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): May 1, 2003
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida 1-13219 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)
Item 5. Other Events
The news release of the Registrant dated May 1, 2003, announcing its first
quarter 2003 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 1, 2003.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
OCWEN FINANCIAL CORPORATION
(Registrant)
By: /s/ MARK S. ZEIDMAN
-------------------------------------
Mark S. Zeidman
Senior Vice President and
Chief Financial Officer
Date: May 5, 2003
3
INDEX TO EXHIBIT
Exhibit No. Description Page
- ----------- ----------- ----
99.1 News release of Ocwen Financial Corporation, dated 5
May 1, 2003, announcing its first quarter 2003 results
and certain other information.
4
================================================================================
Exhibit 99.1
[GRAPHIC LOGO 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
FIRST QUARTER 2003 RESULTS
West Palm Beach, FL - (May 1, 2003) Ocwen Financial Corporation (NYSE: OCN)
today reported a net loss of $(8.4) million in the first quarter of 2003 or
$(0.13) per share compared to a net loss of $(4.5) million or $(0.07) per share
in the first quarter of 2002.
Chairman and CEO William C. Erbey stated, "Our operations reported pre-tax
income of $1.6 million in the first quarter, exclusive of a charge of $10
million related to the previously announced resolution of the Admiral Home Loan
arbitration. This compares favorably to a pre-tax loss of $(19.5) million in the
first quarter of 2002. We are encouraged by our progress towards achieving
profitability despite this one time charge. The fundamentals of our core
business units are sound.
Our core businesses reported aggregate pre-tax income of $7.2 million as
compared to $4.2 million in the first quarter of 2002. This continues our trend
of improving quarterly core earnings, as shown below:
Quarterly Average Core Pre-Tax Income (Loss)
Year $ in Millions
2000 ........................................ (7.4)
2001 ........................................ (1.7)
2002 ........................................ 3.4
2003 ........................................ 7.2
Our non-core businesses reported an aggregate pre-tax loss of $(12.4) million in
the first quarter of 2003, or $(2.4) million excluding the arbitration
settlement charge, as compared to a pre-tax loss of $(16.8) million in the 2002
first quarter, largely due to reduced provisions and loan loss reserves in 2003.
The pre-tax loss in our Corporate segment was $(3.2) million in 2003 as compared
to $(6.9) in 2002.
o On April 25 we announced the resolution of the arbitration process
initiated by the former owners of Admiral Home Loan. As disclosed in our
annual report, the claimants sought damages in excess of $75 million. In a
2-1 decision, an arbitration panel awarded them $6 million plus interest
and costs. In the first quarter we established a reserve of $10 million
including attorney's fees as a result of this award.
o We are particularly pleased to note that for the second consecutive quarter
our Residential Loan Servicing business reported record pre-tax income of
$9.2 million as compared to $7.5 million in the first quarter of 2002,
despite the continuing challenge of the current low interest rate
environment.
o At OTX our first quarter loss was reduced to $(3.3) million as compared to
$(5.3) million in 2002, due to increased revenues and reduced expenses.
o The reduction of $3.8 million in our pre-tax loss in the Corporate Items
and Other segment is primarily due to two factors - lower net interest
expense of $2.0 million largely as a result of our debt redemption
initiative last quarter and a reduction of approximately $2.1 million in
corporate expenses as a result of the cost savings initiatives that we
completed in the fourth quarter of 2002.
This quarter, we are reporting two new core businesses for the first time.
Through Global Outsourcing we offer business process outsourcing services to
third parties, leveraging our established capabilities in India. Our
International business in 2003 reflects the initial results of Global Servicing
Solutions, our joint servicing venture with Merrill Lynch for the servicing of
assets in various countries. While still very new, we are optimistic that these
businesses will provide meaningful earnings over time.
5
Ocwen Financial Corporation
First Quarter Results
May 1, 2003
Our liquidity remains strong, with cash and cash equivalents of $216.8 million
as of March 31, 2003 as compared to $192.2 million at December 31, 2002."
The Servicing business reported record pre-tax income of $9.2 million in the
first quarter of 2003 vs. $7.5 million in the 2002 first quarter, despite the
continuing earnings pressure from the current low interest rate environment. Our
Servicing business volume remained largely unchanged during the first quarter.
