WEST PALM BEACH, Fla. , Feb. 3, 2004 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income in the fourth quarter of 2003 of $4.5 million or $0.07 per share compared to a net loss of $(10.1) million or $(.15) per share in the fourth quarter of 2002. For the year ended December 31, 2003, the Company reported net income of $4.8 million or $0.07 per share compared to a net loss of $(68.8) million or $(1.02) per share in 2002.
Chairman and CEO William C. Erbey stated, "We are very pleased to have returned to profitability and to note that our 2003 results reflect positive trends from last year in our core, non-core and corporate segments. Pre-tax core income for 2003 was $29.2 million, an increase of $15.7 million or 116% from last year. Our balance sheet remains strong with cash and cash equivalents of $216.1 million at December 31, 2003 as compared to $192.2 million at December 31, 2002. We also continued to reduce non-core assets during 2003, achieving net reductions of $67.9 million or 27% since December 31, 2002.
"While we are pleased with our results in 2003, we face continuing challenges from the adverse environment that low interest rates and rising prepayment speeds create for our Servicing business. Prepayment speeds in the subprime sector that comprises the vast majority of our servicing portfolio continue at high levels, resulting in significant costs for this business. During 2003, the combined cost of mortgage servicing rights amortization expense and interest on prepayments, which are reported as reductions of fee income, rose by $48.0 million or 62% over 2002 levels. These costs escalated throughout the year, culminating in expenses of $35.3 million in the fourth quarter of this year. It is a testament to the skill and dedication of our team members in the Servicing business that, despite the enormous challenge represented by prepayments, our 2003 results decreased only $1 million or 3% from 2002."
The Servicing business reported pre-tax income of $5.2 million in the fourth quarter of 2003 vs. $9.2 million in the 2002 fourth quarter, reflecting continuing earnings pressure from current low interest rates and rising prepayments in our servicing portfolio. Our fourth quarter Servicing results also included increased expenses reflecting costs associated with our property management contract with the United States Department of Veteran's Affairs and as a result of reassuming certain collection activities that had been performed by outside parties. For 2003, Servicing reported pre-tax income of $31.0 million as compared to pre-tax income of $32.0 million in 2002. Our Servicing business also continued to grow in the fourth quarter. As of December 31, 2003 we were the servicer of approximately 360 thousand loans with an unpaid principal balance (UPB) of $37.7 billion, as compared to approximately 336 thousand loans and $30.7 billion of UPB at December 31, 2002, an increase of 23% in UPB.
Pre-tax losses at OTX were $(3.2) million in the 2003 fourth quarter compared to $(8.0) million in the same period of 2002, an improvement of 60%. OTX results for 2003 reflected a pre-tax loss of $(11.5) million as compared to a pre-tax loss of $(24.1) million in 2002, a 52% improvement.
Ocwen Realty Advisors (ORA) reported pre-tax income of $1.7 million in the fourth quarter of 2003 as compared to $0.7 million in the fourth quarter of 2002, reflecting an increase in net margin from 21% to 31%. For 2003, ORA reported pre-tax income of $5.4 million as compared to $2.6 million in 2002, reflecting an improvement in margin from 18% to 29%.
The Unsecured Collections business reported pre-tax income in the fourth quarter of 2003 of $1.9 million as compared to $0.9 million in 2002. For 2003, the business reported pre-tax income of $5.3 million as compared to $4.0 million in 2002.
In our newest business segments, Global Outsourcing reported pre-tax income of $0.9 million for the fourth quarter and $1.9 million for the year. Our International segment reported losses of $(0.7) million in the fourth quarter and $(2.9) million for the year.
International results for 2003 primarily reflect start-up costs as well as the results of the Global Servicing Solutions (GSS) offices in Tokyo and Taiwan that became operational during 2003. Results for 2002 in this segment reflect activities associated with a one-time consulting contract as well as other precedent ventures, now concluded.
Our non-core businesses recorded a pre-tax loss of $(11.4) million for the year, including the $10 million arbitration settlement in the first quarter of this year as compared to a loss of $(68.2) million in 2002. Pre-tax losses in the Corporate Segment were $(12.8) million in 2003 as compared to $(27.4) million in 2002.
Pre-tax losses for the fourth quarter of 2003 in the Commercial Finance business amounted to $(0.9) million as compared to a pre-tax loss of $(7.8) million in the 2002 fourth quarter. Fourth quarter 2003 results reflect net charges and loss provisions on loans, investments in real estate and REO of $0.7 million as compared to $3.3 million in the fourth quarter of 2002. For 2003 Commercial Finance reported a pre-tax loss of $(10.7) million as compared to $(51.9) million in 2002. Results for 2003 reflect net charges and loss provisions on loans, investments in real estate and REO of $4.0 million as compared to $46.1 million in 2002. As of December 31, 2003, reserves on the remaining commercial loan and REO assets amounted to 27% of gross book value as compared to 24% at December 31, 2002. Total commercial loans, investments in real estate and REO, consisting of 9 properties, had a net book value of $123.8 million at December 31, 2003, reduced by $64.2 million or 34% from December 31, 2002.
