WEST PALM BEACH, Fla., Jan. 27, 2005 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income for the fourth quarter of 2004 of $4.1 million or $0.07 per share compared to net income of $4.5 million or $0.07 per share for the fourth quarter of 2003. For the year ended December 31, 2004 the Company reported net income of $59.2 million or $0.90 per share as compared to $4.8 million or $0.07 per share in the same period in 2003. Net income for 2004 includes a net tax benefit of $30.8 million, primarily reflecting the partial reversal of the deferred tax asset valuation allowance that was established in prior years. Pre-tax income in 2004 was $28.2 million as compared to $5.0 million last year.
Chairman and CEO William C. Erbey stated, "We are pleased to report pre-tax operating income in 2004 of $28.2 million, a $23.2 million increase over our results in 2003. Our results are particularly gratifying because we succeeded in diversifying our sources of income through the growth of our smaller core businesses, partially offsetting a decrease in earnings from our Residential Loan Servicing business, which faced substantial challenges from low interest rates and very high prepayment speeds during 2004. We also achieved pre-tax income in our non-core and corporate segments as compared to losses in these segments last year. Among the highlights worthy of note in 2004 are the following:
-- Aggregate pre-tax income in our core businesses was $25.1 million
in 2004 as compared to $27.9 million in 2003, a decline of
only 10%, notwithstanding a 49% decline in 2004 pre-tax income in
Residential Loan Servicing.
-- Our Commercial Servicing business, which includes of our GSS joint
venture with Merrill Lynch that commenced in 2003, reported pre-tax
income of $0.6 million in 2004 as compared to a loss of $(4.2)
million last year.
-- Our non-core businesses reported aggregate pre-tax income of $2.3
million as compared to a loss of $(10.1) million in 2003
-- Our Corporate sector reflected pre-tax income of $0.8 million as
compared to a loss of $(12.8) million in 2003.
"We continued to reduce our exposure to non-core assets, which stood at $67.7 million as of December 31, 2004 as compared to $182.3 million last year, a decline of 63%. This reduction includes the sale in the fourth quarter of our largest commercial asset, which had a book value of $44 million. Of the remaining balance, $39.5 million or 58% consists of our subprime residual securities trading portfolio, which continues to generate positive cash flow and interest earnings.
"As we previously announced, we have filed an application with the OTS to turn in the thrift charter of Ocwen Federal Bank ('OFB'). This change, if approved, will remove certain limits on our ability to grow our Residential Servicing business. As an integral part of this change, we are continuing our efforts to secure new sources of financing to replace the deposits that would be sold in connection with turning in the thrift charter.
"We are also pleased at the progress we are making in expanding the range and scope of our mortgage origination services. On December 31, 2004, we enhanced our ability to provide mortgage fulfillment and due diligence services through the purchase of a due diligence operation, including staff, facilities and systems, from a major Wall Street mortgage conduit, and simultaneously entered into a one year renewable contract to provide them these services. We believe this acquisition, together with our existing origination services capabilities, will provide meaningful growth opportunities in the future.
"Overall we have achieved positive results in 2004 in the face of significant external challenges, and we believe we are well positioned to benefit from increases in interest rates, and from an eventual decrease in mortgage pre-payment speeds."
The Residential Loan Servicing business reported pre-tax income of $2.1 million in the fourth quarter of 2004 vs. $5.2 million in the 2003 fourth quarter. For 2004, pre-tax income was $15.8 million as compared to $31.0 million in 2003. These results reflect the continuing pressures from low interest rates and rising prepayment speeds in our portfolio. Operating expenses increased 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 December 31, 2004, we were the servicer of approximately 320 thousand loans with an unpaid principal balance (UPB) of $34.5 billion, as compared to approximately 360 thousand loans and $37.7 billion of UPB at December 31, 2003.
Our other core businesses reported aggregate pre-tax income of $1.8 million in the fourth quarter of 2004 as compared to pre-tax income of $0.3 million in the fourth quarter of 2003. For the year ended December 31, 2004, these businesses reported aggregate pre-tax income of $9.3 million as compared to a loss of $(3.1) million in the same period of 2003. These improvements primarily reflect improvements in the results of OTX and Commercial Servicing.
Our non-core businesses recorded aggregate pre-tax income of $2.0 million for the fourth quarter as compared to pre-tax income of $2.2 million in the same period last year. In 2004, these businesses reported aggregate pre-tax income of $2.3 million as compared to a pre-tax loss of $(10.1) million in 2003.
The Corporate Segment reported a pre-tax loss of $(1.0) million in the fourth quarter of 2004 as compared to a loss of $(3.3) million in the same period last year. For the year, Corporate generated pre-tax income of $0.8 million as compared to a loss of $(12.8) million last year. Corporate results for 2004 include interest income on federal income tax return claims of $0.4 million and $6.9 million for the quarter and year to date periods, respectively.
Results for 2004 include a net income tax benefit of $30.8 million. This benefit is primarily due to the reversal of $37.0 million of the valuation allowance on deferred tax assets that had been provided in prior years. This allowance was reduced as a result of refund claims of $37.0 million filed with the IRS that reduced our deferred tax asset as of December 31, 2004 and increased our receivable balances by the same amount. The tax benefit is net of $6.2 million of tax expense; primarily representing estimated federal taxes on 2004 earnings.
In summary, pre-tax income in 2004 increased by $23.2 million as compared to 2003, and non-core assets were reduced by 63% during the year.
