Ocwen Financial Corporation Announces Third Quarter Financial Results
WEST PALM BEACH, Fla., Nov. 5, 2009 -- As a result of a $50.6 million one-time tax expense arising from the separation of Ocwen Solutions, Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported a net loss of $42.0 million or $0.51 per share for the three months ended September 2009. This compares to net income of $15.0 million or $0.23 per share for the third quarter of 2008. Pretax income from continuing operations for the third quarter of 2009 was $23.5 million as compared to $23.4 million for the same period last year. Deferred tax assets offset $24.3 million of the one-time tax expense arising from the separation.
The net loss for the nine months ended September 2009 was $9.1 million or $0.13 per share. This compares to net income of $17.5 million or $0.28 per share for the same period in 2008. As with the three month reporting period, the net loss was solely due to the tax impact of the separation of Ocwen Solutions. Pretax income from continuing operations was $73.1 million for the nine months ended September 2009 as compared to $34.9 million for the nine months ended September 2008.
BUSINESS PERFORMANCE HIGHLIGHTS
* Ocwen completed a stock offering on August 18, 2009 which enhanced liquidity by $275.0 million. Total liquidity was $408.9 million while excess advance financing capacity was $720.2 million. * Ocwen added $4.4 billion in unpaid principal balance (UPB) of loans serviced under a special servicing agreement in August 2009 and $9.7 billion UPB under a subservicing agreement entered into in October 2009. * Cumulative trial mortgage loan modification offers under the federal government's Home Affordable Modification Program (HAMP) grew to 10,537 during the quarter representing a 109% increase in new trial offers extended during the third quarter. As of September 2009 there were 4,731 active HAMP trials. Lower trial modification offers during the second quarter yielded lower completed modifications in the third quarter. * Cost reduction efforts led to a 15% decline in operating costs as measured per dollar of UPB for the three months ended September 2009 (8 basis points) as compared to September 2008 (9 basis points).
Chairman and CEO William Erbey stated, "We are pleased with the successful separation of Ocwen Solutions and our progress on other key strategic initiatives to enhance liquidity, increase revenue and maintain quality while reducing costs, but there is much work yet to be done to capitalize on the opportunities before us. We continue to pursue more than $50 billion of additional UPB in potential servicing transactions in various stages of development. In addition to growing our servicing portfolio, we are working hard to improve our loss mitigation performance. Even though we lead the industry in loss mitigation, there is room for improvement which will have a positive impact on our bottom line. We do not recognize revenue on delinquent loans until they become current, principally through modifications, or sold as REO. This revenue is deferred but not lost. We do, however, recognize all expenses. Therefore, there is a significant opportunity for further increases in revenue and reductions in the level of assets dedicated to the business by reducing the inventory of delinquent loans. In October, for the first time since the enactment of HAMP, delinquencies as a percentage of the portfolio declined."
Ocwen Asset Management
Ocwen Asset Management generated income from operations of $30.1 million in the third quarter of 2009, 33% lower than the third quarter of 2008. Income from continuing operations before taxes for the third quarter of 2009 declined 36.6% to $16 million from $25.2 million in the third quarter of 2008 reflecting the expected decline in loan modifications and lower servicing UPB, partially offset by lower operating expenses.
Servicing
Income from continuing operations before taxes for Servicing of $17.7 million declined 39.1%, an $11.3 million decrease from the third quarter of 2008. The two primary drivers of the decline are lower UPB and a decrease in revenues associated with loan modifications in connection with the implementation of the HAMP. Servicing realized operating expense savings of 23.5%, or $9.5 million, from reduced staffing levels, lower amortization and lower compensating interest expense compared to the third quarter of 2008.
Loans and Residuals
Losses from continuing operations before taxes for Loans and Residuals decreased to $0.1 million as compared to $0.5 million in the second quarter of 2008. This improvement was primarily due to lower unrealized losses associated with declines in the estimated market value of loans, real estate and residual securities.
