WEST PALM BEACH, Fla., Nov. 8, 2001 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported a pre-tax loss in the third quarter of 2001 of $(7.9) million. This was reduced from a pre-tax loss of $(10.9) million reported in the second quarter of 2001. The Company also announced that it was recording a non-cash provision of $65 million to increase the Company's valuation allowance on its deferred tax asset, which resulted in a net loss for its third quarter ended September 30, 2001 of $(72.9) million or $(1.08) per share compared to a net loss of $(0.7) million or $(0.01) per share for the 2000 third quarter. For the nine months ended September 30, 2001, the Company reported a net loss of $(117.9) million vs. a net loss of $(7.2) million for the 2000 nine-month period, or $(1.75) and $(0.11) per share, respectively.
Chairman and CEO William C. Erbey stated, "While third quarter results were hurt by the additional tax reserve, our net deferred tax asset has been reduced to $12.9 million, and we do not anticipate a need for further reserves in the foreseeable future. When the Company returns to profitability the reserve can be reversed into income. Our focus is on improving operating results. We intend to do this by continuing to make progress towards our three goals of growing our servicing businesses, making OTX profitable and selling our non-core assets. A number of developments during the third quarter marked further progress towards these goals:
-- For the second consecutive quarter, the combined results of our
core fee businesses, Servicing and OTX, were profitable.
-- The volume of loans boarded and serviced for others continued to
grow, reaching $21.4 billion at the end of the third quarter as
compared to $15.4 million at the end of the second quarter. The
growth in loans serviced reflects the successful completion of
the transfer of the New Century servicing portfolio, our largest
transfer to date.
-- The volume of orders processed on REALTrans(r) in the third
quarter grew by 15% over the second quarter. Transaction volume
in the month of October showed dramatic growth of over 67% as
compared to the third quarter monthly average. Further, an
additional two of the top thirty mortgage lenders in the country
signed up to use REALTrans.
-- We also made progress in reducing our operating expenses.
Excluding the Servicing business, and adjusted for reserves and
certain non-recurring items in both periods, operating expenses
decreased by $13.9 million, or 15% in the nine months ended
September 30, 2001 as compared to the same period in 2000.
Servicing has achieved a 23.4% unit cost reduction through the
first nine months of 2001 compared to the fourth quarter of 2000.
-- We reduced our exposure to those non-core assets that remain to
be sold by approximately $118 million or 15% from $792 million at
the end of the second quarter to $674 million at the end of the
third quarter. Third quarter Commercial asset sales were
adversely impacted by the September 11 tragedy as a number of
transactions had been scheduled to close at the end of the
quarter. However, fourth quarter activity to date has been
strong, with sales of approximately $68.1 million.
As we have noted in the past, our focus on accelerating the disposition of our remaining non-core assets means that near-term earnings pressures may continue. Nevertheless, we believe that our equity of $386.1 million and cash and equivalents of $328.7 million provide us with the requisite financial strength and liquidity to achieve our objectives."
The Servicing business reported net income for the third quarter of 2001 of $5.6 million vs. $2.0 million in the 2000 third quarter, an increase of 176%. On a year to date basis, Servicing reported net income of $16.2 million compared to $8.5 million in 2000, an increase of 91%. The unpaid principal balance of loans serviced for others grew to $21.4 billion as of September 30, 2001 compared to $10.5 billion as of December 31, 2000.
Net losses at OTX were $(4.8) million in the 2001 third quarter compared to $(5.8) million in the same period of 2000. For the nine months ended September 30, 2001, net losses amounted to $(18.2) million vs. $(15.5) million in 2000. The improvement in the third quarter of 2001 is primarily due to cost reduction initiatives undertaken earlier in 2001. The nine month increase in losses in 2001 compared to the same period in 2000 primarily reflects $4.7 million of pre-tax costs in 2001 associated with one time events, including a payment related to the acquisition of an OTX subsidiary in 1998.
