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 6, 1999
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 15
EXHIBIT INDEX ON PAGE 4
ITEM 5. OTHER EVENTS
The news release of Ocwen Financial Corporation, dated May 6, 1999, announcing
that its 1999 first quarter results exceeded analysts' estimates and certain
other information, is attached hereto and filed herewith as Exhibit 99.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
The following exhibit is filed as part of this report:
(99) News release of Ocwen Financial Corporation dated May 6,1999.
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 7, 1999
3
INDEX TO EXHIBIT
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
99 News release of Ocwen Financial Corporation dated 5
May 6, 1999, announcing that its 1999 first quarter
results exceeded analysts' estimates and certain
other information.
4
================================================================================
EXHIBIT 99
[GRAPHIC OMITTED] OCWEN FINANCIAL CORPORATION
================================================================================
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION, CONTACT:
A. RICHARD HURWITZ
VP, CORPORATE COMMUNICATIONS
T: (561) 682-8575
F: (561) 682-8177 OR E-MAIL: rhurwitz@ocwen.com
------------------
OCWEN FINANCIAL CORPORATION ANNOUNCES
1999 FIRST QUARTER RESULTS EXCEED ANALYSTS' ESTIMATES
FIRST QUARTER 1999 HIGHLIGHTS
o NET INCOME EXCLUDING NON-CASH GAINS ON SECURITIZATIONS WAS $4.4 MILLION IN
THE 1999 FIRST QUARTER, COMPARED TO A LOSS OF $2.8 MILLION IN THE 1998 FIRST
QUARTER
o NET INTEREST INCOME, BEFORE PROVISION FOR LOAN LOSSES, INCREASED BY $5.6
MILLION, OR 26% FROM THE FIRST QUARTER OF 1998
o DISCOUNT LOAN ACQUISITIONS INCREASED $14.4 MILLION, OR 16% OVER THE SAME
QUARTER IN THE PRIOR YEAR
o NET INCOME FROM DOMESTIC LOAN SERVICING INCREASED $1.9 MILLION, OR 126% OVER
THE SAME QUARTER IN THE PRIOR YEAR
o OTX RELEASED AN ENHANCEMENT TO ITS INTERNET-BASED REALTRANSsm E-COMMERCE
SOFTWARE SOLUTION (WWW.REALTRANS.COM) FOR MORTGAGE AND REAL ESTATE
TRANSACTIONS, FEATURING IMPROVED FUNCTIONALITY AND NAVIGATIONAL CAPABILITY
o OCWEN UK LOAN ORIGINATIONS INCREASED 17% FROM THE 1998 FOURTH QUARTER AND
60% FROM THE 1998 THIRD QUARTER
o OCWEN UK RECORDED NET INCOME OF $0.9 MILLION IN THE 1999 FIRST QUARTER
WITHOUT EXECUTING A SECURITIZATION
o THE BOARD OF DIRECTORS AUTHORIZED THE REPURCHASE OF UP TO SIX MILLION SHARES
OF COMMON STOCK
WEST PALM BEACH, FL - (May 6, 1999) Ocwen Financial Corporation (NYSE: OCN)
today reported net income of $9.5 million, or $0.16 per diluted share for its
first quarter ended March 31, 1999, compared to $22.3 million, or $0.36 per
diluted share, for the first quarter of 1998. Excluding non-cash gains on
securitizations, net income was $4.4 million in the 1999 first quarter, compared
to a loss of $2.8 million in 1998, assuming the effective tax rate for each
period.
