Onity Group Inc (ONIT) 2004 Q1 法說會逐字稿

Good afternoon, and thank you for standing by. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a formal question and answer session. To ask a question, you will press star one on your telephone touchpad. Today's conference is being recorded for instant replay purposes. If you have any objections in being recorded you may disconnect at this time. I would now like to turn the meeting over to today's host Mr. Bob Leist, Vice President and Chief Accounting Officer for Ocwen Financial. Sir, you may begin.

Thank you. Good afternoon everyone, and thank you for joining us today. Before we begin, I want to tell you that a slide presentation is available to accompany our remarks. To access the slides, log on to our Web site at www.ocwen.com, select Shareholder Relations then Conference Calls, press quarter 2004 results, and then view slides. Each of you will be able to control the progression of the slides during the presentation. To move the slides ahead, please click on the gray button pointing to the right. As indicated on slide two, our presentation may contain certain forward-looking statements that are made pursuant to the Safe Harbor provisions of the federal securities laws. These forward-looking statements may be identified by reference to the future period or by use of forward-looking terminology. There may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in the forward-looking statements. For an elaboration of the factors that may cause such a difference, please refer to the risk disclosure statement in today's earnings release, as well as the company's filings with the Securities and Exchange Commission, including OCN's 2003 10-K. We are happy to make Ocwen news releases, 10-Qs, 10-Ks, and other materials available to you via e-mail. If you're not already receiving our materials by e-mail, and would like to be added to our distribution list, please e-mail Linda Ludwig at lludwig@ocwen.com. As indicated on slide three, joining us for today's presentation are Bill Erbey, Chairman and CEO of Ocwen; Ron Faris, President; and Mark Zeidman, Senior Vice President and CFO. This presentation will be followed by a question and answer period, during which we will be taking questions from those of you attending the conference by telephone. Without further delay, I will now turn the call over to Bill Erbey. Bill?

Thank you Bob, and thanks to all of you for attending Ocwen's first quarter conference call. As shown on slide four, I would like to cover four topics in my remarks today. An overview of our first quarter earnings, our remaining non-core assets, our recent supervisory agreement with the OTS, and our capital efficiency goals. Following my remarks, Ron and Mark will provide more detailed information. I am very happy to open my remarks by knowing that we reported net income of $6.8m in the first quarter. These results reflect year-over-year improvements across the board in our core businesses, our non-core businesses, and our corporate segment. As illustrated on slide five, pretax income in our core businesses rose to $8m in the first quarter of 2004, an increase of $1m as compared to a year ago. This is a particularly strong result considering that earnings in our residential servicing business declined by $3.5m as compared to the first quarter of last year. As I mentioned in our last call, this business continues to be adversely impacted by low interest rates, as well as the increased expenses we are incurring as a result of reassuming certain servicing functions that has been outsourced. Despite the challenges facing residential servicing, as shown on slide six, our core business earnings continued to improve. We reported average quarterly losses on our core businesses of $7.4m in 2000, $1.7m loss in 2001, average quarterly pretax income of $3.4 in 2002, and $7.3m in 2003 as compared to $8m in the 2004 first quarter. As shown on slide seven, this net improvement reflects $1.5m of reduced losses in OTX, as our revenues have increased, and our expenses declined versus a year-ago. I'm also to pleased to note that our commercial servicing segment became profitable in the first quarter ahead of our expectations. This segment, which includes both our domestic commercial servicing business and the result of GSS, our joint venture with Merrill Lynch, reported income of $200,000 in 2004 as compared to a loss of $1.4m in the first quarter of last year. Finally, we also achieved a $1m improvement in our results.

As graphed on slide eight, OTX is continuing its improving trend, as average quarterly losses have declined from $9.1m in 2001 to $6m in 2002, $2.9m in 2003, and $1.8m in the first quarter of 2004. I'm very happy to be able to report that this week we signed a multi-year licensing contract with Aegis Mortgage Corporation for REALServicing our residential loan servicing system. Ron will cover our core business results in more detail later in this call. As depicted on slide nine, our non-core losses amounted to $1.7m in 2004 as compared to $2.2m last year after adjusting last year's results of the $10m arbitration settlement. Overall, this reflects reduced interest expenses due to the decline in balance of non-core assets and continued strong cash flow from our remaining portfolio of residual and subordinate trading securities. Our corporate sector reported pretax income of $500,000 in the first quarter as compared to a $3.2m loss in 2003. Our 2004 results include $3.7m of income representing interest due on a portion of our income tax receivable largely offset by corporate expenses primarily legal fees. Corporate technology and interest expenses were reduced substantially from 2003 levels. As shown on slide 10, at December 1999, our non-core assets have been reduced from $1.9b to $149m as of March 31, 2004.

