WEST PALM BEACH, Fla., August 7, 2003 (PRIMEZONE) -- Ocwen Financial Corporation (NYSE:OCN) today reported net income in the second quarter of 2003 of $4.1 million or $0.06 per share compared to a net loss of $(50.2) million or $(0.75) per share in the second quarter of 2002. For the six months ended June 30, 2003 the Company reported a net loss of $(4.3) million or $(0.06) per share compared to a net loss of $(54.7) million or $(0.81) per share in 2002.
Chairman and CEO William C. Erbey stated, "Our return to profitability in the second quarter is a significant milestone in our strategy of transitioning Ocwen to a fee-based business and reducing our non-core assets. Our core businesses recorded aggregate pre-tax income of $7.5 million in the second quarter of this year, an increase of $3.1 million or 71% from the second quarter of last year. Year to date, pre-tax core income was $14.7 million, an increase of $6.1 million or 70% from the same period last year. Our non-core businesses attained break-even in the second quarter, and losses in the Corporate Segment declined by $2.2 million or 40% in the second quarter and $6 million or 48% year to date as compared to the same periods last year.
-- Non-core assets were reduced by $44.4 million in the second
quarter. Although we recorded an impairment charge of $5.5
million on a remaining real estate investment, we also
recorded net gains of $3.7 million on the assets sold during
the quarter.
-- We closed on $59.7 million of new financing arrangements during
the quarter, continuing our efforts to diversify our funding
sources. We also repurchased $18.2 million of callable 6%
certificates of deposit in order to further reduce interest
expense.
-- Our Residential Loan Servicing business recorded another strong
quarter, with pre-tax earnings of $8.4 million, net of an
impairment charge of $0.4 million in the second quarter.
-- During the second quarter of 2003 we repurchased 494,500 shares
of our common stock for $2.2 million. Approximately 214,000 of
these shares will be issued as restricted stock during the
third quarter as part of our annual incentive awards to employees
for service in 2002.
Our balance sheet remains strong with cash and cash equivalents of $260 million at June 30, 2003 as compared to $192.2 million at December 31, 2002."
The Servicing business reported pre-tax income of $8.4 million in the second quarter of 2003 vs. $8.1 million in the 2002 second quarter, despite the continuing earnings pressure from the current low interest rate environment and an impairment charge of $0.4 million in 2003. For the first six months of 2003, Servicing reported pre-tax income of $17.6 million as compared to pre-tax income of $15.6 million in the same period of 2002, an increase of 13%. Our Servicing business also recorded significant growth in the second quarter. As of June 30, 2003 we were the servicer of approximately 340 thousand loans with an unpaid principal balance (UPB) of $33.7 billion, as compared to approximately 336 thousand loans and $30.7 billion of UPB at December 31, 2002, an increase of 10% in UPB.
Pre-tax losses at OTX were $(2.6) million in the 2003 second quarter compared to $(4.9) million in the same period of 2002, an improvement of 46%. Year to date, 2003 OTX results reflected a pre-tax loss of $(6.0) million as compared to a pre-tax loss of $(10.2) million in the same period of 2002, a 41% improvement. REALTrans(r) transaction volumes in the second quarter increased by 45% to 336 thousand, as compared to 231 thousand in the first quarter of this year.
Ocwen Realty Advisors (ORA) reported pre-tax income of $1.6 million in the second quarter of 2003 as compared to $0.5 million in the second quarter of 2002 reflecting an improvement in margin from 14% to 32%. Year to date in 2003, ORA reported pre-tax income of $2.6 million as compared to $1.0 million in 2002.
The Unsecured Collections business reported results consistent with last year, posting pre-tax income of $1.0 million in the second quarter of 2003 vs. pre-tax income of $1.1 million in the 2002 second quarter. For the six months ended June 30, 2003 the business reported pre-tax income of $2.3 million as compared to $2.1 million in 2002. In our newest business segments, Global Outsourcing reported a loss of $0.08 million in the second quarter and pre-tax income of $0.004 million year to date, primarily reflecting start up costs incurred in connection with training for new contracts expected to begin operations in the third quarter. Our International segment reported losses of $0.8 million in the second quarter and $1.9 million year to date in 2003. These results continue to reflect start up costs associated with the formation of Global Servicing Solutions (GSS), our joint venture with Merrill Lynch. 2002 results in this sector reflect activities associated with a one-time consulting contract as well as other precedent ventures, now discontinued.
Pre-tax losses for the second quarter of 2003 in the Commercial Finance business amounted to $(4.3) million as compared to a pre-tax loss of $(38.3) million in the 2002 second quarter. Second quarter 2003 results reflect net charges and loss provisions on loans, investments in real estate and REO of $2.8 million as compared to $35.2 million in the second quarter of 2002. During the second quarter of 2003 three loans and one REO property were sold with a combined net book value prior to sale of $46.5 million. The net charges and loss provisions recorded during the 2003 second quarter included a $5.5 million charge to write-down an investment in real estate, partially offset by the $3.7 million of net gains from asset sales. Year to date, Commercial Finance reported a pre-tax loss of $(6.9) million in 2003 as compared to $(42.7) million in 2002. Year to date results for 2003 reflect net charges and loss provisions on loans, investments in real estate and REO of $2.4 million as compared to $43.1 million in the same period of 2002. As of June 30, 2003, reserves on the remaining commercial loan and REO assets amounted to 26% of book value as compared to 20% at June 30, 2002. Total commercial loans, investments in real estate and REO, consisting of 14 properties, had a book value of $136.6 million at June 30, 2003, reduced by $110.6 million or 45% from June 30, 2002.