SELECTED OPERATING RESULTS Three Months Ended March 31,
- ---------------------------------------------- -----------------------------
Dollars in thousands, except per share data 1999 1998
- ---------------------------------------------- ------------ ------------
Revenues ..................................... $ 72,311 $ 62,549
Provision for loan losses .................... (3,739) (2,253)
Expenses ..................................... (55,522) (37,410)
Equity in losses of unconsolidated entities .. (1,245) --
Income tax expense ........................... (2,368) (573)
Minority interest ............................ 33 33
------------ ------------
Net income ................................... $ 9,470 $ 22,346
============ ============
Earnings per share:
Basic ..................................... $ 0.16 $ 0.37
Diluted ................................... $ 0.16 $ 0.36
Weighted average shares outstanding:
Basic ................................... 60,800,357 60,708,735
Diluted ................................. 60,843,572 61,542,122
Annualized Returns:
Average assets .......................... 1.19% 2.77%
Average equity .......................... 8.48% 20.75%
Net interest spread .......................... 4.90% 2.78%
Net interest margin .......................... 4.70% 3.22%
5
RECENT ANNOUNCEMENTS
OCN PROPOSED A BUSINESS COMBINATION WITH OCWEN ASSET INVESTMENT CORPORATION
On April 16, 1999, Ocwen Financial announced that it has proposed to the Board
of Directors of Ocwen Asset Investment Corporation (NYSE: OAC) a possible
business combination between itself and OAC. Under the Company's proposal, a
newly-formed subsidiary of OCN would merge into OAC in a taxable transaction,
and each outstanding share of common stock of OAC (other than those owned by
Ocwen Financial or its subsidiaries) would be converted into 0.57 shares of
common stock of Ocwen Financial. The proposal required the payment of OAC's
final 1998 dividend, which was deferred by OAC's Board of Directors and is
expected to range from $14.6 million, or $0.77 per share to $16.1 million, or
$0.85 per share. OCN's proposal is subject to, among other things, the
satisfactory negotiation of final terms of an acquisition agreement.
Consummation of Ocwen Financial's proposal would be subject to approval by the
OAC shareholders. There can be no assurance that the parties will agree to final
terms or that any business combination will be concluded.
SIX MILLION SHARE REPURCHASE ANNOUNCED
On April 16, 1999, Ocwen Financial announced that its Board of Directors has
authorized the repurchase of up to six million of its issued and outstanding
shares of common stock.
NET INCOME BY BUSINESS SEGMENT
Three Months Ended March 31,
-----------------------------
(Dollars in thousands) 1999 1998
-------- --------
Discount loans:
Single family residential loans ................. $ 4,098 $ 13,631
Commercial real estate loans .................... 2,964 4,743
-------- --------
7,062 18,374
-------- --------
Mortgage loan servicing:
Domestic ........................................ 3,352 1,484
Foreign (UK) .................................... 1,705 --
-------- --------
5,057 1,484
-------- --------
Investment in low-income housing tax credits ....... 1,392 5,376
Commercial real estate lending ..................... 2,087 (250)
OTX ................................................ (1,891) (705)
Subprime single family residential lending:
Domestic ........................................ (614) 511
Foreign (UK) .................................... (1,682) --
-------- --------
(2,296) 511
-------- --------
Investment securities .............................. 1,973 (5,139)
Other .............................................. (3,914) 2,695
-------- --------
$ 9,470 $ 22,346
======== ========
6
BUSINESS SEGMENT DISCUSSION
DISCOUNT LOANS
Net income in the Discount Loan segment declined from $18.4 million in the first
quarter of 1998 to $7.1 million in the first quarter of 1999. Net income for the
Discount Loan segment, excluding non-cash securitization gains, was $5.5 million
in the 1999 first quarter, compared to $2.9 million in the 1998 first quarter,
assuming the effective tax rate for each period.
In the first quarter of 1999, OCN completed one securitization of single family
residential loans with an aggregate unpaid principal balance of $137.3 million
and recorded a total gain of $13.9 million. Of this amount, $12.0 million was a
cash gain, and $1.9 million was non-cash. In the 1998 first quarter, the Company
completed one securitization of single family residential loans with an
aggregate unpaid principal balance of $227.5 million, which accounted for a
total gain of $16.7 million, of which $0.8 million was a cash gain and $15.9
million was a non-cash gain. The higher cash component of the gain in the 1999
securitization reflected lower subordination levels, compared to the 1998
transaction, which in turn reflected the better credit profile of the mortgages
collateralizing the transaction. All of these mortgages were reperforming at the
time of the securitization, whereas the 1998 transaction consisted entirely of
loans acquired from HUD, the majority of which remained in the forbearance
period at the time of the securitization.
