Ocwen Financial Corporation Announces Second Quarter Results
WEST PALM BEACH, Fla., Aug. 8, 2001 -- Ocwen Financial Corporation (NYSE:OCN) today reported a net loss for its second quarter ended June 30, 2001 of $(21.4) million or $(0.32) per share compared to a net loss of $(1.4) million or $(0.02) per share for the 2000 second quarter. For the six months ended June 30, 2001, the Company reported a net loss of $(45.0) million vs. a loss of $(6.5) million for the 2000 six-month period.
Chairman and CEO William C. Erbey, stated, "We are continuing to make steady progress towards our strategic transformation of Ocwen. There are a number of key points to emphasize in evaluating our second quarter results:
-- For the first time, the combined results of our core fee
businesses, Servicing and OTX, were profitable. At OTX, we have
begun to reduce our costs, reflected by the fact that our net
loss was $300 thousand below first quarter levels after
considering several one-time expenses in both quarters.
-- Our capital intensive loan and affordable housing businesses
achieved a break-even result excluding $9.4 million of non-cash
charges to increase loss reserves. As of June 30, 2001, our loss
reserves were at an all-time high level as a percentage of
assets.
-- We sold $17.3 million of subprime residual securities for a gain
of $4.5 million.
-- We have continued to reduce our exposure to risk assets. Since
December 31, 2000, risk assets, excluding servicing-related
assets, have declined by $398 million, or 25%.
-- Net loss for the second quarter of 2001 included an additional
provision of $8 million to increase our allowance for deferred
tax assets.
While we recognize that near-term earnings pressures will continue, we believe that our equity of $459 million, cash and equivalents of $311 million and our new servicing advance credit lines provide us with the requisite financial strength and liquidity to achieve our objectives."
The Servicing business reported net income for the second quarter of 2001 of $5.3 million vs. $2.7 million in the 2000 second quarter. On a year-to-date basis, Servicing reported net income of $10.6 million compared to $6.4 million in 2000, an increase of 66%. The UPB value of loans serviced for others grew to $15.4 billion as of June 30, 2001 compared to $10.5 billion as of December 31, 2000. An additional $4.5 billion of UPB had been acquired as of June 30. As of the date of this release, all of these loans have been boarded.
Net losses at OTX were $(4.8) million in the 2001 second quarter compared to $(5.3) million in the same period of 2000. For the six months ended June 30, net losses amounted to $(13.4) million in 2001 vs. $(9.7) million in 2000. The improvement in the second quarter of 2001 was primarily due to cost reduction initiatives undertaken at the close of the first quarter. The six month increase in losses in 2001 compared to the same period in 2000 primarily reflects $4.7 million of pre-tax costs in 2001 associated with one-time events, including a payment related to the acquisition of an OTX subsidiary in 1998.
Losses for the second quarter of 2001 in the Residential, Commercial and Unsecured discount loan businesses amounted to $(2.8) million, $(2.3) million and $(1.3) million, respectively. These results primarily reflect increases to loan loss reserves totaling $6.9 million in these businesses. These increases, which are largely non-cash charges, were recorded in response to changes in the credit quality of the assets, or to shortfalls in projected asset recovery rates in the case of Unsecured. In addition, Residential results for the 2001 second quarter reflect a whole loan sale of over 700 loans with a book value of approximately $44.6 million for a gain of $1 million. Commercial assets with a book value of $56 million were sold during the 2001 second quarter for a net loss of $(0.7) million.
The Affordable Housing business posted a net loss of $(3.6) million in the 2001 second quarter compared to net income of $5 thousand in the 2000 second quarter. Affordable Housing results include additional reserve provisions of approximately $2.5 million during the second quarter reflecting revisions in completion cost estimates as well as modification to projected sales results. Many of the assets in this business are under sales contracts that have not yet satisfied all of the accounting criteria for sales treatment.
Ongoing efforts to dispose of the remaining assets in the inactive Subprime Lending business resulted in net income of $2.4 million for the 2001 second quarter, primarily due to a pre-tax gain of $4.5 million on the sale of $17.3 million of subprime residual trading securities.
Second quarter 2001 results include an extraordinary gain of $243 thousand compared to an extraordinary gain of $3.9 million in the same period of 2000. The extraordinary gain in 2001 resulted from the repurchase at a discount of $2.5 million par amount of the Company's 10-7/8% Capital Trust Securities. The Company will continue to evaluate additional debt repurchases during 2001.
Income tax expense for the second quarter of 2001 included a non-cash provision to increase the Company's valuation allowance on its deferred tax asset by $8 million. In addition, income tax expense includes a charge of $2.8 million representing the reversal of tax benefits recorded earlier in 2001. The Company has established its allowance based upon generally accepted accounting principles that require it to estimate that portion of the deferred tax asset that may not be realized for financial reporting purposes in the near future. The Company's ability to utilize the deferred tax asset and its need for the valuation allowance ultimately depends on future profitability. These same rules preclude the Company from recognizing a tax benefit on current losses at this time.
