Ocwen Financial Corporation Announces Second Quarter Results for 2002
WEST PALM BEACH, Fla., Aug. 8, 2002 -- Ocwen Financial Corporation (NYSE:OCN) today reported a net loss in the second quarter of 2002 of $(50.2) million or $(0.75) per share compared to a net loss of $(21.4) million or $(0.32) per share in the second quarter of 2001. For the six months ended June 30, 2002 the Company reported a net loss of $(54.7) million or $(0.81) per share compared to a net loss of $(45.0) million or $(0.67) per share in the same period of 2001.
Chairman and CEO William C. Erbey stated, "Our second quarter results include $45 million of provisions and charges related to our remaining $325.8 million of non-core assets, reflecting a substantial increase in reserve levels. The total carrying value of our remaining investments in real estate was reduced by 17%, while reserves on our remaining Commercial loans and REO and reserves on our remaining Affordable Housing properties and loans, respectively, rose from 11% to 20% and from 26% to 40%. We made this determination based on our analysis of recent events and the current market situation. This analysis led us to record these amounts in order to minimize the risk of future losses consistent with our objective of selling the remaining assets in a timely manner.
We have made great progress in transitioning Ocwen to a fee-based business and returning to profitability in the foreseeable future.
-- The combined results of our core businesses, Residential Loan
Servicing, Ocwen Technology Xchange(TM) (OTX), Ocwen Realty
Advisors (ORA) and Unsecured Collections, reflected a substantial
improvement over the same period last year, even after adjusting
for certain non-recurring costs in 2001 and for the change in
accounting for intangible assets. In the aggregate our core
businesses generated pre-tax income of $4.8 million in the second
quarter of 2002 as compared to an adjusted loss of $(0.2) million
in the 2001 second quarter, an improvement of $5 million. Our
annualized 2002 core business results reflect an improvement of
$15 million as compared to 2001 adjusted results and $43 million
as compared to adjusted results in 2000.
-- At OTX, Washington Mutual and CitiMortgage began processing
transactions through our REALTrans(R) platform, setting the stage
for increased revenue growth during the latter half of 2002 as
they migrate to full deployment of the system. In addition to
revenue growth from REALTrans, we expect to continue the expense
reductions we have achieved thus far this year, primarily
resulting from our India initiative.
-- Our non-core assets remaining to be sold were $325.8 million as of
June 30, 2002 as compared to $543.3 million at December 31, 2001.
We continued our strategy of maintaining strong liquidity while reducing our debt. Our cash and cash equivalents were $244.4 million as of June 30, 2002, a decline of only 6.2% since year-end, while we reduced our total liabilities by $261.6 million or 21% from year-end levels."
The Servicing business reported pre-tax income of $8.1 million in the second quarter of 2002 vs. $8.5 million in the 2001 second quarter. Year to date in 2002, Servicing reported pre-tax income of $15.6 million as compared to pre-tax income of $17.0 million for the same period in 2001. 2002 results reflect earnings pressure from the current low interest rate environment. Our Servicing business continued to grow in the second quarter. As of June 30, 2002 we were the servicer of approximately 319 thousand loans with an unpaid principal balance (UPB) of $26.0 billion, as compared to approximately 303 thousand loans and $21.9 billion of UPB at December 31, 2001, an increase of 19% in UPB.
Pre-tax losses at OTX were $(4.9) million in the 2002 second quarter compared to $(7.8) million in the same period of 2001. For the six months ended June 30, 2002 OTX reported a pre-tax loss of $(10.2) million as compared to a pre-tax loss of $(21.6) million in 2001. 2001 year-to-date results include $4.7 million of non-recurring charges.
ORA reported pre-tax income of $0.5 million in the second quarter of 2002 as compared to $0.2 million in the second quarter of 2001 reflecting both a revenue increase of $1.1 million or 47% and an improvement in margin from 8.6% to 14.2%. Year to date, ORA reported pre-tax income of $1.0 million as compared to $0.3 million in 2001.
