WEST PALM BEACH, Fla., Oct. 30, 2007 (PRIME NEWSWIRE) -- Ocwen Financial Corporation (NYSE:OCN) today reported pre-tax income of $9.8 million for the third quarter of 2007 as compared to $26.4 million for the third quarter of 2006. For the nine months ended September 30, 2007, pre-tax income was $70.5 million, compared to $65.2 million a year ago.
Net income was $6 million or $0.09 per diluted share for the third quarter of 2007. This compares to $17.0 million or $0.25 per diluted share for the third quarter of 2006. For the nine months ended September 30, 2007 net income was $45.5 million or $0.66 per diluted share as compared to $192.6 million or $2.71 per diluted share for the same period in 2006. Net income for the nine months ended September 30, 2006 includes a tax benefit of $127.4 million, reflecting the second quarter 2006 reversal of $145.2 million of deferred tax asset valuation allowances that had been established in prior years.
Chairman and CEO William Erbey stated, "Our third quarter results reflect growth in Income from operations offset by losses in Other income (expense) resulting from the liquidity crisis that occurred in global capital markets during the quarter. Our 25% increase in Income from operations was driven by our Residential Servicing segment and the fee based loan processing businesses included in our Residential Origination Services segment. The current liquidity environment has had a significant negative impact on Other income (expense) due to an increase in interest expense associated with advance funding requirements and $14.6 million of losses related to the disposition and write down of non-core assets. Our efforts to reduce our investments in non-core, primarily subprime mortgage assets have resulted in lower interest income compared to the third quarter of 2006 but have also reduced our exposure to losses associated with those assets. Given the turmoil in the capital markets during the quarter, this quarter demonstrates the relative stability of a servicing operation as compared to an originator.
"Our Residential Servicing segment generated Income from operations of $34.9 million for the third quarter of 2007, an increase of $3.7 million compared to the third quarter of 2006. Third quarter 2007 results reflect the impact of rising delinquencies and declining prepayment speeds. Rising delinquencies and declining prepayment speeds have resulted in: revenue growth lagging portfolio growth; decreased amortization of servicing rights; and increased interest expense related to advance financing. Largely as a result of this increase in interest expense, pre-tax income for the segment decreased by $2.0 million compared to the third quarter of 2006.
"Revenue has not grown at the same rate as our portfolio for two reasons. First, declining prepayments have reduced our float balances and float income. Second, certain components of our servicing and subservicing fees, including servicing fees and late fees, are recognized when they are collected. Increasing delinquencies have resulted in lower collections relative to the size of our portfolio. Delinquencies affect the timing of servicing fee revenue recognition, but not the ultimate collection of servicing fees because servicing fees have priority over any interest or principal payments by the securitization trust on the bonds.
"Excluding amortization of servicing rights, segment operating expenses have increased by $1.0 million or 3% as portfolio growth and rising delinquencies have caused us to increase our loss mitigation staffing. We have increased our loss mitigation staff at a greater rate than the rate of increase in delinquencies. However, our use of technology and our cost efficient global work force has allowed us to contain the growth of operating expenses.
"Some measures relevant to our Residential Servicing Segment include:
* Unpaid Principal Balance of loans and REO serviced: $55.7 billion, compared to $50.1 billion at September 30, 2006 and $53.1 billion at June 30, 2007. All periods exclude REO serviced pursuant to our contract with the VA, which amounted to $0.8 billion at September 30, 2007 and $0.7 billion at both September 30, 2006 and June 30, 2007.
* Unpaid Principal Balance of non-performing loans and REO serviced: $8.1 billion (14.6% of total) compared to $3.6 billion (7.2% of total) at September 30, 2006. Loans for which borrowers are making scheduled payments under forbearance or bankruptcy plans are considered performing loans.
* Prepayment speeds (average CPR): 22%, compared to 31% for the third quarter of 2006.
"Third quarter results of our Ocwen Recovery Group segment include the operations of NCI, which we acquired on June 6, 2007. The NCI acquisition is the primary driver behind the growth in both segment revenue and operating expenses compared to the third quarter of 2006. The third quarter of 2007 largely reflects the pre-integration cost structure of NCI. As a result, the segment posted a pre-tax loss of $3.0 million for the quarter. We are making progress on our integration plan, and we have identified a number of areas in which substantial cost savings can be achieved once integration is complete.
"Pre-tax income for our Residential Origination Services segment was $0.8 million for the third quarter of 2007, compared to $5.6 million for the third quarter of 2006. Our fee based loan processing businesses continue to perform well, having generated pre-tax contribution of $5.0 million for the third quarter of 2007, compared to $5.8 million for the third quarter of 2006. Contribution from these businesses totaled $12.9 million for the nine months ended September 30, 2007, compared to $11.4 million for the same period in 2006.
"Other income for our Residential Origination Services segment decreased by $7 million compared to the third quarter of 2006 due to reduced investments in non-core assets and a reduction in market values in line with the overall decline in the value of mortgage assets. Interest income decreased by $6.5 million, reflecting reductions in our balances of loans held for resale and subordinates and residuals from $212.9 million and $46.2 million, respectively at September 30, 2006 to $83.9 million and $31.8 million at September 30, 2007.