Ocwen Financial Corporation is a financial services company headquartered in West Palm Beach, Florida. The Company's primary business is the servicing and special servicing of nonconforming, subperforming and nonperforming residential and commercial mortgage loans. Ocwen also specializes in the development of related loan servicing technology and software for the mortgage and real estate industries. Additional information about Ocwen Financial Corporation is available at www.ocwen.com.
Certain statements contained herein may not be based on historical facts and are "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. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology such as "continue," "will," "believe," "estimate," "project," "future," "realize," "reduce," "ongoing," future or conditional verb tenses, similar terms, variations on such terms or negatives of such terms. Actual results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of factors, including changes in market conditions as they exist on the date hereof, applicable economic environments, government fiscal and monetary policies, prevailing interest or currency exchange rates, effectiveness of interest rate, currency and other hedging strategies, laws and regulations affecting financial institutions and real estate operations (including regulatory fees, capital requirements, income and property taxation and environmental compliance), uncertainty of foreign laws, competitive products, pricing and conditions, credit, prepayment, basis, default, subordination and asset/liability risks, loan servicing effectiveness, the ability to identify acquisitions and investment opportunities meeting OCN's investment strategy, satisfaction or fulfillment of agreed upon terms and conditions of closing or performance, timing of transaction closings, software integration, development and licensing effectiveness, change or damage to the Company's computer equipment and the information stored in its data centers, availability of adequate and timely sources of liquidity, dependence on existing sources of funding, ability to repay or refinance indebtedness (at maturity or upon acceleration), availability of discount loans and servicing rights for purchase, size of, nature of and yields available with respect to the secondary market for mortgage loans, financial, securities and securitization markets in general, allowances for loan losses, geographic concentrations of assets, changes in real estate conditions (including valuation, revenues and competing properties), adequacy of insurance coverage in the event of a loss, the market prices of the common stock of OCN, other factors generally understood to affect the real estate acquisition, mortgage, servicing and leasing markets, securities investments and the software and technologies industries, and other risks detailed from time to time in OCN's reports and filings with the Securities and Exchange Commission, including its periodic reports on Forms 8-K, 10-Q and 10-K, including Exhibit 99.1 attached to OCN's Form 10-K for the year ended December 31, 2000.
Interest Income and Expense
Three Months Six Months
For the periods ended June 30, 2001 2000 2001 2000
(Dollars in thousands)
Interest income:
Federal funds sold and
repurchase agreements $ 2,454 $ 864 $ 4,098 $ 2,573
Trading securities 4,173 --- 9,873 ---
Securities available
for sale --- 16,808 --- 29,677
Loans available for sale 143 917 364 1,724
Investment securities
and other 251 502 597 829
Loan portfolio 1,619 5,337 3,502 9,305
Match funded loans and
securities 2,737 2,952 5,220 6,263
Discount loan portfolio 13,841 23,075 26,381 48,174
25,218 50,455 50,035 98,545
Interest expense:
Deposits 16,308 24,793 34,379 49,478
Advances from the Federal
Home Loan Bank --- --- 4 ---
Securities sold under
agreements to repurchase --- 5,284 2 7,924
Bonds - match funded
agreements 1,742 2,790 4,708 6,146
Obligations outstanding
under lines of credit 1,736 3,942 2,456 7,413
Notes, debentures and other
interest bearing
obligations 4,942 8,852 10,059 18,096
24,728 45,661 51,608 89,057
Net interest income
(expense)
before provision for loan
losses $ 490 $ 4,794 $ (1,573) $ 9,488
Net (Loss) Income by Business Segment
Three Months Six Months
For the periods ended June 30, 2001 2000 2001 2000
(Dollars in thousands)
Single family residential
Discount loans $ (2,816) $ 4,369 $ (3,905) $ 7,455
Commercial loans (2,297) 746 (7,328) 1,440
Domestic residential
mortgage loan servicing 5,275 2,701 10,553 6,432
Investment in low-income
housing tax credits (3,624) 5 (8,234) 1,222
OTX (4,831) (5,271) (13,366) (9,746)
Commercial Real Estate 299 2,005 399 2,698
UK operations --- (1,390) --- (2,932)
Subprime single family
residential lending 2,376 (3,347) 3,442 (7,908)
Unsecured collections (1,328) (2,191) (2,692) (4,364)
Ocwen Realty Advisors 128 148 215 290
Corporate items and other (14,623) 826 (24,041) (1,084)
$(21,441) $ (1,399) $(44,957) $(6,497)
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Six Months
For the periods ended June 30, 2001 2000 2001 2000
