Ocwen Financial Corporation Announces Fourth Quarter and 2002 Results
WEST PALM BEACH, Fla., Feb. 6, 2003 -- Ocwen Financial Corporation (NYSE:OCN) today reported a net loss in the fourth quarter of 2002 of $(7.8) million or $(0.12) per share compared to a net loss of $(6.9) million or $(0.10) per share in the fourth quarter of 2001. For the year ended December 31, 2002 the Company reported a net loss of $(66.5) million or $(0.99) per share compared to a net loss of $(124.8) million or $(1.86) per share in 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. Our fourth quarter results reflect this progress. Core business earnings were once again profitable. Non-core businesses were break-even and the Corporate segment recorded a loss. From a consolidated perspective, our fourth quarter pre-tax loss of $6.1 million included non-recurring and severance charges totaling $6.5 million that will lower our expense structure going forward.
-- We recorded an expense of $2.5 million in the Corporate segment
associated with the completion of our $73.5 million debt
redemption. This initiative will reduce annualized interest
expense by $8.0 million in 2003.
-- Results at OTX included $2.8 million of charges related to
intangible assets, including the final amortization of
intellectual property of $0.6 million and a $2.2 million write-off
of the remaining goodwill associated with our REALServicing(TM)
product. We remain positive on the future sales potential of
REALServicing, but concluded that the absence of sales in 2002
made this appropriate under current accounting standards. Fourth
quarter results also included a payment of $0.5 million
representing the final payment due under the terms of our 1997
purchase of AMOS, Inc.
-- During the fourth quarter we also completed an expense reduction
initiative which included a charge of $0.7 million of severance
expenses in the quarter. We estimate that this initiative will
result in annual compensation and benefit savings of approximately
$3.0 million
Our core business earnings are especially noteworthy because our Residential Loan Servicing business established record earnings in the fourth quarter of 2002, posting pre-tax income of $9.2 million despite the challenges of the current low interest rate environment. Our balance sheet remains strong, as our non-core assets remaining to be sold declined to $246 million, a reduction of 13.6% since September 30, and our cash and cash equivalents amounted to $192 million."
The Servicing business reported record pre-tax income of $9.2 million in the fourth quarter of 2002 vs. $8.5 million in the 2001 fourth quarter, despite the continuing earnings pressure from the current low interest rate environment. For 2002, Servicing reported pre-tax income of $32.0 million as compared to pre-tax income of $34.6 million in 2001, a decline of 7.5%, largely reflecting the interest rate environment in 2002. Our Servicing business continued to grow in the fourth quarter. As of December 31, 2002 we were the servicer of approximately 336 thousand loans with an unpaid principal balance (UPB) of $30.7 billion, as compared to approximately 302 thousand loans and $21.9 billion of UPB at December 31, 2001, an increase of 40% in UPB.
Pre-tax losses at OTX, after adjusting for severance, amortization and write-offs of intellectual property and goodwill, and certain non-recurring payments in both periods were $(4.5) million in the 2002 fourth quarter compared to $(5.7) million in the same period of 2001, an improvement of 21%. For the year ended December 31, 2002 OTX adjusted results reflected a pre-tax loss of $(19.1) million as compared to a pre-tax loss of $(26.6) million in 2001, a 28% improvement. REALTrans(R) transaction volumes in the fourth quarter increased by 10% to 156 thousand, as compared to 142 thousand in the third quarter of this year. Annual click volumes in 2002 were 471 thousand as compared to 286 thousand in 2001, an increase of 65%.
ORA reported pre-tax income of $0.7 million in the fourth quarter of 2002 as compared to $0.5 million in the fourth quarter of 2001 reflecting an improvement in margin from 14.5% to 21%. For 2002, ORA reported pre-tax income of $2.6 million as compared to $0.9 million in 2001.