During the first quarter, we reduced non-core assets by $33m or 18%. Although, we sold our second largest asset with a net book value of $37.5m in January, we also issued a $15.5m mezzanine loan to facilitate the transaction. As shown on slide 11, commercial assets represent 64% of the remaining non-core assets. Subprime securities represent 26% and affordable housing and corporate assets comprise the remaining 10%. As depicted on slide depicted on slide 12, the five largest remaining assets comprised 72% of the remaining balance. Although small member remaining assets makes it difficult to forecast the timing of future sales with precession, we are optimistic that we will achieve further sales later in 2004. We continue to maintain the strongest reserve levels we have ever had. I also like to comment briefly on the supervisory agreement we recently signed with the OTX. As you maybe aware, we have been in an evolving environment regarding servicing standards. As a result of a leading role taken by the OTX and Ocwen the agreement now establishes the best practices that will guide our business. This certainty is important. As we continue to implement our customer focused marketing efforts, we have been evaluating changes to our segment reporting structure. As show on slide 13, we made a change this quarter, and now reporting the results of our GSS joint venture together with our domestic activity as the commercial servicing segment reflecting our strategy to grow this activity both in the United States and abroad. Before turning the call over to my colleague, I also want to cover our capital efficiency initiative.

Our goal is to become more capital efficient to increase our return on equity. Slide 14 presents an analysis of the composition of our asset by major business line as of March 31. You will note that our new core business is shown in yellow require virtually no assets apart from short-term receivables and fixed assets for GSS offices. Further acceleration of our earnings in these business is an important element in achieving our objective. Assets in our corporate sector shown in blue on the slide are largely comprised of cash and our non-core assets. We expect to reduce both non-core assets and cash during 2004. That leaves us with a $137m of corporate assets, which consist largely facilities technology equipment and receivables. Our goal is to minimize of these of assets going forward. Finally we will continue to focus our efforts on enhancing our funding strategy for our residential loan servicing business, which accounts for half of our assets largely comprised of advances and mortgage servicing rights because a significant portion of these assets are effectively AAA rated. We believe that we will be able to continue to improve the funding of these assets. And Mark will cover our funding efforts in more detail later in this call. I believe that our continued profitability in the first quarter, the growth in profitability of our core businesses, the reduction of losses at our non-core and corporate segments, and a continued reduction in our non-core assets all demonstrate that we are achieving the benefits we anticipated from our strategy. I remain optimistic that we will achieve further earnings growth in the remainder of 2004. I would now like to turn the call over to our President Ron Faris.

Thank you Bill. Our remarks today will cover the residential servicing business, Ocwen Realty Advisors, Unsecured Collections, Business Process Outsourcing formally known as Global Outsourcing, and Ocwen technology exchange. These core business lines along with the commercial servicing generated $8m in pretax income a 12% increase over the first quarter of 2003. Turning to slide 16, you'll see that our Residential Servicing business reported pre-tax net income of $5.7m in the first quarter compared to $9.2m in the 2003 first quarter, and $5.2m for the fourth quarter of 2003. As shown in slide 17, our Servicing portfolio unpaid principle balance at March 31, 2004 was $36.6b, a 3% decline from the fourth quarter of 2003 and a 21% increase over the March 31, 2003 balance. The decline in loan service during the first quarter of 2004 can be attributed to the continued high level of run-off due to prepayment and our adopting a more cautious acquisition strategy as a result of the uncertainty of prepayment speeds in this interest rate environment. Net revenues in the servicing business was $30m in the first quarter, a 17% increase compared to the same quarter last year. The increase in revenues from 2003 was a result of the increased number of loan service in 2004 and certain revenues generated from the new VA Property Management contract. However, due to increase in actual and projected prepayment speeds since 2002 and early 2003, we have steadily increased our rate amortization on servicing right to reflect increased projected prepayment volume.

