Ocwen Financial Corporation Announces Second Quarter Financial Results
WEST PALM BEACH, Fla., Aug. 4, 2009 -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported net income of $17.8 million or $0.26 per share for the three months ended June 2009. This compares to a net loss of $2.7 million or $0.04 per share for the second quarter of 2008. Net income significantly increased despite (i) an expected drop in loan modifications as the federal government's Home Affordable Modification Plan ("HAMP") was implemented during the quarter contributing an $8.1 million decline in servicing and subservicing fees and (ii) $2.3 million of professional services expenses principally incurred in connection with the Altisource separation. Income from continuing operations before income taxes was $26.3 million for the three months ended June 2009 as compared to $3.1 million for the second quarter of 2008.
Net income for the six months ended June 2009 was $32.9 million or $0.49 per share, compared to $2.6 million or $0.04 per share for the same period in 2008. Net income was higher despite $3.7 million of professional services expenses principally associated with the Altisource separation. Income from continuing operations before income taxes was $49.6 million for the six months ended June 2009 as compared to $11.5 million for the six months ended June 2008.
BUSINESS PERFORMANCE HIGHLIGHTS
* The implementation of HAMP had a short-term impact on revenues
and earnings as all in-process loan modifications were reviewed,
essentially restarting the modification process using different
underwriting and documentation requirements. As expected, this
lead to a 61% decline in completed modifications from the second
quarter of 2008. The HAMP modification program is gaining
momentum as offers were extended to 404 borrowers in April 2009,
836 in May 2009 and 2,172 in June 2009.
* The decline in completed loan modifications contributed $8.1
million to the total decline in Servicing income from operations
for the three months ended June 2009 as compared to 2008.
* Cost reduction efforts led to a 10.6% decline in operating costs
for the three months ended June 2009 as compared to June 2008
* Ocwen continues to reduce non-core assets with the completed sale
of the GSS Germany operations in June 2009 and an agreement to
sell BOK, our German bank subsidiary, subject to regulatory
approvals.
* Liquid balance sheet with $213.9 million of cash as of June 30,
2009 and excess advance financing capacity of 80.1%.
* Income from continuing operations before income taxes of $49.6
million for the six months ended June 2009 improved dramatically
primarily due to lower unrealized mark-to-market and impairment
losses.
Chairman and CEO William Erbey stated, "We have been exceptionally busy this quarter as we re-focus our efforts on growing our servicing business. With our solid liquidity position and excess financing capacity, we are well-positioned to grow through acquisitions of servicing portfolios. We believe the subprime servicing industry is poised for a period of consolidation.
"We are making solid progress on our four strategic initiatives:
1. Liquidity and balance sheet strength; 2. Revenue opportunities; 3. Quality and cost structure leadership; and 4. Completion of the Ocwen Solutions separation.
"First, we further reduced debt during the quarter by $56.7 million and increased cash by $55.1 million from March 31, 2009. As of June 30, 2009 we have $213.9 million in cash and over $650 million in excess advance financing capacity. We expect to participate in the Term Asset-Backed Securities Loan Facility program ("TALF") beginning in September and anticipate replacing a $165 million amortizing note with a longer-term TALF note.
"Second, we are very focused on growing our servicing unpaid principal balance ("UPB"). Several servicing portfolios are for sale, and we are in the process of evaluating these opportunities. We continue to aggressively pursue special servicing opportunities that require little capital, and our pilot program with Freddie Mac is an example of the kind of business that we are targeting. We also believe the current distressed mortgage market may provide an opportunity to sponsor an asset management vehicle that leverages our servicing capabilities. We would expect to participate in the earnings of such a vehicle via management fees, carried interest and subservicing fees.
"Third, our cost reduction efforts led to a 10.6% decline in operating costs for the three months ended June 2009 as compared to June 2008. Also, just yesterday enhancements to our loan resolution model were released into production eliminating significant manual work necessitated by the HAMP. We also have additional significant HAMP related enhancements to our scripting, workflow, telephony and underwriting systems that are planned to become operational over the next eight weeks. Ultimately, HAMP will become a far more streamlined process than the process we have employed to date. We expect these initiatives to reduce variability in the performance of our staff and increase the number of completed HAMP loan modifications. In fact, each month the number of HAMP modification offers extended to borrowers has dramatically increased.
"Fourth, on July 31, 2009, Altisource Portfolio Solutions S.A., the newly formed publicly-traded company comprising the majority of our business operations currently included within the Ocwen Solutions business line, began 'when issued' trading on the NASDAQ Global Select Market under the ticker symbol ASPSV. We expect to complete the separation of Altisource on August 10, 2009 in a tax free pro rata distribution to shareholders of record as of August 4, 2009."
