OCWEN FINANCIAL CORPORATION ANNOUNCES
1999 THIRD QUARTER RESULTS
West Palm Beach, FL – (November 9, 1999) Ocwen Financial Corporation (NYSE: OCN) today reported net income for the 1999 third quarter of $12.8 million, or $0.21 per diluted share, compared to net income of $24.9 million, or $0.41 per diluted share for the 1998 third quarter. For the nine months ended September 30, 1999, the Company reported net income of $18.6 million, or $0.30 per diluted share, compared to net income for the nine months ended September 30, 1998 of $9.4 million, or $0.15 per diluted share.
OCN earned a $50.4 million pre-tax gain from the sale of Ocwen UK in the third quarter 1999, which was partially offset by pretax impairment charges on the residential mortgage-backed securities portfolio and losses on certain equity investments of $26.7 million. Exclusive of such gain, charges and losses, OCN generated a $3.4 million pre-tax loss from operations for the 1999 third quarter, reflecting the absence of securitization gains and a low volume of commercial loan resolutions, which reduced the operating income of the discount loan business.Key Strategic Events
On September 30, OCN sold its wholly-owned UK subsidiary, Ocwen UK plc to Malvern House Acquisition Limited for $122.1 million in cash. As a result of the transaction, OCN recorded a pretax gain on sale of $50.4 million. Furthermore, the sale of Ocwen UK, which included the sale of approximately $109.3 million of UK subprime securities and residuals, resulted in a near 50% reduction in OCN’s portfolio of securities retained in connection with its previous securitizations.
OCN has used a portion of the cash proceeds from the sale of Ocwen UK to buy shares of OCN common stock pursuant to the Company’s previously announced stock repurchase program. As of the date of this release, OCN has repurchased approximately 1.6 million shares on the open market, representing 27% of the 6,000,000 shares authorized for repurchase by OCN’s Board of Directors.
William C. Erbey, Chairman and CEO, commented, "The sale of Ocwen UK and the closing of OFS demonstrate our commitment to dispose of non-core assets, simplify our organization and focus our resources on continuing to grow our fee-based services and developing our technology-related businesses."
As previously reported, the Company did not execute any securitizations in the third quarter, and it expects the number of securitizations going forward to decrease significantly as a result of its departure from the subprime origination business. The Company has also made a strategic decision to structure future securitizations as financing transactions, which will preclude the use of gain on sale accounting. This transition will slow income recognition in the short-term, but will improve the quality of earnings by increasing its cash component. Ocwen’s earnings historically have fluctuated based on non-performing commercial loan resolution volumes. This quarter, a large portion of the Company’s commercial loan portfolio is in performing status, and as a result, fewer resolutions were completed. Pre-tax income in Ocwen’s Domestic Mortgage Loan Servicing operations for the just-completed quarter increased to $3.4 million, or 20% over the same period a year ago. Ocwen’s total loan servicing portfolio now tops $11 billion in unpaid principal balance. "Ocwen is in the midst of a profound transformation from operating as a capital-intensive business to being a fee-based provider of high quality services to the mortgage and real estate markets," stated Erbey. "We made this long-term strategic decision one year ago and are committed to successfully completing the transition."Recent Developments
On October 7, 1999, OCN closed its acquisition of Ocwen Asset Investment Corp. (OAC), a real estate investment trust. The acquisition was approved by more than 83% of the outstanding OAC shares, of which almost 98% voted in favor of the transaction. As a result of the closing, each share of OAC common stock (other than those held by OCN or its subsidiaries) was converted into the right to receive .71 shares of OCN common stock.The acquisition enables OCN to streamline its organizational structure and gain value from real estate assets that would not have otherwise been realized under OAC, due to liquidity issues.
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Ocwen Financial Corporation is a financial services company headquartered in West Palm Beach, Florida. The Company’s primary businesses are the acquisition, servicing and resolution of subperforming and nonperforming residential and commercial mortgage loans. Ocwen also specializes in the related development of 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 "anticipate," "estimate," "expect," "may," "plan," "will," 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 the knowledge of OCN or 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), 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, software integration, development and licensing, financial and securities markets, 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), size of, nature of and yields available with respect to the secondary market for mortgage loans, 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, Year 2000 compliance, integration of the business of OAC, the market prices of the common stock of OCN, other factors generally understood to affect the real estate acquisition, mortgage and leasing markets, and other risks detailed from time to time in OCN’s reports and filings with the Securities and Exchange Commission, including its Registration Statements on Forms S-4 and S-3 and periodic reports on Forms 8-K, 10-Q and 10-K, including Exhibit 99.1 attached to OCN’s Form 10-Q for the quarter ended June 30, 1999.
