Ocwen Financial Corporation Announces First Quarter 2003 Results
WEST PALM BEACH, Fla., May 1, 2003 -- Ocwen Financial Corporation (NYSE:OCN) today reported a net loss of $(8.4) million in the first quarter of 2003 or $(0.13) per share compared to a net loss of $(4.5) million or $(0.07) per share in the first quarter of 2002.
Chairman and CEO William C. Erbey stated, "Our operations reported pre-tax income of $1.6 million in the first quarter, exclusive of a charge of $10 million related to the previously announced resolution of the Admiral Home Loan arbitration. This compares favorably to a pre-tax loss of $(19.5) million in the first quarter of 2002. We are encouraged by our progress towards achieving profitability despite this one time charge. The fundamentals of our core business units are sound.
"Our core businesses reported aggregate pre-tax income of $7.2 million as compared to $4.2 million in the first quarter of 2002. This continues our trend of improving quarterly core earnings, as shown below:
Quarterly Average Core Pre-Tax Income (Loss)
Year $ in Millions
2000 (7.4)
2001 (1.7)
2002 3.4
2003 7.2
"Our non-core businesses reported an aggregate pre-tax loss of $(12.4) million in the first quarter of 2003, or $(2.4) million excluding the arbitration settlement charge, as compared to a pre-tax loss of $(16.8) million in the 2002 first quarter, largely due to reduced provisions and loan loss reserves in 2003. The pre-tax loss in our Corporate segment was $(3.2) million in 2003 as compared to $(6.9) in 2002.
-- On April 25 we announced the resolution of the arbitration process
initiated by the former owners of Admiral Home Loan. As disclosed
in our annual report, the claimants sought damages in excess of
$75 million. In a 2-1 decision, an arbitration panel awarded them
$6 million plus interest and costs. In the first quarter we
established a reserve of $10 million including attorney's fees
as a result of this award.
-- We are particularly pleased to note that for the second
consecutive quarter our Residential Loan Servicing business
reported record pre-tax income of $9.2 million as compared to
$7.5 million in the first quarter of 2002, despite the continuing
challenge of the current low interest rate environment.
-- At OTX our first quarter loss was reduced to $(3.3) million as
compared to $(5.3) million in 2002, due to increased revenues
and reduced expenses.
-- The reduction of $3.8 million in our pre-tax loss in the Corporate
Items and Other segment is primarily due to two factors -- lower
net interest expense of $2.0 million largely as a result of our
debt redemption initiative last quarter and a reduction of
approximately $2.1 million in corporate expenses as a result of
the cost savings initiatives that we completed in the fourth
quarter of 2002.
"This quarter, we are reporting two new core businesses for the first time. Through Global Outsourcing we offer business process outsourcing services to third parties, leveraging our established capabilities in India. Our International business in 2003 reflects the initial results of Global Servicing Solutions, our joint servicing venture with Merrill Lynch for the servicing of assets in various countries. While still very new, we are optimistic that these businesses will provide meaningful earnings over time.
"Our liquidity remains strong, with cash and cash equivalents of $216.8 million as of March 31, 2003 as compared to $192.2 million at December 31, 2002."
The Servicing business reported record pre-tax income of $9.2 million in the first quarter of 2003 vs. $7.5 million in the 2002 first quarter, despite the continuing earnings pressure from the current low interest rate environment. Our Servicing business volume remained largely unchanged during the first quarter. As of March 31, 2003 we were the servicer of approximately 325 thousand loans with an unpaid principal balance (UPB) of $30.2 billion, as compared to approximately 336 thousand loans and $30.7 billion of UPB at December 31, 2002, a decrease of 1.6% in UPB.
Pre-tax losses at OTX were $(3.3) million in the 2003 first quarter compared to $(5.3) million in the same period of 2002, an improvement of $2.0 million or 37.7%. OTX revenues in the 2003 first quarter were $2.5 million as compared to $1.5 million in 2002, of which REALTrans revenues in 2003 were $0.9 million as compared to $0.3 million in 2002.
ORA reported pre-tax income of $1.0 million in the first quarter of 2003 as compared to $0.5 million in the first quarter of 2002 due to an improvement in margin from 12.6% in 2002 to 26.6% in 2003. This improvement was attained in part through our full implementation of REALTrans as the vendor management platform for ORA, as well as reduced costs from the utilization of our India location.
