WEST PALM BEACH, Fla., Feb. 12, 2008 (PRIME NEWSWIRE) -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported a pre-tax loss from continuing operations of $13.1 million for the fourth quarter of 2007 as compared to pre-tax income from continuing operations of $15.7 million for the fourth quarter of 2006. For the year ended December 31, 2007, pre-tax income from continuing operations was $58.4 million, compared to $82.2 million a year ago. Net loss for the fourth quarter of 2007 was $6.9 million or $.11 per share, compared to net income of $13.9 million or $.20 per share for the fourth quarter of 2006. Net income for the year ended December 31, 2007 was $38.6 million, or $.58 per share. For the year ended December 31, 2006, net income, which included a tax benefit of $126.4 million primarily related to the reversal of $145.2 million of deferred tax asset valuation allowances, was $206.5 million or $2.91 per share.
Loss from discontinued operations of $2.2 million for the fourth quarter and $3.2 million for the year ended December 31, 2007 includes the results of Bankhaus Oswald Kruber GmbH & Co. ("BOK"), the Company's German banking subsidiary. Management is actively pursuing the sale of BOK.
Chairman and CEO William Erbey stated, "During the fourth quarter of 2007, we recorded $23.6 million of unrealized losses to write down residuals to estimated market values. As a result of these unrealized losses, residuals with fair value of $32.1 million at September 30, 2007 are reflected on our December 31, 2007 balance sheet at $7.4 million. These write downs were largely based on projected loss assumptions recently published by Standard & Poor's ("S&P"). S&P is projecting cumulative losses on RMBS transactions for which Ocwen is the residual holder ranging from 13.9% to 21.3%. Our cumulative loss experience on these same RMBS pools, the majority of which were 2006 securitizations, has ranged from 0.5% to 0.7%. Discount rates ranging from 21.0% to 31.6% were utilized to value these residuals. During the fourth quarter, these residuals generated $2.5 million of cash flow.
Outside of these write downs, our fourth quarter results were characterized by strong operating income and increased interest expense related to funding requirements for servicing advances.
Our Residential Servicing segment reflects the impact of rising delinquencies and declining prepayments. Rising delinquencies affect revenue because we recognize servicing fees when payments are collected. Declining prepayment speeds result in lower custodial account balances and related float income. As a result, revenue was down compared to the fourth quarter of 2006. Operating income, however, was flat because the decrease in revenue was offset by reduced amortization of servicing rights due to lower prepayment speeds. Increased interest expense of $11.4 million associated with higher levels of servicing advances contributed to the decrease in pre-tax income for the segment. Fourth quarter 2007 revenue excludes $8.3 million of uncollected servicing fees related to delinquent borrower payments. Given that servicing fees are satisfied before any interest or principal is paid by the securitization trust on the bonds, we anticipate that we will ultimately collect these fees.
Our Ocwen Recovery Group segment demonstrated a modest improvement over the third quarter of 2007. This improvement is primarily attributable to progress toward the integration of NCI as we have begun to realize synergies from the merger that took place in June of 2007. Demand is up sharply in the unsecured collections business. By the end of the fourth quarter of 2007, we were staffed appropriately to support existing business, and we continue to increase our staffing levels to take advantage of increased demand.
We continue to grow the fee based businesses included in our Residential Origination Services segment. These businesses generated pre-tax income of $5.7 million and $18.6 million for the quarter and year ended December 31, 2007 compared to $4.4 million and $15.7 million for the comparable periods in 2006. Overall segment results, however, were negatively impacted by write downs of residuals in the fourth quarter of 2007.
As previously disclosed, I have, together with members of Ocwen management and funds managed by Oaktree Capital Management, L.P. and Angelo, Gordon & Co., L.P., proposed to acquire by merger, for a purchase price of $7.00 per share in cash, all of the outstanding shares of Common Stock of Ocwen. The Board of Directors of the Company has formed a Special Committee of independent directors to consider the proposal."
