UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report
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(Date of earliest event reported): July 13, 2004
OCWEN FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Florida 1-13219 65-0039856
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
The Forum, Suite 1000
1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (561) 682-8000
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N/A
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(Former name or former address, if changed since last report)
Page 1 of 10
Exhibit Index on Page 4
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 July 13, 2004.
Item 12. Disclosure of Results of Operations and Financial Condition
The news release of the Registrant dated July 13, 2004, announcing
its second quarter results is attached hereto and filed herewith as
Exhibit 99.1.
Page 2 of 10
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
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Mark S. Zeidman
Senior Vice President and Chief Financial Officer
Date: July 19, 2004
Page 3 of 10
INDEX TO EXHIBIT
Exhibit No. Description Page
- ----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, dated 5
July 13, 2004, announcing its second quarter 2004
results and certain other information. Note that
the version of the July 13, 2004 news release that
is filed as an exhibit to this Current Report on
Form 8-K differs in the following respects from the
news release that was issued on July 13, 2004. Due
to a clerical error, the news release that was
issued on July 13, 2004 gave the amount of pre-tax
income (loss) for the three months ended June 30,
2003 for our Residential Loan Servicing business
segment as $8,855 and for our Corporate Items and
Other Business segment as $(3,749). The correct
amounts for these two items are $8,401 and
$(3,294). For the six months ended June 30, 2003,
the news release gave the amount of pre-tax income
(loss) for Residential Loan Servicing as $18,563,
for OTX as $(5,945) and for Corporate Items and
Other as $(7,369). The correct amounts for these
three items are $17,649, $(5,972) and $(6,455). The
version of the press release that is filed as an
exhibit to this Current Report on Form 8-K reflects
the corrections of these amounts and the related
comparative statements in the narrative. All other
amounts remain unchanged.
Page 4 of 10
Exhibit 99.1
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[LOGO OMITTED] Ocwen Financial Corporation(R)
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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
SECOND QUARTER 2004 NET INCOME
West Palm Beach, FL - (July 13, 2004) Ocwen Financial Corporation (NYSE:OCN)
today reported net income for the second quarter of 2004 of $0.8 million or
$0.01 per share compared to net income of $4.1 million or $0.06 per share for
the second quarter of 2003; second quarter 2004 results include a provision of
$9.3 million related to a jury verdict rendered on July 9th, as discussed below.
For the six months ended June 30, 2004 the Company reported net income of $7.5
million or $0.11 per share as compared to a net loss of $(4.3) million or
$(0.06) per share in the same period in 2003. Net income in 2004 would have been
$10.1 million for the second quarter and $16.8 million year to date, excluding
the provision for the jury verdict. (Management is presenting this non-GAAP
financial measure because it believes the measure will assist investors in
making meaningful comparisons to prior periods.)
Chairman and CEO William C. Erbey stated, "We are pleased to report $10.1
million in net income for the quarter, prior to the reserve for the adverse jury
verdict, particularly in light of the continued pressure from low interest rates
and high prepayment speeds on our Residential Loan Servicing business. Among the
points to note with respect to this quarter's results are the following:
o Our core business units reported aggregate pre-tax income of $9.1 million
in the second quarter, an improvement of $1.6 million vs. the 2003 second
quarter. Year to date, our core businesses reported pre-tax income of $17.1
million, up $2.7 million or 19% over the same period last year. Our newer
core businesses - Ocwen Realty Advisors, Unsecured Collections, Business
Process Outsourcing and Commercial Servicing - contributed to this growth,
posting increases in pre-tax income of $1.2 million in the second quarter
of 2004, and $4.2 million in the first six months as compared to the same
periods last year.
o OTX reported pre-tax income of $1.5 million in the second quarter, which
includes the recognition of revenue representing one-time documentation
fees related to our contract with Aegis Mortgage for the use of our
REALServicing(TM) system. This represents the first major commercial
contract for REALServicing. We believe this successful implementation of
the product is a significant milestone for OTX.
o Our non-core businesses reported aggregate pre-tax income of $2.6 million,
primarily representing interest income and mark to market gains resulting
from strong cash flows on our commercial and subprime residual trading
securities.
o Our Corporate segment reported pre-tax losses of $11.0 million in the
second quarter, including the $9.3 million provision related to the recent
jury verdict.
o Non-core assets were reduced to $130.0 million at June 30th, a decline of
$52.2 million or 29% over the balance at December 31, 2003, primarily due
to loan repayments and asset sales.
o Our Residential Loan Servicing business has continued its position as a
high-quality, low cost provider and has remained profitable despite a $9.1
million increase in amortization of mortgage servicing rights and
compensating interest expense in the first six months of 2004 as compared
to the same period last year. We are pleased that the Federal Reserve Board
has begun the process of raising short-term interest rates which will have
an immediate impact on float income and, we believe, over the intermediate
term, a salutary effect on prepayment speeds.