The Unsecured Collections business posted pre-tax income of $0.9 million in the fourth quarter of 2002 vs. pre-tax income of $0.6 million in the 2001 fourth quarter. For the year ended December 31, 2002 the business reported pre-tax income of $4.0 million as compared to a pre-tax loss of $(5.0) million in 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 $(0.3) million in the 2002 fourth quarter as compared to a pre-tax loss of $(1.7) million in the 2001 fourth quarter. For the year, the business reported pre-tax income of $0.8 million, as compared to a pre-tax loss of $(4.0) 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 December 31, 2002 was reduced to $3.0 million, down $50.8 million or 94% from December 31, 2001.
Pre-tax losses for the fourth quarter of 2002 in the Commercial Finance business amounted to $(5.6) million as compared to a pre-tax loss of $(2.6) million in the 2001 fourth quarter. Fourth quarter 2002 results reflect loss provisions on loans and real estate owned of approximately $3.4 million as compared to $1.3 million in the 2001 fourth quarter. For the year ended December 31, 2002, the business reported a pre-tax loss of $(49.7) million as compared to a pre-tax loss of $(21.0) million in the same period of 2001. Results for 2002 reflect impairment charges and loss provisions on loans and real estate owned of $46.1 million as compared to $19.6 million for 2001. As of December 31, 2002, reserves on the remaining commercial loan and REO assets amounted to 24.2% of book value as compared to 9.3% at December 31, 2001. Total commercial loans, investments in real estate and REO, consisting of 18 assets, had a book value of $188.0 million at December 31, 2002, reduced by $166.1 million or 47% from December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(0.5) million in the 2002 fourth quarter compared to a pre-tax loss of $(8.6) million in the 2001 fourth quarter. No provisions for losses on Affordable Housing properties were recorded in the fourth quarter of 2002, while $4.5 million of such provisions were recorded in the 2001 fourth quarter. For the year ended December 31, 2002, the business reported a pre-tax loss of $(31.5) million as compared to a pre-tax loss of $(29.9) million in 2001. Affordable Housing results for 2002 included total charges of $24.7 million, as compared to $16.8 million of charges in 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 $17.4 million and $15.6 million during the years ended December 31, 2002 and 2001, respectively, reflecting revisions in completion cost and financing estimates as well as modifications to projected sales results. As of December 31, 2002, reserves on Affordable Housing properties and loans had increased to 48% of remaining book value as compared to 16% at December 31, 2001. There are $21.5 million of Affordable Housing properties and loans remaining as of December 31, 2002 of which $6.2 million are loans, $4.4 million are properties subject to sales contracts that have not yet satisfied all of the accounting criteria for sales treatment and $10.9 million are properties that remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $6.2 million for the 2002 fourth quarter as compared to pre-tax income of $5.3 million in the 2001 fourth quarter. For the year, the business reported pre-tax income of $14.5 million, as compared to pre-tax income of $13.1 million in 2001. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was reduced to $37.3 million at December 31, 2002 as compared to $65.1 million at December 31, 2001, primarily as a result of sales of securities.
Results for 2002 include a net loss on debt repurchases of $(1.5) million, reflecting a loss of $(2.5) million in the fourth quarter related to the redemption of $73.5 million of debt securities at a premium, partially offset by gains of $1.0 million on repurchases earlier in the year. This compares to gains of $3.8 million recorded in 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.
The Company's net effective tax expense in the 2002 fourth quarter was $1.8 million, reflecting a tax payment related to an investment in a non-economic residual security with no book value. Tax expense in the fourth quarter of 2001 was zero. 2002 total tax expense was $2.9 million, representing the fourth quarter payment as well tax expense recorded in the first quarter to offset the taxes included in the change in accounting principles. 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.
This news release contains 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, including, but not limited to, the discussion of progress in Ocwen's strategy of transitioning to a fee-based business and reducing non-core assets, expectations with regard to reduction of losses, earnings trends, deposit reductions, and decreases in technology support staff, and predictions as to future sales. Forward-looking statements are not guarantees of future performance, and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially.
Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following: general economic and market conditions, prevailing interest or currency exchange rates, governmental regulations and policies, international political and economic uncertainty, availability of adequate and timely sources of liquidity, uncertainty related to dispute resolution and litigation, and real estate market conditions and trends, as well as other risks detailed in OCN's reports and filings with the Securities and Exchange Commission, including its periodic reports on Form 10-Q for the quarter ended September 30, 2002 and Form 10-K for the year ended December 31, 2001. The forward-looking statements speak only as of the date they are made and should not be relied upon. OCN undertakes no obligation to update or revise the forward-looking statements.
Interest Income and Expense
Three Months Twelve Months
For the periods ended
December 31, 2002 2001 2002 2001
(Dollars in thousands)
Interest income
Interest earning cash
and other $ 63 $ 105 $ 284 $ 743
Federal funds sold
and repurchase
agreements 574 1,288 2,629 7,328
Trading securities 4,556 4,391 16,580 18,865
Loans 692 6,488 11,279 46,090
Match funded loans
and securities 1,218 2,470 6,463 10,345
7,103 14,742 37,235 83,371
Interest expense
Deposits 5,767 11,800 27,455 59,967
Securities sold under
agreements to
repurchase 6 283 236 529
Bonds - match funded
agreements 1,412 1,216 6,573 7,315
Obligations out-
standing under
lines of credit 805 1,184 3,787 5,511
Notes, debentures and
other interest
bearing
obligations 3,737 4,931 17,711 20,007
11,727 19,414 55,762 93,329
Net interest expense
before provision
for loan losses $(4,624) $(4,672) $(18,527) $(9,958)
Pre-Tax Income (Loss)
by Business Segment
Three Months Twelve Months
For the periods ended
December 31, 2002 2001 2002 2001
(Dollars in thousands)
Core Businesses
Residential Loan
Servicing $ 9,186 $ 8,518 $31,974 $34,591
OTX (7,965) (7,072) (24,144) (36,392)
Ocwen Realty Advisors 675 516 2,597 944
Unsecured Collections 866 609 4,006 (5,020)
2,762 2,571 14,433 (5,877)
Non-Core Businesses
Residential Discount
Loans (340) (1,657) 763 (4,002)
Commercial Finance (5,583) (2,562) (49,697) (21,014)
Affordable Housing (534) (8,635) (31,521) (29,917)
Subprime Finance 6,211 5,266 14,536 13,155
(246) (7,588) (65,919) (41,778)
Corporate Items and
Other (8,626) (1,876) (28,321) 5,873
$ (6,110) $ (6,893) $ (79,807) $ (41,782)
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.
December 31, 2002 December 31, 2001
(Dollars in thousands)
Loans, net:
Affordable housing $ 6,229 $ 17,215
All other 70,628 168,078
Real estate held for sale --- 13,418
Investments in real estate 58,676 116,896
Real estate owned, net 62,039 110,465
Subordinates, residuals and
other trading securities 37,339 65,058
Affordable housing properties 10,861 52,176
Total non-core assets to be sold $ 245,772 $ 543,306
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
December 31, 2002 December 31, 2001
Assets
Cash and amounts due from
depository institutions $ 76,598 $ 23,081
Interest earning deposits 30,649 111,574
Federal funds sold and
repurchase agreements 85,000 126,000
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated) and
U.S. Treasury notes 21,556 161,191
Subordinates and residuals 37,339 65,058
Real estate held for sale --- 13,418
Investments in real estate 58,676 116,896
Affordable housing properties 15,319 102,069
Loans, net 76,857 185,293
Match funded assets 167,744 174,351
Real estate owned, net 62,039 110,465
Premises and equipment, net 44,268 44,589
Income taxes receivable 20,841 20,842
Advances on loans and loans
serviced for others 266,356 283,183
Mortgage servicing rights 171,611 101,107
Other assets 87,389 72,033
$ 1,222,242 $ 1,711,150
