OCWEN FINANCIAL CORPORATION ANNOUNCES
1999 SECOND QUARTER RESULTS
1999 Second Quarter Highlights
- Cash earnings, as defined below, were $12.1 million in the 1999 second
quarter, compared to $8.5 million in 1998.
- Cash earnings from Single Family Residential Discount Loans were $7.6
million in the 1999 second quarter, compared to $0.7 million in the 1998
second quarter.
- Net income from Domestic Loan Servicing increased $2.4 million, or 294%
in the 1999 second quarter compared to the 1998 second quarter.
- OTX acquired Synergy Software, LLC, a leading developer of commercial and
multifamily mortgage servicing systems in the U.S., in June 1999.
- OCN repurchased 205,300 shares of its common stock, initiating its
repurchase plan of up to six million shares.
West Palm Beach, FL - (July 30, 1999) Ocwen Financial Corporation (NYSE: OCN) today reported net income for the 1999 second quarter, prior to impairment charges and losses on equity investments, of $22.8 million, or $0.37 per diluted share, compared to net income for the 1998 second quarter, prior to impairment charges on securities available for sale, of $27.4 million, or $0.45 per diluted share. For the six months ended June 30, 1999, the Company reported net income, prior to impairment charges and losses on equity investments, of $32.4 million, or $0.53 per diluted share, compared to net income for the six months ended June 30, 1998, before impairment charges on securities, of $56.6 million, or $0.92 per diluted share.
Cash earnings, defined as net income excluding non-cash gains on securitizations, less impairment charges, and less losses related to the investment in Ocwen Asset Investment Corp. (NYSE: OAC), amounted to $12.1 million in the 1999 second quarter, compared to $8.5 million in 1998. Cash earnings for the six months ended June 30, 1999 amounted to $17.9 million, compared to $19.1 million for the same period in 1998. Pre-tax non-cash gains in the 1999 second quarter were comprised of $10.2 million from Ocwen UK plc and $3.3 million from U.S. operations.
Including impairment charges and losses on equity investments, the Company reported a net loss of $(3.7) million, or $(0.06) per diluted share, for the 1999 second quarter, compared to a net loss of $(37.9) million, or $(0.62) per diluted share, for the 1998 second quarter. For the six months ended June 30, 1999, the Company reported net income of $5.8 million, or $0.10 per diluted share, compared to a net loss of $(15.6) million, or $(0.26) per diluted share, for the six months ended June 30, 1998.
The loss for the 1999 second quarter was caused by charges totaling $33.2 million, of which $28.8 million related to impairment charges on the securities available for sale portfolio, and the balance related primarily to losses on its investment in OAC. Of the $28.8 million of charges on the securities portfolio, $22.8 million was charged against the Company's residential discount loan subordinates, and $5.8 million was charged against the Company's subprime residuals. The charges were based upon quotes received from broker-dealers and reflected both continuing market illiquidity for these investments and a reduction in fair value due to default rates on the underlying mortgage collateral, which were higher than had been estimated at the time the securities were initially issued.
William C. Erbey, Chairman and CEO, commented, "We continue the long-term strategic transition from capital-intensive business lines to those which generate greater fee-based income streams, specifically our servicing and advanced technology businesses. The 1999 second quarter reflects this transition. For example, net income in our Domestic Loan Servicing operations for the just-completed quarter increased to $3.2 million, or 294% over the same period a year ago. Total servicing fees for the 1999 second quarter increased $5.0 million, or 35% over the same quarter in the prior year, due to a 44% increase in the average unpaid principal balance of loans serviced for others ($10.24 billion in the 1999 second quarter, compared to $7.12 billion in the 1998 second quarter).
"We have made significant progress in our OTX subsidiary with the acquisition of the assets of Synergy Software, LLC, a leading developer of commercial and multifamily loan servicing software in the United States. Synergy is in the final stages of developing its SynergyOPEN(TM) software, an advanced commercial and multifamily mortgage servicing system. The 32-bit, Microsoft(R) Windows-based system employs multi-tier architecture to allow distributed computing. This design represents the next generation of client-server computing and allows the SynergyOPEN(TM) system to scale easily from small companies to the largest multiple-office enterprises. OTX continues to make progress in marketing its REALTrans(SM) e-commerce software solution. Currently, several of the largest domestic mortgage loan participants utilize the software application.
"We intend to lessen our dependency on capital-intensive businesses, reduce our reliance on gain on sale accounting, and re-focus on our core competencies. This transition will slow income recognition but will improve the quality of earnings by increasing its cash component. We intend to continue to curtail our domestic subprime originations and are evaluating our remaining businesses on the basis of their capacity to generate fees. Cash earnings, as defined above, amounted to $12.1 million in the 1999 second quarter, compared to $8.5 million in 1998."
