Ocwen Financial Corporation Announces Third Quarter 2008 Financial Results
WEST PALM BEACH, Fla., Nov. 6, 2008 -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported net income of $15.6 million for the third quarter of 2008, an increase of 161% as compared to the $6.0 million reported for the third quarter of 2007. Net income per diluted share for the third quarter of 2008 was $0.23. This compares to $0.09 per diluted share for the third quarter of 2007. For the three months ended September 30, 2008, pre-tax income before discontinued operations was $24.4 million compared to $10.1 million a year ago.
Chairman and CEO William Erbey stated, "The primary driver of our growth in pre-tax income was the Loan Servicing segment with $29.3 million as compared to $20.4 million for the same period last year. We continue to focus on being the highest quality and lowest cost provider.
We continue to lead the industry in reducing delinquencies by working with distressed borrowers to make payments through forbearance and modification plans. We helped keep over 22,257 families in their homes with successful loan workouts this quarter, bringing the total to over 54,868 for the year. Every successful workout makes the loan cash flow again and avoids substantial losses that the investor would otherwise incur in a foreclosure -- loss severity is at an all time high now at 50%. This is truly a "win - win" for the borrowers and for investors. And by controlling delinquencies, our advance balances decreased by $147.2 million since June 30, 2008.
Ocwen, overall, reduced operating expenses by 5% over the second quarter of 2008 and 15% over the third quarter of 2007. Our reduction in operating expenses during the third quarter was pervasive as we reduced expenses from 1% to 20% in six of seven reporting line items. We continue to enjoy a cost structure for non-performing loans 60% below our competitors.
We increased our cash balances from $148.8 million at June 30, 2008 to $162.3 million at September 30, 2008 due to asset sales and the reduction in advances. We continued to focus on our core business lines eliminating non-core assets which historically have resulted in volatile earnings. During the third quarter we generated $24.8 million of cash by liquidating holdings in loans, real estate owned and GSS Canada; reducing cash amounts held by indenture trustees; collecting receivables; and obtaining financing for receivables and one of our asset management vehicles.
Additionally, we are currently conducting an internal analysis to determine whether it would be beneficial to spin Ocwen Solutions as a separate, publicly traded company."
Ocwen Asset Management:
The Servicing segment produced revenues of $86.1 million which were 3% higher than the third quarter of 2007. However, revenues are 7% lower than in the second quarter of 2008 as unpaid principal balances have continued to contract. This segment reduced operating expenses by 6% from the second quarter of 2008 and 20% from the third quarter of 2007. The expense reductions during the quarter contributed to the growth in income from operations of 38% and pre-tax income of 44% as compared to the same quarter last year.
Pre-tax loss for the Loans and Residuals segment for the third quarter of 2008 declined by $2.4 million as compared to the same quarter one year ago. This segment has been effective in resolving non-performing loans and therefore in decreasing related interest expense.
The Asset Management Vehicles segment, which includes unconsolidated entities accounted for by the equity method, reported a pre-tax loss of $3.6 million for the third quarter of 2008. This compares to pre-tax income of $1.5 million in the third quarter of 2007. Residual securities, loan and property valuations all continued to be under pressure.
Ocwen Solutions:
The Technology Products segment generated $11.7 million in third quarter revenues for 2008, a 30% increase over the same quarter of last year. Income from operations improved to $2.1 million for the third quarter of 2008 compared to a $0.3 million loss from operations in the third quarter of 2007.
The Mortgage Services segment pre-tax income for the third quarter of 2008 declined by $1.2 million compared to the third quarter of 2007. This decrease is due to lower order volumes of Mortgage Services' products primarily as a result of the continued deterioration of the mortgage origination market. Our ability to reduce operating expenses resulted in the operating margin percentage staying relatively unchanged despite the decrease in revenues.
The Financial Services segment includes the results of Nationwide Credit, Inc. which was acquired in June 2007. Revenues for the third quarter of 2008 have increased by $1.8 million or 11% over the third quarter of 2007. However, operating expenses increased by $3.0 million or 16%, due to additional investments in new business with existing customers, the ramp up of our offshore operations, severance related to former members of senior management, investments in new technology and accelerated depreciation on inadequate technology.
Corporate:
The pre-tax loss for the third quarter of 2008 was $10.6 million, or 85%, lower than the third quarter of 2007 primarily because the third quarter of 2007 results included a loss of $8.7 million on the early redemption of long-term discounted certificates of deposit.
Total assets are $92.3 million or 4% lower than at December 31, 2007 due to declines in all asset categories other than auction rate securities and cash. Total liabilities declined by $117 million or 6% compared to December 31, 2007 as a result of declines in all liability categories other than the Investment Line which is secured by auction rate securities.