The Unsecured Collections business posted pre-tax income of $1.3 million in the first quarter of 2003 vs. income of $0.9 million in the 2002 first quarter, reflecting reductions in operating costs as well as continued success in attracting new fee-based collection contracts.
Global Outsourcing, a new business segment that began operations in December 2002 recorded pre-tax income of $0.08 million in the first quarter of 2003. Global Outsourcing provides business process outsourcing services to third parties and leverages the operational capability of our facilities in India.
International Operations, which is being reported as a business segment for the first time this quarter, recorded a pre-tax loss of $(1.2) million in the first quarter of 2003. In the first quarter of 2002, International Operations reported pre-tax income of $0.5 million. In 2003, this segment primarily represents the results of operations of Global Servicing Solutions, LLC, our new joint venture with Merrill Lynch. Results for 2002 primarily reflect a one time consulting project for the government of Jamaica.
Pre-tax losses for the first quarter of 2003 in the Commercial Finance business amounted to $(2.7) million as compared to a pre-tax loss of $(4.4) million in the 2002 first quarter. The improvement in 2003 is primarily due to loan loss provisions in 2002 not required in 2003. Total commercial loans, investments in real estate and REO, consisting of 18 assets, had a book value of $187.1 million at March 31, 2003, with reserves on the remaining commercial loan and REO assets of 24.1% of book value, all consistent with December 31, 2002 levels.
The Affordable Housing business posted a pre-tax loss of $(2.3) million in the 2003 first quarter compared to a pre-tax loss of $(18.0) million in the 2002 first quarter. First quarter 2003 results include $0.6 million of provisions for losses on Affordable Housing properties and loans as compared to $15.5 million of such provisions in the 2002 first quarter. As of March 31, 2003, reserves on Affordable Housing properties and loans were 49% of remaining book value, approximately equal to the levels as of December 31, 2002. There are $19.3 million of Affordable Housing properties and loans remaining as of March 31, 2003 of which $6.0 million are loans, $2.9 million are properties subject to sales contracts that have not yet satisfied all of the accounting criteria for sales treatment and $10.4 million are properties that remain to be sold.
Results in the Subprime Finance business reflected a pre-tax loss of $(7.5) million for the 2003 first quarter as compared to pre-tax income of $4.7 million in the 2002 first quarter. Results in 2003 include a charge of $10 million related to the Admiral Home Loan arbitration, and also reflect a trading loss of $(0.6) million in 2003 as compared to trading gains of $3.4 million in the first quarter of 2002. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was $35.7 million at March 31, 2003 as compared to $37.3 million at December 31, 2002, primarily as a result of principal repayments.
The Company's net effective tax expense in the 2003 first quarter was $0.3 million, reflecting a tax payment related to an investment in a non-economic residual security with no book value. The Company's tax provision for the first quarter of 2002 reflects an expense of $1.2 million which offsets the benefit related to the change in accounting for intangible assets.
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 soundness of the fundamentals of our core businesses, expectations with regard to new businesses, reduction of losses, earnings improvement trends, 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 report on Form 10-K for the year ended December 31, 2002. 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
For the three months ended
March 31, 2003 2002
(Dollars in thousands)
Interest income
Interest earning cash
and other $ 50 $ 93
Federal funds sold and
repurchase agreements 318 579
Trading securities 4,865 4,358
Loans 372 5,435
Match funded loans and
securities 1,152 2,249
6,757 12,714
Interest expense
Deposits 4,865 8,617
Securities sold under
agreements to repurchase 3 126
Bonds - match funded agreements 1,306 1,910
Obligations outstanding
under lines of credit 764 1,042
Notes, debentures and other
interest bearing obligations 2,388 4,701
9,326 16,396
Net interest expense before
provision for loan losses $ (2,569) $ (3,682)
Pre-Tax Income (Loss) by Business Segment
For the three months ended
March 31, 2003 2002
(Dollars in thousands)
Core businesses
Residential Loan Servicing $ 9,248 $ 7,548
OTX (3,327) (5,282)
Ocwen Realty Advisors 1,015 520
Unsecured Collections 1,317 943
Global Outsourcing 81 --
International Operations (1,151) 500
7,183 4,229
Non-core businesses
Residential Discount Loans -- 910
Commercial Finance (2,659) (4,419)
Affordable Housing (2,280) (17,983)
Subprime Finance (7,485) 4,693
(12,424) (16,799)
Corporate Items and Other (3,161) (6,922)
$ (8,402) $(19,492)
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.