Slide 18 shows the trend of prepayment speeds over the past five quarters. Although speeds declined in the first quarter of 2004 over the second half of 2003, they remained very high compared to 2002 and the first half of 2003. We anticipate the prepayment will continue at these high levels in the near future. As shown on slide 19, the profit impact of prepayment in the form of PMSR amortization an compensating interest due on prepayment increased by $7m or 29% in the first quarter of 2004 over the same quarter last year. Due to the increased speed of amortization of our servicing rights and a slight slow down in acquisitions as referenced previously, the balance of our mortgage servicing rights have declined from a $166m on December 31, 2003 to a $152m as of March 31, 2004. We have continued to expand our sub-servicing portfolio, which generates less net income for loan, but require less capital and is less sensitive to prepayment speeds. On the expense side, we saw 48% increase in expenses in the first quarter of 2004 over the first quarter of 2003, as a result of an increase in the number of loans serviced. Cost related to the new VA Property Management contract and an increase in certain cost due to bringing in help in the fourth quarter of last year, certain servicing activities previously performed by third party. The decision to internalize processes was done in an effort to improve quality, which we believe will benefit our customers and shareholders over the long term. We continue to utilize Six Sigma to improve efficiency and quality to our customers. We will also continue to expand our global workforce within the servicing business.

Over the past year, we have also been working closely with various consumer groups and our regulators on best practices in mortgage servicing in an ongoing effort to remain a leader in servicing quality. We expect to continue these important efforts. On the quality front, I am pleased to announce that our recent important study concluded that Ocwen's ability to mitigate losses for mortgage backed securities investors' outperform all nine of the other top non confirming services in the study. This study has been well received by investors' as proof of the benefit Ocwen brings to market. It also confirms our consultative approach to working with delinquent borrowers results in a win for both the consumer and the investor.

As shown on slide 20, our Unsecured Collections or Asset Recovery business posted pre-tax income of $1.4m in the first quarter as compared to $1.3m during the same period of 2003. We have several Six Sigma initiatives underway to improve our collection capability and expect to continue to grow our offshore operations through out the reminder of the year. We remain confident that unsecured collections remain a growth business for the company. Slide 21 shows that Ocwen Reality Advisors, our property evaluation division reported pre-tax income of $2m for the first quarter of 2004 compared to $1m in the first quarter of 2003. The growth in income is a result of increased demand for services from the Wall Street firms and expansion of our loan servicing at our REAL management portfolio. We continue to expand our vendor network in an effort to reduce cost and approve our turn times. We also look to expend our product offering this year, particularly as it relates to loan origination. Our business process outsourcing business firmly referred to as global outsourcing, generated $2.1m in revenue compared to $350,000 during the first quarter of 2003, and $1.9m in the fourth quarter of 2003. AS shown on slide 22, this business generated $397,000 in profit during the first quarter, an increase of 390% over the same quarter in 2003. However, despite the growth in revenue during the first quarter compared to the fourth quarter of 2003, net income declined quarter-over-quarter for several reasons. First, as the business has grown, it is absorbing a greater proportional shares of overhead in corporate cost. We also continue to invest in this business, including expanding our sales and marketing activities. We continue to expand our relationships with our existing clients and we anticipate additional opportunity to continue to increase our client base over the coming quarters.

As shown on slide 23, and as Bill previously discussed, Ocwen technology Xchange continue to move towards profitability with the loss for the quarter being reduced to just $1.8m. Our new REALServicing contract with Aegis will help us to bring OTX to profitability. Overall OTX improved its results by $1.5m versus the first quarter of last year. This improvement reflects cost reduction and revenue improvement in relatively equal measure. Expense savings were achieved through a number of initiatives, including reduced technology cost, marketing savings to the implementation of a centralized marketing function, occupancy savings through the centralization of US staff in Florida, and some savings in capitation. On the revenue front, REALServcing revenues improved by $500,000 versus the 2003 first quarter, and REALSynergy increased approximately $250,000 including some fees earned from GSS, our international JV with Merrill Lynch. While REALTrans revenues were relatively unchanged year-over-year, revenue increased 21% versus last quarter reflecting $297,000 quick transactions in the first quarter of 2004, the 26% improvement over the fourth quarter of 2003, and a 12.5% improvement over the quarterly average for all of 2003. All of these businesses capitalize on core competencies and provide additional value added services to our core client base. These business lines continue to make progress in reducing their cost structures and improving their product quality through Six Sigma initiatives for better use of technology and globalization.

