WEST PALM BEACH, Fla., May 8, 2008 (PRIME NEWSWIRE) -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported income from continuing operations of $6.1 million for the first quarter of 2008 as compared to $12.8 million for the first quarter of 2007. For the three months ended March 31, 2008, income from continuing operations before income taxes was $9.4 million as compared to $19.1 million a year ago. Income from continuing operations before income taxes for the three months ended March 31, 2008 reflects $16.3 million related to Ocwen Asset Management and $12.8 million related to Ocwen Solutions lines of service and net Corporate costs of $(19.7) million. Included in Corporate costs are $9.5 million of expenses related to the terminated "go private" transaction and $8.9 million in unrealized losses from the Company's holding of AAA-rated, government guaranteed, FFELP student loan-backed auction rate securities.
Net income was $5.9 million or $0.09 per diluted share for the first quarter of 2008. This compares to $12.4 million or $0.18 per diluted share for the first quarter of 2007.
Chairman and CEO William Erbey stated, "Despite increasing challenges in the subprime mortgage market, our Servicing income from operations of $44.7 million for the first quarter of 2008 was up 42.1% sequentially over the fourth quarter and 53.0% over the first quarter of 2007.
As a result of key strategic initiatives that we implemented in the fourth quarter of 2007, we were able to reduce the number of delinquencies by 4.6% in the first quarter of 2008 as compared to the fourth quarter of 2007.
Notwithstanding the liquidity crisis in the subprime market, we were able to close a $300 million advance financing facility on April 18, 2008 demonstrating our continued ability to expand and diversify our funding sources. Since August 2007, we have expanded advance financing eight times in the nine month period representing one billion dollars, net, in new financing capacity. Furthermore, we continue to maintain a full pipeline of financing opportunities with new and existing lenders. Cash totaled $174.7 million at March 31, 2008, an increase of $60.4 compared to December 31, 2007.
Nationwide Credit, Inc. ("NCI") recovered from its disappointing start achieving break-even in the first quarter. This is after absorbing amortization of intangibles of $666 thousand for the quarter.
Finally, we were able to hold growth in operating expenses to 6% while increasing revenues 12%. This is in spite of increasing loss mitigation personnel 69% to meet the challenges of the servicing portfolio. We believe that it is imperative that we deliver the highest quality service to our clients. We were able to do so by rapidly scaling our loss mitigation capacity and at the same time reducing costs in other areas of our servicing platform through the use of technology and global resources.
During the quarter, we also realigned our reportable segments to better reflect our value equation and grow our businesses. Effective January 1, 2008, our previous segments which included Residential Servicing, Ocwen Recovery Group, and Residential Origination Services were realigned into two lines of service, Ocwen Asset Management and Ocwen Solutions, which are made up of six reportable segments. Ocwen Asset Management includes our core residential servicing business, equity investments in asset management vehicles and our remaining investments in subprime loans and residual securities. Ocwen Solutions, our business process outsourcing operation, includes our residential fee-based loan processing businesses, all of our technology platforms, our unsecured collections business, including NCI and our equity interest in BMS Holdings.
The segment grouping by line of service is as follows:
Ocwen Asset Management Ocwen Solutions ---------------------- ---------------- Servicing Technology Products Loans and Residuals Mortgage Services Asset Management Vehicles Financial Services
Ocwen Asset Management
Our Servicing segment continues to be our most profitable segment in spite of the negative impact of higher delinquencies compared to the first quarter of 2007. Since we recognize revenue from servicing fees upon collection, the increase in delinquencies affects the timing of the recognition of the servicing fee. For the first three months of 2008 and 2007, revenue excludes $3.7 million and $2.1 million, respectively, of uncollected servicing fees. While rising delinquencies and low float balances have resulted in lower revenue compared to the first quarter of 2007, the impact has been offset by reduced amortization of servicing rights due to lower prepayment speeds and the impact from sales of foreclosed real estate.
The Loans and Residuals segment was impacted by lower interest income primarily attributed to our sale of the UK residuals in the second quarter of 2007.
The Asset Management Vehicles segment reflects our 25% share of net losses incurred by Ocwen Structured Investments, LLC and Ocwen Nonperforming Loans, LLC and affiliates, resulting from charges to close a financing facility that was no longer useful in the current environment, and charges to reduce loans, real estate and residuals to their fair values.