MORTGAGE LOAN SERVICING
Net income from domestic servicing increased $1.9 million, or 125% over the same
quarter in the prior year. Net income from mortgage loan servicing (including
foreign (UK) results) in the 1999 first quarter was $5.1 million, compared to
$1.5 million in the 1998 first quarter. Total servicing fees increased 88% over
the same quarter in the prior year, due to a 71% increase in the average unpaid
principal balance of loans serviced for others ($10.44 billion in the 1999 first
quarter compared to $6.12 billion in the 1998 first quarter).
INVESTMENT IN LOW-INCOME HOUSING TAX CREDITS
The Low-Income Housing unit recorded net income of $1.4 million in the 1999
first quarter, compared to $5.4 million in the 1998 first quarter. The decrease
reflected a $4.7 million gain on sale in the 1998 first quarter.
OTX Recently, OTX introduced its RealTransSM1.1 software, an update to its
e-commerce solution for ordering mortgage and real estate products and services
via the Internet. The new release has many new navigational features, as well as
improved functionality. OTX's website, WWW.REALTRANS.COM is available for
demonstration. The significant benefit of the RealTransSM1.1 solution is its
ability to provide major cost reductions for all parties by saving valuable time
and increasing organizational efficiencies. This Internet-based application
links banks, brokers, appraisers, agents, title insurers, attorneys, and other
ancillary service providers to form a secure virtual environment to facilitate
the closing of mortgage and real estate transactions. It is an evolutionary
product, which will expedite and improve the way in which real estate
transactions are completed.
OTX recorded a net loss of $1.9 million in the 1999 first quarter, compared to a
loss of $0.7 million in the 1998 first quarter. These losses reflected the
continued investment in the development of this business.
7
SUBPRIME SINGLE FAMILY RESIDENTIAL LENDING
In the 1998 fourth quarter, the Company closed its retail branch network, wrote
down its assets and goodwill, and centralized its remaining operations in West
Palm Beach, and in 1999, the Company closed its wholesale branch network,
resulting in a 1999 first quarter pre-tax charge of $1.6 million. The unit lost
$0.6 million in the 1999 first quarter, compared to net income of $0.5 million
in the 1998 first quarter.
In the 1999 first quarter, the Company securitized loans aggregating $86.9
million and recorded a total gain on sale of $2.7 million and a non-cash gain of
$4.4 million. This resulted in a net loss for the domestic subprime unit,
excluding non-cash securitization gains, of $4.3 million in the 1999 first
quarter, compared to a net loss of $9.1 million in the 1998 first quarter,
assuming the effective tax rate for each period on securitization gains.
OCN lost $1.7 million in the 1999 first quarter in the Company's foreign (UK)
subprime single family residential lending business as a result of a $0.9
million loss related to the Company's investment in Kensington Mortgage Company
and a loss of $0.8 million in Ocwen UK. Subprime originations at Ocwen UK were
$140.5 million in the first quarter of this year, preceded by originations in
the prior two quarters of $120.2 million and $88.0 million, representing
increases of 17% and 60% respectively.
OTHER
The "Other" category primarily represents consolidated tax effects not
attributed to individual business units.
ASSET ACQUISITIONS
Three Months Ended March 31,
------------------------------ Increase
(Dollars in thousands) 1999 1998 (Decrease)
------------ ------------ -----------
Discount Loan Acquisitions:
Single family residential.............................. $ 40,876 $ 41,352 $ (476)
Multi-family residential............................... 32,684 2,980 29,704
Commercial real estate................................. 24,801 41,193 (16,392)
Other.................................................. 6,596 5,025 1,571
------------ ------------ -----------
$ 104,957 $ 90,550 $ 14,407
============ ============ ===========
Subprime Loan Purchases and Originations:
Domestic............................................... 160,859 504,242 (343,383)
Foreign (Ocwen UK)..................................... 140,042 -- 140,042
------------ ------------ -----------
$ 300,901 $ 504,242 $ (203,341)
============ ============ ===========
o The decrease of $343.4 million in domestic subprime loan purchases and
originations was primarily due to the closure of the domestic subprime
branch offices and the purchase of $292.8 million of loans from the U.S.
operations of Cityscape Financial Corp. during the first quarter of 1998.
OCWEN UK
Ocwen UK recorded net income of $0.9 million in the 1999 first quarter without
executing a securitization. This amount was comprised of net income of $1.7
million from Ocwen UK's mortgage loan servicing operations and net loss of $0.8
million from its subprime single family residential operations.