Ocwen Asset Management
Ocwen Asset Management generated income from operations of $28.5 million in the second quarter of 2009, 42.3% lower than the second quarter of 2008. Income from continuing operations before taxes for the second quarter of 2009 declined 55.2% to $11.2 million from $25.1 million in the second quarter of 2008 reflecting the expected decline in loan modifications and lower servicing UPB, partially offset by lower operating expenses.
Income from continuing operations before taxes for Servicing of $15.5 million declined 51.3%, a $16.4 million decrease from the second quarter of 2008, $8.1 million of which was attributable to the decline in loan modifications due to the implementation of the HAMP. Servicing realized operating expense savings of 22.9%, or $9.8 million, from reduced staffing levels, lower amortization and lower compensating interest expense compared to the second quarter of 2008.
Losses from continuing operations before taxes for Loans and Residuals decreased to $2.8 million as compared to $5.4 million in the second quarter of 2008. This improvement was primarily due to lower unrealized losses associated with declines in the estimated market value of loans, real estate and residual securities.
Asset Management Vehicles incurred a $1.4 million loss from continuing operations before taxes as compared to a $1.3 million loss from continuing operations in the second quarter of 2008.
Ocwen Solutions
Income from operations at Ocwen Solutions increased 196.6% to $12 million compared to the second quarter of 2008 primarily due to revenue growth at Mortgage Services and cost reductions at Financial Services and Technology Products. Income from continuing operations before taxes improved to $12.1 million in the second quarter of 2009 from a loss of $9.4 million in the second quarter of 2008, which included $13.6 million in unrealized losses at BMS Holdings, Inc., an unconsolidated subsidiary.
Mortgage Services benefited from geographic expansion, increased penetration of existing clients and the introduction of new default-oriented products as second quarter revenues increased 67% to $24.2 million compared to $14.5 million in the second quarter of 2008. Income from continuing operations before taxes increased significantly to $8.8 million in the second quarter of 2009.
Revenues at Financial Services for the second quarter of 2009 declined 13% to $16.5 million, compared to $19.0 million in 2008. This was primarily due to lower collection rates due to the current economic climate. A 17% decline in total operating expenses, compared to the second quarter of 2008, more than offset the decline in revenues resulting in a $1.7 million loss from continuing operations before taxes.
Technology Products increased income from operations 91% to $5 million compared to the second quarter of 2008. This growth came from a 27.3% reduction in total operating expenses compared to the second quarter of 2008.
Corporate
Unrealized gains on auction rate securities were $6.0 million in the second quarter of 2009. This compares to unrealized losses of $6.8 million in the second quarter of 2008. Total consolidated assets declined 9% from December 31, 2008 to $2,034.3 million at June 30, 2009 primarily due to a $217.3 million decrease in match funded advances. Total consolidated liabilities decreased 17.7% from December 31, 2008 to $1,339.7 million at June 30, 2009 primarily due to lower match funded liabilities and servicer liabilities.
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 business process solutions provider specializing in loan servicing, special servicing and mortgage services. Ocwen is headquartered in West Palm Beach, Florida with offices in Arizona, California, the District of Columbia, Florida, Georgia and New York and global operations in Canada, India and Uruguay. Utilizing our 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, 2008 and Form 10-Q for the quarters ended March 31, 2008, June 30, 2008, September 30, 2008 and March 31, 2009 and our Forms 8-K filed during 2008 and 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
-----------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30,
2009 2009 2008 2008 2008
----------- ----------- ----------- ----------- -----------
Total
unpaid
principal
balance
of loans
and REO
serviced
(1) $38,406,007 $40,789,135 $40,171,532 $41,754,368 $44,831,875
Non-
performing
loans and
REO
serviced
as a % of
total
UPB(1)(2) 27.4% 25.1% 24.3% 22.7% 22.4%
Prepayment
speed
(average
CPR) 22% 21% 25% 26% 26%
(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. Non-performing loans exclude those serviced
under special servicing agreements where we have no
obligation to advance.
