UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-21341
OCWEN FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0039856
------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1675 PALM BEACH LAKES BOULEVARD, WEST PALM BEACH, FLORIDA 33401
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 682-8000
---- ----------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Number of shares of Common Stock, $.01 par value, outstanding as of August 10,
2000: 67,152,363 shares
<PAGE>
OCWEN FINANCIAL CORPORATION
FORM 10-Q
I N D E X
--------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Interim Consolidated Financial Statements (Unaudited)........... 3
Consolidated Statements of Financial Condition
at June 30, 2000 and December 31, 1999.......................... 3
Consolidated Statements of Operations for the three and six
months ended June 30, 2000 and 1999............................. 4
Consolidated Statements of Comprehensive Income (Loss) for
the three and six months ended June 30, 2000 and 1999........... 5
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 2000.......................... 6
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999............................. 7
Notes to Consolidated Financial Statements...................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 60
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 65
Item 4. Submission of Matters to a Vote of Security Holders............. 65
Item 6. Exhibits and Reports on Form 8-K................................ 65
Signature................................................................ 68
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
ASSETS: ------------- -----------------
<S> <C> <C>
Cash and amounts due from depository institutions .................................... $ 26,080 $ 153,459
Interest earning deposits ............................................................ 19,238 116,399
Federal funds sold ................................................................... 173,500 112,000
Securities available for sale, at fair value:
Collateralized mortgage obligations (AAA-rated) .................................... 670,829 392,387
Subordinates, residuals and other securities ....................................... 130,644 195,131
Loans available for sale, at lower of cost or market ................................. 29,319 45,213
Real estate held for sale ............................................................ 195,241 --
Investment securities ................................................................ 13,257 10,965
Loan portfolio, net .................................................................. 148,490 157,408
Discount loan portfolio, net ......................................................... 803,446 913,229
Match funded loans and securities, net ............................................... 131,084 157,794
Investments in low-income housing tax credit interests ............................... 144,858 150,989
Investments in unconsolidated entities ............................................... 31,098 37,118
Real estate owned, net ............................................................... 182,676 167,506
Investment in real estate ............................................................ 165,883 268,241
Premises and equipment, net .......................................................... 46,170 49,038
Income taxes receivable .............................................................. 14,000 --
Deferred tax asset, net .............................................................. 140,219 136,920
Excess of purchase price over net assets acquired .................................... 11,639 13,207
Principal, interest and dividends receivable ......................................... 11,492 10,024
Escrow advances on loans and loans serviced for others ............................... 205,266 162,548
Other assets ......................................................................... 75,558 59,737
----------- -----------
$ 3,369,987 $ 3,309,313
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits ........................................................................... $ 1,642,133 $ 1,842,286
Securities sold under agreements to repurchase ..................................... 421,050 47,365
Bonds-match funded agreements ...................................................... 121,797 141,515
Obligations outstanding under lines of credit ...................................... 184,750 187,866
Notes, debentures and other interest bearing obligations ........................... 288,083 317,573
Accrued interest payable ........................................................... 36,344 32,569
Excess of net assets acquired over purchase price .................................. 51,043 56,841
Income taxes payable ............................................................... -- 6,369
Accrued expenses, payables and other liabilities ................................... 30,761 57,487
----------- -----------
Total liabilities ............................................................... 2,775,961 2,689,871
----------- -----------
Company obligated, mandatorily redeemable securities of subsidiary trust holding
solely junior subordinated debentures of the company ............................... 101,390 110,000
Commitments and contingencies (Note 7)
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; 67,152,363 and
68,571,575 shares issued and outstanding at June 30, 2000 and December
31, 1999, respectively ............................................................. 672 686
Additional paid-in capital ........................................................... 223,135 232,340
Retained earnings .................................................................... 270,505 277,002
Accumulated other comprehensive income, net of taxes:
Net unrealized (loss) gain on securities available for sale ........................ (1,295) 163
Net unrealized foreign currency translation loss ................................... (381) (749)
----------- -----------
Total stockholders' equity ........................................................... 492,636 509,442
----------- -----------
$ 3,369,987 $ 3,309,313
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------- ----------------------------
For the periods ended June 30, 2000 1999 2000 1999
------------------------------------------------------------- ------------ ------------ ------------ ------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Federal funds sold and repurchase agreements .............. $ 864 $ 2,059 $ 2,573 $ 5,454
Securities available for sale ............................. 16,808 15,659 29,677 32,848
Loans available for sale .................................. 918 11,014 1,724 19,144
Investment securities and other ........................... 502 384 829 1,035
Loans ..................................................... 5,337 8,878 9,305 15,044
Match funded loans and securities ......................... 2,951 -- 6,263 --
Discount loans ............................................ 23,075 25,553 48,174 55,556
------------ ------------ ------------ ------------
50,455 63,547 98,545 129,081
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits .................................................. 24,793 23,559 49,478 50,387
Securities sold under agreements to repurchase ............ 5,284 2,281 7,924 3,772
Bonds-match funded agreements ............................. 2,791 -- 6,146 --
Obligations outstanding under lines of credit ............. 3,941 5,293 7,413 9,017
Notes, debentures and other interest bearing obligations .. 8,853 6,705 18,096 13,460
------------ ------------ ------------ ------------
45,662 37,838 89,057 76,636
------------ ------------ ------------ ------------
Net interest income before provision for loan losses ...... 4,793 25,709 9,488 52,445
Provision for loan losses ................................. 3,134 623 5,743 4,362
------------ ------------ ------------ ------------
Net interest income after provision for loan losses ....... 1,659 25,086 3,745 48,083
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Servicing fees and other charges .......................... 20,462 18,929 41,131 37,180
Gain on interest earning assets, net ...................... 5,270 22,918 16,264 43,144
Impairment charges on securities available for sale ....... (4,764) (28,785) (11,597) (28,869)
(Loss) gain on real estate owned, net ..................... (3,006) 2,677 (10,013) 3,306
Net operating gains on investments in real estate ......... 8,063 225 13,616 242
Amortization of excess of net assets acquired over purchase 2,999 -- 5,792 --
price
Other income .............................................. 8,210 9,073 12,985 15,625
------------ ------------ ------------ ------------
37,234 25,037 68,178 70,628
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE:
Compensation and employee benefits ........................ 22,398 24,330 38,980 51,541
Occupancy and equipment ................................... 2,953 4,956 6,215 10,722
Technology and communication costs ........................ 5,414 4,799 10,695 10,543
Loan expenses ............................................. 2,987 2,652 6,917 6,780
Net operating losses on investments in certain low-income
housing tax credit interests ............................ 839 1,599 2,339 3,463
Amortization of excess of purchase price over net assets .. 794 257 1,568 487
acquired
Other operating expenses .................................. 6,459 9,417 13,204 16,614
------------ ------------ ------------ ------------
41,844 48,010 79,918 100,150
------------ ------------ ------------ ------------
Distributions on Company-obligated, mandatory redeemable
securities of subsidiary trust holding solely junior
subordinated debentures ................................. 2,918 3,398 6,112 6,797
Equity in losses of investments in unconsolidated entities .. 1,812 3,470 4,072 4,713
------------ ------------ ------------ ------------
(Loss) income before income taxes and extraordinary gain .... (7,681) (4,755) (18,179) 7,051
Income tax benefit (expense) ................................ 2,381 972 5,635 (1,396)
Minority interest in net loss of consolidated subsidiary .... -- 96 -- 128
------------ ------------ ------------ ------------
(Loss) income before extraordinary gain ..................... (5,300) (3,687) (12,544) 5,783
Extraordinary gain on repurchase of debt, net of taxes ...... 3,901 -- 6,047 --
------------ ------------ ------------ ------------
Net (loss) income ........................................... $ (1,399) $ (3,687) $ (6,497) $ 5,783
============ ============ ============ ============
(LOSS) EARNINGS PER SHARE:
Basic:
Net (loss) income before extraordinary gain ............. $ (0.08) $ (0.06) $ (0.19) $ 0.10
Extraordinary gain ...................................... 0.06 -- 0.09 --
------------ ------------ ------------ ------------
Net (loss) income ....................................... $ (0.02) $ (0.06) $ (0.10) $ 0.10
============ ============ ============ ============
Diluted:
Net (loss) income before extraordinary gain ............. $ (0.08) $ (0.06) $ (0.19) $ 0.10
Extraordinary gain ...................................... 0.06 -- 0.09 --
------------ ------------ ------------ ------------
Net (loss) income ....................................... $ (0.02) $ (0.06) $ (0.10) $ 0.10
============ ============ ============ ============
Weighted average common shares outstanding:
Basic ..................................................... 67,182,395 60,730,614 67,702,961 60,765,485
============ ============ ============ ============
Diluted ................................................... 67,182,395 60,730,614 67,702,961 60,807,036
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Six Months
-------------------- --------------------
For the periods ended June 30, 2000 1999 2000 1999
------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net (loss) income .......................................... $ (1,399) $ (3,687) $ (6,497) $ 5,783
-------- -------- -------- --------
Other comprehensive (loss) income, net of taxes:
Change in unrealized (loss) gain on securities
available for sale arising during the period (1) ....... 8,792 (6,683) 5,160 (1,498)
Less: Reclassification adjustment ........................ (7,162) 364 (6,618) (2,613)
-------- -------- -------- --------
Net change in unrealized loss on securities 1,630 (6,319) (1,458) (4,111)
available for sale (2)................................ -------- -------- -------- --------
Change in unrealized foreign currency translation
adjustment arising during the period (3) ............... 207 (432) 368 (257)
-------- -------- -------- --------
Net change in unrealized foreign currency ................ 207 (432) 368 (257)
translation loss -------- -------- -------- --------
Other comprehensive (loss) income ........................ 1,837 (6,751) (1,090) (4,368)
-------- -------- -------- --------
Comprehensive (loss) income ................................ $ 438 $(10,438) $ (7,587) $ 1,415
======== ======== ======== ========
Disclosure of reclassification adjustment:
Unrealized holding losses (gains) arising during
the period on securities sold or impaired .............. $ (401) $ 371 $ (4,609) $ 250
Add: Adjustment for realized gains (losses) and
impairment charges on securities available for
sale included in net income (loss) ..................... (6,761) (7) (2,009) (2,863)
-------- -------- -------- --------
Net reclassification adjustment for gains (losses)
recognized in other comprehensive income (loss)
in prior years (4) ..................................... $ (7,162) $ 364 $ (6,618) $ (2,613)
======== ======== ======== ========
</TABLE>
(1) Net of tax benefit (expense) of $5,567 and $(4,273) for the three months
ended June 30, 2000 and 1999, respectively, and $(3,906) and $(1,429) for
the six months ended June 30, 2000 and 1999, respectively.
(2) Net of a tax (expense) benefit of $(612) and $(5,201) for the three months
ended June 30, 2000 and 1999, respectively, and $1,072 and $2,896 for the
six months ended June 30, 2000 and 1999, respectively.
(3) Net of tax (expense) benefit of $(116) and $233 for the three months ended
June 30, 2000 and 1999, respectively, and $(201) and $138 for the six
months ended June 30, 2000 and 1999, respectively.
(4) Net of tax benefit of $4,955 and $204 for the three months ended June 30,
2000 and 1999, respectively, and $4,978 and $1,467 for the six months ended
June 30,2000 and 1999, respectively.
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Additional Comprehensive
-------------------------- Paid-in Retained Income (Loss),
Shares Amount Capital Earnings Net of Taxes Total
---------- ----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 ............ 68,571,575 $ 686 $ 232,340 $ 277,002 $ (586) $ 509,442
Net loss ................................. -- -- -- (6,497) -- (6,497)
Repurchase of common stock ............... (1,388,300) (14) (8,982) -- -- (8,996)
Change in directors' stock plan .......... 8,535 -- 28 -- -- 28
Retirement of shares ..................... (39,447) -- (251) -- -- (251)
Other comprehensive income, net of taxes:
Change in unrealized gain (loss) on
securities available for sale ...... -- -- -- -- (1,458) (1,458)
Change in unrealized foreign currency
translation loss ................... -- -- -- -- 368 368
---------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 2000 ................ 67,152,363 $ 672 $ 223,135 $ 270,505 $ (1,676) $ 492,636
========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
OCWEN FINANCIAL COPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months ended June 30, 2000 1999
------------------------------------------------------------------------------------------------------ ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income .................................................................................... $ (6,497) $ 5,783
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Net cash provided by trading activities ............................................................ -- 36,804
Proceeds from sales of loans available for sale .................................................... 7,144 560,336
Purchases of loans available for sale .............................................................. -- (47,103)
Origination of loans available for sale ............................................................ -- (481,720)
Principal payments received on loans available for sale ............................................ 4,216 18,764
(Discount accretion) premium amortization on securities, net ....................................... (32,993) 13,116
Depreciation and amortization ...................................................................... 2,653 12,084
Provision for loan losses .......................................................................... 5,743 4,362
Provision for real estate owned .................................................................... 16,380 14,840
Gain on interest-earning assets, net ............................................................... (16,264) (43,144)
Impairment charges on securities available for sale ................................................ 11,597 28,869
Extraordinary gain on repurchase of long-term debt ................................................. (8,763) --
Gain on sale of low-income housing tax credit interests ............................................ 261 --
Gain on real estate owned, net ..................................................................... (11,683) (21,406)
Gain on sale of investment in real estate held for sale ............................................ (3,897) --
Gain on sale of real estate held for investment .................................................... (1,316) (1,631)
Equity in losses of unconsolidated entities ........................................................ 4,072 4,713
(Increase) decrease in principal, interest and dividends receivable ................................ (1,468) 7,195
Increase in income taxes receivable ................................................................ (14,000) (2,293)
Decrease in income taxes payable ................................................................... (6,369) --
Increase in deferred tax asset ..................................................................... (3,299) (1,304)
Increase in escrow advances ........................................................................ (42,718) (21,756)
Decrease in other assets, net ...................................................................... 32,478 39,911
Increase in accrued expenses, interest payable and other liabilities ............................... (22,332) (24,000)
-------- -------
Net cash (used) provided by operating activities ..................................................... (87,055) 102,420
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ............................................... 324,278 633
Purchase of securities available for sale .......................................................... (833,704) (479,224)
Maturities of and principal payments received on securities available for sale ..................... 284,523 290,113
Acquisition of Federal Home Loan Bank stock ........................................................ (2,432) --
Acquisition of subsidiaries ........................................................................ -- (5,196)
Principal payments received on match funded loans .................................................. 15,224 --
Purchase of low-income housing tax credit interests ................................................ (22,980) (37,717)
Proceeds from sales of low-income housing tax credit interests ..................................... 27,587 --
Proceeds from sales of discount loans, net ......................................................... 118,674 238,704
Proceeds from sale of real estate held for sale .................................................... 9,000 --
Proceeds from sale of real estate held for investment .............................................. 3,008 5,939
Proceeds from sales of loans held for investment ................................................... 7,727 26,243
Proceeds from sale of premises and equipment ....................................................... 46 --
Purchase and originations of loans held for investment, net of undisbursed loan funds .............. (22,868) (15,658)
Purchase of discount loans, net .................................................................... (157,609) (395,298)
Decrease in investment in unconsolidated entities .................................................. 481 --
Principal payments received on loans held for investment ........................................... 26,386 84,425
Increase in real estate held for sale .............................................................. (2,829) --
Principal payments received on discount loans, net ................................................. 71,333 107,813
(Increase) decrease in real estate held for investment ............................................. (111,824) 10,508
Proceeds from sale of real estate owned ............................................................ 88,056 142,363
Purchase of real estate owned in connection with discount loan purchases ........................... (8,593) (31,490)
Additions to premises and equipment ................................................................ (3,198) (20,475)
-------- -------
Net cash (used) provided by investing activities ..................................................... (189,714) (78,317)
-------- -------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
7
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS- (CONTINUED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six months ended June 30, 2000 1999
-------------------------------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits ..................................................................... $(200,153) $(285,662)
Increase in securities sold under agreements to repurchase ............................... 373,685 61,690
Repayment of obligations under lines of credit, net ...................................... (3,116) (85,246)
Payments on bonds-match funded agreements ................................................ (17,716) --
Repurchase of Capital Securities ......................................................... (4,979) --
Payments of notes and mortgages payables ................................................. -- 4,236
Advances from the Federal Home Loan Bank ................................................. -- 50,000
Repurchases of notes and subordinate debentures ......................................... (24,996) --
Repurchase of common stock ............................................................... (8,996) (1,832)
--------- ---------
Net cash provided (used) by financing activities ........................................... 113,729 (256,814)
--------- ---------
Net decrease in cash and cash equivalents .................................................. (163,040) (232,711)
Cash and cash equivalents at beginning of period ........................................... 381,858 419,154
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 218,818 $ 186,443
========= =========
RECONCILIATION OF CASH AND CASH EQUIVALENTS AT END OF PERIOD:
Cash and amounts due from depository institutions ........................................ $ 26,080 $ 93,316
Interest-earning deposits ................................................................ 19,238 18,127
Federal funds sold and repurchase agreements ............................................. 173,500 75,000
--------- ---------
$ 218,818 $ 186,443
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................................. $ 85,283 $ 83,024
========= =========
Income taxes ............................................................................. $ 18,820 $ 524
========= =========
Supplemental schedule of non-cash investing and financing activities:
Real estate owned acquired through foreclosure ........................................... $ 91,820 $ 83,532
========= =========
Exchange of discount loans and loans available for sale for securities ................... $ -- $ 758,032
========= =========
Reclassification of properties from investment in real estate to
real estate held for sale .............................................................. $ 218,514 $ --
========= =========
Exchange of note receivable for real estate held for sale ................................ $ 19,000 $ --
========= =========
Acquisition of businesses:
Fair value of assets acquired............................................................. $ -- $ 5,304
Liabilities assumed....................................................................... -- 101
Less stock issued......................................................................... -- --
--------- ---------
Cash paid................................................................................. -- 5,203
Less cash acquired........................................................................ -- (7)
--------- ---------
Net cash paid for assets acquired......................................................... -- $ 5,196
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
8
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in conformity with the instructions to Form 10-Q and Article 10, Rule
10-01 of Regulation S-X for interim financial statements. Accordingly, they do
not include all of the information and footnotes required by U.S. generally
accepted accounting principles ("GAAP") for complete financial statements. The
Company's consolidated financial statements include the accounts of Ocwen
Financial Corporation ("OCN" or the "Company") and its subsidiaries. The Company
owns directly and indirectly all of the outstanding common and preferred stock
of its primary subsidiaries, Ocwen Federal Bank FSB (the "Bank"), Investors
Mortgage Insurance Holding Company ("IMI"), Ocwen Technology Xchange, Inc.