Net (Loss) Income by Business Segment
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| (Dollars in thousands) | 1999 |
1998 |
1999 |
1998 |
| Discount loans: | ||||
| Single family residential loans | $ (3,555) | $ 7,629 | $ (7,904) | $ 26,326 |
| Commercial real estate loans | (371) | 14,544 | 6,417 | 31,601 |
| (3,926) | 22,173 | (1,487) | 57,927 | |
| Domestic mortgage loan servicing | 2,124 | 1,769 | 8,854 | 4,129 |
| Investment in low-income housing tax credits | 4,550 | 2,135 | 7,570 | 8,529 |
| Commercial real estate lending | (1,115) | 7,767 | 4,734 | 12,836 |
| UK operations | 31,199 | (2,667) | 40,545 | 4,782 |
| OTX | (4,167) | (1,826) | (11,428) | (6,074) |
| Domestic subprime single family residential lending | (8,453) | (2,826) | (11,430) | (6,378) |
| Investment securities | (1,831) | (2,992) | (3,676) | (57,003) |
| Equity in loss of OAC | (120) | -- | (3,605) | -- |
| Other | (5,485) | 1,398 | (11,517) | (9,371) |
| $ 12,776 | $ 24,931 | $ 18,560 | $ 9,377 | |
Asset Acquisitions
| For the periods ended September 30, | Three Months |
Increase (Decrease) |
Nine Months |
Increase (Decrease) |
||
| (Dollars in thousands) | 1999 |
1998 |
1999 |
1998 |
||
| Discount Loan Acquisitions: | ||||||
| Single family residential | $ 61,725 | $ 87,152 | $ (25,427) | $ 335,808 | $ 422,404 | $ (86,596) |
| Multi-family residential | 3,353 | 20,632 | (17,279) | 75,312 | 169,138 | (93,826) |
| Commercial real estate | 15,514 | 60,760 | (45,246) | 147,304 | 246,959 | (99,655) |
| Other | 4,274 | 4,929 | (655) | 12,900 | 11,278 | 1,622 |
| $ 84,866 | $ 173,473 | $ (88,607) | $ 571,324 | $ 849,779 | $ (278,455) | |
| Subprime Loan Purchases and Originations: | ||||||
| Domestic | $ 18,052 | $ 190,378 | $ (172,326) | $ 253,869 | $ 887,419 | $ (633,550) |
| Foreign (Ocwen UK)(1) | 223,390 | 88,039 | 135,351 | 516,397 | 553,232 | (36,835) |
| $ 241,442 | $ 278,417 | $ (36,975) | $ 770,266 | $1,440,651 | $ (670,385) | |
(1) Subprime loan purchases and originations for the nine months ended September 30, 1998 include $419,087 of loans purchased in connection with the acquisition of the U.K. operations of Cityscape Financial Corp.
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three Months |
Nine Months |
|||
| For the periods ended September 30, | 1999 |
1998 |
1999 |
1998 |
| Interest income: | ||||
| Federal funds sold and repurchase agreements | $ 958 | $ 2,508 | $ 6,412 | $ 4,944 |
| Securities available for sale | 15,350 | 8,982 | 48,199 | 25,654 |
| Loans available for sale | 6,233 | 11,391 | 25,376 | 46,185 |
| Loans | 3,941 | 13,771 | 18,985 | 31,688 |
| Discount loans | 29,035 | 50,274 | 84,591 | 129,352 |
| Investment securities and other | 502 | 1,616 | 1,537 | 3,634 |
| 56,019 | 88,542 | 185,100 | 241,457 | |
| Interest expense: | ||||
| Deposits | 24,779 | 31,146 | 75,166 | 87,668 |
| Securities sold under agreements to repurchase | 2,120 | 1,168 | 5,891 | 4,869 |
| Obligations outstanding under lines of credit | 3,164 | 8,777 | 12,219 | 28,496 |
| Notes, debentures and other interest bearing obligations | 6,724 | 6,767 | 20,147 | 20,258 |
| 36,787 | 47,858 | 113,423 | 141,291 | |
| Net interest income before provision for loan losses | 19,232 | 40,684 | 71,677 | 100,166 |
| Provision for loan losses | 826 | 1,806 | 5,188 | 13,734 |
| Net interest income after provision for loan losses | 18,406 | 38,878 | 66,489 | 86,432 |
| Non-interest income (loss): | ||||
| Servicing fees and other charges | 19,584 | 15,348 | 56,764 | 39,044 |
| (Loss) gain on interest earning assets, net | (21,075) | 24,170 | (6,800) | 909 |
| (Loss) gain on real estate owned, net | (1,508) | 1,216 | 1,798 | 12,763 |
| Other income | 65,105 | 14,209 | 80,731 | 29,857 |
| 62,106 | 54,943 | 132,493 | 82,573 | |
| Non-interest expense: | ||||
| Compensation and employee benefits | 29,451 | 32,474 | 80,991 | 83,721 |
| Occupancy and equipment | 8,447 | 9,464 | 27,816 | 24,388 |
| Loan expenses | 3,992 | 9,131 | 10,773 | 18,826 |
