UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-----------------------------------------------
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report
(Date of earliest event reported): July 27, 2006
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida 1-13219 65-0039856
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1661 Worthington Road
Suite 100
West Palm Beach, Florida 33409
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (561) 682-8000
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Page 1 of 9
Exhibit Index on Page 4
Item 2.02 Results of Operations and Financial Condition
The news release of the Registrant dated July 27, 2006,
announcing its second quarter 2006 results is attached hereto as
Exhibit 99.1. The information in Exhibit 99.1 attached hereto
shall not be deemed to be "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, nor shall it be deemed
incorporated by reference in any filing under the Securities Act
of 1933, except as shall be expressly set forth by specific
reference in such filing.
Item 9.01 Financial Statements and Exhibits
(a) - (b) Not applicable.
(c) Exhibits
The following exhibits are filed as part of this report:
99.1 Text of a press release by the Registrant dated July 27,
2006.
Page 2 of 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
OCWEN FINANCIAL CORPORATION
(Registrant)
By: /s/ ROBERT J. LEIST, JR.
---------------------------------
Robert J. Leist, Jr.
Senior Vice President and
Chief Accounting Officer
Date: July 27, 2006
Page 3 of 9
INDEX TO EXHIBIT
Exhibit No. Description Page
- ----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, 5
dated July 27, 2006, announcing its Second
quarter 2006 results and certain other information.
Page 4 of 9
================================================================================
Exhibit 99.1
[GRAPHIC OMITTED]
OCWEN
Ocwen Financial Corporation(R)
================================================================================
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
Robert J. Leist, Jr.
Senior Vice President & Chief Accounting
Officer
T: (561) 682-7958
E: robert.leist@ocwen.com
----------------------
OCWEN FINANCIAL CORPORATION ANNOUNCES
SECOND QUARTER 2006 NET INCOME
West Palm Beach, FL - (July 27, 2006) Ocwen Financial Corporation (NYSE:OCN)
today reported net income of $159.1 million or $2.53 per share for the second
quarter of 2006. This compares to $2.9 million or $0.05 per share for the second
quarter of 2005. For the six months ended June 30, 2006 net income was $175.6
million or $2.79 per share as compared to $5.3 million or $0.08 per share for
the same period in 2005. Second quarter results include a tax benefit of $141.7
million, primarily reflecting the reversal of $145.2 million of the valuation
allowance that had been established in prior years.
Chairman and CEO William C. Erbey stated "Our second quarter net income reflects
a tax benefit arising from the reversal of $145.2 million of the deferred tax
asset valuation allowance that we had established in prior years. We concluded
that our recent earnings results and future outlook met the accounting criteria
for recording this adjustment.
Our second quarter pre-tax results were driven primarily by the continued strong
performance of our Residential Servicing segment. As compared to the second
quarter and first half of last year, Residential Servicing reported higher
revenue and lower expenses. All of our other segments reported pre-tax earnings
in the second quarter of 2006 apart from our Residential Origination Services
segment which reported a loss of $(2.1) million in the second quarter, although
year to date results reflect pre-tax income of $2.9 million. Our 2006 results in
this segment are driven in large part by a limited number of loan purchase and
securitization transactions which typically span several quarters before they
are fully executed and thus create earnings variances across those periods.
These transactions resulted in losses of $(3.2) million in the second quarter of
2006 and a gain of $1.2 million for the first six months. No such transactions
occurred during the first half of 2005.
Our total assets declined by $274.1 million as compared to December 31, 2005,
primarily due to a reduction in loans held for resale of $510.2 million,
reflecting securitization transactions executed during the first half of this
year. This reduction was partially offset by increases of $44.6 million in cash
and equivalents, $27.1 million in our subordinate and residual trading portfolio
reflecting securities retained from securitization transactions and $151.0
million in our deferred tax assets, primarily due to the reduction of the
valuation allowance in the second quarter of 2006. Our leverage has improved in
the first half of the year as reflected by an equity to assets ratio of 32.7% as
of June 30, 2006 as compared to 18.7% as of December 31, 2005."
Residential Servicing
Three months Six months
------------------------ ------------------------
For the periods ended June 30, 2006 2005 2006 2005
- ---------------------------------- ---------- ---------- ---------- ----------
Revenue .......................... $ 82,969 $ 68,459 $ 162,911 $ 136,906
Operating expenses ............... 58,658 60,644 114,288 122,040
Other income (expense) ........... (6,163) (5,215) (12,607) (9,319)
---------- ---------- ---------- ----------
Pre-tax income (loss) ............ $ 18,148 $ 2,600 $ 36,016 $ 5,547
========== ========== ========== ==========
o As of June 30, 2006, we were the servicer of approximately 404
thousand loans with an unpaid principal balance (UPB) of $47.1
billion as compared to approximately 369 thousand loans and $42.8
billion of UPB at December 31, 2005.
o Revenue in the 2006 periods reflects increased servicing fees and
float income from a larger servicing portfolio and higher interest
rates.
o The decline in operating expenses reflects a reduction in interest
paid to investors related to loan pay-offs as well as a reduction in
operating expenses reflecting process improvements and automation.