Segment Results (In thousands)
Three months Six months
For the periods -------------------- --------------------
ended June 30, 2009 2008 2009 2008
--------- --------- --------- ---------
(As adjusted) (As adjusted)
Ocwen Asset Management
Servicing
Revenue $ 62,726 $ 92,414 $ 137,421 $ 178,926
Operating expenses 32,955 42,723 67,173 84,674
--------- --------- --------- ---------
Income from
operations 29,771 49,691 70,248 94,252
Other expense, net (14,268) (17,829) (29,548) (40,961)
--------- --------- --------- ---------
Income from
continuing
operations
before taxes 15,503 31,862 40,700 53,291
--------- --------- --------- ---------
Loans and Residuals
Revenue -- -- -- --
Operating expenses 747 551 1,309 1,469
--------- --------- --------- ---------
Loss from
operations (747) (551) (1,309) (1,469)
Other expense, net (2,096) (4,890) (5,672) (7,631)
--------- --------- --------- ---------
Loss from
continuing
operations
before taxes (2,843) (5,441) (6,981) (9,100)
--------- --------- --------- ---------
Asset Management
Revenue 460 1,127 997 2,178
Operating expenses 1,016 926 1,778 1,616
--------- --------- --------- ---------
Income (loss)
from operations (556) 201 (781) 562
Other expense, net (846) (1,479) (1,148) (3,286)
--------- --------- --------- ---------
Loss from
continuing
operations
before taxes (1,402) (1,278) (1,929) (2,724)
--------- --------- --------- ---------
Income from continuing
operations before
income taxes 11,258 25,143 31,790 41,467
--------- --------- --------- ---------
Ocwen Solutions
Mortgage Services
Revenue 24,165 14,495 42,182 31,249
Operating expenses 16,017 10,945 28,909 24,463
--------- --------- --------- ---------
Income from
operations 8,148 3,550 13,273 6,786
Other income, net 700 678 722 596
--------- --------- --------- ---------
Income from
continuing
operations
before taxes 8,848 4,228 13,995 7,382
--------- --------- --------- ---------
Financial Services
Revenue 16,471 19,030 33,787 38,529
Operating expenses 17,557 21,128 35,706 40,139
--------- --------- --------- ---------
Loss from
operations (1,086) (2,098) (1,919) (1,610)
Other expense, net (647) (494) (1,115) (962)
--------- --------- --------- ---------
Loss from
continuing
operations
before taxes (1,733) (2,592) (3,034) (2,572)
--------- --------- --------- ---------
Technology Products
Revenue 12,108 12,410 22,682 22,895
Operating expenses 7,121 9,799 15,294 18,681
--------- --------- --------- ---------
Income from
operations 4,987 2,611 7,388 4,214
Other expense, net (52) (13,643) (129) (5,634)
--------- --------- --------- ---------
Income (loss)
from continuing
operations
before taxes 4,935 (11,032) 7,259 (1,420)
--------- --------- --------- ---------
Income (loss) from
continuing operations
before income taxes 12,050 (9,396) 18,220 3,390
--------- --------- --------- ---------
Corporate Items and
Other
Revenue 112 134 365 142
Operating expenses 3,830 3,344 7,813 11,979
--------- --------- --------- ---------
Loss from
operations (3,718) (3,210) (7,448) (11,837)
Other income
(expense), net 6,755 (9,425) 7,047 (21,491)
--------- --------- --------- ---------
Income (loss)
from continuing
operations
before taxes 3,037 (12,635) (401) (33,328)
--------- --------- --------- ---------
Corporate Eliminations
Revenue (6,863) (8,385) (13,665) (14,443)
Operating expenses (6,593) (8,150) (13,066) (13,680)
--------- --------- --------- ---------
Loss from
operations (270) (235) (599) (763)
Other income, net 270 235 599 763
--------- --------- --------- ---------
Income from
continuing
operations
before taxes -- -- -- --
--------- --------- --------- ---------
Consolidated income
from continuing
operations
before income taxes $ 26,345 $ 3,112 $ 49,609 $ 11,529
========= ========= ========= =========
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, 2009 2008 2009 2008
--------------- ---------- ---------- ---------- ----------
(As Adjusted) (As Adjusted)
Revenue
Servicing and
subservicing fees $ 65,488 $ 100,688 $ 144,298 $ 198,902
Process management
fees 40,086 27,391 73,778 54,341
Other revenues 3,605 3,146 5,693 6,233
---------- ---------- ---------- ----------
Total revenue 109,179 131,225 223,769 259,476
---------- ---------- ---------- ----------
Operating expenses
Compensation and
benefits 27,254 32,754 55,799 62,840
Amortization of
servicing rights 8,543 14,592 18,584 28,606
Servicing and
origination 15,835 11,638 28,473 26,049
Technology and
