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 3, 2004
OCWEN FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Florida 1-13219 65-0039856
- ---------------------------- ------------ -------------------
(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
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
February 3, 2004.
Item 12. Disclosure of Results of Operations and Financial Condition
The news release of the Registrant dated February 3, 2004,
announcing its fourth quarter and year 2003 results is
attached hereto and filed herewith as Exhibit 99.1.
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 3, 2003
3
INDEX TO EXHIBIT
Exhibit No. Description Page
----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, 5
dated February 3, 2004, announcing its fourth
quarter and year 2003 results and certain other
information.
4
- --------------------------------------------------------------------------------
[COMPANY LOGO 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
FOURTH QUARTER AND 2003 NET INCOME
West Palm Beach, FL - (February 3, 2004) - Ocwen Financial Corporation (NYSE:
OCN) today reported net income in the fourth quarter of 2003 of $4.5 million or
$0.07 per share compared to a net loss of $(10.1) million or $(.15) per share in
the fourth quarter of 2002. For the year ended December 31, 2003, the Company
reported net income of $4.8 million or $0.07 per share compared to a net loss of
$(68.8) million or $(1.02) per share in 2002.
Chairman and CEO William C. Erbey stated, "We are very pleased to have returned
to profitability and to note that our 2003 results reflect positive trends from
last year in our core, non-core and corporate segments. Pre-tax core income for
2003 was $29.2 million, an increase of $15.7 million or 116% from last year. Our
balance sheet remains strong with cash and cash equivalents of $216.1 million at
December 31, 2003 as compared to $192.2 million at December 31, 2002. We also
continued to reduce non-core assets during 2003, achieving net reductions of
$67.9 million or 27% since December 31, 2002.
While we are pleased with our results in 2003, we face continuing challenges
from the adverse environment that low interest rates and rising prepayment
speeds create for our Servicing business. Prepayment speeds in the subprime
sector that comprises the vast majority of our servicing portfolio continue at
high levels, resulting in significant costs for this business. During 2003, the
combined cost of mortgage servicing rights amortization expense and interest on
prepayments, which are reported as reductions of fee income, rose by $48.0
million or 62% over 2002 levels. These costs escalated throughout the year,
culminating in expenses of $35.3 million in the fourth quarter of this year. It
is a testament to the skill and dedication of our team members in the Servicing
business that, despite the enormous challenge represented by prepayments, our
2003 results decreased only $1 million or 3% from 2002."
The Servicing business reported pre-tax income of $5.2 million in the fourth
quarter of 2003 vs. $9.2 million in the 2002 fourth quarter, reflecting
continuing earnings pressure from current low interest rates and rising
prepayments in our servicing portfolio. Our fourth quarter Servicing results
also included increased expenses reflecting costs associated with our property
management contract with the United States Department of Veteran's Affairs and
as a result of reassuming certain collection activities that had been performed
by outside parties. For 2003, Servicing reported pre-tax income of $31.0 million
as compared to pre-tax income of $32.0 million in 2002. Our Servicing business
also continued to grow in the fourth quarter. As of December 31, 2003 we were
the servicer of approximately 360 thousand loans with an unpaid principal
balance (UPB) of $37.7 billion, as compared to approximately 336 thousand loans
and $30.7 billion of UPB at December 31, 2002, an increase of 23% in UPB.
Pre-tax losses at OTX were $(3.2) million in the 2003 fourth quarter compared to
$(8.0) million in the same period of 2002, an improvement of 60%. OTX results
for 2003 reflected a pre-tax loss of $(11.5) million as compared to a pre-tax
loss of $(24.1) million in 2002, a 52% improvement.
Ocwen Realty Advisors (ORA) reported pre-tax income of $1.7 million in the
fourth quarter of 2003 as compared to $0.7 million in the fourth quarter of
2002, reflecting an increase in net margin from 21% to 31%. For 2003, ORA
reported pre-tax income of $5.4 million as compared to $2.6 million in 2002,
reflecting an improvement in margin from 18% to 29%.