If Ocwen agrees to enter into a transaction with entities affiliated with Mr. Erbey, Oaktree Capital Management, L.P. and Angelo, Gordon & Co, L.P., you are urged to read Ocwen's proxy statement and other transaction related documents filed with the Securities and Exchange Commission ("SEC") when they become available. You may obtain a free copy of the proxy statement (when and if available) and other documents filed by Ocwen at the SEC's web site at www.sec.gov.
Segment Results (In thousands) For the periods ended December 31, Three months Twelve months ------------------ ------------------ 2007 2006 2007 2006 -------- -------- -------- -------- Residential Servicing Revenue $ 84,418 $ 93,309 $355,056 $343,614 Operating expenses 53,341 62,024 229,261 232,492 -------- -------- -------- -------- Income from operations 31,077 31,285 125,795 111,122 Other expense, net (20,781) (10,694) (59,838) (30,662) -------- -------- -------- -------- Income from continuing opera- tions before taxes 10,296 20,591 65,957 80,460 -------- -------- -------- -------- Ocwen Recovery Group Revenue 16,290 1,869 41,292 7,666 Operating expenses 18,729 1,845 47,373 8,569 -------- -------- -------- -------- Income (loss) from operations (2,439) 24 (6,081) (903) Other income (expense), net (403) 27 (1,269) 340 -------- -------- -------- -------- Income (loss) from con- tinuing operations before taxes (2,842) 51 (7,350) (563) -------- -------- -------- -------- Residential Origination Services Revenue 18,940 16,437 72,552 70,944 Operating expenses 17,747 20,333 71,029 84,665 -------- -------- -------- -------- Income (loss) from operations 1,193 (3,896) 1,523 (13,721) Other income (expense), net (25,227) 476 3,303 19,623 -------- -------- -------- -------- Income (loss) from continuing operations before taxes (24,034) (3,420) 4,826 5,902 -------- -------- -------- -------- Corporate Items and Other Revenue 3,754 2,339 11,761 9,354 Operating expenses 944 5,589 12,407 18,809 -------- -------- -------- -------- Income (loss) from operations 2,810 (3,250) (646) (9,455) Other income (expense), net 669 1,706 (4,408) 5,883 -------- -------- -------- -------- Income (loss) from continuing operations before taxes 3,479 (1,544) (5,054) (3,572) -------- -------- -------- -------- Consolidated income (loss) from continuing operations before income taxes $(13,101) $ 15,678 $ 58,379 $ 82,227 ======== ======== ======== ======== Residential Servicing Statistics (Dollars in thousands) ------------------------------------------------------ At or for the three months ended ----------------------------------------------------------- Dec. 31, Sept. 30, June 30, March 30, Dec. 31, 2007 2007 2007 2007 2006 ----------- ----------- ----------- ----------- ----------- Total unpaid principal balance of loans and REO ser- viced(1) $52,747,836 $55,662,286 $53,122,085 $55,179,160 $52,159,750 Non-performing loans and REO serviced as a percent of total(2) 19.6% 14.6% 11.1% 8.6% 8.1% Prepayment speed (average CPR) 21% 22% 23% 26% 31% (1) Excluding REO serviced pursuant to our contract with the U.S. Department of Veterans Affairs. (2) Loans for which borrowers are making scheduled payments under forbearance or bankruptcy plans are considered performing loans.