As of March 31, 2003 we were the servicer of approximately 325 thousand loans
with an unpaid principal balance (UPB) of $30.2 billion, as compared to
approximately 336 thousand loans and $30.7 billion of UPB at December 31, 2002,
a decrease of 1.6% in UPB.
Pre-tax losses at OTX were $(3.3) million in the 2003 first quarter compared to
$(5.3) million in the same period of 2002, an improvement of $2.0 million or
37.7%. OTX revenues in the 2003 first quarter were $2.5 million as compared to
$1.5 million in 2002, of which REALTrans revenues in 2003 were $0.9 million as
compared to $0.3 million in 2002.
ORA reported pre-tax income of $1.0 million in the first quarter of 2003 as
compared to $0.5 million in the first quarter of 2002 due to an improvement in
margin from 12.6% in 2002 to 26.6% in 2003. This improvement was attained in
part through our full implementation of REALTrans as the vendor management
platform for ORA, as well as reduced costs from the utilization of our India
location.
The Unsecured Collections business posted pre-tax income of $1.3 million in the
first quarter of 2003 vs. income of $0.9 million in the 2002 first quarter,
reflecting reductions in operating costs as well as continued success in
attracting new fee-based collection contracts.
Global Outsourcing, a new business segment that began operations in December
2002 recorded pre-tax income of $0.08 million in the first quarter of 2003.
Global Outsourcing provides business process outsourcing services to third
parties and leverages the operational capability of our facilities in India.
International Operations, which is being reported as a business segment for the
first time this quarter, recorded a pre-tax loss of $(1.2) million in the first
quarter of 2003. In the first quarter of 2002, International Operations reported
pre-tax income of $0.5 million. In 2003, this segment primarily represents the
results of operations of Global Servicing Solutions, LLC, our new joint venture
with Merrill Lynch. Results for 2002 primarily reflect a one time consulting
project for the government of Jamaica.
Pre-tax losses for the first quarter of 2003 in the Commercial Finance business
amounted to $(2.7) million as compared to a pre-tax loss of $(4.4) million in
the 2002 first quarter. The improvement in 2003 is primarily due to loan loss
provisions in 2002 not required in 2003. Total commercial loans, investments in
real estate and REO, consisting of 18 assets, had a book value of $187.1 million
at March 31, 2003, with reserves on the remaining commercial loan and REO assets
of 24.1% of book value, all consistent with December 31, 2002 levels.
The Affordable Housing business posted a pre-tax loss of $(2.3) million in the
2003 first quarter compared to a pre-tax loss of $(18.0) million in the 2002
first quarter. First quarter 2003 results include $0.6 million of provisions for
losses on Affordable Housing properties and loans as compared to $15.5 million
of such provisions in the 2002 first quarter. As of March 31, 2003, reserves on
Affordable Housing properties and loans were 49% of remaining book value,
approximately equal to the levels as of December 31, 2002. There are $19.3
million of Affordable Housing properties and loans remaining as of March 31,
2003 of which $6.0 million are loans, $2.9 million are properties subject to
sales contracts that have not yet satisfied all of the accounting criteria for
sales treatment and $10.4 million are properties that remain to be sold.
Results in the Subprime Finance business reflected a pre-tax loss of $(7.5)
million for the 2003 first quarter as compared to pre-tax income of $4.7 million
in the 2002 first quarter. Results in 2003 include a charge of $10 million
related to the Admiral Home Loan arbitration, and also reflect a trading loss of
$(0.6) million in 2003 as compared to trading gains of $3.4 million in the first
quarter of 2002. The Company's total portfolio of non-investment grade
securities, which consists largely of subprime residuals, was $35.7 million at
March 31, 2003 as compared to $37.3 million at December 31, 2002, primarily as a
result of principal repayments.
The Company's net effective tax expense in the 2003 first quarter was $0.3
million, reflecting a tax payment related to an investment in a non-economic
residual security with no book value. 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.
6
Ocwen Financial Corporation
First Quarter Results
May 1, 2003
Ocwen Financial Corporation is a financial services company headquartered in
West Palm Beach, Florida. The Company's primary business is the servicing and
special servicing of nonconforming, subperforming and nonperforming residential
and commercial mortgage loans. Ocwen also specializes in the development of
related loan servicing technology and software for the mortgage and real estate
industries. Additional information about Ocwen Financial Corporation is
available at www.ocwen.com.
