WEST PALM BEACH, Fla., July 13, 2004 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income for the second quarter of 2004 of $0.8 million or $0.01 per share compared to net income of $4.1 million or $0.06 per share for the second quarter of 2003; second quarter 2004 results include a provision of $9.3 million related to a jury verdict rendered on July 9th, as discussed below. For the six months ended June 30, 2004 the Company reported net income of $7.5 million or $0.11 per share as compared to a net loss of $(4.3) million or $(0.06) per share in the same period in 2003. Net income in 2004 would have been $10.1 million for the second quarter and $16.8 million year to date, excluding the provision for the jury verdict. (Management is presenting this non-GAAP financial measure because it believes the measure will assist investors in making meaningful comparisons to prior periods.)
Chairman and CEO William C. Erbey stated, "We are pleased to report $10.1 million in net income for the quarter, prior to the reserve for the adverse jury verdict, particularly in light of the continued pressure from low interest rates and high prepayment speeds on our Residential Loan Servicing business. Among the points to note with respect to this quarter's results are the following:
- Our core business units reported aggregate pre-tax income of $9.1
million in the second quarter, an improvement of $1.2 million vs.
the 2003 second quarter. Year to date, our core businesses
reported pre-tax income of $17.1 million, up $1.7 million or 11%
over the same period last year. Our newer core businesses - Ocwen
Realty Advisors, Unsecured Collections, Business Process
Outsourcing and Commercial Servicing - contributed to this
growth, posting increases in pre-tax income of $1.2 million in
the second quarter of 2004, and $4.2 million in the first six
months as compared to the same periods last year.
- OTX reported pre-tax income of $1.5 million in the second
quarter, which includes the recognition of revenue representing
one-time documentation fees related to our contract with Aegis
Mortgage for the use of our REALServicing(tm) system. This
represents the first major commercial contract for REALServicing.
We believe this successful implementation of the product is a
significant milestone for OTX.
- Our non-core businesses reported aggregate pre-tax income of $2.6
million, primarily representing interest income and mark to
market gains resulting from strong cash flows on our commercial
and subprime residual trading securities.
- Our Corporate segment reported pre-tax losses of $11.0 million in
the second quarter, including the $9.3 million provision related
to the recent jury verdict.
- Non-core assets were reduced to $130.0 million at June 30th, a
decline of $52.2 million or 29% over the balance at December 31,
2003, primarily due to loan repayments and asset sales.
- Our Residential Loan Servicing business has continued its
position as a high-quality, low cost provider and has remained
profitable despite a $9.1 million increase in amortization of
mortgage servicing rights and compensating interest expense in
the first six months of 2004 as compared to the same period last
year. We are pleased that the Federal Reserve Board has begun the
process of raising short-term interest rates which will have an
immediate impact on float income and, we believe, over the
intermediate term, a salutary effect on prepayment speeds.
As we have discussed in the past, our strategic restructuring has included actions to diversify our sources of funding. We believe that the capital markets may offer cost efficient alternatives to replace our remaining deposit funding that would permit us to enhance the growth of our Residential Loan Servicing business. Accordingly, while no final determination has been made, we are considering actions that may result in Ocwen Federal Bank FSB terminating its status as a federal savings bank, whereupon Ocwen Financial Corporation would no longer be a thrift holding company. Such a determination, if any, would be subject to various contingencies, including regulatory approval."
The Residential Loan Servicing business reported pre-tax income of $4.6 million in the second quarter of 2004 vs. $8.9 million in the 2003 second quarter. Year to date, pre-tax income was $10.4 million as compared to $18.6 million in the same period of 2003. These results reflect the continuing pressures from low interest rates and rising prepayment speeds in our portfolio. One important measure of the impact of these trends is the expense associated with mortgage servicing rights amortization and compensating interest expense. These combined amounts increased by $2.4 million or 8% in the second quarter of 2004 as compared to 2003, and by $9.1 million or 16% for the six months ended June 30. Operating expenses also increased in both the second quarter and year to date periods in 2004 as compared to 2003, reflecting costs associated with our property management contract with the United States Department of Veteran's Affairs and as a result of reassuming, in the fourth quarter of 2003, certain collection activities that had been performed by outside parties. As a result of high prepayment rates, as well as reduced purchases of servicing rights, our servicing portfolio has declined somewhat since the end of 2003. As of June 30, 2004, we were the servicer of approximately 334 thousand loans with an unpaid principal balance (UPB) of $34.8 billion, as compared to approximately 360 thousand loans and $37.7 billion of UPB at December 31, 2003.