| Net operating loss on investments in real estate and certain low-income housing tax credit interests | 958 | 2,695 | 4,179 | 4,988 |
| Amortization of excess of purchase price over net assets acquired | 284 | 2,670 | 771 | 3,604 |
| Other operating expenses | 8,859 | 9,082 | 27,368 | 20,250 |
| 51,991 | 65,516 | 151,898 | 155,777 | |
| Distributions on Company-obligated, mandatorily redeemable securities of subsidiary trust holding solely junior subordinated debentures | 3,400 | 3,400 | 10,196 | 10,196 |
| Equity in (losses) earnings of investment in unconsolidated entities | (4,768) | 2,915 | (9,483) | 3,459 |
| Income before income taxes | 20,353 | 27,820 | 27,405 | 6,491 |
| Income tax (expense) benefit | (8,199) | (2,922) | (9,595) | 2,888 |
| Minority interest in net loss (income) of consolidated subsidiary | 369 | 33 | 497 | (2) |
| Income before extraordinary item | 12,523 | 24,931 | 18,307 | 9,377 |
| Extraordinary gain on repurchase of subordinated debentures, net of tax | 253 | -- | 253 | -- |
| Net income | $ 12,776 | $ 24,931 | $ 18,560 | $ 9,377 |
| Income per share : | ||||
| Basic: | ||||
| Net income before extraordinary item | $ 0.21 | $ 0.41 | $ 0.30 | $ 0.15 |
| Extraordinary gain | -- | -- | 0.01 | -- |
| Net income | $ 0.21 | $ 0.41 | $ 0.31 | $ 0.15 |
| Diluted: | ||||
| Net income before extraordinary item | $ 0.21 | $ 0.41 | $ 0.30 | $ 0.15 |
| Extraordinary gain | -- | -- | 0.01 | -- |
| Net income | $ 0.21 | $ 0.41 | $ 0.31 | $ 0.15 |
| Weighted average common shares outstanding: | ||||
| Basic | 60,427,623 | 60,785,467 | 60,652,865 | 60,176,777 |
| Diluted | 60,460,314 | 61,074,499 | 60,691,416 | 61,249,163 |
| OCWEN FINANCIAL CORPORATION
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data) |
September
30, |
December
31, |
| Assets | ||
| Cash and amounts due from depository institutions | $ 94,517 | $ 120,805 |
| Interest earning deposits | 161,991 | 49,374 |
| Federal funds sold | -- | 275,000 |
| Securities available for sale, at fair value | 545,798 | 593,347 |
| Loans available for sale, at lower of cost or market | 66,829 | 177,847 |
| Investment in capital stock of Federal Home Loan Bank, at cost | 10,825 | 10,825 |
| Loan portfolio, net | 127,026 | 230,312 |
| Discount loan portfolio, net | 974,472 | 1,026,511 |
| Investments in low-income housing tax credit interests | 161,776 | 144,164 |
| Investment in unconsolidated entities | 76,407 | 86,893 |
| Real estate owned, net | 178,349 | 201,551 |
| Investment in real estate | 15,165 | 36,860 |
| Premises and equipment, net | 49,083 | 33,823 |
| Income taxes receivable | 14,213 | 34,333 |
| Deferred tax asset | 98,548 | 66,975 |
| Excess of purchase price over net assets acquired | 16,746 | 12,706 |
| Principal, interest and dividends receivable | 9,555 | 18,993 |
| Escrow advances on loans | 127,225 | 88,277 |
| Other assets | 72,916 | 99,483 |
| $ 2,801,441 | $ 3,308,079 | |
Liabilities and Stockholders’ Equity |
||
| Liabilities: | ||
| Deposits | $ 1,776,646 | $ 2,175,016 |
| Securities sold under agreements to repurchase | 109,383 | 72,051 |
| Obligations outstanding under lines of credit | 49,849 | 179,285 |
| Notes, debentures and other interest bearing obligations | 221,956 | 225,000 |
| Accrued interest payable | 36,924 | 33,706 |
| Accrued expenses, payables and other liabilities | 44,203 | 61,053 |
| Total liabilities | 2,238,961 | 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 | 86 | 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; 60,115,656 and 60,800,357 shares issued and outstanding at September 30, 1999, and December 31, 1998, respectively | 608 | 608 |
| Treasury stock, 690,800 shares at September 30, 1999 | (5,302) | -- |
| Additional paid-in capital | 166,276 | 166,234 |
| Retained earnings | 275,730 | 257,170 |
| Accumulated other comprehensive income, net of taxes: | ||
| Net unrealized gain on securities available for sale | 966 | 14,057 |
| Net unrealized foreign currency translation loss | (884) | (1,693) |
| Total stockholders’ equity | 437,394 | 436,376 |
| $ 2,801,441 | $ 3,308,079 |