Ocwen Financial Corporation Announces Fourth Quarter and 2001 Results
WEST PALM BEACH, Fla., Feb. 12, 2002 -- Ocwen Financial Corporation (NYSE:OCN) today reported a pre-tax loss in the fourth quarter of 2001 of $(6.8) million. This was an improvement from pre-tax losses in the prior quarters of 2001 consisting of $(7.9) million in the third quarter, $(10.9) in the second quarter and $(19.9) million in the first quarter. The Company reported a net loss* of $(6.9) million or $(0.10) per share for the fourth quarter of 2001, as compared to net income of $9.4 million, or $0.14 per share in the 2000 fourth quarter. For the year ended December 31, 2001, the Company reported a net loss of $(124.8) million or $(1.86) per share as compared to net income of $2.2 million or $0.03 per share for the year ended December 31, 2000. Full year 2001 results included a non-cash provision to increase the valuation allowance for the Company's deferred tax asset of $83 million, as compared to $17.5 million in 2000.
Chairman and CEO William C. Erbey stated, "We continue to make progress in the execution of our strategic plan.
-- Our Residential Loan Servicing business doubled and now services
over 303 thousand loans with an aggregate unpaid principal balance
(UPB) of $21.9 billion at year-end as compared to just over 164
thousand loans and UPB of $10.5 billion a year ago. Pre-tax income
rose by 77% in 2001 to $34.6 million vs. $19.6 million in 2000,
and margins improved, as pre-tax income grew to 34% of revenue in
2001 as compared to 25% in 2000. 2001 also marked the
implementation of our REALServicing residential mortgage servicing
system, a significant factor for our recent growth.
-- Primarily as a result of the growth in Servicing and cost
reductions in Ocwen Technology Xchange(r)(OTX), the combined
results of our core fee businesses were profitable for the third
consecutive quarter.
-- During 2001, we made substantial progress in reducing our exposure
to non-core assets. During the fourth quarter, we reduced our
assets remaining to be sold by $147 million bringing the balance
of these assets to $539 million as of December 31, 2001, a
reduction of $555 million or 51% from $1,094 million at
December 31, 2000.
-- The volume of orders processed on REALTrans, our web-based
mortgage origination transaction system, grew by approximately 30%
in the fourth quarter of 2001 over the third quarter, while total
transaction volume in 2001 grew by 89% over annual volume in 2000.
-- We also made progress in reducing our operating expenses. Our
Servicing business has achieved a 20% unit cost reduction in the
fourth quarter of 2001 as compared to the same period in 2000. In
our other operations, after adjusting for non-cash charges to
reserves and certain non-recurring items in both periods,
operating expenses decreased by $17 million, or 13% in the year
2001 as compared to 2000.
As we have noted in the past, our focus on accelerating the disposition of our remaining non-core assets means that near term earnings pressures may continue. We believe that our equity of $379 million and cash and equivalents of $261 million provide us with the requisite financial strength and liquidity to achieve our objectives."
The Servicing business reported pre-tax income for the fourth quarter of 2001 of $8.5 million vs. $6 million in the 2000 fourth quarter, an increase of 42%. On a full year basis, Servicing reported pre-tax income of $34.6 million compared to $19.6 million in 2000, an increase of 77%. The UPB balance of loans serviced for others grew to $21.9 billion as of December 31, 2001 compared to $10.5 billion as of December 31, 2000.
Pre-tax losses at OTX were $(7.1) million in the 2001 fourth quarter compared to $(8.9) million in the same period of 2000. The improvement in the fourth quarter of 2001 is primarily due to cost reduction initiatives undertaken earlier in 2001. For the year ended December 31, 2001, pre-tax losses amounted to $(36.4) million vs. $(34) million in 2000. The full year increase in losses in 2001 compared to 2000 primarily reflects $4.7 million of pre-tax costs in the first quarter of 2001 associated with one time events, including a payment related to the acquisition of an OTX subsidiary in 1998.
The Residential Discount Loan business recorded a pre-tax loss of $(1.5) million in the 2001 fourth quarter, as compared to income of $2.4 million in the 2000 fourth quarter. The amount of loans and REO remaining on the books at December 31, 2001 totaled $53.8 million, down $221.8 million or 80% from December 31, 2000. Reserve coverage on the remaining balances remain at the highest level ever recorded by the Company.