OTX reported pre-tax income of $1.5 million in the 2004 second quarter compared to a pre-tax loss of $(2.6) million in the 2003 second quarter. Year to date in 2004, OTX reported a pre-tax loss of $(0.2) million as compared to $(5.9) million in the same period last year. Second quarter 2004 results reflect one time revenues associated with the service contract between OTX and Aegis Mortgage for the use of the REALServicing system.
Our other core businesses reported aggregate pre-tax income of $2.9 million in the second quarter of 2004 as compared to $1.7 million in the second quarter of 2003. For the six months ended June 30, 2004, these businesses reported aggregate pre-tax income of $6.9 million as compared to $2.7 million in the same period of 2003. These improvements primarily reflect the growth of our Business Process Outsourcing business as well as the reduction in losses for Commercial Servicing, which achieved break-even results for the six months ended June 30, 2004.
Our non-core businesses recorded aggregate pre-tax income of $2.6 million for the second quarter as compared to pre-tax income of $0.2 million in 2003. Year to date, these businesses reported aggregate pre-tax income of $0.9 million as compared to a pre-tax loss of $(12.0) million in the same period of 2003. 2004 second quarter results include interest income from both our commercial and subprime subordinate trading securities portfolio as well as mark to market gains on these securities, reflecting strong cash flows during the period. This revenue was partially offset by impairment charges on two of our remaining commercial assets.
The Corporate Segment reported a pre-tax loss of $(11.0) million in the second quarter of 2004 as compared to a loss of $(3.7) million in the same period last year. Year to date, Corporate reflected a pre-tax loss of $(10.5) million as compared to $(7.4) million in the same period of 2003. While technology and interest expenses in Corporate for 2004 were reduced as compared to 2003 in both the quarter and year to date periods, second quarter 2004 Corporate results include a provision of $9.3 million related to a recent jury verdict. On July 9, 2004 a jury rendered an adverse verdict in litigation brought by Cartel Asset Management, Inc. ("Cartel") against the Company and its subsidiaries, Ocwen Federal Bank FSB and Ocwen Technology Xchange in federal court in Denver, Colorado. Cartel alleged trade secret and contract-related claims arising out of real estate valuation services performed from 1997 through the first quarter of 2001, at which time the Company ceased doing business with Cartel. The lawsuit does not involve challenges to the Company's core Residential Loan Servicing business practices. We believe that the verdict, which has not yet been reduced to final judgment, is contrary to the facts and law, and it will be vigorously challenged in post-trial motions and, if necessary, an appeal to the U.S. Court of Appeals for the Tenth Circuit.
In summary, aggregate core business earnings in the second quarter of 2004 increased by 15.3% as compared to the second quarter of 2003, while year to date 2004 core business earnings increased 11.2% as compared to the same period in 2003. Non-core assets have been reduced by 29% since the end of 2003. Net income in 2004 would have been $10.1 million for the second quarter and $16.8 million year to date, excluding the provision for the jury verdict.
Ocwen Financial Corporation is a diversified financial services holding company with headquarters in West Palm Beach, Florida and operations in India, Japan and Taiwan. Ocwen Financial Corporation is engaged in a variety of businesses related to residential and commercial mortgage servicing, real estate asset management, asset recovery, business process outsourcing and the marketing and sales of technology solutions to third parties. Ocwen Financial Corporation is a global leader in customer service excellence as a result of our company-wide commitment to quality, integrity and accountability. Additional information about Ocwen Financial Corporation 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, interest rates and the impact of changes in interest rates on the servicing business, the availability of financing alternatives, the potential actions that may result in our no longer being a thrift holding company, and expectations with regard to litigation. 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, uncertainty related to dispute resolution and litigation, federal income tax rates, recognition of deferred tax credits and real estate market conditions and trends, 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, 2003. 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)