The Residential Discount Loan business recorded net income of $2.1 million in the 2001 third quarter, primarily as a result of the sale of $63.6 million of discount loans, resulting in a net gain of $3.1 million after considering reductions in the loan loss allowance. The amount of loans and REO remaining on the books at September 30, 2001 totaled $68.4 million, down $81.1 million or 54% from June 30, 2001. Reserves on the remaining balances remain at the highest level ever recorded.
Losses for the third quarter of 2001 in the Commercial loan business amounted to $(5.0) million, largely due to additional loss reserves of $4.3 million provided during the third quarter. 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 $388.3 million at September 30, 2001, reduced by $18.6 million or 5% from June 30, 2001. As noted above, third quarter sales that were planned for the end of the quarter were adversely impacted by the tragedy of September 11. However, fourth quarter sales-to-date have been strong at approximately $68.1 million.
The Unsecured Collections business posted a loss of $(0.8) million in the third quarter of 2001, vs. $(2.2) million in the 2000 third quarter. For the nine-month period in 2001, net losses were $(3.5) million as compared to $(6.6) million for the same period of 2000. This business, which is accounted for on a cost recovery basis, has recorded diminishing losses in 2001 because the remaining assets have been largely either collected or reserved. At September 30, 2001, the remaining net book value of unsecured collection receivables totaled only $0.8 million.
The Affordable Housing business posted a net loss of $(3.4) million in the 2001 third quarter compared to a loss of $(2.4) million in the 2000 third quarter. Affordable Housing results include additional non-cash reserves of approximately $3.7 million during the third quarter reflecting revisions in completion cost estimates as well as modification to projected sales results. Of the remaining properties of $108 million in this business, $64.8 million are subject to sales contracts that have not yet satisfied all of the accounting criteria for sales treatment.
Ongoing efforts to dispose of the remaining assets in the inactive Subprime Lending business resulted in net income of $1.8 million for the 2001 third quarter, primarily due to a pre-tax gain of $1.4 million associated with a third quarter sale of subprime residual trading securities. The Company's total portfolio of non-investment grade securities, which consists largely of subprime residuals, was reduced from $88.0 million at the end of the second quarter to $81.7 million at the end of the third quarter.
Third quarter 2001 results did not include an extraordinary gain on debt repurchases, while gains of $2.6 million were recorded in the 2000 third quarter. Even though no such transactions were recorded during the third quarter of 2001, due to pricing levels, the Company continues to evaluate additional debt repurchases.
Income tax expense for the third quarter of 2001 included a non-cash provision to increase the Company's valuation allowance on its deferred tax asset by $65 million. For the nine months ended September 30, 2001, the company recorded $83 million of such provisions. No such provisions were recorded in the third quarter or nine-month period of 2000.
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," "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, 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, 2000.
Interest Income and Expense
Three Months Nine Months
For the periods
ended September 30, 2001 2000 2001 2000
(Dollars in
thousands)
Interest income:
Federal funds
sold and
repurchase
agreements $ 1,942 $ 2,544 $ 6,040 $ 5,118
Trading
securities 4,601 -- 14,474 --
Securities
available
for sale -- 12,831 -- 42,508
Loans available
for sale 76 450 440 2,174
Investment
securities and
other 41 352 638 1,181
Loan portfolio 1,577 4,651 5,079 13,956
Match funded
loans and
securities 2,655 2,611 7,875 8,874
Discount loan
portfolio 7,702 21,848 34,083 70,021
--------- --------- --------- ---------
18,594 45,287 68,629 143,832
--------- --------- --------- ---------
Interest expense:
Deposits 13,789 25,852 48,168 75,330
Securities sold
under
agreements to
repurchase 244 2,761 244 10,685
Bonds - match
funded
agreements 1,391 2,948 6,099 9,095
Obligations
outstanding
under lines of
credit 1,871 4,371 4,327 11,783
Notes,
debentures and
other interest
bearing
obligations 5,012 8,501 15,077 26,598
--------- --------- --------- ---------
22,307 44,433 73,915 133,491
--------- --------- --------- ---------
Net interest
income
(expense)
before
provision for
loan losses $ (3,713) $ 854 $ (5,286) $ 10,341
========= ========= ========= =========
Net (Loss) Income by Business Segment
Three Months Nine Months
For the periods
ended
September 30, 2001 2000 2001 2000
(Dollars in
thousands)
Residential
discount loans $ 2,112 $ 4,149 $ (1,794) $ 11,605
Commercial
loans (5,022) (4,010) (12,349) (2,570)
Residential loan
servicing 5,612 2,031 16,165 8,463
Affordable
Housing (3,445) (2,357) (11,679) (1,136)
OTX (4,813) (5,756) (18,180) (15,502)
Commercial Real
Estate 510 9,489 909 12,187
Subprime lending 1,789 (4,832) 5,229 (12,740)
Unsecured
collections (799) (2,235) (3,490) (6,599)
Ocwen Realty
Advisors 51 (292) 266 (2)
Corporate items
and other (68,927) 3,133 (92,966) (883)
--------- --------- --------- ---------
$ (72,932) $ (680) $(117,889) $ (7,177)
========= ========= ========= =========
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.
