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
(Date of earliest event reported): February 6, 2003
OCWEN FINANCIAL CORPORATION
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(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
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(Address of principal executive office)(Zip Code)
Registrant's telephone number, including area code: (561) 682-8000
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 5. Other Events
The news release of the Registrant dated February 6, 2003, announcing its fourth
quarter and year 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
February 6, 2003.
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: February 7, 2003
3
INDEX TO EXHIBIT
Exhibit No. Description Page
----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, dated 5
February 6, 2003, announcing its fourth quarter and
year 2002 results and certain other information.
4
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Exhibit 99.1
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
FOURTH QUARTER AND 2002 RESULTS
West Palm Beach, FL - (February 6, 2003) Ocwen Financial Corporation (NYSE: OCN)
today reported a net loss in the fourth quarter of 2002 of $(7.8) million or
$(0.12) per share compared to a net loss of $(6.9) million or $(0.10) per share
in the fourth quarter of 2001. For the year ended December 31, 2002 the Company
reported a net loss of $(66.5) million or $(0.99) per share compared to a net
loss of $(124.8) million or $(1.86) per share in 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. Our fourth quarter results reflect this progress. Core business
earnings were once again profitable. Non-core businesses were break-even and the
Corporate segment recorded a loss. From a consolidated perspective, our fourth
quarter pre-tax loss of $6.1 million included non-recurring and severance
charges totaling $6.5 million that will lower our expense structure going
forward.
o We recorded an expense of $2.5 million in the Corporate segment associated
with the completion of our $73.5 million debt redemption. This initiative
will reduce annualized interest expense by $8.0 million in 2003.
o Results at OTX included $2.8 million of charges related to intangible
assets, including the final amortization of intellectual property of $0.6
million and a $2.2 million write-off of the remaining goodwill associated
with our REALServicing(TM) product. We remain positive on the future sales
potential of REALServicing, but concluded that the absence of sales in 2002
made this appropriate under current accounting standards. Fourth quarter
results also included a payment of $0.5 million representing the final
payment due under the terms of our 1997 purchase of AMOS, Inc.
o During the fourth quarter we also completed an expense reduction initiative
which included a charge of $0.7 million of severance expenses in the
quarter. We estimate that this initiative will result in annual
compensation and benefit savings of approximately $3.0 million
Our core business earnings are especially noteworthy because our Residential
Loan Servicing business established record earnings in the fourth quarter of
2002, posting pre-tax income of $9.2 million despite the challenges of the
current low interest rate environment. Our balance sheet remains strong, as our
non-core assets remaining to be sold declined to $246 million, a reduction of
13.6% since September 30, and our cash and cash equivalents amounted to $192
million."
The Servicing business reported record pre-tax income of $9.2 million in the
fourth quarter of 2002 vs. $8.5 million in the 2001 fourth quarter, despite the
continuing earnings pressure from the current low interest rate environment. For
2002, Servicing reported pre-tax income of $32.0 million as compared to pre-tax
income of $34.6 million in 2001, a decline of 7.5%, largely reflecting the
interest rate environment in 2002. Our Servicing business continued to grow in
the fourth quarter. As of December 31, 2002 we were the servicer of
approximately 336 thousand loans with an unpaid principal balance (UPB) of $30.7
billion, as compared to approximately 302 thousand loans and $21.9 billion of
UPB at December 31, 2001, an increase of 40% in UPB.
Pre-tax losses at OTX, after adjusting for severance, amortization and
write-offs of intellectual property and goodwill, and certain non-recurring
payments in both periods were $(4.5) million in the 2002 fourth quarter compared
to $(5.7) million in the same period of 2001, an improvement of 21%. For the
year ended December 31, 2002 OTX adjusted results reflected a pre-tax loss of
$(19.1) million as compared to a pre-tax loss of $(26.6) million in 2001, a 28%
improvement. REALTrans(R) transaction volumes in the fourth quarter increased by
10% to 156 thousand, as compared to 142 thousand in the third quarter of this
year. Annual click volumes in 2002 were 471 thousand as compared to 286 thousand
in 2001, an increase of 65%.
5
Ocwen Financial Corporation
Fourth Quarter and Year 2002 Results
February 6, 2003
ORA reported pre-tax income of $0.7 million in the fourth quarter of 2002 as
compared to $0.5 million in the fourth quarter of 2001 reflecting an improvement
in margin from 14.5% to 21%. For 2002, ORA reported pre-tax income of $2.6
million as compared to $0.9 million in 2001.