Ocwen Financial Corporation is a leading asset manager and business process solutions provider specializing in loan servicing, special servicing, mortgage loan due diligence and receivables management services. Ocwen is headquartered in West Palm Beach, Florida with offices in Arizona, California, Florida, Georgia and New York and global operations in Canada, Germany and India. Utilizing our global infrastructure, 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, 2007 and Form 10-Q for the quarters ended September 30, 2007 and 2008 and our Forms 8-K filed during 2007 and 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
-----------------------------------------------------------
Sept 30, June 30, Mar 31, Dec 31, Sept 30,
2008 2008 2008 2007 2007
----------- ----------- ----------- ----------- -----------
Total
unpaid
Principal
balance
of loans
and REO
serviced
(1) $41,754,368 $44,831,875 $49,319,762 $52,747,836 $55,662,286
Non-perform-
ing loans
and REO
serviced
as a
percent of
total (2) 22.7% 22.4% 21.8% 19.6% 14.6%
Prepayment
speed
(average
CPR) 26% 26% 23% 21% 22%
(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.
Segment Results (In thousands)
Three months Nine months
For the periods ended --------------------- ---------------------
September 30, 2008 2007 2008 2007
--------------------- --------- --------- --------- ---------
Ocwen Asset Management
Servicing
Revenue $ 86,058 $ 83,273 $ 264,985 $ 262,477
Operating expenses 39,918 49,796 124,232 171,568
--------- --------- --------- ---------
Income from
operations 46,140 33,477 140,753 90,909
Other expense, net (16,816) (13,077) (57,777) (37,914)
--------- --------- --------- ---------
Income from
continuing
operations before
income taxes 29,324 20,400 82,976 52,995
--------- --------- --------- ---------
Loans and Residuals
Revenue --- 7 --- 353
Operating expenses 793 1,038 2,225 3,255
--------- --------- --------- ---------
Loss from operations (793) (1,031) (2,225) (2,902)
Other income
(expense), net 291 (1,883) (7,337) 22,680
--------- --------- --------- ---------
Income (loss)
from continuing
operations
before income taxes (502) (2,914) (9,562) 19,778
--------- --------- --------- ---------
Asset Management
Revenue 819 354 2,997 354
Operating expenses 1,204 74 3,217 234
--------- --------- --------- ---------
Income (loss) from
operations (385) 280 (220) 120
Other income
(expense), net (3,258) 1,219 (6,542) 1,220
--------- --------- --------- ---------
Income (loss) from
continuing
operations
before income
taxes (3,643) 1,499 (6,762) 1,340
--------- --------- --------- ---------
Income from
continuing
operations
before income
taxes 25,179 18,985 66,652 74,113
--------- --------- --------- ---------
Ocwen Solutions
Technology Products
Revenue 11,672 8,969 34,566 27,183
Operating expenses 9,528 9,250 28,210 24,160
--------- --------- --------- ---------
Income (loss) from
operations 2,144 (281) 6,356 3,023
Other income
(expense), net (87) 2,707 (5,721) 3,005
--------- --------- --------- ---------
Income from
continuing
operations before
income taxes 2,057 2,426 635 6,028
--------- --------- --------- ---------
Mortgage Services
Revenue 12,331 18,991 43,580 52,472
Operating expenses 9,674 14,815 34,137 43,815
--------- --------- --------- ---------
Income from operations 2,657 4,176 9,443 8,657
Other (income) expense,
net 131 (156) 499 (504)
--------- --------- --------- ---------
Income from continuing
operations before
income taxes 2,788 4,020 9,942 8,153
--------- --------- --------- ---------
Financial Services
Revenue 18,654 16,872 57,182 25,002
Operating expenses 22,003 19,046 62,140 28,511
--------- --------- --------- ---------
Loss from
operations (3,349) (2,174) (4,958) (3,509)
Other expense, net (467) (727) (1,429) (866)
--------- --------- --------- ---------
Loss from continuing
operations before
income taxes (3,816) (2,901) (6,387) (4,375)
--------- --------- --------- ---------
Income from
continuing
operations
before income
taxes 1,029 3,545 4,190 9,806
--------- --------- --------- ---------
Corporate Items and Other
Revenue 12 373 154 1,160
Operating expenses 2,225 1,543 14,206 4,411
--------- --------- --------- ---------
Loss from operations (2,213) (1,170) (14,052) (3,251)
Other income (expense),
net 414 (11,218) (15,497) (9,188)
--------- --------- --------- ---------
Loss from continuing
operations before
income taxes (1,799) (12,388) (29,549) (12,439)
--------- --------- --------- ---------
Consolidated income
from continuing
operations before
income taxes $ 24,409 $ 10,142 $ 41,293 $ 71,480