The Affordable Housing business reported a pre-tax loss of $(1.3) million in the 2003 fourth quarter compared to a pre-tax loss of $(0.5) million in the 2002 fourth quarter. No provisions for losses on Affordable Housing properties were recorded in the fourth quarter of 2003 or 2002. For 2003, the business reported a pre-tax loss of $(4.9) million as compared to a pre-tax loss of $(31.5) million in 2002. Affordable Housing results for 2003 include provisions of $0.6 million as compared to $24.7 million in 2002. As of December 31, 2003, reserves on the remaining $14.0 million of Affordable Housing properties and loans had increased to 55% of remaining gross book value as compared to 48% at December 31, 2002.
Results in the Subprime Finance business reflected pre-tax income of $4.2 million for the 2003 fourth quarter as compared to pre-tax income of $6.2 million in the 2002 fourth quarter. For 2003, the business reported pre-tax income of $4.2 million as compared to pre-tax income of $14.5 million in 2002. Results for 2003 include 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 $42.8 million at December 31, 2003 as compared to $37.3 million at December 31, 2002. This increase primarily 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 $(3.3) million in the fourth quarter of 2003 as compared to $(8.1) million in 2002, primarily due to reduced interest expense of approximately $2.8 million and the absence in 2003 of a loss on debt redemptions as compared to $2.5 million recorded in the fourth quarter of 2002. These improvements were partially offset by a net increase in technology and other corporate expenses of $0.7 million. For 2003, the pre-tax loss in this segment was $(12.8) million as compared to $(27.4) million in 2002, primarily due to reduced interest expense of $8.7 million, reduced technology and other expenses of $3.8 million and reduced losses on debt redemptions of $1.0 million.
The Company's net tax expense in the 2003 fourth quarter was $0.1 million, representing foreign taxes on GSS operations. For 2003, tax expense was $0.7 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 fourth quarter of 2002 was $1.8 million, also reflecting a tax payment on a non-economic residual security. Tax expense for 2002 was $3.0 million, also reflecting taxes recorded in the first quarter 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, earnings improvement trends, interest rates and the impact of changes in interest rates on the Servicing business and predictions as to future operations coming on line in connection with Global Outsourcing and International. 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, federal income tax rates, recognition of deferred tax credits 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, June 30, 2003 and September 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 Twelve Months
For the periods
ended December 31, 2003 2002 2003 2002
Net interest expense
Income $ 6,296 $ 7,103 $ 24,122 $ 37,235
Expense 9,162 11,727 38,716 55,762
Net interest expense
before provision for
loan losses (2,866) (4,624) (14,594) (18,527)
Provision for loan
losses (14) 3,119 (2,684) 13,629
Net interest income
(expense) after
provision for loan
losses (2,852) (7,743) (11,910) (32,156)
Non-interest income
Servicing and other
fees 43,431 36,393 158,548 141,991
Gain (loss) on
interest earning
assets, net 1 (711) 28 (3,485)
Gain (loss) on trading
and match funded
securities, net 420 3,115 3,344 7,012
Gain (loss) on real
estate owned, net 1,651 587 1,775 (15,719)
Gain (loss) on other
non-interest earning
assets, net 205 1,455 829 1,122
Net operating gains
(losses) on
investments in
real estate (661) 529 (3,661) (8,315)
Gain (loss) on
repurchase of debt --- (2,499) (445) (1,461)
Equity in income
(loss) of
investments in
unconsolidated
entities --- 68 38 215
Other income 4,083 3,433 18,091 13,097
Non-interest
income 49,130 42,370 178,547 134,457
Non-interest expense
Compensation and
employee benefits 19,716 17,403 72,221 77,778
Occupancy and
equipment 4,390 2,885 13,159 11,843
Technology and
Communication
costs 6,544 7,309 21,121 25,270
Loan expenses 3,417 2,797 14,252 12,605
Net operating losses
on investments in
affordable housing
properties 226 225 1,335 22,360
Amortization/writeoff
of excess of purchase
price over net assets
acquired --- 2,231 --- 2,231
Professional services
and regulatory fees 4,199 6,042 26,054 16,383
Other operating
expenses 3,386 2,565 10,409 9,601
Non-interest
expense 41,878 41,457 158,551 178,071
Distributions on Company-
obligated, mandatorily
redeemable securities
of subsidiary trust
holding solely junior
subordinated
debentures of
the Company --- 1,529 3,058 6,287
Income (loss) before
minority interest,
income taxes and
effect of change in
accounting principle 4,400 (8,359) 5,028 (82,057)
Minority interest in
