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 8, 2001
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 8, 2001 announcing its third
quarter 2001 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 8, 2001.
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 8, 2001
3
INDEX TO EXHIBIT
Exhibit No. Description Page
- ----------- ----------- ----
99.1 News release of Ocwen Financial Corporation dated 5
November 8, 2001, announcing its 2001 third quarter
results and certain other information.
4
- --------------------------------------------------------------------------------
[logo omitted] Exhibit 99.1
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
West Palm Beach, FL - (November 8, 2001) 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:
o For the second consecutive quarter, the combined results of our core
fee businesses, Servicing and OTX, were profitable.
o 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 billion 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.
o 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.
o 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.
o 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
5
Ocwen Financial Corporation
Third Quarter Results
November 8, 2001
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
6
Ocwen Financial Corporation
Third Quarter Results
November 8, 2001
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.
7
Ocwen Financial Corporation
Third Quarter Results
November 8, 2001
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
========== ==========
8
Ocwen Financial Corporation
Third Quarter Results
November 8, 2001
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 losses 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
============ ============ ============ ============
9
Ocwen Financial Corporation
Third Quarter Results
November 8, 2001
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, December 31,
2001 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 loans 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
============ ============
10