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): November 6, 2003
OCWEN FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Florida 1-13219 65-0039856
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
The Forum, Suite 1000
1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401
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(Address of principal executive office)(Zip Code)
Registrant's telephone number, including area code: (561) 682-8000
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 November
6, 2003.
Item 12. Disclosure of Results of Operations and Financial Condition
The news release of the Registrant dated November 6, 2003,
announcing its third quarter 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: November 7, 2003
3
INDEX TO EXHIBIT
Exhibit No. Description Page
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99.1 News release of Ocwen Financial Corporation, 5
dated November 6, 2003, announcing its third
quarter 2003 results and certain other information.
4
================================================================================
Exhibit 99.1
[GRAPHIC OMITTED]
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
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OCWEN FINANCIAL CORPORATION ANNOUNCES
THIRD QUARTER AND YEAR TO DATE 2003 NET INCOME
West Palm Beach, FL - (November 6, 2003) Ocwen Financial Corporation (NYSE: OCN)
today reported net income in the third quarter of 2003 of $4.6 million or $0.07
per share compared to a net loss of $(4.0) million or $(0.06) per share in the
third quarter of 2002. For the nine months ended September 30, 2003 the Company
reported net income of $0.3 million or $0.005 per share compared to a net loss
of $(58.7) million or $(0.87) per share in 2002.
Chairman and CEO William C. Erbey stated, "Our third quarter earnings have
resulted in year to date profitability. Our core businesses recorded aggregate
pre-tax income of $8.8 million in the third quarter of this year, an increase of
$6.0 million or 222% from the third quarter of last year. Year to date, pre-tax
core income was $23.4 million, an increase of $12.1 million or 107% from the
same period last year. Our non-core businesses recorded a pre-tax loss of $(1.1)
million in the third quarter, and $(13.3) million year to date, including the
$10 million arbitration settlement in the first quarter of this year. Third
quarter losses in the Corporate Segment of $3.0 million continued to decline,
showing a reduction in loss of $3.9 million or 56% as compared to the same
period last year.
o We made substantial progress in reducing high cost debt during the period
by redeeming, on September 30th, the remaining $33.1 million of the 12%
Subordinated Debentures issued by Ocwen Federal Bank. This redemption will
save approximately $3.6 million of net interest expense in 2004. In
addition, on October 1, 2003 the remaining $43.5 million of outstanding OCN
11.875% Senior Notes matured and were repaid.
o Non-core assets were reduced by $11.8 million in the third quarter and have
been reduced by $61.7 million since December 31, 2002.
o We signed a contract with the United States Department of Veterans Affairs
during the third quarter to manage its portfolio of REO properties. This
contract will result in substantial growth of the REO portfolio that we
service. We expect to begin active operations late this year.
o Our Global Outsourcing business signed a contract with a major new customer
during the third quarter.
Our balance sheet remains strong with cash and cash equivalents of $246.9
million at September 30, 2003 as compared to $192.2 million at December 31,
2002."
The Servicing business reported pre-tax income of $8.2 million in the third
quarter of 2003 vs. $7.2 million in the 2002 third quarter, despite continuing
earnings pressure from the current low interest rate environment. For the first
nine months of 2003, Servicing reported pre-tax income of $25.8 million as
compared to pre-tax income of $22.8 million in the same period of 2002, an
increase of 13%. Our Servicing business also continued to grow in the third
quarter. As of September 30, 2003 we were the servicer of approximately 355
thousand loans with an unpaid principal balance (UPB) of $37.1 billion, as
compared to approximately 336 thousand loans and $30.7 billion of UPB at
December 31, 2002, an increase of 21% in UPB.
Pre-tax losses at OTX were $(2.4) million in the 2003 third quarter compared to
$(6.0) million in the same period of 2002, an improvement of 61%. Year to date,
2003 OTX results reflected a pre-tax loss of $(8.3) million as compared to a
pre-tax loss of $(16.2) million in the same period of 2002, a 49% improvement.
Ocwen Realty Advisors (ORA) reported pre-tax income of $1.2 million in the third
quarter of 2003 as compared to $0.9 million in the third quarter of 2002,
despite a decline in net margin from 28% to 25%. Year to date in 2003, ORA
reported pre-tax income of $3.8 million as compared to $1.9 million in 2002,
reflecting an improvement in margin from 18% to 28%.
5
Ocwen Financial Corporation
Third Quarter Results
November 6, 2003
The Unsecured Collections business reported results consistent with last year,
posting pre-tax income of $1.1 million in the third quarter of both 2003 and
2002. For the nine months ended September 30, 2003 the business reported pre-tax
income of $3.4 million as compared to $3.1 million in 2002.
