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): May 7, 2002
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 May 7, 2002, announcing its first
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 May 7, 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: May 7, 2002
3
INDEX TO EXHIBIT
Exhibit No. Description Page
----------- ----------- ----
99.1 News release of Ocwen Financial Corporation 5
dated May 7, 2002, 5 announcing its first
quarter 2002 results and certain other
information.
4
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Exhibit 99.1
O C W E N
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
FIRST QUARTER RESULTS FOR 2002
West Palm Beach, FL - (May 7, 2002) Ocwen Financial Corporation (NYSE: OCN)
today reported a net loss in the first quarter of 2002 of $(4.5) million or
$(0.07) per share compared to $(23.5) million or $(0.35) per share in the first
quarter of 2001.
Chairman and CEO William C. Erbey stated, "Our first quarter results mark
continued progress in the execution of our strategic plan.
o Non-core assets remaining to be sold declined by $139 million or 26% during
the first quarter. Reserves on our remaining non core assets as of March
31, 2002 are at an all time high as a percentage of asset values.
o The first quarter 2002 combined results of our core businesses, Residential
Loan Servicing, Ocwen Technology Xchange (OTX), Ocwen Realty Advisors (ORA)
and Unsecured Collections, reflected a substantial improvement over the
same period last year. After adjusting for certain non-recurring items in
each period and for the change in accounting for intangible assets, our
core businesses generated a gain of $4.7 million in the first quarter of
2002 vs. a loss of $(1.6) million in the 2001 first quarter, an improvement
of $6.3 million.
o Our Servicing business continued to grow in the first quarter. As of March
31, 2002 we were the servicer of approximately 310 thousand loans with an
unpaid principal balance (UPB) of $23.5 billion, as compared to
approximately 303 thousand loans and $21.9 billion of UPB at December 31,
2001, an increase of 7.3% in UPB. In addition, in March, the Residential
Servicing business received Moody's Investor's Services top rating of
"Strong" or "SQ1" for its Subprime Servicing and Special Servicing
capabilities.
o Our REALTrans product has established a strong market presence. Our
existing clients originate more than 25% of all mortgages in the USA. This
position was further strengthened during the first quarter with the
addition of three Top 30 originators.
o Our first quarter earnings were adversely impacted by write-downs of $15.3
million on assets in our Affordable Housing business reflecting our ongoing
evaluation of asset values. We had approximately $33 million of loans and
properties remaining to be sold in this business as of March 31, 2002.
o We continued our strategy of maintaining strong liquidity while reducing
our debt. During the first quarter of 2002, our cash and cash equivalents
rose by $13 million to $274 million as of March 31, 2002 while we reduced
our total liabilities by $129.7 million or 10.2% from year-end levels.
As we have noted in the past, our focus on accelerating the disposition of our
remaining non-core assets means that near term earnings pressure may continue.
However, we are enthusiastic about the prospects for our servicing and
technology businesses and believe that our equity of $375 million and cash and
equivalents of $274 million provide us with the requisite financial strength and
liquidity to achieve our objectives."
The Servicing business reported pre-tax income for the first quarter of 2002 of
$7.5 million vs. $8.5 million in the 2001 first quarter. First quarter 2002
results include a provision of $1 million related to a pending settlement of a
class action litigation claim.
Pre-tax losses at OTX were $(5.3) million in the 2002 first quarter compared to
$(13.8) million in the same period of 2001. After considering the impact of
certain non-recurring expenses in 2001, the effect of the change in accounting
principles for goodwill and intangible assets, and the impact of intercompany
revenues in 2002, OTX results improved by $1.8 million in the first quarter of
2002 compared to the same period of 2001.
ORA reported pre-tax income of $520 thousand in the first quarter of 2002 as
compared to $141 thousand in the first quarter of 2001 reflecting both a revenue
increase of $1.4 million or 51% and an improvement in margin from 5.2% to 12.6%.
5
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
The Unsecured Collections business posted pre-tax income of $ 0.9 million in the
first quarter of 2002 vs. a pre-tax loss of $(2.2) million in the 2001 first
quarter. The increase in pre-tax income in this business reflects the facts 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 pre-tax income of $1.1 million
in the 2002 first quarter, as compared to a pre-tax loss of $(1.8) million in
the 2001 first quarter. As a result of a loan sale during the first quarter of
2002, the amount of loans and REO remaining as of March 31, 2002 was reduced to
$11.7 million, down $42.1 million or 78% from December 31, 2001.
Pre-tax losses for the first quarter of 2002 in the Commercial Finance business
amounted to $(4.4) million as compared to a pre-tax loss of $(8.0) million in
the 2001 first quarter. Results in both periods include approximately $7 million
of loan loss provisions and asset reserves. 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 $315 million at March 31, 2001,
reduced by $39 million or 11% from December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(18.0) million in the
2002 first quarter compared to a loss of $(7.9) million in the 2001 first
quarter. Affordable Housing results in 2002 include additional non-cash reserves
of approximately $15.3 million during the first quarter reflecting revisions in
completion cost estimates as well as modifications to projected sales results.