("OTX") and Ocwen Asset Investment Corp. ("OAC"). The Company acquired OAC on
October 7, 1999. The Company's consolidated financial statements include OAC and
its subsidiaries as of that date. The Company also owns 99.34% of Ocwen
Financial Services, Inc. ("OFS"), with the remaining 0.66% owned by the
shareholders of Admiral Home Loan and reported in the consolidated financial
statements as a minority interest. The Company sold its investment in its
foreign subsidiary, Ocwen UK, on September 30, 1999. Ocwen UK's results of
operations for 1999 have been included in the consolidated statements of
operations through that date. All significant intercompany transactions and
balances have been eliminated in consolidation.
The Bank is a federally chartered savings bank regulated by the Office
of Thrift Supervision ("OTS").
In the opinion of management, the accompanying financial statements
contain all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the Company's financial condition at June 30, 2000 and
December 31, 1999, the results of its operations for the three and six months
ended June 30, 2000 and 1999 its comprehensive income (loss) for the three and
six months ended June 30, 2000 and 1999, its changes in stockholders' equity for
the six months ended June 30, 2000, and its cash flows for the six months ended
June 30, 2000 and 1999. The results of operations and other data for the three
and six-month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for any other interim periods or the entire year
ending December 31, 2000. The unaudited consolidated financial statements
presented herein should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. Certain
reclassifications have been made to the prior period's consolidated financial
statements to conform to the June 30, 2000 presentation.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the dates of the statements of financial condition and
revenues and expenses for the periods covered. Actual results could differ from
those estimates and assumptions.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN REAL ESTATE
In conjunction with its commercial loan acquisition and resolution
activities, the Company acquired certain acquisition, development and
construction loans in which the Company participated in the residual profits of
the underlying real estate and the borrower had not contributed substantial
equity to the project. As such, the Company accounted for these loans under the
equity method of accounting as though it has made an investment in a real estate
limited partnership.
INVESTMENTS IN REAL ESTATE PARTNERSHIPS
The Company's investments in real estate partnerships are accounted for
under the equity method of accounting. Under the equity method of accounting, an
investment in the shares of other interests of an investee is recorded at cost
of the shares or interests acquired and thereafter is periodically increased
(decreased) by the investors proportionate share of earnings (losses) of the
investee and decreased by the dividends or distributions received by the
investor from the investee.
9
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
REAL ESTATE HELD FOR SALE
Real estate held for sale is reported at the lower of the carrying
amount or fair value less cost to sell. Real estate is classified as held for
sale when the Company has committed to a plan to sell the assets and
depreciation is discontinued. Gains and losses on the sale of real estate held
for sale are included as a component of income.
SECURITIES AVAILABLE FOR SALE
Effective June 30, 2000, the Company refined its methodology for
estimating fair value of its securities portfolio at the end of each month. Fair
value is estimated within a range based on third party dealer quotations, where
available, and internal values, subject to an internal review process.
Previously, fair value was generally based on the lower of dealer quotations or
internal values, also subject to an internal review process.
NOTE 3: COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY
In August 1997, the Ocwen Capital Trust ("OCT") issued $125,000 of
10.875% Capital Securities (the "Capital Securities"). Proceeds from the
issuance of the Capital Securities were invested in 10.875% Junior Subordinated
Debentures issued by OCN. The Junior Subordinated Debentures, which represent
the sole assets of OCT, will mature on August 1, 2027. During 1999, OCT
repurchased $15,000 of its Capital Securities in the open market, resulting in
extraordinary gains of $5,548 ($4,570 net of taxes). During the second quarter
of 2000, OCT repurchased $8,610 of its Capital Securities in the open market,
resulting in an extraordinary gain of $3,670 ($2,532 net of taxes).
Holders of the Capital Securities are entitled to receive cumulative
cash distributions accruing from the date of original issuance and payable
semiannually in arrears on February 1 and August 1 of each year, commencing on
February 1, 1998, at an annual rate of 10.875% of the liquidation amount of
$1,000 per Capital Security. Payment of distributions out of moneys held by OCT,
and payments on liquidation of OCT or the redemption of Capital Securities, are
guaranteed by the Company to the extent OCT has funds available. If the Company
does not make principal or interest payments on the Junior Subordinated
Debentures, OCT will not have sufficient funds to make distributions on the
Capital Securities, in which event the guarantee shall not apply to such
distributions until OCT has sufficient funds available therefore. Accumulated
distributions payable on the Capital Securities amounted to $4,594 and $4,815 at
June 30, 2000 and December 31, 1999, respectively, and are included in accrued
interest payable.
The Company has the right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 10 consecutive semiannual periods with respect to each deferral
period, provided that no extension period may extend beyond the stated maturity
of the Junior Subordinated Debentures. Upon the termination of any such
extension period and the payment of all amounts then due on any interest payment
date, the Company may elect to begin a new extension period. Accordingly, there
could be multiple extension periods of varying lengths throughout the term of
the Junior Subordinated Debentures. If interest payments on the Junior
Subordinated Debentures are deferred, distributions on the Capital Securities
will also be deferred and the Company may not, and may not permit any subsidiary
of the Company to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, the
Company's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities that rank
pari passu with or junior to the Junior Subordinated Debentures. During an
extension period, interest on the Junior Subordinated Debentures will continue
to accrue at the rate of 10-7/8% per annum, compounded semiannually.
The Junior Subordinated Debentures are redeemable prior to maturity at
the option of the Company, subject to the receipt of any necessary prior
regulatory approval, (i) in whole or in part on or after August 1, 2007, at a
redemption price equal to 105.438% of the principal amount thereof on August 1,
2007, declining ratably on each August 1 thereafter to 100% on or after August
1, 2017, plus accrued interest thereon, or (ii) at any time, in whole (but not
in part), upon the occurrence and continuation of a special event (defined as a
tax event, regulatory capital event or investment company event) at a
10
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
redemption price equal to the greater of (a) 100% of the principal amount
thereof or (b) the sum of the present values of the principal amount and premium
payable with respect to an optional redemption of such Junior Subordinated
Debentures on August 1, 2007, together with scheduled payments of interest from
the prepayment date to August 1, 2007, discounted to the prepayment date on a
semiannual basis at the adjusted Treasury rate plus accrued interest thereon to
the date of prepayment. The Capital Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Junior Subordinated
Debentures at maturity or their earlier redemption, in an amount equal to the
amount of the related Junior Subordinated Debentures maturing or being redeemed
and at a redemption price equal to the redemption price of the Junior
Subordinated Debentures, plus accumulated and unpaid distributions thereon to
the date of redemption.
For financial reporting purposes, OCT is treated as a subsidiary of the
Company and, accordingly, the accounts of OCT are included in the consolidated
financial statements of the Company. Intercompany transactions between OCT and
the Company, including the Junior Subordinated Debentures, are eliminated in the
consolidated financial statements of the Company. The Capital Securities are
presented as a separate caption between liabilities and stockholders' equity in
the consolidated statement of financial condition of the Company as
"Company-obligated, mandatorily redeemable securities of subsidiary trust
holding solely Junior Subordinated Debentures of the company." Distributions on
the Capital Securities are recorded as a separate caption immediately following
non-interest expense in the consolidated statements of operations of the
Company. The Company intends to continue this method of accounting going
forward.
In connection with the issuance of the Capital Securities, the Company
incurred certain costs which have been capitalized and are being amortized over
the term of the Capital Securities. The unamortized balance of these issuance
costs amounted to $3,657 and $4,041 at June 30, 2000 and December 31, 1999,
respectively, and is included in other assets.
NOTE 4: DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments for the purpose of
managing its exposure to adverse fluctuations in interest and foreign currency
exchange rates. While these hedging instruments are subject to fluctuations in
value, such fluctuations are generally offset by the change in value of the
underlying exposures being hedged.
When entering into these derivative financial instruments, it is the
Company's intent to account for them under current hedge accounting guidelines.
None of these instruments are entered into for trading purposes.
INTEREST RATE MANAGEMENT
In managing its interest rate risk, the Company enters into interest
rate swaps ("interest swaps"). The terms of the outstanding interest swaps at
June 30, 2000 and December 31, 1999, respectively, are as follows:
<TABLE>
<CAPTION>
Notional LIBOR
Maturity Amount Index Fixed Rate Floating Rate Fair Value
------------------------- ------------- ----------- ------------ ----------------- ---------------
JUNE 30, 2000:
<S> <C> <C> <C> <C> <C>
April 2001........... $ 75,000 1-Month 6.00% 6.65% $ 586
January 2003......... 86,000 1-Month 5.75 6.65 3,137
------------ ------------
$ 161,000 $ 3,723
============ ============
DECEMBER 31, 1999:
April 2001........... $ 75,000 1-Month 6.00% 6.48% $ 482
April 2001........... 17,000 1-Month 6.00 6.48 108
April 2002........... 8,780 1-Month 6.04 6.46 129
January 2003......... 100,000 1-Month 5.75 6.46 2,983
------------ ------------
$ 200,780 $ 3,702
============ ============
</TABLE>
11
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
The Company also enters into short sales of U.S. Treasury interest rate
futures contracts as part of its overall interest rate risk management activity.
During the fourth quarter of 1999, these financial instruments ceased to qualify
for hedge accounting and subsequent gains or losses are included in earnings.
The terms of the outstanding interest rate futures at June 30, 2000 and December
31, 1999, respectively, are as follows:
<TABLE>
<CAPTION>
Notional Strike
Amount Maturity Price Fair Value
----------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
JUNE 30, 2000:
U.S. 10-year Agency futures......... $ 5,800 September 2000 $ 89.95 $ (147)
=========== ===========
DECEMBER 31, 1999:
U.S. 2-year Treasury futures........ $ 12,000 March 2000 $ 99.82 $ 62
U.S. 10-year Treasury futures....... 7,000 March 2000 $ 97.52 116
----------- -----------
$ 19,000 $ 178
=========== ===========
</TABLE>
The Company also manages its interest rate risk by purchasing European
swaptions and put options to hedge anticipated future fundings related to
low-income housing tax credit projects. During the fourth quarter of 1999, these
financial instruments ceased to qualify for hedge accounting and subsequent
gains or losses are included in earnings. The following table sets forth the
terms and values of these financial instruments at June 30, 2000 and December
31, 1999, respectively:
<TABLE>
<CAPTION>
Notional Strike
Amount Maturity Rate/Price Fair Value
----------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
JUNE 30, 2000:
European 10-year swaptions................................ $ 6,000 March 2001 6.78% $ 254
4,000 November 2000 7.45 48
2,300 October 2000 7.40 27
2,200 November 2000 7.85 9
----------- -----------
$ 14,500 $ 338
=========== ===========
DECEMBER 31, 1999:
European 10-year swaptions................................ $ 7,500 March 2000 6.78% $ 282
5,800 May 2000 6.72 264
2,800 February 2000 7.20 34
2,300 June 2000 7.11 63
----------- -----------
$ 18,400 $ 643
=========== ===========
European 10-year put options, 4.75% due 11/05/08.......... $ 2,500 March 2000 $ 91.45 $ 83
=========== ===========
</TABLE>
12
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
FOREIGN CURRENCY MANAGEMENT
The Company enters into foreign currency derivatives to hedge its
equity investment in Kensington Group plc ("Kensington"), its investments in
foreign subsidiaries which own residual interests backed by residential loans
originated in the UK ("UK residuals") and in the shopping center located in
Halifax, Nova Scotia (the "Nova Scotia Shopping Center"). It is the Company's
policy to periodically adjust the amount of foreign currency derivative
contracts it has entered into in response to changes in its recorded investments
in these assets. The following table sets forth the terms and values of these
foreign currency financial instruments at June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
Notional Amount
--------------------------------------- Contract Unamortized
Maturity Pay Receive Rate Discount Fair Value
------------- -------------------- -------------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 2000:
Currency swaps.................. February 2003 (pound) 27,500 $ 43,546 1.5835 $ 1,123 $ 1,080
==================== ============= ========== =========
DECEMBER 31, 1999:
Currency swaps.................. February 2003 (pound) 27,500 $ 43,546 1.5835 $ 1,119 $ (976)
==================== ============= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Notional Strike
Position Maturity Amount Rate Fair Value
-------- -------------- ---------------- -------- ----------
<S> <C> <C> <C> <C> <C>
JUNE 30, 2000:
Canadian Dollar currency futures........... Short September 2000 C$ 29,100 .6794 $ 78
British Pound currency futures............. Short September 2000 (pound) 11,000 1.5054 (145)
Long September 2000 (pound) 7,312 1.5156 22
----------
$ (45)
==========
DECEMBER 31, 1999:
Canadian Dollar currency futures........... Short March 2000 C$ 22,100 .6786 $ (300)
Short March 2000 C$ 1,600 .6800 (20)
British Pound currency futures............. Long March 2000 (pound) 3,750 1.6018 65
Short March 2000 (pound) 15,875 1.6225 56
----------
$ (199)
==========
</TABLE>
NOTE 5: REGULATORY REQUIREMENTS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
and the regulations promulgated thereunder established certain minimum levels of
regulatory capital for savings institutions subject to OTS supervision. The Bank
must follow specific capital guidelines stipulated by the OTS which involve
quantitative measures of the Bank's assets, liabilities and certain off-balance
sheet items. An institution that fails to comply with its regulatory capital
requirements must obtain OTS approval of a capital plan and can be subject to a
capital directive and certain restrictions on its operations. At June 30, 2000,
the minimum regulatory capital requirements were:
o Tangible and core capital of 1.50 percent and 3.00 percent of total
adjusted assets, respectively, consisting principally of stockholders'
equity, but excluding most intangible assets, such as goodwill and any net
unrealized gains or losses on debt securities available for sale. Effective
April 1, 1999, the OTS minimum core capital ratio provides that only those
institutions with a Uniform Financial Institution Rating System rating of
"1" are subject to a 3% minimum core capital ratio. All other institutions
are subject to a 4% minimum core capital ratio.
o Risk-based capital consisting of core capital plus certain subordinated
debt and other capital instruments and, subject to certain limitations,
general valuation allowances on loans receivable, equal to 8.00 percent of
the value of risk-weighted assets.