Ocwen Solutions
The improvement in the Technology Products segment is primarily attributable to the $7.9 million of earnings generated by our 46% ownership interest in the earnings of BMS Holdings, Inc.
The Mortgage Services segment performed well given the sharp decline in origination volumes and reflects an increase in revenues of $0.4 million compared to the first quarter and a decrease of $4.6 million compared to the fourth quarter of 2007. The decrease as compared to the fourth quarter is primarily the result of special projects that were completed in the fourth quarter.
The Financial Services segment revenue increase in the first quarter of 2008 as compared to 2007 is primarily attributable to the NCI acquisition in June 2007. The Financial Services segment showed an improvement over the fourth quarter of 2007 as a result of the Company continuing to realize synergies from the merger and through an increase in the number of contingency collectors.
Corporate Items and Other
Corporate Items and Other include the expenses related to the terminated "go private" transaction and the unrealized losses on holding of auction rate securities.
The past six months have been amongst the most challenging in the history of the mortgage industry. It has also created opportunities for the survivors. We believe that we will be able to capitalize on future opportunities in the mortgage servicing business."
Segment Results (In thousands)
For the three months ended March 31, 2008 2007
-------------------------------------- --------- ---------
Ocwen Asset Management
Servicing
Revenue $ 86,512 $ 91,597
Operating expenses 41,806 62,382
--------- ---------
Income from operations 44,706 29,215
Other expense, net (23,131) (10,297)
--------- ---------
Income from continuing
operations before
income taxes 21,575 18,918
--------- ---------
Loans and Residuals
Revenue --- 44
Operating expenses 4,361 2,874
--------- ---------
Loss from operations (4,361) (2,830)
Other income, net 727 154
--------- ---------
Loss from continuing
operations before
income taxes (3,634) (2,676)
--------- ---------
Asset Management
Revenue 1,051 ---
Operating expenses 856 73
--------- ---------
Income (loss) from operations 195 (73)
Other income (expense), net (1,807) ---
--------- ---------
Loss from continuing
operations before income
taxes (1,612) (73)
--------- ---------
Income from continuing
operations before income
taxes 16,329 16,169
--------- ---------
Ocwen Solutions
Technology Products
Revenue 11,226 9,096
Operating expenses 8,882 7,339
--------- ---------
Income from operations 2,344 1,757
Other income, net 7,267 209
--------- ---------
Income from continuing
operations before
income taxes 9,611 1,966
--------- ---------
Mortgage Services
Revenue 16,755 16,357
Operating expenses 13,519 14,219
--------- ---------
Income from
operations 3,236 2,138
Other expense, net (89) (51)
--------- ---------
Income from continuing
operations before
income taxes 3,147 2,087
--------- ---------
Financial Services
Revenue 19,499 1,787
Operating expenses 19,008 2,047
--------- ---------
Income (loss) from
operations 491 (260)
Other income (expense), net (468) 2
--------- ---------
Income (loss) from
continuing operations
before income taxes 23 (258)
--------- ---------
Income from continuing
operations before income
taxes 12,781 3,795
--------- ---------
Corporate Items and Other
Revenue 5 774
Operating expenses 8,636 2,213
--------- ---------
Loss from operations (8,631) (1,439)
Other income (expense), net (11,031) 619
--------- ---------
Loss from continuing
operations before
income taxes (19,662) (820)
--------- ---------
Consolidated income from continuing
operations before income taxes $ 9,448 $ 19,144
========= =========
Residential Servicing Statistics (Dollars in thousands)
At or for the three months ended
----------------------------------------------------------
March 31, Dec. 31, Sept.30, June 30, March 31,
2008 2007 2007 2007 2007
---------- ----------- ----------- ----------- -----------
Total
unpaid
principal
balance of
loans and
REO
serviced
(1) $49,319,762 $52,747,836 $55,662,286 $53,122,085 $55,179,160
Non-performing
loans and
REO serviced
as a percent
of total
(2) 21.8% 19.6% 14.6% 11.1% 8.6%
Prepayment
speed
(average
CPR) 23% 21% 22% 23% 26%
(1) Excluding REO serviced pursuant to our contract with the U.S.