There are $95.8 million of Affordable Housing properties and loans remaining as
of March 31, 2002 of which $62.7 million are subject to sales contracts,
although they have not yet satisfied all of the accounting criteria for sales
treatment, and $33.1 million remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $4.5
million for the 2002 first quarter as compared to pre-tax income of $1.7 million
in the 2001 first quarter. First quarter 2002 results primarily reflect trading
gains of $3.4 million on the portfolio of subprime residual securities. The
Company's total portfolio of non-investment grade securities, which consists
largely of subprime residuals, was reduced to $39.9 million at March 31, 2002 as
compared to $65.1 million at December 31, 2001, primarily as a result of sales
of securities.
First quarter 2002 results include an extraordinary gain, net of tax, of $2
thousand reflecting the repurchase of $225 thousand face value of debt as
compared to net extraordinary gains of $2.2 million in the 2001 first quarter.
While the Company has reduced the volume of these transactions in recent
quarters in light of current pricing levels, it continues to evaluate additional
debt repurchases.
In accordance with Statements of Financial Accounting Standards 141 and 142,
which were effective for the year beginning January 1, 2002, the 2002 results
also include a net gain of $16.2 million representing the effect of a change in
accounting principles for goodwill and intangible assets. This primarily
consists of approximately $18.3 million representing the remaining balance at
December 31, 2001 of the Excess of Net Assets Acquired Over Purchase Price. This
was partially offset by a write down of $3.3 million related to the remaining
balance of goodwill and intangible assets recorded in connection with the
formation of REALSynergy, Inc. in 1999 and a related tax benefit of $1.2
million.
The Company's tax provision for the first quarter of 2002 reflects an expense of
$1.2 million which offsets the benefit related to the change in accounting for
intangible assets. The net effective tax expense in the 2002 first quarter was
zero. Tax expense in the first quarter of 2001 was $5.8 million which included a
provision of $10 million to increase 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.
6
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
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," "increase," "accelerate," "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 and potential political
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, 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, 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.
7
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
Interest Income and Expense
For the three months ended March 31, 2002 2001
--------------------------------------------------------------------- -------- --------
(Dollars in thousands)
Interest income:
Federal funds sold and repurchase agreements ...................... $ 579 $ 1,644
Trading securities ................................................ 4,358 5,700
Investment securities and other ................................... 93 346
Match funded loans and securities ................................. 2,249 2,483
Loans ............................................................. 5,435 14,644
-------- --------
12,714 24,817
-------- --------
Interest expense:
Deposits .......................................................... 8,617 18,071
Securities sold under agreements to repurchase .................... 126 2
Bonds - match funded agreements ................................... 1,782 2,966
Obligations outstanding under lines of credit ..................... 1,170 720
Notes, debentures and other interest bearing obligations .......... 4,701 5,121
-------- --------
Net interest income (expense) before provision for loan losses .... 16,396 26,880
-------- --------
Net interest (loss) income before provision for loan losses ....... $ (3,682) $ (2,063)
======== ========
Pre-Tax Income (Loss) by Business Segment
For the three months ended March 31, 2002 2001
--------------------------------------------------------------------- -------- --------
(Dollars in thousands)
Residential Loan Servicing........................................... $ 7,548 $ 8,512
OTX.................................................................. (5,282) (13,768)
Ocwen Realty Advisors................................................ 520 141
Unsecured Collections................................................ 943 (2,200)
Residential Discount Loans........................................... 1,112 (1,757)
Commercial Finance................................................... (4,419) (8,013)
Affordable Housing................................................... (17,983) (7,852)
Subprime Finance..................................................... 4,492 1,719
Corporate Items and Other............................................ (6,426) 3,301
-------- --------
$(19,495) $(19,917)
======== ========
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.
