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): May 3, 2012
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Florida | 1-13219 | 65-0039856 | ||
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
2002 Summit Boulevard
6th Floor
Atlanta, Georgia 30319
(Address of principal executive offices)
Registrant’s telephone number, including area code: (561) 682-8000
Not applicable.
(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 (see General Instruction A.2. below):
| £ | 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)) |
| Item 2.02. | Results of Operations and Financial Condition. |
The news release of the Registrant dated May 3, 2012, announcing its results for the first quarter 2012 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) – (c) | Not applicable. | ||
| (d) | Exhibits: | ||
| 99.1 | Text of a press release by the Registrant dated May 3, 2012. | ||
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) | |||
| Date: May 3, 2012 | By: | /s/ John V. Britti | |
| John V. Britti Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as its principal financial officer) | |||
Exhibit 99.1
 |
Ocwen Financial Corporation® |
| FOR IMMEDIATE RELEASE | FOR FURTHER INFORMATION CONTACT: |
| John V. Britti | |
| Executive Vice President & Chief Financial Officer | |
| T: (561) 682-7535 | |
| E: John.Britti@Ocwen.com |
Ocwen reports first quarter 2012 EPS of $0.14 per share,
Revenue of $164.5 million and
Net income of $19.3 million
Atlanta, GA – (May 3, 2012) Ocwen Financial Corporation (“Ocwen” or the “Company”) (NYSE:OCN) today reported Net income of $19.3 million, or $0.14 per share, for the first quarter of 2012. This compares with Net income of $22.1 million, or $0.21 per share, for the first quarter of 2011. In the first quarter of 2012, Ocwen incurred $16.1 million of transaction-related expenses, $2.6 million of net hedge-related losses, and $4.6 million in costs related to cancellation of upsizing and partial pre-payment of its Senior Secured Term Loan. Adjusting for these items resulted in normalized pre-tax earnings for the quarter of $53.4 million, a 17.4% increase over the normalized results in the first quarter of 2011. Revenue for the first quarter of 2012 was $164.5 million, 48% higher than the first quarter of 2011.
On April 2, Ocwen deployed $615 million of capital to purchase the mortgage servicing rights on $30.3 billion of unpaid principal balance (UPB) by closing deals with JPMorgan Chase Bank (“Chase”) and Saxon Mortgage Services, Inc. (“Saxon”). The Company estimates it incurred $3.4 million in ramp-up-related expenses in the first quarter of 2012. Had these ramp-up costs not been incurred, normalized pre-tax earnings would have been $56.8 million. We anticipate less than $1 million of further normalizing expenses on the Litton, Chase and Saxon transactions.
On March 20, 2012, Ocwen entered into an agreement with Aurora Bank FSB to purchase the servicing rights on a portfolio of commercial mortgage loans. Closing and servicing transfer is expected at the end of May. As of March 31, 2012, the portfolio consisted of 3,389 loans with a total principal balance of $1.9 billion.
Business performance highlights:
| · | Generated Cash flow from operations of $373 million. |
| · | Reduced delinquencies on the Litton portfolio by 3 percentage points and Litton-related advances by $201.7 million. |
| · | Reduced overall delinquencies from 27.9% at the end of 2011 to 25.6% at the end of March 2012. |
| · | Completed 23,491 loan modifications. HAMP modifications accounted for 14.8% of completed modifications. |
| · | Modification offers rose by 32.3% to 28,539. |
| · | Completed the sale to Home Loan Servicing Solutions (HLSS) of the right to receive the servicing fees relating to approximately $15 billion of UPB in March, with an additional $2.9 billion sale on May 1. HLSS also assumed responsibility for the associated servicing advances and match funded liabilities. |
| · | Cancelled $200 million upsizing of its Senior Secured Term Loan because Ocwen had sufficient cash from operations and the HLSS transaction to fund the closing of Saxon and Chase. |
| · | Converted $56.4 million of Convertible Notes to common stock. |
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Ocwen Financial Corporation
First Quarter 2012 Results
May 3, 2012
“In the first quarter of the year, we saw a meaningful decline in delinquencies and advances for the newly acquired Litton portfolio.” said Ron Faris, President and CEO. “Modifications in the first quarter of 2012 were up by 25% over the fourth quarter of last year, and modification offers were up by 32.3%. These strong results confirm once again Ocwen’s industry-leading ability to effectively manage large acquisitions of high-risk mortgage servicing. Litton was a solid servicer, yet Ocwen has been able to create additional value for investors by finding sensible solutions that help keep American families in their homes. Our innovative shared appreciation modification, or SAM, is a good example of a sensible solution for borrowers and investors, and it accounted for 28.5% of our modifications in the first three months of this year. Borrower acceptance rates for the SAM remain high, while 6-month re-default rates are quite low compared to industry norms.”