Asset Management Vehicles
Asset Management Vehicles incurred a $1.6 million loss from continuing operations before taxes as compared to a $3.3 million loss from continuing operations in the third quarter of 2008 primarily due to lower unrealized losses on residual securities and lower realized and unrealized losses on real estate.
Ocwen Solutions
Our Ocwen Solutions line of business, consisting of the Mortgage Services, Financial Services and Technology Products segments, was separated as of August 10, 2009. For the six weeks of the third quarter for which Ocwen Solutions was included in our results, revenue was $24.0 million and pre-tax income was $3.2 million. Operating expenses included a one-time charge of $2.3 million for the closure of two locations. These partial quarter results of Ocwen Solutions may not be indicative of results for the full quarter and were ahead of the previous quarter's results for the same period excluding the one time charge previously mentioned. As a separate, publicly-traded company, Altisource Portfolio Solutions S.A. (Nasdaq:ASPS) will file a Form 10-Q with the Securities and Exchange Commission.
Corporate
Unrealized gains on auction rate securities were $7.3 million in the third quarter of 2009, compared to no gain or loss in the third quarter of 2008. Total consolidated assets declined 16.2% from December 31, 2008 to $1,875.1 million at September 30, 2009 primarily due to a decrease in total advances and a reduction in cash, deferred tax assets, net, and goodwill and intangibles, net from the separation of Ocwen Solutions. Total consolidated liabilities decreased 37.5% from December 31, 2008 to $1,017.6 million at September 30, 2009. This was primarily due to debt repayments and a decline in 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 provider of residential and commercial loan servicing, special servicing and asset management services. Ocwen is headquartered in West Palm Beach, Florida with offices in California, the District of Columbia, Florida, Georgia and New York and support operations in India and Uruguay. Utilizing proprietary technology and world-class training and 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 Forms 10-Q for the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009. 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
-----------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2009 2009 2009 2008 2008
----------- ----------- ----------- ----------- -----------
Total
unpaid
principal
balance
of loans
and REO
serviced
(1) $40,293,698 $38,406,007 $40,789,135 $40,171,532 $41,754,368
Non-per-
forming
loans and
REO
serviced
as a % of
total UPB
(1)(2) 26.9% 27.4% 25.1% 24.3% 22.7%
Prepayment
speed
(average
CPR) 20% 22% 22% 25% 26%
(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
(Dollars in thousands)
Three months Nine months
---------------------- ---------------------- ----------------------
For the periods ended
September 30, 2009 2008 2009 2008
---------------------- ---------- ---------- ---------- ----------
(As adjusted) (As adjusted)
Ocwen Asset Management
Servicing
Revenue $ 62,118 $ 86,058 $ 199,539 $ 264,985
Operating expenses 30,749 40,218 97,922 124,893
---------- ---------- ---------- ----------
Income from
operations 31,369 45,840 101,617 140,092
Other expense, net (13,688) (16,816) (43,236) (57,777)
---------- ---------- ---------- ----------
Income from
continuing
operations before
taxes 17,681 29,024 58,381 82,315
---------- ---------- ---------- ----------
Loans and Residuals
Revenue -- -- -- --
Operating expenses 891 812 2,202 2,280
---------- ---------- ---------- ----------
Loss from
operations (891) (812) (2,202) (2,280)
Other income
(expense), net 809 291 (4,861) (7,342)
---------- ---------- ---------- ----------
Loss from
continuing
operations before
taxes (82) (521) (7,063) (9,622)
---------- ---------- ---------- ----------
Asset Management
Revenue 432 819 1,429 2,997
Operating expenses 753 885 2,530 2,501
