UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-----------------------------------------------
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report
(Date of earliest event reported): November 12, 2002
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida 0-21341 65-0039856
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
The Forum, Suite 1000
1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401
(Address of principal executive office)(Zip Code)
Registrant's telephone number, including area code: (561) 682-8000
N/A
(Former name or former address, if changed since last report)
Page 1 of 10
Exhibit Index on Page 4
Item 5. Other Events
The news release of the Registrant dated November 12, 2002, announcing its third
quarter 2002 results is attached hereto and filed herewith as Exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) - (b) Not applicable.
(c) Exhibits
The following exhibits are filed as part of this report:
99.1 Text of a press release by the Registrant dated November
12, 2002.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
OCWEN FINANCIAL CORPORATION
(Registrant)
By: /s/ MARK S. ZEIDMAN
-------------------------------------------------
Mark S. Zeidman
Senior Vice President and Chief Financial Officer
Date: November 12, 2002
3
INDEX TO EXHIBIT
Exhibit No. Description Page
----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, dated 5
November 12, 2002, announcing its third quarter
2002 results and certain other information.
4
================================================================================
Exhibit 99.1
[GRAPHIC OMITTED]
OCWEN Ocwen Financial Corporation(R)
================================================================================
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
Robert J. Leist, Jr.
Vice President & Chief Accounting Officer
T: (561) 682-7958
E: rleist@ocwen.com
----------------
OCWEN FINANCIAL CORPORATION ANNOUNCES
THIRD QUARTER RESULTS FOR 2002
West Palm Beach, FL - (November 12, 2002) Ocwen Financial Corporation (NYSE:
OCN) today reported a net loss in the third quarter of 2002 of $(4.0) million or
$(0.06) per share compared to a net loss of $(72.9) million or $(1.08) per share
in the third quarter of 2001. For the nine months ended September 30, 2002 the
Company reported a net loss of $(58.7) million or $(0.87) per share compared to
a net loss of $(117.9) million or $(1.75) per share in the same period of 2001.
Chairman and CEO William C. Erbey stated, "We continue to make progress in our
strategy of transitioning Ocwen to a fee-based business and reducing our
non-core assets.
o For the fifth consecutive quarter our core businesses, in the aggregate,
were profitable. The combined results of Residential Loan Servicing, Ocwen
Technology Xchange(R) (OTX), Ocwen Realty Advisors (ORA) and Unsecured
Collections reflected a substantial improvement over the same period last
year. After adjusting for severance and certain non-recurring items in OTX
in both periods, our core businesses generated pre-tax income of $4.5
million in the third quarter of 2002 as compared to adjusted income of $1.1
million in the 2001 third quarter, an improvement of $3.4 million. Our
annualized 2002 core business results reflect an improvement of $14 million
as compared to 2001 adjusted results and $43 million as compared to
adjusted results in 2000.
o At OTX our REALTrans(R) transaction volumes in the third quarter increased
by 45% to 142,000, as compared to 98,000 in the second quarter of this
year.
o We achieved a reduction in operating expenses of 17% in the third quarter
of 2002 as compared to the same period in 2001, reflecting in part lower
levels of reserve provisions on Affordable Housing properties in the 2002
quarter. Exclusive of reserve increases and severance, expenses in the
third quarter of 2002 declined 11% as compared to the same period last
year.
o Our non-core assets remaining to be sold were $284.3 million as of
September 30, 2002 as compared to $543.3 million at December 31, 2001. We
reduced non-core assets to be sold by $41.5 million or 13% since June 30,
2002. Approximately 74% of these assets consist of commercial real estate,
loans and REO, which earned an annualized effective yield of 9.88% in the
third quarter of 2002.
o Our Corporate Items segment reflected losses of $7.3 million in the 2002
third quarter, largely due to the high interest rates of our older fixed
rate debt instruments. We are continuing to reduce this cost through our
strategy of debt reduction and have reduced total liabilities by $280.4
million or 22% as of September 30, 2002 as compared to December 31, 2001.
Amongst other actions we announced a $73.5 million debt redemption to be
completed during the fourth quarter of 2002 that we estimate will create
savings of $4.7 million over the next twelve months, net of the associated
redemption expenses of $2.5 million.