Mr. Faris added, “In early April, we completed the acquisition of $30.3 billion in servicing assets from Saxon and Chase, of which we were already subservicing $9.9 billion for Saxon. We continue to see a healthy pipeline of potential new servicing transactions, and we expect to close additional transactions in coming months. These transactions will most likely include both private-label and agency servicing.
Chairman William Erbey stated “The Saxon and Chase transactions deployed approximately $615 million in capital at our targeted 25% pre-tax rate of return. Following the closing of these two transactions, our servicing portfolio now stands at approximately $119 billion. Ocwen’s ability to generate cash from operations and the sale of assets to HLSS enabled us to close the transactions without upsizing our Senior Secured Term Loan, as had been originally planned. Our balance sheet was further strengthened in the quarter by conversion of $56.4 million in Convertible Notes and a $37.5 million pre-payment on our Senior Secured Term Loan. Ocwen’s access to senior debt markets, strong expected cash-flow and ongoing sales to HLSS should enable us to fund all but the largest new business transactions without issuing additional equity.
The first quarter of 2012 had a net total of $23.3 million of normalizing items:
| · | Transaction-related expenses for the quarter were $16.1 million, with $9.7 million for Litton and $6.3 million related to the Saxon and Chase deals that closed in early April. |
| · | Fees paid to investors on cancellation of the $200 million upsizing of the Senior Secured Term Loan amounted to $3.7 million |
| · | Pre-payment of $37.5 million of the Senior Secured Term Loan from proceeds of the HLSS transaction resulted in an expense of $0.9 million for early amortization of original issue discount. |
| · | Loss of hedge accounting on interest rate swaps related to assets sold to HLSS caused a $6.0 million unrealized expense. However, HLSS purchased the rights to MSRs in March for $10 million more than Ocwen’s carrying value. This amount will be realized over time as the Rights to MSRs amortize. |
| · | A net gain of $3.4 million was recorded upon termination of the Indian Rupee hedges. |
In the first quarter of 2011, Ocwen had a net total of $11.0 million of normalizing items. For more detail on normalizing items as well as prior earnings releases and SEC filings please refer to the “Shareholder Relations” section of our website at www.ocwen.com.
Ocwen Financial Corporation is a leading provider of residential and commercial loan servicing, special servicing and asset management services. Ocwen is headquartered in Atlanta, Georgia with offices in West Palm Beach and Orlando, Florida, Houston, Texas, and Washington, DC and support operations in India and Uruguay. Utilizing advanced technology and world-class training and processes, we provide solutions that help homeowners and 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. 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.
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Ocwen Financial Corporation
First Quarter 2012 Results
May 3, 2012
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 annual report on Form 10-K for the year ended December 31, 2011 filed on February 29,2012. The forward-looking statements speak only as of the date they are made and should not be relied upon. Ocwen undertakes no obligation to update or revise the forward-looking statements.
This news release contains references to “normalized” results, which are non-GAAP performance measures. We believe these non-GAAP performance measures may provide additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures should be viewed in addition to, and not as an alternative for, the Company’s reported results under accounting principles generally accepted in the United States.
Residential Servicing Statistics (Dollars in thousands)
| At or for the three months ended | ||||||||||||||||||||
| March 31, 2012 | December 31, 2011 | September 30, 2011 | June 30, 2011 | March 31, 2011 | ||||||||||||||||
| Total unpaid principal balance of loans and REO serviced | $ | 98,440,466 | $ | 102,199,222 | $ | 106,126,168 | $ | 70,830,567 | $ | 70,542,961 | ||||||||||
| Non-performing loans and REO serviced as a % of total UPB (1) | 25.6 | % | 27.9 | % | 28.7 | % | 24.2 | % | 24.7 | % | ||||||||||
| Prepayment speed (average CPR) | 14.2 | % | 14.1 | % | 15.2 | % | 14.3 | % | 13.9 | % | ||||||||||
| (1) | Non-performing loans exclude those serviced under special servicing agreements where we have no obligation to advance. |
Segment Results (Dollars in thousands) (UNAUDITED)
| For the three months ended March 31, | 2012 | 2011 | ||||||
| Servicing | ||||||||
| Revenue | $ | 164,192 | $ | 110,869 | ||||
| Operating expenses | 82,879 | 39,783 | ||||||