Ocwen Financial Corporation is a diversified financial services holding company with headquarters in West Palm Beach, Florida and operations in Canada, China, Germany, 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 and prepayment speeds on our Residential Loan Servicing business, the impact of actions that may result in our no longer being a thrift holding company, the adequacy of our liquidity position and the outlook on reduction in non-core assets. 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 and its reports on Form 10-Q for the periods ended March 31, 2004, June 30, 2004 and September 30, 2004. 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 Twelve Months
For the periods ended
December 31, 2004 2003 2004 2003
Revenue
Servicing and
related fees $ 37,072 $ 38,041 $152,382 $139,744
Vendor
management
fees 14,225 8,121 54,666 29,842
Gain (loss)
on trading and
match funded
securities, net (2,226) 420 (537) 3,344
Valuation gains
(losses) on
real estate (1,120) (734) (5,110) (7,430)
Gain (loss)
on sales of
real estate 1,705 57 1,556 466
Operating income
(loss) from
real estate (412) 1,666 605 5,128
Gain (loss)
on debt
Repurchases -- -- -- (445)
Other income 2,865 1,300 19,465 6,848
Non-interest
revenue 52,109 48,871 223,027 177,497
Interest income 8,121 6,296 23,676 24,122
Interest expense 8,325 9,162 30,364 38,716
Net interest
income (expense)
before provision
for loan losses (204) (2,866) (6,688) (14,594)
Provision for
loan losses (969) (14) (1,881) (2,684)
Net interest
income
(expense) after
provision for
loan losses 765 (2,852) (4,807) (11,910)
Total revenue 52,874 46,019 218,220 165,587
Non-interest expense
Compensation and
employee benefits 23,054 19,716 87,284 72,221
Occupancy and
equipment 3,934 4,391 15,933 13,159
Technology and
communication
costs 6,574 6,544 26,049 21,121
Loan expenses 6,739 3,416 27,313 14,252
Loss (gain) on
investments in
affordable
housing
properties (76) (34) (255) 285
Professional
services and
regulatory fees 5,563 4,200 23,589 26,054
Other operating
expenses 2,178 3,386 10,069 10,409
Non-interest
expense 47,966 41,619 189,982 157,501
Distributions on Capital
Securities -- -- -- 3,058
Income (loss)
before minority
interest and
income taxes 4,908 4,400 28,238 5,028
Minority interest
in net income
(loss) of
subsidiaries (112) (184) (162) (492)
Income tax expense
(benefit) 938 130 (30,841) 748
Net income
(loss) $ 4,082 $ 4,454 $ 59,241 $ 4,772
Earnings (loss)
per share
Basic $0.07 $0.07 $0.90 $0.07
Diluted $0.06 $0.07 $0.84 $0.07
Weighted average
common shares
outstanding
Basic 62,733,630 67,222,211 65,811,697 67,166,888
Diluted 63,879,194 68,446,366 73,197,255 68,063,873
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
December 31, December 31,
2004 2003
Assets
Cash and amounts
due from depository
institutions $ 171,645 $ 229,606
Interest earning deposits 116,206 324
Trading securities, at
fair value:
Investment grade 86,215 6,679
Subordinates and residuals 39,527 42,841
Real estate 18,732 103,943
Affordable housing properties 5,641 7,410
Loans, net 3,792 28,098
Match funded assets 280,760 130,087
Premises and equipment, net 37,440 41,943
Advances on loans and loans
serviced for others 240,430 374,769
Mortgage servicing rights 131,409 166,495
Receivables 122,069 74,315
Other assets 72,144 33,608
Total assets $ 1,326,010 $ 1,240,118
Liabilities and Stockholders'
Equity
Liabilities
Deposits $ 301,299 $ 446,388
Escrow deposits 125,977 116,444
Match funded liabilities 244,327 115,394
Lines of credit and other
secured borrowings 50,612 150,384
Debt securities 231,249 56,249
Accrued interest payable 6,173 4,789
Accrued expenses, payables
and other liabilities 33,218 31,926
Total liabilities 992,855 921,574
Minority interest in
subsidiaries 1,530 1,286
Stockholders' equity
Common stock, $.01 par value;
200,000,000 shares authorized:
62,739,478 and 67,467,220
shares issued and
outstanding at December 31,
2004 and December 31, 2003,
respectively 627 675
Additional paid-in capital 181,336 225,559
Retained earnings 149,650 90,409
Accumulated other
comprehensive income
(loss), net of taxes 12 615
Total stockholders'
equity 331,625 317,258
Total liabilities and
stockholders' equity $ 1,326,010 $ 1,240,118
Pre-Tax Income (Loss) by
Business Segment
Three Months Twelve Months
For the periods ended
December 31, 2004 2003 2004 2003
(Dollars in thousands)
Core businesses
Residential Loan
Servicing $ 2,050 $ 5,235 $ 15,814 $ 31,043
OTX (1,492) (3,195) (3,862) (11,520)
Ocwen Realty
Advisors 1,454 1,666 6,466 5,432
Ocwen Recovery
Group 918 1,878 3,916 5,300
Business Process
Outsourcing 414 886 2,205 1,893
Commercial
Servicing 512 (928) 573 (4,204)
3,856 5,542 25,112 27,944
Non-core
businesses
Commercial
Assets (112) (707) (5,008) (9,399)
Affordable
Housing (209) (1,280) (3,256) (4,888)
Subprime
Finance 2,325 4,168 10,568 4,188
2,004 2,181 2,304 (10,099)
Corporate Items
and Other (952) (3,323) 822 (12,817)
Income (loss)
before minority
interest and
income taxes $ 4,908 $ 4,400 $ 28,238 $ 5,028
Non-Core Assets
(Dollars in thousands) December 31, December 31,
2004 2003
Loans, net
Affordable housing $ 3,198 $ 6,545
All other 594 21,553
Real estate 18,732 103,943
Subordinates, residuals
and other trading
securities 39,527 42,841
Affordable housing
properties 5,641 7,410
Total non-core assets $ 67,692 $ 182,292