The Unsecured Collections business posted pre-tax income of $1.1 million in the second quarter of 2002 vs. a pre-tax loss of $(2.1) million in the 2001 second quarter. For the six months ended June 30, 2002 the business reported pre-tax income of $2.1 million as compared to a pre-tax loss of $(4.3) million in the same period of 2001. The increase in pre-tax income in this business reflects the fact that as of December 31, 2001 the net book value of unsecured receivables had been reduced to zero and that the business is now generating fee based revenues.
The Residential Discount Loan business recorded pre-tax income of $0.6 million in the 2002 second quarter as compared to a pre-tax loss of $(4.5) million in the 2001 second quarter. Year to date, the business reported pre-tax income of $1.7 million, as compared to a pre-tax loss of $(6.3) million in 2001. Primarily as a result of a loan sale during the first quarter of 2002, the amount of loans and REO remaining as of June 30, 2002 was reduced to $6.3 million, down $47.5 million or 88% from December 31, 2001.
Pre-tax losses for the second quarter of 2002 in the Commercial Finance business amounted to $(38.3) million as compared to a pre-tax loss of $(3.2) million in the 2001 second quarter. Second quarter 2002 results reflect reserves and loan loss provisions of $35.2 million as compared to $4.1 million during the 2001 second quarter. For the six months ended June 30, 2002, the business reported a pre-tax loss of $(42.7) million as compared to a pre-tax loss of $(11.2) million in the same period of 2001. As of June 30, 2002, reserves on the remaining Commercial loan and REO assets amounted to 20% of asset value as compared to 11% at March 31, 2002. Total commercial loans, investments in real estate and REO totaled $247.2 million at June 30, 2002, reduced by $106.9 million or 30% from December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(11.7) million in the 2002 second quarter compared to a pre-tax loss of $(7.0) million in the 2001 second quarter. Affordable Housing results in the second quarter of 2002 included charges of $9.8 million, including a discount of approximately $3.9 million on a long term sale of seven assets with a book value of $29 million. This discount will accrete to income over the term of the related receivable balance. Other provisions during the quarter of $5.9 million reflect revisions in completion cost and financing estimates as well as modifications to projected sales results. As of June 30, 2002, reserves on Affordable Housing properties and loans had increased to 40% of remaining asset values as compared to 26% at March 31, 2002. For the six months ended June 30, 2002, the business reported a pre-tax loss of $(29.7) million as compared to a pre-tax loss of $(14.8) million in the same period of 2001. There are $49.8 million of Affordable Housing properties and loans remaining as of June 30, 2002 of which $11.9 million are loans, $19.0 million are properties subject to sales contracts that have not yet satisfied all of the accounting criteria for sales treatment and $18.9 million are properties that remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $0.3 million for the 2002 second quarter as compared to pre-tax income of $3.8 million in the 2001 second quarter. Year to date, the business reported pre-tax income of $4.8 million, as compared to pre-tax income of $5.6 million in 2001. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was reduced to $41.2 million at June 30, 2002 as compared to $65.1 million at December 31, 2001, primarily as a result of sales of securities.
Second quarter 2002 results also include gains of $1.1 million reflecting the repurchase of $5.4 million face value of debt as compared to gains of $0.4 million in the 2001 second quarter. Year to date, gains on debt repurchases amounted to $1.1 million in 2002 as compared to $3.8 million in the same period of 2001. In accordance with the provisions of Statement of Financial Accounting Standards No. 145, which the Company adopted in the second quarter of 2002, these gains are now included as a component of non interest income. 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.
Year to date results for 2002 also include a net gain of $16.2 million recorded in the first quarter. This gain represents the effect of a change in accounting principles for goodwill and intangible assets in accordance with Statements of Financial Accounting Standards 141 and 142.
The Company's net effective tax expense in the 2002 second quarter was zero. Tax expense in the second quarter of 2001 was $11.0 million, representing an increase to the valuation allowance on the deferred tax asset. Year to date 2002 tax expense was $1.2 million, representing an offset to the taxes included in the change in accounting principles. Year to date tax expense in 2001 was $18.0 million, representing an increase to the valuation allowance on the deferred tax asset.
