WEST PALM BEACH, Fla., May 7, 2002 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported a net loss in the first quarter of 2002 of $(4.5) million or $(0.07) per share compared to $(23.5) million or $(0.35) per share in the first quarter of 2001.
Chairman and CEO William C. Erbey stated, "Our first quarter results mark continued progress in the execution of our strategic plan.
-- Non-core assets remaining to be sold declined by $139 million or
26% during the first quarter. Reserves on our remaining non-core
assets as of March 31, 2002 are at an all time high as a
percentage of asset values.
-- The first quarter 2002 combined results of our core businesses,
Residential Loan Servicing, Ocwen Technology Xchange (OTX), Ocwen
Realty Advisors (ORA) and Unsecured Collections, reflected a
substantial improvement over the same period last year. After
adjusting for certain non-recurring items in each period and for
the change in accounting for intangible assets, our core
businesses generated a gain of $4.7 million in the first quarter
of 2002 vs. a loss of $(1.6) million in the 2001 first quarter, an
improvement of $6.3 million.
-- Our Servicing business continued to grow in the first quarter. As
of March 31, 2002 we were the servicer of approximately 310
thousand loans with an unpaid principal balance (UPB) of $23.5
billion, as compared to approximately 303 thousand loans and $21.9
billion of UPB at December 31, 2001, an increase of 7.3% in UPB.
In addition, in March, the Residential Servicing business received
Moody's Investor's Services top rating of "Strong" or "SQ1" for
its Subprime Servicing and Special Servicing capabilities.
-- Our REALTrans product has established a strong market presence.
Our existing clients originate more than 25% of all mortgages in
the U.S.A. This position was further strengthened during the first
quarter with the addition of three Top 30 originators.
-- Our first quarter earnings were adversely impacted by write-downs
of $15.3 million on assets in our Affordable Housing business
reflecting our ongoing evaluation of asset values. We had
approximately $33 million of loans and properties remaining to be
sold in this business as of March 31, 2002.
-- We continued our strategy of maintaining strong liquidity while
reducing our debt. During the first quarter of 2002, our cash and
cash equivalents rose by $13 million to $274 million as of March
31, 2002 while we reduced our total liabilities by $129.7 million
or 10.2% from year-end levels.
As we have noted in the past, our focus on accelerating the disposition of our remaining non-core assets means that near term earnings pressure may continue. However, we are enthusiastic about the prospects for our servicing and technology businesses and believe that our equity of $375 million and cash and equivalents of $274 million provide us with the requisite financial strength and liquidity to achieve our objectives."
The Servicing business reported pre-tax income for the first quarter of 2002 of $7.5 million vs. $8.5 million in the 2001 first quarter. First quarter 2002 results include a provision of $1 million related to a pending settlement of a class action litigation claim.
Pre-tax losses at OTX were $(5.3) million in the 2002 first quarter compared to $(13.8) million in the same period of 2001. After considering the impact of certain non-recurring expenses in 2001, the effect of the change in accounting principles for goodwill and intangible assets, and the impact of intercompany revenues in 2002, OTX results improved by $1.8 million in the first quarter of 2002 compared to the same period of 2001.
ORA reported pre-tax income of $520 thousand in the first quarter of 2002 as compared to $141 thousand in the first quarter of 2001 reflecting both a revenue increase of $1.4 million or 51% and an improvement in margin from 5.2% to 12.6%.
The Unsecured Collections business posted pre-tax income of $ 0.9 million in the first quarter of 2002 vs. a pre-tax loss of $(2.2) million in the 2001 first quarter. The increase in pre-tax income in this business reflects the facts 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 $1.1 million in the 2002 first quarter, as compared to a pre-tax loss of $(1.8) million in the 2001 first quarter. As a result of a loan sale during the first quarter of 2002, the amount of loans and REO remaining as of March 31, 2002 was reduced to $11.7 million, down $42.1 million or 78% from December 31, 2001.