Net interest income:
Income $ 25,218 $ 50,455 $ 50,035 $98,545
Expense 24,728 45,661 51,608 89,057
Net interest income
(expense)
before provision for
loan losses 490 4,794 (1,573) 9,488
Provision for loan losses 10,297 3,135 18,417 5,743
Net interest
(expense) income
after provision for loan
losses (9,807) 1,659 (19,990) 3,745
Non-interest income:
Servicing and other fees 33,740 22,559 64,857 46,725
Gain (loss) on interest
earning assets, net 422 5,270 (1,409) 16,264
Gain on trading and match
funded securities, net 4,550 --- 9,739 ---
Impairment charges on
securities available for
sale --- (4,764) --- (11,597)
Loss on real estate owned,
net (1,881) (3,006) (2,865) (10,013)
(Loss) gain on other non
interest earning assets,
net (975) 5,044 (519) 5,182
Net operating gains on
investments in real estate 486 8,063 3,040 13,616
Amortization of excess of
net assets acquired over
purchase price 4,583 2,998 9,166 5,792
Other income 2,437 1,070 4,483 2,209
43,362 37,234 86,492 68,178
Non-interest expense:
Compensation and employee
benefits 21,309 22,397 42,244 38,980
Occupancy and equipment 3,174 2,952 6,267 6,215
Technology and
communication
costs 5,556 5,754 15,704 11,375
Loan expenses 2,835 2,987 7,070 6,917
Net operating losses on
investments in certain
low-income housing tax
credit interests 2,756 840 7,818 2,339
Amortization of excess of
purchase price over net
assets acquired 778 795 1,556 1,568
Professional services and
regulatory fees 3,994 2,965 8,020 6,804
Other operating expenses 2,454 3,154 5,033 5,720
42,856 41,844 93,712 79,918
Distributions on Company-
obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the Company 1,697 2,918 3,750 6,112
Equity in income (losses)
of investments in
unconsolidated entities 139 (1,812) 184 (4,072)
Loss before income taxes
and extraordinary gain (10,859) (7,681) (30,776) (18,179)
Income tax (expense) benefit (10,825) 2,380 (16,587) 5,635
Loss before extraordinary
gain (21,684) (5,301) (47,363) (12,544)
Extraordinary gain on
repurchase of debt, net
of taxes 243 3,902 2,406 6,047
Net loss $(21,441) $(1,399) $(44,957) $(6,497)
(Loss) earnings per share:
Basic:
Loss before
extraordinary
gain $ (0.33) $ (0.08) $ (0.71) $ (0.19)
Extraordinary gain $ (0.01) $ (0.06) $ (0.04) $ (0.09)
Net loss $ (0.32) $ (0.02) $ (0.67) $ (0.10)
Diluted:
Loss before
extraordinary
gain $ (0.33) $ (0.08) $ (0.71) $ (0.19)
Extraordinary gain $ (0.01) $ (0.06) $ (0.04) $ (0.09)
Net loss $ (0.32) $ (0.02) $ (0.67) $ (0.10)
Weighted average common shares outstanding:
Basic 67,198,359 67,182,395 67,175,361 67,702,961
Diluted 67,198,359 67,182,395 67,175,361 67,702,961
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, 2001 December 31, 2000
Assets:
Cash and amounts due from
depository institutions $ 52,381 $ 18,749
Interest earning deposits 9,517 134,987
Federal funds sold and
repurchase agreements 249,000 ---
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated) 62,080 277,595
Subordinates, residuals and
other securities 88,050 112,647
Loans available for sale, at
lower of cost or market 4,450 10,610
Real estate held for sale 20,165 22,670
Low-income housing tax credit
interests held for sale 31,789 87,083
Investment in real estate 115,661 122,761
Investments in low-income housing
tax credit interests 85,893 55,729
Investment securities, at cost 13,257 13,257
Loan portfolio, net 77,105 93,414
Discount loan portfolio, net 306,942 536,028
Match funded loans and
securities, net 91,462 116,987
Investments in unconsolidated
entities 821 430
Real estate owned, net 129,042 146,419
Premises and equipment, net 41,982 43,152
Income taxes receivable 28,412 30,261
Deferred tax asset, net 77,991 95,991
Advances on loans and loans
serviced for others 349,912 227,055
Mortgage servicing rights 82,928 51,426
Other assets 78,385 52,169
$ 1,997,225 $ 2,249,420
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 1,044,363 $ 1,258,360
Bonds - match funded agreements 80,821 107,050
Obligations outstanding under
lines of credit 104,545 32,933
Notes, debentures and other
interest bearing obligations 169,130 173,330
Accrued interest payable 19,714 22,096
Excess of net assets acquired
over purchase price 27,499 36,665
Accrued expenses, payables and
other liabilities 31,299 36,030
Total liabilities 1,477,371 1,666,464
Company obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the Company 61,159 79,530
Stockholders' equity:
Preferred stock, $.01 par value;
20,000,000 shares authorized;
0 shares issued and outstanding --- ---
Common stock, $.01 par value;
200,000,000 shares authorized;
67,259,927 and 67,152,363 shares
issued and outstanding at
June 30, 2001, and
December 31, 2000, respectively 673 672
Additional paid-in capital 223,896 223,163
Retained earnings 234,237 279,194
Accumulated other comprehensive
income, net of taxes:
Net unrealized foreign currency
translation (loss) gain (111) 397
Total stockholders' equity 458,695 503,426
$ 1,997,225 $ 2,249,420
CONTACT: Ocwen Financial Corporation
Robert J. Leist, Jr., Vice President &
Chief Accounting Officer
T: (561) 682-7958
E: rleist@ocwen.com