March 31, December 31,
2002 2001
-------- --------
(Dollars in thousands)
Loans, net:
Affordable Housing.................................................. $ 13,398 $ 13,048
All other........................................................... 135,359 168,078
Real estate held for sale.............................................. -- 13,418
Total investments in real estate....................................... 91,664 116,896
Real estate owned, net................................................. 100,490 110,465
Residual and subordinate trading securities............................ 39,899 65,058
Affordable Housing properties.......................................... 19,729 52,176
-------- --------
Total non-core assets to be sold.................................... $400,539 $539,139
======== ========
8
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
March 31, December 31,
2002 2001
----------- -----------
Assets:
Cash and amounts due from depository institutions ............................................ $ 920 $ 23,076
Interest earning deposits .................................................................... 66,747 111,579
Federal funds sold ........................................................................... 206,000 126,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) ......................................... 126,477 161,191
Subordinates, residuals and other securities ............................................ 39,899 65,058
Real estate held for sale .................................................................... -- 13,418
Investment in real estate .................................................................... 91,664 116,896
Affordable housing properties ................................................................ 80,610 102,069
Loans, net ................................................................................... 150,557 185,293
Match funded assets .......................................................................... 164,080 174,351
Real estate owned, net ....................................................................... 100,490 110,465
Premises and equipment, net .................................................................. 47,167 44,589
Income taxes receivable ...................................................................... 20,828 20,842
Advances on loans and loans serviced for others .............................................. 285,778 283,183
Mortgage servicing rights .................................................................... 112,032 101,107
Other assets ................................................................................. 83,644 72,033
----------- -----------
$ 1,576,893 $ 1,711,150
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits ................................................................................... $ 545,592 $ 656,878
Escrow deposits on loans and loans serviced for others ..................................... 80,661 73,565
Securities sold under agreements to repurchase ............................................. 63,851 79,405
Bonds - match funded agreements ............................................................ 149,090 156,908
Obligations outstanding under lines of credit .............................................. 100,651 84,304
Notes, debentures and other interest bearing obligations ................................... 158,041 160,305
Accrued interest payable ................................................................... 15,594 12,836
Excess of net assets acquired over purchase price .......................................... -- 18,333
Accrued expenses, payables and other liabilities ........................................... 27,664 28,351
----------- -----------
Total liabilities ....................................................................... 1,141,144 1,270,885
----------- -----------
Company obligated, mandatorily redeemable securities of subsidiary trust holding solely
junior subordinated debentures of the Company ............................................ 61,159 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; 67,308,819 and 67,289,313
shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively ..... 673 673
Additional paid-in capital ................................................................ 224,278 224,142
Retained earnings ......................................................................... 149,920 154,412
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized foreign currency translation gain (loss) ................................. (281) (121)
----------- -----------
Total stockholders' equity ................................................................ 374,590 379,106
----------- -----------
$ 1,576,893 $ 1,711,150
=========== ===========
9
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
For the three months ended March 31, 2002 2001
- ------------------------------------------------------------------------------------------------- ------------ ------------
Net interest income:
Income ........................................................................................ $ 12,714 $ 24,817
Expense ....................................................................................... 16,396 26,880
------------ ------------
Net interest expense before provision for loan losses ......................................... (3,682) (2,063)
Provision for loan losses ..................................................................... 679 8,120
------------ ------------
Net interest expense after provision for loan losses .......................................... (4,361) (10,183)
------------ ------------
Non-interest income:
Servicing and other fees ...................................................................... 35,725 31,117
Loss on interest earning assets, net .......................................................... (1,777) (1,831)
Gain on trading and match funded securities, net .............................................. 2,791 5,189
Loss on real estate owned, net ................................................................ (4,112) (984)
Gain (loss) on other non-interest earning assets, net ......................................... (748) 456
Net operating gains on investments in real estate ............................................. 4,655 2,554
Amortization of excess of net assets acquired over purchase price ............................. -- 4,583
Other income .................................................................................. 5,031 2,046
------------ ------------
41,565 43,130
------------ ------------
Non-interest expense:
Compensation and employee benefits ............................................................ 21,074 20,935
Occupancy and equipment ....................................................................... 2,714 3,093
Technology and communication costs ............................................................ 5,053 10,148
Loan expenses ................................................................................. 3,935 4,235
Net operating losses on investments in certain affordable housing properties .................. 15,681 5,062
Amortization of excess of purchase price over net assets acquired ............................. -- 778
Professional services and regulatory fees ..................................................... 4,596 3,816
Other operating expenses ...................................................................... 1,974 2,789
------------ ------------
55,027 50,856
------------ ------------
Distributions on Company-obligated, mandatorily redeemable securities of
subsidiary trust holding solely junior subordinated debentures of the Company ............... 1,663 2,053
Equity in income (losses) of investments in unconsolidated entities ............................. (9) 45
------------ ------------
Loss before income taxes, extraordinary gain and effect of change in accounting principle ....... (19,495) (19,917)
Income tax expense (benefit) .................................................................... 1,165 5,762
------------ ------------
Loss before extraordinary gain and effect of change in accounting principle ..................... (20,660) (25,679)
Extraordinary gain on repurchase of debt, net of taxes .......................................... 2 2,163
Effect of change in accounting principle ........................................................ 16,166 --
------------ ------------
Net loss ........................................................................................ $ (4,492) $ (23,516)
============ ============
Earnings (loss) per share:
Basic and Diluted:
Net loss before extraordinary gain and effect of change in accounting principle ............. $ (0.31) $ (0.38)
Extraordinary gain .......................................................................... -- 0.03
Effect of change in accounting principle .................................................... 0.24 --
------------ ------------
Net loss .................................................................................... $ (0.07) $ (0.35)
============ ============
Weighted average common shares outstanding ...................................................... 67,294,490 67,152,363
10