Ocwen Financial Corporation Announces Second Quarter Net Income
WEST PALM BEACH, Fla., July 28, 2005 -- Ocwen Financial Corporation (NYSE:OCN) today reported net income for the second quarter of 2005 of $2.9 million or $0.05 per share compared to net income of $9.1 million or $0.13 per share for the second quarter of 2004. For the six months ended June 30, 2005 net income was $5.3 million or $0.08 per share as compared to $15.9 million or $0.23 per share for the same period in 2004. Results for the second quarter and first six months of 2005 are net of a tax provision of $2.3 million and $2.8 million, respectively as compared to $0.06 million and $0.07 million in the same periods of 2004.
Chairman and CEO William C. Erbey stated, "While our pre-tax income of $5.2 million is an improvement from the $2.9 million recorded in the first quarter of 2005, our second quarter results remain behind those achieved last year. Several factors contributed to this decline:
-- Results in Residential Servicing reflect the net impact of an increase in pre-overhead contribution from the Loan Servicing unit of 82%, offset by declines in the results of our servicing for the United States Department of Veteran's Affairs ("VA") due to reduced transaction volumes as well as the absence of one time REALServicing(R) fees of $2.9 million recorded in the second quarter of 2004.
-- The decline in pre-tax income in Residential Origination Services in the second quarter of 2005 as compared to 2004 primarily reflects a decline in contribution of $1.6 million from our Subprime Finance group primarily due to reduced cash proceeds from our subprime residual trading securities.
-- Despite growth in revenue during the second quarter of 2005 as compared to 2004, costs in both the Ocwen Recovery Group and Business Process Outsourcing segments increased reflecting increased staffing levels in both groups.
-- In the aggregate, our core businesses absorbed approximately $1.8 million more overhead expenses in the first half of 2005 than in the same period of 2004 because we no longer allocate these costs to the closed non-core Affordable Housing and Commercial Asset businesses.
We are please to note that on June 30th we completed our "debanking" initiative as our subsidiary, Ocwen Federal Bank FSB ("OFB"), completed the sale of its deposits and surrendered its thrift charter. The remaining assets and liabilities of OFB have been assumed by Ocwen Loan Servicing LLC ("OLS") a subsidiary which will conduct all of the core business activities formerly conducted by OFB. OLS is licensed in all 50 states and the District of Columbia to conduct our servicing and other business activities."
The Residential Servicing business reported pre-tax income of $2.6 million in the second quarter of 2005 vs. $7.4 million in the 2004 second quarter. Year to date, pre-tax income was $5.5 million in 2005 as compared to $12.9 million in the same period last year. Within this segment, contribution before overhead charges of the Residential Loan Servicing unit increased in the second quarter of 2005 by 82% as compared to the same period last year, reflecting increased float earnings and stable operating expenses. However, this improvement was offset by a decline in contribution from the VA servicing contract, reflecting lower transaction volumes in 2005 as compared to 2004. Second quarter 2005 results in this segment also reflect the absence of the one time fees of $2.9 million recognized in the second quarter of 2004 from a REALServicing contract. Our servicing portfolio has grown during the first half of 2005. As of June 30, 2005, we were the servicer of approximately 347 thousand loans with an unpaid principal balance (UPB) of $38.7 billion, as compared to approximately 320 thousand loans and $34.5 billion of UPB at December 31, 2004.
Residential Origination Services reported pre-tax income of $1.7 million in the second quarter of 2005 as compared to $4.4 million in the same period last year. Pre-tax income was $4.6 million in the first six months of 2005 as compared to $7.4 in the same period last year. The second quarter results reflect increases in our loan refinancing and resale programs and in REALTrans(R), offset by increased overhead costs and declines in earnings of Ocwen Realty Advisors and Subprime Finance. Our Mortgage Due Diligence Services group, which we initiated at the beginning of the year, generated $4.0 million in revenue and $0.2 million of contribution before overhead in the first six months of 2005.
Our other core businesses reported aggregate pre-tax income of $0.8 million in the second quarter of 2005 as compared to pre-tax income of $1.1 million in the second quarter of 2004. Year to date, these businesses recorded aggregate pre-tax income of $1.5 million in 2005 as compared to $2.8 million in 2004. This is primarily due to reduced earnings in Ocwen Recovery Group and Business Process Outsourcing. Despite revenue increases in these units, costs have increased reflecting increased staffing in these segments.
The Corporate Segment recorded break-even results in the second quarter of 2005 as compared to a pre-tax loss of $(2.7) million in the second quarter of 2004. In the first six months of 2005, Corporate reported a pre-tax loss of $(3.5) million in 2005 as compared to a pre-tax loss of $(2.0) million in the same period of 2004. Corporate results for the second quarter of 2005 include a pre-tax gain of $1.8 million from the sale of our deposits in the debanking transaction, offset primarily by interest expense retained in Corporate expenses because it represented the cost associated with maintaining high cash balances during the second quarter in preparation for debanking. Corporate results also include interest income on federal income tax receivables of $0.6 million and $0.1 million for the second quarter of 2005 and 2004, respectively. We have $22.4 million of non-core assets remaining as of June 30, 2005. In July, we sold a portion of a real estate investment, with a total book value of $5.2 million, for a gain of approximately $1.8 million. Several of the remaining assets are subject to sales contracts we expect to close in the second half of the year.
Income tax expense amounted to $2.2 million in the second quarter of 2005 as compared to $0.06 million in the second quarter of 2004. Year to date, tax expense amounted to $2.8 million in 2005 as compared to $0.07 million in the first six months of 2004. Tax expense in the second quarter of 2005 includes a one time provision of $1.1 million representing tax liabilities arising from the recapture of bad debt reserves in connection with the debanking transaction.