As of
September 30, June 30,
2001 2001
(Dollars in thousands)
Total loans $294,171 $388,497
Total investments in real estate 132,967 135,826
REO, net 121,865 129,042
Residual and subordinate
trading securities 81,698 88,050
Affordable Housing properties 43,299 50,611
-------- --------
Total non-core assets to be sold $674,000 $792,026
======== ========
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, 2001 2000 2001 2000
-------------------- --------------- ---------------
Net interest income:
Income $ 18,594 $ 45,287 $ 68,629 $ 143,832
Expense 22,307 44,433 73,915 133,491
-------- -------- -------- --------
Net interest
income (expense)
before provision
for loan
losses (3,713) 854 (5,286) 10,341
Provision for
loan losses (388) 6,861 18,029 12,604
-------- -------- -------- --------
Net interest
income (expense)
after provision
for loan losses (3,325) (6,007) (23,315) (2,263)
-------- -------- -------- --------
Non-interest income:
Servicing and
other fees 35,952 25,318 100,809 72,043
Gain (loss) on
interest earning
assets, net (1,851) 1,453 (3,260) 17,717
Gain on trading
and match funded
securities, net 3,394 (2,406) 13,133 (2,406)
Impairment charges
on securities
available for sale -- -- -- (11,597)
Loss on real
estate owned, net (715) (5,011) (3,804) (15,760)
Gain (loss) on other
non interest earning
assets, net (414) 16,682 (933) 21,864
Net operating gains
(losses) on
investments in
real estate (1,196) 9,543 2,068 23,894
Amortization of
excess of net
assets acquired
over purchase
price 4,583 2,995 13,749 8,788
Other income 1,989 962 6,472 3,172
-------- -------- -------- --------
41,742 49,536 128,234 117,715
-------- -------- -------- --------
Non-interest expense:
Compensation and
employee benefits 21,531 22,134 63,775 61,114
Occupancy and
equipment 3,055 3,141 9,322 9,356
Technology and
communication costs 5,675 6,344 21,379 17,718
Loan expenses 4,192 3,583 11,262 10,500
Net operating losse
on investments in
certain low-income
housing tax credit
interests 4,005 3,691 11,823 6,030
Amortization of
excess of purchase
price over net
assets
acquired 778 778 2,334 2,346
Professional services
and regulatory fees 3,882 2,425 11,632 9,016
Other operating
expenses 1,484 2,604 6,787 8,538
-------- -------- -------- --------
44,602 44,700 138,314 124,618
-------- -------- -------- --------
Distributions on
Company-obligated,
mandatorily redeemable
securities of subsidiary
trust holding solely
junior subordinated
debentures of the
Company 1,663 2,730 5,413 8,842
Equity in income (losses)
of investments in
unconsolidated entities (84) (893) 100 (4,965)
-------- -------- -------- --------
Loss before income
taxes and extraordinary
gain (7,932) (4,794) (38,708) (22,973)
Income tax (expense)
benefit (65,000) 1,486 (81,587) 7,122
-------- -------- -------- --------
Loss before
extraordinary gain (72,932) (3,308) (120,295) (15,851)
Extraordinary gain on
repurchase of debt,
net of taxes -- 2,628 2,406 8,674
-------- -------- -------- --------
Net loss $ (72,932) $ (680) $ (117,889) $ (7,177)
======== ======== ======== ========
Earnings (loss)
per share:
Basic:
Loss before
extraordinary gain $ (1.08) $ (0.05) $ (1.79) $ (0.24)
Extraordinary gain -- 0.04 0.04 0.13
