WEST PALM BEACH, Fla., Oct. 26, 2006 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income of $17.0 million or $0.27 per share for the third quarter of 2006. This compares to $7.9 million or $0.13 per share for the third quarter of 2005. For the nine months ended September 30, 2006, net income was $192.6 million or $3.06 per share as compared to $13.2 million or $0.21 per share for the same period in 2005. Pre-tax income in the third quarter of 2006 was $26.4 million as compared to $10.2 million in the third quarter of 2005. For the nine months ended September 30, 2006, pre-tax income was $65.2 million as compared to $18.3 million in the comparable period of 2005. Year to date results in 2006 include a tax benefit of $127.4 million, primarily reflecting the second quarter reversal of $145.2 million of the valuation allowance that had been established in prior years.
Chairman and CEO William C. Erbey stated "Our third quarter pre-tax results reflect progress in achieving our goals of growing revenues while containing operating costs. Our revenues grew by 13.7% as compared to the third quarter of last year and 13.3% year to date. At the same time, our operating expenses in 2006 grew by only 1.4% and less than 1% in the third quarter and year to date periods, respectively. Our pre-tax third quarter results were driven primarily by the continued strong performance of our Residential Servicing segment which contributed $23.9 million of pre-tax income to the quarter. Our Residential Origination Services segment also had a strong quarter, reporting $5.6 million of pre-tax income, reflecting improved results in a number of our services units. These gains were partially offset by small losses in our other two segments and expenses in Corporate.
"Our total assets increased by $58.6 million as compared to December 31, 2005. This increase reflects an increase of $149 million in our deferred tax assets resulting primarily from the reversal of our valuation allowance in the second quarter, as well as an increase of $98.1 million in our servicing advances, largely due to growth in our portfolio during the year. In addition, we reported increases of $141.8 million in cash and equivalents and $25.2 million in mortgage servicing rights, as new purchases exceeded amortization. Our other assets category includes an increase of $45.8 million representing our equity investment in Bankruptcy Management Solutions, Inc. These increases were partially offset by a decline of $411.8 million in our loans held for resale, primarily reflecting the securitization in the first quarter of this year of a large loan portfolio held for that purpose as of December 31, 2005. Our leverage has improved in the first half of the year as reflected by an equity to assets ratio of 28.1% as of September 30, 2006 as compared to 18.7% as of December 31, 2005.
"During the third quarter, we merged our Business Process Outsourcing segment with the Residential Origination Services segment, reflecting our focus on providing outsourcing services to the residential mortgage loan industry. This action will enable us to achieve cost reductions."
Residential Servicing Three months Nine months -------------------- ------------------- For the periods ended September 30, 2006 2005 2006 2005 ------ ------ ------ ------ Revenue $ 87,455 $ 71,074 $ 250,305 $ 207,980 Operating expenses 56,150 57,557 170,453 179,598 Other income (expense) (7,362) (5,821) (19,969) (15,140) ---------- ---------- ---------- ---------- Pre-tax income (loss) $ 23,943 $ 7,696 $ 59,883 $ 13,242 ========== ========== ========== ========== -- As of September 30, 2006, we were the servicer of approximately 453 thousand loans with an unpaid principal balance (UPB) of $50.8 billion as compared to approximately 369 thousand loans and $42.8 billion of UPB at December 31, 2005. -- Revenue in the 2006 periods reflects increased servicing fees and float income from a larger servicing portfolio and higher interest rates. -- The decline in operating expenses in the 2006 periods reflects a reduction in interest paid to investors related to loan pay-offs and cost reductions reflecting process improvements and automation. Partially offsetting these reductions were increases in amortization expenses due to the increased servicing portfolio and a provision in the second quarter of 2006 to increase litigation reserves related to ongoing cases. Commercial Servicing Three months Nine months -------------------- -------------------- For the periods ended September 30, 2006 2005 2006 2005 ------ ------ ------ ------ Revenue $ 2,269 $ 6,262 $ 8,468 $ 15,260 Operating expenses 2,629 3,885 8,263 12,282 Other income (expense) 106 (314) 88 (559) --------- --------- --------- --------- Pre-tax income (loss) $ (254) $ 2,063 $ 293 $ 2,419 ========= ========= ========= ========= -- Revenue and expense declines primarily reflect the sale of GSS Japan and reduced revenue and expenses in GSS Taiwan reflecting reduced activity at that location. Ocwen Recovery Group Three months Nine months -------------------- ------------------- For the periods ended September 30, 2006 2005 2006 2005 ------ ------ ------ ------ Revenue $ 1,740 $ 2,712 $ 5,797 $ 9,799 Operating expenses 2,163 3,484 6,725 9,938 Other income (expense) 39 122 314 238 --------- --------- --------- --------- Pre-tax income (loss) $ (384) $ (650) $ (614) $ 99 ========= ========= ========= ========= -- The decline in revenue in the 2006 periods primarily reflects a shift in revenue from proprietary assets to lower yielding third- party contracts. -- Operating expenses declined in 2006 as a result of process improvements, technology enhancements and a greater utilization of India resources. Residential Origination Services Three months Nine months ------------------- --------------------- For the periods ended September 30, 2006 2005 2006 2005 ------ ------ ------ ------ Revenue $ 20,061 $ 17,423 $ 54,507 $ 48,003 Operating expenses 21,349 17,838 64,331 47,209 Other income (expense) 6,922 715 19,147 4,425 ---------- ---------- ---------- ---------- Pre-tax income (loss) $ 5,634 $ 300 $ 9,323 $ 5,219 ========== =========== ========== ========== -- The improvement in third quarter and year to date 2006 results over the same periods last year primarily reflects improved operating results in our settlement services, property valuation and business process outsourcing operations. -- Third quarter 2006 results also reflect increased earnings from our U.K. subprime residual securities over the third quarter of 2005. Corporate Items and Other Three months Nine months ------------------- -------------------- For the periods ended September 30, 2006 2005 2006 2005 ------ ------ ------ ------ Revenue $ (1,376) $ (561) $ (1,342) $ (629) Operating expenses 2,837 1,184 7,084 5,659 Other income (expense) 1,647 2,563 4,766 3,646 --------- --------- ---------- -------- Pre-tax income (loss) $ (2,566) $ 818 $ (3,660) $(2,642) ========== ========== ========== ======== -- The third quarter of 2005 includes a one time reversal of reserves as well as gains on debt repurchases that did not occur in 2006. -- In the first six months of 2005, we retained greater interest expense in Corporate, reflecting the high cash balances we were holding in preparation for debanking, and also incurred expenses in Corporate related to that initiative.