Ocwen Financial Corporation is a diversified financial services holding company with headquarters in West Palm Beach, Florida and operations in Canada, China, Germany, India, Japan and Taiwan. Ocwen Financial Corporation is principally engaged in servicing and origination processing services for the loan industry. Ocwen Financial Corporation is a global leader in customer service excellence as a result of our company-wide commitment to quality, integrity and accountability. Additional information about Ocwen Financial Corporation 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 outlook on reduction in non-core assets. 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, uncertainty related to dispute resolution and litigation, federal income tax rates, recognition of deferred tax credits and real estate market conditions and trends, 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, 2004 and Form 10-Q for the quarter ended March 31, 2005. 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.
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Six Months
For the periods
ended June 30, 2005 2004 2005 2004
Revenue
Servicing and
related fees $ 44,296 $ 40,769 $ 89,685 $ 83,060
Vendor management
fees 10,783 11,487 21,665 24,490
Gain (loss) on
trading
securities,
net (1,269) 2,503 (2,667) 1,860
Valuation gains
(losses) on real
estate 4 (1,974) 93 (3,825)
Gain (loss) on
sales of real
estate 13 81 48 (460)
Operating income
(loss) from real
estate (165) 565 (339) 573
Other income 5,881 4,984 7,766 11,604
Non-interest
revenue 59,543 58,415 116,251 117,302
Interest income 6,764 5,962 13,096 10,567
Interest expense 9,072 7,096 17,512 14,898
Net interest
expense before
provision for
loan losses (2,308) (1,134) (4,416) (4,331)
Provision for
loan losses (16) (287) (12) (819)
Net interest
expense after
provision for
loan losses (2,292) (847) (4,404) (3,512)
Total
revenue 57,251 57,568 111,847 113,790
Non-interest expense
Compensation and
employee benefits 24,355 20,897 48,727 42,930
Occupancy and
equipment 4,571 4,021 8,813 8,018
Technology and
communication
costs 7,862 6,616 15,261 13,285
Loan expenses 6,084 6,783 11,796 14,710
Professional
services and
regulatory fees 5,656 7,994 10,377 13,819
Loss (gain) on
investments in
affordable
housing
properties (118) (41) 524 (79)
Other operating
expenses 3,668 2,151 8,239 5,187
Non-interest
expense 52,078 48,421 103,737 97,870
Income (loss) before
income taxes 5,173 9,147 8,110 15,920
Income tax expense 2,265 55 2,815 66
Net income
(loss) $ 2,908 $ 9,092 $ 5,295 $ 15,854
Earnings (loss)
per share
Basic $ 0.05 $ 0.13 $ 0.08 $ 0.23
Diluted $ 0.05 $ 0.13 $ 0.08 $ 0.23
Weighted average
common shares
outstanding
Basic 62,809,286 68,160,020 62,776,469 67,961,217
Diluted 63,709,246 69,534,999 63,864,247 69,314,392
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30, 2005 December 31, 2004
Assets
Cash $ 310,233 $ 542,891
Trading securities,
at fair value:
Investment grade 2,942 86,215
Subordinates and residuals 45,343 39,527
Match funded assets (including
advances on loans serviced
for others of $331,337
and $276,626) 334,689 280,760
Advances on loans and loans
serviced for others 187,423 240,430
Mortgage servicing rights 132,333 131,409
Receivables 119,943 126,719
Real estate 9,314 18,732
Affordable housing properties 4,406 5,641
Loans (net of allowance
for loan losses of $4,334 and
$4,546) 8,725 3,792
Premises and equipment, net 41,115 37,440
Other assets 76,184 68,976
Total assets $ 1,272,650 $ 1,582,532
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities $ 274,825 $ 244,327
Servicer liabilities 310,369 258,826
Lines of credit and
other secured borrowings 52,525 50,612
Debt securities 231,249 231,249
Other liabilities 65,856 56,849
Deposits ----- 290,507
Escrow deposits ----- 118,525
Total liabilities 934,824 1,250,894
Minority interest in subsidiary 1,742 1,530
Stockholders' Equity
Common stock, $.01 par value;
200,000,000 shares authorized:
62,934,102 and 62,739,478
shares issued and outstanding 629 627
Additional paid-in capital 182,254 181,336
Retained earnings 153,428 148,133
Accumulated other comprehensive
income (loss), net of taxes (227) 12
Total stockholders'
equity 336,084 330,108
Total liabilities and
stockholders' equity $ 1,272,650 $ 1,582,532
Pre-Tax Income
(Loss) by Business
Segment
Three Months Six Months
For the periods ended
June 30, 2005 2004 2005 2004
(Dollars in thousands)
Core businesses
Residential
Servicing $ 2,599 $ 7,440 $ 5,547 $ 12,933
Residential
Origination
Services 1,725 4,357 4,558 7,391
Commercial Servicing 335 (511) 357 (553)
Business Process
Outsourcing 264 708 361 1,103
Ocwen Recovery Group 244 889 749 2,290
5,167 12,883 11,572 23,164
Non-core businesses
Commercial Assets --- 190 --- (3,050)
Affordable Housing --- (1,187) --- (2,159)
- --- (997) --- (5,209)
Corporate Items
and Other 6 (2,739) (3,462) (2,035)
Income (loss) before
income taxes $ 5,173 $ 9,147 $ 8,110 $ 15,920
CONTACT:
Ocwen Financial Corporation
Robert J. Leist, Jr.
Senior Vice President & Principal Financial Officer
T: (561) 682-7958