THE REMAINDER OF THIS RELEASE CONTAINS SELECTED SUMMARY INFORMATION ON THE
COMPANY'S OPERATING RESULTS, AS WELL AS OCN'S INTERIM UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS. THE RESULTS FOR THE FIRST QUARTER OF 1998 DO NOT INCLUDE
THE OPERATIONS OF OCWEN UK, WHICH WAS ACQUIRED IN APRIL 1998.
8
SELECTED REVIEW OF OPERATING RESULTS
NET INTEREST INCOME
Net interest income before provision for loan losses of $26.7 million for the
first quarter of 1999 increased by $5.6 million or 26% from the first quarter of
1998, reflecting a $3.5 million increase in interest income and a $2.1 million
decrease in interest expense.
Interest income of $65.5 million for the first quarter of 1999 increased by $3.5
million or 6%, compared to the first quarter of 1998. As presented in the table
below, this increase was primarily due to an increase in the average yield
earned, offset by a decrease in the average balance of interest-earning assets.
(Dollars in thousands) Interest Income Average Balance Average Yield
First Quarter Increase First Quarter Increase First Quarter Increase
----------------------- (Decrease) ----------------------- (Decrease) ------------- (Decrease)
1999 1998 $ 1999 1998 $ 1999 1998 Basis Points
----------- ----------- ---------- ----------- ----------- ----------- ----- ----- ------------
Federal funds sold and
repurchase agreements ....... $ 3,396 $ 1,032 $ 2,364 $ 285,701 $ 76,885 $ 208,816 4.75% 5.37% (62)
Securities available for sale .. 17,189 7,945 9,244 491,701 529,180 (37,479) 13.98% 6.01% 797
Loans available for sale ....... 8,130 9,503 (1,373) 274,817 339,394 (64,577) 11.83% 11.20% 63
Loan portfolio ................. 6,165 6,262 (97) 217,364 281,215 (63,851) 11.35% 8.91% 244
Discount loan portfolio ........ 30,003 36,797 (6,794) 970,437 1,379,114 (408,677) 12.37% 10.67% 170
Investment securities and other. 651 485 166 35,957 25,623 10,334 7.24% 7.57% (33)
----------- ----------- ---------- ----------- ----------- -----------
$ 65,534 $ 62,024 $ 3,510 $ 2,275,977 $ 2,631,411 $ (355,434) 11.52% 9.43% 209
=========== =========== ========== =========== =========== ===========
o For the first quarter of 1999, securities available for sale were comprised
of AAA-rated collateralized mortgage obligations, which had an average
balance of $291.2 million and an average yield of 5.91%, and subordinate and
residual securities retained in connection with securitization activities,
which had an average of $200.5 million and an average yield of 25.71%. In
the first quarter of 1998, OCN's securities available for sale included
AAA-rated agency interest-only securities ("IOs"), which had an average
balance of $197.1 million during that period. The average yield on the IOs
was adversely affected by declining interest rates and the resulting
increase in prepayment speeds. During the second quarter of 1998, OCN sold
its entire portfolio of IOs.
o The 244 basis point increase in the average yield on the loan portfolio was
primarily due to $780,000 of additional interest received in connection with
the repayment of multi-family construction loans.
o The yield on the discount loan portfolio is likely to fluctuate from period
to period as a result of the timing of resolutions, particularly the
resolution of large multi-family residential and commercial real estate
loans and the mix of the overall portfolio between performing and
nonperforming loans.
Interest expense of $38.8 million for the first quarter of 1999 decreased by
$2.1 million or 5%, compared to the first quarter of 1998. As presented in the
table below, this decrease was primarily the result of a decrease in the average
balance of interest-bearing liabilities.