The Unsecured Collections business reported pre-tax income in the fourth quarter
of 2003 of $1.9 million as compared to $0.9 million in 2002. For 2003, the
business reported pre-tax income of $5.3 million as compared to $4.0 million in
2002.
5
Ocwen Financial Corporation
Fourth Quarter Results
February 3, 2004
In our newest business segments, Global Outsourcing reported pre-tax income of
$0.9 million for the fourth quarter and $1.9 million for the year. Our
International segment reported losses of $(0.7) million in the fourth quarter
and $(2.9) million for the year.
International results for 2003 primarily reflect start-up costs as well as the
results of the Global Servicing Solutions (GSS) offices in Tokyo and Taiwan that
became operational during 2003. Results for 2002 in this segment reflect
activities associated with a one-time consulting contract as well as other
precedent ventures, now concluded.
Our non-core businesses recorded a pre-tax loss of $(11.4) million for the year,
including the $10 million arbitration settlement in the first quarter of this
year as compared to a loss of $(68.2) million in 2002. Pre-tax losses in the
Corporate Segment were $(12.8) million in 2003 as compared to $(27.4) million in
2002.
Pre-tax losses for the fourth quarter of 2003 in the Commercial Finance business
amounted to $(0.9) million as compared to a pre-tax loss of $(7.8) million in
the 2002 fourth quarter. Fourth quarter 2003 results reflect net charges and
loss provisions on loans, investments in real estate and REO of $0.7 million as
compared to $3.3 million in the fourth quarter of 2002. For 2003 Commercial
Finance reported a pre-tax loss of $(10.7) million as compared to $(51.9)
million in 2002. Results for 2003 reflect net charges and loss provisions on
loans, investments in real estate and REO of $4.0 million as compared to $46.1
million in 2002. As of December 31, 2003, reserves on the remaining commercial
loan and REO assets amounted to 27% of gross book value as compared to 24% at
December 31, 2002. Total commercial loans, investments in real estate and REO,
consisting of 9 properties, had a net book value of $123.8 million at December
31, 2003, reduced by $64.2 million or 34% from December 31, 2002.
The Affordable Housing business reported a pre-tax loss of $(1.3) million in the
2003 fourth quarter compared to a pre-tax loss of $(0.5) million in the 2002
fourth quarter. No provisions for losses on Affordable Housing properties were
recorded in the fourth quarter of 2003 or 2002. For 2003, the business reported
a pre-tax loss of $(4.9) million as compared to a pre-tax loss of $(31.5)
million in 2002. Affordable Housing results for 2003 include provisions of $0.6
million as compared to $24.7 million in 2002. As of December 31, 2003, reserves
on the remaining $14.0 million of Affordable Housing properties and loans had
increased to 55% of remaining gross book value as compared to 48% at December
31, 2002.
Results in the Subprime Finance business reflected pre-tax income of $4.2
million for the 2003 fourth quarter as compared to pre-tax income of $6.2
million in the 2002 fourth quarter. For 2003, the business reported pre-tax
income of $4.2 million as compared to pre-tax income of $14.5 million in 2002.
Results for 2003 include a charge of $10 million in the first quarter related to
the conclusion of an arbitration, as previously reported. The Company's total
trading portfolio of non-investment grade securities, which consists largely of
subprime residuals, increased to $42.8 million at December 31, 2003 as compared
to $37.3 million at December 31, 2002. This increase primarily reflects the
second quarter 2003 transfer of securities formerly classified as "Match Funded
Securities" to the trading portfolio as a result of the repurchase of the
associated match funded debt.