In our newest business segments, Global Outsourcing reported pre-tax income of
$1.0 million for the third quarter and year to date. Third quarter results
reflect the initiation of new outsourcing contracts. Our International segment
reported losses of $(0.3) million in the third quarter and $(2.2) million year
to date in 2003. Results improved in the third quarter of 2003 as compared to
the second quarter of this year, as Global Servicing Solutions (GSS) offices in
Tokyo and Taiwan became operational. 2002 results in this segment reflect
activities associated with a one-time consulting contract as well as other
precedent ventures, now discontinued.
Pre-tax losses for the third quarter of 2003 in the Commercial Finance business
amounted to $(2.8) million as compared to a pre-tax loss of $(1.4) million in
the 2002 third quarter. Third quarter 2003 results reflect net charges and loss
provisions on loans, investments in real estate and REO of $1.0 million as
compared to $(0.3) million in the third quarter of 2002. Year to date,
Commercial Finance reported a pre-tax loss of $(9.7) million in 2003 as compared
to $(44.1) million in 2002. Year to date results for 2003 reflect net charges
and loss provisions on loans, investments in real estate and REO of $3.4 million
as compared to $42.8 million in the same period of 2002. As of September 30,
2003, reserves on the remaining commercial loan and REO assets amounted to 28%
of gross book value as compared to 21% at September 30, 2002. Total commercial
loans, investments in real estate and REO, consisting of 13 properties, had a
net book value of $129.1 million at September 30, 2003, reduced by $82.1 million
or 39% from September 30, 2002.
The Affordable Housing business posted break-even results in the 2003 third
quarter compared to a pre-tax loss of $(1.3) million in the 2002 third quarter.
No provisions for losses on Affordable Housing properties were recorded in the
third quarter of 2003 or 2002. Results for the third quarter of 2003 included
$1.4 million of revenue representing cash receipts related to properties sold in
prior periods. For the nine months ended September 30, 2003, the business
reported a pre-tax loss of $(3.6) million as compared to a pre-tax loss of
$(31.0) million in 2002. Year to date results for Affordable Housing include
provisions of $0.4 million and $21.3 million during 2003 and 2002, respectively.
One Affordable Housing property, with a net book value of $2.7 million qualified
for sale treatment during the third quarter of 2003. As of September 30, 2003,
reserves on the remaining $34.7 million of Affordable Housing properties and
loans had increased to 54% of remaining gross book value as compared to 41% at
September 30, 2002.
Results in the Subprime Finance business reflected pre-tax income of $1.7
million for the 2003 third quarter as compared to pre-tax income of $3.5 million
in the 2002 third quarter. Year to date 2003, the business reported break-even
results, as compared to pre-tax income of $8.3 million in 2002. Year to date
2003 results included 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 $41.8 million at September 30, 2003 as compared
to $36.6 million at September 30, 2002. This increase 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 $(3.0) million in the third
quarter of 2003 as compared to $(6.9) million in 2002, primarily due to reduced
interest expense of approximately $2.0 million and a reduction in technology
expenses of approximately $1 million. Year to date the pre-tax loss in this
segment was $(9.5) million as compared to $(19.4) million in the same period
last year, primarily due to reduced interest expense of $5.9 million and reduced
technology expenses of $4.9 million. These improvements in year to date results
were partially offset by a negative variance of $1.5 million representing the
difference between a loss on debt redemptions of $0.4 million in 2003 as
compared to gains of $1 million in the first nine months of 2002.
The Company's net tax expense in the 2003 third quarter was $0.006 million,
representing foreign taxes on GSS operations. Year to date 2003 tax expense was
$0.6 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 third quarter of 2002 was zero. Year to date 2002 tax expense
was $1.2 million, reflecting taxes recorded 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.