As we have discussed in the past, our strategic restructuring has included
actions to diversify our sources of funding. We believe that the capital markets
may offer cost efficient alternatives to replace our remaining deposit funding
that would permit us to enhance the growth of our Residential Loan Servicing
business. Accordingly, while no final determination has been made, we are
considering actions that may result in Ocwen Federal Bank FSB terminating its
status as a federal savings bank, whereupon Ocwen Financial Corporation would no
longer be a thrift holding company. Such a determination, if any, would be
subject to various contingencies, including regulatory approval."
The Residential Loan Servicing business reported pre-tax income of $4.6 million
in the second quarter of 2004 vs. $8.4 million in the 2003 second quarter. Year
to date, pre-tax income was $10.4 million as compared to $17.6 million in the
same period of 2003. These results reflect the continuing pressures from low
interest rates and rising prepayment speeds in our portfolio. One important
measure of the impact of these trends is the expense associated with mortgage
Page 5 of 10
Ocwen Financial Corporation
Second Quarter Results
July 13, 2004
servicing rights amortization and compensating interest expense. These combined
amounts increased by $2.4 million or 8% in the second quarter of 2004 as
compared to 2003, and by $9.1 million or 16% for the six months ended June 30.
Operating expenses also increased in both the second quarter and year to date
periods in 2004 as compared to 2003, reflecting costs associated with our
property management contract with the United States Department of Veteran's
Affairs and as a result of reassuming, in the fourth quarter of 2003, certain
collection activities that had been performed by outside parties. As a result of
high prepayment rates, as well as reduced purchases of servicing rights, our
servicing portfolio has declined somewhat since the end of 2003. As of June 30,
2004, we were the servicer of approximately 334 thousand loans with an unpaid
principal balance (UPB) of $34.8 billion, as compared to approximately 360
thousand loans and $37.7 billion of UPB at December 31, 2003.
OTX reported pre-tax income of $1.5 million in the 2004 second quarter compared
to a pre-tax loss of $(2.6) million in the 2003 second quarter. Year to date in
2004, OTX reported a pre-tax loss of $(0.2) million as compared to $(6.0)
million in the same period last year. Second quarter 2004 results reflect one
time revenues associated with the service contract between OTX and Aegis
Mortgage for the use of the REALServicing system.
Our other core businesses reported aggregate pre-tax income of $2.9 million in
the second quarter of 2004 as compared to $1.7 million in the second quarter of
2003. For the six months ended June 30, 2004, these businesses reported
aggregate pre-tax income of $6.9 million as compared to $2.7 million in the same
period of 2003. These improvements primarily reflect the growth of our Business
Process Outsourcing business as well as the reduction in losses for Commercial
Servicing, which achieved break-even results for the six months ended June 30,
2004.
Our non-core businesses recorded aggregate pre-tax income of $2.6 million for
the second quarter as compared to pre-tax income of $0.2 million in 2003. Year
to date, these businesses reported aggregate pre-tax income of $0.9 million as
compared to a pre-tax loss of $(12.0) million in the same period of 2003. 2004
second quarter results include interest income from both our commercial and
subprime subordinate trading securities portfolio as well as mark to market
gains on these securities, reflecting strong cash flows during the period. This
revenue was partially offset by impairment charges on two of our remaining
commercial assets.
The Corporate Segment reported a pre-tax loss of $(11.0) million in the second
quarter of 2004 as compared to a loss of $(3.3) million in the same period last
year. Year to date, Corporate reflected a pre-tax loss of $(10.5) million as
compared to $(6.5) million in the same period of 2003. While technology and
interest expenses in Corporate for 2004 were reduced as compared to 2003 in both
the quarter and year to date periods, second quarter 2004 Corporate results
include a provision of $9.3 million related to a recent jury verdict. On July 9,
2004 a jury rendered an adverse verdict in litigation brought by Cartel Asset
Management, Inc. ("Cartel") against the Company and its subsidiaries, Ocwen
Federal Bank FSB and Ocwen Technology Xchange in federal court in Denver,
Colorado. Cartel alleged trade secret and contract-related claims arising out of
real estate valuation services performed from 1997 through the first quarter of
2001, at which time the Company ceased doing business with Cartel. The lawsuit
does not involve challenges to the Company's core Residential Loan Servicing
business practices. We believe that the verdict, which has not yet been reduced
to final judgment, is contrary to the facts and law, and it will be vigorously
challenged in post-trial motions and, if necessary, an appeal to the U.S. Court
of Appeals for the Tenth Circuit.