Recent Announcements
On July 26, 1999, OCN announced that it had signed a definitive merger
agreement with Ocwen Asset Investment Corp., a publicly traded real estate
investment trust, providing for OCN to acquire OAC for 0.71 shares of OCN
common stock for each outstanding share of OAC common stock (other than
those OAC shares owned by Ocwen Financial or its subsidiaries). This
exchange ratio represents a $5.50 price per share or an approximate 19
percent premium to the closing price of $4 5/8 for OAC common stock on July
23, 1999, based on the closing price of $7 3/4 for Ocwen Financial common
stock on that date.
Net (Loss) Income by Business Segment
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 1999 1998 1999 1998
Discount loans:
Single family
residential loans $(8,865) $4,520 $(4,343) $18,703
Commercial real estate
loans 3,298 11,773 6,800 17,057
(5,567) 16,293 2,457 35,760
Domestic mortgage loan
servicing 3,223 819 6,730 2,323
Investment in low-income
housing tax credits 1,452 1,435 2,997 6,394
Commercial real estate
lending 3,712 5,173 5,850 5,068
UK operations 9,217 7,449 9,346 7,449
OTX (4,256) (3,146) (7,261) (4,248)
Domestic subprime single
family residential
lending (2,518) (4,268) (2,982) (3,587)
Investment securities (1,756) (47,122) (1,844) (53,991)
Equity in earnings (loss)
of OAC (3,268) --- (3,485) ---
Other (3,926) (14,532) (6,025) (10,722)
$(3,687) $(37,899) $5,783 $(15,554)
Asset Acquisitions
Three Months Six Months
(Dollars in Ended June 30, Increase Ended June 30, Increase
thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
Discount Loan Acquisitions:
Single family
residential $233,207 $293,900 $(60,693) $274,083 $335,252 $(61,169)
Multi-family
residential 39,275 145,526 (106,251) 71,959 148,506 (76,547)
Commercial real
estate 106,989 145,006 (38,017) 131,790 186,199 (54,409)
Other --- 1,323 (1,323) 6,596 6,348 248
$379,471 $585,755 $(206,284)$484,428 $676,305$(191,877)
Subprime Loan Purchases and
Originations:
Domestic $74,958 $192,799 $(117,841)$235,817 $697,041$(461,224)
Foreign
(Ocwen UK)(1) 152,965 465,193 (312,228) 293,007 465,193 (172,186)
$227,923 $657,992 $(430,069)$528,824$1,162,234$(633,410)
(1) Subprime loan purchases and originations for the three and six month
periods ended June 30, 1998 incude $419,087 of loans purchased in
connection with the acquisition of the U.K. operations of Cityscape
Financial Corp.
Forward-Looking Statements
Certain statements contained herein are not 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 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 "anticipate," "believe," "commitment," "continue,"
"could," "estimate," "expected," "may" "present," "will," future or
conditional verb tenses, similar terms, variations on such terms or
negatives of such terms. Although OCN believes the anticipated results or
other expectations reflected in such forward-looking statements are based
on reasonable assumptions, actual results could differ materially from
those indicated due to risks, uncertainties and changes with respect to a
variety of factors, including, but not limited to, international, national,
regional or local 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, real estate investment trusts and real
estate (including regulatory fees, capital requirements and income and
property taxation), uncertainty of foreign laws, competitive products,
pricing and conditions (including from competitors that have significantly
greater resources than OCN), credit, prepayment, basis, default,
subordination and asset/liability risks, loan servicing effectiveness,
ability to identify acquisitions and investment opportunities meeting OCN's
investment strategy, course of negotiations and ability to reach agreement
with respect to material terms of any particular transaction, satisfactory
due diligence results, satisfaction or fulfillment of agreed upon terms and
conditions of closing or performance, timing of transaction closings,
recent efforts to refocus on core businesses and increase liquidity,
dispositions, and winding down of discontinued businesses, acquisitions and
integration of acquired businesses, software integration, development and
licensing, availability of and costs associated with obtaining adequate and
timely sources of liquidity, dependence on existing sources of funding,
ability to repay or refinance indebtedness (at maturity or upon
acceleration), to meet collateral calls by lenders (upon re-valuation of
the underlying assets or otherwise), to generate revenues sufficient to
meet debt service payments and other operating expenses and to securitize
whole loans, availability of discount loans 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 (temporary
or otherwise), timely leasing of unoccupied square footage (generally and
upon lease expiration), changes in real estate conditions (including
liquidity, valuation, revenues, rental rates, occupancy levels and
competing properties), adequacy of insurance coverage in the event of loss,
known or unknown environmental conditions, Year 2000 compliance, other
factors generally understood to affect the real estate acquisition,
mortgage and leasing markets, securities investments, and other risks
detailed from time to time in OCN's reports and filings with the SEC,
including its Registration Statements on Forms S-1 and S-3 and periodic
reports on Forms 10-Q, 8-K and 10-K. Please refer to Exhibit 99.1 included
with the Form 10-K for the year ended December 31, 1998 and filed with the
SEC, for a description of material risks faced by the Company and its
securities holders.