Ocwen Financial Corporation is a leading provider of servicing and origination processing solutions to the loan industry with headquarters in West Palm Beach, Florida, offices in, Orlando, Florida, Downers Grove, Illinois and Atlanta, Georgia and global operations in Canada, Germany, India and Taiwan. We make our clients loans worth more by leveraging our superior processes, innovative technology and high-quality, cost-effective global human resources. 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 OCNs reports and filings with the Securities and Exchange Commission, including its periodic report on Form 10-K for the year ended December 31, 2005 and Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006 and our Forms 8-K filed during 2006. 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 Nine months ------------------- ------------------- For the periods ended September 30, 2006 2005 2006 2005 ------- ------ ------ ------ Revenue Servicing and sub- servicing fees $ 85,580 $ 75,776 $ 248,437 $ 219,807 Process management fees 21,601 18,701 59,750 53,107 Other revenues 2,968 2,433 9,548 7,499 ---------- ---------- --------- ---------- Total revenue 110,149 96,910 317,735 280,413 ---------- ---------- --------- ---------- Operating expenses Compensation and benefits 21,331 23,722 69,038 72,449 Amortization of servicing rights 27,082 22,975 81,034 73,020 Servicing and origination 13,303 15,703 39,207 44,884 Technology and communications 6,498 7,589 19,171 22,850 Professional services 6,984 4,692 22,383 15,425 Occupancy and equipment 4,785 4,517 14,584 13,330 Other operating expenses 5,145 4,750 11,439 12,728 -------- -------- -------- -------- Total operating expenses 85,128 83,948 256,856 254,686 -------- -------- -------- -------- Other income (expense) Interest income 12,466 3,864 36,877 16,960 Interest expense (11,558) (8,340) (38,874) (25,852) Gain (loss) on trading securities 2,156 (742) 3,483 (3,409) Gain (loss) on loans held for resale, net (85) --- ( 1,306) --- Gain on debt Repurchases --- 897 25 897 Other, net (1,627) 1,586 4,141 4,014 ------- ------- ------- ------- Other income (expense), net 1,352 (2,735) 4,346 (7,390) ------- ------- ------- ------- Income before income taxes 26,373 10,227 65,225 18,337 Income tax expense (benefit) 9,403 2,282 (127,364) 5,097 -------- ------- --------- ------- Net income $ 16,970 $ 7,945 $ 192,589 $ 13,240 ========= ======== ========== ========= Earnings per share Basic $ 0.27 $ 0.13 $ 3.06 $ 0.21 Diluted $ 0.25 $ 0.12 $ 2.71 $ 0.21 Weighted average common shares outstanding Basic 62,505,740 62,975,006 62,855,616 62,843,375 Diluted (1) 71,689,432 77,397,469 71,798,615 63,843,041 (1) For purposes of computing diluted earnings per share, the 2006 Periods and the third quarter of 2005 reflect the assumed conversion of our 3.25% Convertible Notes into 7,962,205 and 13,599,019 shares of common stock, respectively. Conversion of the Convertible Notes has not been assumed for the nine months ended September 30, 2005 because the effect would be anti-dilutive. OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) September 30, December 31, 2006 2005 ------------- -------------- Assets Cash $ 192,232 $ 269,611 Trading securities, at fair value Investment grade 220,833 1,685 Subordinates and residuals 46,904 30,277 Loans held for resale 212,895 624,671 Advances 304,374 219,716 Match funded advances 390,575 377,105 Mortgage servicing rights 173,911 148,663 Receivables 60,043 68,266 Deferred tax assets, net 169,258 20,270 Premises and equipment, net 36,347 40,108 Other assets 105,401 53,801 ------------ ------------ Total assets $ 1,912,773 $ 1,854,173 ============ ============ Liabilities and Stockholders' Equity Liabilities Match funded liabilities $ 356,179 $ 339,292 Servicer liabilities 419,732 298,892 Lines of credit and other secured borrowings 367,635 626,448 Debt securities 150,329 154,329 Other liabilities 79,805 85,952 ------------ ------------ Total liabilities 1,373,680 1,504,913 ------------ ------------ Minority interest in subsidiary 1,905 1,853 Stockholders' Equity Common stock, $.01 par value; 200,000,000 shares authorized; 62,691,167 and 63,133,471 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively 627 631 Additional paid-in capital 180,019 184,262 Retained earnings 355,787 163,198 Accumulated other comprehensive income (loss), net of taxes 755 (684) ------------ ----------- Total stockholders' equity 537,188 347,407 ------------ ----------- Total liabilities and stockholders' equity $ 1,912,773 $ 1,854,173 ============ ============