13
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
At June 30, 2000, the Bank was "well capitalized" under the prompt
corrective action regulations adopted by the OTS pursuant to the Federal Deposit
Insurance Corporation Improvement Act of 1991. To be categorized as "well
capitalized," the Bank must maintain minimum core capital, Tier 1 risk-based
capital and risk-based capital ratios as set forth in the following table. The
Bank's capital amounts and classification are subject to review by federal
regulators about components, risk-weightings and other factors. There are no
conditions or events since June 30, 2000 that management believes have changed
the institution's category.
Following an examination by the OTS in late 1996 and early 1997, the
Bank committed to the OTS to maintain a core capital (leverage) ratio and a
total risk-based capital ratio of at least 9% and 13%, respectively. The Bank
continues to be in compliance with this commitment and with the regulatory
capital requirements of general applicability (as indicated below). Based on
discussions with the OTS, the Bank believes that this commitment does not affect
its status as a "well-capitalized" institution, assuming the Bank's continued
compliance with the regulatory capital requirements required to be maintained by
it pursuant to such commitment.
The following tables summarize the Bank's actual and required
regulatory capital at June 30, 2000.
<TABLE>
<CAPTION>
To Be Well
Capitalized Committed
Minimum For Capital For Prompt Corrective Capital
Actual Adequacy Purposes Action Provisions Requirements
-------------------- ------------------ -------------------- -------------
Ratio Amount Ratio Amount Ratio Amount Ratio
------- ---------- ------- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, and ratio to total assets 10.85% $ 270,501
Net unrealized loss on certain available for
sale securities........................... 298
Non-includable subsidiary.................... (10,472)
Acquired real estate......................... (1,425)
Disallowed deferred tax assets............... (31,146)
Disallowed servicing assets.................. (1,295)
-----------
Tangible capital, and ratio to adjusted total
assets.................................... 9.24% $ 226,461 1.50% $ 36,757
=========== =========
Tier 1 (core) capital, and ratio to adjusted
total assets.............................. 9.24% $ 226,461 4.00% $ 98,019 5.00% $ 122,524 9.00%
=========== ========= =========
Tier 1 capital, and ratio to risk-weighted
assets.................................... 12.85% $ 226,461 6.00% $ 105,760
=========== =========
Allowance for loan and lease losses.......... 22,046
Qualifying subordinated debentures........... 53,600
-----------
Tier 2 capital............................... 75,646
-----------
Total risk-based capital, and ratio to risk-
weighted assets........................... 17.14% $ 302,107 8.00% $ 141,013 10.00% $ 176,227 13.00%
=========== ========= =========
Total regulatory assets...................... $ 2,492,846
===========
Adjusted total assets........................ $ 2,450,489
===========
Risk-weighted assets......................... $ 1,762,673
===========
</TABLE>
The OTS amended its capital distribution regulation effective April 1,
1999. Under the revised regulation, the Bank is required to file a notice with
the OTS at least 30 days prior to making a capital distribution unless (a) it is
not eligible for expedited treatment under the OTS application processing
regulations, (b) the total amount of the Bank's capital distributions (including
the proposed distribution) for the calendar year exceeds the Bank's net income
for the year to date plus retained net income for the previous two years, (c)
the Bank would not be "adequately capitalized" following the proposed
distribution or (d) the proposed distribution would violate any applicable
statute, regulation, or agreement between the Bank and the OTS, or a condition
imposed upon the Bank by an OTS-approved application or notice. If one of these
four criteria is present, the Bank is required to file an application with the
OTS at least 30 days prior to making the proposed capital distribution. The OTS
may deny the Bank's application or disapprove its notice if the OTS determines
that (a) the Bank will be "under capitalized," "significantly under capitalized"
or "critically under capitalized," as defined in the OTS capital
14
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
regulations, following the capital distribution, (b) the proposed capital
distribution raises safety and soundness concerns or (c) the proposed capital
distribution violates a prohibition contained in any statute, regulation or
agreement between the Bank and the OTS or a condition imposed on the Bank in an
application or notice approved by the OTS. The new rule also amends the
definition of "capital distribution" to include any payment to repurchase,
redeem, retire, or otherwise acquire debt instruments included in total
risk-based capital.
In addition to these OTS regulations governing capital distributions,
the indenture governing the 12% subordinated debentures (the "Debentures") due
2005 and issued by the Bank on June 12, 1995 in the original amount of $100,000,
limits the declaration or payment of dividends and the purchase or redemption of
common or preferred stock in the aggregate to the sum of 50% of consolidated net
income and 100% of all capital contributions and proceeds from the issuance or
sale (other than to a subsidiary) of common stock, since the date the Debentures
were issued.
NOTE 6: BUSINESS SEGMENT REPORTING
SFAS No. 131 requires public enterprises to report financial and
descriptive information about their reportable operating segments. An operating
segment is defined as a component of an enterprise (a) that engages in business
activities from which it may earn revenues and incur expenses, (b) whose
operating results are regularly reviewed by the enterprise's chief operating
decision maker to make decisions about resources to be allocated to the segment
and assess its performance, and (c) for which discrete financial information is
available. The Company conducts a variety of business activities within the
following segments:
<TABLE>
<CAPTION>
Non- Non-
Net Interest Interest Interest Net (Loss) Total
Income Income Expense Income Assets
------------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
AT OR FOR THE THREE MONTHS ENDED JUNE 30, 2000:
Single family residential discount loans............... $ 6,151 $ 3,593 $ 3,166 $ 4,389 $ 567,323
Commercial loans....................................... 3,456 4,342 4,040 756 1,505,090
Domestic residential mortgage loan servicing........... (935) 20,141 14,896 2,650 157,048
Investment in low-income housing tax credits........... (2,656) 202 2,068 13 177,245
OTX (183) 578 8,865 (5,251) 20,070
Commercial real estate................................. (5,103) 9,196 850 2,011 247,663
UK operations.......................................... (269) -- 197 (1,390) 28,638
Domestic subprime single family residential lending.... 957 (5,764) 590 (3,346) 165,835
Unsecured collections.................................. (45) 85 2,294 (2,191) 17,026
Ocwen Realty Advisors.................................. -- 3,070 2,832 147 1,319
Corporate items and other.............................. 3,420 1,791 2,046 813 482,730
--------- --------- --------- --------- ----------
$ 4,793 $ 37,234 $ 41,844 $ (1,399) $3,369,987
========= ========= ========= ========= ==========
AT OR FOR THE SIX MONTHS ENDED JUNE 30, 2000:
Single family residential discount loans............... $ 13,604 $ 4,343 $ 6,025 $ 7,467 $ 567,323
Commercial loans....................................... 5,784 7,580 7,611 1,450 1,505,090
Domestic residential mortgage loan servicing........... (655) 39,183 28,438 6,234 157,048
Investment in low-income housing tax credits........... (5,578) 1,298 4,539 1,192 177,245
OTX (377) 892 16,184 (9,715) 20,070
Commercial real estate................................. (10,160) 15,782 1,251 2,710 247,663
UK operations.......................................... (554) -- 64 (2,932) 28,638
Domestic subprime single family residential lending.... 996 (13,076) 674 (7,907) 165,835
Unsecured collections.................................. (83) 86 4,275 (4,364) 17,026
Ocwen Realty Advisors.................................. -- 7,224 7,700 290 1,319
Corporate items and other.............................. 6,511 4,866 4,390 (922) 482,730
--------- --------- --------- --------- ----------
$ 9,488 $ 68,178 $ 79,918 $ (6,497) $3,369,987
========= ========= ========= ========= ==========
</TABLE>
15
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Non- Non-
Net Interest Interest Interest Net (Loss) Total
Income Income Expense Income Assets
------------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
AT OR FOR THE THREE MONTHS ENDED JUNE 30, 1999:
Single family residential discount loans............... $ 5,418 $ (13,556) $ 5,293 $ (9,220) $ 529,549
Commercial loans....................................... 11,289 7,002 7,839 5,793 868,903
Domestic residential mortgage loan servicing........... 1,352 13,583 10,242 2,910 102,670
Investment in low-income housing tax credits........... (3,052) 2,114 3,940 1,068 225,864
OTX 3 322 4,513 (2,597) 6,848
Commercial real estate................................. -- 804 606 123 --
UK operations.......................................... 11,730 19,102 16,053 8,984 255,921
Domestic subprime single family residential lending.... 4,455 (3,779) 3,344 (1,563) 144,096
Unsecured collections.................................. 85 4 1,474 (815) 13,638
Ocwen Realty Advisors(1)............................... -- -- -- -- --
Corporate items and other.............................. (5,571) (559) (5,293) (8,370) 874,057
--------- --------- --------- --------- -----------
$ 25,709 $ 25,037 $ 48,010 $ (3,687) $ 3,021,546
========= ========= ========= ========= ===========
AT OR FOR THE SIX MONTHS ENDED JUNE 30, 1999:
Single family residential discount loans............... $ 11,831 $ (3,704) $ 10,213 $ (5,336) $ 529,549
Commercial loans....................................... 20,304 16,363 16,075 10,169 868,903
Domestic residential mortgage loan servicing........... 2,455 27,595 20,289 6,052 102,670
Investment in low-income housing tax credits........... (5,613) 3,030 7,462 2,404 225,864
OTX (22) 728 7,126 (3,980) 6,848
Commercial real estate................................. -- 1,586 1,312 170 --
UK operations.......................................... 20,910 24,832 29,686 9,068 255,921
Domestic subprime single family residential lending.... 10,302 (2,773) 9,546 (1,128) 144,096
Unsecured collections.................................. 151 11 2,760 (1,472) 13,638
Ocwen Realty Advisors(1)............................... -- -- -- -- --
Corporate items and other.............................. (7,873) 2,960 4,319 (10,164) 874,057
--------- --------- --------- --------- -----------
$ 52,445 $ 70,628 $ 100,150 $ 5,783 $ 3,021,546
========= ========= ========= ========= ===========
</TABLE>
(1) Non-interest income for the three and six months ended June 30, 2000
included $973 and $2,106, respectively, of intercompany revenues which
have been eliminated in consolidation.
NOTE 7: COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Company had commitments of $21,318 to fund
construction loans (including loans accounted for as investments in real estate)
secured by multi-family and commercial properties. In addition, the Company,
through the Bank, had commitments under outstanding letters of credit in the
amount of $20,628. The Company, through its investment in subordinated
securities and subprime residuals, which had a carrying value of $130,632 at
June 30, 2000, supports senior classes of securities.
On April 20, 1999, a complaint was filed on behalf of a putative class
of public shareholders of the Company in the Circuit Court of the Fifteenth
Judicial Circuit, Palm Beach County, Florida against OCN and OAC. On April 23,
1999, a complaint was filed on behalf of a putative classes of public
shareholders of OAC in the Circuit Court of the Fifteenth Judicial Circuit, Palm
Beach County, Florida, against OAC and certain directors of OAC. The plaintiffs
in both complaints sought to enjoin consummation of the acquisition of OAC by
OCN. The cases were consolidated, and on September 13, 1999 a consolidated
amended complaint was filed. The injunction was denied, and on October 14, 1999,
OCN was dismissed as a party. Plaintiffs' remaining claims are for damages for
alleged breaches of common law fiduciary duties. Discovery is ongoing.
On June 3, 1999, Walton Street Capital, L.L.C. ("Walton") filed suit
against OAC and Ocwen Partnership, L.P. in the Circuit Court of Cook County,
Illinois. Walton has alleged that OAC committed an anticipatory breach of
contract with respect to the proposed sale by OAC of all of its interest in its
commercial mortgage-backed securities portfolio to Walton.
16
<PAGE>
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
Walton has claimed damages in an amount in excess of $20,000. OAC believes this
suit is without merit and continues to vigorously defend against the same.
Discovery is ongoing.
The Company is subject to various other pending legal proceedings. In
management's opinion, the resolution of these other claims will not have a
material effect on the consolidated financial statements.
17
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
GENERAL
The Company's primary business activities currently consist of the
acquisition, servicing and resolution of subperforming and non-performing
residential and commercial mortgage loans, as well as the related development of
loan servicing technology and business-to-business e-commerce solutions for the
mortgage and real estate industries.
The Company is a registered savings and loan holding company subject to
regulation by the OTS. The Bank is subject to regulation by the OTS, as its
chartering authority, and by the Federal Deposit Insurance Corporation (the
"FDIC") as a result of its membership in the Savings Association Insurance Fund
administered by the FDIC, which insures the Banks' deposits up to the maximum
extent permitted by law. The Bank is also subject to certain regulation by the
Board of Governors of the Federal Reserve System and is currently a member of
the Federal Home Loan Bank ("FHLB") of New York, one of the 12 regional banks
which comprise the FHLB System.
The following discussion of the Company's consolidated financial
condition, results of operations, capital resources and liquidity should be read
in conjunction with the Interim Consolidated Financial Statements and related
Notes included in Item 1 herein (which is incorporated herein by reference).
RECENT DEVELOPMENTS
The Company has entered into agreements to sell its three remaining
office buildings in San Francisco (225 Bush Street, 450 Sansome Street, and 10
United Nations Plaza) for aggregate proceeds of approximately $210,000. The
agreements pertaining to 225 Bush Street and 450 Sansome Street are contingent
upon satisfactory completion of the buyer's due diligence, while due diligence
on 10 United Nations Plaza has been completed. Each of these transactions are
also subject to standard closing deliverables as well as adjustments for (i)
closing costs and (ii) pro rations of certain contractual obligations that
survive closing. All three transactions are expected to close during the third
quarter of 2000. See "Changes in Financial Condition--Real Estate Held for
Sale".