"Overall, the current liquidity environment had a significant impact on our third quarter results. In addition to total market value adjustments on trading securities and loans held for resale of $5.9 million, we incurred a loss of $8.7 million on the liquidation of certain discount certificates of deposit that we intended to hold to maturity, bringing total losses related to the liquidity environment to $14.6 million for the quarter.
"In summary, our third quarter results reflect strong growth in operating income offset by other income (expense) items related to the turmoil in global capital markets."
Segment Results (in thousands) Three months Nine months For the periods ended September 30, 2007 2006 2007 2006 Residential Servicing Revenue $ 86,919 $ 87,455 $270,638 $250,305 Operating expenses 51,970 56,162 175,920 170,468 Income from operations 34,949 31,293 94,718 79,837 Other income (expense), net (13,054) (7,362) (39,057) (19,969) Income before income taxes 21,895 23,931 55,661 59,868 Ocwen Recovery Group Revenue 16,872 1,740 25,002 5,797 Operating expenses 19,144 2,163 28,644 6,725 Loss from operations (2,272) (423) (3,642) (928) Other income (expense), net (727) 39 (866) 314 Loss before income taxes (2,999) (384) (4,508) (614) Residential Origination Services Revenue 19,100 20,061 53,612 54,507 Operating expenses 18,188 21,349 53,282 64,331 Income (loss) from operations 912 (1,288) 330 (9,824) Other income, net (78) 6,922 28,530 19,147 Income before income taxes 834 5,634 28,860 9,323 Corporate Items and Other Revenue 2,561 893 8,240 7,126 Operating expenses 4,836 5,454 13,191 15,332 Loss from operations (2,275) (4,561) (4,951) (8,206) Other income (expense), net (7,622) 1,753 (4,525) 4,854 Loss before income taxes (9,897) (2,808) (9,476) (3,352) Consolidated income before income taxes $ 9,833 $ 26,373 $ 70,537 $ 65,225
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 quarters ended March 31, 2007 and June 30, 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 Nine months For the periods ended September 30, 2007 2006 2007 2006 Revenue Servicing and subservicing fees $ 99,093 $ 85,580 $ 283,762 $ 248,437 Process management fees 23,243 21,601 63,888 59,750 Other revenues 3,116 2,968 9,842 9,548 Total revenue 125,452 110,149 357,492 317,735 Operating expenses Compensation and benefits 30,261 21,331 75,407 69,038 Amortization of servicing rights 22,022 27,082 81,810 81,034 Servicing and origination 16,738 13,303 45,666 39,207 Technology and communications 6,247 6,498 16,409 19,171 Professional services 5,852 6,984 18,938 22,383 Occupancy and equipment 7,163 4,785 18,133 14,584 Other operating expenses 5,855 5,145 14,674 11,439 Total operating expenses 94,138 85,128 271,037 256,856 Income from operations 31,314 25,021 86,455 60,879 Other income (expense) Interest income 5,316 12,466 24,932 36,877 Interest expense (17,533) (11,558) (47,864) (38,874) Gain (loss) on trading securities (1,406) 2,156 17,675 3,483 Loss on loans held for resale, net (2,474) (85) (5,167) (1,306) Other, net (5,384) (1,627) (5,494) 4,166 Other income (expense), net (21,481) 1,352 (15,918) 4,346 Income before income taxes 9,833 26,373 70,537 65,225 Income tax expense (benefit) 3,882 9,403 25,015 (127,364) Net income $ 5,951 $ 16,970 $ 45,522 $ 192,589 Earnings per share Basic $ 0.10 $ 0.27 $ 0.73 $ 3.06 Diluted $ 0.09 $ 0.25 $ 0.66 $ 2.71 Weighted average common shares outstanding Basic 62,505,269 62,505,740 62,774,324 62,855,616 Diluted 71,130,040 71,689,432 71,638,649 71,798,615 OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) September 30,2007 December 31,2006 Assets Cash $ 143,938 $ 236,581 Trading securities, at fair value Investment grade 36,307 74,986 Subordinates and residuals 32,107 65,242 Investment in certificates of deposits --- 72,733 Loans held for resale, at lower of cost or market 83,862 99,064 Advances 350,997 324,137 Match funded advances 786,102 572,708 Mortgage servicing rights 210,601 183,743 Receivables 63,061 67,311 Deferred tax assets, net 171,472 176,135 Premises and equipment, net 36,266 35,469 Other assets 195,630 101,634 Total assets $ 2,110,343 $ 2,009,743 Liabilities and Stockholders' Equity Liabilities Match funded liabilities $ 696,296 $ 510,236 Servicer liabilities 169,813 383,549 Lines of credit and other secured borrowings 418,193 324,520 Debt securities 150,279 150,329 Other liabilities 80,522 81,340 Total liabilities 1,515,103 1,449,974 Minority interest in subsidiary 2,209 1,790 Stockholders' Equity Common stock, $.01 par value; 200,000,000 shares authorized; 62,527,360 and 63,184,867 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively 625 632 Additional paid-in capital 177,396 186,660 Retained earnings 413,747 369,708 Accumulated other comprehensive income, net of taxes 1,263 979 Total stockholders' equity 593,031 557,979 Total liabilities and stockholders' equity $ 2,110,343 $ 2,009,743