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, June 30 and September 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) For the periods ended December 31, Three months Twelve months -------------------- --------------------- 2007 2006 2007 2006 -------- -------- --------- --------- Revenue Servicing and sub- servicing fees $ 95,563 $ 92,196 $ 379,277 $ 340,584 Process management fees 24,059 18,931 87,767 78,625 Other revenues 3,780 2,827 13,617 12,369 -------- -------- --------- --------- Total revenue 123,402 113,954 480,661 431,578 -------- -------- --------- --------- Operating expenses Compensation and benefits 32,396 21,610 106,866 89,295 Amortization of servicing rights 18,140 29,710 99,950 110,745 Servicing and origination 17,272 14,589 62,938 53,795 Technology and communications 6,356 5,738 22,514 24,723 Professional services 4,254 8,798 22,972 30,897 Occupancy and equipment 6,457 4,832 24,466 19,267 Other operating expenses 5,886 4,514 20,364 15,813 -------- -------- --------- --------- Total operating expenses 90,761 89,791 360,070 344,535 -------- -------- --------- --------- Income from operations 32,641 24,163 120,591 87,043 -------- -------- --------- --------- Other income (expense) Interest income 5,359 11,270 29,651 47,609 Interest expense (24,925) (14,675) (72,670) (53,371) Gain (loss) on trading securities (24,335) (1,477) (6,663) 2,012 Loss on loans held for resale, net (3,300) (4,377) (8,467) (5,684) Equity in earnings of unconsolidated entities 1,304 263 4,663 637 Other, net 155 511 (8,726) 3,981 -------- -------- --------- --------- Other income (expense), net (45,742) (8,485) (62,212) (4,816) -------- -------- --------- --------- Income (loss) from continuing operations before income taxes (13,101) 15,678 58,379 82,227 Income tax expense (benefit) (8,405) 987 16,610 (126,377) -------- -------- --------- --------- Income (loss) from continuing operations (4,696) 14,691 41,769 208,604 Loss from discontinued operations, net of taxes (2,229) (770) (3,172) (2,094) -------- -------- --------- --------- Net income (loss) $ (6,925) $ 13,921 $ 38,597 $ 206,510 ======== ======== ========= ========= Basic earnings per share Income (loss) from continuing operations $ (0.08) $ 0.23 $ 0.67 $ 3.32 Loss from discontinued operations (0.03) (0.01) (0.05) (0.04) -------- -------- --------- --------- Net income (loss) $ (0.11) $ 0.22 $ 0.62 $ 3.28 -------- -------- --------- --------- Diluted earnings per share Income (loss) from continuing operations $ (0.08) $ 0.21 $ 0.62 $ 2.94 Loss from discontinued operations (0.03) (0.01) (0.04) (0.03) -------- -------- --------- --------- Net income (loss) $ (0.11) $ 0.20 $ 0.58 $ 2.91 ======== ======== ========= ========= Weighted average common shares outstanding Basic 62,527,360 62,919,083 62,712,076 62,871,613 Diluted 62,527,360 72,060,879 71,458,544 71,864,311 OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) December 31, December 31, 2007 2006 ----------- ----------- Assets Cash $ 114,243 $ 236,581 Trading securities, at fair value Investment grade 34,876 74,986 Subordinates and residuals 7,362 65,242 Investment in certificates of deposits -- 72,733 Loans held for resale, at lower of cost or market 75,240 99,064 Advances 292,887 324,137 Match funded advances 1,126,097 572,708 Mortgage servicing rights 197,295 183,743 Receivables 79,394 67,311 Deferred tax assets, net 178,178 176,135 Goodwill and intangibles 58,301 7,053 Premises and equipment, net 35,572 35,469 Investment in unconsolidated entities 76,465 46,151 Other assets 118,786 48,430 ----------- ----------- Total assets $ 2,394,696 $ 2,009,743 =========== =========== Liabilities and Stockholders' Equity Liabilities Match funded liabilities $ 1,001,403 $ 510,236 Lines of credit and other secured borrowings 339,976 324,520 Servicer liabilities 204,484 383,549 Debt securities 150,279 150,329 Other liabilities 110,429 81,340 ----------- ----------- Total liabilities 1,806,571 1,449,974 ----------- ----------- Minority interest in subsidiaries 1,979 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 December 31, 2007 and December 31, 2006, respectively 625 632 Additional paid-in capital 177,407 186,660 Retained earnings 406,822 369,708 Accumulated other comprehensive income, net of taxes 1,292 979 ----------- ----------- Total stockholders' equity 586,146 557,979 ----------- ----------- Total liabilities and stockholders' equity $ 2,394,696 $ 2,009,743 =========== ===========