Pre-tax losses for the fourth quarter of 2001 in the Commercial Loan business amounted to $(2.3) million, as compared to pre-tax income of $4.8 million in the 2000 fourth quarter. 2001 results reflect additional loss reserves of $4 million provided during the fourth quarter. Total commercial loans, investments in real estate and REO in both the Commercial Loan and Commercial Real Estate businesses totaled $354 million at December 31, 2001, reduced by $261 million or 42% from December 31, 2000.
The Unsecured Collections business posted pre-tax income of $ 0.6 million in the fourth quarter of 2001 vs. a pre-tax loss of $(3.8) million in the 2000 fourth quarter. For the year 2001, pre-tax losses were $(5) million as compared to $(14.4) million in 2000. This business has been accounted for on a cost recovery basis, recording diminishing losses in 2001 as the remaining assets were either collected or reserved. At December 31, 2001, the net book value of unsecured collection receivables had been reduced to zero.
The Affordable Housing business posted a pre-tax loss of $(8.6) million in the 2001 fourth quarter compared to a loss of $(8.1) million in the 2000 fourth quarter. Affordable Housing results in 2001 include additional non-cash reserves of approximately $4.5 million during the fourth quarter reflecting revisions in completion cost estimates as well as modifications to projected sales results. Of the remaining properties of $102.1 million in this business, $54.7 million are subject to sales contracts although they have not yet satisfied all of the accounting criteria for sales treatment.
Results in the inactive Subprime Lending business reflected pre-tax income of $5.1 million for the 2001 fourth quarter, primarily due to trading gains of $5 million on the portfolio of subprime residual trading securities. For the year 2001, the unit reported pre-tax income of $13.5 million compared to a loss of $(24.5) million in the year 2000. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was reduced to $65 million at December 31, 2001 as compared to $112.6 million at December 31, 2000.
Fourth quarter 2001 results reflected an extraordinary loss of $(44) thousand reflecting the repurchase of $8.8 million face value of debt as compared to extraordinary gains of $10 million in the 2000 fourth quarter. The 2000 fourth quarter results include the successful tender offer for the 11 1/2% redeemable notes issued by Ocwen Asset Investment Corp. For the year ended December 31, 2001, the Company reported extraordinary gains on debt repurchases of $2.4 million as compared to $18.7 million in 2000. While the Company has reduced the volume of these transactions in recent quarters in light of current pricing levels, it continues to evaluate additional debt repurchases.
The Company did not record income tax expense or benefit in the fourth quarter of 2001. Income tax expense for the fourth quarter of 2000 included a non-cash provision of $17.5 million to increase the Company's valuation allowance on its deferred tax asset. For the year ended December 31, 2001, the company recorded $83 million of such provisions, as compared to $17.5 million in 2000. The Company's remaining deferred tax asset has a net book value of $8.4 million.
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," "largely," "further," "near term," "achieve," "project," "future," "realize," 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 and potential political issues related to operations outside of the USA, 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 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.
*Net loss includes an extraordinary loss of $44 thousand on repurchases of debt which is not included in pre-tax income.