Our main focus for 2004 will be expanding our sales and marketing efforts to accelerate the growth of our smaller and newer business lines. Historically, Ocwen had been more of a transaction based company that did not require much in the way of marketing and sales. Today however, as a company that sells product and services, we need to improve our brand awareness and increase sales penetration capabilities. As most of you are aware, we announced in February that Mickey Linn has joined our executive management team as Executive Vice President of Sales of Marketing. In this roll, he is responsible for developing strategic partnerships and directing sales, marketing, and channel management. Mickey already has a strong understanding of the mortgage industry and our business from its service as an Ocwen board member. We are confident that his depth of experience in leading rapid growth in new technologies and services makes him ideally suited to lead our outsourcing and technology sales and marketing efforts. On a final note, last quarter I announced that we began offering our loan servicing borrowers, the opportunity to refinance their loans with Ocwen. In the past we had to turn away our customers who wish to refinance their loans with us. By offering this service, we hope to generate additional income and retain our servicing customer base, but partially hedging our risks to increase in prepayments speeds. The loans we originate have a guaranteed take out from one of our existing loan servicing clients. During the first quarter of 2003, we originated 63 loans with the principal balance of $12m. Although, we are satisfied with this early performance, we hope to expand the volume of new originations in future quarters. Thank you everyone. I would now like turn the call over to Mark Zeidman.

Thanks Ron. I would like make a few comments on the continuing progress we made in the first quarter in terms of strengthening the balance sheet and improving our liquidity. Slide number 25 presents a breakdown of our assets at the end of the first quarter, as compared to the end of 2003. As you can see, there is no significant change in total assets during the quarter, however there are three things worth noting. First, non-core assets were reduced from $182m at the end of 2003 to $149m at the end of March. Most of the decrease reflects the sale of the prudential office building in Jacksonville, Florida which had been our second largest non-core asset. The building had a net book value of $37.6m, as we took back $15.5m loan from the purchaser to facilitate the sale the transaction reduced non-core assets by a net amount of approximately $22m. Additionally, during the quarter, we resolved one hotel loan that had been on the books for $5.4m. Second, cash increased from $216m at the end of 2003 to $318m at the end of the first quarter. Of this amount, cash at the bank totaled $257m and cash at the holding company totaled $61m. At the end of March 2004, cash represented fully 25% of total assets. The reason for the increase was primarily strong cash flow from operating activities. Frankly, we don't need this much cash on the balance sheet and I will expect that we will use the cash to reduce our outstanding deposits and other liabilities. Third, servicing advances including match funded servicing advances decreased from $481m at the end of the year to $437m at the end of March. One measure to improve financial strength of the company is the credit quality of our assets.

As I discussed on the last conference call, servicing advances or receivables that the company has recorded in connection with its role as a servicer of variance residential mortgage securitization. Typically, the company's right to recover this receivable stands at the top of the securitization waterfall, that is before the rights of the AAA-rated note holders to receive principal and interest payments, as such servicing advances are considered as being better than AAA-rated in terms of credit quality. In total, servicing advances, cash, and US treasury securities represented 61% of total assets at the end of March, as compared to only 56% of total assets at the end of December. On the liability side of the balance sheet, total liabilities of $921m at the end of March were basically unchanged from the end of 2003. However, we continue to make progress in paying down high cost sources of fund and replacing them with lower costing liabilities. As you can see on slide number 26, the weighted average cost of debt decreased by 131 basis points from 5.44% in the first quarter of 2003 to 4.13% in the first quarter of 2004. This occurred during a time when average one-month LIBOR rates were down only 24 basis points, six-month T-bill rates down only 19 basis points and two-year treasury notes that actually increased by about four basis points. The decrease in the cost of debt was primarily due to two factors. First, the amount of high yield debt has been significantly reduced. In the first quarter of 2003, the company averaged $133m of high yield debt that had an average coupon of about 11.5%. In the first quarter of 2004, the company had reduced the amount of high yield debt to only $56m at an average rate of . As such high yield debt represented only 7.4% of total interest bearing liabilities in the first quarter of 2004, as compared to 16.6% of total interest bearing liabilities in the first quarter of 2003. The second reason for the decrease in the cost of debt is the continuing run off of our remaining broker deposits.

