Ocwen Financial Corporation Announces Third Quarter And Year To Date 2003 Net Income
WEST PALM BEACH, Fla., Nov. 6, 2003 -- Ocwen Financial Corporation (NYSE:OCN) today reported net income in the third quarter of 2003 of $4.6 million or $0.07 per share compared to a net loss of $(4.0) million or $(0.06) per share in the third quarter of 2002. For the nine months ended September 30, 2003 the Company reported net income of $0.3 million or $0.005 per share compared to a net loss of $(58.7) million or $(0.87) per share in 2002.
Chairman and CEO William C. Erbey stated, "Our third quarter earnings have resulted in year to date profitability. Our core businesses recorded aggregate pre-tax income of $8.8 million in the third quarter of this year, an increase of $6.0 million or 222% from the third quarter of last year. Year to date, pre-tax core income was $23.4 million, an increase of $12.1 million or 107% from the same period last year. Our non-core businesses recorded a pre-tax loss of $(1.1) million in the third quarter, and $(13.3) million year to date, including the $10 million arbitration settlement in the first quarter of this year. Third quarter losses in the Corporate Segment of $3.0 million continued to decline, showing a reduction in loss of $3.9 million or 56% as compared to the same period last year.
-- We made substantial progress in reducing high cost debt during
the period by redeeming, on September 30th, the remaining $33.1
million of the 12% Subordinated Debentures issued by Ocwen
Federal Bank. This redemption will save approximately $3.6
million of net interest expense in 2004. In addition, on October
1, 2003 the remaining $43.5 million of outstanding OCN 11.875%
Senior Notes matured and were repaid.
-- Non-core assets were reduced by $11.8 million in the third
quarter and have been reduced by $61.7 million since December 31,
2002.
-- We signed a contract with the United States Department of
Veterans Affairs during the third quarter to manage its portfolio
of REO properties. This contract will result in substantial
growth of the REO portfolio that we service. We expect to begin
active operations late this year.
-- Our Global Outsourcing business signed a contract with a major
new customer during the third quarter.
Our balance sheet remains strong with cash and cash equivalents of $246.9 million at September 30, 2003 as compared to $192.2 million at December 31, 2002."
The Servicing business reported pre-tax income of $8.2 million in the third quarter of 2003 vs. $7.2 million in the 2002 third quarter, despite continuing earnings pressure from the current low interest rate environment. For the first nine months of 2003, Servicing reported pre-tax income of $25.8 million as compared to pre-tax income of $22.8 million in the same period of 2002, an increase of 13%. Our Servicing business also continued to grow in the third quarter. As of September 30, 2003 we were the servicer of approximately 355 thousand loans with an unpaid principal balance (UPB) of $37.1 billion, as compared to approximately 336 thousand loans and $30.7 billion of UPB at December 31, 2002, an increase of 21% in UPB.
Pre-tax losses at OTX were $(2.4) million in the 2003 third quarter compared to $(6.0) million in the same period of 2002, an improvement of 61%. Year to date, 2003 OTX results reflected a pre-tax loss of $(8.3) million as compared to a pre-tax loss of $(16.2) million in the same period of 2002, a 49% improvement.
Ocwen Realty Advisors (ORA) reported pre-tax income of $1.2 million in the third quarter of 2003 as compared to $0.9 million in the third quarter of 2002, despite a decline in net margin from 28% to 25%. Year to date in 2003, ORA reported pre-tax income of $3.8 million as compared to $1.9 million in 2002, reflecting an improvement in margin from 18% to 28%.
The Unsecured Collections business reported results consistent with last year, posting pre-tax income of $1.1 million in the third quarter of both 2003 and 2002. For the nine months ended September 30, 2003 the business reported pre-tax income of $3.4 million as compared to $3.1 million in 2002.
