Ocwen Financial Corporation Announces Third Quarter Results for 2002
WEST PALM BEACH, Fla., Nov. 12, 2002 -- Ocwen Financial Corporation (NYSE:OCN) today reported a net loss in the third quarter of 2002 of $(4.0) million or $(0.06) per share compared to a net loss of $(72.9) million or $(1.08) per share in the third quarter of 2001. For the nine months ended September 30, 2002 the Company reported a net loss of $(58.7) million or $(0.87) per share compared to a net loss of $(117.9) million or $(1.75) per share in the same period of 2001.
Chairman and CEO William C. Erbey stated, "We continue to make progress in our strategy of transitioning Ocwen to a fee-based business and reducing our non-core assets.
-- For the fifth consecutive quarter our core businesses, in the
aggregate, were profitable. The combined results of Residential
Loan Servicing, Ocwen Technology Xchange(R) (OTX), Ocwen Realty
Advisors (ORA) and Unsecured Collections reflected a substantial
improvement over the same period last year. After adjusting for
severance and certain non-recurring items in OTX in both periods,
our core businesses generated pre-tax income of $4.5 million in
the third quarter of 2002 as compared to adjusted income of $1.1
million in the 2001 third quarter, an improvement of $3.4 million.
Our annualized 2002 core business results reflect an improvement
of $14 million as compared to 2001 adjusted results and $43
million as compared to adjusted results in 2000.
-- At OTX our REALTrans(R) transaction volumes in the third quarter
increased by 45% to 142,000, as compared to 98,000 in the second
quarter of this year.
-- We achieved a reduction in operating expenses of 17% in the third
quarter of 2002 as compared to the same period in 2001, reflecting
in part lower levels of reserve provisions on Affordable Housing
properties in the 2002 quarter. Exclusive of reserve increases and
severance, expenses in the third quarter of 2002 declined 11% as
compared to the same period last year.
-- Our non-core assets remaining to be sold were $284.3 million as of
September 30, 2002 as compared to $543.3 million at December 31,
2001. We reduced non-core assets to be sold by $41.5 million or
13% since June 30, 2002. Approximately 74% of these assets consist
of commercial real estate, loans and REO, which earned an
annualized effective yield of 9.88% in the third quarter of 2002.
-- Our Corporate Items segment reflected losses of $7.3 million in
the 2002 third quarter, largely due to the high interest rates of
our older fixed rate debt instruments. We are continuing to reduce
this cost through our strategy of debt reduction and have reduced
total liabilities by $280.4 million or 22% as of September 30,
2002 as compared to December 31, 2001. Amongst other actions we
announced a $73.5 million debt redemption to be completed during
the fourth quarter of 2002 that we estimate will create savings of
$4.7 million over the next twelve months, net of the associated
redemption expenses of $2.5 million.
We also continue to maintain strong liquidity. Our cash and cash equivalents were $275.7 million as of September 30, 2002, an increase of $31 million or 13% since June 30, 2002."
The Servicing business reported pre-tax income of $7.2 million in the third quarter of 2002 vs. $9.1 million in the 2001 third quarter. Year to date in 2002, Servicing reported pre-tax income of $22.8 million as compared to pre-tax income of $26.1 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 third quarter. As of September 30, 2002 we were the servicer of approximately 338 thousand loans with an unpaid principal balance (UPB) of $29.8 billion, as compared to approximately 302 thousand loans and $21.9 billion of UPB at December 31, 2001, an increase of 36% in UPB.
Pre-tax losses at OTX, after adjusting for severance, changes in the amortization of intellectual property and goodwill, and certain non-recurring payments in 2001 and the third quarter of 2002, were $(4.8) million in the 2002 third quarter compared to $(6.8) million in the same period of 2001, an improvement of 29%. For the nine months ended September 30, 2002 OTX adjusted results reflected a pre-tax loss of $(15.3) million as compared to a pre-tax loss of $(21.8) million in 2001, a 30% improvement.
ORA reported pre-tax income of $0.9 million in the third quarter of 2002 as compared to $0.1 million in the third quarter of 2001 reflecting an improvement in margin from 2.6% to 27.9%. Year to date, ORA reported pre-tax income of $1.9 million as compared to $0.4 million in 2001.
The Unsecured Collections business posted pre-tax income of $1.1 million in the third quarter of 2002 vs. a pre-tax loss of $(1.3) million in the 2001 third quarter. For the nine months ended September 30, 2002 the business reported pre-tax income of $3.1 million as compared to a pre-tax loss of $(5.6) million in the same period of 2001. The increase in pre-tax income in this business primarily 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 a pre-tax loss of $(0.6) million in the 2002 third quarter as compared to pre-tax income of $3.4 million in the 2001 third quarter. Year to date, the business reported pre-tax income of $1.1 million, as compared to a pre-tax loss of $(2.9) 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 September 30, 2002 was reduced to $4.2 million, down $49.6 million or 92% from December 31, 2001.