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 425,970 $ 656,878
Escrow deposits on loans and
loans serviced for others 84,986 73,565
Securities sold under agreements
to repurchase --- 79,405
Bonds - match funded agreements 147,071 156,908
Obligations outstanding under
lines of credit 78,511 84,304
Notes, debentures and other
interest bearing obligations 81,210 160,305
Accrued interest payable 7,435 12,836
Excess of net assets acquired
over purchase price --- 18,333
Accrued expenses, payables and
other liabilities 26,064 28,351
Total liabilities 851,247 1,270,885
Minority interest in subsidiaries 1,778 ---
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;
67,339,773 and 67,289,313 shares
issued and outstanding at
December 31, 2002 and December
31, 2001, respectively 673 673
Additional paid-in capital 224,454 224,142
Retained earnings 87,887 154,412
Accumulated other comprehensive
loss, net of taxes:
Net unrealized foreign currency
translation loss (46) (121)
Total stockholders' equity 312,968 379,106
$ 1,222,242 $1,711,150
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, 2002 2001 2002 2001
(Dollars in thousands)
Net interest expense
Income $ 7,103 $ 14,742 $ 37,235 $ 83,371
Expense 11,727 19,414 55,762 93,329
Net interest expense
before provision
for loan losses (4,624) (4,672) (18,527) (9,958)
Provision for loan
losses 3,119 (2,363) 13,629 15,666
Net interest expense
after provision for
loan losses (7,743) (2,309) (32,156) (25,624)
Non-interest income
Servicing and other
fees 36,393 33,788 141,991 134,597
Loss on interest
earning assets, net (712) (689) (3,485) (3,949)
Gain on trading and
match funded
securities, net 3,115 3,197 7,012 16,330
Gain (loss) on real estate
owned, net 588 (5,452) (15,719) (9,256)
Gain (loss) on other
non-interest earning
assets, net 1,455 (122) 1,122 (1,054)
Net operating gains
(losses) on invest-
ments in real estate 529 3,513 (8,315) 5,581
Amortization of excess
of net assets acquired
over purchase price --- 4,583 --- 18,333
Gain (loss) on
repurchase of debt (2,500) (44) (1,461) 3,774
Equity in income of
investment in un-
consolidated
entities 69 205 215 304
Other income 3,446 2,288 13,115 8,759
42,383 41,267 134,475 173,419
Non-interest expense
Compensation and
employee benefits 17,403 21,139 77,778 84,914
Occupancy and
equipment 2,884 2,255 11,843 11,577
Technology and
communication costs 7,310 5,389 25,270 26,768
Loan expenses 2,797 4,549 12,605 15,811
Net operating losses
on investments in
certain affordable
housing properties 225 4,757 22,360 16,580
Amortization/writeoff
of excess of purchase
price over net
assets acquired 2,231 778 2,231 3,112
Professional services
and regulatory fees 3,792 3,118 14,133 14,749
Other operating
expenses 2,579 2,148 9,619 8,935
39,221 44,133 175,839 182,446
Distributions on Company-
obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the
Company 1,529 1,718 6,287 7,131
Loss before minority
interest, income taxes
and effect of change in
accounting principle (6,110) (6,893) (79,807) (41,782)
Minority interest in net
loss of subsidiaries (99) --- (99) ---
Income tax expense 1,817 --- 2,983 83,000
Net loss before effect
of change in accounting
principle (7,828) (6,893) (82,691) (124,782)
Effect of change in
Accounting principle,
net of taxes --- --- 16,166 ---
Net loss $ (7,828) $ (6,893) $ (66,525) $(124,782)
Earnings (loss) per share
Basic and Diluted:
Net loss before
effect of change
in accounting
principle $ (0.12) $ (0.10) $ (1.23) $ (1.86)
Effect of change in
accounting
principle, net
of taxes --- --- 0.24 ---
Net loss $ (0.12) $ (0.10) $ (0.99) $ (1.86)
Weighted average
common shares
outstanding 67,337,454 67,288,168 67,321,299 67,227,058
CONTACT: Ocwen Financial Corporation
Robert J. Leist, Jr.
Vice President & Chief Accounting Officer
(561) 682-7958
rleist@ocwen.com