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 "believe," "minimize," "return," "improve," "increase," "grow," "reduce," "decline," "progress," "current," "consider," "maintain," "generate," "accrete," "estimate," "modify," "project," "subject to," "gain," "result," "evaluate," "offset," 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 (the "SEC"), 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, 2001, which filings are available from the SEC. Undue reliance should not be accorded forward-looking statements, which speak only as of the date they are made. OCN undertakes no obligation to publicly update or revise forward-looking statements.
Interest Income and Expense
Three Months Six Months
For the periods ended
June 30, 2002 2001 2002 2001
(Dollars in thousands)
Interest income:
Federal funds sold
and repurchase
agreements $ 693 $ 2,454 $ 1,272 $ 4,098
Trading securities 4,159 4,174 8,517 9,873
Investment securities
and other 69 251 161 598
Match funded loans
and securities 1,808 2,737 4,057 5,220
Loans 2,077 15,602 7,513 30,246
8,806 25,218 21,520 50,035
Interest expense:
Deposits 7,082 16,307 15,699 34,379
Securities sold under
agreements to
repurchase 71 --- 198 ---
Bonds - match funded
agreements 1,807 1,742 3,716 4,708
Obligations outstanding
under lines of
credit 1,107 1,737 2,149 2,456
Notes, debentures and
other interest
bearing obligations 4,647 4,942 9,348 10,065
14,714 24,728 31,110 51,608
Net interest income
(expense) before
provision for loan
losses $(5,908) $ 490 $(9,590) $(1,573)
Pre-Tax Income (Loss) by Business Segment
Three Months Six Months
For the periods ended
June 30, 2002 2001 2002 2001
(Dollars in thousands)
Residential Loan
Servicing $ 8,083 $ 8,509 $ 15,631 $ 17,021
OTX (4,904) (7,790) (10,186) (21,558)
Ocwen Realty Advisors 499 205 1,019 346
Unsecured Collections 1,139 (2,141) 2,083 (4,341)
Residential Discount
Loans 609 (4,542) 1,720 (6,299)
Commercial Finance (38,324) (3,161) (42,744) (11,175)
Affordable Housing (11,675) (6,964) (29,658) (14,816)
Subprime Finance 316 3,832 4,809 5,551
Corporate Items and Other (5,941) 1,578 (12,364) 8,314
$(50,198) $(10,474) $(69,690) $(26,957)
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 sales contracts that have not met
accounting criteria for sales treatment.
June 30, 2002 December 31, 2001
(Dollars in thousands)
Loans, net:
Affordable housing $ 11,882 $ 17,215
All other 110,127 168,078
Real estate held for sale --- 13,418
Investment in real estate 59,598 116,896
Real estate owned, net 84,101 110,465
Subordinates, residuals and other
trading securities 41,210 65,058
Affordable housing properties 18,877 52,176
Total non-core assets to be sold $ 325,795 $ 543,306
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, 2002 December 31, 2001
Assets:
Cash and amounts due from
depository institutions $ 34,213 $ 23,076
Interest earning deposits 122,161 111,579
Federal funds sold and repurchase
agreements 88,000 126,000
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated) 90,338 161,191
Subordinates, residuals and
other securities 41,210 65,058
Real estate held for sale --- 13,418
Investment in real estate 59,598 116,896
Affordable housing properties 37,941 102,069
Loans, net 122,009 185,293
Match funded assets 159,220 174,351
Real estate owned, net 84,101 110,465
Premises and equipment, net 47,333 44,589
Income taxes receivable 20,441 20,842
Advances on loans and loans
serviced for others 254,734 283,183
Mortgage servicing rights 133,677 101,107
Other assets 96,805 72,033
$ 1,391,781 $ 1,711,150
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 441,863 $ 656,878
Escrow deposits on loans and
loans serviced for others 88,773 73,565