The Unsecured Collections business posted pre-tax income of $0.9 million in the
fourth quarter of 2002 vs. pre-tax income of $0.6 million in the 2001 fourth
quarter. For the year ended December 31, 2002 the business reported pre-tax
income of $4.0 million as compared to a pre-tax loss of $(5.0) million in 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 $(0.3) million
in the 2002 fourth quarter as compared to a pre-tax loss of $(1.7) million in
the 2001 fourth quarter. For the year, the business reported pre-tax income of
$0.8 million, as compared to a pre-tax loss of $(4.0) 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 December 31, 2002 was reduced to $3.0 million, down
$50.8 million or 94% from December 31, 2001.
Pre-tax losses for the fourth quarter of 2002 in the Commercial Finance business
amounted to $(5.6) million as compared to a pre-tax loss of $(2.6) million in
the 2001 fourth quarter. Fourth quarter 2002 results reflect loss provisions on
loans and real estate owned of approximately $3.4 million as compared to $1.3
million in the 2001 fourth quarter. For the year ended December 31, 2002, the
business reported a pre-tax loss of $(49.7) million as compared to a pre-tax
loss of $(21.0) million in the same period of 2001. Results for 2002 reflect
impairment charges and loss provisions on loans and real estate owned of $46.1
million as compared to $19.6 million for 2001. As of December 31, 2002, reserves
on the remaining commercial loan and REO assets amounted to 24.2% of book value
as compared to 9.3% at December 31, 2001. Total commercial loans, investments in
real estate and REO, consisting of 18 assets, had a book value of $188.0 million
at December 31, 2002, reduced by $166.1 million or 47% from December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(0.5) million in the
2002 fourth quarter compared to a pre-tax loss of $(8.6) million in the 2001
fourth quarter. No provisions for losses on Affordable Housing properties were
recorded in the fourth quarter of 2002, while $4.5 million of such provisions
were recorded in the 2001 fourth quarter. For the year ended December 31, 2002,
the business reported a pre-tax loss of $(31.5) million as compared to a pre-tax
loss of $(29.9) million in 2001. Affordable Housing results for 2002 included
total charges of $24.7 million, as compared to $16.8 million of charges in 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
$17.4 million and $15.6 million during the years ended December 31, 2002 and
2001, respectively, reflecting revisions in completion cost and financing
estimates as well as modifications to projected sales results. As of December
31, 2002, reserves on Affordable Housing properties and loans had increased to
48% of remaining book value as compared to 16% at December 31, 2001. There are
$21.5 million of Affordable Housing properties and loans remaining as of
December 31, 2002 of which $6.2 million are loans, $4.4 million are properties
subject to sales contracts that have not yet satisfied all of the accounting
criteria for sales treatment and $10.9 million are properties that remain to be
sold.
Results in the Subprime Finance business reflected pre-tax income of $6.2
million for the 2002 fourth quarter as compared to pre-tax income of $5.3
million in the 2001 fourth quarter. For the year, the business reported pre-tax
income of $14.5 million, as compared to pre-tax income of $13.1 million in 2001.
The Company's total portfolio of non-investment grade securities, which consists
largely of subprime residuals, was reduced to $37.3 million at December 31, 2002
as compared to $65.1 million at December 31, 2001, primarily as a result of
sales of securities.
Results for 2002 include a net loss on debt repurchases of $(1.5) million,
reflecting a loss of $(2.5) million in the fourth quarter related to the
redemption of $73.5 million of debt securities at a premium, partially offset by
gains of $1.0 million on repurchases earlier in the year. This compares to gains
of $3.8 million recorded in 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.
The Company's net effective tax expense in the 2002 fourth quarter was $1.8
million, reflecting a tax payment related to an investment in a non-economic
residual security with no book value. Tax expense in the fourth quarter of 2001
was zero. 2002 total tax expense was $2.9 million, representing the fourth
quarter payment as well tax expense recorded in the first quarter to offset the
taxes included in the change in accounting principles. Tax expense in 2001 was
$83.0 million, representing an increase to the valuation allowance on the
deferred tax asset.
6
Ocwen Financial Corporation
Fourth Quarter and Year 2002 Results
February 6, 2003
Ocwen Financial Corporation is a financial services company headquartered in
West Palm Beach, Florida. The Company's primary business is the servicing and
special servicing of nonconforming, subperforming and nonperforming residential
and commercial mortgage loans. Ocwen also specializes in the development of
related loan servicing technology and software for the mortgage and real estate
industries. Additional information about Ocwen Financial Corporation is
available at www.ocwen.com.
This news release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, but not limited to, the
discussion of progress in Ocwen's strategy of transitioning to a fee-based
business and reducing non-core assets, expectations with regard to reduction of
losses, earnings trends, deposit reductions, and decreases in technology support
staff, and predictions as to future sales. 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 September 30, 2002 and Form
10-K for the year ended December 31, 2001. 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.