(Dollars in thousands) Interest Income Average Balance Average Yield
First Quarter Increase First Quarter Increase First Quarter Increase
----------------------- (Decrease) ----------------------- (Decrease) ------------- (Decrease)
1999 1998 $ 1999 1998 $ 1999 1998 Basis Points
----------- ----------- ---------- ----------- ----------- ----------- ----- ----- ------------
Deposits....................... $ 26,828 $ 27,845 $ (1,017)$ 1,799,497 $ 1,825,620 $ (26,123) 5.96% 6.10% (14)
Securities sold under
agreements to repurchase.... 1,491 1,639 (148) 77,271 114,633 (37,362) 7.72% 5.72% 200
Advances from the
Federal Home Loan Bank...... -- 100 (100) -- 7,481 (7,481) --% 5.35% (535)
Obligations outstanding
under lines of credit....... 3,724 4,520 (796) 242,458 284,210 (41,752) 6.14% 6.36% (22)
Notes, debentures and other.... 6,755 6,752 3 225,000 226,880 (1,880) 12.01% 11.90% 11
----------- ----------- ---------- ----------- ----------- -----------
$ 38,798 $ 40,856 $ (2,058)$ 2,344,226 $ 2,458,824 $ (114,598) 6.62% 6.65% (3)
=========== =========== ========== =========== =========== ===========
9
NON-INTEREST INCOME
Non-interest income for the first quarter of 1999 amounted to $45.6 million, an
increase of $4.2 million or 10% from that of the first quarter of 1998. The net
increase, as presented in the table below, was primarily due to an increase in
servicing fees and other charges offset by a decrease in gains on
interest-earning assets.
Three Months Ended March 31,
---------------------------- Increase
(Dollars in thousands) 1999 1998 (Decrease)
------------ ----------- -----------
Servicing fees and other charges........ $ 18,251 $ 9,724 $ 8,527
Gain on interest-earning assets, net.... 20,142 24,754 (4,612)
Gain on real estate owned, net.......... 629 1,026 (397)
Other income............................ 6,553 5,877 676
------------ ----------- -----------
$ 45,575 $ 41,381 $ 4,194
============ =========== ===========
SERVICING FEES AND OTHER CHARGES
Servicing fees and other charges increased $8.5 million, or 88%, from $9.7
million in the 1998 first quarter to $18.3 million in the 1999 first quarter,
reflecting an increase in loan servicing and related fees as a result of an
increase in the average balance of loans serviced for others. The unpaid
principal balance of loans serviced for others averaged $10.44 billion and $6.12
billion during the first quarters of 1999 and 1998, respectively.
GAIN ON INTEREST-EARNING ASSETS
Gain on interest-earning assets, net, for the first quarter of 1999 of $20.1
million was primarily comprised of $16.6 million of securitization gains, as
presented in the table below, and $4.4 million of gains on the sale of
commercial subordinate securities available for sale. Gain on interest-earning
assets, net, for the first quarter of 1998 of $24.8 million was primarily
comprised of $24.6 million of securitization gains, as presented in the table
below:
Book Value
Loans Securitized of Securities
- ------------------------------------------------- Retained Cash
Type of Loans Principal Net Gain (Non-cash Gain) Gain (Loss)
- ----------------------------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
FIRST QUARTER - 1999:
Single family discount (1)......... $ 137,266 $ 13,899 $ 1,907 $ 11,992
Single family subprime............. 86,944 2,717 4,432 (1,715)
------------- ------------- ------------- -------------
$ 224,210 $ 16,616 $ 6,339 $ 10,277
============= ============= ============= =============
FIRST QUARTER - 1998:
Single family discount............. $ 227,549 $ 16,698 $ 15,917 $ 781
Single family subprime............. 161,400 7,932 9,862 (1,930)
------------- ------------- ------------- -------------
$ 388,949 $ 24,630 $ 25,779 $ (1,149)
============= ============= ============= =============
(1) Includes loans with an unpaid principal balance of $24.9 million from the
loan portfolio.
10
OTHER INCOME
Other income of $6.6 million for the first quarter of 1999 included $3.7 million
of brokerage commissions earned in connection with Ocwen UK loan originations
and $1.5 million of management fees earned from OAC. Other income of $5.9
million for the first quarter of 1998 was primarily comprised of $4.7 million of
gains recognized in connection with the sale of investments in low-income
housing tax credit projects and $829,000 of management fees earned from OAC.
