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 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, 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
============ ============