communications 4,481 6,421 9,289 11,691
Professional
services 8,208 6,336 15,394 21,085
Occupancy and
equipment 4,818 5,807 10,864 12,340
Other operating
expenses 3,511 3,718 6,513 6,730
---------- ---------- ---------- ----------
Total operating
expenses 72,650 81,266 144,916 169,341
---------- ---------- ---------- ----------
Income from operations 36,529 49,959 78,853 90,135
---------- ---------- ---------- ----------
Other income (expense)
Interest income 2,254 3,231 4,419 8,044
Interest expense (17,300) (21,109) (33,963) (47,179)
Gain (loss) on
trading securities 5,435 (9,722) 5,055 (21,745)
Gain (loss) on
debt repurchases -- (86) 534 (86)
Loss on loans held
for resale, net (2,987) (5,929) (7,541) (10,438)
Equity in earnings
of unconsolidated
entities (576) (14,655) (549) (7,700)
Other, net 2,990 1,423 2,801 498
---------- ---------- ---------- ----------
Other expense, net (10,184) (46,847) (29,244) (78,606)
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes 26,345 3,112 49,609 11,529
Income tax expense 9,472 424 17,509 3,363
---------- ---------- ---------- ----------
Income from
continuing
operations 16,873 2,688 32,100 8,166
Income (loss) from
discontinued
operations, net of
income taxes 1,052 (5,182) 864 (5,386)
---------- ---------- ---------- ----------
Net income 17,925 (2,494) 32,964 2,780
Net loss (income)
attributable to
minority interest
in subsidiaries (95) (223) (25) (225)
---------- ---------- ---------- ----------
Net income
attributable to
Ocwen Financial
Corporation $ 17,830 $ (2,717) $ 32,939 $ 2,555
========== ========== ========== ==========
Basic earnings per
share
Income from
continuing
operations
attributable to
OCN common
shareholders $ 0.25 $ 0.04 $ 0.49 $ 0.13
Loss from
discontinued
operations
attributable
to OCN common
shareholders 0.01 (0.08) 0.02 (0.09)
---------- ---------- ---------- ----------
Net income
attributable to
OCN common
shareholders $ 0.26 $ (0.04) $ 0.51 $ 0.04
========== ========== ========== ==========
Diluted earnings
per share
Income from
continuing
operations
attributable
to OCN common
shareholders $ 0.24 $ 0.04 $ 0.48 $ 0.13
Loss from
discontinued
operations
attributable
to OCN common
shareholders 0.02 (0.08) 0.01 (0.09)
---------- ---------- ---------- ----------
Net income
attributable
to OCN common
shareholders $ 0.26 $ (0.04) $ 0.49 $ 0.04
========== ========== ========== ==========
Weighted average
common shares
outstanding
Basic 67,316,446 62,682,783 65,045,842 62,625,378
Diluted 72,854,415 62,892,868 70,375,555 62,853,659
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30, December 31,
2009 2008
---------- ----------
(As Adjusted)
Assets
Cash $ 213,911 $ 201,025
Trading securities, at fair value
Investment grade auction rate 243,285 239,301
Subordinates and residuals 3,440 4,369
Loans held for resale, at lower
of cost or fair value 39,726 49,918
Advances 153,732 102,085
Match funded advances 883,209 1,100,555
Mortgage servicing rights 132,729 139,500
Receivables 47,923 42,798
Deferred tax assets, net 161,180 175,145
Intangibles, including goodwill
of $11,027 and $9,836 46,082 46,227
Premises and equipment, net 11,080 12,926
Investments in unconsolidated entities 21,269 25,663
Other assets 76,719 97,588
---------- ----------
Total assets $2,034,285 $2,237,100
========== ==========
Liabilities and Equity
Liabilities
Match funded liabilities $ 765,023 $ 961,939
Lines of credit and other secured
borrowings 121,810 116,870
Investment line 176,668 200,719
Servicer liabilities 77,774 135,751
Debt securities 109,534 133,367
Other liabilities 88,932 78,813
---------- ----------
Total liabilities 1,339,741 1,627,459
---------- ----------
Equity
Ocwen Financial Corporation
stockholders' equity
Common stock, $.01 par value;
200,000,000 shares authorized;
67,512,096 and 62,716,530
shares issued and outstanding at
June 30, 2009 and December 31, 2008,
respectively 675 627
Additional paid-in capital 254,071 201,831
Retained earnings 437,840 404,901
Accumulated other comprehensive income,
net of income taxes 1,649 1,876
---------- ----------
Total Ocwen Financial Corporation
stockholders' equity 694,235 609,235
Minority interest in subsidiaries 309 406
---------- ----------
Total equity 694,544 609,641
---------- ----------
Total liabilities and equity $2,034,285 $2,237,100
========== ==========
CONTACT: Ocwen Financial Corporation
David J. Gunter, Executive Vice President &
Chief Financial Officer
(561) 682-8367
David.Gunter@Ocwen.com