WEST PALM BEACH, Fla., July 31, 2007 (PRIME NEWSWIRE) -- Ocwen Financial Corporation (NYSE:OCN) today reported pre-tax income of $42.0 million for the second quarter of 2007 as compared to $17.4 million for the second quarter of 2006. For the six months ended June 30, 2007, pre-tax income was $60.7 million, while pre-tax income for the six months ended June 30, 2006 totaled $38.9 million. Net income was $27.2 million or $0.39 per diluted share for the second quarter of 2007. This compares to $159.1 million or $2.23 per diluted share for the second quarter of 2006. For the six months ended June 30, 2007 net income was $39.6 million or $0.57 per diluted share as compared to $175.6 million or $2.47 per diluted share for the same period in 2006.
Pre-tax income for the second quarter of 2007 includes a $25.6 million gain on the sale of unrated subprime residual securities backed by loans originated in the UK (the "UK residuals"). Second quarter 2006 results included a tax benefit of $141.7 million, primarily reflecting the reversal of $145.2 million of the deferred tax asset valuation allowance that we had established in prior years. Second quarter 2007 results include the operations of NCI Holdings, Inc. and its operating subsidiary, Nationwide Credit, Inc. (NCI), from June 6, 2007, the date on which Ocwen acquired NCI.
A summary of our results for the second quarter of 2007 follows:
* Total revenue: $117.0 million, an increase of $11.9 million or
11.3% over the second quarter of 2006.
* Total operating expenses: $89.7 million, an increase of $5.3
million or 6.3% over the second quarter of 2006.
* Income from operations: $27.3 million, an increase of 31.6% over
the second quarter of 2006.
* Other income (expense), net: income of $14.7 million, compared to
expense of $(3.3) million for the second quarter of 2006. Some of
the significant components of other income (expense) include:
* A gain of $25.6 million from the sale of the UK residuals.
* Unrealized gains (losses) on trading securities: $(2.0)
million loss, compared to $1.5 million gain for the second
quarter of 2006.
* Charges to reduce loans held for resale to estimated market
value: $0.6 million, compared to $1.5 million for the second
quarter of 2006.
* $0.4 million in transaction gains associated with loan sale
and securitization activities compared to a $2.0 million
loss for the second quarter of 2006.
* Losses on interest rate swaps related to our Residential
Servicing business: $3.1 million, compared to $0 for the
second quarter of 2006.
* Unpaid Principal Balance of loans and REO serviced: $53.1
billion, compared to $46.4 billion at June 30, 2006 (both periods
exclude $0.7 billion of REO serviced pursuant to our contract
with the VA).
* Unpaid Principal Balance of non-performing loans and REO
serviced: $9.2 billion (17.4% of total), compared to $5.2 billion
(11.3% of total) at June 30, 2006.
* Unpaid Principal Balance of non-performing loans and REO
serviced -- excluding non-performing loans for which
borrowers are making scheduled payments under forbearance or
bankruptcy plans: $5.9 billion (11.1% of total) compared to
$3.0 billion (6.4% of total) at June 30, 2006.
* Prepayment speeds (average CPR): 23%, compared to 30% for the
second quarter of 2006.
Chairman and CEO William Erbey stated, "Our second quarter results reflect strong operating performance and a pre-tax gain of $25.6 million on the sale of the UK residuals. Our second quarter results also include the operations of NCI from June 6, 2007, the date we acquired NCI for $55 million. The inclusion of NCI in our results for the second quarter of 2007 added to our growth in both revenues and operating expenses as compared to the second quarter of 2006.
"Our Residential Servicing segment continues to post strong operating results. Second quarter 2007 results were significantly impacted by decreasing prepayment speeds. Average CPR was 23% for the quarter, compared to 30% for the second quarter of 2006. As a result, amortization of servicing rights was down slightly, despite a 48% increase in the balance of mortgage servicing rights. Lower prepayment speeds also led to lower float balances and float income, which served to restrain revenue growth. Overall, revenue growth was 9% for the quarter while operating expenses grew by 3%. As a result, operating income was $29.8 million, which represents an increase of $5.6 million or 23% over the second quarter of 2006. This strong growth in operating income was offset by a $9.1 million increase in other expense due to increased interest expense driven by growth in servicing advances and hedge losses of $3.1 million for the quarter.