Interest Income and Expense
Three Months Twelve Months
----------------- -----------------
For the periods
ended December 31, 2001 2000 2001 2000
-------------------- ----------------- -----------------
(Dollars in thousands)
Interest income:
Federal funds sold
and repurchase
agreements $ 1,288 $ 3,582 $ 7,328 $ 8,700
Trading securities 4,391 8,199 18,865 8,199
Securities available
for sale -- -- -- 42,508
Loans available
for sale 87 300 526 2,474
Investment
securities and
other 105 320 743 1,501
Loan portfolio 1,727 6,631 6,807 20,586
Match funded loans
and securities 2,470 2,148 10,345 11,022
Discount loan
portfolio 4,674 19,804 38,757 89,826
--------- --------- --------- ---------
14,742 40,984 83,371 184,816
--------- --------- --------- ---------
Interest expense:
Deposits 11,800 22,893 59,967 98,224
Securities sold
under agreements
to repurchase 283 43 529 10,729
Bonds - match
funded agreements 1,216 2,390 7,315 11,484
Obligations
outstanding
under lines
of credit 1,184 2,098 5,511 13,881
Notes, debentures
and other
interest bearing
obligations 4,931 8,175 20,007 34,772
--------- --------- --------- ---------
19,414 35,599 93,329 169,090
--------- --------- --------- ---------
Net interest
income (expense)
before provision
for loan $ (4,672) $ 5,385 $ (9,958) $ 15,726
losses ========= ========= ========= =========
Pre-Tax Income
(Loss) by
Business Segment
Three Months Twelve Months
----------------- -----------------
For the periods
ended December 31, 2001 2000 2001 2000
------------------- ----------------- -----------------
(Dollars in thousands)
Residential Loan
Servicing $ 8,518 $ 5,959 $ 34,591 $ 19,609
OTX (7,072) (8,947) (36,392) (33,951)
Ocwen Realty
Advisors 516 (82) 944 (86)
Unsecured
Collections 609 (3,755) (5,020) (14,398)
Residential Discount
Loans (1,503) 2,436 (4,396) 21,154
Commercial Loans (2,319) 4,794 (22,236) 648
Affordable Housing (8,635) (8,129) (29,917) (23,664)
Commercial Real
Estate (243) (3,125) 1,222 16,530
Subprime Residential
Lending 5,112 (3,985) 13,549 (24,532)
Corporate Items
and Other (1,832) 29,243 2,098 30,126
--------- --------- --------- ---------
$ (6,849) $14,409 $ (45,557) $ (8,564)
========= ========= ========= =========
Non-Core Assets
The following table presents a summary of the Company's
non-core assets that remain to be sold. This table excludes assets
subject to completed sale transactions that have not met accounting
criteria for sales treatment.
December 31, December 31,
2001 2000
----------- ------------
(Dollars in
thousands)
Total loans $ 185,292 $ 640,052
Total investments
in real estate 130,314 145,431
Real estate owned,
net 110,465 146,419
Residual and
subordinate
trading
securities 65,058 112,647
Affordable
Housing
properties 47,381 49,602
-------- ----------
Total
non-core
assets
to be
sold $ 538,510 $1,094,151
========= =========
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, 2001 2000 2001 2000
-------------------- ----------------- -----------------
Net interest income:
Income $ 14,742 $ 40,984 $ 83,371 $ 184,816
Expense 19,414 35,599 93,329 169,090
-------- -------- -------- --------
Net interest income
(expense) before
provision for loan
losses (4,672) 5,385 (9,958) 15,726
Provision for loan
losses (2,363) 2,573 15,666 15,177
-------- -------- -------- --------
Net interest income
(expense) after
provision
for loan losses (2,309) 2,812 (25,624) 549
-------- -------- -------- --------
Non-interest income:
Servicing and other fees 33,788 25,037 134,597 97,080
Gain (loss) on interest
earning assets, net (689) (92) (3,949) 17,625
Gain (loss) on trading
and match funded
securities, net 3,197 (1,565) 16,330 (3,971)
Impairment charges on
securities available
for sale --- --- --- (11,597)
Gain (loss) on real
estate owned, net (5,452) 856 (9,256) (14,904)
Gain (loss) on other
non interest earning
assets, net (122) 23,653 (1,054) 45,517
Net operating gains
(losses) on investments
in real estate 3,513 3,685 5,581 27,579
Amortization of excess of
net assets acquired over
purchase price 4,583 5,325 18,333 14,112
Other income 2,289 2,911 8,759 6,084
-------- -------- -------- --------
41,107 59,810 169,341 177,525
-------- -------- -------- --------
Non-interest expense:
Compensation and
employee benefits 21,139 21,971 84,914 83,086
Occupancy and equipment 2,255 2,649 11,577 12,005
Technology and
communication costs 5,389 6,157 26,768 23,876
