Ocwen Reports First Quarter 2012 EPS of $0.14 Per Share, Revenue of $164.5 Million and Net Income of $19.3 Million

Thu May 3, 2012 6:45am EDT

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ATLANTA, May 3, 2012 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported Net income of $19.3 million, or $0.14 per share, for the first quarter of 2012. This compares with Net income of $22.1 million, or $0.21 per share, for the first quarter of 2011. In the first quarter of 2012, Ocwen incurred $16.1 million of transaction-related expenses, $2.6 million of net hedge-related losses, and $4.6 million in costs related to cancellation of upsizing and partial pre-payment of its Senior Secured Term Loan. Adjusting for these items resulted in normalized pre-tax earnings for the quarter of $53.4 million, a 17.4% increase over the normalized results in the first quarter of 2011. Revenue for the first quarter of 2012 was $164.5 million, 48% higher than the first quarter of 2011. 

On April 2, Ocwen deployed $615 million of capital to purchase the mortgage servicing rights on $30.3 billion of unpaid principal balance (UPB) by closing deals with JPMorgan Chase Bank ("Chase") and Saxon Mortgage Services, Inc. ("Saxon"). The Company estimates it incurred $3.4 million in ramp-up-related expenses in the first quarter of 2012.  Had these ramp-up costs not been incurred, normalized pre-tax earnings would have been $56.8 million. We anticipate less than $1 million of further normalizing expenses on the Litton, Chase and Saxon transactions.

On March 20, 2012, Ocwen entered into an agreement with Aurora Bank FSB to purchase the servicing rights on a portfolio of commercial mortgage loans. Closing and servicing transfer is expected at the end of May. As of March 31, 2012, the portfolio consisted of 3,389 loans with a total principal balance of $1.9 billion.

Business performance highlights:

  • Generated Cash flow from operations of $373 million.
  • Reduced delinquencies on the Litton portfolio by 3 percentage points and Litton-related advances by $201.7 million. 
  • Reduced overall delinquencies from 27.9% at the end of 2011 to 25.6% at the end of March 2012.
  • Completed 23,491 loan modifications. HAMP modifications accounted for 14.8% of completed modifications.
  • Modification offers rose by 32.3% to 28,539.
  • Completed the sale to Home Loan Servicing Solutions (HLSS) of the right to receive the servicing fees relating to approximately $15 billion of UPB in March, with an additional $2.9 billion sale on May 1. HLSS also assumed responsibility for the associated servicing advances and match funded liabilities.
  • Cancelled $200 million upsizing of its Senior Secured Term Loan because Ocwen had sufficient cash from operations and the HLSS transaction to fund the closing of Saxon and Chase. 
  • Converted $56.4 million of Convertible Notes to common stock.

"In the first quarter of the year, we saw a meaningful decline in delinquencies and advances for the newly acquired Litton portfolio." said Ron Faris, President and CEO. "Modifications in the first quarter of 2012 were up by 25% over the fourth quarter of last year, and modification offers were up by 32.3%. These strong results confirm once again Ocwen's industry-leading ability to effectively manage large acquisitions of high-risk mortgage servicing. Litton was a solid servicer, yet Ocwen has been able to create additional value for investors by finding sensible solutions that help keep American families in their homes. Our innovative shared appreciation modification, or SAM, is a good example of a sensible solution for borrowers and investors, and it accounted for 28.5% of our modifications in the first three months of this year. Borrower acceptance rates for the SAM remain high, while 6-month re-default rates are quite low compared to industry norms." 

Mr. Faris added, "In early April, we completed the acquisition of $30.3 billion in servicing assets from Saxon and Chase, of which we were already subservicing $9.9 billion for Saxon. We continue to see a healthy pipeline of potential new servicing transactions, and we expect to close additional transactions in coming months. These transactions will most likely include both private-label and agency servicing. 

Chairman William Erbey stated "The Saxon and Chase transactions deployed approximately $615 million in capital at our targeted 25% pre-tax rate of return. Following the closing of these two transactions, our servicing portfolio now stands at approximately $119 billion. Ocwen's ability to generate cash from operations and the sale of assets to HLSS enabled us to close the transactions without upsizing our Senior Secured Term Loan, as had been originally planned. Our balance sheet was further strengthened in the quarter by conversion of $56.4 million in Convertible Notes and a $37.5 million pre-payment on our Senior Secured Term Loan. Ocwen's access to senior debt markets, strong expected cash-flow and ongoing sales to HLSS should enable us to fund all but the largest new business transactions without issuing additional equity.

The first quarter of 2012 had a net total of $23.3 million of normalizing items:

  • Transaction-related expenses for the quarter were $16.1 million, with $9.7 million for Litton and $6.3 million related to the Saxon and Chase deals that closed in early April.
  • Fees paid to investors on cancellation of the $200 million upsizing of the Senior Secured Term Loan amounted to $3.7 million
  • Pre-payment of $37.5 million of the Senior Secured Term Loan from proceeds of the HLSS transaction resulted in an expense of $0.9 million for early amortization of original issue discount.
  • Loss of hedge accounting on interest rate swaps related to assets sold to HLSS caused a $6.0 million unrealized expense. However, HLSS purchased the rights to MSRs in March for $10 million more than Ocwen's carrying value.  This amount will be realized over time as the Rights to MSRs amortize.
  • A net gain of $3.4 million was recorded upon termination of the Indian Rupee hedges.

In the first quarter of 2011, Ocwen had a net total of $11.0 million of normalizing items. For more detail on normalizing items as well as prior earnings releases and SEC filings please refer to the "Shareholder Relations" section of our website at www.ocwen.com.