In summary, aggregate core business earnings in the second quarter of 2004
increased by 22.3% as compared to the second quarter of 2003, while year to date
2004 core business earnings increased 18.5% as compared to the same period in
2003. Non-core assets have been reduced by 29% since the end of 2003. Net income
in 2004 would have been $10.1 million for the second quarter and $16.8 million
year to date, excluding the provision for the jury verdict.
Ocwen Financial Corporation is a diversified financial services holding company
with headquarters in West Palm Beach, Florida and operations in India, Japan and
Taiwan. Ocwen Financial Corporation is engaged in a variety of businesses
related to residential and commercial mortgage servicing, real estate asset
management, asset recovery, business process outsourcing and the marketing and
sales of technology solutions to third parties. Ocwen Financial Corporation is a
global leader in customer service excellence as a result of our company-wide
commitment to quality, integrity and accountability. Additional information
about Ocwen Financial Corporation is available at www.ocwen.com.
Page 6 of 10
Ocwen Financial Corporation
Second Quarter Results
July 13, 2004
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,
interest rates and the impact of changes in interest rates on the servicing
business, the availability of financing alternatives, the potential actions that
may result in our no longer being a thrift holding company, and expectations
with regard to litigation. 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
report on Form 10-K for the year ended December 31, 2003. 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.
Page 7 of 10
Ocwen Financial Corporation
Second Quarter Results
July 13, 2004
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Six Months
- --------------------------------------------------------------- --------------------------- ---------------------------
For the periods ended June 30, 2004 2003 2004 2003
- --------------------------------------------------------------- ----------- ----------- ----------- -----------
Revenue
Servicing and related fees................................... $ 38,602 $ 32,224 $ 80,723 $ 66,052
Vendor management fees....................................... 13,654 6,091 26,828 10,865
Gain (loss) on trading and match funded securities, net...... 2,503 3,188 1,860 2,765
Valuation gains (losses) on real estate...................... (1,974) (6,308) (3,825) (6,009)
Gain (loss) on sales of real estate.......................... 81 13 (460) 92
Operating income (loss) from real estate..................... 565 1,421 573 2,192
Gain on debt repurchases..................................... -- (4) -- (4)
Other income................................................. 4,984 2,776 11,604 5,831
----------- ----------- ----------- -----------
Non-interest revenue....................................... 58,415 39,401 117,303 81,784
----------- ----------- ----------- -----------
Interest income ............................................. 5,962 6,998 10,567 13,755
Interest expense............................................. 7,096 9,404 14,898 18,731
----------- ----------- ----------- -----------
Net interest income (expense) before provision for loan
losses..................................................... (1,134) (2,406) (4,331) (4,976)
Provision for loan losses.................................... (287) (3,250) (819) (3,085)
----------- ----------- ----------- -----------
Net interest income (expense) after provision for loan
losses..................................................... (847) 844 (3,512) (1,891)
----------- ----------- ----------- -----------
Total revenue............................................. 57,568 40,245 113,791 79,893
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Non-interest expense
Compensation and employee benefits........................... 20,897 17,130 42,930 34,838
Occupancy and equipment...................................... 4,021 2,685 8,018 5,515
Technology and communication costs........................... 6,616 4,497 13,285 8,994
Loan expenses................................................ 7,460 3,465 15,387 7,000
Loss (gain) on affordable housing properties................. (41) (56) (79) 314
Professional services and regulatory fees.................... 15,636 4,060 21,461 19,344
Other operating expenses..................................... 2,199 2,554 5,256 4,850
----------- ----------- ----------- -----------
Non-interest expense....................................... 56,788 34,335 106,258 80,855
----------- ----------- ----------- -----------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior
subordinated debentures of the Company (Capital Securities) -- 1,529 -- 3,059
----------- ----------- ----------- -----------
Income (loss) before minority interest and income taxes........ 780 4,381 7,533 (4,021)
Minority interest in net income (loss) of subsidiaries......... (47) (73) (68) (336)
Income tax expense............................................. 55 305 66 612
----------- ----------- ----------- -----------
Net income (loss).......................................... $ 772 $ 4,149 $ 7,535 $ (4,297)
=========== =========== =========== ===========
Earnings (loss) per share
Basic........................................................ $0.01 $0.06 $0.11 $(0.06)
Diluted...................................................... $0.01 $0.06 $0.11 $(0.06)
Weighted average common shares outstanding
Basic........................................................ 68,160,020 67,240,155 67,961,217 67,289,964
Diluted...................................................... 69,534,999 68,372,204 69,314,392 67,289,964
Page 8 of 10
Ocwen Financial Corporation
Second Quarter Results
July 13, 2004
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, December 31,