7
Ocwen Financial Corporation
Fourth Quarter and Year 2002 Results
February 6, 2003
Interest Income and Expense
Three Months Twelve Months
-------------------- --------------------
For the periods ended December 31, 2002 2001 2002 2001
- ------------------------------------------------------------- -------- -------- -------- --------
(Dollars in thousands)
Interest income
Interest earning cash and other ........................... $ 63 $ 105 $ 284 $ 743
Federal funds sold and repurchase agreements .............. 574 1,288 2,629 7,328
Trading securities ........................................ 4,556 4,391 16,580 18,865
Loans ..................................................... 692 6,488 11,279 46,090
Match funded loans and securities ......................... 1,218 2,470 6,463 10,345
-------- -------- -------- --------
7,103 14,742 37,235 83,371
-------- -------- -------- --------
Interest expense
Deposits .................................................. 5,767 11,800 27,455 59,967
Securities sold under agreements to repurchase ............ 6 283 236 529
Bonds - match funded agreements ........................... 1,412 1,216 6,573 7,315
Obligations outstanding under lines of credit ............. 805 1,184 3,787 5,511
Notes, debentures and other interest bearing obligations .. 3,737 4,931 17,711 20,007
-------- -------- -------- --------
11,727 19,414 55,762 93,329
-------- -------- -------- --------
Net interest expense before provision for loan losses ..... $ (4,624) $ (4,672) $(18,527) $ (9,958)
======== ======== ======== ========
Pre-Tax Income (Loss) by Business Segment
Three Months Twelve Months
-------------------- --------------------
For the periods ended December 31, 2002 2001 2002 2001
- ------------------------------------------------------------- -------- -------- -------- --------
(Dollars in thousands)
Core businesses
Residential Loan Servicing ................................ $ 9,186 $ 8,518 $ 31,974 $ 34,591
OTX ....................................................... (7,965) (7,072) (24,144) (36,392)
Ocwen Realty Advisors ..................................... 675 516 2,597 944
Unsecured Collections ..................................... 866 609 4,006 (5,020)
-------- -------- -------- --------
2,762 2,571 14,433 (5,877)
-------- -------- -------- --------
Non-core businesses
Residential Discount Loans ................................ (340) (1,657) 763 (4,002)
Commercial Finance ........................................ (5,583) (2,562) (49,697) (21,014)
Affordable Housing ........................................ (534) (8,635) (31,521) (29,917)
Subprime Finance .......................................... 6,211 5,266 14,536 13,155
-------- -------- -------- --------
(246) (7,588) (65,919) (41,778)
-------- -------- -------- --------
Corporate Items and Other ................................... (8,626) (1,876) (28,321) 5,873
-------- -------- -------- --------
$ (6,110) $ (6,893) $(79,807) $(41,782)
======== ======== ======== ========
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.
December 31, December 31,
2002 2001
------------ ------------
(Dollars in thousands)
Loans, net
Affordable housing .................................... $ 6,229 $ 17,215
All other ............................................. 70,628 168,078
Real estate held for sale ............................... -- 13,418
Investments in real estate .............................. 58,676 116,896
Real estate owned, net .................................. 62,039 110,465
Subordinates, residuals and other trading securities .... 37,339 65,058
Affordable housing properties ........................... 10,861 52,176
---------- ----------
Total non-core assets to be sold ...................... $ 245,772 $ 543,306
========== ==========
8
Ocwen Financial Corporation
Fourth Quarter and Year 2002 Results
February 6, 2003
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
December 31, December 31,
2002 2001
----------- -----------
Assets
Cash and amounts due from depository institutions ................................ $ 76,598 $ 23,081
Interest earning deposits ........................................................ 30,649 111,574
Federal funds sold and repurchase agreements ..................................... 85,000 126,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) and U.S. Treasury notes ........ 21,556 161,191
Subordinates and residuals ..................................................... 37,339 65,058
Real estate held for sale ........................................................ -- 13,418
Investments in real estate ....................................................... 58,676 116,896
Affordable housing properties .................................................... 15,319 102,069
Loans, net ....................................................................... 76,857 185,293
Match funded assets .............................................................. 167,744 174,351
Real estate owned, net ........................................................... 62,039 110,465
Premises and equipment, net ...................................................... 44,268 44,589
Income taxes receivable .......................................................... 20,841 20,842
Advances on loans and loans serviced for others .................................. 266,356 283,183
Mortgage servicing rights ........................................................ 171,611 101,107
Other assets ..................................................................... 87,389 72,033
----------- -----------
$ 1,222,242 $ 1,711,150
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Deposits ......................................................................... $ 425,970 $ 656,878
Escrow deposits on loans and loans serviced for others ........................... 84,986 73,565
Securities sold under agreements to repurchase ................................... -- 79,405
Bonds - match funded agreements .................................................. 147,071 156,908
Obligations outstanding under lines of credit .................................... 78,511 84,304
