UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-----------------------------------------------
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report
(Date of earliest event reported): August 8, 2002
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida 0-21341 65-0039856
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
The Forum, Suite 1000
1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401
(Address of principal executive office)(Zip Code)
Registrant's telephone number, including area code: (561) 682-8000
N/A
(Former name or former address, if changed since last report)
Page 1 of 10
Exhibit Index on Page 4
Item 5. Other Events
The news release of the Registrant dated August 8, 2002, announcing its second
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 August 8,
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: August 8, 2002
3
INDEX TO EXHIBIT
Exhibit No. Description Page
----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, dated 5
August 8, 2002, announcing its first quarter 2002
results and certain other information.
4
================================================================================
Exhibit 99.1
[GRAPHIC OMITTED]
OCWEN Ocwen Financial Corporation(R)
================================================================================
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
Robert J. Leist, Jr.
Vice President & Chief Accounting Officer
T: (561) 682-7958
E: rleist@ocwen.com
----------------
OCWEN FINANCIAL CORPORATION ANNOUNCES
SECOND QUARTER RESULTS FOR 2002
West Palm Beach, FL - (August 8, 2002) Ocwen Financial Corporation (NYSE: OCN)
today reported a net loss in the second quarter of 2002 of $(50.2) million or
$(0.75) per share compared to a net loss of $(21.4) million or $(0.32) per share
in the second quarter of 2001. For the six months ended June 30, 2002 the
Company reported a net loss of $(54.7) million or $(0.81) per share compared to
a net loss of $(45.0) million or $(0.67) per share in the same period of 2001.
Chairman and CEO William C. Erbey stated, "Our second quarter results include
$45 million of provisions and charges related to our remaining $325.8 million of
non-core assets, reflecting a substantial increase in reserve levels. The total
carrying value of our remaining investments in real estate was reduced by 17%,
while reserves on our remaining Commercial loans and REO and reserves on our
remaining Affordable Housing properties and loans, respectively, rose from 11%
to 20% and from 26% to 40%. We made this determination based on our analysis of
recent events and the current market situation. This analysis led us to record
these amounts in order to minimize the risk of future losses consistent with our
objective of selling the remaining assets in a timely manner.
We have made great progress in transitioning Ocwen to a fee-based business and
returning to profitability in the foreseeable future.
o The combined results of our core businesses, Residential Loan Servicing,
Ocwen Technology Xchange(TM) (OTX), Ocwen Realty Advisors (ORA) and
Unsecured Collections, reflected a substantial improvement over the same
period last year, even after adjusting for certain non-recurring costs in
2001 and for the change in accounting for intangible assets. In the
aggregate our core businesses generated pre-tax income of $4.8 million in
the second quarter of 2002 as compared to an adjusted loss of $(0.2)
million in the 2001 second quarter, an improvement of $5 million. Our
annualized 2002 core business results reflect an improvement of $15 million
as compared to 2001 adjusted results and $43 million as compared to
adjusted results in 2000.
o At OTX, Washington Mutual and CitiMortgage began processing transactions
through our REALTrans(R) platform, setting the stage for increased revenue
growth during the latter half of 2002 as they migrate to full deployment of
the system. In addition to revenue growth from REALTrans, we expect to
continue the expense reductions we have achieved thus far this year,
primarily resulting from our India initiative.
o Our non-core assets remaining to be sold were $325.8 million as of June 30,
2002 as compared to $543.3 million at December 31, 2001.
We continued our strategy of maintaining strong liquidity while reducing our
debt. Our cash and cash equivalents were $244.4 million as of June 30, 2002, a
decline of only 6.2% since year-end, while we reduced our total liabilities by
$261.6 million or 21% from year-end levels."
The Servicing business reported pre-tax income of $8.1 million in the second
quarter of 2002 vs. $8.5 million in the 2001 second quarter. Year to date in
2002, Servicing reported pre-tax income of $15.6 million as compared to pre-tax
income of $17.0 million for the same period in 2001. 2002 results reflect
earnings pressure from the current low interest rate environment. Our Servicing
business continued to grow in the second quarter. As of June 30, 2002 we were
the servicer of approximately 319 thousand loans with an unpaid principal
balance (UPB) of $26.0 billion, as compared to approximately 303 thousand loans
and $21.9 billion of UPB at December 31, 2001, an increase of 19% in UPB.
Pre-tax losses at OTX were $(4.9) million in the 2002 second quarter compared to
$(7.8) million in the same period of 2001. For the six months ended June 30,
2002 OTX reported a pre-tax loss of $(10.2) million as compared to a pre-tax
loss of $(21.6) million in 2001. 2001 year-to-date results include $4.7 million
of non-recurring charges.