As of July 31, 2000, the Company won a competitive bid to the servicing
rights for more than $700,000 in subprime mortgages from First Alliance Mortgage
Co. Terms of the sale were approved by U.S. Bankruptcy Court for the Central
District of California in Santa Ana. This transaction will increase the
Company's loans serviced by 8,704 loans.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION June 30, December 31, Increase
2000 1999 (Decrease)
-------------- ------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets..................................................... $ 3,369,987 $ 3,309,313 2%
Securities available for sale, at fair value:
Collateralized mortgage obligations (AAA-rated)................ 670,829 392,387 71
Subordinates, residuals and other securities................... 130,644 195,131 (33)
Loans available for sale, at lower of cost or market............. 29,319 45,213 (35)
Real estate held for sale........................................ 195,241 -- --
Loan portfolio, net.............................................. 148,490 157,408 (6)
Discount loan portfolio, net..................................... 803,446 913,229 (12)
Match funded loans and securities, net........................... 131,084 157,794 (17)
Investment in low-income housing tax credit interests............ 144,858 150,989 (4)
Investment in unconsolidated entities............................ 31,098 37,118 (16)
Real estate owned, net........................................... 182,676 167,506 9
Total liabilities................................................ 2,775,961 2,689,871 3
Deposits......................................................... 1,642,133 1,842,286 (11)
Securities sold under agreements to repurchase................... 421,050 47,365 789
Bonds-match funded agreements.................................... 121,797 141,515 (14)
Obligations outstanding under lines of credit.................... 184,750 187,866 (2)
Notes, debentures and other interest bearing obligations......... 288,083 317,573 (9)
Capital Securities............................................... 101,390 110,000 (8)
Stockholders' equity............................................. 492,636 509,442 (3)
</TABLE>
18
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At or for the Three Months Ended June 30,
-------------------------------------------------------
Increase
2000 1999 (Decrease)
--------------- --------------- -------------
<S> <C> <C> <C>
OPERATIONS DATA
Net interest income.............................................. $ 4,793 $ 25,709 (81)%
Provision for loan losses........................................ 3,134 623 403
Non-interest income.............................................. 37,234 25,037 49
Non-interest expense............................................. 41,844 48,010 (13)
Distributions on Capital Securities.............................. 2,918 3,398 (14)
Equity in losses of investment in unconsolidated entities........ 1,812 3,470 (48)
Income tax expense............................................... 2,381 972 145
Extraordinary gain on repurchase of debt, net of taxes........... 3,901 -- --
Net loss......................................................... (1,399) (3,687) (62)
PER COMMON SHARE
Net loss:
Basic......................................................... $ (0.02) $ (0.06) (67)%
Diluted....................................................... (0.02) (0.06) (67)
Stock price:
High ......................................................... $ 8.63 $ 9.38 (8)%
Low .......................................................... 5.44 8.19 (34)
Close......................................................... 5.56 8.88 (37)
Repurchase of common stock (1)................................ -- 8.92 (100)
KEY RATIOS
Annualized return on average assets ............................ (0.17)% (0.47)% 64%
Annualized return on average equity ............................ (1.14) (3.36) 66
Efficiency ratio (2) .......................................... 104.05 101.55 2
Core (leverage) capital ratio.................................... 9.24 9.50 (3)
Risk-based capital ratio......................................... 17.14 17.92 (4)
</TABLE>
19
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At or for the Six Months Ended June 30,
-------------------------------------------------------
Increase
2000 1999 (Decrease)
--------------- --------------- -------------
<S> <C> <C> <C>
OPERATIONS DATA
Net interest income.............................................. $ 9,488 $ 52,445 (82)%
Provision for loan losses........................................ 5,743 4,362 32
Non-interest income.............................................. 68,178 70,628 (3)
Non-interest expense............................................. 79,918 100,150 (20)
Distribution on Capital Securities............................... 6,112 6,797 (10)
Equity in losses of investment in unconsolidated entities........ 4,072 4,713 (14)
Income tax benefit (expense)..................................... 5,635 (1,396) 504
Extraordinary gain on repurchase of debt, net of taxes........... 6,047 -- --
Net (loss) income................................................ (6,497) 5,783 (212)
PER COMMON SHARE
Net (loss) income:
Basic......................................................... $ (0.10) $ 0.10 (200)%
Diluted....................................................... (0.10) 0.10 (200)
Stock price:
High ......................................................... $ 8.63 $ 12.31 (30)%
Low .......................................................... 5.31 7.75 (31)
Close......................................................... 5.56 8.88 (37)
Repurchase of common stock (1)................................... 6.48 8.92 (27)
KEY RATIOS
Annualized return on average assets ............................ (0.39)% (0.50)% (22)%
Annualized return on average equity ............................ (2.62) (2.65) (1)
Efficiency ratio (2) .......................................... 108.59 84.61 28
Core (leverage) capital ratio.................................... 9.24 9.50 (3)
Risk-based capital ratio......................................... 17.14 17.92 (4)
</TABLE>
(1) The Company repurchased 1,388,300 shares of its common stock during the
first quarter of 2000.
(2) The efficiency ratio represents non-interest expense divided by the sum of
net interest income before provision for loan losses, non-interest income
and equity in losses of investment in unconsolidated entities.
RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 2000 VERSUS THREE AND
SIX MONTHS ENDED JUNE 30, 1999
GENERAL. The Company recorded a net loss of $(1,399), or $(0.02) per
share, for the second quarter of 2000, as compared to a net loss of $(3,687), or
$(0.06) per share, for the second quarter of 1999. There were a number of key
factors and transactions that contributed to the results for the second quarter
of 2000 as compared to the second quarter of 1999, including: the sale of Ocwen
UK in September 1999; the acquisition of OAC in October 1999; a reduction in
gains on sales of interest earning assets from $22,918 in the second quarter of
1999 to $5,270 for the second quarter of 2000, primarily reflecting the
Company's decision in the third quarter of 1999 to discontinue the practice of
structuring securitizations as sales transactions, thus precluding recognition
of gain-on-sale accounting; a decline in impairment charges from $28,785 during
the second quarter of 1999 to $4,764 for the second quarter of 2000; and an
increase in net losses incurred by OTX from $(2,597) in the second quarter of
1999 to $(5,251) in the second quarter of 2000, reflecting the Company's ongoing
commitment to the development of this business.
20
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
SEGMENT PROFITABILITY. The following table presents the after tax
contribution by business segment to the Company's net (loss) income for the
years indicated:
<TABLE>
<CAPTION>
Three Months Six Months
------------------------------------------ --------------------------------------
Favorable Favorable
For the periods ended June 30, 2000 1999 (Unfavorable) 2000 1999 (Unfavorable)
--------- --------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Single family residential
discount loans ........................ $ 4,389 $ (9,220) $ 13,609 $ 7,467 $ (5,336) $ 12,803
Commercial loans ........................ 756 5,793 (5,037) 1,450 10,169 (8,719)
Domestic residential mortgage
loan servicing ........................ 2,650 2,910 (260) 6,234 6,052 182
Investment in low-income
housing tax credits ................... 13 1,068 (1,055) 1,192 2,404 (1,212)
OTX ...................................... (5,251) (2,597) (2,654) (9,715) (3,980) (5,735)
Commercial real estate ................... 2,011 123 1,888 2,710 170 2,540
UK operations ............................ (1,390) 8,984 (10,374) (2,932) 9,068 (12,000)
Domestic subprime single
family residential lending ............. (3,346) (1,563) (1,783) (7,907) (1,128) (6,779)
Unsecured collections .................... (2,191) (815) (1,376) (4,364) (1,472) (2,892)
Ocwen Realty Advisors .................... 147 -- 147 290 -- 290
Corporate items and other ................ 813 (8,370) 9,183 (922) (10,164) 9,242
-------- -------- -------- -------- -------- --------
$ (1,399) $ (3,687) $ 2,288 $ (6,497) $ 5,783 $(12,280)
======== ======== ======== ======== ======== ========
</TABLE>
The following is a discussion of the contribution by business segment
to the Company's net income (loss) for the periods indicated.
o Single Family Residential Discount Loans. Results for the second quarter of
2000 included gains of $4,470 from the sale of loans. This compares to a
securitization gain of $8,864 in the second quarter of 1999. Impairment
charges on residential subordinate securities amounted to $22,817 for the
second quarter of 1999, as compared to $68 for the second quarter of 2000.
The results for the second quarter of 2000 also reflect a decline of $1,940
in the provision for loan losses. See "Results of Operations - Non-Interest
Income."
o Commercial Loans. The results for the second quarter of 2000 reflect a
$4,426 decline in gains from the sale and operation of real estate owned as
compared to the second quarter of 1999. Additional interest received in
connection with the repayment of loans held in loan portfolio declined
$4,753 during the second quarter of 2000. Equity in earnings related to
certain loans which are accounted for as investments in real estate
amounted to $2,783 during the second quarter of 2,000, as compared to $0 in
the second quarter of 1999. The results for the second quarter of 2000 also
reflect a $1,343 net increase in the provision for loan losses as a result
of a $4,377 increase in the provision for discount loan losses offset by a
$3,034 decline in the provision for loan portfolio losses.
o Domestic Residential Mortgage Loan Servicing. Domestic residential
servicing fees and other charges amounted to $20,166 for the second quarter
of 2000, as compared to $13,552 for the second quarter of 1999. The
increase in servicing fees reflects an increase in the average balance of
loans serviced for others. See "Results of Operations - Non-Interest
Income."
o Investment in Low-Income Housing Tax Credits. See "Changes in Financial
Condition - Investment in Low-Income Housing Tax Credit Interests."
o UK Operations. The Company sold its investment in Ocwen UK on September 30,
1999. Losses for 2000 relate to the Company's 35.84% equity investment in
Kensington. See "Results of Operations - Equity in Losses of Investments in
Unconsolidated Entities."
o OTX. The increase in net losses incurred by OTX reflects the Company's
ongoing commitment to the development of its technology business.
o Commercial Real Estate. Results for the second quarter of 2000 included a
gain of $3,897 from the sale of a real estate property held for sale. See
"Results of Operations - Non-Interest Income."
21
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
o Domestic Subprime Single Family Residential Lending. Results for the second
quarter of 2000 included $4,696 of impairment charges on subprime residual
securities, as compared to $4,055 for the second quarter of 1999. The
Company closed its domestic subprime origination business, which had been
conducted primarily through OFS, in 1999.
o Unsecured Collections. Unsecured collections is primarily comprised of
activities related to the Company's charged-off unsecured credit card
receivables which were acquired at a discount. Collections of unsecured
credit card receivables are accounted for under the cost recovery method.
o Ocwen Realty Advisors. Ocwen Realty Advisors, a new activity in 2000,
provides collateral valuation services for residential and commercial
properties.
See Note 6 to the Consolidated Financial Statements, included in Item 1
herein (which is incorporated herein by reference), for additional information
related to the Company's operating segments.
NET INTEREST INCOME: Net interest income is the difference between
interest income earned from interest-earning assets and interest expense
incurred on its interest-bearing liabilities. Net interest income is determined
by net interest spread (i.e., the difference between the yield earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities),
the relative amount of interest-earning assets and interest-bearing liabilities
and the degree of mismatch in the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities.
22
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
The following table sets forth, for the periods indicated, information
regarding the total amount of income from interest-earning assets and the
resultant average yields, the interest expense associated with interest-bearing
liabilities, expressed in dollars and rates, and the net interest spread and net
interest margin. Information is based on average daily balances during the
indicated periods.
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------------------------
2000 1999
----------------------------------- --------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- --------- ------- ------------ ---------- ------
AVERAGE ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and repurchase agreements ............. $ 52,442 $ 864 6.59% $ 173,451 $ 2,059 4.75%
Securities available for sale (1) ........................ 863,771 16,808 7.78 591,156 15,659 10.60
Loans available for sale (2) ............................. 38,279 918 9.59 379,379 11,014 11.61
Investment securities and other .......................... 20,872 502 9.62 18,769 384 8.18
Loan portfolio (2) ....................................... 157,667 5,337 13.54 172,601 8,878 20.57
Match funded loans and securities ........................ 146,748 2,951 8.04 -- -- --
Discount loan portfolio .................................. 837,944 23,075 11.02 942,788 25,553 10.84
----------- --------- ----------- ---------
Total interest earning assets ......................... 2,117,723 50,455 9.53 2,278,144 63,547 11.16
--------- ---------
Non-interest earning cash ................................ 66,155 54,683
Allowance for loan losses ................................ (27,360) (28,400)
Low-income housing tax credit interests .................. 141,691 170,761
Investment in unconsolidated entities .................... 32,629 83,893
Real estate owned, net ................................... 183,550 197,152
Investment in real estate ................................ 206,151 41,955
Real estate held for sale ................................ 194,596 --
Escrow advances on loans and loans serviced for
others ................................................. 180,455 117,511
Other assets ............................................. 291,479 251,740
----------- -----------
Total assets .......................................... $ 3,387,069 $ 3,167,439
=========== ===========
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing demand deposits ......................... $ 12,668 $ 76 2.40% $ 29,424 $ 252 3.43%
Savings deposits ......................................... 1,704 10 2.35 1,536 9 2.34
Certificates of deposit .................................. 1,564,871 24,707 6.32 1,536,659 23,298 6.06
----------- --------- ----------- ---------
Total interest-bearing deposits ....................... 1,579,243 24,793 6.28 1,567,619 23,559 6.01
Securities sold under agreements to repurchase ........... 336,634 5,284 6.28 145,768 2,281 6.26
Bonds-match funded agreements ............................ 126,700 2,791 8.81 -- -- --
Obligations outstanding under lines of credit ............ 182,644 3,941 8.63 342,501 5,293 6.18
Notes, debentures and other .............................. 298,845 8,853 11.85 228,284 6,705 11.75
----------- --------- ----------- ---------
Total interest-bearing liabilities .................... 2,524,066 45,662 7.24 2,284,172 37,838 6.63
--------- ---------
Non-interest bearing deposits ............................ 6,017 16,152
Escrow deposits .......................................... 138,998 207,777
Excess of net assets acquired over purchase price ........ 52,651 --
Other liabilities ........................................ 67,623 94,996
----------- -----------
Total liabilities ..................................... 2,789,355 2,603,097
Capital Securities ....................................... 108,565 125,000
Stockholders' equity ..................................... 489,149 439,342
----------- -----------
Total liabilities and stockholders' equity ............ $ 3,387,069 $ 3,167,439
=========== ===========
Net interest income ...................................... $ 4,793 $ 25,709
========= =========
Net interest spread ...................................... 2.29% 4.53%
Net interest margin ...................................... 0.91% 4.51%
Ratio of interest-earning assets to
interest-bearing liabilities ............................. 84% 100%
</TABLE>
23
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
Federal funds sold and repurchase agreements... $ 87,198 $ 2,573 5.90% $ 229,576 $ 5,454 4.75%
Securities available for sale (1).............. 759,527 29,677 7.81 550,249 32,848 11.94
Loans available for sale (2)................... 41,386 1,724 8.33 355,948 19,144 10.76
Investment securities and other................ 24,889 829 6.66 29,185 1,035 7.09
Loan portfolio (2)............................. 160,902 9,305 11.57 195,903 15,044 15.36
Match funded loans and securities.............. 151,908 6,263 8.25 -- -- --
Discount loan portfolio........................ 912,686 48,174 10.56 968,686 55,556 11.47
---------- --------- ---------- ---------
Total interest earning assets............... 2,138,496 98,545 9.22 2,329,547 129,081 11.08
--------- ---------
Non-interest earning cash...................... 68,677 57,528
Allowance for loan losses...................... (27,389) (26,651)
Low-income housing tax credit interests........ 148,701 158,979
Investment in unconsolidated entities.......... 33,860 85,089
Real estate owned, net......................... 182,715 205,467
Investment in real estate...................... 256,517 41,112
Real estate held for sale...................... 98,313 --
Escrow advances on loans and loans serviced for 180,543 116,424
others.........................................
Other assets................................... 285,120 253,872
---------- ----------
Total assets................................ $3,365,553 $3,221,367
========== ==========
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing demand deposits............... $ 12,722 $ 253 3.98% $ 54,569 $ 892 3.27%
Savings deposits............................... 1,577 20 2.54 1,551 18 2.32
Certificates of deposit........................ 1,566,673 49,205 6.28 1,635,190 49,477 6.05
---------- --------- ---------- ---------
Total interest-bearing deposits............. 1,580,972 49,478 6.26 1,691,310 50,387 5.96
Securities sold under agreements to repurchase. 251,597 7,924 6.30 111,520 3,772 6.76
Bonds-match funded agreements.................. 132,439 6,146 9.28 -- -- --
Obligations outstanding under lines of credit.. 180,937 7,413 8.19 292,479 9,017 6.17
Notes, debentures and other.................... 298,719 18,096 12.12 227,071 13,460 11.86
---------- --------- ---------- ---------
Total interest-bearing liabilities.......... 2,444,664 89,057 7.29 2,322,380 76,636 6.60
--------- ---------
Non-interest bearing deposits.................. 7,950 17,648
Escrow deposits................................ 174,314 205,067
Excess of net assets acquired over purchase price 54,306 --
Other liabilities.............................. 79,366 114,418
---------- ----------
Total liabilities........................... 2,760,600 2,659,513
Capital Securities............................. 109,283 125,000
Stockholders' equity........................... 495,670 436,854
---------- ----------
Total liabilities and stockholders' equity.. $3,365,553 $3,221,367
========== ==========
Net interest income............................ $ 9,488 $ 52,445
========= =========
Net interest spread............................ 1.93% 4.48%
Net interest margin............................ 0.89% 4.50%
Ratio of interest-earning assets to
interest-bearing liabilities................... 87% 100%
</TABLE>
----------
(1) Excludes effect of unrealized gains or losses on securities available
for sale.