---------- ---------- ---------- ----------
Income (loss) from
operations (321) (66) (1,101) 496
Other expense, net (1,317) (3,258) (2,466) (6,542)
---------- ---------- ---------- ----------
Loss from
continuing
operations before
taxes (1,638) (3,324) (3,567) (6,046)
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes 15,961 25,179 47,751 66,647
---------- ---------- ---------- ----------
Ocwen Solutions
Mortgage Services
Revenue 11,869 12,331 54,052 43,580
Operating expenses 8,131 9,674 37,039 34,137
---------- ---------- ---------- ----------
Income from
operations 3,738 2,657 17,013 9,443
Other income, net 81 49 802 646
---------- ---------- ---------- ----------
Income from
continuing
operations before
taxes 3,819 2,706 17,815 10,089
---------- ---------- ---------- ----------
Financial Services
Revenue 6,506 18,654 40,293 57,182
Operating expenses 9,295 22,003 45,001 62,140
---------- ---------- ---------- ----------
Loss from
operations (2,789) (3,349) (4,708) (4,958)
Other expense, net (146) (467) (1,261) (1,429)
---------- ---------- ---------- ----------
Loss from
continuing
operations before
taxes (2,935) (3,816) (5,969) (6,387)
---------- ---------- ---------- ----------
Technology Products
Revenue 5,648 11,672 28,331 34,556
Operating expenses 3,343 9,528 18,638 28,210
---------- ---------- ---------- ----------
Income from
operations 2,305 2,144 9,693 6,356
Other income
(expense), net 26 (87) (103) (5,721)
---------- ---------- ---------- ----------
Income from
continuing
operations before
taxes 2,331 2,057 9,590 635
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes 3,215 947 21,436 4,337
---------- ---------- ---------- ----------
Corporate Items and
Other
Revenue 319 12 681 154
Operating expenses 3,555 2,225 11,367 14,206
---------- ---------- ---------- ----------
Loss from
operations (3,236) (2,213) (10,686) (14,052)
Other income
(expense), net 7,518 (503) 14,566 (21,993)
---------- ---------- ---------- ----------
Income (loss) from
continuing
operations before
taxes 4,282 (2,716) 3,880 (36,045)
---------- ---------- ---------- ----------
Corporate Eliminations
Revenue (3,540) (8,285) (17,204) (22,727)
Operating expenses (3,344) (7,887) (16,410) (21,568)
---------- ---------- ---------- ----------
Loss from
operations (196) (398) (794) (1,159)
Other income, net 196 398 794 1,159
---------- ---------- ---------- ----------
Income from
continuing
operations before
taxes -- -- -- --
---------- ---------- ---------- ----------
Consolidated income
from continuing
operations before
income taxes $ 23,458 $ 23,410 $ 73,067 $ 34,939
========== ========== ========== ==========
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three months Nine months
---------------------- ----------------------
For the periods ended
September 30, 2009 2008 2009 2008
--------------------- ---------- ---------- ---------- ----------
(As Adjusted) (As Adjusted)
Revenue
Servicing and
subservicing fees $ 57,534 $ 91,298 $ 201,832 $ 290,200
Process management
fees 23,735 27,453 97,513 81,794
Other revenues 2,083 2,510 7,776 8,743
---------- ---------- ---------- ----------
Total revenue 83,352 121,261 307,121 380,737
---------- ---------- ---------- ----------
Operating expenses
Compensation and
benefits 18,959 33,727 74,758 96,567
Amortization of
servicing rights 7,159 12,106 25,743 40,712
Servicing and
origination 7,804 11,540 36,277 37,589
Technology and
communications 4,206 6,022 13,495 17,713
Professional services 6,378 5,973 21,772 27,058
Occupancy and
equipment 4,192 5,131 15,056 17,471
Other operating
expenses 4,675 2,959 11,188 9,689
---------- ---------- ---------- ----------
Total operating
expenses 53,373 77,458 198,289 246,799
---------- ---------- ---------- ----------
Income from operations 29,979 43,803 108,832 133,938
---------- ---------- ---------- ----------
Other income (expense)
Interest income 1,992 3,448 6,411 11,492
Interest expense (16,145) (19,334) (50,108) (66,513)
Gain (loss) on
