WEST PALM BEACH, Fla., Jan. 26, 2007 (PRIME NEWSWIRE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income of $13.9 million or $0.20 per diluted share for the fourth quarter of 2006. This compares to $1.8 million or $0.03 per diluted share for the fourth quarter of 2005. Pre-tax income for the fourth quarter of 2006 was $14.9 million as compared to $2.5 million for the fourth quarter of 2005. Pre-tax income for the fourth quarters of 2006 and 2005 includes $(6.9) million and $(6.3) million, respectively, of pre-tax losses related to our start-up loan origination operation, which we have decided to close. For the year ended December 31, 2006, net income was $206.5 million or $2.91 per diluted share as compared to $15.1 million or $0.24 per diluted share for 2005. For the year ended December 31, 2006, pre-tax income was $80.1 million as compared to $20.9 million in 2005. The results for 2006 include a tax benefit of $126.4 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 pre-tax results for 2006 reflect substantial progress in achieving our goals of growing revenues while containing operating costs. Our annual revenue grew by 15% as compared to last year, while our operating expenses in 2006 declined by 0.5% (or $1.8 million) as compared to 2005 despite an increase of $14.1 million in amortization of servicing rights. Our pre-tax 2006 results reflect the strong performance of our Residential Servicing segment which contributed $80.5 million of pre-tax income in 2006 as compared to $21.7 million in 2005.
"In 2006 we continued to evaluate our other segments and narrow our focus to those activities which yield acceptable returns on capital. In that regard, during 2006 we merged our Business Process Outsourcing segment into our Residential Origination Services segment. As we move into 2007, we are making further changes in our operations, having decided to close our domestic commercial servicing operations, while retaining our domestic commercial special servicing and asset management operations as well as our international servicing operations. As a result, we have included our Commercial Servicing segment in Corporate. In our Residential Origination Services segment, we are narrowing the scope of our activities, having decided to close our start-up loan origination operation, which reported pre-tax losses of $(12.4) million and $(6.9) million, respectively, for the year and quarter ended December 31, 2006. We believe that the remaining fee based loan processing activities in this segment, which generated a pre-tax contribution of $15.7 million in 2006, are synergistic with our Servicing operations.
"In Ocwen Recovery Group, our focus during 2006 has been on cost reduction and enhancing the execution capabilities of our global work force. We believe that we have achieved this goal and are positioned for growth in 2007.
"Overall, our financial results were strong in 2006. We increased earnings over the prior year while also strengthening our balance sheet, as evidenced by the increase in our equity to assets, which rose from 18.7% at the end of last year to 27.8% at December 31, 2006. Our plans for 2007 will enable us to build on this foundation and increase shareholder value by further optimizing our use of capital."
Segment Results
---------------
Three months Twelve months
For the periods ended -------------------- ---------------------
December 31, 2006 2005 2006 2005
-------- -------- --------- ---------
Residential Servicing
Revenue $ 93,309 $ 71,646 $ 343,614 $ 279,626
Operating expenses 62,012 56,919 232,465 236,517
Other income (expense) (10,693) (6,308) (30,662) (21,448)
-------- -------- --------- ---------
Pre-tax income 20,604 8,419 80,487 21,661
-------- -------- --------- ---------
Ocwen Recovery Group
Revenue 1,869 1,884 7,666 11,683
Operating expenses 1,844 2,777 8,569 12,715
Other income (expense) 26 110 340 348
-------- -------- --------- ---------
Pre-tax income (loss) 51 (783) (563) (684)
-------- -------- --------- ---------
Residential Origination
Services
Revenue 16,437 18,028 70,944 66,031
Operating expenses 20,334 29,453 84,665 76,662
Other income (expense) 476 3,015 19,623 7,440
-------- -------- --------- ---------
Pre-tax income (loss) (3,421) (8,410) 5,902 (3,191)
-------- -------- --------- ---------
Corporate Items and
Other
Revenue 2,369 3,404 9,495 18,036
Operating expenses 6,202 5,234 21,549 23,175
Other income (expense) 1,507 5,147 6,361 8,233
-------- -------- --------- ---------
Pre-tax income (loss) (2,326) 3,317 (5,693) 3,094
-------- -------- --------- ---------
Consolidated pre-tax
income $ 14,908 $ 2,543 $ 80,133 $ 20,880
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As of December 31, 2006, we were the servicer of approximately 474 thousand residential loans with an unpaid principal balance (UPB) of $52.8 billion as compared to approximately 369 thousand loans and $42.8 billion of UPB at December 31, 2005. Residential Servicing revenue in the 2006 periods reflects increased servicing fees and float income from a larger servicing portfolio and higher interest rates. Operating expenses of the Residential Servicing segment for the 2006 periods reflect an increase in amortization expense due to growth in the servicing portfolio. For the full year 2006, this increase was offset by a reduction in interest paid to investors related to loan pay-offs, a decline in bad debt expense and cost reductions that reflect process improvements and automation.