"Second quarter results of Ocwen Recovery Group, our third party unsecured collections segment, were significantly impacted by the NCI acquisition. Having achieved our cost reduction and improved execution capabilities from Ocwen Recovery Group's global workforce, this transaction is in line with our focus on both organic and acquisition-based revenue growth for this segment. The merger brings together NCI's strong management team, deep receivables management expertise and understanding of its clients' needs with Ocwen's strong process management and analytical capabilities, leading loss mitigation experience and global infrastructure.
"Our Residential Origination Services segment benefited from the above-mentioned $25.6 million pre-tax gain on the sale of the UK residuals in the second quarter of 2007. The second quarter of 2007 also reflects a $4.0 million pre-tax contribution from our fee-based loan processing businesses, which represents an increase of 20% over the second quarter of 2006. Pre-tax losses from our former subprime loan origination operation totaled $1.5 million in the second quarter of 2007, compared to losses of $1.0 million in the second quarter of 2006.
"As of June 30, 2007, we have invested $25 million in Ocwen Structured Investments, LLC (OSI). Our investment in OSI, which represents our 25% ownership interest, should eventually total $75 million. As previously announced, OSI will invest in mortgage servicing rights and related lower tranches and residuals of residential mortgage backed securities.
"Our total assets increased by $102.9 million as compared to December 31, 2006. The primary driver behind this increase was growth in our servicing portfolio as total servicing advances increased by $21.1 million and mortgage servicing rights increased by $42.8 million. Additionally, other assets increased by $69.3 million. Other assets at June 30, 2007 include intangibles arising from the NCI acquisition and our $25.0 million initial investment in OSI. Cash and investment grade securities totaled $311.0 million at June 30, 2007, as compared to $311.6 at December 31, 2006, and our ratio of equity to total assets was 27.7% at June 30, 2007 compared to 27.8% at December 31, 2006."
Segment Results
(In thousands)
Three months Six months
--------------------- ---------------------
For the periods
ended June 30, 2007 2006 2007 2006
--------------------- --------- --------- --------- ---------
Residential Servicing
Revenue $ 90,262 $ 82,942 $ 183,719 $ 162,851
Operating expenses 60,435 58,674 123,790 114,303
--------- --------- --------- ---------
Income from
operations 29,827 24,268 59,929 48,548
Other income
(expense), net (15,311) (6,163) (26,003) (12,607)
--------- --------- --------- ---------
Income before
income taxes 14,516 18,105 33,926 35,941
--------- --------- --------- ---------
Ocwen Recovery Group
Revenue 6,343 1,856 8,130 4,057
Operating expenses 7,457 1,928 9,499 4,561
--------- --------- --------- ---------
Loss from
operations (1,114) (72) (1,369) (504)
Other income
(expense), net (142) 192 (140) 274
--------- --------- --------- ---------
Income (loss) before
income taxes (1,256) 120 (1,509) (230)
--------- --------- --------- ---------
Residential Origination Services
Revenue 17,435 17,116 34,512 34,446
Operating expenses 18,260 19,498 35,094 42,983
--------- --------- --------- ---------
Loss from
operations (825) (2,382) (582) (8,537)
Other income
(expense), net 28,595 1,028 28,608 12,226
--------- --------- --------- ---------
Income (loss) before
income taxes 27,770 (1,354) 28,026 3,689
--------- --------- --------- ---------
Corporate Items and Other
Revenue 2,972 3,223 5,679 6,232
Operating expenses 3,595 4,315 8,516 9,881
--------- --------- --------- ---------
Loss from
operations (623) (1,092) (2,837) (3,649)
Other income
(expense), net 1,543 1,615 3,098 3,101