We also continue to maintain strong liquidity. Our cash and cash equivalents
were $275.7 million as of September 30, 2002, an increase of $31 million or 13%
since June 30, 2002."
The Servicing business reported pre-tax income of $7.2 million in the third
quarter of 2002 vs. $9.1 million in the 2001 third quarter. Year to date in
2002, Servicing reported pre-tax income of $22.8 million as compared to pre-tax
income of $26.1 million for the same period in 2001. 2002 results reflect
earnings pressure from the current low interest rate environment. Our Servicing
business continued to grow in the third quarter. As of September 30, 2002 we
were the servicer of approximately 338 thousand loans with an unpaid principal
balance (UPB) of $29.8 billion, as compared to approximately 302 thousand loans
and $21.9 billion of UPB at December 31, 2001, an increase of 36% in UPB.
5
Ocwen Financial Corporation
Third Quarter Results
November 12, 2002
Pre-tax losses at OTX, after adjusting for severance, changes in the
amortization of intellectual property and goodwill, and certain non-recurring
payments in 2001 and the third quarter of 2002, were $(4.8) million in the 2002
third quarter compared to $(6.8) million in the same period of 2001, an
improvement of 29%. For the nine months ended September 30, 2002 OTX adjusted
results reflected a pre-tax loss of $(15.3) million as compared to a pre-tax
loss of $(21.8) million in 2001, a 30% improvement.
ORA reported pre-tax income of $0.9 million in the third quarter of 2002 as
compared to $0.1 million in the third quarter of 2001 reflecting an improvement
in margin from 2.6% to 27.9%. Year to date, ORA reported pre-tax income of $1.9
million as compared to $0.4 million in 2001.
The Unsecured Collections business posted pre-tax income of $1.1 million in the
third quarter of 2002 vs. a pre-tax loss of $(1.3) million in the 2001 third
quarter. For the nine months ended September 30, 2002 the business reported
pre-tax income of $3.1 million as compared to a pre-tax loss of $(5.6) million
in the same period of 2001. The increase in pre-tax income in this business
primarily reflects the fact 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 a pre-tax loss of $(0.6) million
in the 2002 third quarter as compared to pre-tax income of $3.4 million in the
2001 third quarter. Year to date, the business reported pre-tax income of $1.1
million, as compared to a pre-tax loss of $(2.9) million in 2001. Primarily as a
result of a loan sale during the first quarter of 2002, the amount of loans and
REO remaining as of September 30, 2002 was reduced to $4.2 million, down $49.6
million or 92% from December 31, 2001.
Pre-tax losses for the third quarter of 2002 in the Commercial Finance business
amounted to $(1.4) million as compared to a pre-tax loss of $(7.3) million in
the 2001 third quarter. Third quarter 2001 results reflect impairment charges
and loss provisions on loans and real estate of approximately $6.7 million. For
the nine months ended September 30, 2002, the business reported a pre-tax loss
of $(44.1) million as compared to a pre-tax loss of $(18.5) million in the same
period of 2001. Results year to date for 2002 reflect impairment charges and
loss provisions on loans and real estate of $42.8 million as compared to $18.3
million for the same period of 2001. As of September 30, 2002, reserves on the
remaining commercial loan and REO assets amounted to 20.7% of book value as
compared to 9.25% at December 31, 2001. Total commercial loans, investments in
real estate and REO, consisting of twenty two assets, had a book value of $211.2
million at September 30, 2002, reduced by $143.0 million or 40% from December
31, 2001.