In the first quarter of 2003, the company had an average of $177m of broker deposits outstanding at an average rate of 6.25%. At the end of the first quarter of 2004, we had averaged only $76m of broker deposits remaining at an average rate of 6.6%. In terms of credit facilities, as I mentioned in our last conference call, one of our lenders decided not to renew a $100m credit facility for servicing advances, which expired in April 2004. At the end of December 2003, we had borrowed approximately $68m on this facility. We repaid the entire line in the first quarter of 2004, and as you can see by the company's cash balance at the end of March, we were able to repay the loan without any adverse impact on our liquidity. I am also happy to point out that we are able to renew another credit facility for both servicing advances and servicing rights that have been said to mature in April 2004. The facility was renewed for another year, and were decreased in size from $60m to $70m. Additionally in the first quarter, we closed a new credit line for $12.5m that provides financing for purchased mortgage servicing rights. Overall, during the quarter, our leverage was reduced a bit from 2.9 times debt to equity at the end of 2003 to 2.8 times debt to equity at the end of the first quarter. The bank's core capital ratio as of March was 14.84% and its risk capital ratio at 16.48% were well in excess for the amounts that we've agreed to maintain with the OTS. So in conclusion, I think that first quarter represents a continuation of our strategy to strengthen the balance sheet and maintain a strong liquidity position. I'd like to turn the call back to Bill Erbey.

Now I'd like to open the call for any questions that you might have.

Thank you. At this time, we would like to begin the question and answer session. If you have a question or comment for today's host, please press star one on your telephone touchpad. And our first question today comes from Bob Napoli.

Good afternoon, a couple of questions. First of all, does the OTS agreement have any effect on the profitability of your business in changing any fees or anything such as that or in any other way does it limit your ability to grow the business or put any other restraints on you?

This is Ron. It doesn't limit our ability to grow the business at all. There was one change in the agreement that limits a fee that we could charge on forbearance plans, but we do not think, it is not an amount that we think is going to have a material impact on the ongoing results.

Okay, now if you look at that business, if you go back to 2000, 2001, that business earned 20 basis points pretax income as a percentage of the unpaid principal balance. Do you think that level of profitability is attainable in the future? What level of pretax income do you think would be a reasonable goal as, say you move into 2005, 2006?

Well I think, as you know, we don't really kind of project out what our earnings are going to be, even within a business line. And again, if the interest rate environment will be returned to where they were in those periods, we are optimistic that we would see a definite improvement in the bottom line of the business. There are certain things though that impacted them, such as some of the special servicing contracts that we had, that had a wider margin than we have in the business today, will not necessarily reoccur, but the interest rate environment taxing was much more favorable and one, that if it was to get back to our levels, would have a very positive impact on our bottom line.

Do you have -- what were the 100 basis point increase in short-term interest rates? What effect would that have? Do you have an amount that would affect that business?

Bob, we don't give projections, but let's try to --?

You have given that out in the past I think, haven't you? 100 basis point increase in short-term interest rates. I guess something you've given out.

We gave an impact on float, what impact it would have in the earnings of floats and that's very mechanical.

Right.

Because we have $1.2b with the float, and obviously ever 1% change in rates will increase our earnings by $12m. The biggest impact Bob, let me try to size this for you another way, we are not giving you a projection. If you were to go back to 2003 and look at our business, we report our revenues net, not gross. In other words, we subtract out the impact of compensating interest and amortization of purchase mortgage servicing rights. If you would've looked at that business from a gross perspective, we would have earned somewhere around, gross revenue would've been somewhere slightly south of the quarter of a billion dollars, about $240 some million dollars in revenue. That top-line has grown somewhere around north of 30% per annum over the past 4 years. What has impacted net earnings has really been the rapid expansion of the PMSR amortization and the auxiliary compensating interest that gets generated as a result of that. If you look, last year, I believe we had around $140m to $150 of compensating interest and PMSR amortization. So you take that away from your $240 something, you have got a $100m left over, it's cost us about $70m to run the business and we had about $30m in profit. So obviously that $144m is a direct relationship with the level of pre-payments, okay within the portfolio. So obviously a rise in rate with-- from this level will have a--we believe it would have a material impact on the pre-payment speeds with some lag and it could have a fairly significant impact upon the bottom-line. So our largest single expense, 60% or so whatever 140 something divided by 240 is really impacted by pre-payments.

Okay. One final question. With regards to the competition in the servicing business, I mean there had to be a massive amount of new servicing available in the first quarter given some of the origination numbers from the public companies. Who you're saying is emerging competition, is the prime environment changing it all and I know your growth has been kind of lumpy in the past, so I only not to extrapolate back to you didn't grow in the first quarter. But what are you seeing competitively, who are your toughest competitors and has that environment changed over the last 12 months?