(2) The average balances of loans available for sale and the loan portfolio
include non-performing loans, interest on which is recognized on a cash
basis.
24
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior rate), (ii) changes
in rate (change in rate multiplied by prior volume) and (iii) total change in
rate and volume. Changes attributable to both volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------------- --------------------------------
2000 vs. 1999 2000 vs. 1999
-------------------------------- --------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
-------------------------------- --------------------------------
For the periods ended June 30, Rate Volume Total Rate Volume Total
------------------------------------------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold and repurchase
agreements .............................................. $ 600 $ (1,795) $ (1,195) $ 1,090 $ (3,971) $ (2,881)
Securities available for sale .............................. (4,856) 6,005 1,149 (13,403) 10,232 (3,171)
Loans available for sale ................................... (1,637) (8,459) (10,096) (3,541) (13,879) (17,420)
Investment securities and other ............................ 72 46 118 (60) (146) (206)
Loan portfolio ............................................. (2,826) (715) (3,541) (3,330) (2,409) (5,739)
Match funded loans and securities .......................... 2,951 -- 2,951 6,263 -- 6,263
Discount loan portfolio .................................... 403 (2,881) (2,478) (4,277) (3,105) (7,382)
-------- -------- -------- -------- -------- --------
Total interest-earning assets ........................... (5,293) (7,799) (13,092) (17,258) (13,278) (30,536)
-------- -------- -------- -------- -------- --------
Interest-Bearing Liabilities:
Interest-bearing demand deposits ........................... (61) (115) (176) (137) (502) (639)
Savings deposits ........................................... -- 1 1 2 -- 2
Certificates of deposit .................................... 976 433 1,409 1,843 (2,115) (272)
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits ......................... 915 319 1,234 1,708 (2,617) (909)
Securities sold under agreements to
repurchase .............................................. 7 2,996 3,003 (277) 4,429 4,152
Bonds-match funded agreements .............................. -- 2,791 2,791 6,146 -- 6,146
Obligations outstanding under lines of credit .............. 1,648 (3,000) (1,352) 2,442 (4,046) (1,604)
Notes, debentures and other interest-bearing
obligations ............................................. 58 2,090 2,148 302 4,334 4,636
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities .................... 2,628 5,196 7,824 10,321 2,100 12,421
-------- -------- -------- -------- -------- --------
Decrease in net interest income ............................ $ (7,921) $(12,995) $(20,916) $(27,579) $(15,378) $(42,957)
======== ======== ======== ======== ======== ========
</TABLE>
The Company's net interest income before provision for loan losses of
$4,793 for the three months ended June 30, 2000 decreased $20,916 or 81% as
compared to the same period in the prior year. The decrease was due to a
decrease in average interest-earning assets, an increase in average
interest-bearing liabilities and a decrease in the net interest spread. Average
interest-earning assets decreased by $160,421 or 7% during the three months
ended June 30, 2000 and reduced interest income by $7,799. Average
interest-bearing liabilities increased by $239,894 or 11% during the three
months ended June 30, 2000 and increased interest expense by $5,196. The impact
of these volume changes resulted in a $12,995 decrease in net interest income.
The net interest spread decreased 224 basis points as a result of a 163
basis-point decrease in the weighted average rate on interest-earning assets and
a 61 basis-point increase in the weighted average rate on interest-bearing
liabilities. The impact of these rate changes resulted in a $7,921 decrease in
net interest income. The net interest spread related to Ocwen UK for the three
months ended June 30, 1999 was 10.11%.
The Company's net interest income before provision for loan losses of
$9,488 for the six months ended June 30, 2000 decreased $42,957 or 82% as
compared to the same period in the prior year. The decrease was due to a
decrease in average interest-earning assets, an increase in average
interest-bearing liabilities, and a decrease in the net interest spread. Average
interest-earning assets decreased by $191,051 or 8% during the six months ended
June 30, 2000 and reduced interest income by $13,278. Average interest-bearing
liabilities increased by $122,284 or 5% during the six months ended June 30,
2000 and increased interest expense by $2,100. The impact of these volume
changes resulted in a $15,378 decrease in net interest income. The net interest
spread decreased 255 basis points during the six months ended June 30, 2000 as a
result of a 186 basis-point decrease in the weighted average rate on
interest-earning assets and a 69 basis-point increase in the weighted average
rate on interest-bearing liabilities. The impact of these rate changes resulted
in a $27,579 decrease in net interest income. The net interest spread related to
Ocwen UK for the six months ended June 30, 1999 was 10.63%.
25
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Balance Increase Average Yield Increase
------------------------ (Decrease) ---------------- (Decrease)
For the three months ended June 30, 2000 1999 $ 2000 1999 Basis Points
---------- ----------- ------------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and repurchaseagreements $ ........ $ 52,442 $ 173,451 $ (121,009) 6.59% 4.75% 184
Securities available for sale ........................ 863,771 591,156 272,615 7.78 10.60 (282)
Loans available for sale (1) ......................... 38,279 379,379 (341,100) 9.59 11.61 (202)
Investment securities and other ...................... 20,872 18,769 2,103 9.62 8.18 144
Loan portfolio ....................................... 157,667 172,601 (14,934) 13.54 20.57 (703)
Match funded loans and securities .................... 146,748 -- 146,748 8.04 -- 804
Discount loan portfolio .............................. 837,944 942,788 (104,844) 11.02 10.84 18
----------- ----------- -----------
$ 2,117,723 $ 2,278,144 $ (160,421) 9.53 11.16 (163)
=========== =========== ===========
Average Balance Increase Average Yield Increase
------------------------ (Decrease) ---------------- (Decrease)
For the six months ended June 30, 2000 1999 $ 2000 1999 Basis Points
------------------------------------------------------ ---------- ----------- ------------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and repurchase agreements.......... $ 87,198 $ 229,576 $ (142,378) 5.90% 4.75% 115
Securities available for sale ........................ 759,527 550,249 209,278 7.81 11.94 (413)
Loans available for sale (2) ......................... 41,386 355,948 (314,562) 8.33 10.76 (243)
Investment securities and other ...................... 24,889 29,185 (4,296) 6.66 7.09 (43)
Loan portfolio ....................................... 160,902 195,903 (35,001) 11.57 15.36 (379)
Match funded loans and securities .................... 151,908 -- 151,908 8.25 -- 825
Discount loan portfolio .............................. 912,686 968,686 (56,000) 10.56 11.47 (91)
----------- ----------- -----------
$ 2,138,496 $ 2,329,547 $ (191,051) 9.22 11.08 (186)
=========== =========== ===========
</TABLE>
(1) Includes an average balance of $213,567 with an average yield earned of
12.70% for the three months ended June 30, 1999 related to Ocwen UK.
(2) Includes an average balance of $180,691 with an average yield earned of
12.82% for the six months ended June 30, 1999 related to Ocwen UK.
Interest income on federal funds sold and repurchase agreements
declined $1,195 or 58% during the three months ended June 30, 2000 as compared
to the same period in 1999 due to a $121,009 or 70% decline in the average
balance offset in part by a 184 basis-point increase in the average yield. For
the six months ended June 30, 2000 interest income on federal funds sold and
repurchase agreements declined $2,881 or 53% as compared to the same period in
1999 primarily due to a $142,378 or 62% decline in the average balance, offset
in part by a 115 basis-point increase in the average yield.
Interest income on securities available for sale increased $1,149 or 7%
during the three months ended June 30, 2000 as compared to the same period in
1999 as a result of a $272,615 or 46% increase in the average balance offset by
a 282 basis-point decrease in the weighted average yield earned. For the six
months ended June 30, 2000, interest income on securities available for sale
decreased $3,171 or 10% as compared to the same period in 1999 as a result of a
413 basis-point decrease in the weighted average yield earned, offset by a
$209,278 or 38% increase in the average balance. As indicated in the table
below, the decrease in the weighted average yield during the three and six
months ended June 30, 2000 as compared to the same periods in 1999 is due in
large part to changes in the composition of the securities available for sale
portfolio.
<TABLE>
<CAPTION>
Average Balance Average Yield
-------------------------------------------------- --------------------
2000 1999 2000 1999
---------------------- ---------------------- ---------- -------
For the three months ended June 30, Amount Percent Amount Percent
---------------------------------------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
CMOs (AAA-rated) (1).......................... $ 726,224 84% $ 362,820 61% 6.40% 5.29%
Subordinates and residuals (2)................ 137,547 16 228,336 39 15.07 19.02
------------ ------ ------------ -----
$ 863,771 100% $ 591,156 100% 7.78 10.60
============ ====== ============ =====
</TABLE>
26
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Balance Average Yield
-------------------------------------------------- --------------------
2000 1999 2000 1999
---------------------- ---------------------- ---------- -------
For the six months ended June 30, Amount Percent Amount Percent
---------------------------------------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CMOs (AAA-rated) (1).......................... $ 607,863 80% $ 327,010 59% 6.34% 5.57%
Subordinates and residuals (3)................ 151,664 20 223,239 41 13.72 21.27
------------ ------ ------------ -----
$ 759,527 100% $ 550,249 100% 7.81 11.94
============ ====== ============ =====
</TABLE>
(1) Because collateralized mortgage obligations ("CMOs") have less cash
flow variability, their average lives and yields to maturity are more
stable, and therefore, CMOs are priced to yield less than a less stable
class of mortgage-related securities. See "Changes in Financial
Condition - Securities Available for Sale."
(2) Includes an average balance of $78,115 with an average yield earned of
26.51% for the three months ended June 30, 1999 related to Ocwen UK.
(3) Includes an average balance of $74,129 with an average yield earned of
27.86% for the six months ended June 30, 1999 related to Ocwen UK.
Interest income on loans available for sale decreased $10,096 or 92%
during the three months ended June 30, 2000 as compared to the same period in
1999 as a result of a $341,100 or 90% decrease in the average balance and a 202
basis-point decline in the average yield. For the six months ended June 30,
2000, interest income on loans available for sale decreased $17,420 or 91% as
compared to the same period in 1999 as a result of a $314,562 or 88% decrease in
the average balance and a 243 basis-point decline in the average yield. The
decrease in the average balance reflects the closure of the domestic subprime
origination business, as well as the sale of Ocwen UK. See "Changes in Financial
Condition - Loans Available for Sale."
Interest income on the loan portfolio decreased by $3,541 or 40% during
the three months ended June 30, 2000 versus the same period in 1999 due to a 703
basis-point decrease in the average yield and a $14,934 or 9% decrease in the
average balance. For the six months ended June 30, 2000, interest income on the
loan portfolio decreased $5,739 or 38% versus the same period in 1999 as a
result of a $35,001 or 18% decrease in the average balance and a 379 basis-point
decrease in the average yield. The decrease in the average yield is due in part
to a decline in the amount of additional interest received in connection with
the repayment of loans. Such additional interest amounted to $75 and $90 during
the three and six months ended June 30, 2000, respectively, as compared to
$4,828 and $5,607 for the three and six months ended June 30, 1999,
respectively. During 1999, the Company ceased origination of multi-family and
commercial loans. See "Changes in Financial Condition - Loan Portfolio."
Interest income on match funded loans and securities is comprised of
income earned on loans acquired in connection with the acquisition of OAC. These
loans were previously securitized by OAC under a securitization accounted for as
a financing transaction, and on four unrated residual securities transferred by
the Company in December 1999 to Ocwen NIM Corp. in exchange for non-recourse
notes. See "Changes in Financial Condition - Match Funded Loans and Securities".
Interest income on discount loans decreased by $2,478 or 10% during the
three months ended June 30, 2000 as compared to the same period in 1999
primarily as a result of a $104,844 or 11% decline in the average balance. For
the six months ended June 30, 2000, interest income on discount loans decreased
by $7,382 or 13% as compared to the same period in 1999 as a result of a 91
basis-point decrease in the average yield and a $56,000 or 6% decline in the
average balance. See "Changes in Financial Condition - Discount Loans, Net." 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 non-performing loans.
27
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Balance Increase Average Rate Increae
------------------------ (Decrease) ---------------------- (Decrease)
For the three months ended June 30, 2000 1999 $ 2000 1999 Basis Points
--------------------------------------------------- ---------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits.......................... $1,579,243 $ 1,567,619 $ 11,624 6.28% 6.01% 27
Securities sold under agreements to repurchase (1). 336,634 145,768 190,866 6.28 6.26 2
Bonds-match funded agreements...................... 126,700 -- 126,700 8.81 -- 881
Obligations outstanding under lines of credit (2).. 182,644 342,501 (159,857) 8.63 6.18 245
Notes, debentures and other........................ 298,845 228,284 70,561 11.85 11.75 10
----------- ----------- -----------
$ 2,524,066 $ 2,284,172 $ 239,894 7.24 6.63 61
=========== =========== ===========
Average Balance Increase Average Rate Increae
------------------------ (Decrease) ---------------------- (Decrease)
For the six months ended June 30, 2000 1999 $ 2000 1999 Basis Points
--------------------------------------------------- ---------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits........................... $ 1,580,972 $ 1,691,310 $ (110,338) 6.26% 5.96% 30
Securities sold under agreements to repurchase (3).. 251,597 111,520 140,077 6.30 6.76 (46)
Bonds-match funded agreements....................... 132,439 -- 132,439 9.28 -- 928
Obligations outstanding under lines of credit (4)... 180,937 292,479 (111,542) 8.19 6.17 202
Notes, debentures and other......................... 298,719 227,071 71,648 12.12 11.86 26
----------- ----------- -----------
$ 2,444,664 $ 2,322,380 $ 122,284 7.29 6.60 69
=========== =========== ===========
</TABLE>
(1) Includes an average balance of $28,505 with an average yield of 7.47%
for the three months ended June 30, 1999 related to Ocwen UK.
(2) Includes an average balance of $212,257 with an average yield of 6.32%
for the three months ended June 30, 1999 related to Ocwen UK.
(3) Includes an average balance of $28,177 with an average yield of 7.95%
for the six months ended June 30, 1999 related to Ocwen UK.
(4) Includes an average balance of $178,056 with an average yield of 6.33%
for the six months ended June 30, 1999 related to Ocwen UK.
Interest expense on interest-bearing deposits increased $1,234 or 5%
during the three months ended June 30, 2000 due to a $11,624 or 1% increase in
the average balance and a 27 basis-point increase in the average rate. For the
six months ended June 30, 2000, interest expense on interest-bearing deposits
decreased $909 or 2% as compared to the same period in 1999 primarily as a
result of a 30 basis-point increase in the average rate, offset by a $110,338 or
7% decrease in the average balance. The increase in the average rates for the
above periods was primarily related to certificates of deposit.
Interest expense on securities sold under agreements to repurchase
increased $3,003 or 132% primarily due to an $190,866 or 131% increase in the
average balance. For the six months ended June 30, 2000, interest expense on
securities sold under agreements to repurchase increased $4,152 or 110% as
compared to the same period in 1999 primarily as a result of a $140,077 or 126%
increase in the average balance. See "Changes in Financial Condition -
Securities Sold Under Agreements to Repurchase".
Interest expense on bonds-match funded agreements is comprised of
interest incurred on bonds-match funded agreements acquired as a result of the
OAC acquisition and on non-recourse notes which resulted from the Company's
transfer of four unrated residual securities in December 1999 to Ocwen NIM Corp
in exchange for non-recourse notes. See "Changes in Financial Condition - Bonds
- Match Funded Agreements".
Interest expense on obligations outstanding under lines of credit
decreased $1,352 or 26% during the three months ended June 30, 2000 as compared
to the same period in 1999 due to a $159,857 or 47% decrease in the average
balance, offset by a 245 basis-point increase in the weighted average interest
rate. For the six months ended June 30, 2000, interest expense on obligations
outstanding under lines of credit decreased $1,604 or 18% as compared to the
same period in 1999 as a result of a $111,542 or 38% decrease in the average
balance, offset by a 202 basis-point increase in the average rate. During 1999,
lines of credit were used primarily to fund the acquisition and origination of
subprime single family loans at OFS and Ocwen UK. The net decreases in the
average balances reflects the closure of the domestic subprime origination
business and the sale of Ocwen UK, offset by the assumption of lines as a result
of the acquisition of OAC. The OAC lines
28
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
are primarily collateralized by investments in real estate. See "Changes in
Financial Condition - Obligations Outstanding Under Lines of Credit."