| Income from operations | 81,313 | 71,086 | ||||||
| Other expense, net | (46,836 | ) | (36,306 | ) | ||||
| Income before income taxes | 34,477 | 34,780 | ||||||
| Corporate Items and Other | ||||||||
| Revenue | 658 | 471 | ||||||
| Operating expenses | 3,395 | 1,570 | ||||||
| Loss from operations | (2,737 | ) | (1,099 | ) | ||||
| Other income (expense), net | (1,621 | ) | 808 | |||||
| Loss before income taxes | (4,358 | ) | (291 | ) | ||||
| Corporate Eliminations | ||||||||
| Revenue | (304 | ) | (334 | ) | ||||
| Operating expenses | (147 | ) | (154 | ) | ||||
| Loss from operations | (157 | ) | (180 | ) | ||||
| Other income, net | 157 | 180 | ||||||
| Income (loss) before income taxes | — | — | ||||||
| Consolidated income before income taxes | $ | 30,119 | $ | 34,489 | ||||
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Ocwen Financial Corporation
First Quarter 2012 Results
May 3, 2012
OCWEN FINANCIAL
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(UNAUDITED)
| For the three months ended March 31, | 2012 | 2011 | ||||||
| Revenue | ||||||||
| Servicing and subservicing fees | $ | 155,103 | $ | 102,505 | ||||
| Process management fees | 8,791 | 7,796 | ||||||
| Other revenues | 652 | 705 | ||||||
| Total revenue | 164,546 | 111,006 | ||||||
| Operating expenses | ||||||||
| Compensation and benefits | 30,783 | 14,787 | ||||||
| Amortization of mortgage servicing rights | 14,314 | 8,923 | ||||||
| Servicing and origination | 3,287 | 1,922 | ||||||
| Technology and communications | 9,349 | 6,872 | ||||||
| Professional services | 8,559 | 2,384 | ||||||
| Occupancy and equipment | 15,305 | 4,130 | ||||||
| Other operating expenses | 4,530 | 2,181 | ||||||
| Total operating expenses | 86,127 | 41,199 | ||||||
| Income from operations | 78,419 | 69,807 | ||||||
| Other income (expense) | ||||||||
| Interest income | 2,312 | 2,169 | ||||||
| Interest expense | (46,924 | ) | (37,543 | ) | ||||
| Loss on loans held for resale, net | (420 | ) | (904 | ) | ||||
| Equity in earnings of unconsolidated entities | 252 | 130 | ||||||
| Other, net | (3,520 | ) | 830 | |||||
| Other expense, net | (48,300 | ) | (35,318 | ) | ||||
| Income before income taxes | 30,119 | 34,489 | ||||||
| Income tax expense | 10,770 | 12,425 | ||||||
| Net income | 19,349 | 22,064 | ||||||
| Net income attributable to non-controlling interests | — | 10 | ||||||
| Net income attributable to Ocwen Financial Corporation | $ | 19,349 | $ | 22,074 | ||||
| Earnings per share attributable to Ocwen Financial Corporation | ||||||||
| Basic | $ | 0.15 | $ | 0.22 | ||||
| Diluted | $ | 0.14 | $ | 0.21 | ||||
| Weighted average common shares outstanding | ||||||||
| Basic | 130,649,595 | 100,762,446 | ||||||
| Diluted | 138,046,270 | 107,777,775 | ||||||
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Ocwen Financial Corporation
First Quarter 2012 Results
May 3, 2012
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(UNAUDITED)
| March 31, 2012 | December 31, 2011 | |||||||
| Assets | ||||||||
| Cash | $ | 683,946 | $ | 144,234 | ||||
| Restricted cash – for securitization investors | 633 | 675 | ||||||
| Loans held for resale, at lower of cost or fair value | 20,203 | 20,633 | ||||||
| Advances | 98,398 | 103,591 | ||||||
| Match funded advances | 2,903,171 | 3,629,911 | ||||||
| Loans, net – restricted for securitization investors | 56,365 | 58,560 | ||||||
| Mortgage servicing rights, net | 277,716 | 293,152 | ||||||
| Receivables, net | 62,235 | 83,202 | ||||||
| Deferred tax assets, net | 106,376 | 107,968 | ||||||
| Goodwill | 78,432 | 78,432 | ||||||
| Premises and equipment, net | 17,178 | 7,350 | ||||||
| Investments in unconsolidated entities | 21,915 | 23,507 | ||||||
| Other assets | 167,943 | 185,942 | ||||||
| Total assets | $ | 4,494,511 | $ | 4,737,157 | ||||
| Liabilities and Stockholder’s Equity | ||||||||
| Liabilities | ||||||||
| Match funded liabilities | $ | 2,280,323 | $ | 2,558,951 | ||||
| Secured borrowings – owed to securitization investors | 51,622 | 53,323 | ||||||
| Lines of credit and other secured borrowings | 550,618 | 540,369 | ||||||
| Debt securities | 26,119 | 82,554 | ||||||
| Other liabilities | 159,816 | 158,649 | ||||||
| Total liabilities | 3,068,498 | 3,393,846 | ||||||
| Stockholder’s Equity | ||||||||
| Common stock, $.01 par value; 200,000,000 shares authorized; 134,847,475
and 129,899,288 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively | 1,348 | 1,299 | ||||||
| Additional paid-in capital | 886,351 | 826,121 | ||||||
| Retained earnings | 543,136 | 523,787 | ||||||
| Accumulated other comprehensive loss, net of income taxes | (4,822 | ) | (7,896 | ) | ||||
| Total stockholder’s equity | 1,426,013 | 1,343,311 | ||||||
| Total liabilities and stockholder’s equity | $ | 4,494,511 | $ | 4,737,157 | ||||
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