WEST PALM BEACH, Fla., March 4, 2010 -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported estimated net income of $9.4 million or $0.09 per diluted share for the fourth quarter of 2009. This compares to a net loss of $4.3 million or $0.07 per share for the fourth quarter of 2008. Pre-tax income from continuing operations was $20.2 million for the fourth quarter of 2009 as compared to a pre-tax loss of $4.0 million for the fourth quarter of 2008. For the year ended December 31, 2009, the $50.6 million one-time tax expense arising from the separation of Altisource Portfolio Solutions S.A. (formerly Ocwen Solutions) in August, and the fourth quarter valuation allowance related to a non-cash deferred tax asset arising from deductibility of losses in a finance vehicle, lowered estimated net income to $0.3 million as compared to $13.2 million or $0.21 per diluted share for 2008. The company's estimated fourth quarter 2009 financial results are preliminary and subject to change.
Income from continuing operations before income taxes was $93.3 million for the full year 2009 compared to $31.0 million for 2008. This improvement of 201% was driven by a $46.7 million swing in gains versus losses in trading securities, a $23.6 million reduction in interest expense and a reduction of equity in losses of unconsolidated entities of $10.2 million.
FOURTH QUARTER BUSINESS PERFORMANCE HIGHLIGHTS
Ocwen issued $210 million of advance receivable backed notes under the TALF program in December 2009 and another $200 million in February 2010. These financings were for terms of 30 and 24 months and fixed interest rates at 4.14% and 3.59%, respectively. As a result of these two financings, Ocwen's asset liability structure is asset sensitive.
The residential servicing portfolio grew by $9.7 billion or 24% over the third quarter of 2009.
Completed modifications for the fourth quarter of 15,677 exceeded the top end of our previous guidance of 10,000 to 15,000. This 124% increase over third quarter modifications included 4,296 HAMP modifications.
Income from operations grew by 21% over the third quarter of 2009 principally due to an increase in revenues in the Servicing segment of $9.4 million.
Equity now exceeds liabilities as a result of our repayment of the Investment line subsequent to year end.
Ocwen completed the sale of Bankhaus Oswald Kruber during the quarter recognizing income of $2.5 million from discontinued operations, net of income taxes.
"Ocwen continues its quality leadership in special servicing. We have the highest conversion rate from trial to completed modifications under HAMP while maintaining a re-default rate of one-half the industry," said Ron Faris, President of Ocwen. "I am pleased that our portfolio grew 24% to $50.0 billion in the fourth quarter. Coupled with our growth in modifications, revenue for our Servicing segment increased 15% over the third quarter while operating expenses declined by 4%. Our Servicing pre-tax income increased 66% from the prior quarter."
Chairman and CEO William Erbey added, "Strategic priorities for 2010 are:
Establish predictable and sustainable revenue growth in our servicing operations,
Improve process efficiencies to further reduce costs,
Improve quality, and
Reduce asset intensity and, therefore, enhance return on equity."
"Establishing predictable and sustainable revenue growth is our most pressing issue. As such, we have a three pronged approach:
Expand our governmental servicing and special servicing activities,
Develop flow FHA servicing, and
Acquire existing servicing portfolios. We are evaluating four servicing acquisitions, two of which, totaling $35 billion, are nearing final decisions."
Servicing
In comparison to the fourth quarter of 2008, revenue was 5% lower while operating expenses were 24% favorable as the shift towards subservicing and special servicing reduced amortization expense by 45%. Pre-tax income for Servicing of $29.3 million was 65% higher than the same quarter last year due to decreases in amortization of servicing rights, servicing and origination and interest expense.
Loans and Residuals
Loans and Residuals incurred a loss from continuing operations before taxes of $2.1 million as compared to $5.1 million in the fourth quarter of 2008. The change is primarily due to lower unrealized losses driven by declines in the estimated market value of loans and real estate.
Asset Management Vehicles
Losses from continuing operations before taxes for Asset Management Vehicles decreased to $1.8 million as compared to $3.1 million in the fourth quarter of 2008. This improvement reflects lower unrealized losses on residual securities and lower realized and unrealized losses on real estate.
Corporate
In the fourth quarter of 2009, losses from continuing operations before taxes improved 71% primarily due to reduced unrealized losses on auction rate securities, as compared to the fourth quarter of 2008. Since September 30, 2009, auction rate securities with a carrying value of $124.4 million were sold at a $1.4 million loss and the Investment line was repaid. As a result of the sales and changes in fair value, holdings in auction rate securities are currently $124.6 million. Of the auction rate securities remaining on the balance sheet, $86.5 million were financed by $75.0 million of non-recourse debt with a maturity in October 2012.