Corporate Items and Other reported a pre-tax loss of $(3.3) million in the
fourth quarter of 2003 as compared to $(8.1) million in 2002, primarily due to
reduced interest expense of approximately $2.8 million and the absence in 2003
of a loss on debt redemptions as compared to $2.5 million recorded in the fourth
quarter of 2002. These improvements were partially offset by a net increase in
technology and other corporate expenses of $0.7 million. For 2003, the pre-tax
loss in this segment was $(12.8) million as compared to $(27.4) million in 2002,
primarily due to reduced interest expense of $8.7 million, reduced technology
and other expenses of $3.8 million and reduced losses on debt redemptions of
$1.0 million.
The Company's net tax expense in the 2003 fourth quarter was $0.1 million,
representing foreign taxes on GSS operations. For 2003, tax expense was $0.7
million, primarily reflecting tax payments in the first and second quarters
related to investments in non-economic residual securities with no book value.
Tax expense in the fourth quarter of 2002 was $1.8 million, also reflecting a
tax payment on a non-economic residual security. Tax expense for 2002 was $3.0
million, also reflecting taxes recorded in the first quarter to offset tax
benefits included in the change in accounting principle.
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
February 3, 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, the
progress of our transition strategy, earnings improvement trends, interest rates
and the impact of changes in interest rates on the Servicing business and
predictions as to future operations coming on line in connection with Global
Outsourcing and International. 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
reports on Form 10-Q for the quarters ended March 31, 2003, June 30, 2003 and
September 30, 2003 and Form 10-K for the year ended December 31, 2002. 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 Results
February 3, 2004
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, 2003 2002 2003 2002
- ------------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net interest expense
Income ................................................................ $ 6,296 $ 7,103 $ 24,122 $ 37,235
Expense ............................................................... 9,162 11,727 38,716 55,762
------------ ------------ ------------ ------------
Net interest expense before provision for loan losses ............... (2,866) (4,624) (14,594) (18,527)
Provision for loan losses ............................................. (14) 3,119 (2,684) 13,629
------------ ------------ ------------ ------------
Net interest income (expense) after provision for loan losses ....... (2,852) (7,743) (11,910) (32,156)
------------ ------------ ------------ ------------
Non-interest income
Servicing and other fees .............................................. 43,431 36,393 158,548 141,991
Gain (loss) on interest earning assets, net ........................... 1 (711) 28 (3,485)
Gain (loss) on trading and match funded securities, net ............... 420 3,115 3,344 7,012
Gain (loss) on real estate owned, net ................................. 1,651 587 1,775 (15,719)
Gain (loss) on other non-interest earning assets, net ................. 205 1,455 829 1,122
Net operating gains (losses) on investments in real estate ............ (661) 529 (3,661) (8,315)
Gain (loss) on repurchase of debt ..................................... -- (2,499) (445) (1,461)
Equity in income (loss) of investments in unconsolidated entities ..... -- 68 38 215
Other income .......................................................... 4,083 3,433 18,091 13,097
------------ ------------ ------------ ------------
Non-interest income ................................................. 49,130 42,370 178,547 134,457
------------ ------------ ------------ ------------
Non-interest expense
Compensation and employee benefits .................................... 19,716 17,403 72,221 77,778
Occupancy and equipment ............................................... 4,390 2,885 13,159 11,843
Technology and communication costs .................................... 6,544 7,309 21,121 25,270
Loan expenses ......................................................... 3,417 2,797 14,252 12,605
Net operating losses on investments in affordable housing properties .. 226 225 1,335 22,360
Amortization/writeoff of excess of purchase price over net assets
acquired ............................................................ -- 2,231 -- 2,231
Professional services and regulatory fees ............................. 4,199 6,042 26,054 16,383
Other operating expenses .............................................. 3,386 2,565 10,409 9,601
------------ ------------ ------------ ------------
Non-interest expense ................................................ 41,878 41,457 158,551 178,071
------------ ------------ ------------ ------------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior subordinated
debentures of the Company ........................................... -- 1,529 3,058 6,287
------------ ------------ ------------ ------------