Loan expenses 4,549 2,550 15,811 13,051
Net operating losses on
certain affordable
housing properties 4,757 3,901 16,580 9,931
Amortization of excess of
purchase price over net
assets acquired 778 778 3,112 3,124
Professional services and
regulatory fees 3,118 3,814 14,749 12,829
Other operating expenses 2,148 3,571 8,935 12,107
-------- -------- -------- --------
44,133 45,391 182,446 170,009
-------- -------- -------- --------
Distributions on Company-
obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior
subordinated debentures
of the Company 1,718 2,538 7,132 11,380
Equity in income (losses)
of investments in
unconsolidated entities 204 (284) 304 (5,249)
-------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item (6,849) 14,409 (45,557) (8,564)
Income tax expense (benefit) --- 15,079 81,587 7,957
-------- -------- -------- --------
Income (loss) before
extraordinary item (6,849) (670) (127,144) (16,521)
Extraordinary gain (loss)
on repurchase of debt,
net of taxes (44) 10,039 2,362 18,713
-------- -------- -------- --------
Net income (loss) $(6,893) $ 9,369 $(124,782) $ 2,192
======== ======== ======== ========
Earnings (loss)
per share:
Basic:
Loss before
extraordinary
gain (loss) $ (0.10) $ (0.01) $ (1.89) $(0.25)
Extraordinary gain
(loss) --- 0.15 0.03 0.28
-------- -------- -------- --------
Net income (loss) $ (0.10) $ 0.14 $(1.86) $ 0.03
======== ======== ======== ========
Diluted:
Loss before
extraordinary
gain (loss) $ (0.10) $ (0.01) $(1.89) $(0.25)
Extraordinary gain
(loss) --- 0.15 0.03 0.28
-------- -------- -------- --------
Net income (loss) $ (0.10) $ 0.14 $(1.86) $ 0.03
======== ======== ======== ========
Weighted average common
shares outstanding:
Basic 67,288,168 67,152,363 67,227,058 67,427,662
========== ========== ========== ==========
Diluted 67,288,168 67,183,316 67,227,058 67,464,043
========== ========== ========== ==========
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
December 31, 2001 December 31, 2000
----------------- -----------------
Assets
Cash and amounts due from
depository institutions $ 23,076 $ 18,749
Interest earning deposits 111,579 134,987
Federal funds sold and
repurchase agreements 126,000 ---
Trading securities, at
fair value:
Collateralized mortgage
obligations (AAA-rated) 161,191 277,595
Subordinates, residuals
and other securities 65,058 112,647
Loans available for sale,
at lower of cost or market 1,040 10,610
Real estate held for sale 13,418 22,670
Investment in real estate 116,896 122,761
Affordable housing properties 102,069 142,812
Investment securities, at cost 4,659 13,257
Loan portfolio, net 64,925 93,414
Discount loan portfolio, net 119,327 536,028
Match funded assets 174,351 116,987
Investments in unconsolidated
entities 1,067 430
Real estate owned, net 110,465 146,419
Premises and equipment, net 44,589 43,152
Income taxes receivable 20,842 30,261
Deferred tax asset, net 8,411 95,991
Advances on loans and loans
serviced for others 283,183 227,055
Mortgage servicing rights 101,107 51,426
Other assets 57,897 52,169
--------- ---------
$ 1,711,150 $ 2,249,420
========= =========
Liabilities and
Stockholders' Equity
Liabilities
Deposits $ 656,878 $ 1,202,044
Escrow deposits on loans
and loans serviced for
others 73,565 56,316
Securities sold under
agreements to repurchase 79,405 ---
Bonds - match funded
Agreements 156,908 107,050
Obligations outstanding
under lines of credit 84,304 32,933
Notes, debentures and other
interest bearing obligations 160,305 173,330
Accrued interest payable 12,836 22,096
Excess of net assets acquired
over purchase price 18,333 36,665
Accrued expenses, payables and
other liabilities 28,351 36,030
--------- ---------
Total liabilities 1,270,885 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; 67,289,313 and
67,152,363 shares issued
and outstanding at
December 31, 2001, and
December 31, 2000,
respectively 673 672
Additional paid-in capital 224,142 223,163
Retained earnings 154,413 279,194
Accumulated other
comprehensive (loss) income,
net of taxes:
Net unrealized foreign
currency translation
(loss) gain (122) 397
--------- ---------
Total stockholders' equity 379,106 503,426
--------- ---------
$ 1,711,150 $ 2,249,420
========= =========
CONTACT: Ocwen Financial Corporation, West Palm Beach
Robert J. Leist, Jr., Vice President &
Chief Accounting Officer
T: (561) 682-7958
rleist@ocwen.com