The Affordable Housing business posted a pre-tax loss of $(1.3) million in the
2002 third quarter compared to a pre-tax loss of $(6.5) million in the 2001
third quarter. No provisions for losses on Affordable Housing properties were
recorded in the third quarter of 2002, while $3.7 million of such provisions
were recorded in the 2001 third quarter. For the nine months ended September 30,
2002, the business reported a pre-tax loss of $(31.0) million as compared to a
pre-tax loss of $(21.3) million in the same period of 2001. The Affordable
Housing results year to date for 2002 included total charges of $25.2 million,
as compared to $11.1 million of charges year to date 2001. The 2002 charges
include a discount of approximately $3.9 million on a long term sale in the
second quarter of seven assets with a book value of $29 million. We are
accreting this discount to income over the term of the related receivable
balance. These charges also include loss provisions on properties and loans of
$21.3 million and $11.1 million during the nine months ended September 30, 2002
and 2001, respectively, reflecting revisions in completion cost and financing
estimates as well as modifications to projected sales results. As of September
30, 2002, reserves on Affordable Housing properties and loans had increased to
41% of remaining book value as compared to 16% at December 31, 2001. There are
$45.3 million of Affordable Housing properties and loans remaining as of
September 30, 2002 of which $12.6 million are loans, $13.2 million are
properties subject to sales contracts that have not yet satisfied all of the
accounting criteria for sales treatment and $19.5 million are properties that
remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $3.5
million for the 2002 third quarter as compared to pre-tax income of $2.9 million
in the 2001 third quarter. Year to date, the business reported pre-tax income of
$8.3 million, as compared to pre-tax income of $8.4 million in 2001. The
Company's total portfolio of non-investment grade securities, which consists
largely of subprime residuals, was reduced to $36.6 million at September 30,
2002 as compared to $65.1 million at December 31, 2001, primarily as a result of
sales of securities.
Year to date results include gains on debt repurchases of $1.0 million in 2002
as compared to $3.8 million in the same period of 2001. In accordance with the
provisions of Statement of Financial Accounting Standards No. 145, which the
Company adopted in the second quarter of 2002, these gains are now included as a
component of non interest income. During the third quarter of 2002, the Company
announced a $73.5 million debt redemption to be completed in the fourth quarter
of this year. This initiative will result in expense of $2.5 million in the
fourth quarter of 2002.
6
Ocwen Financial Corporation
Third Quarter Results
November 12, 2002
Year to date results for 2002 also include a net gain of $16.2 million recorded
in the first quarter. This gain represents the effect of a change in accounting
principle for goodwill and intangible assets in accordance with Statements of
Financial Accounting Standards Nos. 141 and 142.
The Company's net effective tax expense in the 2002 third quarter was zero. Tax
expense in the third quarter of 2001 was $65.0 million, representing an increase
to the valuation allowance on the deferred tax asset. Year to date 2002 tax
expense was $1.2 million, representing an offset to the taxes included in the
change in accounting principles. Year to date tax expense in 2001 was $83.0
million, representing an increase to 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 "believe,"
"minimize," "return," "improve," "increase," "grow," "reduce," "decline,"
"progress," "current," "consider," "maintain," "generate," "accrete,"
"estimate," "modify," "project," "subject to," "gain," "result," "evaluate,"
"offset," 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,
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 and economic 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, uncertainty related to dispute resolution and
litigation, 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 (the "SEC"), 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, which filings are available from the SEC.
Undue reliance should not be accorded forward-looking statements, which speak
only as of the date they are made. OCN undertakes no obligation to publicly
update or revise forward-looking statements.