Pre-tax losses for the third quarter of 2002 in the Commercial Finance business amounted to $(1.4) million as compared to a pre-tax loss of $(7.3) million in the 2001 third quarter. Third quarter 2001 results reflect impairment charges and loss provisions on loans and real estate of approximately $6.7 million. For the nine months ended September 30, 2002, the business reported a pre-tax loss of $(44.1) million as compared to a pre-tax loss of $(18.5) million in the same period of 2001. Results year to date for 2002 reflect impairment charges and loss provisions on loans and real estate of $42.8 million as compared to $18.3 million for the same period of 2001. As of September 30, 2002, reserves on the remaining commercial loan and REO assets amounted to 20.7% of book value as compared to 9.25% at December 31, 2001. Total commercial loans, investments in real estate and REO, consisting of twenty two assets, had a book value of $211.2 million at September 30, 2002, reduced by $143.0 million or 40% from December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(1.3) million in the 2002 third quarter compared to a pre-tax loss of $(6.5) million in the 2001 third quarter. No provisions for losses on Affordable Housing properties were recorded in the third quarter of 2002, while $3.7 million of such provisions were recorded in the 2001 third quarter. For the nine months ended September 30, 2002, the business reported a pre-tax loss of $(31.0) million as compared to a pre-tax loss of $(21.3) million in the same period of 2001. The Affordable Housing results year to date for 2002 included total charges of $25.2 million, as compared to $11.1 million of charges year to date 2001. The 2002 charges include a discount of approximately $3.9 million on a long term sale in the second quarter of seven assets with a book value of $29 million. We are accreting this discount to income over the term of the related receivable balance. These charges also include loss provisions on properties and loans of $21.3 million and $11.1 million during the nine months ended September 30, 2002 and 2001, respectively, reflecting revisions in completion cost and financing estimates as well as modifications to projected sales results. As of September 30, 2002, reserves on Affordable Housing properties and loans had increased to 41% of remaining book value as compared to 16% at December 31, 2001. There are $45.3 million of Affordable Housing properties and loans remaining as of September 30, 2002 of which $12.6 million are loans, $13.2 million are properties subject to sales contracts that have not yet satisfied all of the accounting criteria for sales treatment and $19.5 million are properties that remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $3.5 million for the 2002 third quarter as compared to pre-tax income of $2.9 million in the 2001 third quarter. Year to date, the business reported pre-tax income of $8.3 million, as compared to pre-tax income of $8.4 million in 2001. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was reduced to $36.6 million at September 30, 2002 as compared to $65.1 million at December 31, 2001, primarily as a result of sales of securities.
Year to date results include gains on debt repurchases of $1.0 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. During the third quarter of 2002, the Company announced a $73.5 million debt redemption to be completed in the fourth quarter of this year. This initiative will result in expense of $2.5 million in the fourth quarter of 2002.
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 principle for goodwill and intangible assets in accordance with Statements of Financial Accounting Standards Nos. 141 and 142.
The Company's net effective tax expense in the 2002 third quarter was zero. Tax expense in the third quarter of 2001 was $65.0 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 $83.0 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, 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 and economic 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, uncertainty related to dispute resolution and litigation, 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 Nine Months
For the periods ended
September 30, 2002 2001 2002 2001
(Dollars in thousands)
Interest income
Interest earning cash
and other $ 59 $ 41 $ 220 $ 638
Federal funds sold
and repurchase
agreements 783 1,942 2,055 6,040
Trading securities 3,507 4,601 12,024 14,474
Loans 3,075 9,355 10,588 39,602
Match funded loans
and securities 1,188 2,655 5,245 7,875
8,612 18,594 30,132 68,629
Interest expense
Deposits 5,990 13,789 21,689 48,167
Securities sold under
agreements to re-
purchase 32 244 230 246
Bonds -- match funded
agreements 1,445 1,391 5,161 6,099
Obligations
outstanding under
lines of credit 833 1,871 2,982 4,327
Notes, debentures and
other interest
bearing obligations 4,625 5,012 13,973 15,076
12,925 22,307 44,035 73,915
Net interest expense
before provision
for loan losses $ (4,313) $ (3,713) $(13,903) $ (5,286)
Pre-Tax Income (Loss)
by Business Segment
Three Months Nine Months
For the periods ended
September 30, 2002 2001 2002 2001
(Dollars in thousands)
Residential Loan
Servicing $ 7,157 $ 9,052 $ 22,788 $ 26,073
OTX (5,993) (7,762) (16,179) (29,320)
Ocwen Realty Advisors 902 83 1,921 429
Unsecured Collections 1,057 (1,288) 3,140 (5,629)
Residential Discount
Loans (617) 3,406 1,103 (2,893)
Commercial Finance (1,370) (7,277) (44,114) (18,452)
Affordable Housing (1,329) (6,467) (30,987) (21,283)
Subprime Finance 3,516 2,886 8,325 8,437
Corporate Items
and Other (7,330) (565) (19,694) 7,749
$ (4,007) $ (7,932) $ (73,697) $(34,889)
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.