========= ========= ========= =========
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, 2008 2007 2008 2007
--------------------- -------- --------- --------- ---------
Revenue
Servicing and sub-
servicing fees $ 91,298 $ 99,077 $ 290,200 $ 283,714
Process management
fees 27,453 23,158 81,794 63,708
Other revenues 2,510 3,115 8,743 9,837
-------- --------- --------- ---------
Total revenue 121,261 125,350 380,737 357,259
-------- --------- --------- ---------
Operating expenses
Compensation and
benefits 33,726 30,515 96,567 75,821
Amortization of
servicing rights 12,106 22,022 40,712 81,810
Servicing and
origination 11,540 16,738 37,589 45,666
Technology and
communications 6,022 6,165 17,713 16,158
Professional services 5,973 5,756 27,058 18,718
Occupancy and
equipment 5,131 7,121 17,471 18,009
Other operating
expenses 2,960 3,327 9,689 6,918
-------- --------- --------- ---------
Total operating
expenses 77,458 91,644 246,799 263,100
-------- --------- --------- ---------
Income from operations 43,803 33,706 133,938 94,159
-------- --------- --------- ---------
Other income (expense)
Interest income 3,448 5,091 11,492 24,292
Interest expense (18,418) (17,494) (63,698) (47,744)
Gain (loss) on
trading securities (621) (1,408) (22,366) 17,672
Gain (loss) on debt
repurchases --- (3) 3,595 (3)
Loss on loans held
for resale, net (674) (4,359) (11,112) (11,376)
Equity in earnings
(losses) of
unconsolidated
entities (2,928) 3,537 (10,628) 3,359
Other, net (201) (8,928) 72 (8,879)
-------- --------- --------- ---------
Other expense, net (19,394) (23,564) (92,645) (22,679)
-------- --------- --------- ---------
Income from continuing
operations before
income taxes 24,409 10,142 41,293 71,480
Income tax expense 8,662 3,882 14,119 25,015
-------- --------- --------- ---------
Income from
continuing
operations 15,747 6,260 27,174 46,465
Loss from discontinued
operations, net
of income taxes (186) (309) (5,572) (943)
-------- --------- --------- ---------
Net income $ 15,561 $ 5,951 $ 21,602 $ 45,522
======== ========= ========= =========
Basic earnings per
share
Income from
continuing
operations $ 0.25 $ 0.10 $ 0.43 $ 0.74
Loss from
discontinued
operations --- --- (0.09) (0.01)
-------- --------- --------- ---------
Net income $ 0.25 $ 0.10 $ 0.34 $ 0.73
======== ========= ========= =========
Diluted earnings per
share
Income from
continuing
operations $ 0.23 $ 0.10 $ 0.42 $ 0.67
Loss from
discontinued
operations --- (0.01) (0.08) (0.01)
-------- --------- --------- ---------
Net income $ 0.23 $ 0.09 $ 0.34 $ 0.66
======== ========= ========= =========
Weighted average
common shares
outstanding
Basic 62,715,551 62,505,269 62,655,655 62,774,324
Diluted 69,750,889 71,130,040 62,664,324 71,638,649
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
September 30, December 31,
2008 2007
----------- -----------
Assets
Cash $ 162,306 $ 114,243
Trading securities, at fair value
Auction rate 253,944 ---
Other investment grade --- 34,876
Subordinates and residuals 4,239 7,362
Loans held for resale, at lower
of cost or market 55,642 75,240
Advances 140,079 292,887
Match funded advances 1,070,899 1,126,097
Mortgage servicing rights 150,234 197,295
Receivables 69,307 79,394
Deferred tax assets, net 171,004 178,178
Intangibles, including goodwill
of $15,255 and $17,615 52,276 58,301
Premises and equipment, net 32,495 35,572
Investment in unconsolidated
entities 32,485 76,465
Other assets 107,505 118,786
----------- -----------
Total assets $ 2,302,415 $ 2,394,696
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities $ 985,316 $ 1,001,403
Lines of credit and other
secured borrowings 144,259 339,976
Investment line 215,220 ---
Servicer liabilities 110,297 204,484
Debt securities 135,734 150,279
Other liabilities 98,789 110,429
----------- -----------
Total liabilities 1,689,615 1,806,571
----------- -----------
Minority interest in subsidiaries 2,124 1,979
Stockholders' Equity
Common stock, $.01 par value;
200,000,000 shares authorized;
62,716,530 and 62,527,360
shares issued and outstanding
at September 30, 2008 and
December 31, 2007,
respectively 627 625
Additional paid-in capital 179,726 177,407
Retained earnings 428,424 406,822
Accumulated other comprehensive
income, net of taxes 1,899 1,292
----------- -----------
Total stockholders' equity 610,676 586,146
----------- -----------
Total liabilities and
stockholders' equity $ 2,302,415 $ 2,394,696
=========== ===========
CONTACT: Ocwen Financial Corporation
David J. Gunter, Executive Vice President & Chief
Financial Officer
(561) 682 - 8367
david.gunter@ocwen.com