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6
Ocwen Financial Corporation
Third Quarter Results
November 6, 2003
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, expectations with regard to the growth of
our REO portfolio, earnings improvement trends, and predictions as to future
operations coming on line in connection with both the Department of Veterans
Affairs and GSS. 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 quarters ended March 31, 2003 and June 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 AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Nine Months
- --------------------------------------------------------------------- ---------------------------- ----------------------------
For the periods ended September 30, 2003 2002 2003 2002
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net interest expense
Income ............................................................ $ 4,071 $ 8,612 $ 17,826 $ 30,132
Expense ........................................................... 10,823 12,925 29,554 44,035
------------ ------------ ------------ ------------
Net interest expense before provision for loan losses ........... (6,752) (4,313) (11,728) (13,903)
Provision for loan losses ......................................... 415 (901) (2,670) 10,510
------------ ------------ ------------ ------------
Net interest income (expense) after provision for loan losses ... (7,167) (3,412) (9,058) (24,413)
------------ ------------ ------------ ------------
Non-interest income
Servicing and other fees .......................................... 40,339 34,024 115,117 105,598
Gain (loss) on interest earning assets, net ....................... -- -- 27 (2,773)
Gain (loss) on trading and match funded securities, net ........... 159 944 2,924 3,897
Gain (loss) on real estate owned, net ............................. 147 (337) 124 (16,307)
Gain (loss) on other non-interest earning assets, net ............. 150 508 624 (333)
Net operating gains (losses) on investments in real estate ........ 702 495 (3,000) (8,844)
Gain (loss) on repurchase of debt ................................. (441) (35) (445) 1,039
Other income ...................................................... 6,008 2,411 14,046 9,815
------------ ------------ ------------ ------------
Non-interest income ............................................. 47,064 38,010 129,417 92,092
------------ ------------ ------------ ------------
Non-interest expense
Compensation and employee benefits ................................ 17,667 19,594 52,505 60,375
Occupancy and equipment ........................................... 3,254 2,914 8,769 8,959
Technology and communication costs ................................ 5,583 6,899 14,577 17,960
Loan expenses ..................................................... 3,835 2,437 10,835 9,808
Net operating losses on investments in affordable housing
properties ...................................................... 226 225 1,109 22,135
Professional services and regulatory fees ......................... 2,511 2,573 21,855 10,341
Other operating expenses .......................................... 2,172 2,434 7,023 7,040
------------ ------------ ------------ ------------
Non-interest expense ............................................ 35,248 37,076 116,673 136,618
------------ ------------ ------------ ------------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior
subordinated debentures of the Company .......................... -- 1,529 3,058 4,758
------------ ------------ ------------ ------------
Income (loss) before minority interest, income taxes and effect
of change in accounting principle ............................... 4,649 (4,007) 628 (73,697)
Minority interest in net income (loss) of subsidiaries .............. 28 -- (308) --
Income tax expense .................................................. 6 -- 618 1,166
------------ ------------ ------------ ------------
Net income (loss) before effect of change in accounting
principle ....................................................... 4,615 (4,007) 318 (74,863)
Effect of change in accounting principle, net of taxes .............. -- -- -- 16,166
------------ ------------ ------------ ------------
Net income (loss) ............................................... $ 4,615 $ (4,007) $ 318 $ (58,697)
============ ============ ============ ============
Earnings (loss) per share
Basic
Net income (loss) before effect of change in accounting
principle ....................................................... $ 0.07 $ (0.06) $ 0.005 $ (1.11)
Effect of change in accounting principle, net of taxes .......... -- -- -- .24
------------ ------------ ------------ ------------
Net income (loss) ............................................. $ 0.07 $ (0.06) $ 0.005 $ (0.87)
============ ============ ============ ============
Diluted
Net income (loss) ............................................. $ 0.07 $ (0.06) $ 0.005 $ (0.87)
============ ============ ============ ============
Weighted average common shares outstanding
Basic ........................................................... 66,865,412 67,336,246 67,148,447 67,315,913
Diluted ......................................................... 67,880,310 67,336,246 67,864,096 67,315,913
8
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
September 30, December 31,
2003 2002
----------- -----------
Assets
Cash and amounts due from depository institutions ................................ $ 118,820 $ 76,598
Interest earning deposits ........................................................ 28,112 30,649
Federal funds sold and repurchase agreements ..................................... 100,000 85,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) and U.S. Treasury securities .. 6,696 21,556
Subordinates, residuals and other securities .................................. 41,793 37,339
Investments in real estate ....................................................... 55,631 58,676
Affordable housing properties .................................................... 9,578 15,319
Loans, net ....................................................................... 28,196 76,857
Match funded assets .............................................................. 133,767 167,744
Real estate owned, net ........................................................... 53,380 62,039
Premises and equipment, net ...................................................... 42,938 44,268