trading securities 8,291 (621) 13,346 (22,366)
Gain (loss) on debt
redemption 1,600 -- 2,134 (86)
Loss on loans held
for resale, net (1,242) (674) (8,783) (11,112)
Equity in losses of
unconsolidated
entities (1,059) (2,928) (1,608) (10,628)
Other, net 42 (284) 2,843 214
---------- ---------- ---------- ----------
Other expense, net (6,521) (20,393) (35,765) (98,999)
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes 23,458 23,410 73,067 34,939
Income tax expense 65,294 8,330 82,803 11,693
---------- ---------- ---------- ----------
Income (loss) from
continuing
operations (41,836) 15,080 (9,736) 23,246
Income (loss) from
discontinued
operations, net of
income taxes (231) (186) 633 (5,572)
---------- ---------- ---------- ----------
Net income (loss) (42,067) 14,894 (9,103) 17,674
Net loss (income)
attributable to
minority interest
in subsidiaries 36 82 11 (143)
---------- ---------- ---------- ----------
Net income (loss)
attributable to
Ocwen Financial
Corporation (OCN) $ (42,031) $ 14,976 $ (9,092) $ 17,531
========== ========== ========== ==========
Basic earnings per
share
Income (loss) from
continuing
operations
attributable to OCN
common shareholders $ (0.51) $ 0.24 $ (0.14) $ 0.37
Income (loss) from
discontinued
operations
attributable to
OCN common
shareholders -- -- 0.01 (0.09)
---------- ---------- ---------- ----------
Net income (loss)
attributable to OCN
common shareholders $ (0.51) $ 0.24 $ (0.13) $ 0.28
========== ========== ========== ==========
Diluted earnings per
share
Income (loss) from
continuing
operations
attributable to OCN
common shareholders $ (0.51) $ 0.23 $ (0.14) $ 0.37
Income (loss) from
discontinued
operations
attributable to
OCN common
shareholders -- -- 0.01 (0.09)
---------- ---------- ---------- ----------
Net income (loss)
attributable to OCN
common shareholders $ (0.51) $ 0.23 $ (0.13) $ 0.28
========== ========== ========== ==========
Weighted average
common shares
outstanding
Basic 82,614,456 62,715,551 70,966,393 62,655,655
Diluted 82,614,456 69,750,889 70,966,393 62,897,271
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
Sept. 30, Dec. 31,
2009 2008
---------- ----------
(As Adjusted)
Assets
Cash $ 195,854 $ 201,025
Trading securities, at fair value
Investment grade auction rate 250,099 239,301
Subordinates and residuals 4,417 4,369
Loans held for resale, at lower of cost or
fair value 36,618 49,918
Advances 131,360 102,085
Match funded advances 879,444 1,100,555
Mortgage servicing rights 124,989 139,500
Receivables 33,135 42,798
Deferred tax assets, net 129,116 175,145
Intangibles, including goodwill -- 46,227
Premises and equipment, net 3,954 12,926
Investments in unconsolidated entities 18,764 25,663
Other assets 67,303 97,588
---------- ----------
Total assets $1,875,053 $2,237,100
========== ==========
Liabilities and Equity
Liabilities
Match funded liabilities $ 529,779 $ 961,939
Lines of credit and other secured
borrowings 54,665 116,870
Investment line 167,168 200,719
Servicer liabilities 59,457 135,751
Debt securities 109,814 133,367
Income taxes payable, net 18,940 --
Other liabilities 77,770 78,813
---------- ----------
Total liabilities 1,017,593 1,627,459
---------- ----------
Equity
Ocwen Financial Corporation stockholders'
equity Common stock, $.01 par value;
200,000,000 shares authorized; 99,835,097
and 62,716,530 shares issued and
outstanding at September 30, 2009 and
December 31, 2008, respectively 998 627
Additional paid-in capital 458,822 201,831
Retained earnings 395,809 404,901
Accumulated other comprehensive income,
net of income taxes 1,569 1,876
---------- ----------
Total Ocwen Financial Corporation
stockholders' equity 857,198 609,235
Minority interest in subsidiaries 262 406
---------- ----------
Total equity 857,460 609,641
---------- ----------
Total liabilities and equity $1,875,053 $2,237,100
========== ==========
CONTACT: Ocwen Financial Corporation
David J. Gunter, Executive Vice President & Chief Financial
Officer
(561) 682-8367
David.Gunter@Ocwen.com