Securities sold under
agreements to repurchase 66,817 79,405
Bonds - match funded agreements 146,214 156,908
Obligations outstanding under
lines of credit 68,883 84,304
Notes, debentures and other
interest bearing obligations 157,580 160,305
Accrued interest payable 8,794 12,836
Excess of net assets acquired
over purchase price --- 18,333
Accrued expenses, payables and
other liabilities 30,333 28,351
Total liabilities 1,009,257 1,270,885
Minority interest in subsidiary 1,625 ---
Company obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the Company 56,249 61,159
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;
67,333,477 and 67,289,313
shares issued and outstanding
at June 30, 2002 and December
31, 2001, respectively 673 673
Additional paid-in capital 224,375 224,142
Retained earnings 99,722 154,412
Accumulated other comprehensive
loss, net of taxes:
Net unrealized foreign
currency translation loss (120) (121)
Total stockholders' equity 324,650 379,106
$ 1,391,781 $ 1,711,150
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, 2002 2001 2002 2001
Net interest expense:
Income $ 8,806 $ 25,218 $ 21,520 $ 50,035
Expense 14,714 24,728 31,110 51,608
Net interest
income
(expense) before
provision for
loan losses (5,908) 490 (9,590) (1,573)
Provision for
loan losses 10,732 10,297 11,411 18,417
Net interest
expense after
provision for
loan losses (16,640) (9,807) (21,001) (19,990)
Non-interest income:
Servicing and
other fees 35,848 33,740 71,574 64,857
Gain (loss) on
interest earning
assets, net (996) 422 (2,773) (1,409)
Gain on trading and
match funded
securities, net 161 4,550 2,953 9,739
Loss on real
estate owned,
net (11,858) (1,885) (15,970) (3,090)
Loss on other non-
interest earning
assets, net (93) (975) (841) (519)
Net operating gains
(losses) on
investments in
real estate (13,993) 490 (9,339) 3,265
Amortization of
excess of net
assets acquired
over purchase
price --- 4,583 --- 9,166
Gain on repurchase
of debt 1,070 385 1,074 3,819
Equity in income
of investment in
unconsolidated
entities 40 139 31 184
Other income 2,328 2,437 7,357 4,483
12,507 43,886 54,066 90,495
Non-interest expense:
Compensation and
employee
benefits 19,708 21,309 40,781 42,244
Occupancy and
equipment 3,331 3,174 6,045 6,267
Technology and
communication
costs 6,009 5,556 11,061 15,704
Loan expenses 3,436 2,835 7,371 7,070
Net operating
Losses on
investments
in certain
affordable
housing
properties 6,228 2,756 21,910 7,818
Amortization of
excess of
purchase price
over net assets
acquired --- 778 --- 1,556
Professional
services and
regulatory fees 3,172 3,934 7,768 7,750
Other operating
expenses 2,615 2,514 4,590 5,303
44,499 42,856 99,526 93,712
Distributions on
Company-obligated,
mandatorily
redeemable securities
of subsidiary trust
holding solely
junior subordinated
debentures of the
Company 1,566 1,697 3,229 3,750
Loss before income
taxes and effect of
change in
accounting
principle (50,198) (10,474) (69,690) (26,957)
Income tax expense --- 10,967 1,166 18,000
Net loss before effect
of change in
accounting
principle (50,198) (21,441) (70,856) (44,957)
Effect of change in
accounting principle,
net of taxes --- --- 16,166 ---
Net loss $(50,198) $(21,441) $(54,690) $(44,957)
Earnings (loss)
per share:
Basic and Diluted:
Net loss before
effect of
change in
accounting
principle $(0.75) $(0.32) $(1.05) $(0.67)
Effect of change
in accounting
principle, net
of taxes --- --- 0.24 ---
Net loss $(0.75) $(0.32) $(0.81) $(0.67)
Weighted average
common shares
outstanding 67,317,005 67,198,359 67,305,747 67,175,361
CONTACT: Ocwen Financial Corp.
Robert J. Leist, Jr., Vice President &
Chief Accounting Officer
(561) 682-7958
rleist@ocwen.com