Income (loss) before minority interest, income taxes and effect of change
in accounting principle ............................................. 4,400 (8,359) 5,028 (82,057)
Minority interest in net income (loss) of subsidiaries .................. (184) (99) (492) (99)
Income tax expense ...................................................... 130 1,818 748 2,983
------------ ------------ ------------ ------------
Net income (loss) before effect of change in accounting principle ... 4,454 (10,078) 4,772 (84,941)
Effect of change in accounting principle, net of taxes .................. -- -- -- 16,166
------------ ------------ ------------ ------------
Net income (loss) ................................................... $ 4,454 $ (10,078) $ 4,772 $ (68,775)
============ ============ ============ ============
Earnings (loss) per share
Basic
Net income (loss) before effect of change in accounting principle ... $ 0.07 $ (0.15) $ 0.07 $ (1.26)
Effect of change in accounting principle, net of taxes .............. -- -- -- 0.24
------------ ------------ ------------ ------------
Net income (loss) ................................................. $ 0.07 $ (0.15) $ 0.07 $ (1.02)
============ ============ ============ ============
Diluted
Net income (loss) before effect of change in accounting principle ... $ 0.07 $ (0.15) $ 0.07 $ (1.26)
Effect of change in accounting principle, net of taxes .............. -- -- -- 0.24
------------ ------------ ------------ ------------
Net income (loss) ................................................. $ 0.07 $ (0.15) $ 0.07 $ (1.02)
============ ============ ============ ============
Weighted average common shares outstanding
Basic ............................................................... 67,222,211 67,337,454 67,166,888 67,321,299
Diluted ............................................................. 68,446,366 67,337,454 68,009,663 67,321,299
8
Ocwen Financial Corporation
Fourth Quarter Results
February 3, 2004
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
December 31, December 31,
2003 2002
------------ ------------
Assets
Cash and amounts due from depository institutions ................................... $ 215,764 $ 76,598
Interest earning deposits ........................................................... 324 30,649
Federal funds sold and repurchase agreements ........................................ -- 85,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) and U.S. Treasury securities .... 6,679 21,556
Subordinates, residuals and other securities .................................... 42,841 37,339
Investments in real estate .......................................................... 53,430 58,676
Affordable housing properties ....................................................... 7,410 15,319
Loans, net .......................................................................... 28,098 76,857
Match funded assets ................................................................. 130,087 167,744
Real estate owned, net .............................................................. 50,513 62,039
Premises and equipment, net ......................................................... 41,944 44,268
Advances on loans and loans serviced for others ..................................... 374,769 266,356
Mortgage servicing rights ........................................................... 166,495 171,611
Receivables ......................................................................... 88,399 78,944
Other assets ........................................................................ 33,365 29,286
------------ ------------
Total assets .................................................................... $ 1,240,118 $ 1,222,242
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits .......................................................................... $ 446,388 $ 425,970
Escrow deposits on loans and loans serviced for others ............................ 116,444 84,986
Bonds - match funded agreements ................................................... 115,394 147,071
Lines of credit and other secured borrowings ...................................... 150,384 82,746
Notes and debentures .............................................................. 56,249 76,975
Accrued interest payable .......................................................... 4,789 7,435
Accrued expenses, payables and other liabilities .................................. 31,926 28,314
------------ ------------
Total liabilities ............................................................... 921,574 853,497
------------ ------------
Minority interest in subsidiaries ................................................... 1,286 1,778
Company obligated, mandatorily redeemable securities of subsidiary trust holding
solely junior subordinated debentures of the Company .............................. -- 56,249
Stockholders' equity
Common stock, $.01 par value; 200,000,000 shares authorized: 67,467,220 and
67,339,773 shares issued and outstanding at December 31, 2003 and
December 31, 2002, respectively ................................................ 675 673