In our newest business segments, Global Outsourcing reported pre-tax income of $1.0 million for the third quarter and year to date. Third quarter results reflect the initiation of new outsourcing contracts. Our International segment reported losses of $(0.3) million in the third quarter and $(2.2) million year to date in 2003. Results improved in the third quarter of 2003 as compared to the second quarter of this year, as Global Servicing Solutions (GSS) offices in Tokyo and Taiwan became operational. 2002 results in this segment reflect activities associated with a one-time consulting contract as well as other precedent ventures, now discontinued.
Pre-tax losses for the third quarter of 2003 in the Commercial Finance business amounted to $(2.8) million as compared to a pre-tax loss of $(1.4) million in the 2002 third quarter. Third quarter 2003 results reflect net charges and loss provisions on loans, investments in real estate and REO of $1.0 million as compared to $(0.3) million in the third quarter of 2002. Year to date, Commercial Finance reported a pre-tax loss of $(9.7) million in 2003 as compared to $(44.1) million in 2002. Year to date results for 2003 reflect net charges and loss provisions on loans, investments in real estate and REO of $3.4 million as compared to $42.8 million in the same period of 2002. As of September 30, 2003, reserves on the remaining commercial loan and REO assets amounted to 28% of gross book value as compared to 21% at September 30, 2002. Total commercial loans, investments in real estate and REO, consisting of 13 properties, had a net book value of $129.1 million at September 30, 2003, reduced by $82.1 million or 39% from September 30, 2002.
The Affordable Housing business posted break-even results in the 2003 third quarter compared to a pre-tax loss of $(1.3) million in the 2002 third quarter. No provisions for losses on Affordable Housing properties were recorded in the third quarter of 2003 or 2002. Results for the third quarter of 2003 included $1.4 million of revenue representing cash receipts related to properties sold in prior periods. For the nine months ended September 30, 2003, the business reported a pre-tax loss of $(3.6) million as compared to a pre-tax loss of $(31.0) million in 2002. Year to date results for Affordable Housing include provisions of $0.4 million and $21.3 million during 2003 and 2002, respectively. One Affordable Housing property, with a net book value of $2.7 million qualified for sale treatment during the third quarter of 2003. As of September 30, 2003, reserves on the remaining $34.7 million of Affordable Housing properties and loans had increased to 54% of remaining gross book value as compared to 41% at September 30, 2002.
Results in the Subprime Finance business reflected pre-tax income of $1.7 million for the 2003 third quarter as compared to pre-tax income of $3.5 million in the 2002 third quarter. Year to date 2003, the business reported break-even results, as compared to pre-tax income of $8.3 million in 2002. Year to date 2003 results included a charge of $10 million in the first quarter related to the conclusion of an arbitration, as previously reported. The Company's total trading portfolio of non-investment grade securities, which consists largely of subprime residuals, increased to $41.8 million at September 30, 2003 as compared to $36.6 million at September 30, 2002. This increase reflects the second quarter 2003 transfer of securities formerly classified as "Match Funded Securities" to the trading portfolio as a result of the repurchase of the associated match funded debt.
Corporate Items and Other reported a pre-tax loss of $(3.0) million in the third quarter of 2003 as compared to $(6.9) million in 2002, primarily due to reduced interest expense of approximately $2.0 million and a reduction in technology expenses of approximately $1 million. Year to date the pre-tax loss in this segment was $(9.5) million as compared to $(19.4) million in the same period last year, primarily due to reduced interest expense of $5.9 million and reduced technology expenses of $4.9 million. These improvements in year to date results were partially offset by a negative variance of $1.5 million representing the difference between a loss on debt redemptions of $0.4 million in 2003 as compared to gains of $1 million in the first nine months of 2002.
The Company's net tax expense in the 2003 third quarter was $0.006 million, representing foreign taxes on GSS operations. Year to date 2003 tax expense was $0.6 million, primarily reflecting tax payments in the first and second quarters related to investments in non-economic residual securities with no book value. Tax expense in the third quarter of 2002 was zero. Year to date 2002 tax expense was $1.2 million, reflecting taxes recorded to offset tax benefits included in the change in accounting principle.