7
Ocwen Financial Corporation
Third Quarter Results
November 12, 2002
Interest Income and Expense
Three Months Nine Months
------------------------ ------------------------
For the periods ended September 30, 2002 2001 2002 2001
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Interest income
Interest earning cash and other ............................ $ 59 $ 41 $ 220 $ 638
Federal funds sold and repurchase agreements ............... 783 1,942 2,055 6,040
Trading securities ......................................... 3,507 4,601 12,024 14,474
Loans ...................................................... 3,075 9,355 10,588 39,602
Match funded loans and securities .......................... 1,188 2,655 5,245 7,875
---------- ---------- ---------- ----------
8,612 18,594 30,132 68,629
---------- ---------- ---------- ----------
Interest expense
Deposits ................................................... 5,990 13,789 21,689 48,167
Securities sold under agreements to repurchase ............. 32 244 230 246
Bonds - match funded agreements ............................ 1,445 1,391 5,161 6,099
Obligations outstanding under lines of credit .............. 833 1,871 2,982 4,327
Notes, debentures and other interest bearing obligations ... 4,625 5,012 13,973 15,076
---------- ---------- ---------- ----------
12,925 22,307 44,035 73,915
---------- ---------- ---------- ----------
Net interest expense before provision for loan losses ...... $ (4,313) $ (3,713) $ (13,903) $ (5,286)
========== ========== ========== ==========
Pre-Tax Income (Loss) by Business Segment
Three Months Nine Months
------------------------ ------------------------
For the periods ended September 30, 2002 2001 2002 2001
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Residential Loan Servicing .................................. $ 7,157 $ 9,052 $ 22,788 $ 26,073
OTX ......................................................... (5,993) (7,762) (16,179) (29,320)
Ocwen Realty Advisors ....................................... 902 83 1,921 429
Unsecured Collections ....................................... 1,057 (1,288) 3,140 (5,629)
Residential Discount Loans .................................. (617) 3,406 1,103 (2,893)
Commercial Finance .......................................... (1,370) (7,277) (44,114) (18,452)
Affordable Housing .......................................... (1,329) (6,467) (30,987) (21,283)
Subprime Finance ............................................ 3,516 2,886 8,325 8,437
Corporate Items and Other ................................... (7,330) (565) (19,694) 7,749
---------- ---------- ---------- ----------
$ (4,007) $ (7,932) $ (73,697) $ (34,889)
========== ========== ========== ==========
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 sales contracts that
have not met accounting criteria for sales treatment.
September 30, December 31,
2002 2001
---------- ----------
(Dollars in thousands)
Loans, net:
Affordable housing .................................... $ 12,613 $ 17,215
All other ............................................. 90,220 168,078
Real estate held for sale ................................ -- 13,418
Investments in real estate ............................... 59,982 116,896
Real estate owned, net ................................... 65,432 110,465
Subordinates, residuals and other trading securities ..... 36,593 65,058
Affordable housing properties ............................ 19,491 52,176
---------- ----------
Total non-core assets to be sold ...................... $ 284,331 $ 543,306
========== ==========
8
Ocwen Financial Corporation
Third Quarter Results
November 12, 2002
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, December 31,
2002 2001
----------- -----------
Assets
Cash and amounts due from depository institutions .................................... $ 11,799 $ 33,442
Interest earning deposits ............................................................ 43,883 101,213
Federal funds sold and repurchase agreements ......................................... 220,000 126,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) ................................... 50,448 161,191
Subordinates, residuals and other securities ...................................... 36,593 65,058
Real estate held for sale ............................................................ -- 13,418
Investments in real estate ........................................................... 59,982 116,896
Affordable housing properties ........................................................ 32,721 102,069
Loans, net ........................................................................... 102,833 185,293
Match funded assets .................................................................. 153,952 174,351
Real estate owned, net ............................................................... 65,432 110,465
Premises and equipment, net .......................................................... 45,748 44,589
Income taxes receivable .............................................................. 22,231 20,842
Advances on loans and loans serviced for others ...................................... 273,767 283,183
Mortgage servicing rights ............................................................ 167,757 101,107
Other assets ......................................................................... 81,906 72,033
----------- -----------
$ 1,369,052 $ 1,711,150
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Deposits ............................................................................. $ 454,812 $ 656,878
Escrow deposits on loans and loans serviced for others ............................... 106,430 73,565
Securities sold under agreements to repurchase ....................................... -- 79,405
Bonds - match funded agreements ...................................................... 142,020 156,908
Obligations outstanding under lines of credit ........................................ 92,567 84,304
