Ocwen Financial Corporation Announces Preliminary Fourth Quarter and 2009 Financial Results
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