Interest expense on notes, debentures and other increased $2,148 or 32%
during the three months ended June 30, 2000 primarily due to a $70,561 or 31%
increase in the average balance. For the six months ended June 30, 2000,
interest expense on notes, debentures and other increased $4,636 or 34% as
compared to the same period in 1999 primarily as a result of a $71,648 or 32%
increase in the average balance. The increases in the average balances is
primarily due to the assumption of $140,487 of 11.5% notes as a result of the
OAC acquisition, offset by the Company's repurchases of debt during 1999 and
2000. See "Changes in Financial Condition - Notes, Debentures and Other."
PROVISIONS FOR LOAN LOSSES. Provisions for losses on loans are charged
to operations to maintain an allowance for losses on the loan portfolio, the
discount loan portfolio and match funded loans at a level which management
considers adequate based upon an evaluation of known and inherent risks in such
portfolios. Management's periodic evaluation is based on an analysis of the
discount loan portfolio, the loan portfolio and match funded loans, historical
loss experience, current economic conditions and trends, collateral values and
other relevant factors.
The following table presents the provisions for loan losses by the
discount loan, loan portfolio and match funded loans for the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------- --------------------------
For the periods ended June 30, 2000 1999 2000 1999
----------------------------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Discount loan.......................... $ 4,488 $ (1,280) $ 7,220 $ 3,409
Loan portfolio......................... (1,261) 1,903 (1,415) 953
Match funded loans..................... (93) -- (62) --
---------- --------- ---------- ---------
$ 3,134 $ 623 $ 5,743 $ 4,362
========== ========= ========== =========
</TABLE>
The negative provisions for loan losses on the loan portfolio for 2000
reflect repayments and sales of loans, including non-performing loans. See
"Changes in Financial Condition - Loan Portfolio, Net," "Match Funded Loans and
Securities" and "Discount Loan Portfolio." The following table sets forth the
allowance for loan losses as a percentage of the respective loan balances at the
dates indicated.
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
-------------------------------------- --------------------------------------
Loan Allowance Loan Allowance
Allowance Balance as a % Allowance Balance as a %
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Discount loans.................. $ 22,387 $ 825,833 2.71% $ 20,406 $ 1,029,169 1.98%
Loan portfolio.................. 5,439 153,929 3.53 5,853 139,531 4.19
Match funded loans.............. 433 92,931 0.47 -- -- --
-------- ----------- -------- ------------
$ 28,259 $ 1,072,693 2.63 $ 26,259 $ 1,168,700 2.25
======== =========== ======== ============
</TABLE>
At December 31, 1999, the allowance as a percentage of the loan balance
for discount loans, loan portfolio and match funded loans was 2.06%, 4.41% and
0.47%, respectively. For additional information regarding the Company's
allowance for loan losses on the above portfolios, see "Changes in Financial
Condition - Allowance for Loan Losses." For information relating to the
Company's valuation allowance on real estate owned, see "Changes in Financial
Condition - Real Estate Owned."
29
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
NON-INTEREST INCOME. The following table sets forth the principal
components of the Company's non-interest income during the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
------------------------ ------------------------
For the periods ended June 30, 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Servicing fees and other charges ................................... $ 20,462 $ 18,929 $ 41,131 $ 37,180
Gain on interest-earning assets, net ............................... 5,270 22,918 16,264 43,144
Impairment charges on securities available for sale ................ (4,764) (28,785) (11,597) (28,869)
(Loss) gain on real estate owned, net .............................. (3,006) 2,677 (10,013) 3,306
Net Operating gains on investments in real estate .................. 8,063 225 13,616 242
Amortization of excess of net assets acquired over
purchase price .................................................. 2,999 -- 5,792 --
Other income ....................................................... 8,210 9,073 12,985 15,625
-------- -------- -------- --------
Total .............................................................. $ 37,234 $ 25,037 $ 68,178 $ 70,628
======== ======== ======== ========
</TABLE>
Servicing fees and other charges are primarily comprised of fees from
investors for servicing mortgage loans. The increase in servicing fees is
primarily due to an increase in the average balance of loans serviced for
others, which was offset in part by a decline resulting from the sale of Ocwen
UK. The average unpaid principal balance of loans serviced for others amounted
to $10,799,002 and $10,801,888, during the three and six months ended June 30,
2000, respectively, as compared to $10,241,877 and $10,369,687 for the three and
six months ended June 30, 1999, respectively. For the three and six months ended
June 30, 1999, Ocwen UK earned servicing fees and other charges totaling $3,147
and $6,095 on loans serviced for others with an average unpaid principal balance
of $803,857 and $832,653 respectively. Servicing fees for the three and six
months ended June 30, 2000 included $2,205 and $5,995, respectively, of special
servicing fees as compared to $2,790 and $5,197 for the three and six months
ended June 30, 1999, respectively. The Company began entering into special
servicing arrangements in 1998 wherein the Company has acted as a special
servicer for third parties, typically as part of a securitization. Under these
arrangements, the Company services loans that become greater than 90 days past
due and receives incentive fees to the extent certain loss mitigation parameters
are achieved.
The following table sets forth the Company's loans serviced for others
at June 30, 2000.
<TABLE>
<CAPTION>
----------------------- ----------------------- --------------------- -----------------------
Discount Loans Subprime Loans Other Loans Total
----------------------- ----------------------- --------------------- -----------------------
No. of No. of No. of No. of
Amount Loans Amount Loans Amount Loans Amount Loans
---------- --------- ---------- --------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans securitized............... $ 948,611 15,500 $ 893,009 8,996 $ -- -- $ 1,841,620 24,496
Loans serviced for third parties. 860,631 15,086 6,943,370 86,378 970,458 526 8,774,459 101,990
---------- --------- ---------- --------- ---------- --------- ----------- ---------
$1,809,242 30,586 $7,836,379 95,374 $ 970,458 526 $10,616,079 126,486
========== ========= ========== ========= ========== ========= =========== =========
</TABLE>
Net gains on interest-earning assets for the three months ended June
30, 2000 of $5,270 were primarily comprised of $4,470 of gains from the sale of
734 single family residential discount loans with an aggregate unpaid principal
balance of $55,879. Net gains on interest-earning assets for the three months
ended June 30, 1999 of $22,918 were primarily comprised of $20,188 of net gains
recognized in connection with the securitization of single family loans, as
presented in the table below, and $1,433 of gains on sales of commercial
discount loans.
For the six months ended June 30, 2000, net gains on interest-earning
assets of $16,264 were primarily comprised of $12,264 of gains from the sale of
1,579 single family residential discount loans with an aggregate unpaid
principal balance of $126,510, and a $2,768 gain on the sale of a commercial
subordinate security. For the six months ended June 30, 1999, net gains on
interest-earning assets of $43,144 were primarily comprised of $36,804 of gains
recognized in connection with the securitization of single family loans, as
presented in the table below, $4,394 of gains on sales of commercial subordinate
securities and $2,617 of gains on sales of commercial discount loans.
30
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
During the third quarter of 1999, the Company made a strategic decision
to structure future securitizations as financing transactions, thereby
precluding the use of gain-on-sale accounting. There were no securitizations of
loans executed by the Company during the six months ended June 30, 2000. The
following table sets forth the Company's net gains recognized in connection with
the securitization of loans during the three and six months ended June 30, 1999.
<TABLE>
<CAPTION>
Book Value of
Loans Securitized Securities
----------------------------------------------------------------------------- Retained
Types of Loans Principal No. of Loans Net Gain (Non-Cash Gain) Cash Gain
--------------------------------------------- ----------- ------------ ----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30,1999:
Single family discount...................... $ 90,037 1,443 $ 8,864 $ 2,133 $ 6,731
Single family subprime:
Domestic................................. 148,628 1,381 1,117 7,659 --
Foreign (Ocwen UK) ...................... 295,157 8,983 10,207 34,452 --
------------- ------------- ------------- ------------- -------------
443,785 10,364 11,324 42,111 --
------------- ------------- ------------- ------------- -------------
$ 533,822 11,807 $ 20,188 $ 44,244 $ 6,731
============= ============= ============= ============= =============
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
Single family discount (1) ................. $ 227,303 $ 3,137 $ 22,763 $ 4,040 $ 18,723
Single family subprime:
Domestic................................. 235,572 2,192 3,834 12,091 --
Foreign (Ocwen UK) ...................... 295,157 8,983 10,207 34,452 --
------------- ------------- ------------- ------------- -------------
530,729 11,175 14,041 46,543 --
------------- ------------- ------------- ------------- -------------
$ 758,032 14,312 $ 36,804 $ 50,583 $ 18,723
============= ============= ============= ============= =============
</TABLE>
(1) Includes 384 loans with an unpaid principal balance of $24,880
securitized from the loan portfolio.
Impairment charges on securities available for sale represent declines
in fair value that were deemed to be other than temporary. See "Changes in
Financial Condition - Securities Available for Sale."
The following table sets forth the results of the Company's real estate
owned (which does not include investments in real estate, as discussed below)
during the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
-------------------- ---------------------
For the periods ended June 30, 2000 1999 2000 1999
--------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Gains on sales ........................ $ 7,127 $ 12,205 $ 11,683 $ 21,407
Provision for losses in fair value .... (7,752) (9,779) (16,964) (14,840)
Carrying costs, net ................... (2,381) 251 (4,732) (3,261)
-------- -------- -------- --------
(Loss) income on real estate owned, net $ (3,006) $ 2,677 $(10,013) $ 3,306
======== ======== ======== ========
</TABLE>
See "Changes in Financial Condition - Real Estate Owned" for additional
information regarding real estate owned.
Net operating gains on investments in real estate during the three and
six months ended June 30, 2000 included $5,280 and $9,072, respectively of
operating income from investments in real estate acquired as a result of the OAC
acquisition in October 1999. The three and six months ended June 30, 2000 also
included $2,783 and $4,544 of equity in earnings related to certain loans
acquired during the first quarter of 2000 which are accounted for as investments
in real estate. See "Changes in Financial Condition - Investments in Real
Estate."
Amortization of excess of net assets acquired over purchase price
amounted to $2,999 and $5,792 for the three and six months ended June 30, 2000,
respectively, and resulted from the Company's acquisition of OAC on October 7,
1999. The acquisition resulted in an excess of net assets acquired over the
purchase price of $60,042, which is being amortized on a
31
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
straight-line basis over a period of five years. The unamortized balance of the
excess of net assets acquired over purchase price at June 30, 2000 was $51,043,
as compared to $56,841 at December 31, 1999.
Other income for the three months ended June 30, 2000 was primarily
comprised of $5,213 of gains on sales of investments in real estate and $2,097
of property valuation service fees earned by Ocwen Realty Advisors ("ORA").
Gains on sales of investments in real estate for the second quarter of 2000
included a gain of $3,897 from the sale of an office building held for sale. See
"Changes in Financial Condition - Real Estate Held for Sale." Other income for
the three months ended June 30, 1999 was primarily comprised of $4,231 of
brokerage commissions earned in connection with Ocwen UK loan originations,
$1,581 of gains on sales of investments of real estate and $1,528 of management
fees earned from OAC.
Other income for the six months ended June 30, 2000 was primarily
comprised of $5,213 of gains on sales of investments in real estate and $5,594
of property valuation service fees earned by ORA. Other income for the six
months ended June 30, 1999 was primarily comprised of $7,920 of brokerage
commissions earned in connection with Ocwen UK loan originations, $3,052 of
management fees earned from OAC and $1,631 of gains on sales of investments in
real estate.
NON-INTEREST EXPENSE. As compared to the same periods in 1999,
non-interest expense decreased $6,166 or 13% during the three months ended June
30, 2000 and $20,232 or 20% during the six months ended June 30, 2000. The
decrease was due in large part to the sale of Ocwen UK in September 1999 and the
Company's closing of its domestic subprime lending operations at OFS, offset by
an increase in non-interest expenses related to OTX and the acquisition of OAC
in October 1999.
The following table sets forth the principal components of the
Company's non-interest expense during the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------- ---------------------------
For the periods ended June 30, 2000 1999 2000 1999
---------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits............... $ 22,398 $ 24,330 $ 38,980 $ 51,541
Occupancy and equipment.......................... 2,953 4,956 6,215 10,722
Technology and communication costs............... 5,414 4,799 10,695 10,543
Loan expenses.................................... 2,987 2,652 6,917 6,780
Net operating losses on investments in certain
low-income housing tax credit interests....... 839 1,599 2,339 3,463
Amortization of excess of purchase price over
net assets acquired........................... 794 257 1,568 487
Other operating expenses......................... 6,459 9,417 13,204 16,614
---------- ---------- ---------- ----------
Total......................................... $ 41,844 $ 48,010 $ 79,918 $ 100,150
========== ========== ========== ==========
</TABLE>
The decline in compensation and employee benefits for the three and six
months ended June 30, 2000 as compared to the same periods in 1999 was due in
large part to the sale of Ocwen UK and the closing of the domestic subprime
lending operations at OFS. In addition to Ocwen UK and OFS, the reversal of
accrued profit sharing expense in the amount of $6,012 during the first quarter
of 2000 as a result of the Company's decision to suspend its long-term incentive
plan also contributed to the decline in compensation and employee benefits
during the six months ended June 30, 2000. Excluding Ocwen UK, OFS and the
$6,012 accrual reversal, compensation and employee benefits increased $4,137 and
$8,291 during the three and six months ended June 30, 2000, respectively. This
increase reflects an increase in the average number of full-time equivalent
employees (excluding Ocwen UK and OFS) from 1,112 and 1,084 during the three and
six months ended June 30, 1999, respectively, to 1,290 and 1,287 for the three
and six months ended June 30, 2000, respectively. Further contributing to the
increase in compensation and employee benefits during 2000 was a reversal of
profit sharing expense in the second quarter of 1999 resulting from the
Company's decision to grant stock options under its annual incentive plan at an
exercise price equal to fair market value. Previously, options were granted at
exercise prices below fair market value, resulting in the recognition of
compensation expense.
The decrease in occupancy and equipment costs during the three and six
months ended June 30, 2000, as compared to the same periods in 1999, was
primarily due to the sale of Ocwen UK. Occupancy and equipment expense for the
three and six months ended June 30, 1999 included $1,571 and $2,990,
respectively, related to Ocwen UK.
32
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Technology and communication costs consists primarily of depreciation
expense on computer hardware and software, technology-related consulting fees
(primarily OTX) and telephone expense.
Excluding Ocwen UK and OFS, loan expenses increased $1,483 for the
three months ended June 30, 2000, as compared to the same period in 1999. For
the six months ended June 30, 2000, loan expenses excluding Ocwen UK and OFS
increased $3,405 as compared to the same period in 1999. The increase in loan
expenses was due in large part to an increase in appraisal fees in connection
with property valuation services provided by ORA.
Other operating expenses are primarily comprised of professional fees,
marketing costs and travel costs. The decrease in other operating expenses
during the three and six months ended June 30, 2000, as compared to the same
period in 1999, is primarily due to the sale of Ocwen UK. Other operating
expenses for the three and six months ended June 30, 1999 included $1,964 and
$5,308, respectively, related to Ocwen UK.
DISTRIBUTIONS ON COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES
OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE
COMPANY. Cash distributions on the Capital Securities are payable semi-annually
in arrears on February 1 and August 1 of each year at an annual rate of 10.875%.
The Company recorded $2,918 and $6,112 of distributions to holders of the
Capital Securities during the three and six months ended June 30, 2000,
respectively, as compared to $3,398 and $6,796 during the three and six months
ended June 30, 1999, respectively. The decline in distributions is the result of
repurchases during the fourth quarter of 1999 and the second quarter of 2000.