EQUITY IN LOSSES OF INVESTMENTS IN UNCONSOLIDATED ENTITIES
During the first quarter 1999, OCN recorded $1.2 million of losses from its
equity investments in unconsolidated entities, due primarily to a $0. 9 million
loss resulting from its equity investment in Kensington Mortgage Company.
PROVISION FOR LOAN LOSSES
DURING THE RECENTLY-COMPLETED QUARTER, THE COMPANY STRENGTHENED ITS ALLOWANCE
FOR LOAN LOSSES. AT MARCH 31, 1999, OCN HAD ALLOWANCES FOR LOSSES OF $23.9
MILLION AND $4.0 MILLION ON ITS DISCOUNT LOAN AND LOAN PORTFOLIOS, RESPECTIVELY,
WHICH AMOUNTED TO 2.6% AND 2.2% OF THE RESPECTIVE BALANCES. OCN MAINTAINED
RESERVES OF 2.0% AND 2.1% ON ITS DISCOUNT LOAN AND LOAN PORTFOLIOS,
RESPECTIVELY, AT DECEMBER 31, 1998. THE NEGATIVE PROVISION FOR LOAN PORTFOLIO
LOSSES IN THE FIRST QUARTER OF 1999 REFLECTED A DECLINE IN THE GROSS LOAN
PORTFOLIO (PRIMARILY IN COMMERCIAL REAL ESTATE MEZZANINE FINANCING) OF
APPROXIMATELY $53.8 MILLION DURING THAT PERIOD.
Three Months Ended March 31,
----------------------------- Increase
(Dollars in thousands) 1999 1998 (Decrease)
----------- ----------- -----------
Discount loans................. $ 4,689 $ 1,923 $ 2,766
Loan portfolio................. (950) 330 (1,280)
----------- ----------- -----------
$ 3,739 $ 2,253 $ 1,486
=========== =========== ===========
EXPENSES
Non-interest expense amounted to $52.1 million for the first quarter of 1999,
including increases of $11.0 million related to the acquisition of Ocwen UK in
April 1998 and $2.1 million related to OTX, representing an increase of $18.1
million or 53% over the first quarter of 1998, as follows:
Three Months Ended March 31,
---------------------------- Increase
(Dollars in thousands) 1999 1998 (Decrease)
----------- ----------- -----------
Compensation and employee benefits.................... $ 27,211 $ 21,481 $ 5,730
Occupancy and equipment............................... 10,637 6,417 4,220
Loan expenses......................................... 4,128 2,338 1,790
Net operating loss on investments in real estate and
certain low-income housing tax credit interests.... 1,848 1,246 602
Amortization of goodwill.............................. 230 371 (141)
Other operating expenses.............................. 8,069 2,158 5,911
----------- ----------- -----------
$ 52,123 $ 34,011 $ 18,112
=========== =========== ===========
o The $5.7 million increase in compensation and employee benefits during the
first quarter of 1999 reflected an increase in the average number of
employees from 1,147 to 1,620. Compensation and employee benefit expense for
the first quarter of 1999 includes $5.1 million related to Ocwen UK.
o The $4.2 million increase in occupancy and equipment expense was primarily
due to an increase in technology costs, rent expense, and furniture and
fixtures. Occupancy and equipment expense for the first quarter of 1999
included $2.1 million related to Ocwen UK.
o The $1.8 million increase in loan expenses is primarily related to $1.3
million incurred by Ocwen UK, of which $1.0 million represented broker fees.
o The $5.9 million increase in other operating expenses was primarily
attributable to increases at Ocwen UK.
11
INCOME TAXES
Income tax expense amounted to $2.4 million and $573,000 during the first
quarter of 1999 and 1998, respectively. OCN's income tax provision for the first
quarter of 1999 reflected an expected tax rate of 19.8% for 1999. OCN's expected
income tax rate is less than its statutory income tax rate primarily due to tax
credits of $4.5 million and $4.7 million for the first quarter of 1999 and 1998,
respectively, resulting from its investment in certain low-income housing tax
credit interests. Additionally, 1998 tax expense was reduced as a result of the
utilization of $8.6 million of net operating tax loss carryforwards.
OTHER
Ocwen Financial Corporation is a $3.13 billion financial institution
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. Additional information about Ocwen
Financial Corporation is available at WWW.OCWEN.COM.
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.