Three Months Six Months
For the periods ended
June 30, 2004 2003 2004 2003
Revenue
Servicing and
related fees $ 38,602 $ 32,224 $ 80,723 $ 66,052
Vendor management fees 13,654 6,091 26,828 10,865
Gain (loss) on trading
and match funded
securities, net 2,503 3,188 1,860 2,765
Valuation gains (losses)
on real estate (1,974) (6,308) (3,825) (6,009)
Gain (loss) on sales
of real estate 81 13 (460) 92
Operating income (loss)
from real estate 565 1,421 573 2,192
Gain on debt repurchases --- (4) --- (4)
Other income 4,984 2,776 11,604 5,831
Non-interest
revenue 58,415 39,401 117,303 81,784
Interest income 5,962 6,998 10,567 13,755
Interest expense 7,096 9,404 14,898 18,731
Net interest income
(expense) before
provision for loan
losses (1,134) (2,406) (4,331) (4,976)
Provision for loan
losses (287) (3,250) (819) (3,085)
Net interest income
(expense) after
provision for
loan losses (847) 844 (3,512) (1,891)
Total revenue 57,568 40,245 113,791 79,893
Non-interest expense
Compensation and
employee benefits 20,897 17,130 42,930 34,838
Occupancy and equipment 4,021 2,685 8,018 5,515
Technology and
communication costs 6,616 4,497 13,285 8,994
Loan expenses 7,460 3,465 15,387 7,000
Loss (gain) on
affordable housing
properties (41) (56) (79) 314
Professional services
and regulatory fees 15,636 4,060 21,461 19,344
Other operating
expenses 2,199 2,554 5,256 4,850
Non-interest
expense 56,788 34,335 106,258 80,855
Distributions on Company-
obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the Company
(Capital Securities) --- 1,529 --- 3,059
Income (loss) before
minority interest and
income taxes 780 4,381 7,533 (4,021)
Minority interest in
net income (loss) of
subsidiaries (47) (73) (68) (336)
Income tax expense 55 305 66 612
Net income (loss) $ 772 $ 4,149 $ 7,535 $(4,297)
Earnings (loss) per share
Basic $0.01 $0.06 $0.11 $(0.06)
Diluted $0.01 $0.06 $0.11 $(0.06)
Weighted average common
shares outstanding
Basic 68,160,020 67,240,155 67,961,217 67,289,964
Diluted 69,534,999 68,372,204 69,314,392 67,289,964
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, 2004 December 31, 2003
Assets
Cash and amounts due
from depository
institutions $ 282,099 $ 215,764
Interest earning deposits 7 324
Trading securities, at
fair value:
U.S. government and
sponsored enterprise
securities 4,652 6,679
Subordinates and residuals 42,280 42,841
Real estate 68,080 103,943
Affordable housing properties 8,198 7,410
Loans, net 11,520 28,098
Match funded assets 132,775 130,087
Premises and equipment, net 41,633 41,944
Advances on loans and loans
serviced for others 337,320 374,769
Mortgage servicing rights 136,174 166,495
Receivables 85,415 88,157
Other assets 39,016 33,607
Total assets $ 1,189,169 $ 1,240,118
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 455,669 $ 446,388
Escrow deposits 138,661 116,444
Bonds-match funded agreements 117,745 115,394
Lines of credit and other
secured borrowings 50,582 150,384
Notes and debentures 56,249 56,249
Accrued interest payable 4,099 4,789
Accrued expenses, payables
and other liabilities 36,191 31,926
Total liabilities 859,196 921,574
Minority interest in
subsidiaries 1,294 1,286
Stockholders' equity
Common stock, $.01 par value;
200,000,000 shares authorized:
68,201,948 and 67,467,220
shares issued and outstanding
at June 30, 2004 and December
31, 2003, respectively 682 675
Additional paid-in capital 230,440 225,559
Retained earnings 97,943 90,409
Accumulated other comprehensive
income (loss), net of taxes (386) 615
Total stockholders' equity 328,679 317,258
Total liabilities and
stockholders' equity $ 1,189,169 $ 1,240,118
Pre-Tax Income (Loss) by Business
Segment
Three Months Six Months
For the periods ended
June 30, 2004 2003 2004 2003
(Dollars in thousands)
Core businesses
Residential Loan
Servicing $ 4,637 $ 8,855 $ 10,383 $ 18,563
OTX 1,534 (2,645) (237) (5,945)
Ocwen Realty Advisors 1,576 1,594 3,535 2,609
Unsecured Collections 889 965 2,290 2,281
Business Process
Outsourcing 707 (77) 1,104 4
Commercial Servicing (226) (784) (3) (2,165)
9,117 7,908 17,072 15,347
Non-core businesses
Commercial Assets 190 (4,239) (3,050) (6,668)
Affordable Housing (1,186) (1,324) (2,159) (3,604)
Subprime Finance 3,623 5,785 6,127 (1,700)
2,627 222 918 (11,972)
Corporate Items and
Other (10,964) (3,749) (10,457) (7,396)
Income (loss) before
minority interest
and income taxes $ 780 $ 4,381 $ 7,533 $ (4,021)
Non-Core Assets
(Dollars in thousands) June 30, 2004 December 31, 2003
Loans, net
Affordable housing $ 3,635 $ 6,545
All other 7,885 21,553
Real estate 68,080 103,943
Subordinates, residuals
and other trading securities 42,280 42,841
Affordable housing properties 8,198 7,410
Total non-core assets $ 130,078 $ 182,292