See Note 3 to the Consolidated Financial Statements included in Item 1 (which is
incorporated herein by reference) and "Changes in Financial Condition -
Company-Obligated, Mandatorily Redeemable Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures of the Company."
EQUITY IN LOSSES OF INVESTMENTS IN UNCONSOLIDATED ENTITIES. During the
three and six months ended June 30, 2000, the Company recorded equity in the
losses of investments in unconsolidated entities of $1,812 and $4,072,
respectively. This compares to losses of $3,469 and $4,713 for the three and six
months ended June 30, 1999, respectively.
During the three and six months ended June 30, 2000, the Company
recorded equity in losses of Kensington of $1,778 and $4,112 respectively,
including goodwill amortization. For the three and six months ended June 30,
1999, the Company's share of Kensington's losses amounted to $288 and $1,430,
respectively. At June 30, 2000, the Company owned 35.84% of the total
outstanding common stock of Kensington, an originator of non-conforming
residential mortgages in the U.K.
Equity in the losses of investments in unconsolidated entities for the
three and six months ended June 30, 1999 included the Company's equity in the
losses of its investments in OAC and OPLP of $3,268 and $3,486, respectively.
Prior to its acquisition of OAC in October 1999, the Company accounted for its
investments in OAC and OPLP using the equity method.
See "Changes in Financial Condition - Investment in Unconsolidated
Entities,"
INCOME TAX BENEFIT (EXPENSE). Income tax benefit (expense) amounted to
$2,381 and $972 during the three months ended June 30, 2000 and 1999,
respectively, and $5,635 and $(1,396) for the six months ended June 30, 2000,
respectively. The Company's income taxes for 2000 and 1999 reflect expected
effective tax rates of 31.0% and 19.8%, respectively. The Company's effective
tax rates reflect tax credits resulting from the Company's investment in
low-income housing tax credit interests of $2,702 and $4,598 during the second
quarter of 2000 and 1999, respectively, and $6,417 and $9,063 for the six months
ended June 30, 2000 and 1999, respectively. See "Changes in Financial Condition
- Investments in Low-Income Housing Tax Credit Interests."
EXTRAORDINARY GAIN ON REPURCHASE OF DEBT, NET OF TAXES. Extraordinary
gains on repurchase of debt, net of taxes, for the three and six months ended
June 30, 2000 of $3,901 and $6,047, respectively, is comprised of $2,532 of
gains recognized in connection with the repurchase of Capital Securities during
the second quarter of 2000 and $3,575 of gains ($1,369 during the second
quarter) recognized in connection with repurchases of the 11.5% Senior Notes
during the first and second quarter of 2000. See "Changes in Financial Condition
- Notes, Debentures and Other Interest-Bearing Obligations and Company
Obligated, Mandatorily Redeemable Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures of the Company".
33
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
CHANGES IN FINANCIAL CONDITION
SECURITIES AVAILABLE FOR SALE. At June 30, 2000, securities available
for sale amounted to $801,473 as compared to $587,518 at December 31, 1999, an
increase of $213,955 or 36%. Securities available for sale are carried at fair
value with unrealized gains or losses reported as a separate component of
accumulated other comprehensive income in stockholders' equity, net of taxes.
Unrealized losses on securities that reflect a decline in value which is other
than temporary are charged to earnings. At June 30, 2000, securities available
for sale included an aggregate of $6,216 of unrealized gains ($10,309 of gross
gains and $4,093 of gross losses), as compared to $1,036 of unrealized gains
($6,967 of gross gains and $5,931 of gross losses), at December 31, 1999.
The following table sets forth the fair value of the Company's securities
available for sale at the dates indicated.
<TABLE>
<CAPTION>
Increase (Decrease)
June 30, December 31, -------------------------
2000 1999 Dollars Percent
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mortgage-related securities:
Collateralized mortgage obligations
(AAA-rated) ............................... $ 670,829 $ 392,387 $ 278,442 71%
--------- --------- ---------
Subordinates, residuals and other securities:
Single family residential:
BB-rated subordinates .................. 6,889 5,908 981 17
B-rated subordinates ................... 6,036 6,098 (62) (1)
Unrated subordinates ................... 14,398 17,287 (2,889) (17)
Unrated subprime residuals ............. 100,344 124,087 (23,743) (19)
--------- --------- ---------
127,667 153,380 (25,713) (17)
--------- --------- ---------
Multi-family residential and commercial:
BB-rated subordinates .................. -- 38,234 (38,234) (100)
Unrated subordinates ................... 2,965 3,503 (538) (15)
Unrated interest only .................. 12 14 (2) (14)
--------- --------- ---------
2,977 41,751 (38,774) (93)
--------- --------- ---------
130,644 195,131 (64,487) (33)
--------- --------- ---------
Total securities available for sale ............ $ 801,473 $ 587,518 $ 213,955 36%
========= ========= =========
</TABLE>
The increase in securities available for sale during the six months
ended June 30, 2000 was due primarily to $836,472 of purchases and $38,087 of
net premium accretion, offset by $284,523 of maturities and principal
repayments, $324,278 of sales, $43,871 of principal shortfalls and $11,597 of
impairment charges on certain subordinates and residual securities, and $5,784
of net amortization.
At June 30, 2000, the fair value of the Company's investment in
subordinate and residual interests amounted to $130,632 ($123,889 amortized
cost) or 16% of total securities available for sale and supported senior classes
of securities.
Historically, the Company has determined the present value of
anticipated cash flows at the time each securitization transaction closes,
utilizing valuation assumptions appropriate for each particular transaction. The
significant valuation assumptions have included the anticipated prepayment
speeds and the anticipated credit losses related to the underlying mortgages. In
order to determine the present value of this estimated excess cash flow, the
Company currently applies a discount rate of 18% and 25% to the projected cash
flows on the unrated classes of securities. The annual prepayment rate of the
securitized loans is a function of full and partial prepayments and defaults.
The Company makes assumptions as to the prepayment rates of the underlying
loans, which the Company believes are reasonable, in estimating fair values of
the subordinate securities and residual securities retained. During 2000, the
Company utilized proprietary prepayment curves (reaching an approximate range of
annualized rates of 10% - 45%). During 2000, the Company estimated annual losses
of between 0.90% and 7.40% of the unpaid principal balance of the underlying
loans.
Subordinate and residual interests are affected by the rate and timing
of payments of principal (including prepayments, repurchase, defaults and
liquidations) on the mortgage loans underlying a series of mortgage-related
securities. The rate of principal payments may vary significantly over time
depending on a variety of factors, such as the level of
34
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
prevailing mortgage loan interest rates and economic, demographic, tax, legal
and other factors. Prepayments on the mortgage loans underlying a series of
mortgage-related securities are generally allocated to the more senior classes
of mortgage-related securities. Although in the absence of defaults or interest
shortfalls all subordinates receive interest, amounts otherwise allocable to
residuals generally are used to make payments on more senior classes or to fund
a reserve account for the protection of senior classes until
overcollateralization or the balance in the reserve account reaches a specified
level. In periods of declining interest rates, rates of prepayments on mortgage
loans generally increase, and if the rate of prepayments is faster than
anticipated, then the yield on subordinates will be positively affected and the
yield on residuals will be negatively affected.
The Company periodically assesses the carrying value of its subordinate
securities and residual securities retained as well as the servicing assets for
impairment. There can be no assurance that the Company's estimates used to
determine the gain on securitized loan sales, subordinate securities and
residual securities retained and servicing asset valuations will remain
appropriate for the life of each securitization. If actual loan prepayments or
defaults exceed the Company's estimates, the carrying value of the Company's
subordinate securities and residual securities retained and/or servicing assets
may be decreased during the period management recognized the disparity. Other
factors may also result in a write-down of the Company's subordinate securities
and residual securities in subsequent months. During the six months ended June
30, 2000, the Company recorded $11,597 of impairment charges on its portfolio of
subordinate and residual securities as a result of declines in value that were
deemed to be "other than temporary."
35
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
The following tables detail the Company's securities available for sale
portfolio at June 30, 2000, and its estimates of expected yields on such
securities, taking into consideration expected prepayment and loss rates
together with other factors.
<TABLE>
<CAPTION>
ANTICIPATED
SUBORDI- YIELD TO
CLASS SIZE NATION/OC MATURITY AT PROSPECTIVE
SECURITIZATION ISSUE RATING ---------- INTEREST LEVEL AT: ----------- YIELD AT
ISSUER SECURITY DATE RATING AGENCIES ISSUANCE 6/30/00 PERCENTAGE 6/30/00 PURCHASE 6/30/00 6/30/00
-------------- -------- ----- ------ -------- -------- ------- ---------- -------- -------- ------- ------------
SINGLE-FAMILY
RESIDENTIAL
Subordinates:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BCF 1996 R1(5)........ B3 Oct-96 UR (a),(b) $70,773 $37,981 50.00% None 15.70% 7.92% 32.62%
BCF 1997 R1(5)........ B4 Mar-97 UR (b),(c) 21,784 4,314 49.71 None 13.46 (37.45) 4.94
BCF 1997 R2(5)........ B4 Jun-97 Ba2,BB (b),(c) 6,358 5,617 73.54 7.28 9.58 9.29 45.70
B5 B2,B 6,264 5,535 73.54 3.27 0.74 9.21 161.82
B6 UR 13,883 4,509 73.54 None 15.98 3.04 A
BCF 1997 R3(5)........ B4 Dec-97 UR (b),(d) 69,582 25,719 50.24 None 15.84 (34.51) 83.72
ORMBS 1998 R1(6)...... B4 Mar-98 UR (b),(d) 101,774 60,693 50.34 None 20.50 (29.90) 18.58
ORMBS 1998 R2(6)...... B4A Jun-98 Ba2 (b) 1,056 964 100.00 6.29 13.22 (4.14) 137.92
B4F Ba2 937 872 100.00 6.22 19.23 (5.50) 60.68
B5A B2 880 829 100.00 4.44 23.78 0.08 234.62
B5F B2 937 872 100.00 3.76 11.78 (7.36) 143.88
B6A UR 3,696 1,978 100.00 None 16.72 20.12 763.46
B6F UR 3,345 1,334 100.00 None 19.50 (15.44) 554.75
ORMBS 1998 R3(6)...... B4 Sep-98 Ba2,BB (b),(d) 11,765 11,402 85.87 6.56 11.71 (34.88) 17.21
B5 B2,B 9,151 8,868 85.87 2.29 16.54 (33.36) 95.02
B6 UR 26,145 4,755 85.87 None 18.00 (26.35) 23.49
ORMBS 1999 RI(6)...... B5A Mar-99 B2,B (b),(d) 1,630 1,519 100.00 4.91 17.73 26.89 16.84
B5F B2,B 1,843 1,586 100.00 4.79 17.74 33.38 33.39
B6A UR 3,586 2,416 100.00 None 18.00 54.67 29.18
B6F UR 4,299 2,992 100.00 None 18.00 96.10 248.41
ORMBS 1999 R2(6)...... B4 Jun-99 BB (a),(c),(d) 10,530 10,239 100.00 8.62 13.45 30.98 35.92
B5 B 4,680 4,558 100.00 4.11 18.45 72.43 209.83
B6 UR 7,020 4,150 100.00 None 18.00 129.71 1,366.85
CSFB 1996-1R
(ITT 94-P1)(8)........ 4B2, Oct-96 UR (b),(c) 1,046 132 100.00 None N/A N/A N/A
(1B)
Subprime residuals:
SBMS 1996 3(1)........ R Jun-96 UR (a),(b) 130,062 28,314 100.00 19.32 15.52 2.05 22.72
MLM1 1996 1(2)........ R Sep-96 UR (a),(b) 81,142 15,332 100.00 32.93 15.16 3.13 25.16
MS 1997 1(3).......... X1 Jun-97 UR (a),(b) 17,727 9,556 100.00 5.94 21.47 17.59 25.97
X2 87,118 16,222 18.38 20.38 0.30 16.08
1997 OFS 2(4)......... X Sep-97 UR (a),(b) 102,201 27,982 100.00 9.87 19.65 1.74 23.02
1997 OFS 3(4)......... X Dec-97 UR (a),(b) 208,784 71,632 100.00 12.92 19.59 7.69 19.33
1998 OFS 1(4)......... X Mar-98 UR (b),(d) 161,400 60,787 100.00 3.74 18.00 1.11 6.48
1998 OFS 2(4)......... X Jun-98 UR (a),(b) 382,715 147,547 100.00 9.40 19.46 2.28 17.46
1998 OFS 3(4)......... X Sep-98 UR (a),(d) 261,649 155,353 100.00 4.64 18.00 2.56 7.24
1998 OFS 4(4)......... X Dec-98 UR (a),(b),(c) 349,000 251,587 100.00 3.69 18.00 0.80 14.88
1999 OFS 1(4). ....... X Jun-99 UR (a),(b) 148,628 127,296 100.00 5.33 18.00 11.56 12.50
PANAM 1997-1(9)....... X Dec-97 UR (a),(b) 113,544 33,234 100.00 8.78 22.45 0.60 13.38
Prepay UR 25.69 7.64 15.63
Pen.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
ANTICIPATED
SUBORDI- YIELD TO
CLASS SIZE NATION/OC MATURITY AT PROSPECTIVE
SECURITIZATION ISSUE RATING ---------- INTEREST LEVEL AT: ----------- YIELD AT
(ISSUER) SECURITY DATE RATING AGENCIES ISSUANCE 6/30/00 PERCENTAGE 6/30/00 PURCHASE 6/30/00 6/30/00
-------------- -------- ----- ------ -------- -------- ------- ---------- -------- -------- ------- -----------
SINGLE-FAMILY
RESIDENTIAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
EQUICON 1994-2(10)... B.Fix Oct-94 UR (a),(b), $78,846 $16,834 100.00% 6.51 18.00% 103.79% 29.47%
(c)
B Var. UR 32,306 2,663 100.00 32.97 18.00 32.70 25.74
EQUICON 1995-1(10)... B.Fix, May-95 UR (a),(b), 70,024 11,612 100.00 9.81 18.00 26.28 0.00
(c)
B Var. UR 40,519 4,998 100.00 9.71 18.00 104.20 0.00
EQUICON 1995-2(10)... B.Fix Oct-95 UR (a),(b) 79,288 17,251 100.00 12.59 18.00 36.19 459.51
B Var. UR 39,667 4,846 100.00 14.93 18.00 99.18 653.95
ACCESS 1996-1(11).... B.Fix, Feb-96 UR (a),(b) 120,015 28,643 100.00 7.41 18.00 30.04 209.65
B Var. UR 55,362 7,317 100.00 13.47 18.00 37.99 1,052.53
ACCESS 1996-2(11).... B-I,BI-S May-96 UR (a),(b) 142,259 34,330 100.00 10.74 18.00 29.12 A
B-II UR 68,345 8,662 100.00 13.17 18.00 15.92 359.57
BII-S
ACCESS 1996-3(11).... B-I, Aug-96 UR (a),(b) 107,712 27,023 100.00 13.64 18.00 15.57 195.31
BI-S
B-II UR 99,885 13,081 100.00 18.02 18.00 18.26 A
BII-S
ACCESS 1996-4(11).... B,B-S Nov-96 UR (a),(b) 239,778 45,313 100.00 29.21 18.00 11.57 21.60
ACCESS 1997-1(11).... B,B-S Feb-97 UR (a),(b) 276,442 68,382 100.00 29.17 18.00 11.07 29.18
ACCESS 1997-2(11).... B,B-S May-97 UR (a),(b) 185,197 45,778 100.00 20.77 18.00 4.98 20.98
ACCESS 1997-3(11).... B,B-S Oct-97 UR (a),(b) 199,884 55,531 100.00 14.37 18.00 12.05 35.40
CMR1(12)............. Deferred Apr-96 UR (a),(c) 48,450(16) 15,072(17) 100.00 16.22 18.69 22.46 22.80
Comp
CMR2(12)............. Deferred Oct-96 UR (a),(c) 97,627(16) 33,125(17) 100.00 13.84 18.69 30.22 31.58
Comp
CMR3(12)............. Deferred Oct-96 UR (a),(c) 176,047(16) 61,794(17) 100.00 18.85 18.69 46.10 51.93
Comp
CMR4(12)............. Deferred Jan-97 UR (a),(c) 103,031(16) 38,374(17) 100.00 9.90 18.69 31.23 33.13
Comp
CMR5(12)............. Deferred Jan-97 UR (a),(c) 54,686(16) 19,559(17) 100.00 50.31 -- -- --
Comp
CMR6(12)............. Deferred Apr-97 UR (a),(c) 90,498(16) 31,173(17) 100.00 10.80 18.69 33.38 36.59
Comp
MULTI-FAMILY
RESIDENTIAL
Subordinates:
SBMS 1997-HUD1(13)... B5 Apr-97 B2, n.a. (b),(d) 9,785 9,163 100.00 0.90 16.87 4.78 21.35
B6 Apr-97 UR 16,998 1,565 100.00 None 22.86 (9.02) 480.28
ORMBS 1998-R1(14).... B4 Mar-98 UR (b),(d) 101,774 60,693 32.15 None 13.75 (23.17) 22.28
GECMS 1994-12(15).... B4 Mar-94 UR (a),(b),(c) 2,069 1,307 100.00 None 19.37 20.87 77.41
ISSUERS:
(1) Salomon Brothers Mortgage Securities VII (12) City Mortgage Receivable Rating Agencies:
(2) Merrill Lynch Mortgage Investors, Inc. (13) Salomon Brothers Mortgage Securities (a) S&P
(3) Morgan Stanley ABS Capital I, Inc. (14) Ocwen Mortgage Loan Trust. (b) Moody's
(4) Ocwen Mortgage Loan Asset Backed Certificates (15) GE Capital Mortgage Services, Inc. (c) Fitch
(5) BlackRock Capital Finance L.P. (16) Dollar equivalent of amounts in British (d) DCR
(6) Ocwen Residential MBS Corporation pounds at the rate of exchange that (e) Duff
(7) Ocwen Mortgage Loans prevailed at the time of issuance.