Notes, debentures and other interest bearing obligations ......................... 81,210 160,305
Accrued interest payable ......................................................... 7,435 12,836
Excess of net assets acquired over purchase price ................................ -- 18,333
Accrued expenses, payables and other liabilities ................................. 26,064 28,351
----------- -----------
Total liabilities .............................................................. 851,247 1,270,885
----------- -----------
Minority interest in subsidiaries ................................................ 1,778 --
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; 67,339,773 and
67,289,313 shares issued and outstanding at December 31, 2002 and December 31,
2001, respectively ............................................................. 673 673
Additional paid-in capital ....................................................... 224,454 224,142
Retained earnings ................................................................ 87,887 154,412
Accumulated other comprehensive loss, net of taxes:
Net unrealized foreign currency translation loss ............................... (46) (121)
----------- -----------
Total stockholders' equity ................................................... 312,968 379,106
----------- -----------
$ 1,222,242 $ 1,711,150
=========== ===========
9
Ocwen Financial Corporation
Fourth Quarter and Year 2002 Results
February 6, 2003
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Twelve Months
--------------------------- ---------------------------
For the periods ended December 31, 2002 2001 2002 2001
- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net interest expense
Income .............................................................. $ 7,103 $ 14,742 $ 37,235 $ 83,371
Expense ............................................................. 11,727 19,414 55,762 93,329
------------ ------------ ------------ ------------
Net interest expense before provision for loan losses ............. (4,624) (4,672) (18,527) (9,958)
Provision for loan losses ........................................... 3,119 (2,363) 13,629 15,666
------------ ------------ ------------ ------------
Net interest expense after provision for loan losses .............. (7,743) (2,309) (32,156) (25,624)
------------ ------------ ------------ ------------
Non-interest income
Servicing and other fees ............................................ 36,393 33,788 141,991 134,597
Loss on interest earning assets, net ................................ (712) (689) (3,485) (3,949)
Gain on trading and match funded securities, net .................... 3,115 3,197 7,012 16,330
Gain (loss) on real estate owned, net ............................... 588 (5,452) (15,719) (9,256)
Gain (loss) on other non-interest earning assets, net ............... 1,455 (122) 1,122 (1,054)
Net operating gains (losses) on investments in real estate .......... 529 3,513 (8,315) 5,581
Amortization of excess of net assets acquired over purchase price ... -- 4,583 -- 18,333
Gain (loss) on repurchase of debt ................................... (2,500) (44) (1,461) 3,774
Equity in income of investment in unconsolidated entities ........... 69 205 215 304
Other income ........................................................ 3,446 2,288 13,115 8,759
------------ ------------ ------------ ------------
42,383 41,267 134,475 173,419
------------ ------------ ------------ ------------
Non-interest expense
Compensation and employee benefits .................................. 17,403 21,139 77,778 84,914
Occupancy and equipment ............................................. 2,884 2,255 11,843 11,577
Technology and communication costs .................................. 7,310 5,389 25,270 26,768
Loan expenses ....................................................... 2,797 4,549 12,605 15,811
Net operating losses on investments in certain affordable housing
properties ........................................................ 225 4,757 22,360 16,580
Amortization/writeoff of excess of purchase price over net assets
acquired .......................................................... 2,231 778 2,231 3,112
Professional services and regulatory fees ........................... 3,792 3,118 14,133 14,749
Other operating expenses ............................................ 2,579 2,148 9,619 8,935
------------ ------------ ------------ ------------
39,221 44,133 175,839 182,446
------------ ------------ ------------ ------------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior subordinated
debentures of the Company ........................................... 1,529 1,718 6,287 7,131
------------ ------------ ------------ ------------
Loss before minority interest, income taxes and effect of change in
accounting principle ................................................ (6,110) (6,893) (79,807) (41,782)
Minority interest in net loss of subsidiaries ......................... (99) -- (99) --
Income tax expense .................................................... 1,817 -- 2,983 83,000
------------ ------------ ------------ ------------
Net loss before effect of change in accounting principle ............ (7,828) (6,893) (82,691) (124,782)
Effect of change in accounting principle, net of taxes ................ -- -- 16,166 --
------------ ------------ ------------ ------------
Net loss ............................................................ $ (7,828) $ (6,893) $ (66,525) $ (124,782)
============ ============ ============ ============
Earnings (loss) per share
Basic and Diluted:
Net loss before effect of change in accounting principle ............ $ (0.12) $ (0.10) $ (1.23) $ (1.86)
Effect of change in accounting principle, net of taxes .............. -- -- 0.24 --
------------ ------------ ------------ ------------
Net loss .......................................................... $ (0.12) $ (0.10) $ (0.99) $ (1.86)
============ ============ ============ ============
Weighted average common shares outstanding ............................ 67,337,454 67,288,168 67,321,299 67,227,058
10