Total consolidated assets declined 21% to $1,769.4 million for the year due to $234.1 million of reductions in advances and match funded advances, the distribution of $88.5 million of assets in the separation of Altisource Portfolio Solutions S.A. and our strategy to use cash to lower interest expense. Corresponding changes in liabilities resulted in a 44% reduction to $903.5 million.
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 and Georgia 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 Ocwen's reports and filings with the Securities and Exchange Commission, including its Registration Statement No. 333-160626 and 333-163996 on Form S-3 and 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
December 31, 2009
September 30, 2009
June 30,
2009
March 31,
2009
December 31, 2008
Total unpaid principal balance of loans and REO serviced (1)
$49,980,077
$40,293,698
$38,406,007
$40,789,135
$40,171,532
Non-performing loans and REO
serviced as a % of total UPB (1)
25.6%
26.9%
27.4%
25.1%
24.3%
Prepayment speed (average CPR)
19%
20%
22%
22%
25%
(1) Loans for which borrowers are making scheduled payments under modification, 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) (UNAUDITED)
Three months
Twelve months
For the periods ended December 31,
2009
2008
2009
2008
(As adjusted)
(As adjusted)
Ocwen Asset Management
Servicing
Revenue
$ 72,327
$ 75,740
$ 272,725
$ 340,725
Operating expenses
30,472
40,060
129,252
164,292
Income from operations
41,855
35,680
143,473
176,433
Other expense, net
(12,555)
(17,886)
(55,792)
(75,663)
Income from continuing operations before taxes
29,300
17,794
87,681
100,770
Loans and Residuals
Revenue
—
—
—
—
Operating expenses
631
800
2,831
3,025
Loss from operations
(631)
(800)
(2,831)
(3,025)
Other expense, net
(1,427)
(4,315)
(6,290)
(11,657)
Loss from continuing operations before taxes
(2,058)
(5,115)
(9,121)
(14,682)
Asset Management
Revenue
422
667
1,851
3,664
Operating expenses
578
896
3,108
4,113
Loss from operations
(156)
(229)
(1,257)
(449)
Other expense, net
(1,594)
(2,822)
(4,060)
(9,364)
Loss from continuing operations before taxes
(1,750)
(3,051)
(5,317)
(9,813)
Income from continuing operations before income taxes
25,492
9,628
73,243
76,275
Ocwen Solutions
Mortgage Services
Revenue
—
15,153
54,052
58,733
Operating expenses
—
12,162
37,040
46,299
Income from operations
—
2,991
17,012
12,434
Other income, net
—
181
803
828
Income from continuing operations before taxes
—
3,172
17,815
13,262
Financial Services
Revenue
—
16,653
40,293
73,835
Operating expenses
—
17,617
45,002
79,757
Loss from operations
—
(964)
(4,709)
(5,922)
Other expense, net
—
(524)
(1,260)
(1,953)
Loss from continuing operations before taxes
—
(1,488)
(5,969)
(7,875)
Technology Products
Revenue
—
10,717
28,331
45,283
Operating expenses
—
7,685
18,638
35,895
Income from operations
—
3,032
9,693
9,388
Other expense, net
—
(87)
(103)
(5,808)
Income from continuing operations before taxes
—
2,945
9,590
3,580
Income from continuing operations before income taxes
—
4,629
21,436
8,967
Corporate Items and Other
Revenue
385
2
1,066
156
Operating expenses
4,942
4,537
16,308
18,743
Loss from operations
(4,557)
(4,535)
(15,242)
(18,587)
Other income (expense), net
(741)
(13,679)
13,824
(35,673)
Loss from continuing operations before taxes
(5,298)
(18,214)
(1,418)
(54,260)
Corporate Eliminations
Revenue
(386)
(7,541)
(17,590)
(30,268)
Operating expenses
(117)
(7,201)
(16,525)
(28,769)
Loss from operations
(269)
(340)
(1,065)
(1,499)
Other income, net
269
340
1,065
1,499
Income from continuing operations before taxes
—
—
—
—
Consolidated income (loss) from continuing operations
before income taxes
$ 20,194
$ (3,957)
$ 93,261
$ 30,982
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(UNAUDITED)
Three months
Twelve months
For the periods ended December 31,
2009
2008
2009
2008
(As Adjusted)
(As Adjusted)
Revenue
Servicing and subservicing fees
$ 62,635
$ 77,826