5
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
ORA reported pre-tax income of $0.5 million in the second quarter of 2002 as
compared to $0.2 million in the second quarter of 2001 reflecting both a revenue
increase of $1.1 million or 47% and an improvement in margin from 8.6% to 14.2%.
Year to date, ORA reported pre-tax income of $1.0 million as compared to $0.3
million in 2001.
The Unsecured Collections business posted pre-tax income of $1.1 million in the
second quarter of 2002 vs. a pre-tax loss of $(2.1) million in the 2001 second
quarter. For the six months ended June 30, 2002 the business reported pre-tax
income of $2.1 million as compared to a pre-tax loss of $(4.3) million in the
same period of 2001. The increase in pre-tax income in this business 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 pre-tax income of $0.6 million
in the 2002 second quarter as compared to a pre-tax loss of $(4.5) million in
the 2001 second quarter. Year to date, the business reported pre-tax income of
$1.7 million, as compared to a pre-tax loss of $(6.3) 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 June 30, 2002 was reduced to $6.3 million, down $47.5
million or 88% from December 31, 2001.
Pre-tax losses for the second quarter of 2002 in the Commercial Finance business
amounted to $(38.3) million as compared to a pre-tax loss of $(3.2) million in
the 2001 second quarter. Second quarter 2002 results reflect reserves and loan
loss provisions of $35.2 million as compared to $4.1 million during the 2001
second quarter. For the six months ended June 30, 2002, the business reported a
pre-tax loss of $(42.7) million as compared to a pre-tax loss of $(11.2) million
in the same period of 2001. As of June 30, 2002, reserves on the remaining
Commercial loan and REO assets amounted to 20% of asset value as compared to 11%
at March 31, 2002. Total commercial loans, investments in real estate and REO
totaled $247.2 million at June 30, 2002, reduced by $106.9 million or 30% from
December 31, 2001.
The Affordable Housing business posted a pre-tax loss of $(11.7) million in the
2002 second quarter compared to a pre-tax loss of $(7.0) million in the 2001
second quarter. Affordable Housing results in the second quarter of 2002
included charges of $9.8 million, including a discount of approximately $3.9
million on a long term sale of seven assets with a book value of $29 million.
This discount will accrete to income over the term of the related receivable
balance. Other provisions during the quarter of $5.9 million reflect revisions
in completion cost and financing estimates as well as modifications to projected
sales results. As of June 30, 2002, reserves on Affordable Housing properties
and loans had increased to 40% of remaining asset values as compared to 26% at
March 31, 2002. For the six months ended June 30, 2002, the business reported a
pre-tax loss of $(29.7) million as compared to a pre-tax loss of $(14.8) million
in the same period of 2001. There are $49.8 million of Affordable Housing
properties and loans remaining as of June 30, 2002 of which $11.9 million are
loans, $19.0 million are properties subject to sales contracts that have not yet
satisfied all of the accounting criteria for sales treatment and $18.9 million
are properties that remain to be sold.
Results in the Subprime Finance business reflected pre-tax income of $0.3
million for the 2002 second quarter as compared to pre-tax income of $3.8
million in the 2001 second quarter. Year to date, the business reported pre-tax
income of $4.8 million, as compared to pre-tax income of $5.6 million in 2001.
The Company's total portfolio of non-investment grade securities, which consists
largely of subprime residuals, was reduced to $41.2 million at June 30, 2002 as
compared to $65.1 million at December 31, 2001, primarily as a result of sales
of securities.
Second quarter 2002 results also include gains of $1.1 million reflecting the
repurchase of $5.4 million face value of debt as compared to gains of $0.4
million in the 2001 second quarter. Year to date, gains on debt repurchases
amounted to $1.1 million in 2002 as compared to $3.8 million in the same period
of 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. 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.
Year to date results for 2002 also include a net gain of $16.2 million recorded
in the first quarter. This gain represents the effect of a change in accounting
principles for goodwill and intangible assets in accordance with Statements of
Financial Accounting Standards 141 and 142.
The Company's net effective tax expense in the 2002 second quarter was zero. Tax
expense in the second quarter of 2001 was $11.0 million, representing an
increase to the valuation allowance on the deferred tax asset. Year to date 2002
tax expense was $1.2 million, representing an offset to the taxes included in
the change in accounting principles. Year to date tax expense in 2001 was $18.0
million, representing an increase to the valuation allowance on the deferred tax
asset.
6
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
Ocwen Financial Corporation is a financial services company headquartered in
West Palm Beach, Florida. The Company's primary business is the servicing and
special servicing of nonconforming, subperforming and nonperforming residential
and commercial mortgage loans. Ocwen also specializes in the development of
related loan servicing technology and software for the mortgage and real estate
industries. Additional information about Ocwen Financial Corporation is
available at www.ocwen.com.