Department of Veterans Affairs.
(2) Loans for which borrowers are making scheduled payments under
forbearance or bankruptcy plans are considered performing loans.
Ocwen Financial Corporation is a leading business process outsourcing provider to the financial services industry, specializing in loan servicing, mortgage fulfillment and receivables management services. Ocwen is headquartered in West Palm Beach, Florida with offices in Arizona, California, Florida, Georgia, Illinois 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 March 31, 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.
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
---------------------------
For the three months ended March 31, 2008 2007
------------------------------------- ---------- ----------
Revenue
Servicing and subservicing fees $ 98,214 $ 91,712
Process management fees 26,950 19,896
Other revenues 3,087 3,375
---------- ----------
Total revenue 128,251 114,983
---------- ----------
Operating expenses
Compensation and benefits 29,402 20,197
Amortization of servicing rights 14,014 32,237
Servicing and origination 14,411 13,659
Technology and communications 5,270 4,686
Professional services 14,749 6,555
Occupancy and equipment 6,533 5,343
Other operating expenses 7,160 3,878
---------- ----------
Total operating expenses 91,539 86,555
---------- ----------
Income from operations 36,712 28,428
---------- ----------
Other income (expense)
Interest income 4,813 9,966
Interest expense (25,038) (15,028)
Loss on trading securities (12,023) (4,471)
Loss on loans held for resale, net (1,045) (2,543)
Equity in earnings of
unconsolidated entities 6,955 243
Other, net (926) 2,549
---------- ----------
Other expense, net (27,264) (9,284)
---------- ----------
Income from continuing operations
before income taxes 9,448 19,144
Income tax expense 3,314 6,374
---------- ----------
Income from continuing operations 6,134 12,770
Loss from discontinued operations,
net of income taxes (204) (390)
---------- ----------
Net income $ 5,930 $ 12,380
========== ==========
Basic earnings per share
Income from continuing operations $ 0.09 $ 0.21
Loss from discontinued operations --- (0.01)
---------- ----------
Net income $ 0.09 $ 0.20
========== ==========
Diluted earnings per share
Income from continuing operations $ 0.09 $ 0.19
Loss from discontinued operations --- (0.01)
---------- ----------
Net income $ 0.09 $ 0.18
========== ==========
Weighted average common shares
outstanding
Basic 62,567,972 63,186,262
Diluted 70,776,654 72,189,608
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
March 31, December 31,
2008 2007
----------- -----------
Assets
Cash $ 174,684 $ 114,243
Trading securities, at fair value
Auction rate 289,044 ---
Other investment grade 21,743 34,876
Subordinates and residuals 6,190 7,362
Loans held for resale, at lower of
cost or market 67,880 75,240
Advances 294,948 292,887
Match funded advances 1,154,525 1,126,097
Mortgage servicing rights 186,771 197,295
Receivables 72,719 79,394
Deferred tax assets, net 177,880 178,178
Intangibles, including goodwill of
$17,042 and $17,615 57,062 58,301
Premises and equipment, net 34,031 35,572
Investment in unconsolidated
entities 80,671 76,465
Other assets 135,613 118,786
----------- -----------
Total assets $ 2,753,761 $ 2,394,696
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities $ 1,068,123 $ 1,001,403
Lines of credit and other
secured borrowings 359,522 339,976
Investment line 283,836 ---
Servicer liabilities 189,455 204,484
Debt securities 150,279 150,279
Other liabilities 106,083 110,429
----------- -----------
Total liabilities 2,157,298 1,806,571
----------- -----------
Minority interest in subsidiaries 2,068 1,979
Stockholders' Equity
Common stock, $.01 par value;
200,000,000 shares authorized;
62,650,550 and 62,527,360 shares
issued and outstanding at
March 31, 2008 and December 31,
2007, respectively 627 625
Additional paid-in capital 178,859 177,407
Retained earnings 412,752 406,822
Accumulated other comprehensive
income, net of taxes 2,157 1,292
----------- -----------
Total stockholders' equity 594,395 586,146
----------- -----------
Total liabilities and
stockholders' equity $ 2,753,761 $ 2,394,696
=========== ===========