Ocwen Financial Corporation is a leading provider of residential and commercial loan servicing, special servicing and asset management services. Ocwen is headquartered in Atlanta, Georgia with offices in West Palm Beach and Orlando, Florida, Houston, Texas, and Washington, DC and support operations in India and Uruguay. Utilizing advanced technology and world-class training and processes, we provide solutions that help homeowners and 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. 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 Ocwen's reports and filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2011 filed on February 29,2012. The forward-looking statements speak only as of the date they are made and should not be relied upon. Ocwen undertakes no obligation to update or revise the forward-looking statements.

This news release contains references to "normalized" results, which are non-GAAP performance measures. We believe these non-GAAP performance measures may provide additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures should be viewed in addition to, and not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States.

 

Residential Servicing Statistics (Dollars in thousands)
  At or for the three months ended
  March 31,
2012
December 31,
2011
September 30,
2011
June 30,
2011
March 31,
2011
Total unpaid principal balance of loans and REO serviced  $98,440,466  $ 102,199,222  $ 106,126,168  $ 70,830,567  $ 70,542,961
Non-performing loans and REO serviced as a % of total UPB (1) 25.6% 27.9% 28.7% 24.2% 24.7%
Prepayment speed (average CPR) 14.2% 14.1% 15.2% 14.3% 13.9%
 
(1) Non-performing loans exclude those serviced under special servicing agreements where we have no obligation to advance. 
     
     
Segment Results (Dollars in thousands) (UNAUDITED)
 
   
For the three months ended March 31, 2012 2011
Servicing    
Revenue  $ 164,192  $ 110,869
Operating expenses   82,879   39,783
Income from operations  81,313  71,086
Other expense, net   (46,836)   (36,306)
Income before income taxes   34,477   34,780
     
Corporate Items and Other    
Revenue  658  471
Operating expenses   3,395   1,570
Loss from operations  (2,737)  (1,099)
Other income (expense), net   (1,621)   808
Loss before income taxes   (4,358)   (291)
     
Corporate Eliminations    
Revenue  (304)  (334)
Operating expenses   (147)   (154)
Loss from operations  (157)  (180)
Other income, net   157   180
Income (loss) before income taxes   —   —
     
Consolidated income before income taxes  $ 30,119 $ 34,489
     
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(UNAUDITED)
 
For the three months ended March 31, 2012 2011
 
Revenue
   
Servicing and subservicing fees  $ 155,103  $ 102,505
Process management fees  8,791  7,796
Other revenues   652   705
Total revenue   164,546   111,006
     
Operating expenses    
Compensation and benefits  30,783  14,787
Amortization of mortgage servicing rights  14,314  8,923
Servicing and origination  3,287  1,922
Technology and communications  9,349  6,872
Professional services  8,559  2,384
Occupancy and equipment  15,305  4,130
Other operating expenses   4,530   2,181
Total operating expenses   86,127   41,199
Income from operations   78,419   69,807
     
Other income (expense)    
Interest income  2,312  2,169
Interest expense  (46,924)  (37,543)
Loss on loans held for resale, net  (420)  (904)
Equity in earnings of unconsolidated entities  252  130
Other, net   (3,520)   830
Other expense, net   (48,300)   (35,318)
Income before income taxes  30,119  34,489
Income tax expense   10,770   12,425
Net income  19,349  22,064
Net income attributable to non-controlling interests   —   10
Net income attributable to Ocwen Financial Corporation  $ 19,349  $ 22,074
     
Earnings per share attributable to Ocwen Financial Corporation    
Basic  $ 0.15  $ 0.22
Diluted  $ 0.14  $ 0.21
     
Weighted average common shares outstanding    
Basic 130,649,595 100,762,446
Diluted 138,046,270 107,777,775
 
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

(UNAUDITED)
     
  March 31,
2012
December 31,
2011
     
Assets    
Cash  $ 683,946  $ 144,234
Restricted cash – for securitization investors  633  675
Loans held for resale, at lower of cost or fair value  20,203  20,633
Advances  98,398  103,591
Match funded advances  2,903,171  3,629,911
Loans, net – restricted for securitization investors  56,365  58,560
Mortgage servicing rights, net  277,716  293,152
Receivables, net  62,235  83,202
Deferred tax assets, net  106,376  107,968
Goodwill  78,432  78,432
Premises and equipment, net  17,178  7,350
Investments in unconsolidated entities  21,915  23,507
Other assets   167,943   185,942
Total assets  $ 4,494,511  $ 4,737,157
     
Liabilities and Stockholder's Equity    
Liabilities    
Match funded liabilities  $ 2,280,323  $ 2,558,951
Secured borrowings – owed to securitization investors  51,622  53,323
Lines of credit and other secured borrowings  550,618  540,369
Debt securities  26,119  82,554
Other liabilities   159,816   158,649
Total liabilities   3,068,498   3,393,846
     
Stockholder's Equity    
Common stock, $.01 par value; 200,000,000 shares authorized; 134,847,475 and 129,899,288 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively  1,348  1,299
Additional paid-in capital  886,351  826,121
Retained earnings  543,136  523,787
Accumulated other comprehensive loss, net of income taxes   (4,822)   (7,896)
Total stockholder's equity   1,426,013   1,343,311
Total liabilities and stockholder's equity  $ 4,494,511  $ 4,737,157
     
CONTACT:  John V. Britti
          Executive Vice President & Chief Financial Officer 
          T: (561) 682-7535
          E: John.Britti@Ocwen.com
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