Operating expenses also include a provision of $2.9 million to
increase litigation reserves related to ongoing cases.
Page 5 of 9
Ocwen Financial Corporation
Second Quarter 2006 Results
July 27, 2006
Commercial Servicing
Three months Six months
------------------------ ------------------------
For the periods ended June 30, 2006 2005 2006 2005
- ------------------------------------ ---------- ---------- ---------- ----------
Revenue ............................ $ 3,084 $ 4,558 $ 6,199 $ 8,999
Operating expenses ................. 2,784 4,025 5,634 8,398
Other income (expense) ............. (18) (198) (18) (245)
---------- ---------- ---------- ----------
Pre-tax income (loss) .............. $ 282 $ 335 $ 547 $ 356
========== ========== ========== ==========
o Revenue and expense declines primarily reflect the sale of GSS Japan
and reduced revenue and expenses in GSS Taiwan reflecting reduced
activity in that location.
Ocwen Recovery Group
Three months Six months
----------------------- ------------------------
For the periods ended June 30, 2006 2005 2006 2005
- ------------------------------------ ---------- ---------- ---------- ----------
Revenue ............................ $ 1,856 $ 3,274 $ 4,057 $ 7,086
Operating expenses ................. 1,928 3,057 4,561 6,454
Other income (expense) ............. 192 27 274 117
---------- ---------- ---------- ----------
Pre-tax income (loss) .............. $ 120 $ 244 $ (230) $ 749
========== ========== ========== ==========
o The decline in revenue in the 2006 periods primarily reflects a
shift in revenue from proprietary assets to lower yielding
third-party contracts.
o Operating expenses declined in 2006 as a result of process
improvements, technology enhancements and a greater concentration of
India resources.
Residential Origination Services
Three months Six months
------------------------ -----------------------
For the periods ended June 30, 2006 2005 2006 2005
- ------------------------------------ ---------- ---------- ---------- ----------
Revenue ............................ $ 14,431 $ 12,870 $ 29,006 $ 25,137
Operating expenses ................. 17,551 13,259 38,310 24,340
Other income (expense) ............. 1,037 2,113 12,244 3,761
---------- ---------- ---------- ----------
Pre-tax income (loss) .............. $ (2,083) $ 1,724 $ 2,940 $ 4,558
========== ========== ========== ==========
o Second quarter and six month 2006 results include transaction losses
of approximately $(3.2) million and transaction gains of $1.2
million, respectively, related to our securitization and loan sale
activities. No such transactions were conducted in the first half of
2005.
o Excluding these transactions, segment results reflect the net impact
of losses in loan origination activities and declines in the revenue
earned from our maturing UK residual securities portfolio, partially
offset by improvements in our loan processing operations.
Business Process Outsourcing
Three months Six months
------------------------ ------------------------
For the periods ended June 30, 2006 2005 2006 2005
- ------------------------------------ ---------- ---------- ---------- ----------
Revenue ............................ $ 2,656 $ 2,858 $ 5,379 $ 5,443
Operating expenses ................. 1,963 2,575 4,688 5,030
Other income (expense) ............. (7) (19) (17) (51)
---------- ---------- ---------- ----------
Pre-tax income (loss) .............. $ 686 $ 264 $ 674 $ 362
========== ========== ========== ==========
o Revenue declines in 2006 reflect the loss of a client due to a
merger during the first quarter of the year.
o Expenses have declined as a result of cost reduction efforts
initiated during the second quarter.
Page 6 of 9
Ocwen Financial Corporation
Second Quarter 2006 Results
July 27, 2006
Corporate Items and Other
Three months Six months
----------------------- ------------------------
For the periods ended June 30, 2006 2005 2006 2005
- ------------------------------------ ---------- ---------- ---------- ----------
Revenue ............................ $ 140 $ (4) $ 34 $ (68)
Operating expenses ................. 1,530 2,489 4,247 4,476
Other income (expense) ............. 1,631 2,499 3,118 1,082
---------- ---------- ---------- ----------
Pre-tax income (loss) .............. $ 241 $ 6 $ (1,095) $ (3,462)
========== ========== ========== ==========
o Results for 2006 include a gain of approximately $0.9 million in the
first quarter representing interest income arising from a cash
distribution on a commercial residual security now approaching the
end of its economic life, and a gain of approximately $1.2 million
from the sale of a real estate asset in the second quarter.
o In the first six months of 2005 we retained greater interest expense
in Corporate, reflecting the high cash balances we were holding in
preparation for debanking, and also incurred expenses in Corporate
related to that initiative.