Well I think, we had a very robust growth year last year and as we kind of went into the fourth quarter with the rising interest pre-payments speed environment and that fact that we'd already had a robust year, we did become a little more conservative in our pricing, which sort of rolled over into the first quarter. Because a lot of what you bid on in the fourth quarter comes about as new volume in the following quarter. So as far as competition goes in, I'd say that Chase, Wachovia are two of the entrants that came into the business last year in a bigger way than they had been previously--my intelligence would indicate that they captured a fair amount of the business that's been out there the last 3-6 months. But I think we're still some what cautious in that pre-payments speed, we're showing some of our charts continue to be at very high levels and we haven't necessarily seen everybody else factor that in as much as we have.

Okay. Thank you very much.

You're welcome.

Our next question comes from Mr. John from JMP Securities.

With regard to expenses, is that $22m that you guys booked this quarter a proper run rate for comp expenses or do you expect to see additional expenses brought on related to outsourced expense that you brought back on?

I think that that's a reasonable run rate although we were helping to expand a number of our business plans and that would result in an increase on a go-forward basis that we are able to achieve some of our goals. But I don't think there is anything beyond growth of the business that should drive that number up from the levels that we saw in the first quarter.

Okay and does that include the additional marketing expenses that you referred to during the call?

A chunk of the additional marketing costs that definitely did start to come about in the first quarter, that is one area where we are looking to expand our work force not by tremendous numbers of people but, you know those individuals will be fairly highly compensated individuals if they perform well. So there will be some increase in competition related to sales and marketing but we did see some of it start to come into play in the first quarter. I mean for example, Mickey joined us during the quarter, so some of his compensation is already included, I am Head of Marketing, I also joined during the quarter. But there will be some additional sales people that were added late in the quarter will be added in the coming quarters.

Okay and either the professional stances, how much of those are legal expenses? In your minds, are these on going legal expenses? Are these sort of behind related to the OTS agreement?

Well, approximately $3m of the professional expenses are legal fees in the quarter and to some extent, I mean, we are facing litigation in a number of areas and it is - haven't been able to find an attorney to handle that for free. So, we need to and equivalently accrue for the cost that we anticipate here.

Okay, and then finally, could you guys anything with respect to trends associated with pre-payment speeds after the end of the quarter?

Well, I can tell you in the first quarter we saw a dip in the first couple of months and then we saw them start to increase actually significantly again in March and I would say it looks like that the increase is carrying over into the second quarter. So, I think if you see some of the pre-payment index numbers that have been out, there was a spike-up sub-prime usually lags a little bit from the prime market, but we did see a trend start back up at the end of the first quarter and into the second quarter.

Thank you.

Our next question comes from John Morrisany from ING.

Hi guys. Outstanding quarter. I really have a question. I just have been waiting three years to be able to say that to you.

Thank you John. We have been waiting there with you.

Seriously, congratulations. Two questions. One, can you put any revenue numbers of on the Aegis mortgage contract?

We are not prepared to do that. The terms of the contract are confidential. It's a multi-year contract, and a large part of it relates to -- will relate to how rapidly Aegis ramps up their servicing operation.

Okay and the second question. I don't whether I am being premature on this, Mark, but this will be I think four quarters of profitability. What do you need or when do we start discussing taking back some of the tax laws carry-forward back into your book value?

Well, let's say, you are right. This is the fourth quarter of profitability. Its -- I would expect that as we continue to build up our consecutive quarters, we will begin to evaluate taking some of that back. Obviously, it would be a mistake for me to say it is going to be and you know the third quarter of this year, the fourth quarter this year. But we are, I guess, developing the track record that we need in order to take back some of the reserves.

Has your -- have your accounts given you sort of guideline of, I mean, is it five, six, seven quarters or, I mean, so you don't necessarily forecast future results '04?

Frankly speaking, it is reasonably subjective and it has to do not only with number of quarters, but with which your budget looks like in a go-forward basis in the quality of earnings. But you know I don't think we are talking a dozen quarter or 16 quarters. I think -- you are sort of in the ballpark.

And lastly, as you talk about redeploying cash in your capital structure, what about the possibility of some kind of a stock buyback?

We don't really announce that. I think that what we are trying to do, though, we are extremely focused on looking at every asset that is on the balance sheet and try to basically shrink the size of balance sheet down. Obviously, that is something that we -- at some future date, I wouldn't say that's anywhere in near terms. Some future day we may look at that to the extend that we continue to pile up more equity and it has reduced our debt burden.

Okay, let me step down. Again, thanks. Great quarter.

Thank you.

Once again that is star 1 for parties having questions or comments. No other parties have queued up for questions.

I want to thank everybody for calling in this afternoon. Have a great evening. Good night.

Thank you for attending today's conference call. This concludes the call. You may disconnect your line at this time. Thank you.