net income (loss) of
subsidiaries (184) (99) (492) (99)
Income tax expense 130 1,818 748 2,983
Net income (loss)
before effect of
change in
accounting
principle 4,454 (10,078) 4,772 (84,941)
Effect of change in
accounting principle,
net of taxes --- --- --- 16,166
Net income
(loss) $ 4,454 $ (10,078) $ 4,772 $ (68,775)
Earnings (loss) per share
Basic
Net income
(loss) before
effect of change
in accounting
principle $ 0.07 $ (0.15) $ 0.07 $ (1.26)
Effect of change
in accounting
principle, net
of taxes --- --- --- 0.24
Net income
(loss) $ 0.07 $ (0.15) $ 0.07 $ (1.02)
Diluted
Net income (loss)
before effect
of change in
accounting
principle $ 0.07 $ (0.15) $ 0.07 $ (1.26)
Effect of change
in accounting
principle,
net of taxes --- --- ---- 0.24
Net income
(loss) $ 0.07 $ (0.15) $ 0.07 $ (1.02)
Weighted average
common shares
outstanding
Basic 67,222,211 67,337,454 67,166,888 67,321,299
Diluted 68,446,366 67,337,454 68,009,663 67,321,299
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
December 31, December 31,
2003 2002
Assets
Cash and amounts due
from depository
institutions $ 215,764 $ 76,598
Interest earning
Deposits 324 30,649
Federal funds sold
and repurchase
agreements --- 85,000
Trading securities,
at fair value:
Collateralized
mortgage
obligations
(AAA-rated) and
U.S. Treasury
securities 6,679 21,556
Subordinates,
residuals and
other securities 42,841 37,339
Investments in real estate 53,430 58,676
Affordable housing
properties 7,410 15,319
Loans, net 28,098 76,857
Match funded assets 130,087 167,744
Real estate owned, net 50,513 62,039
Premises and equipment,
net 41,944 44,268
Advances on loans and
loans serviced for others 374,769 266,356
Mortgage servicing rights 166,495 171,611
Receivables 88,399 78,944
Other assets 33,365 29,286
Total assets $ 1,240,118 $ 1,222,242
Liabilities and
Stockholders' Equity
Liabilities
Deposits $ 446,388 $ 425,970
Escrow deposits on
loans and loans
serviced for others 116,444 84,986
Bonds - match funded
agreements 115,394 147,071
Lines of credit and
other secured
borrowings 150,384 82,746
Notes and debentures 56,249 76,975
Accrued interest
payable 4,789 7,435
Accrued expenses,
payables and other
liabilities 31,926 28,314
Total liabilities 921,574 853,497
Minority interest in
subsidiaries 1,286 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:
67,467,220 and 67,339,773
shares issued and
outstanding at
December 31, 2003
and December 31, 2002,
respectively 675 673
Additional paid-in capital 225,559 224,454
Retained earnings 90,409 85,637
Accumulated other
comprehensive income
(loss), net of taxes:
Net unrealized foreign
currency translation
gain (loss) 615 (46)
Total stockholders'
equity 317,258 310,718
Total liabilities
and stockholders'
equity $ 1,240,118 $ 1,222,242
Pre-Tax Income (Loss) by Business Segment
For the periods
ended December 31, Three Months Twelve Months
2003 2002 2003 2002
(Dollars in thousands)
Core businesses
Residential Loan
Servicing $ 5,235 $ 9,186 $ 31,043 $ 31,974
OTX (3,195) (7,965) (11,520) (24,144)
Ocwen Realty
Advisors 1,666 675 5,432 2,597
Unsecured
Collections 1,878 866 5,300 4,006
Global Outsourcing 886 118 1,893 118
International
Operations (701) (687) (2,946) (1,022)
5,769 2,193 29,202 13,529
Non-core businesses
Residential Discount
Loans --- (340) --- 763
Commercial Finance (934) (7,833) (10,657) (51,947)
Affordable Housing (1,280) (534) (4,888) (31,521)
Subprime Finance 4,168 6,211 4,188 14,536
1,954 (2,496) (11,357) (68,169)
Corporate Items
and Other (3,323) (8,056) (12,817) (27,417)
Income (loss) before
minority interest,
income taxes and
effect of change
in accounting
principle $ 4,400 $ (8,359) $ 5,028 $ (82,057)
Non-Core Assets
(Dollars in thousands) December 31, December 31,
2003 2002
Loans, net
Affordable housing $ 6,545 $ 6,229
All other 21,553 70,628
Investments in real
estate 53,430 58,676
Real estate owned, net 50,513 62,039
Subordinates, residuals
and other trading securities 42,841 37,339
Affordable housing properties 7,410 15,319
Total non-core assets $ 182,292 $ 250,230
Interest Income and Expense
For the periods ended Three Months Twelve Months
December 31, 2003 2002 2003 2002
(Dollars in thousands)
Interest income
Federal funds sold
and repurchase
agreements $ 325 $ 574 $ 1,403 $ 2,629
Trading securities 4,974 4,556 17,345 16,580
Loans 293 692 1,614 11,279
Match funded loans
and securities 571 1,218 3,402 6,463
Interest earning
cash and other 133 63 358 284
6,296 7,103 24,122 37,235
Interest expense
Deposits 4,138 5,767 17,546 27,455
Securities sold
under agreements
to repurchase --- 6 3 236
Notes and debentures 1,529 3,647 9,929 17,346
Bonds - match
funded agreements 1,774 1,412 5,414 6,573
Lines of credit and
other secured
borrowings 1,721 895 5,824 4,152
9,162 11,727 38,716 55,762
Net interest expense
before provision
for loan losses $ (2,866) $ (4,624) $(14,594) $(18,527)