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 our expectations as to growth of our Ocwen Recovery Group division and fee-based loan processing services, as well as our plans to optimize capital to increase shareholder value. 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, June 30 and September 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 Twelve months
For the periods ended
December 31, 2006 2005 2006 2005
-------- -------- --------- ---------
Revenue
Servicing and sub-
servicing fees $ 92,212 $ 73,762 $ 340,649 $ 293,569
Process management
fees 18,941 18,854 78,691 71,961
Other revenues 2,831 2,346 12,379 9,846
-------- -------- --------- ---------
Total revenue 113,984 94,962 431,719 375,376
-------- -------- --------- ---------
Operating expenses
Compensation and
benefits 21,948 22,176 90,986 94,625
Amortization of
servicing rights 29,711 23,672 110,745 96,692
Servicing and
origination 14,588 16,199 53,795 61,083
Technology and
communications 5,830 7,524 25,001 30,375
Professional services 8,888 10,514 31,271 25,939
Occupancy and
equipment 4,872 4,346 19,456 17,676
Other operating
expenses 4,555 9,952 15,994 22,679
-------- -------- --------- ---------
Total operating
expenses 90,392 94,383 347,248 349,069
-------- -------- --------- ---------
Other income (expense)
Interest income 11,157 8,278 48,034 25,238
Interest expense (14,713) (11,409) (53,587) (37,261)
Gain (loss) on
trading securities (1,477) 3,422 2,006 13
Loss on loans held
for resale, net (4,378) (4,380) (5,684) (4,380)
Gain on debt re-
purchases -- 3,361 25 4,258
Other, net 727 2,692 4,868 6,705
-------- -------- --------- ---------
Other income
(expense), net (8,684) 1,964 (4,338) (5,427)
-------- -------- --------- ---------
Income before income
taxes 14,908 2,543 80,133 20,880
Income tax expense
(benefit) 987 718 (126,377) 5,815
-------- -------- --------- ---------
Net income $ 13,921 $ 1,825 $ 206,510 $ 15,065
======== ======== ========= =========
Earnings per share
Basic $ 0.22 $ 0.03 $ 3.28 $ 0.24
Diluted $ 0.20 $ 0.03 $ 2.91 $ 0.24
Weighted average
common shares
outstanding
Basic 62,919,083 63,118,686 62,871,613 62,912,768
Diluted (a) 72,060,879 64,010,370 71,864,311 63,885,439
(a) For purposes of computing diluted earnings per share, the 2006
Periods reflect the assumed conversion of our 3.25% Convertible
Notes into 7,962,205 shares of common stock. Conversion of the
Convertible Notes has not been assumed for the three and twelve
months ended December 31, 2005 because the effect would be
anti-dilutive.
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, December 31,
2006 2005
----------- -----------
Assets
Cash $ 236,581 $ 269,611
Trading securities,
at fair value
Short-term investments 74,986 1,685
Mortgage backed securities 65,242 30,277
Investment in certificates
of deposits 72,733 --
Loans held for resale 99,064 624,671
Advances 324,137 219,716
Match funded advances 572,708 377,105
Mortgage servicing rights 183,743 148,663
Receivables 69,314 68,876
Deferred tax assets, net 174,132 20,271
Premises and equipment, net 35,469 40,108
Other assets 101,634 53,190
----------- -----------
Total assets $ 2,009,743 $ 1,854,173
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Match funded liabilities $ 510,236 $ 339,292
Servicer liabilities 383,549 298,892
Lines of credit and other
secured borrowings 324,520 626,448
Debt securities 150,329 154,329
Other liabilities 81,340 85,952
----------- -----------
Total liabilities 1,449,974 1,504,913
----------- -----------
Minority interest in
subsidiary 1,790 1,853
Stockholders' Equity
Common stock, $.01 par
value; 200,000,000
shares authorized;
63,184,867 and
63,133,471 shares
issued and
outstanding at
December 31, 2006
and 2005,
respectively
December 31,
2006 and 2005,
respectively 632 631
Additional paid-in
capital 186,660 184,262
Retained earnings 369,708 163,198
Accumulated other
comprehensive
income (loss),
net of taxes 979 (684)
----------- -----------
Total stockholders'
equity 557,979 347,407
----------- -----------
Total liabilities
and stockholders'
equity $ 2,009,743 $1,854,173
=========== ===========