WEST PALM BEACH, Fla., Oct. 21, 2004 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income for the third quarter of 2004 of $39.3 million or $0.61 per share compared to net income of $4.6 million or $0.07 per share for the third quarter of 2003. For the nine months ended September 30, 2004 the Company reported net income of $55.2 million or $0.83 per share as compared to $0.3 million or $0.005 per share in the same period in 2003. Third quarter 2004 results include a net tax benefit of $31.8 million, primarily reflecting the partial reversal of the deferred tax asset valuation allowance that was established in prior years. Pre-tax income for the third quarter of 2004 was $7.5 million as compared to $4.6 million in the same period last year.
Chairman and CEO William C. Erbey stated, "We are pleased to report $39.3 million of net income for the quarter, inclusive of our realization of significant tax benefits. Among the points to note in this quarter's results are the following:
-- Our Residential Loan Servicing business continues to be adversely
impacted by low interest rates and high prepayment speeds. Our
third quarter pre-tax income in this business is down by $4.8
million as compared to the third quarter of last year.
-- The aggregate pre-tax income of our other core business units
continues to be strong, increasing $1.0 million in the 2004
third quarter and $10.9 million year to date as compared to
the same periods last year. These results reflect improvement
in Commercial Servicing, which achieved a year to date
break-even result in the third quarter, and REALServicing(tm),
which signed its first major commercial client in the second
quarter of this year.
-- Our 2004 pre-tax income also reflects break-even results in our
aggregate non-core businesses in both the quarter and year to
date periods.
-- We are reporting pre-tax income of $3.9 million in our Corporate
Segment in the third quarter of 2004, primarily due to interest
of $2.7 million on our federal income tax receivables. In the
2003 third quarter, we reported a pre-tax loss of $(3.0) million.
-- Although we did not close sales of non-core assets in the third
quarter, we did enter into agreements to sell non-core assets
that have a net book value of approximately $60 million. While
these agreements remain subject to due diligence and other
contingencies, we are optimistic that we can achieve further
reductions during the fourth quarter of this year."
The Residential Loan Servicing business reported pre-tax income of $3.4 million in the third quarter of 2004 vs. $8.2 million in the 2003 third quarter. Year to date, pre-tax income was $13.8 million as compared to $25.8 million in the same period of 2003. These results reflect the continuing pressures from low interest rates and rising prepayment speeds in our portfolio. One important measure of the impact of these trends is the expense associated with mortgage servicing rights amortization and compensating interest expense. These combined amounts increased by $6.4 million or 7% for the nine months ended September 30. Operating expenses increased in both the third quarter and year to date periods in 2004 as compared to 2003, reflecting costs associated with our property management contract with the United States Department of Veteran's Affairs and as a result of reassuming, in the fourth quarter of 2003, certain collection activities that had been performed by outside parties. As a result of high prepayment rates, as well as reduced purchases of servicing rights, our servicing portfolio has declined somewhat since the end of 2003. As of September 30, 2004, we were the servicer of approximately 328 thousand loans with an unpaid principal balance (UPB) of $34.4 billion, as compared to approximately 360 thousand loans and $37.7 billion of UPB at December 31, 2003.
Our other core businesses reported aggregate pre-tax income of $0.8 million in the third quarter of 2004 as compared to a loss of $(0.2) million in the third quarter of 2003. For the nine months ended September 30, 2004, these businesses reported aggregate pre-tax income of $7.5 million as compared to a loss of $(3.4) million in the same period of 2003. These improvements primarily reflect the reduction in losses for Commercial Servicing, which achieved break-even results for the nine months ended September 30, 2004.
Our non-core businesses recorded an aggregate pre-tax loss of $(0.6) million for the third quarter as compared to a pre-tax loss of $(0.3) million in 2003. Year to date, these businesses reported aggregate pre-tax income of $0.3 million as compared to a pre-tax loss of $(12.3) million in the same period of 2003.
The Corporate Segment reported pre-tax income of $3.9 million in the third quarter of 2004 as compared to a loss of $(3.0) million in the same period last year. Year to date, Corporate generated pre-tax income of $1.8 million as compared to a loss of $(9.5) million in the same period of 2003. Corporate results for 2004 include interest income on federal income tax return claims of $2.7 million and $6.5 million for the quarter and year to date periods, respectively.
Results for the third quarter of 2004 included a net income tax benefit of $31.8 million. This benefit is primarily due to the reversal of $37 million of the valuation allowance on deferred tax assets that had been provided in prior years. This allowance was reduced as a result of refund claims of $37 million filed with the IRS that reduced our deferred tax asset as of September 30, 2004 and increased our receivable balances by the same amount. The tax benefit is net of $5.1 million of tax expense on 2004 earnings, primarily representing the company’s estimated federal effective tax rate of 20%.
In summary, pre-tax income increased by $2.8 million in the third quarter of 2004 and by $22.7 million year to date as compared to the same periods last year. Non-core assets have been reduced by 29% since the end of 2003.