Additional paid-in capital ........................................................ 225,559 224,454
Retained earnings ................................................................. 90,409 85,637
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized foreign currency translation gain (loss) ......................... 615 (46)
------------ ------------
Total stockholders' equity .................................................... 317,258 310,718
------------ ------------
Total liabilities and stockholders' equity .................................. $ 1,240,118 $ 1,222,242
============ ============
9
Ocwen Financial Corporation
Fourth Quarter Results
February 3, 2004
Pre-Tax Income (Loss) by Business Segment
- -----------------------------------------
Three Months Twelve Months
---------------------------- ----------------------------
For the periods ended December 31, 2003 2002 2003 2002
- ------------------------------------------------------------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Core businesses
Residential Loan Servicing ..................................... $ 5,235 $ 9,186 $ 31,043 $ 31,974
OTX ............................................................ (3,195) (7,965) (11,520) (24,144)
Ocwen Realty Advisors .......................................... 1,666 675 5,432 2,597
Unsecured Collections .......................................... 1,878 866 5,300 4,006
Global Outsourcing ............................................. 886 118 1,893 118
International Operations ....................................... (701) (687) (2,946) (1,022)
------------ ------------ ------------ ------------
5,769 2,193 29,202 13,529
------------ ------------ ------------ ------------
Non-core businesses
Residential Discount Loans ..................................... -- (340) -- 763
Commercial Finance ............................................. (934) (7,833) (10,657) (51,947)
Affordable Housing ............................................. (1,280) (534) (4,888) (31,521)
Subprime Finance ............................................... 4,168 6,211 4,188 14,536
------------ ------------ ------------ ------------
1,954 (2,496) (11,357) (68,169)
------------ ------------ ------------ ------------
Corporate Items and Other ........................................ (3,323) (8,056) (12,817) (27,417)
------------ ------------ ------------ ------------
Income (loss) before minority interest, income taxes and
effect of change in accounting principle ....................... $ 4,400 $ (8,359) $ 5,028 $ (82,057)
============ ============ ============ ============
Non-Core Assets
- ---------------
December 31, December 31,
(Dollars in thousands) 2003 2002
------------ ------------
Loans, net
Affordable housing ............................................................................ $ 6,545 $ 6,229
All other ..................................................................................... 21,553 70,628
Investments in real estate ....................................................................... 53,430 58,676
Real estate owned, net ........................................................................... 50,513 62,039
Subordinates, residuals and other trading securities ............................................. 42,841 37,339
Affordable housing properties .................................................................... 7,410 15,319
------------ ------------
Total non-core assets ......................................................................... $ 182,292 $ 250,230
============ ============
Interest Income and Expense
- ---------------------------
Three Months Twelve Months
---------------------------- ----------------------------
For the periods ended December 31, 2003 2002 2003 2002
- ------------------------------------------------------------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Interest income
Federal funds sold and repurchase agreements ................... $ 325 $ 574 $ 1,403 $ 2,629
Trading securities ............................................. 4,974 4,556 17,345 16,580
Loans .......................................................... 293 692 1,614 11,279
Match funded loans and securities .............................. 571 1,218 3,402 6,463
Interest earning cash and other ................................ 133 63 358 284
------------ ------------ ------------ ------------
6,296 7,103 24,122 37,235
------------ ------------ ------------ ------------
Interest expense
Deposits ....................................................... 4,138 5,767 17,546 27,455
Securities sold under agreements to repurchase ................. -- 6 3 236
Notes and debentures ........................................... 1,529 3,647 9,929 17,346
Bonds - match funded agreements ................................ 1,774 1,412 5,414 6,573
Lines of credit and other secured borrowings ................... 1,721 895 5,824 4,152
------------ ------------ ------------ ------------
9,162 11,727 38,716 55,762
------------ ------------ ------------ ------------
Net interest expense before provision for loan losses .......... $ (2,866) $ (4,624) $ (14,594) $ (18,527)
============ ============ ============ ============
10