--------- --------- --------- ---------
Income (loss) before
income taxes 920 523 261 (548)
--------- --------- --------- ---------
Consolidated income
before income
taxes $ 41,950 $ 17,394 $ 60,704 $ 38,852
========= ========= ========= =========
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, 2006 and Form 10-Q for the quarter ended March 31, 2007 and our Forms 8-K filed during 2007. 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, 2007 2006 2007 2006
--------------------- --------- --------- --------- ---------
Revenue
Servicing and
subservicing fees $ 92,941 $ 82,772 $ 184,669 $ 162,857
Process management
fees 20,722 18,837 40,645 38,149
Other revenues 3,349 3,527 6,726 6,580
--------- --------- --------- ---------
Total revenue 117,012 105,136 232,040 207,586
--------- --------- --------- ---------
Operating expenses
Compensation and
benefits 24,639 22,006 45,146 47,707
Amortization of
servicing rights 27,551 27,663 59,788 53,952
Servicing and
origination 15,269 12,707 28,928 25,904
Technology and
communications 5,382 6,034 10,162 12,673
Professional
services 6,458 7,620 13,086 15,399
Occupancy and
equipment 5,585 4,823 10,970 9,799
Other operating
expenses 4,863 3,561 8,819 6,294
--------- --------- --------- ---------
Total operating
expenses 89,747 84,414 176,899 171,728
--------- --------- --------- ---------
Income from
operations 27,265 20,722 55,141 35,858
--------- --------- --------- ---------
Other income (expense)
Interest income 9,455 6,298 19,616 24,411
Interest expense (15,260) (10,062) (30,331) (27,316)
Gain on trading
securities 23,552 1,701 19,081 1,327
Loss on loans held
for resale, net (150) (3,437) (2,693) (1,221)
Other, net (2,912) 2,172 (110) 5,793
--------- --------- --------- ---------
Other income
(expense), net 14,685 (3,328) 5,563 2,994
--------- --------- --------- ---------
Income before income
taxes 41,950 17,394 60,704 38,852
Income tax expense
(benefit) 14,759 (141,692) 21,133 (136,767)
--------- --------- --------- ---------
Net income $ 27,191 $ 159,086 $ 39,571 $ 175,619
========= ========= ========= =========
Earnings per share
Basic $ 0.43 $ 2.53 $ 0.63 $ 2.79
Diluted $ 0.39 $ 2.23 $ 0.57 $ 2.47
Weighted average common
shares outstanding
Basic 62,638,926 62,821,428 62,911,082 63,033,454
Diluted 71,603,784 71,767,873 71,895,184 71,876,666
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30, December 31,
2007 2006
------------ ------------
Assets
Cash $ 171,427 $ 236,581
Trading securities, at
fair value
Investment grade 139,584 74,986
Subordinates and residuals 33,760 65,242
Investment in certificates
of deposits 74,615 72,733
Loans held for resale, at
lower of cost or market 103,360 99,064
Advances 305,069 324,137
Match funded advances 612,912 572,708
Mortgage servicing rights 226,537 183,743
Receivables 64,386 67,311
Deferred tax assets, net 172,612 176,135
Premises and equipment, net 37,438 35,469
Other assets 170,911 101,634
----------- -----------
Total assets $ 2,112,611 $ 2,009,743
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities $ 579,031 $ 510,236
Servicer liabilities 251,265 383,549
Lines of credit and other
secured borrowings 446,294 324,520
Debt securities 150,275 150,329
Other liabilities 97,844 81,340
----------- -----------
Total liabilities 1,524,709 1,449,974
----------- -----------
Minority interest in subsidiary 2,095 1,790
Stockholders' Equity
Common stock, $.01 par
value; 200,000,000 shares
authorized; 62,429,058 and
63,184,867 shares issued
and outstanding at June 30,
2007 and December 31, 2006,
respectively 624 632
Additional paid-in capital 176,564 186,660
Retained earnings 407,796 369,708
Accumulated other
comprehensive income,
net of taxes 823 979
----------- -----------
Total stockholders' equity 585,807 557,979
----------- -----------
Total liabilities and
stockholders' equity $ 2,112,611 $ 2,009,743
=========== ===========