Ocwen Financial Corporation is a diversified financial services holding company with headquarters in West Palm Beach, Florida and operations in Canada, China, Germany, India, Japan and Taiwan. Ocwen Financial Corporation is engaged in a variety of businesses related to residential and commercial mortgage servicing, real estate asset management, asset recovery, business process outsourcing and the marketing and sales of technology solutions to third parties. Ocwen Financial Corporation is a global leader in customer service excellence as a result of our company-wide commitment to quality, integrity and accountability. Additional information about Ocwen Financial Corporation 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, interest rates and the impact of changes in interest rates and prepayment speeds on our Residential Loan Servicing business and the outlook on reduction in non-core assets. 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, federal income tax rates, recognition of deferred tax credits and real estate market conditions and trends, 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, 2003 and its reports on Form 10-Q for the periods ended March 31, 2004 and June 30, 2004. 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, 2004 2003 2004 2003
Revenue
Servicing and
related fees $ 34,587 $ 35,651 $ 115,310 $ 101,703
Vendor manage-
ment fees 13,614 7,722 40,442 21,721
Gain (loss) on
trading and
match funded
securities, net (171) 159 1,688 2,924
Valuation gains
(losses) on
real estate (165) (686) (3,990) (6,695)
Gain (loss) on
sales of real
estate 311 316 (149) 408
Operating income
(loss) from
real estate 444 1,269 1,017 3,461
Gain (loss) on
debt repurchases -- (441) -- (445)
Other income 4,995 2,852 16,599 5,550
Non-interest
revenue 53,615 46,842 170,917 128,627
Interest income 4,988 4,071 15,555 17,826
Interest expense 7,141 10,823 22,040 29,554
Net interest
income (expense)
before provision
for loan losses (2,153) (6,752) (6,485) (11,728)
Provision for
loan losses (94) 415 (913) (2,670)
Net interest
income (expense)
after provision
for loan losses (2,059) (7,167) (5,572) (9,058)
Total revenue 51,556 39,675 165,345 119,569
Non-interest
expense
Compensation and
employee benefits 21,300 17,667 64,229 52,505
Occupancy and
equipment 3,981 3,254 11,999 8,769
Technology and
communication
costs 6,190 5,583 19,476 14,577
Loan expenses 6,885 3,835 22,272 10,836
Loss (gain) on
investments in
affordable
housing
properties (100) 4 (179) 319
Professional
services and
regulatory fees 3,187 2,510 16,328 21,854
Other operating
expenses 2,635 2,173 7,890 7,023
Non-interest
expense 44,078 35,026 142,015 115,883
Distributions on
Capital Securities -- -- -- 3,058
Income (loss)
before minority
interest and
income taxes 7,478 4,649 23,330 628
Minority interest
in net income
(loss) of
subsidiaries 18 28 (50) (308)
Income tax
expense (benefit) (31,845) 6 (31,779) 618
Net income
(loss) $ 39,305 $ 4,615 $ 55,159 $ 318
Earnings (loss)
per share
Basic $ 0.61 $ 0.07 $ 0.83 $ 0.005
Diluted $ 0.60 $ 0.07 $ 0.81 $ 0.005
Weighted average
common shares
outstanding
Basic 64,637,454 66,865,412 66,853,296 67,148,447
Diluted 65,813,457 67,880,310 68,146,822 67,864,096
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, December 31,
2004 2003
Assets
Cash and amounts due from
depository institutions $ 189,446 $ 215,764
Interest earning deposits 52,541 324
Trading securities, at fair value:
U.S. government and sponsored
enterprise securities 98,179 6,679
Subordinates and residuals 40,310 42,841
Real estate 68,480 103,943
Affordable housing properties 8,356 7,410
Loans, net 11,459 28,098
Match funded assets 108,328 130,087
Premises and equipment, net 39,000 41,944
Advances on loans and loans
serviced for others 345,945 374,769
Mortgage servicing rights 135,319 166,495
Receivables 114,500 88,157
Other assets 73,623 33,607
Total assets $ 1,285,486 $ 1,240,118
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 412,117 $ 446,388
Escrow deposits 146,074 116,444
Bonds - match funded agreements 97,712 115,394
Lines of credit and other
secured borrowings 35,502 150,384
Notes and debentures 231,249 56,249
Accrued interest payable 3,083 4,789
Accrued expenses, payables
and other liabilities 31,529 31,926
Total liabilities 957,266 921,574
Minority interest in subsidiaries 1,296 1,286
Stockholders' equity
Common stock, $.01 par value;
200,000,000 shares authorized:
62,719,552 and 67,467,220
shares issued and outstanding
at September 30, 2004 and
December 31, 2003, respectively 627 675
Additional paid-in capital 181,071 225,559
Retained earnings 145,568 90,409
Accumulated other comprehensive
income (loss), net of taxes (342) 615
Total stockholders' equity 326,924 317,258
Total liabilities and
stockholders' equity $ 1,285,486 $ 1,240,118
Pre-Tax Income (Loss) by
Business Segment
Three Months Nine Months
For the periods ended
September 30, 2004 2003 2004 2003
(Dollars in thousands)
Core businesses
Residential Loan
Servicing $ 3,380 $ 8,159 $13,763 $ 25,808
OTX (2,133) (2,353) (2,370) (8,327)
Ocwen Realty Advisors 1,478 1,156 5,013 3,766
Ocwen Recovery Group 708 1,140 2,998 3,422
Business Process
Outsourcing 687 1,004 1,791 1,007
Commercial Servicing 63 (1,111) 60 (3,276)
4,183 7,995 21,255 22,400
Non-core businesses
Commercial Assets (1,845) (2,025) (4,895) (8,692)
Affordable Housing (888) (3) (3,047) (3,608)
Subprime Finance 2,116 1,720 8,243 20
(617) (308) 301 (12,280)
Corporate Items and Other 3,912 (3,038) 1,774 (9,492)
Income (loss) before
minority interest and
income taxes $ 7,478 $ 4,649 $23,330 $ 628
Non-Core Assets
(Dollars in thousands)
September 30, December 31,
2004 2003
Loans, net
Affordable housing $ 3,664 $ 6,545
All other 7,795 21,553
Real estate 68,480 103,943
Subordinates, residuals and
other trading securities 40,310 42,841
Affordable housing properties 8,356 7,410
Total non-core assets $ 128,605 $ 182,292