The Affordable Housing business posted a pre-tax loss of $(1.3) million in the 2003 second quarter compared to a pre-tax loss of $(11.7) million in the 2002 second quarter. No provisions for losses on Affordable Housing properties were recorded in the second quarter of 2003, while $6 million of such provisions were recorded in the 2002 second quarter. For the six months ended June 30, 2003, the business reported a pre-tax loss of $(3.6) million as compared to a pre-tax loss of $(29.7) million in 2002. Year to date 2003 results for Affordable Housing include provisions of $0.4 million, while year to date 2002 results included total charges of $21.3 million. As of June 30, 2003, reserves on Affordable Housing properties and loans had increased to 51% of remaining book value as compared to 40% at June 30, 2002. There are $18.5 million of Affordable Housing properties and loans remaining as of June 30, 2003 of which $6.3 million are loans and $9.4 million are properties that remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $5.8 million for the 2003 second quarter as compared to pre-tax income of $0.2 million in the 2002 second quarter. Year to date, the business reported a pre-tax loss of $(1.7) million, as compared to pre-tax income of $4.9 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 $43 million at June 30, 2003 as compared to $37.3 million at June 30, 2002. This increase reflects the transfer of securities formerly classified as "Match Funded Securities" to the trading portfolio as a result of the repurchase and retirement of the associated match funded debt.
Corporate Items and Other reported a pre-tax loss of $(3.3) million in the second quarter of 2003 as compared to $(5.5) million in 2002. Year to date the pre-tax loss in this segment was $(6.5) million as compared to $(12.4) million in the same period last year. The reduction in the second quarter of this year is primarily due to a reduction in interest expense of $2.1 million and a reduction in technology expenses of $1.8 million, partially offset by a gain on debt repurchases of $1 million in 2002. The year to date reduction reflects a reduction in interest expense of approximately $3.9 million and a reduction in technology and other corporate expenses of approximately $3.2 million.
The Company's net tax expense in the 2003 second quarter was $0.3 million, and was $0.6 million for the year to date period, reflecting tax payments related to investments in non-economic residual securities with no book value. Tax expense in the second quarter of 2002 was zero. Year to date 2002 tax expense was $1.2 million, related to 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 may contain 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, sales of non-core assets, earnings improvement trends, and predictions as to future operations. 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 quarter ended March 31, 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)
For the periods ended Three Months Six Months
June 30, 2003 2002 2003 2002
Net interest expense
Income $ 6,998 $ 8,806 $ 13,755 $ 21,520
Expense 9,405 14,714 18,731 31,110
Net interest
expense before
provision for
loan losses (2,407) (5,908) (4,976) (9,590)
Provision for
loan losses (3,251) 10,732 (3,085) 11,411
Net interest income
(expense) after
provision for
loan losses 844 (16,640) (1,891) (21,001)
Non-interest income
Servicing and
other fees 37,130 35,848 74,778 71,574
Gain (loss) on
interest earning
assets, net 27 (996) 27 (2,773)
Gain (loss) on trading
and match funded
securities, net 3,188 161 2,765 2,953
Gain (loss) on real
estate owned, net (279) (11,858) (23) (15,970)
Gain (loss) on other
non-interest
earning assets, net 180 (93) 474 (841)
Net operating gains
(losses) on investments
in real estate (4,595) (13,993) (3,702) (9,339)
Gain (loss) on
repurchase of debt (4) 1,070 (4) 1,074
Other income 4,036 2,368 8,038 7,400
Non-interest income $ 39,683 $ 12,507 $ 82,353 $ 54,078
Non-interest expense
Compensation and
employee benefits $ 17,130 $ 19,708 $ 34,838 $ 40,781
Occupancy and
equipment 2,685 3,331 5,515 6,045
Technology and
communication
costs 4,497 6,009 8,994 11,061
Loan expenses 3,465 3,436 7,000 7,371
Net operating losses
on investments
in affordable
housing properties 226 6,228 883 21,910
Professional services
and regulatory fees 4,060 3,172 19,344 7,768
Other operating
expenses 2,554 2,615 4,851 4,602
Non-interest expense 34,617 44,499 81,425 99,538
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior
subordinated debentures
of the Company 1,529 1,566 3,058 3,229
Income (loss) before
minority interest,
income taxes and
effect of change
in accounting