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Six Months
(Dollars in thousands, Ended June 30, Ended June 30,
except per share data) 1999 1998 1999 1998
Interest income:
Federal funds sold and
repurchase agreements $2,059 $1,404 $5,454 $2,437
Securities available
for sale 15,659 8,728 32,848 16,672
Loans available for sale 11,014 25,291 19,144 34,794
Loans 8,878 11,655 15,044 17,917
Discount loans 25,553 42,281 55,556 79,078
Investment securities
and other 384 1,532 1,035 2,017
63,547 90,891 129,081 152,915
Interest expense:
Deposits 23,559 28,677 50,387 56,522
Securities sold under
agreements to repurchase 2,281 2,062 3,772 3,701
Advances from the Federal
Home Loan Bank 37 --- 37 109
Obligations outstanding under
lines of credit 5,293 15,103 9,017 19,623
Notes, debentures and other
interest bearing
obligations 6,668 6,734 13,423 13,477
37,838 52,576 76,636 93,432
Net interest income before
provision for loan losses 25,709 38,315 52,445 59,483
Provision for loan losses 623 9,675 4,362 11,929
Net interest income after
provision for loan losses 25,086 28,640 48,083 47,554
Non-interest income:
Servicing fees and other
charges 18,929 13,972 37,180 23,696
(Loss) gain on interest-
earning assets, net (5,867) (48,015) 14,275 (23,261)
Gain on real estate owned,
net 2,677 10,521 3,306 11,547
Other income 9,073 9,771 15,625 15,648
24,812 (13,751) 70,386 27,630
Non-interest expense:
Compensation and employee
benefits 24,330 29,766 51,540 51,247
Occupancy and equipment 8,732 8,507 19,369 14,925
Loan expenses 2,652 7,357 6,780 9,694
Net operating loss on invest-
ments in real estate and
certain low-income housing
tax credit interests 1,374 1,046 3,221 2,292
Amortization of excess of
purchase price over net
assets acquired 257 563 487 934
Other operating expenses 10,440 9,010 18,511 11,168
47,785 56,249 99,908 90,260
Distributions on Company-
obligated, mandatory redeem-
able securities of subsidiary
trust holding solely junior
subordinated debentures 3,398 3,398 6,797 6,797
Equity in (losses) earnings
of investments in uncon-
solidated entities (3,470) 544 (4,713) 544
(Loss) income before income
taxes (4,755) (44,214) 7,051 (21,329)
Income tax benefit (expense) 972 6,383 (1,396) 5,810
Minority interest in net loss
(income) of consolidated
subsidiary 96 (68) 128 (35)
Net (loss) income $(3,687) $(37,899) $5,783 $(15,554)
(Loss) income per share:
Basic $(0.06) $(0.62) $0.10 $(0.26)
Diluted $(0.06) $(0.62) $0.10 $(0.26)
Weighted average common shares outstanding:
Basic 60,730,614 60,713,593 60,765,485 60,682,432
Diluted 60,730,614 60,713,593 60,807,036 60,682,432
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
June 30, December 31,
1999 1998
Assets
Cash and amounts due from depository
institutions $107,476 $120,805
Interest earning deposits 18,127 49,374
Federal funds sold 75,000 275,000
Securities available for sale, at fair value 733,271 593,347
Loans available for sale, at lower of cost
or market 132,425 177,847
Investment in capital stock of Federal Home
Loan Bank, at cost 10,825 10,825
Loan portfolio, net 133,678 230,312
Discount loan portfolio, net 1,008,764 1,026,511
Investments in low-income housing tax
credit interests 180,566 144,164
Investment in unconsolidated entities 79,958 86,893
Real estate owned, net 183,162 201,551
Investment in real estate 22,256 36,860
Premises and equipment, net 43,805 33,823
Income taxes receivable 36,627 34,333
Deferred tax asset 68,279 66,975
Excess of purchase price over net assets
acquired 17,030 12,706
Principal, interest and dividends receivable 11,798 18,993
Escrow advances on loans 107,097 88,277
Other assets 42,123 99,483
$3,012,267 $3,308,079
Liabilities and Stockholders' Equity
Liabilities:
Deposits $1,874,553 $2,175,016
Securities sold under agreements
to repurchase 133,741 72,051
Obligations outstanding under lines
of credit 94,039 179,285
Notes, debentures and other interest
bearing obligations 279,236 225,000
Accrued interest payable 27,318 33,706
Accrued expenses, payables and other
liabilities 41,928 61,053
Total liabilities 2,450,815 2,746,111
Company-obligated, mandatory redeemable
securities of subsidiary trust holding
solely junior subordinated debentures
of the Company 125,000 125,000
Minority interest 465 592
Commitments and contingencies
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; 60,601,156 shares
issued and outstanding at June 30, 1999,
and December 31, 1998 608 608
Treasury stock, 205,300 shares at June
30, 1999 (1,832) ---
Additional paid-in capital 166,262 166,234
Retained earnings 262,953 257,170
Accumulated other comprehensive income,
net of taxes:
Net unrealized gain on securities
available for sale 9,947 14,057
Net unrealized foreign currency
translation loss (1,951) (1,693)
Total stockholders' equity 435,987 436,376
$3,012,267 $3,308,079
End.