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 progress of our transition strategy, expectations with regard to the growth of our REO portfolio, earnings improvement trends, and predictions as to future operations coming on line in connection with both the Department of Veterans Affairs and GSS. 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 quarters ended March 31, 2003 and June 30, 2003 and 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.
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, 2003 2002 2003 2002
Net interest expense
Income 4,071 $ 8,612 $ 17,826 $ 30,132
Expense 10,823 12,925 29,554 44,035
Net interest
expense before
provision for
loan losses (6,752) (4,313) (11,728) (13,903)
Provision for
loan losses 415 (901) (2,670) 10,510
Net interest income
(expense) after
provision for
loan losses (7,167) (3,412) (9,058) (24,413)
Non-interest income
Servicing and
other fees 40,339 34,024 115,117 105,598
Gain (loss) on
interest earning
assets, net -- -- 27 (2,773)
Gain (loss) on
trading and match
funded securities,
net 159 944 2,924 3,897
Gain (loss) on real
estate owned, net 147 (337) 124 (16,307)
Gain (loss) on other
non-interest earning
assets, net 150 508 624 (333)
Net operating gains
(losses) on
investments in
real estate 702 495 (3,000) (8,844)
Gain (loss) on re-
purchase of debt (441) (35) (445) 1,039
Other income 6,008 2,411 14,046 9,815
Non-interest income 47,064 38,010 129,417 92,092
Non-interest expense
Compensation and
employee benefits 17,667 19,594 52,505 60,375
Occupancy and
equipment 3,254 2,914 8,769 8,959
Technology and
communication costs 5,583 6,899 14,577 17,960
Loan expenses 3,835 2,437 10,835 9,808
Net operating losses
on investments in
affordable housing
properties 226 225 1,109 22,135
Professional services
and regulatory fees 2,511 2,573 21,855 10,341
Other operating
expenses 2,172 2,434 7,023 7,040
Non-interest
expense 35,248 37,076 116,673 136,618
Distributions on
Company-obligated,
mandatorily redeemable
securities of
subsidiary trust holding
solely junior subordinated
debentures of the Company -- 1,529 3,058 4,758
Income (loss) before
minority interest,
income taxes and
effect of change in
accounting principle 4,649 (4,007) 628 (73,697)
Minority interest in
net income (loss) of
subsidiaries 28 -- (308) --
Income tax expense 6 -- 618 1,166
Net income (loss)
before effect of
change in accounting
principle 4,615 (4,007) 318 (74,863)
Effect of change in
accounting principle,
net of taxes -- -- -- 16,166
Net income (loss) $4,615 $(4,007) $ 318 $(58,697)
Earnings (loss)
per share
Basic
Net income (loss)
before effect of
change in accounting
principle $ 0.07 $ (0.06) $ 0.005 $ (1.11)
Effect of change
in accounting
principle, net
of taxes -- -- -- .24
Net income (loss) $ 0.07 $ (0.06) $ 0.005 $ (0.87)
Diluted
Net income (loss) $ 0.07 $ (0.06) $ 0.005 $ (0.87)
Weighted average
common shares
outstanding
Basic 66,865,412 67,336,246 67,148,447 67,315,913
Diluted 67,880,310 67,336,246 67,864,096 67,315,913
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, December 31,
2003 2002
Assets
Cash and amounts due from
depository institutions $ 118,820 $ 76,598
Interest earning deposits 28,112 30,649
Federal funds sold and
repurchase agreements 100,000 85,000
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated)
and U.S. Treasury securities 6,696 21,556
Subordinates, residuals and
other securities 41,793 37,339
Investments in real estate 55,631 58,676
Affordable housing properties 9,578 15,319
Loans, net 28,196 76,857
Match funded assets 133,767 167,744
Real estate owned, net 53,380 62,039