Certain statements contained herein may not be based on historical facts and are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements may be identified by reference to a
future period(s) or by the use of forward-looking terminology such as "believe,"
"minimize," "return," "improve," "increase," "grow," "reduce," "decline,"
"progress," "current," "consider," "maintain," "generate," "accrete,"
"estimate," "modify," "project," "subject to," "gain," "result," "evaluate,"
"offset," 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 (the "SEC"),
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, which
filings are available from the SEC. Undue reliance should not be accorded
forward-looking statements, which speak only as of the date they are made. OCN
undertakes no obligation to publicly update or revise forward-looking
statements.
7
Ocwen Financial Corporation
Fourth Quarter Results
May 7, 2002
Interest Income and Expense
Three Months Six Months
---------------------- ----------------------
For the periods ended June 30, 2002 2001 2002 2001
- ----------------------------------------------------------- --------- --------- --------- ---------
(Dollars in thousands)
Interest income:
Federal funds sold and repurchase agreements ............ $ 693 $ 2,454 $ 1,272 $ 4,098
Trading securities ...................................... 4,159 4,174 8,517 9,873
Investment securities and other ......................... 69 251 161 598
Match funded loans and securities ....................... 1,808 2,737 4,057 5,220
Loans ................................................... 2,077 15,602 7,513 30,246
--------- --------- --------- ---------
8,806 25,218 21,520 50,035
--------- --------- --------- ---------
Interest expense:
Deposits ................................................ 7,082 16,307 15,699 34,379
Securities sold under agreements to repurchase .......... 71 -- 198 --
Bonds - match funded agreements ......................... 1,807 1,742 3,716 4,708
Obligations outstanding under lines of credit ........... 1,107 1,737 2,149 2,456
Notes, debentures and other interest bearing obligations 4,647 4,942 9,348 10,065
--------- --------- --------- ---------
14,714 24,728 31,110 51,608
--------- --------- --------- ---------
Net interest income (expense) before provision for loan
losses ................................................ $ (5,908) $ 490 $ (9,590) $ (1,573)
========= ========= ========= =========
Pre-Tax Income (Loss) by Business Segment
Three Months Six Months
---------------------- ----------------------
For the periods ended June 30, 2002 2001 2002 2001
- ----------------------------------------------------------- --------- --------- --------- ---------
(Dollars in thousands)
Residential Loan Servicing ............................... $ 8,083 $ 8,509 $ 15,631 $ 17,021
OTX ...................................................... (4,904) (7,790) (10,186) (21,558)
Ocwen Realty Advisors .................................... 499 205 1,019 346
Unsecured Collections .................................... 1,139 (2,141) 2,083 (4,341)
Residential Discount Loans ............................... 609 (4,542) 1,720 (6,299)
Commercial Finance ....................................... (38,324) (3,161) (42,744) (11,175)
Affordable Housing ....................................... (11,675) (6,964) (29,658) (14,816)
Subprime Finance ......................................... 316 3,832 4,809 5,551
Corporate Items and Other ................................ (5,941) 1,578 (12,364) 8,314
--------- --------- --------- ---------
$ (50,198) $ (10,474) $ (69,690) $ (26,957)
========= ========= ========= =========
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.
June 30, December 31,
2002 2001
--------- ---------
(Dollars in thousands) Loans, net:
Affordable housing .................................. $ 11,882 $ 17,215
All other ........................................... 110,127 168,078
Real estate held for sale .............................. -- 13,418
Investment in real estate .............................. 59,598 116,896
Real estate owned, net ................................. 84,101 110,465
Subordinates, residuals and other trading securities ... 41,210 65,058
Affordable housing properties .......................... 18,877 52,176
--------- ---------
Total non-core assets to be sold .................... $ 325,795 $ 543,306
========= =========
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)
June 30, December 31,
2002 2001
----------- -----------
Assets:
Cash and amounts due from depository institutions ................................... $ 34,213 $ 23,076
Interest earning deposits ........................................................... 122,161 111,579
Federal funds sold and repurchase agreements ........................................ 88,000 126,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) ................................ 90,338 161,191
Subordinates, residuals and other securities ................................... 41,210 65,058
Real estate held for sale ........................................................... -- 13,418
Investment in real estate ........................................................... 59,598 116,896
Affordable housing properties ....................................................... 37,941 102,069
Loans, net .......................................................................... 122,009 185,293
Match funded assets ................................................................. 159,220 174,351
Real estate owned, net .............................................................. 84,101 110,465
Premises and equipment, net ......................................................... 47,333 44,589
Income taxes receivable ............................................................. 20,441 20,842
Advances on loans and loans serviced for others ..................................... 254,734 283,183
Mortgage servicing rights ........................................................... 133,677 101,107
Other assets ........................................................................ 96,805 72,033
----------- -----------
$ 1,391,781 $ 1,711,150