Pre-tax losses for the first quarter of 2002 in the Commercial Finance business amounted to $(4.4) million as compared to a pre-tax loss of $(8.0) million in the 2001 first quarter. Results in both periods include approximately $7 million of loan loss provisions and asset reserves. These provisions reflect changes in projected sales proceeds upon disposition of the remaining assets as well as changes in the credit quality of the underlying assets. Total commercial loans, investments in real estate and REO totaled $315 million at March 31, 2002, reduced by $39 million or 11% from December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(18.0) million in the 2002 first quarter compared to a loss of $(7.9) million in the 2001 first quarter. Affordable Housing results in 2002 include additional non-cash reserves of approximately $15.3 million during the first quarter reflecting revisions in completion cost estimates as well as modifications to projected sales results. There are $95.8 million of Affordable Housing properties and loans remaining as of March 31, 2002 of which $62.7 million are subject to sales contracts, although they have not yet satisfied all of the accounting criteria for sales treatment, and $33.1 million remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $4.5 million for the 2002 first quarter as compared to pre-tax income of $1.7 million in the 2001 first quarter. First quarter 2002 results primarily reflect trading gains of $3.4 million on the portfolio of subprime residual securities. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was reduced to $39.9 million at March 31, 2002 as compared to $65.1 million at December 31, 2001, primarily as a result of sales of securities.
First quarter 2002 results include an extraordinary gain, net of tax, of $2 thousand reflecting the repurchase of $225 thousand face value of debt as compared to net extraordinary gains of $2.2 million in the 2001 first quarter. 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.
In accordance with Statements of Financial Accounting Standards 141 and 142, which were effective for the year beginning January 1, 2002, the 2002 results also include a net gain of $16.2 million representing the effect of a change in accounting principles for goodwill and intangible assets. This primarily consists of approximately $18.3 million representing the remaining balance at December 31, 2001 of the Excess of Net Assets Acquired Over Purchase Price. This was partially offset by a write down of $3.3 million related to the remaining balance of goodwill and intangible assets recorded in connection with the formation of REALSynergy, Inc. in 1999 and a related tax benefit of $1.2 million.
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. The net effective tax expense in the 2002 first quarter was zero. Tax expense in the first quarter of 2001 was $5.8 million which included a provision of $10 million to increase 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 "continue," "increase," "accelerate," "will," "believe," "estimate," "largely," "further," "near term," "achieve," "project," "future," "realize," 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, 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.
Interest Income and Expense
For the three months ended March 31, 2002 2001
(Dollars in thousands)
Interest income:
Federal funds sold and
repurchase agreements $ 579 $ 1,644
Trading securities 4,358 5,700
Investment securities and
other 93 346
Match funded loans and
securities 2,249 2,483
Loans 5,435 14,644
12,714 24,817
Interest expense:
Deposits 8,617 18,071
Securities sold under agreements
to repurchase 126 2
Bonds - match funded agreements 1,782 2,966
Obligations outstanding under
lines of credit 1,170 720
Notes, debentures and other
interest bearing obligations 4,701 5,121
Net interest income (expense)
before provision for loan losses 16,396 26,880
Net interest (loss) income before
provision for loan losses $ (3,682) $ (2,063)
Pre-Tax Income (Loss) by Business Segment
For the three months ended March 31, 2002 2001
(Dollars in thousands)
Residential Loan Servicing $ 7,548 $ 8,512
OTX (5,282) (13,768)
Ocwen Realty Advisors 520 141
Unsecured Collections 943 (2,200)
Residential Discount Loans 1,112 (1,757)
Commercial Finance (4,419) (8,013)
Affordable Housing (17,983) (7,852)
Subprime Finance 4,492 1,719
Corporate Items and Other (6,426) 3,301
$ (19,495) $(19,917)
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 completed sale transactions that have not met accounting
criteria for sales treatment.