September 30, December 31,
2002 2001
(Dollars in thousands)
Loans, net:
Affordable housing $ 12,613 $ 17,215
All other 90,220 168,078
Real estate held for sale --- 13,418
Investments in real estate 59,982 116,896
Real estate owned, net 65,432 110,465
Subordinates, residuals and
other trading securities 36,593 65,058
Affordable housing properties 19,491 52,176
Total non-core assets
to be sold $ 284,331 $ 543,306
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, December 31,
2002 2001
Assets
Cash and amounts due from
depository institutions $ 11,799 $ 33,442
Interest earning deposits 43,883 101,213
Federal funds sold and
repurchase agreements 220,000 126,000
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated) 50,448 161,191
Subordinates, residuals and
other securities 36,593 65,058
Real estate held for sale --- 13,418
Investment in real estate 59,982 116,896
Affordable housing properties 32,721 102,069
Loans, net 102,833 185,293
Match funded assets 153,952 174,351
Real estate owned, net 65,432 110,465
Premises and equipment, net 45,748 44,589
Income taxes receivable 22,231 20,842
Advances on loans and loans
serviced for others 273,767 283,183
Mortgage servicing rights 167,757 101,107
Other assets 81,906 72,033
$ 1,369,052 $ 1,711,150
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 454,812 $ 656,878
Escrow deposits on loans
and loans serviced for others 106,430 73,565
Securities sold under agreements
to repurchase --- 79,405
Bonds -- match funded agreements 142,020 156,908
Obligations outstanding under
lines of credit 92,567 84,304
Notes, debentures and other
interest bearing obligations 154,755 160,305
Accrued interest payable 12,964 12,836
Excess of net assets acquired
over purchase price --- 18,333
Accrued expenses, payables
and other liabilities 26,977 28,351
Total liabilities 990,525 1,270,885
Minority interest in subsidiaries 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;
67,336,276 and 67,289,313
shares issued and outstanding
at September 30, 2002 and
December 31, 2001, respectively 673 673
Additional paid-in capital 224,419 224,142
Retained earnings 95,715 154,412
Accumulated other comprehensive
loss, net of taxes:
Net unrealized foreign
currency translation loss (154) (121)
Total stockholders' equity 320,653 379,106
$ 1,369,052 $ 1,711,150
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Nine Months
For the periods ended
September 30, 2002 2001 2002 2001
Net interest expense
Income $ 8,612 $ 18,594 $ 30,132 $ 68,629
Expense 12,925 22,307 44,035 73,915
Net interest expense
before provision
for loan losses (4,313) (3,713) (13,903) (5,286)
Provision for
loan losses (901) (388) 10,510 18,029
Net interest expense
after provision
for loan losses (3,412) (3,325) (24,413) (23,315)
Non-interest income:
Servicing and other
fees 34,024 35,952 105,598 100,809
Loss on interest
earning assets, net --- (1,851) (2,773) (3,260)
Gain on trading and
match funded
securities, net 944 3,394 3,897 13,133
Loss on real estate
owned, net (337) (715) (16,307) (3,804)
Gain (loss) on other non-
interest earning assets,
net 508 (414) (333) (933)
Net operating gains
(losses) on investments
in real estate 495 (1,197) (8,844) 2,068
Amortization of excess
of net assets acquired
over purchase price --- 4,583 --- 13,749
Gain (loss) on repurchase
of debt (35) --- 1,039 3,819
Equity in income of
investment in un-
consolidated entities 115 (84) 146 100
Other income 2,312 1,989 9,669 6,471
38,026 41,657 92,092 132,152
Non-interest expense
Compensation and
employee benefits 19,594 21,531 60,375 63,775
Occupancy and equipment 2,914 3,055 8,959 9,322
Technology and
communication costs 6,899 5,675 17,960 21,379
Loan expenses 2,437 4,192 9,808 11,262
Net operating losses
on investments in
certain affordable
housing properties 225 4,005 22,135 11,823
Amortization of excess
of purchase price
over net assets
acquired --- 778 --- 2,334
Professional services
and regulatory fees 2,573 3,882 10,341 11,632
Other operating
expenses 2,450 1,483 7,040 6,786
37,092 44,601 136,618 138,313
Distributions on Company-
obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the
Company 1,529 1,663 4,758 5,413
Loss before income taxes
and effect of change in
accounting principle (4,007) (7,932) (73,697) (34,889)
Income tax expense --- 65,000 1,166 83,000
Net loss before effect of
change in accounting
principle (4,007) (72,932) (74,863) (117,889)
Effect of change in
accounting principle,
net of taxes --- --- 16,166 ---
Net loss $ (4,007) $(72,932) $ (58,697) $(117,889)
Earnings (loss) per
share
Basic and Diluted:
Net loss before
effect of change in
accounting
principle $ (0.06) $ (1.08) $ (1.11) $ (1.75)
Effect of change in
accounting
principle,
net of taxes --- --- 0.24 ---
Net loss $ (0.06) $ (1.08) $ (0.87) $ (1.75)
Weighted average
common shares
outstanding 67,336,246 67,269,343 67,315,913 67,206,688
CONTACT: Ocwen Financial Corporation
Robert J. Leist, Jr., Vice President &
Chief Accounting Officer
(561) 682-7958
rleist@ocwen.com