principle 4,381 (50,198) (4,021) (69,690)
Minority interest in
net loss of
subsidiaries (73) - (336) -
Income tax expense 305 - 612 1,166
Net income (loss)
before effect of
change in accounting
principle 4,149 (50,198) (4,297) (70,856)
Effect of change in
accounting principle,
net of taxes - - - 16,166
Net income (loss) $ 4,149 $ (50,198) $ (4,297) $(54,690)
Earnings (loss) per share
Basic
Net income (loss)
before effect of
change in
accounting
principle $ 0.06 $ (0.75) $ (0.06) $ (1.05)
Effect of change in
accounting
principle,
net of taxes - - - .24
Net income
(loss) $ 0.06 $ (0.75) $ (0.06) $ (0.81)
Diluted
Net income
(loss) $ 0.06 $ (0.75) $ (0.06) $ (0.81)
Weighted average common
shares outstanding
Basic 67,240,155 67,317,005 67,289,964 67,305,747
Diluted 68,372,204 67,317,005 67,289,964 67,305,747
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, December 31,
Assets 2003 2002
Cash and amounts due from
depository institutions $ 65,836 $ 76,598
Interest earning deposits 124,164 30,649
Federal funds sold and
repurchase agreements 70,000 85,000
Trading securities,
at fair value:
Collateralized mortgage
obligations (AAA-rated)
and U.S. Treasury securities 8,829 21,556
Subordinates, residuals
and other securities 43,007 37,339
Investments in real estate 55,453 58,676
Affordable housing properties 12,182 15,319
Loans, net 35,922 76,857
Match funded assets 152,968 167,744
Real estate owned, net 53,781 62,039
Premises and equipment, net 42,373 44,268
Advances on loans and loans
serviced for others 304,690 266,356
Mortgage servicing rights 180,789 171,611
Receivables 77,099 78,944
Other assets 35,842 29,286
Total Assets $ 1,262,935 $ 1,222,242
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 391,371 $ 425,970
Escrow deposits on loans
and loans serviced for
others 105,395 84,986
Bonds - match funded
agreements 130,110 147,071
Lines of credit and other
secured borrowings 161,398 82,746
Notes and debentures 76,540 76,975
Accrued interest payable 6,527 7,435
Accrued expenses, payables
and other liabilities 29,151 28,314
Total liabilities 900,492 853,497
Minority interest in subsidiaries 1,442 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:
66,866,974 and 67,339,773 shares
issued and outstanding at
June 30, 2003 and December 31,
2002, respectively 669 673
Additional paid-in capital 222,274 224,454
Retained earnings 81,340 85,637
Accumulated other comprehensive
income (loss), net of taxes:
Net unrealized foreign
currency translation
gain (loss) 469 (46)
Total stockholders' equity 304,752 310,718
Total liabilities and
stockholders' equity $ 1,262,935 $ 1,222,242
Pre-Tax Income (Loss) by
Business Segment
For the periods ended Three Months Six Months
June 30, 2003 2002 2003 2002
(Dollars in thousands)
Core businesses
Residential Loan
Servicing $ 8,401 $ 8,083 $ 17,649 $ 15,631
OTX (2,645) (4,904) (5,972) (10,186)
Ocwen Realty
Advisors 1,594 499 2,609 1,019
Unsecured
Collections 964 1,139 2,281 2,083
Global Outsourcing (77) - 4 -
International
Operations (757) (438) (1,908) 63
7,480 4,379 14,663 8,610
Non-core businesses
Residential Discount
Loans - 757 - 1,668
Commercial Finance (4,266) (38,324) (6,925) (42,744)
Affordable Housing (1,324) (11,675) (3,604) (29,658)
Subprime Finance 5,785 168 (1,700) 4,861
195 (49,074) (12,229) (65,873)
Corporate Items
and Other (3,294) (5,503) (6,455) (12,427)
$ 4,381 $ (50,198) $ (4,021) $ (69,690)
Non-Core Assets
The following table presents a summary of the Company's non-core
assets remaining to be sold.
June 30, December 31,
(Dollars in thousands) 2003 2002
Loans, net
Affordable housing $ 6,274 $ 6,229
All other 29,648 70,628
Investments in real estate 55,453 58,676
Real estate owned, net 53,781 62,039
Subordinates, residuals and
other trading securities 43,007 37,339
Affordable housing properties 9,412 10,861
Total non-core assets to be sold $ 197,575 $ 245,772
Interest Income and Expense
For the periods ended Three Months Six Months
June 30, 2003 2002 2003 2002
(Dollars in thousands)
Interest income
Interest earning cash
and other $ 96 $ 69 $ 146 $ 161
Federal funds sold
and repurchase
agreements 419 693 737 1,272
Trading securities 4,757 4,159 9,622 8,517
Loans 737 2,077 1,109 7,513
Match funded loans
and securities 989 1,808 2,141 4,057
6,998 8,806 13,755 21,520
Interest expense
Deposits 4,535 7,082 9,400 15,699
Securities sold under
agreements to
repurchase - 71 3 198
Bonds - match funded
agreements 1,258 1,807 2,564 3,716
Lines of credit
and other secured
borrowings 1,319 1,180 2,176 2,331
Notes and debentures 2,293 4,574 4,588 9,166
9,405 14,714 18,731 31,110
Net interest expense
before provision
for loan losses $ (2,407) $ (5,908) $(4,976) $ (9,590)