March 31, 2002 December 31, 2001
(Dollars in thousands) Loans, net:
Affordable Housing $ 13,398 $ 13,048
All other 135,359 168,078
Real estate held for sale --- 13,418
Total investments in real estate 91,664 116,896
Real estate owned, net 100,490 110,465
Residual and subordinate trading
securities 39,899 65,058
Affordable Housing properties 19,729 52,176
Total non-core assets to be sold $ 400,539 $ 539,139
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
March 31, 2002 December 31, 2001
Assets:
Cash and amounts due from
depository institutions $ 920 $ 23,076
Interest earning deposits 66,747 111,579
Federal funds sold 206,000 126,000
Trading securities, at fair value:
Collateralized mortgage
obligations (AAA-rated) 126,477 161,191
Subordinates, residuals and
other securities 39,899 65,058
Real estate held for sale --- 13,418
Investment in real estate 91,664 116,896
Affordable housing properties 80,610 102,069
Loans, net 150,557 185,293
Match funded assets 164,080 174,351
Real estate owned, net 100,490 110,465
Premises and equipment, net 47,167 44,589
Income taxes receivable 20,828 20,842
Advances on loans and loans
serviced for others 285,778 283,183
Mortgage servicing rights 112,032 101,107
Other assets 83,644 72,033
$ 1,576,893 $ 1,711,150
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 545,592 $ 656,878
Escrow deposits on loans and
loans serviced for others 80,661 73,565
Securities sold under agreements
to repurchase 63,851 79,405
Bonds - match funded agreements 149,090 156,908
Obligations outstanding under
lines of credit 100,651 84,304
Notes, debentures and other
interest bearing obligations 158,041 160,305
Accrued interest payable 15,594 12,836
Excess of net assets acquired
over purchase price --- 18,333
Accrued expenses, payables and
other liabilities 27,664 28,351
Total liabilities 1,141,144 1,270,885
Company obligated, mandatorily
redeemable securities of
subsidiary trust holding solely
junior subordinated debentures
of the Company 61,159 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;
67,308,819 and 67,289,313 shares
issued and outstanding at
March 31, 2002 and December 31,
2001, respectively 673 673
Additional paid-in capital 224,278 224,142
Retained earnings 149,920 154,412
Accumulated other comprehensive
income (loss), net of taxes:
Net unrealized foreign
currency translation gain
(loss) (281) (121)
Total stockholders' equity 374,590 379,106
$ 1,576,893 $ 1,711,150
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
For the three months ended March 31, 2002 2001
Net interest income:
Income $ 12,714 $ 24,817
Expense 16,396 26,880
Net interest expense before
provision for loan losses (3,682) (2,063)
Provision for loan losses 679 8,120
Net interest expense after
provision for loan losses (4,361) (10,183)
Non-interest income:
Servicing and other fees 35,725 31,117
Loss on interest earning assets, net (1,777) (1,831)
Gain on trading and match funded
securities, net 2,791 5,189
Loss on real estate owned, net (4,112) (984)
Gain (loss) on other non-interest
earning assets, net (748) 456
Net operating gains on investments
in real estate 4,655 2,554
Amortization of excess of net assets
acquired over purchase price --- 4,583
Other income 5,031 2,046
41,565 43,130
Non-interest expense:
Compensation and employee benefits 21,074 20,935
Occupancy and equipment 2,714 3,093
Technology and communication costs 5,053 10,148
Loan expenses 3,935 4,235
Net operating losses on investments
in certain affordable housing
properties 15,681 5,062
Amortization of excess of purchase
price over net assets acquired --- 778
Professional services and
regulatory fees 4,596 3,816
Other operating expenses 1,974 2,789
55,027 50,856
Distributions on Company-obligated,
mandatorily redeemable securities of
subsidiary trust holding solely
junior subordinated debentures
of the Company 1,663 2,053
Equity in income (losses) of
investments in unconsolidated
entities (9) 45
Loss before income taxes,
extraordinary gain and effect of
change in accounting principle (19,495) (19,917)
Income tax expense (benefit) (1,165) 5,762
Loss before extraordinary gain
and effect of change in
accounting principle (20,660) (25,679)
Extraordinary gain on repurchase
of debt, net of taxes 2 2,163
Effect of change in accounting
principle 16,166 ---
Net loss $ (4,492) $ (23,516)
Earnings (loss) per share:
Basic and Diluted:
Net loss before extraordinary
gain and cumulative effect of
change in accounting principle $ (0.31) $ (0.38)
Extraordinary gain --- 0.03
Effect of change in accounting
principle 0.24 ---
Net loss $ (0.07) $ (0.35)
Weighted average common shares
outstanding 67,294,490 67,152,363