--------- -------- -------- --------
Net loss $ (1.08) $ (0.01) $ (1.75) $ (0.11)
========= ========= ======== ========
Diluted:
Loss before
extraordinary gain $ (1.08) $ (0.05) $ (1.79) $ (0.24)
Extraordinary gain -- 0.04 0.04 0.13
-------- -------- -------- --------
Net loss $ (1.08) $ (0.01) $ (1.75) $ (0.11)
========= ======== ======== ========
Weighted average
common shares
outstanding:
Basic 67,269,343 67,152,363 67,206,688 67,519,428
========== ========== ========== ==========
Diluted 67,269,343 67,152,363 67,206,688 67,519,428
========== ========== ========== ==========
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, 2001 December 31, 2000
------------------ -----------------
Assets:
Cash and amounts due
from depository
institutions $ 23,172 $ 18,749
Interest earning deposits 18,564 134,987
Federal funds sold and
repurchase agreements 287,000 --
Trading securities,
at fair value:
Collateralized mortgage
obligations (AAA-rated) 143,318 277,595
Subordinates, residuals
and other securities 81,698 112,647
Loans available for sale,
at lower of cost or market 1,339 10,610
Real estate held for sale 33,588 22,670
Low-income housing tax
credit interests held
for sale 27,618 87,083
Investment in real estate 99,379 122,761
Investments in low-income
housing tax credit interests 80,496 55,729
Investment securities, at cost 4,659 13,257
Loan portfolio, net 73,650 93,414
Discount loan portfolio, net 219,182 536,028
Match funded loans and
securities, net 82,315 116,987
Investments in unconsolidated
entities 773 430
Real estate owned, net 121,865 146,419
Premises and equipment, net 44,472 43,152
Income taxes receivable 28,551 30,261
Deferred tax asset, net 12,919 95,991
Advances on loans and loans
serviced for others 303,089 227,055
Mortgage servicing rights 90,368 51,426
Other assets 62,393 52,169
-------- --------
$ 1,840,408 $ 2,249,420
============ ============
Liabilities and
Stockholders' Equity
Liabilities:
Deposits $ 806,539 $ 1,202,044
Escrow deposits on loan
and loans serviced
for others 92,344 56,316
Securities sold under
agreements to repurchase 66,434 --
Bonds - match funded
agreements 73,660 107,050
Obligations outstanding
under lines of credit 110,573 32,933
Notes, debentures and
other interest bearing
obligations 169,130 173,330
Accrued interest payable 20,178 22,096
Excess of net assets
acquired over purchase
price 22,916 36,665
Accrued expenses, payables
and other liabilities 31,391 36,030
-------- --------
Total liabilities 1,393,165 1,666,464
-------- --------
Company obligated, mandatorily
redeemable securities of
subsidiary trust holding
solely junior subordinated
debentures of the Company 61,159 79,530
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;
67,283,460 and 67,152,363
shares issued and outstanding
at September 30, 2001, and
December 31, 2000,
respectively 673 672
Additional paid-in capital 224,089 223,163
Retained earnings 161,306 279,194
Accumulated other comprehensive
(loss) income, net of taxes:
Net unrealized foreign currency
translation (loss) gain 16 397
-------- --------
Total stockholders' equity 386,084 503,426
-------- --------
$ 1,840,408 $ 2,249,420
============ ============