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits .......................................................................... $ 441,863 $ 656,878
Escrow deposits on loans and loans serviced for others ............................ 88,773 73,565
Securities sold under agreements to repurchase .................................... 66,817 79,405
Bonds - match funded agreements ................................................... 146,214 156,908
Obligations outstanding under lines of credit ..................................... 68,883 84,304
Notes, debentures and other interest bearing obligations .......................... 157,580 160,305
Accrued interest payable .......................................................... 8,794 12,836
Excess of net assets acquired over purchase price ................................. -- 18,333
Accrued expenses, payables and other liabilities .................................. 30,333 28,351
----------- -----------
Total liabilities .............................................................. 1,009,257 1,270,885
----------- -----------
Minority interest in subsidiary ................................................... 1,625 --
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; 67,333,477 and
67,289,313 shares issued and outstanding at June 30, 2002 and December 31,
2001, respectively ............................................................. 673 673
Additional paid-in capital ....................................................... 224,375 224,142
Retained earnings ................................................................ 99,722 154,412
Accumulated other comprehensive loss, net of taxes:
Net unrealized foreign currency translation loss ............................... (120) (121)
----------- -----------
Total stockholders' equity ..................................................... 324,650 379,106
----------- -----------
$ 1,391,781 $ 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)
Three Months Six Months
---------------------------- ----------------------------
For the periods ended June 30, 2002 2001 2002 2001
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net interest expense:
Income ............................................................ $ 8,806 $ 25,218 $ 21,520 $ 50,035
Expense ........................................................... 14,714 24,728 31,110 51,608
------------ ------------ ------------ ------------
Net interest income (expense) before provision for loan losses .... (5,908) 490 (9,590) (1,573)
Provision for loan losses ......................................... 10,732 10,297 11,411 18,417
------------ ------------ ------------ ------------
Net interest expense after provision for loan losses .............. (16,640) (9,807) (21,001) (19,990)
------------ ------------ ------------ ------------
Non-interest income:
Servicing and other fees .......................................... 35,848 33,740 71,574 64,857
Gain (loss) on interest earning assets, net ....................... (996) 422 (2,773) (1,409)
Gain on trading and match funded securities, net .................. 161 4,550 2,953 9,739
Loss on real estate owned, net .................................... (11,858) (1,885) (15,970) (3,090)
Loss on other non-interest earning assets, net .................... (93) (975) (841) (519)
Net operating gains (losses) on investments in real estate ........ (13,993) 490 (9,339) 3,265
Amortization of excess of net assets acquired over purchase price . -- 4,583 -- 9,166
Gain on repurchase of debt ........................................ 1,070 385 1,074 3,819
Equity in income of investment in unconsolidated entities ......... 40 139 31 184
Other income ...................................................... 2,328 2,437 7,357 4,483
------------ ------------ ------------ ------------
12,507 43,886 54,066 90,495
------------ ------------ ------------ ------------
Non-interest expense:
Compensation and employee benefits ................................ 19,708 21,309 40,781 42,244
Occupancy and equipment ........................................... 3,331 3,174 6,045 6,267
Technology and communication costs ................................ 6,009 5,556 11,061 15,704
Loan expenses ..................................................... 3,436 2,835 7,371 7,070
Net operating losses on investments in certain affordable housing
properties ...................................................... 6,228 2,756 21,910 7,818
Amortization of excess of purchase price over net assets acquired . -- 778 -- 1,556
Professional services and regulatory fees ......................... 3,172 3,934 7,768 7,750
Other operating expenses .......................................... 2,615 2,514 4,590 5,303
------------ ------------ ------------ ------------
44,499 42,856 99,526 93,712
------------ ------------ ------------ ------------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior
subordinated debentures of the Company .......................... 1,566 1,697 3,229 3,750
------------ ------------ ------------ ------------
Loss before income taxes and effect of change in accounting principle
(50,198) (10,474) (69,690) (26,957)
Income tax expense .................................................. -- 10,967 1,166 18,000
------------ ------------ ------------ ------------
Net loss before effect of change in accounting principle ............ (50,198) (21,441) (70,856) (44,957)
Effect of change in accounting principle, net of taxes .............. -- -- 16,166 --
------------ ------------ ------------ ------------
Net loss ........................................................ $ (50,198) $ (21,441) $ (54,690) $ (44,957)
============ ============ ============ ============
Earnings (loss) per share:
Basic and Diluted:
Net loss before effect of change in accounting principle ........ $ (0.75) $ (0.32) $ (1.05) $ (0.67)
Effect of change in accounting principle, net of taxes .......... -- -- 0.24 --
------------ ------------ ------------ ------------
Net loss ........................................................ $ (0.75) $ (0.32) $ (0.81) $ (0.67)
============ ============ ============ ============
Weighted average common shares outstanding .......................... 67,317,005 67,198,359 67,305,747 67,175,361
10