This news release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, but not limited to, the
soundness of the fundamentals of our core businesses, expectations with regard
to new businesses, reduction of losses, earnings improvement trends, and
predictions as to future sales. Forward-looking statements are not guarantees of
future performance, and involve a number of assumptions, risks and uncertainties
that could cause actual results to differ materially.
Important factors that could cause actual results to differ materially from
those suggested by the forward-looking statements include, but are not limited
to, the following: general economic and market conditions, prevailing interest
or currency exchange rates, governmental regulations and policies, international
political and economic uncertainty, availability of adequate and timely sources
of liquidity, uncertainty related to dispute resolution and litigation, and real
estate market conditions and trends, as well as other risks detailed in OCN's
reports and filings with the Securities and Exchange Commission, including its
periodic report on 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
First Quarter Results
May 1, 2003
Interest Income and Expense
For the three months ended March 31, 2003 2002
- ------------------------------------------------------------------------------------- ---------- ----------
(Dollars in thousands)
Interest income
Interest earning cash and other .................................................... $ 50 $ 93
Federal funds sold and repurchase agreements ....................................... 318 579
Trading securities ................................................................. 4,865 4,358
Loans .............................................................................. 372 5,435
Match funded loans and securities .................................................. 1,152 2,249
---------- ----------
6,757 12,714
---------- ----------
Interest expense
Deposits ........................................................................... 4,865 8,617
Securities sold under agreements to repurchase ..................................... 3 126
Bonds - match funded agreements .................................................... 1,306 1,910
Obligations outstanding under lines of credit ...................................... 764 1,042
Notes, debentures and other interest bearing obligations ........................... 2,388 4,701
---------- ----------
9,326 16,396
---------- ----------
Net interest expense before provision for loan losses .............................. $ (2,569) $ (3,682)
========== ==========
Pre-Tax Income (Loss) by Business Segment
For the three months ended March 31, 2003 2002
- ------------------------------------------------------------------------------------- ---------- ----------
(Dollars in thousands)
Core businesses
Residential Loan Servicing ........................................................ $ 9,248 $ 7,548
OTX ............................................................................... (3,327) (5,282)
Ocwen Realty Advisors ............................................................. 1,015 520
Unsecured Collections ............................................................. 1,317 943
Global Outsourcing ................................................................ 81 --
International Operations .......................................................... (1,151) 500
---------- ----------
7,183 4,229
---------- ----------
Non-core businesses
Residential Discount Loans ........................................................ -- 910
Commercial Finance ................................................................ (2,659) (4,419)
Affordable Housing ................................................................ (2,280) (17,983)
Subprime Finance .................................................................. (7,485) 4,693
---------- ----------
(12,424) (16,799)
---------- ----------
Corporate Items and Other .......................................................... (3,161) (6,922)
---------- ----------
$ (8,402) $ (19,492)
========== ==========
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
March 31, December 31,
2003 2002
---------- ----------
(Dollars in thousands)
Loans, net
Affordable housing ................................................................. $ 5,981 $ 6,229
All other .......................................................................... 74,910 70,628
Investments in real estate .......................................................... 59,133 58,676
Real estate owned, net .............................................................. 55,816 62,039
Subordinates, residuals and other trading securities ................................ 35,685 37,339
Affordable housing properties ....................................................... 10,423 10,861
---------- ----------
Total non-core assets to be sold ................................................... $ 241,948 $ 245,772
========== ==========
8
Ocwen Financial Corporation
First Quarter Results
May 1, 2003
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
March 31, December 31,
2003 2002
----------- -----------
Assets
Cash and amounts due from depository institutions ................................ $ 65,087 $ 76,598
Interest earning deposits ........................................................ 51,665 30,649
Federal funds sold and repurchase agreements ..................................... 100,000 85,000
Trading securities, at fair value:
Collateralized mortgage obligations (AAA-rated) ................................ 10,964 21,556
Subordinates, residuals and other securities ................................... 35,685 37,339
Investments in real estate ....................................................... 59,133 58,676
Affordable housing properties .................................................... 13,311 15,319
Loans, net ....................................................................... 80,891 76,857
Match funded assets .............................................................. 160,371 167,744
Real estate owned, net ........................................................... 55,816 62,039