12
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended March 31,
----------------------------
1999 1998
- ------------------------------------------------------------ ------------ ------------
Interest income:
Federal funds sold and repurchase agreements ............. $ 3,396 $ 1,032
Securities available for sale ............................ 17,189 7,945
Loans available for sale ................................. 8,130 9,503
Loans .................................................... 6,165 6,262
Discount loans ........................................... 30,003 36,797
Investment securities and other .......................... 651 485
------------ ------------
65,534 62,024
------------ ------------
Interest expense:
Deposits ................................................. 26,828 27,845
Securities sold under agreements to repurchase ........... 1,491 1,639
Advances from the Federal Home Loan Bank ................. -- 100
Obligations outstanding under lines of credit ............ 3,724 4,520
Notes, debentures and other interest bearing obligations . 6,755 6,752
------------ ------------
38,798 40,856
------------ ------------
Net interest income before provision for loan losses ..... 26,736 21,168
Provision for loan losses .................................. 3,739 2,253
------------ ------------
Net interest income after provision for loan losses ...... 22,997 18,915
------------ ------------
Non-interest income:
Servicing fees and other charges ......................... 18,251 9,724
Gain on interest-earning assets, net ..................... 20,142 24,754
Gain on real estate owned, net ........................... 629 1,026
Other income ............................................. 6,553 5,877
------------ ------------
45,575 41,381
------------ ------------
Non-interest expense:
Compensation and employee benefits ....................... 27,211 21,481
Occupancy and equipment .................................. 10,637 6,417
Loan expenses ............................................ 4,128 2,338
Net operating loss on investments in real estate and
-- 1,848 1,246
certain low-income housing tax credit interests
Amortization of excess of purchase price over net assets . 230 371
acquired
Other operating expenses ................................. 8,069 2,158
------------ ------------
52,123 34,011
------------ ------------
Distributions on Company-obligated, mandatory redeemable
securities of subsidiary trust holding solely junior ..... 3,399 3,399
subordinated debentures
Equity in losses of investments in unconsolidated entities . (1,245) --
------------ ------------
Income before income taxes ............................... 11,805 22,886
Income tax expense ......................................... (2,368) (573)
Minority interest in net loss of consolidated subsidiary ... 33 33
------------ ------------
Net income ............................................... $ 9,470 $ 22,346
============ ============
Income per share:
Basic .................................................... $ 0.16 $ 0.37
============ ============
Diluted .................................................. $ 0.16 $ 0.36
============ ============
Weighted average common shares outstanding:
Basic .................................................... 60,800,357 60,708,735
============ ============
Diluted .................................................. 60,843,572 61,542,122
============ ============
13
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data) March 31, December 31,
1999 1998
----------- -----------
Assets
Cash and amounts due from depository institutions ............................... $ 80,399 $ 120,805
Interest earning deposits ....................................................... 18,798 49,374
Federal funds sold .............................................................. 200,500 275,000
Securities available for sale, at fair value .................................... 566,739 593,347
Loans available for sale, at lower of cost or market ............................ 374,094 177,847
Loan portfolio, net ............................................................. 177,511 230,312
Discount loan portfolio, net .................................................... 893,180 1,026,511
Investments in low-income housing tax credit interests .......................... 155,273 144,164
Investment in unconsolidated entities ........................................... 84,279 86,893
Real estate owned, net .......................................................... 208,831 201,551
Investment in real estate ....................................................... 40,282 36,860
Investment in capital stock of Federal Home Loan Bank, at cost .................. 10,825 10,825
Premises and equipment, net ..................................................... 37,569 33,823
Income taxes receivable ......................................................... 31,189 34,333
Deferred tax asset .............................................................. 67,987 66,975
Excess of purchase price over net assets acquired ............................... 12,476 12,706
Principal, interest and dividends receivable .................................... 14,066 18,993