Advances on loans and loans serviced for others .................................. 390,952 266,356
Mortgage servicing rights ........................................................ 181,905 171,611
Receivables ...................................................................... 71,565 78,944
Other assets ..................................................................... 36,991 29,286
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Total assets .................................................................. $ 1,300,324 $ 1,222,242
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Deposits ....................................................................... $ 430,460 $ 425,970
Escrow deposits on loans and loans serviced for others ......................... 129,457 84,986
Bonds - match funded agreements ................................................ 113,785 147,071
Lines of credit and other secured borrowings ................................... 176,746 82,746
Notes and debentures ........................................................... 99,724 76,975
Accrued interest payable ....................................................... 6,825 7,435
Accrued expenses, payables and other liabilities ............................... 31,834 28,314
----------- -----------
Total liabilities ............................................................. 988,831 853,497
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Minority interest in subsidiaries ................................................ 1,470 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: 67,100,113 and
67,339,773 shares issued and outstanding at September 30, 2003 and
December 31, 2002, respectively .............................................. 671 673
Additional paid-in capital ...................................................... 223,222 224,454
Retained earnings ............................................................... 85,955 85,637
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized foreign currency translation gain (loss) ....................... 175 (46)
----------- -----------
Total stockholders' equity .................................................. 310,023 310,718
----------- -----------
Total liabilities and stockholders' equity ................................ $ 1,300,324 $ 1,222,242
=========== ===========
9
Pre-Tax Income (Loss) by Business Segment
- -----------------------------------------
Three Months Nine Months
------------------------ ------------------------
For the periods ended September 30, 2003 2002 2003 2002
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Core businesses
Residential Loan Servicing .................................. $ 8,159 $ 7,157 $ 25,808 $ 22,788
OTX ......................................................... (2,353) (5,993) (8,325) (16,179)
Ocwen Realty Advisors ....................................... 1,157 902 3,766 1,921
Unsecured Collections ....................................... 1,141 1,057 3,422 3,140
Global Outsourcing .......................................... 1,003 -- 1,007 --
International Operations .................................... (337) (399) (2,245) (336)
---------- ---------- ---------- ----------
8,770 2,724 23,433 11,334
---------- ---------- ---------- ----------
Non-core businesses
Residential Discount Loans .................................. -- (565) -- 1,103
Commercial Finance .......................................... (2,798) (1,370) (9,723) (44,114)
Affordable Housing .......................................... (4) (1,329) (3,608) (30,987)
Subprime Finance ............................................ 1,720 3,464 20 8,325
---------- ---------- ---------- ----------
(1,082) 200 (13,311) (65,673)
---------- ---------- ---------- ----------
Corporate Items and Other ..................................... (3,039) (6,931) (9,494) (19,358)
---------- ---------- ---------- ----------
Income (loss) before minority interest, income taxes
and effect of change in accounting principle ................ $ 4,649 $ (4,007) $ 628 $ (73,697)
========== ========== ========== ==========
Non-Core Assets
- ---------------
September 30, December 31,
(Dollars in thousands) 2003 2002
---------- ----------
Loans, net
Affordable housing ..................................................................... $ 6,419 $ 6,229
All other .............................................................................. 21,777 70,628
Investments in real estate ................................................................ 55,631 58,676
Real estate owned, net .................................................................... 53,380 62,039
Subordinates, residuals and other trading securities ...................................... 41,793 37,339
Affordable housing properties ............................................................. 9,578 15,319
---------- ----------
Total non-core assets .................................................................. $ 188,578 $ 250,230
========== ==========
Interest Income and Expense
- ---------------------------
Three Months Nine Months
------------------------ ------------------------
For the periods ended September 30, 2003 2002 2003 2002
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Interest income
Interest earning cash and other .............................. $ 79 $ 59 $ 225 $ 220
Federal funds sold and repurchase agreements ................. 341 783 1,078 2,055
Trading securities ........................................... 2,749 3,507 12,371 12,024
Loans ........................................................ 212 3,075 1,321 10,588
Match funded loans and securities ............................ 690 1,188 2,831 5,245
---------- ---------- ---------- ----------
4,071 8,612 17,826 30,132
---------- ---------- ---------- ----------
Interest expense
Deposits ..................................................... 4,008 5,990 13,408 21,689
Securities sold under agreements to repurchase ............... -- 32 3 230
Bonds - match funded agreements .............................. 1,076 1,445 3,640 5,161
Lines of credit and other secured borrowings ................. 1,927 925 4,103 3,257
Notes and debentures ......................................... 3,812 4,533 8,400 13,698
---------- ---------- ---------- ----------
10,823 12,925 29,554 44,035
---------- ---------- ---------- ----------
Net interest expense before provision for loan losses ........ $ (6,752) $ (4,313) $ (11,728) $ (13,903)
========== ========== ========== ==========
10