$ 264,467
$ 368,026
Process management fees
9,710
31,450
108,082
113,244
Other revenues
403
2,115
8,179
10,858
Total revenue
72,748
111,391
380,728
492,128
Operating expenses
Compensation and benefits
12,862
28,982
87,620
125,549
Amortization of servicing rights
6,485
11,749
32,228
52,461
Servicing and origination
2,376
15,362
38,653
52,951
Technology and communications
5,712
4,614
20,066
22,327
Professional services
4,428
7,557
26,200
34,615
Occupancy and equipment
3,929
5,507
18,985
22,978
Other operating expenses
714
2,785
11,902
12,474
Total operating expenses
36,506
76,556
235,654
323,355
Income from operations
36,242
34,835
145,074
168,773
Other income (expense)
Interest income
2,375
3,204
8,786
14,696
Interest expense
(12,846)
(20,061)
(62,954)
(86,574)
Gain (loss) on trading securities
(2,159)
(13,114)
11,187
(35,480)
Loss on loans held for resale, net
(2,349)
(5,984)
(11,132)
(17,096)
Equity in losses of unconsolidated entities
(1,325)
(2,482)
(2,933)
(13,110)
Other, net
256
(355)
5,233
(227)
Other expense, net
(16,048)
(38,792)
(51,813)
(137,791)
Income (loss) from continuing operations before income taxes
20,194
(3,957)
93,261
30,982
Income tax expense
13,307
313
96,110
12,006
Income (loss) from continuing operations
6,887
(4,270)
(2,849)
18,976
Income (loss) from discontinued operations, net of income taxes
2,488
(195)
3,121
(5,767)
Net income (loss)
9,375
(4,465)
272
13,209
Net loss (income) attributable to non-controlling interests
14
184
25
41
Net income (loss) attributable to Ocwen Financial Corporation (OCN)
$ 9,389
$ (4,281)
$ 297
$ 13,250
Basic earnings per share
Income (loss) from continuing operations
$ 0.07
$ (0.07)
$ 0.04
$ 0.30
Income (loss) from discontinued operations
0.02
—
0.04
(0.09)
Net income (loss) attributable to OCN
$ 0.09
$ (0.07)
$ --
$ 0.21
Diluted earnings per share
Income (loss) from continuing operations
$ 0.07
$ (0.07)
$ (0.04)
$ 0.30
Income (loss) from discontinued operations
0.02
—
0.04
(0.09)
Net income (loss) attributable to OCN
$ 0.09
$ (0.07)
$ --
$ 0.21
Weighted average common shares outstanding
Basic
99,871,247
62,716,530
78,252,000
62,670,957
Diluted
107,150,497
62,716,530
78,252,000
62,935,314
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(UNAUDITED)
December 31,
2009
December 31,
2008
(As Adjusted)
Assets
Cash
$ 90,919
$ 201,025
Trading securities, at fair value
Auction rate
247,464
239,301
Subordinates and residuals
3,692
4,369
Loans held for resale, at lower of cost or fair value
33,197
49,918
Advances
145,914
102,085
Match funded advances
822,615
1,100,555
Mortgage servicing rights
117,802
139,500
Receivables, net
67,095
39,907
Deferred tax assets, net
132,683
175,145
Intangibles, including goodwill of $9,836 at December 31, 2008
—
46,227
Premises and equipment, net
3,325
12,926
Investments in unconsolidated entities
15,008
25,663
Other assets
89,636
100,479
Total assets
$ 1,769,350
$ 2,237,100
Liabilities and Equity
Liabilities
Match funded liabilities
$ 465,691
$ 961,939
Lines of credit and other secured borrowings
55,810
116,870
Investment line
156,968
200,719
Servicer liabilities
38,672
135,751
Debt securities
95,564
133,367
Other liabilities
90,782
78,813
Total liabilities
903,487
1,627,459
Equity
Ocwen Financial Corporation stockholders' equity
Common stock, $.01 par value; 200,000,000 shares authorized;
99,956,833 and 62,716,530 shares issued and outstanding at
December 31, 2009 and 2008, respectively
1,000
627
Additional paid-in capital
459,542
201,831
Retained earnings
405,198
404,901
Accumulated other comprehensive income (loss), net of income taxes
(129)
1,876
Total Ocwen Financial Corporation stockholders' equity
865,611
609,235
Non-controlling interest in subsidiaries
252
406
Total equity
865,863
609,641
Total liabilities and equity
$ 1,769,350
$ 2,237,100
CONTACT: Ocwen Financial Corporation
David J. Gunter, Executive Vice President
& Chief Financial Officer
(561) 682-8367
David.Gunter@Ocwen.com