Premises and equipment, net 42,938 44,268
Advances on loans and loans
serviced for others 390,952 266,356
Mortgage servicing rights 181,905 171,611
Receivables 71,565 78,944
Other assets 36,991 29,286
Total assets $ 1,300,324 $ 1,222,242
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 430,460 $ 425,970
Escrow deposits on loans and
loans serviced for others 129,457 84,986
Bonds - match funded
agreements 113,785 147,071
Lines of credit and other
secured borrowings 176,746 82,746
Notes and debentures 99,724 76,975
Accrued interest payable 6,825 7,435
Accrued expenses, payables
and other liabilities 31,834 28,314
Total liabilities 988,831 853,497
Minority interest in subsidiaries 1,470 1,778
Company obligated, mandatorily
redeemable securities of subsidiary
trust holding solely junior
subordinated debentures of
the Company --- 56,249
Stockholders' equity
Common stock, $.01 par value;
200,000,000 shares authorized:
67,100,113 and 67,339,773
shares issued and outstanding at
September 30, 2003 and
December 31, 2002, respectively 671 673
Additional paid-in capital 223,222 224,454
Retained earnings 85,955 85,637
Accumulated other comprehensive
income (loss), net of taxes:
Net unrealized foreign
currency translation
gain (loss) 175 (46)
Total stockholders'
equity 310,023 310,718
Total liabilities and
stockholders' equity $ 1,300,324 $ 1,222,242
Pre-Tax Income (Loss) by Business Segment
Three Months Nine Months
For the periods ended
September 30, 2003 2002 2003 2002
(Dollars in thousands)
Core businesses
Residential Loan
Servicing $ 8,159 $ 7,157 $ 25,808 $ 22,788
OTX (2,353) (5,993) (8,325) (16,179)
Ocwen Realty Advisors 1,157 902 3,766 1,921
Unsecured Collections 1,141 1,057 3,422 3,140
Global Outsourcing 1,003 --- 1,007 ---
International
Operations (337) (399) (2,245) (336)
8,770 2,724 23,433 11,334
Non-core businesses
Residential Discount
Loans --- (565) --- 1,103
Commercial Finance (2,798) (1,370) (9,723) (44,114)
Affordable Housing (4) (1,329) (3,608) (30,987)
Subprime Finance 1,720 3,464 20 8,325
(1,082) 200 (13,311) (65,673)
Corporate Items and
Other (3,039) (6,931) (9,494) (19,358)
Income (loss) before
minority interest,
income taxes and
effect of change in
accounting principle $ 4,649 $ (4,007) $ 628 $ (73,697)
Non-Core Assets
(Dollars in thousands) September 30, 2003 December 31, 2002
Loans, net
Affordable housing $ 6,419 $ 6,229
All other 21,777 70,628
Investments in real estate 55,631 58,676
Real estate owned, net 53,380 62,039
Subordinates, residuals and
other trading securities 41,793 37,339
Affordable housing properties 9,578 15,319
Total non-core assets $ 188,578 $ 250,230
Three Months Nine Months
For the periods ended
September 30, 2003 2002 2003 2002
(Dollars in thousands)
Interest income
Interest earning
cash and other $ 79 $ 59 $ 225 $ 220
Federal funds sold
and repurchase
agreements 341 783 1,078 2,055
Trading securities 2,749 3,507 12,371 12,024
Loans 212 3,075 1,321 10,588
Match funded loans
and securities 690 1,188 2,831 5,245
4,071 8,612 17,826 30,132
Interest expense
Deposits 4,008 5,990 13,408 21,689
Securities sold
under agreements
to repurchase --- 32 3 230
Bonds - match funded
agreements 1,076 1,445 3,640 5,161
Lines of credit
and other secured
borrowings 1,927 925 4,103 3,257
Notes and debentures 3,812 4,533 8,400 13,698
10,823 12,925 29,554 44,035
Net interest expense
before provision
for loan losses $ (6,752) $ (4,313) $ (11,728) $ (13,903)
CONTACT: Ocwen Financial Corporation(r)
Robert J. Leist, Jr., Vice President &
Chief Accounting Officer
(561) 682-7958
rleist@ocwen.com