March 31, December 31,
2003 2002
(Dollars in thousands)
Loans, net
Affordable housing $ 5,981 $ 6,229
All other 74,910 70,628
Investments in real estate 59,133 58,676
Real estate owned, net 55,816 62,039
Subordinates, residuals and
other trading securities 35,685 37,339
Affordable housing properties 10,423 10,861
Total non-core assets to be sold $241,948 $245,772
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
March 31, December 31,
2003 2002
Assets
Cash and amounts due from
depository institutions $ 65,087 $ 76,598
Interest earning deposits 51,665 30,649
Federal funds sold and
repurchase agreements 100,000 85,000
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated) 10,964 21,556
Subordinates, residuals and
other securities 35,685 37,339
Investments in real estate 59,133 58,676
Affordable housing properties 13,311 15,319
Loans, net 80,891 76,857
Match funded assets 160,371 167,744
Real estate owned, net 55,816 62,039
Premises and equipment, net 45,281 44,268
Income taxes receivable 21,316 20,841
Advances on loans and loans
serviced for others 281,286 266,356
Mortgage servicing rights 166,855 171,611
Other assets 94,386 87,389
$1,242,047 $1,222,242
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 428,159 $425,970
Escrow deposits on loans and
loans serviced for others 89,216 84,986
Bonds - match funded agreements 140,569 147,071
Obligations outstanding under
lines of credit 100,000 78,511
Notes, debentures and other
interest bearing obligations 81,210 81,210
Accrued interest payable 8,139 7,435
Accrued expenses, payables
and other liabilities 34,487 28,314
Total liabilities 881,780 853,497
Minority interest in subsidiaries 1,515 1,778
Company obligated, mandatorily redeemable securities of subsidiary
trust holding solely junior subordinated debentures of
the Company 56,249 56,249
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 shares issued and
outstanding at March 31, 2003
and December 31, 2002 673 673
Additional paid-in capital 224,467 224,454
Retained earnings 77,191 85,637
Accumulated other comprehensive
income (loss), net of taxes:
Net unrealized foreign currency
translation loss 172 (46)
Total stockholders' equity 302,503 310,718
$1,242,047 $1,222,242
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
For the three months ended March 31, 2003 2002
Net interest expense
Income $ 6,757 $ 12,714
Expense 9,326 16,396
Net interest expense before
provision for loan losses (2,569) (3,682)
Provision for loan losses 166 679
Net interest expense after
provision for loan losses (2,735) (4,361)
Non-interest income
Servicing and other fees 37,648 35,725
Gain (loss) on interest earning
assets, net --- (1,777)
Gain (loss) on trading and
match funded securities, net (423) 2,791
Gain (loss) on real estate
owned, net 256 (4,112)
Gain (loss) on other non-interest
earning assets, net 294 (748)
Net operating gains (losses) on
investments in real estate 893 4,654
Gain (loss) on repurchase of debt --- 4
Equity in income (loss) of investment
in unconsolidated entities 37 (9)
Other income 3,965 5,041
42,670 41,569
Non-interest expense
Compensation and employee benefits 17,708 21,074
Occupancy and equipment 2,830 2,714
Technology and communication costs 4,497 5,053
Loan expenses 3,535 3,935
Net operating losses on
investments in affordable
housing properties 657 15,681
Professional services and
regulatory fees 15,284 4,596
Other operating expenses 2,297 1,984
46,808 55,037
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior subordinated
debentures
of the Company 1,529 1,663
Income (loss) before minority interest,
income taxes and effect of change
in accounting principle (8,402) (19,492)
Minority interest in net loss
of subsidiaries (263) ---
Income tax expense 307 1,166
Net income (loss) before effect
of change in accounting principle (8,446) (20,658)
Effect of change in accounting
principle, net of taxes --- 16,166
Net income (loss) $ (8,446) $ (4,492)
Earnings (loss) per share Basic and Diluted:
Net income (loss) before effect
of change in accounting
principle $ (0.13) $ (0.31)
Effect of change in accounting
principle, net of taxes --- 0.24
Net income (loss) $ (0.13) $ (0.07)
Weighted average common shares
outstanding 67,339,773 67,294,490
CONTACT: Ocwen Financial Corporation
Robert J. Leist, Jr., Vice President &
Chief Accounting Officer
(561) 682-7958
rleist@ocwen.com