Premises and equipment, net ...................................................... 45,281 44,268
Income taxes receivable .......................................................... 21,316 20,841
Advances on loans and loans serviced for others .................................. 281,286 266,356
Mortgage servicing rights ........................................................ 166,855 171,611
Other assets ..................................................................... 94,386 87,389
----------- -----------
$ 1,242,047 $ 1,222,242
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Deposits ....................................................................... $ 428,159 $ 425,970
Escrow deposits on loans and loans serviced for others ......................... 89,216 84,986
Bonds - match funded agreements ................................................ 140,569 147,071
Obligations outstanding under lines of credit .................................. 100,000 78,511
Notes, debentures and other interest bearing obligations ....................... 81,210 81,210
Accrued interest payable ....................................................... 8,139 7,435
Accrued expenses, payables and other liabilities ............................... 34,487 28,314
----------- -----------
Total liabilities ............................................................. 881,780 853,497
----------- -----------
Minority interest in subsidiaries .................................................. 1,515 1,778
Company obligated, mandatorily redeemable securities of subsidiary trust holding
solely junior subordinated debentures of the Company ........................... 56,249 56,249
Stockholders' equity
Preferred stock, $.01 par value; 20,000,000 shares authorized; 0 shares
issued and outstanding ......................................................... -- --
Common stock, $.01 par value; 200,000,000 shares authorized: 67,339,773
shares issued and outstanding at March 31, 2003 and December 31, 2002 .......... 673 673
Additional paid-in capital ....................................................... 224,467 224,454
Retained earnings ................................................................ 77,191 85,637
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized foreign currency translation loss ............................... 172 (46)
----------- -----------
Total stockholders' equity .................................................... 302,503 310,718
----------- -----------
$ 1,242,047 $ 1,222,242
=========== ===========
9
Ocwen Financial Corporation
First Quarter Results
May 1, 2003
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
For the three months ended March 31, 2003 2002
- ---------------------------------------------------------------------------- ------------ ------------
Net interest expense
Income ................................................................... $ 6,757 $ 12,714
Expense .................................................................. 9,326 16,396
------------ ------------
Net interest expense before provision for loan losses .................. (2,569) (3,682)
Provision for loan losses ................................................ 166 679
------------ ------------
Net interest expense after provision for loan losses ................... (2,735) (4,361)
------------ ------------
Non-interest income
Servicing and other fees ................................................. 37,648 35,725
Gain (loss) on interest earning assets, net .............................. -- (1,777)
Gain (loss) on trading and match funded securities, net .................. (423) 2,791
Gain (loss) on real estate owned, net .................................... 256 (4,112)
Gain (loss) on other non-interest earning assets, net .................... 294 (748)
Net operating gains (losses) on investments in real estate ............... 893 4,654
Gain (loss) on repurchase of debt ........................................ -- 4
Equity in income (loss) of investment in unconsolidated entities ......... 37 (9)
Other income ............................................................. 3,965 5,041
------------ ------------
42,670 41,569
------------ ------------
Non-interest expense
Compensation and employee benefits ....................................... 17,708 21,074
Occupancy and equipment .................................................. 2,830 2,714
Technology and communication costs ....................................... 4,497 5,053
Loan expenses ............................................................ 3,535 3,935
Net operating losses on investments in affordable housing properties ..... 657 15,681
Professional services and regulatory fees ................................ 15,284 4,596
Other operating expenses ................................................. 2,297 1,984
------------ ------------
46,808 55,037
------------ ------------
Distributions on Company-obligated, mandatorily redeemable
securities of subsidiary trust holding solely junior subordinated
debentures of the Company ................................................ 1,529 1,663
------------ ------------
Income (loss) before minority interest, income taxes and effect
of change in accounting principle ........................................ (8,402) (19,492)
Minority interest in net loss of subsidiaries .............................. (263) --
Income tax expense ......................................................... 307 1,166
------------ ------------
Net income (loss) before effect of change in accounting principle ........ (8,446) (20,658)
Effect of change in accounting principle, net of taxes ..................... -- 16,166
------------ ------------
Net income (loss) ........................................................ $ (8,446) $ (4,492)
============ ============
Earnings (loss) per share
Basic and Diluted:
Net income (loss) before effect of change in accounting principle ...... $ (0.13) $ (0.31)
Effect of change in accounting principle, net of taxes ................. -- 0.24
------------ ------------
Net income (loss) .................................................... $ (0.13) $ (0.07)
============ ============
Weighted average common shares outstanding ................................. 67,339,773 67,294,490
10