Escrow advances on loans ........................................................ 99,883 88,277
Other assets .................................................................... 56,813 99,483
----------- -----------
$ 3,130,694 $ 3,308,079
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits ..................................................................... $ 1,841,427 $ 2,175,016
Securities sold under agreements to repurchase ............................... 78,474 72,051
Obligations outstanding under lines of credit ................................ 324,760 179,285
Notes, debentures and other interest bearing obligations ..................... 223,000 225,000
Accrued interest payable ..................................................... 40,495 33,706
Accrued expenses, payables and other liabilities ............................. 48,709 61,053
----------- -----------
Total liabilities .......................................................... 2,556,865 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 ............................................................... 585 592
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; 60,800,357
shares issued and outstanding at March 31, 1999, and December 31, 1998 ..... 608 608
Additional paid-in capital ................................................... 166,248 166,234
Retained earnings ............................................................ 266,640 257,170
Accumulated other comprehensive income, net of taxes:
Net unrealized gain on securities available for sale ...................... 16,266 14,057
Net unrealized foreign currency translation loss .......................... (1,518) (1,693)
----------- -----------
Total stockholders' equity ................................................. 448,244 436,376
----------- -----------
$ 3,130,694 $ 3,308,079
=========== ===========
14
OCWEN FINANICAL CORPORATION
AVERAGE BALANCE/RATE ANALYSIS
Three Months Ended March 31,
------------------------------------------------------------------------
1999 1998
-------------------------------- -------------------------------------
(Dollars in thousands) Average Annualized Average Annualized
Balance Interest Yield/Rate Balance Interest Yield/Rate
---------- --------- ---------- ---------- --------- -----------
AVERAGE ASSETS:
Federal funds sold and repurchase
agreements......................... $ 285,701 $ 3,396 4.75% $ 76,885 $ 1,032 5.37%
Securities available for sale........ 491,701 17,189 13.98 529,180 7,945 6.01
Loans available for sale............. 274,817 8,130 11.83 339,394 9,503 11.20
Loan portfolio....................... 217,364 6,165 11.35 281,215 6,262 8.91
Discount loan portfolio.............. 970,437 30,003 12.37 1,379,114 36,797 10.67
Investment securities and other...... 35,957 651 7.24 25,623 485 7.57
---------- --------- ---------- ---------
Total interest-earning assets........ 2,275,977 65,534 11.52 2,631,411 62,024 9.43
--------- ---------
Non-interest earning cash............ 114,821 19,755
Allowance for loan losses............ (24,903) (25,910)
Investments in low-income housing
tax credit interests............... 147,201 131,699
Investment in unconsolidated
entities........................... 86,286 22,067
Real estate owned, net............... 213,783 171,952
Investment in real estate............ 40,268 77,565
Other assets......................... 322,094 196,487
---------- ----------
Total assets......................... $3,175,527 $3,225,026
========== ==========
AVERAGE LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing demand deposits..... $ 64,209 640 3.99% $ 32,912 356 4.33%
Savings deposits..................... 1,566 9 2.30 1,735 10 2.31
Certificates of deposit.............. 1,733,722 26,179 6.04 1,790,973 27,479 6.14
---------- --------- ---------- ---------
Total interest-bearing deposits...... 1,799,497 26,828 5.96 1,825,620 27,845 6.10
Securities sold under agreements to
repurchase......................... 77,271 1,491 7.72 114,633 1,639 5.72
Federal Home Loan Bank advances...... -- -- -- 7,481 100 5.35
Obligations outstanding under lines
of credit.......................... 242,458 3,724 6.14 284,210 4,520 6.36
Notes, debentures and other.......... 225,000 6,755 12.01 226,880 6,752 11.90
---------- --------- ---------- ---------
Total interest-bearing liabilities... 2,344,226 38,798 6.62 2,458,824 40,856 6.65
--------- ---------
Non-interest bearing deposits........ 31,960 23,532
Escrow deposits...................... 195,125 111,094
Other liabilities.................... 32,697 75,895
---------- ----------
Total liabilities.................... 2,604,008 2,669,345
Capital Trust Securities............. 125,000 125,000
Stockholders' equity................. 446,519 430,681
---------- ----------
Total liabilities and stockholders'
equity............................. $3,175,527 $3,225,026
========== ==========
Net interest income before provision
for loan losses.................... $ 26,736 $ 21,168
========= =========
Net interest rate spread........... 4.90% 2.78%
Net interest margin.................. 4.70% 3.22%
Ratio of interest-earning assets to
interest-bearing liabilities....... 97% 107%
15