Ocwen Financial's Q4 net income up 5.3% to US$9.9M year-over-year on savings from loan repayment, strong cash flow generation; for 2010, company earned US$38M, versus US$300,000 in 2009
February 24, 2011
– Ocwen Financial Corporation ("Ocwen" or the "Company") (NYSE:OCN) today reported net income for the twelve months ended December 31, 2010 of $38.0 million or $0.36 per share, compared with net income of $0.3 million or $0.00 per share in 2009. 2010 net income includes the reversal of a $9.1 million valuation allowance for income tax expense.
For the fourth quarter of 2010 Ocwen reported net income of $9.9 million compared to net income of $9.4 million for the fourth quarter of 2009. Pre-tax income from continuing operations was $15.2 million for the fourth quarter of 2010 versus $20.2 million for the fourth quarter of 2009.
Fourth quarter 2010 pre-tax income from continuing operations was affected by:
* Non-recurring transaction related expenses for the HomEq servicing acquisition of $17.5 million consisting primarily of $14.6 million in Occupancy and Equipment expense from writing-off leasehold improvements and establishing a reserve for the discounted future rent and lease termination fees on the two HomEq facilities which were acquired and closed in 2010 and severance and WARN Act compensation of $2.6 million.
* Interest expense of $1.2 million representing incremental amortization of up-front fees and original issue discount on the Senior Secured Term Loan related to the partial prepayment of this loan in 2010.
FOURTH QUARTER BUSINESS PERFORMANCE HIGHLIGHTS
* Reduced servicing advances by $237.0 million, or 10.1%.
* Completed 19,999 loan modifications of which 20% were HAMP modifications which exceeded the upper end of guidance of 16,000 to 19,000.
* Made a $135.0 million voluntary prepayment on the Senior Secured Term Loan which along with the mandatory repayments reduced the outstanding balance to $197.5 million as of December 31, 2010. (Additional voluntary prepayments of $162.5 million were made subsequent to year-end.)
"Ocwen remains very pleased with our acquisition of HomEq as revenues are ramping up as expected and both delinquency rates and advances are dropping," said Ron Faris, President and CEO. In addition, we completed the transition in 2010 at a cost of $52.6 million, which was below our previous estimate of $56.0 million, and we do not expect any material expenses for the HomEq legacy platform beyond 2010. We were able to complete 19,999 loan modifications in the fourth quarter of 2010, tying a previous quarterly record, which along with a reduction in the number of newly delinquent loans helped contribute to the $237 million decline in servicing advances. We take great pride in our ongoing leadership in completing sustainable loan modifications that help more families keep their homes," Faris added.
Chairman Bill Erbey stated, "Our strong cash flow generation enabled us subsequent to year-end 2010 to repay all but $35 million of the $350 million Senior Secured Term Loan. Ocwen has sufficient liquidity to repay this loan in full and once completed will save the $9.3 million in interest and amortization incurred on this loan in the fourth quarter of 2010. However, it was important to leave a small amount of the Senior Secured Term Loan outstanding to maintain the accordion feature which provides financing flexibility should we acquire a significant portfolio. We substantially reduced non-core assets to less than $50 million excluding the non-recourse assets for the four securitization trusts that we now include on our balance sheet."
In comparison to the fourth quarter of 2009, revenue was 57% higher, and the total of unpaid principal balance serviced increased from $50.0 billion at December 31, 2009 to $73.9 billion at December 31, 2010.
Operating expense increased by $28.6 million due to $17.5 million in non-recurring transaction expenses related to the HomEq acquisition and to growth in our Servicing business. After adjusting for the non-recurring expenses, operating expenses increased by 36.4% over the fourth quarter of 2009.
Pre-tax income for Servicing was $18.8 million in the fourth quarter of 2010. After adjusting for the one-time items affecting the Servicing segment in the fourth quarter of 2010, pre-tax income was $37.5 million or 28.0% higher than in the fourth quarter of 2009. Excluding the interest expense on the Senior Secured Term loan that was almost fully repaid subsequent to the end of 2010, adjusted pre-tax income in Servicing would have been $45.6 million or 56% higher due to growth in our servicing portfolio and unit cost reductions.
Loans and Residuals
Loans and Residuals incurred a loss from continuing operations before taxes of $3.0 million as compared to a loss of $2.1 million in the fourth quarter of 2009. The fourth quarter 2010 loss includes a $2.1 million reduction in the valuation of performing loans as a result of changes in market conditions. The balance of assets in this segment was $103.9 million at December 31, 2010. Excluding $67.3 million in non-recourse assets associated with the four securitization trusts that we first included in our financial statement in 2010, our assets were $36.6 million.
Asset Management Vehicles
The loss from continuing operations before taxes for Asset Management Vehicles was $0.6 million as compared to a loss of $1.8 million in the fourth quarter of 2009. The carrying value of our investment in Asset Management Vehicles was $12.1 million at December 31, 2010.
In the fourth quarter of 2010 losses from continuing operations before taxes were $0.05 million compared to a pre-tax loss of $5.3 million in the fourth quarter of 2009. The following items affected results in the quarter:
* Gain of $6.0 million representing Ocwen's share of proceeds from the sale of three low income housing partnerships with no book value.
* Realized loss of $4.0 million on the sale of all remaining Auction Rate Securities.
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, and Washington DC and support operations in India and Uruguay. Utilizing advanced technology and world-class training and processes, we provide solutions that make our clients' loans worth more.