Notes, debentures and other interest bearing obligations ............................. 154,755 160,305
Accrued interest payable ............................................................. 12,964 12,836
Excess of net assets acquired over purchase price .................................... -- 18,333
Accrued expenses, payables and other liabilities ..................................... 26,977 28,351
----------- -----------
Total liabilities ................................................................. 990,525 1,270,885
----------- -----------
Minority interest in subsidiaries .................................................... 1,625 --
Company obligated, mandatorily redeemable securities of subsidiary trust holding
solely junior subordinated debentures of the Company .............................. 56,249 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; 67,336,276 and
67,289,313 .shares issued and outstanding at September 30, 2002 and December 31,
2001, respectively ................................................................ 673 673
Additional paid-in capital .......................................................... 224,419 224,142
Retained earnings ................................................................... 95,715 154,412
Accumulated other comprehensive loss, net of taxes:
Net unrealized foreign currency translation loss .................................. (154) (121)
----------- -----------
Total stockholders' equity ...................................................... 320,653 379,106
----------- -----------
$ 1,369,052 $ 1,711,150
=========== ===========
9
Ocwen Financial Corporation
Fourth Quarter Results
November 12, 2002
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, 2002 2001 2002 2001
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net interest expense
Income ............................................................ $ 8,612 $ 18,594 $ 30,132 $ 68,629
Expense ........................................................... 12,925 22,307 44,035 73,915
------------ ------------ ------------ ------------
Net interest expense before provision for loan losses ........... (4,313) (3,713) (13,903) (5,286)
Provision for loan losses ......................................... (901) (388) 10,510 18,029
------------ ------------ ------------ ------------
Net interest expense after provision for loan losses ............ (3,412) (3,325) (24,413) (23,315)
------------ ------------ ------------ ------------
Non-interest income
Servicing and other fees .......................................... 34,024 35,952 105,598 100,809
Loss on interest earning assets, net .............................. -- (1,851) (2,773) (3,260)
Gain on trading and match funded securities, net .................. 944 3,394 3,897 13,133
Loss on real estate owned, net .................................... (337) (715) (16,307) (3,804)
Gain (loss) on other non-interest earning assets, net ............. 508 (414) (333) (933)
Net operating gains (losses) on investments in real estate ........ 495 (1,197) (8,844) 2,068
Amortization of excess of net assets acquired over purchase price . -- 4,583 -- 13,749
Gain (loss) on repurchase of debt ................................. (35) -- 1,039 3,819
Equity in income of investment in unconsolidated entities ......... 115 (84) 146 100
Other income ...................................................... 2,312 1,989 9,669 6,471
------------ ------------ ------------ ------------
38,026 41,657 92,092 132,152
------------ ------------ ------------ ------------
Non-interest expense
Compensation and employee benefits ................................ 19,594 21,531 60,375 63,775
Occupancy and equipment ........................................... 2,914 3,055 8,959 9,322
Technology and communication costs ................................ 6,899 5,675 17,960 21,379
Loan expenses ..................................................... 2,437 4,192 9,808 11,262
Net operating losses on investments in certain affordable housing
properties ...................................................... 225 4,005 22,135 11,823
Amortization of excess of purchase price over net assets acquired . -- 778 -- 2,334
Professional services and regulatory fees ......................... 2,573 3,882 10,341 11,632
Other operating expenses .......................................... 2,450 1,483 7,040 6,786
------------ ------------ ------------ ------------
37,092 44,601 136,618 138,313
------------ ------------ ------------ ------------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior
subordinated debentures of the Company .......................... 1,529 1,663 4,758 5,413
------------ ------------ ------------ ------------
Loss before income taxes and effect of change in accounting
principle ...................................................... (4,007) (7,932) (73,697) (34,889)
Income tax expense .................................................. -- 65,000 1,166 83,000
------------ ------------ ------------ ------------
Net loss before effect of change in accounting principle ........ (4,007) (72,932) (74,863) (117,889)
Effect of change in accounting principle, net of taxes .............. -- -- 16,166 --
------------ ------------ ------------ ------------
Net loss ........................................................ $ (4,007) $ (72,932) $ (58,697) $ (117,889)
============ ============ ============ ============
Earnings (loss) per share Basic and Diluted:
Net loss before effect of change in accounting principle ........ $ (0.06) $ (1.08) $ (1.11) $ (1.75)
Effect of change in accounting principle, net of taxes .......... -- -- 0.24 --
------------ ------------ ------------ ------------
Net loss ..................................................... $ (0.06) $ (1.08) $ (0.87) $ (1.75)
============ ============ ============ ============
Weighted average common shares outstanding .......................... 67,336,246 67,269,343 67,315,913 67,206,688
10