Ocwen Financial Corporation is a leading provider of servicing and origination
processing solutions to the loan industry with headquarters in West Palm Beach,
Florida, offices in, Orlando, Florida, Downers Grove, Illinois and Atlanta,
Georgia and global operations in Canada, Germany, India and Taiwan. We make our
clients' loans worth more by leveraging our superior processes, innovative
technology and high-quality, cost-effective global human resources. 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, 2005 and Form 10-Q
for the quarter ended March 31, 2006. 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.
Page 7 of 9
Ocwen Financial Corporation
Second Quarter 2006 Results
July 27, 2006
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, 2006 2005 2006 2005
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Revenue
Servicing and subservicing fees ....................... $ 82,772 $ 71,651 $ 162,857 $ 144,031
Process management fees ............................... 18,837 17,454 38,149 34,406
Other revenues ........................................ 3,527 2,910 6,580 5,066
------------ ------------ ------------ ------------
Total revenue .................................... 105,136 92,015 207,586 183,503
------------ ------------ ------------ ------------
Operating expenses
Compensation and benefits ............................. 22,006 24,355 47,707 48,727
Amortization of servicing rights ...................... 27,663 24,930 53,952 50,045
Servicing and origination ............................. 12,707 15,148 25,904 29,181
Technology and communications ......................... 6,034 7,862 12,673 15,261
Professional services ................................. 7,620 5,715 15,399 10,733
Occupancy and equipment ............................... 4,823 4,571 9,799 8,813
Other operating expenses .............................. 3,561 3,468 6,294 7,978
------------ ------------ ------------ ------------
Total operating expenses ......................... 84,414 86,049 171,728 170,738
------------ ------------ ------------ ------------
Other income (expense)
Interest income ....................................... 6,298 6,764 24,411 13,096
Interest expense ...................................... (10,062) (9,072) (27,316) (17,512)
Gain (loss) on trading securities ..................... 1,701 (1,269) 1,327 (2,667)
Gain (loss) on loans held for resale, net ............. (3,437) -- (1,221) --
Other, net ............................................ 2,172 2,784 5,793 2,428
------------ ------------ ------------ ------------
Other income (expense), net ...................... (3,328) (793) 2,994 (4,655)
------------ ------------ ------------ ------------
Income before income taxes ................................. 17,394 5,173 38,852 8,110
Income tax expense (benefit) ............................... (141,692) 2,265 (136,767) 2,815
------------ ------------ ------------ ------------
Net income ............................................ $ 159,086 $ 2,908 $ 175,619 $ 5,295
============ ============ ============ ============
Earnings per share
Basic ................................................... $ 2.53 $ 0.05 $ 2.79 $ 0.08
Diluted ................................................. $ 2.23 $ 0.05 $ 2.47 0.08
Weighted average common shares outstanding
Basic ................................................... 62,821,428 62,809,286 63,033,454 62,776,469
Diluted (1) ............................................. 71,767,873 63,709,246 71,876,666 63,864,247
(1) For purposes of computing diluted earnings per share, the 2006 periods
reflect the assumed conversion of our 3.25% Convertible Notes into 7,962,205
shares of common stock. Conversion of the Convertible Notes has not been assumed
for the 2005 periods because the effect would be anti-dilutive.
Page 8 of 9
Ocwen Financial Corporation
Second Quarter 2006 Results
July 27, 2006
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30, December 31,
2006 2005
------------ ------------
Assets
Cash ...................................................................... $ 204,134 $ 269,611
Trading securities, at fair value
Investment grade ..................................................... 111,780 1,685
Subordinates and residuals ........................................... 57,421 30,277
Loans held for resale ..................................................... 114,485 624,671
Advances .................................................................. 263,963 219,716
Match funded advances ..................................................... 351,593 377,105
Mortgage servicing rights ................................................. 151,501 148,663
Receivables ............................................................... 60,738 68,266
Deferred tax assets, net .................................................. 171,300 20,270
Premises and equipment, net ............................................... 37,446 40,108
Other assets .............................................................. 55,655 53,761
------------ ------------
Total assets ......................................................... $ 1,580,016 $ 1,854,133
============ ============
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities ............................................. $ 313,963 $ 339,292
Servicer liabilities ................................................. 316,277 298,892
Lines of credit and other secured borrowings ......................... 187,835 626,448
Debt securities ...................................................... 150,329 154,329
Other liabilities .................................................... 93,283 85,912
------------ ------------
Total liabilities ............................................... 1,061,687 1,504,873
------------ ------------
Minority interest in subsidiary ........................................... 1,892 1,853
Stockholders' Equity
Common stock, $.01 par value; 200,000,000 shares authorized;
62,429,907 and 63,133,471 shares issued and outstanding at
June 30, 2006 and December 31, 2005, respectively ............... 624 631
Additional paid-in capital ........................................... 176,320 184,262
Retained earnings .................................................... 338,817 163,198
Accumulated other comprehensive income (loss), net of taxes .......... 676 (684)
------------ ------------
Total stockholders' equity ........................................... 516,437 347,407
------------ ------------
Total liabilities and stockholders' equity ...................... $ 1,580,016 $ 1,854,133
============ ============
Page 9 of 9