes 23,264 8,417
Income tax expense 8,037 2,939
----------- -----------
Income from continuing operations 15,227 5,478
Loss from discontinued operations, net of
income taxes (188) (204)
----------- -----------
Net income 15,039 5,274
Net loss (income) attributable to
minority interest in subsidiaries 70 (2)
----------- -----------
Net income attributable to Ocwen
Financial Corporation (OCN) $ 15,109 $ 5,272
=========== ===========
Basic earnings per share
Income from continuing operations
attributable to OCN common shareholders $ 0.24 $ 0.09
Loss from discontinued operations
attributable OCN common shareholders -- (0.01)
----------- -----------
Net income attributable to OCN common
shareholders $ 0.24 $ 0.08
=========== ===========
Diluted earnings per share
Income from continuing operations
attributable to OCN common shareholders $ 0.24 $ 0.09
Loss from discontinued operations
attributable to OCN common shareholders -- (0.01)
----------- -----------
Net income attributable to OCN common
shareholders $ 0.24 $ 0.08
=========== ===========
Weighted average common shares outstanding
Basic 62,750,010 62,567,972
Diluted 67,871,466 62,814,449
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
March 31, December 31,
2009 2008
---------- ----------
(As Adjusted)
Assets
Cash $ 158,855 $ 201,025
Trading securities, at fair value
Investment grade auction rate 238,161 239,301
Subordinates and residuals 4,028 4,369
Loans held for resale, at lower of cost or
fair value 44,670 49,918
Advances 172,459 102,085
Match funded advances 881,244 1,100,555
Mortgage servicing rights 140,603 139,500
Receivables 49,433 42,798
Deferred tax assets, net 167,913 175,145
Intangibles, including goodwill of $9,836 45,589 46,227
Premises and equipment, net 11,799 12,926
Investments in unconsolidated entities 22,115 25,663
Other assets 92,647 97,588
---------- ----------
Total assets $2,029,516 $2,237,100
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities $ 790,300 $ 961,939
Lines of credit and other secured
borrowings 144,065 116,870
Investment line 186,568 200,719
Servicer liabilities 90,365 135,751
Debt securities 108,843 133,367
Other liabilities 82,697 78,813
---------- ----------
Total liabilities 1,402,838 1,627,459
---------- ----------
Stockholders' Equity
Ocwen Financial Corporation stockholders'
equity
Common stock, $.01 par value; 200,000,000
shares authorized; 62,963,498 and
62,716,530 shares issued and outstanding
at March 31, 2009 and December 31, 2008,
respectively 630 627
Additional paid-in capital 205,262 203,195
Retained earnings 418,646 403,537
Accumulated other comprehensive income, net
of income taxes 1,836 1,876
---------- ----------
Total Ocwen Financial Corporation
stockholders' equity 626,374 609,235
Minority interest in subsidiaries 304 406
---------- ----------
Total stockholders' equity 626,678 609,641
---------- ----------
Total liabilities and stockholders'
equity $2,029,516 $2,237,100
========== ==========
CONTACT: Ocwen Financial Corporation
David J. Gunter, Executive Vice President & Chief Financial
Officer
(561) 682-8367
David.Gunter@Ocwen.com