2004 2003
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Assets
Cash and amounts due from depository institutions.................................. $ 282,099 $ 215,764
Interest earning deposits.......................................................... 7 324
Trading securities, at fair value:
U.S. government and sponsored enterprise securities............................. 4,652 6,679
Subordinates and residuals...................................................... 42,280 42,841
Real estate........................................................................ 68,080 103,943
Affordable housing properties...................................................... 8,198 7,410
Loans, net......................................................................... 11,520 28,098
Match funded assets................................................................ 132,775 130,087
Premises and equipment, net........................................................ 41,633 41,944
Advances on loans and loans serviced for others.................................... 337,320 374,769
Mortgage servicing rights.......................................................... 136,174 166,495
Receivables........................................................................ 85,415 88,157
Other assets....................................................................... 39,016 33,607
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Total assets.................................................................... $ 1,189,169 $ 1,240,118
============== ==============
Liabilities and Stockholders' Equity
Liabilities
Deposits......................................................................... $ 455,669 $ 446,388
Escrow deposits.................................................................. 138,661 116,444
Bonds - match funded agreements.................................................. 117,745 115,394
Lines of credit and other secured borrowings..................................... 50,582 150,384
Notes and debentures............................................................. 56,249 56,249
Accrued interest payable......................................................... 4,099 4,789
Accrued expenses, payables and other liabilities................................. 36,191 31,926
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Total liabilities............................................................... 859,196 921,574
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Minority interest in subsidiaries.................................................. 1,294 1,286
Stockholders' equity
Common stock, $.01 par value; 200,000,000 shares authorized: 68,201,948 and
67,467,220 shares issued and outstanding at June 30, 2004 and December 31,
2003, respectively.............................................................. 682 675
Additional paid-in capital........................................................ 230,440 225,559
Retained earnings................................................................. 97,943 90,409
Accumulated other comprehensive income (loss), net of taxes....................... (386) 615
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Total stockholders' equity.................................................... 328,679 317,258
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Total liabilities and stockholders' equity.................................. $ 1,189,169 $ 1,240,118
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Page 9 of 10
Ocwen Financial Corporation
Second Quarter Results
July 13, 2004
Pre-Tax Income (Loss) by Business Segment
Three Months Six Months
----------------------------- ----------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Core businesses
Residential Loan Servicing.............................. $ 4,637 $ 8,401 $ 10,383 $ 17,649
OTX..................................................... 1,534 (2,645) (237) (5,972)
Ocwen Realty Advisors................................... 1,576 1,594 3,535 2,609
Unsecured Collections................................... 889 964 2,290 2,281
Business Process Outsourcing............................ 707 (77) 1,104 4
Commercial Servicing.................................... (226) (784) (3) (2,165)
----------- ----------- ----------- -----------
9,117 7,453 17,072 14,406
----------- ----------- ----------- -----------
Non-core businesses
Commercial Assets....................................... 190 (4,239) (3,050) (6,668)
Affordable Housing...................................... (1,186) (1,324) (2,159) (3,604)
Subprime Finance........................................ 3,623 5,785 6,127 (1,700)
----------- ----------- ----------- -----------
2,627 222 918 (11,972)
----------- ----------- ----------- -----------
Corporate Items and Other................................. (10,964) (3,294) (10,457) (6,455)
----------- ----------- ----------- -----------
Income (loss) before minority interest and income taxes... $ 780 $ 4,381 $ 7,533 $ (4,021)
=========== =========== =========== ===========
Non-Core Assets
June 30, December 31,
(Dollars in thousands) 2004 2003
---------- -----------
Loans, net
Affordable housing........................................................................ $ 3,635 $ 6,545
All other................................................................................. 7,885 21,553
Real estate.................................................................................. 68,080 103,943
Subordinates, residuals and other trading securities......................................... 42,280 42,841
Affordable housing properties................................................................ 8,198 7,410
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Total non-core assets..................................................................... $ 130,078 $ 182,292
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