(8) Credit Suisse First Boston (ITT Federal (17) Dollar equivalent of amounts in British Other:
Bank, FSB) pounds at the rate of exchange at N/A - Not Available
(9) Pan American Bank, FSB at the rate of exchange at 6/30/00. A - As a result of the previous
(10)Equicon Mortgage Loan Trust write down of the book value to an
(11)Access Financial Mortgage Loan Trust immaterial balance, the
prospective yield is no
longer meaningful.
</TABLE>
37
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED TOTAL ACTUAL LIFE ACTUAL LIFE
AVERAGE AVERAGE DELINQUENCY TO DATE TO DATE COLLATERAL BALANCE
COUPON AT LTV/DSCR AT CPR AT LOSSES AT PRODUCT TYPE AT ------------------
SECURITIZATION (ISSUER) 6/30/00 AT 6/30/00 6/30/00 6/30/00 6/30/00 6/30/00 ISSUANCE 6/30/00
----------------------- ------- ---------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SINGLE-FAMILY RESIDENTIAL
Subordinates:
BCF 1996 R1 (5)......... 10.04% 103.40% 10.52% 13.80% $28,983 98% Fixed, 2% ARM $505,513 $264,961
BCF 1997 R1 (5)......... 10.07 109.78 20.02 13.92 16,664 97% Fixed, 3% ARM 177,823 102,491
BCF 1997 R2 (5)......... 8.27 81.79 20.75 14.18 8,293 25% Fixed, 75% ARM 251,790 137,900
BCF 1997 R3 (5)......... 9.62 120.46 18.12 12.70 41,298 98% Fixed, 2% ARM 579,851 386,042
ORMBS 1998 R1 (6)....... 8.91 121.77 22.69 10.54 37,894 98% Fixed, 2% ARM 565,411 433,147
ORMBS 1998 R2 (6)....... 9.07 86.05 22.91 16.23 3,382 44% Fixed, 56% ARM 123,917 80,044
ORMBS 1998 R3 (6)....... 8.96 128.45 34.51 11.77 20,648 99% Fixed, 1% ARM 261,452 207,610
ORMBS 1999 R1 (6)....... 9.09 84.74 27.20 15.45 1,634 57% Fixed, 43% ARM 147,101 111,718
ORMBS 1999 R2 (6)....... 9.36 113.08 27.52 10.82 2,806 100% Fixed 117,004 100,973
CSFB 1996 1R
(ITT 94-P1) (8) ........ 8.36 N/A 1.06 N/A 157 100% 1-Year CMT 32,487 4,319
Subprime residuals:
SBMS 1996 3 (1)......... 10.78 67.73 16.91 31.27 3,562 60% Fixed, 40% ARM 130,062 28,314
MLM1 1996 1 (2)......... 11.76 73.71 22.48 35.49 2,239 37% Fixed, 63% ARM 81,142 15,332
MS 1997 1 (3)........... 10.51 74.54 17.05 36.98 2,583 37% Fixed, 63% ARM 17,727 9,556
12.11 74.39 87,118 16,222
1997 OFS 2 (4).......... 11.49 78.38 19.64 37.19 2,717 24% Fixed, 76% ARM 102,201 27,982
1997 OFS 3 (4).......... 11.13 81.95 23.57 34.42 4,815 23% Fixed, 77% ARM 208,784 71,632
1998 OFS 1 (4).......... 11.33 80.00 24.01 34.93 4,708 19% Fixed, 81% ARM 161,400 60,787
1998 OFS 2 (4).......... 11.37 77.68 19.53 37.43 7,846 46% Fixed, 54% ARM 382,715 147,547
1998 OFS 3 (4).......... 10.48 79.69 21.94 25.31 5,296 34% Fixed, 66% ARM 261,649 155,353
1998 OFS 4 (4).......... 10.40 81.17 25.39 18.67 6,115 44% Fixed, 56% ARM 349,000 251,587
1999 OFS 1 (4).......... 9.82 76.44 14.84 13.74 534 67% Fixed, 33% ARM 146,628 127,296
PANAM 1997-1(9)......... 11.35 83.87 22.74 38.81 5,364 100% ARM 113,544 33,234
EQUICON 1994-2 (10)..... 9.90 89.17 20.58 31.63 1,662 100% Fixed 78,846 16,834
11.52 96.26 100% ARM 32,306 2,663
EQUICON 1995-1 (10)..... 12.03 84.08 27.62 30.33 3,201 100% Fixed 70,024 11,612
12.28 92.57 100% ARM 40,519 4,998
EQUICON 1995-2 (10)..... 10.75 87.00 33.21 32.61 2,619 100% Fixed 79,288 17,251
12.06 87.73 100% ARM 39,667 4,846
ACCESS 1996-1 (11)...... 10.79 79.06 29.40 31.40 3,954 100% Fixed 120,015 28,643
11.94 78.41 100% ARM 55,362 7,313
ACCESS 1996-2 (11)...... 10.96 76.05 29.39 34.06 5,267 100% Fixed 142,259 34,330
12.20 74.93 100% ARM 68,345 8,662
ACCESS 1996-3 (11)...... 11.44 78.20 38.43 36.26 4,125 100% Fixed 107,712 27,023
12.42 78.66 100% ARM 99,885 13,081
ACCESS 1996-4 (11)...... 12.15 77.80 39.24 38.81 5,896 54% Fixed, 46% ARM 239,778 45,313
ACCESS 1997-1 (11)...... 11.78 83.65 40.07 37.05 9,474 61% Fixed, 39% ARM 276,442 68,382
ACCESS 1997-2 (11)...... 11.79 83.13 37.28 39.57 4,775 59% Fixed, 41% ARM 185,197 45,778
ACCESS 1997-3 (11)...... 11.56 82.76 34.86 39.40 3,699 53% Fixed, 47% ARM 199,884 55,531
</TABLE>
38
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED TOTAL ACTUAL LIFE ACTUAL LIFE
AVERAGE AVERAGE DELINQUENCY TO DATE TO DATE COLLATERAL BALANCE
COUPON AT LTV/DSCR AT CPR AT LOSSES AT PRODUCT TYPE AT ------------------
SECURITIZATION (ISSUER) 6/30/00 AT 6/30/00 6/30/00 6/30/00 6/30/00 6/30/00 ISSUANCE 6/30/00
----------------------- ------- ---------- ------- ------- ------- ------- -------- -------
SINGLE-FAMILY RESIDENTIAL
Subordinates:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMR1 (12)............... 13.31% 49.47% 37.3% 23.41% $ 894 100% Amortizing $48,450(16) $15,072(17)
CMR2 (12)............... 12.49 47.21 29.1 24.32 1,417 90% Amort 10% IO 97,627(16) 33,125(17)
mortgages
CMR3 (12)............... 13.47 67.12 17.6 21.80 3,601 72% Amort 18% IO 176,047(16) 61,794(17)
mortgages
CMR4 (12)............... 13.73 59.37 37.6 23.89 2,042 88.2% Amort 11.8% 103,031(16) 38,374(17)
IO mortgages
CMR5 (12)............... 15.87 61.48 65.9 24.45 7,233 80.3% Amort 19.7% 54,686(16) 19,559(17)
IO mortgages
CMR6 (12)............... 13.61 59.72 35.9 26.73 1,320 95.6% Amort 4.4% IO 90,498(16) 31,173(17)
mortgages
MULTI-FAMILY RESIDENTIAL
Subordinates:
SBMS 1997-HUD1 (13)..... 9.80 111.73 10.36 15.92 14,724 97% Fixed 326,147 174,082
ORMBS 1998-R1 (14)...... 8.91 121.77 22.59 10.54 37,894 98% Fixed 565,411 433,147
GECMS 1994-12 (15)..... 6.81 43.20 0.74 8.70 -- 100% Fixed 516,732 202,514
</TABLE>
The following table sets forth the principal amount of mortgage loans
by the geographic location of the property securing the mortgages that underlie
the Company's subordinated and residual securities available for sale at June
30, 2000.
<TABLE>
<CAPTION>
DESCRIPTION CALIFORNIA FLORIDA TEXAS NEW YORK MARYLAND OTHER (1) TOTAL
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Single family residential $ 576,419 $ 268,866 $ 272,704 $ 182,863 $ 158,658 $1,772,971 $3,232,481
Commercial .............. 41,325 19,526 3,951 24,030 8,936 101,975 199,743
Multi-family ............ 1,022 -- -- -- -- 1,460 2,482
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total ................... $ 618,766 $ 288,392 $ 276,655 $ 206,893 $ 167,594 $1,876,406 $3,434,706
========== ========== ========== ========== ========== ========== ==========
Percentage (2) .......... 18% 8% 8% 6% 5% 55% 100%
========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) No other individual state makes up more than 9% of the total of other.
(2) Based on a percentage of the total unpaid principal balance of the
underlying loans.
<TABLE>
<CAPTION>
ANTICIPATED
ORIGINAL ANTICIPATED WEIGHTED
ANTICIPATED YIELD TO AVERAGE PROSPECTIVE
AMORTIZED PERCENT YIELD TO MATURITY REMAINING YIELD AT
RATING/DESCRIPTION COST FAIR VALUE OWNED MATURITY AT 6/30/00(1) COUPON LIFE (2) 6/30/00
------------------------------- --------- ---------- ------- ------------ ------------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SINGLE-FAMILY RESIDENTIAL:
BB-rated subordinates.... $ 3,766 $ 6,889 86.86% 13.15% 1.26% 6.98% 2.86 38.15%
B-rated subordinates..... 3,703 6,036 95.60 16.84 8.50 7.58 2.22 58.42
Unrated subordinates..... 11,686 14,398 50.65 14.48 (8.68) 8.12 2.54 41.30
Unrated subprime
residuals.............. 101,769 100,344 99.39 18.33 10.99 0.00 6.52 27.11
MULTI-FAMILY AND COMMERCIAL:
Unrated subordinates..... 2,965 2,965 100.00 22.15 15.96 0.00 2.81 15.53
Unrated interest only.... -- 12 N/A 0.00 (46.90) N/A N/A 0.00
--------- ---------
$ 123,889 $ 130,644
========= =========
</TABLE>
(1) Changes in the June 30, 2000 anticipated yield to maturity from that
originally anticipated are primarily the result of changes in
prepayment assumptions, loss assumptions and charges taken to reduce
the value of the securities.
(2) Equals the weighted average life based on the June 30, 2000 book value.
The following is a glossary of terms included in the above tables.
39
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
ACTUAL LIFE TO DATE CPR - The Constant Prepayment Rate is used to
measure the average prepayment rate for the underlying mortgage pool(s) over the
period of time lapsed since the issuance of the securities through the date
indicated and is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Actual Life to Date CPR = 100 x [(1 - Final Aggregate Balance actual ) x ( 12 )]
[( ------------------------------------- ) (--------------- )]
[( Final Aggregate Balance scheduled ) (Months In Period)]
</TABLE>
ACTUAL LIFE-TO-DATE LOSSES - Represents cumulative losses of the
original collateral at the indicated date.
ANTICIPATED YIELD TO MATURITY AT JUNE 30, 2000- Effective yield based
on the purchase price, actual cash flows received from inception until the
respective date, and the then current estimate of future cash flows under the
assumptions at the respective date.
ANTICIPATED YIELD TO MATURITY AT PURCHASE - Effective yield from
inception to maturity based on the purchase price and anticipated future cash
flows under pricing assumptions.
CLASS SIZE - Represents the dollar size of a particular class. Class
Size for subprime residuals is equal to the Collateral Balance at the respective
date.
COLLATERAL BALANCE - Represents the unpaid principal balance including
arrearage of the underlying collateral of the entire securities at the indicated
date.
INTEREST ONLY - Interest Only ("IO") securities receive the excess
interest remaining after the interest payments have been made on all senior
classes of bonds based on their respective principal balances. There is no
principal associated with IO securities and they are considered liquidated when
the particular class they are contractually tied to is paid down to zero.
INTEREST PERCENTAGE - Represents the percentage of the particular class
of security owned by the Company.
ISSUE DATE - Represents the date on which the indicated securities were
issued.
OVER-COLLATERIZATION LEVEL - For residual interest in residential
mortgage-backed securities, over-collaterization ("OC") is the amount by which
the collateral balance exceeds the sum of the bond principal amounts. OC is
achieved by applying monthly a portion of the interest payments of the
underlying mortgages toward the reduction of the class certificate principal
amounts, causing them to amortize more rapidly than the aggregate loan balance.
The OC percentage, expressed as a percentage of the outstanding collateral
balance, represents the first tier of loss protection afforded to the
non-residual holders. The OC percentage also determines whether the
over-collaterization target has been satisfied as of a specific date, such that
cash flows to the residual holder are warranted. To the extend not consumed by
losses on more highly rated bonds, OC is remitted to the residual holders.
PROSPECTIVE YIELD - Effective yield based on the amortized cost of the
investment, after impairments, and the then current estimate of the future cash
flows under the assumptions at the respective date.
RATING - Refers to the credit rating designated by the rating agency
for each securitization transaction. Classes designated "A" have a superior
claim on payment to those rated "B", which are superior to those rated "C."
Additionally, multiple letters have a superior claim to designations with fewer
letters. Thus, for example, "BBB" is superior to "BB," which in turn is superior
to "B." The lower class designations in any securitization will receive interest
payments subsequent to senior classes and will experience losses prior to any
senior class. The lowest potential class designation is not rated ("UR") which,
if included in a securitization, will always receive interest last and
experience losses first.
SECURITIZATION - Series description.
SECURITY - Represents the name of the class associated with each
securitization held by the Company. This has no relationship to a formal rating
but is for identification purposes (although the names are usually in
alphabetical or numeric order from the highest rated to the lowest rated).
40
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
SUBORDINATION LEVEL - Represents the credit support for each
mortgage-backed security by indicating the percentage of outstanding bonds whose
right to receive payment is subordinate to the referenced security. The
subordinate classes must experience a complete loss before any additional losses
would affect the particular referenced security.
TOTAL DELINQUENCY - Represents the total unpaid principal balance of
loans more than 30 days delinquent at the indicated date as a percentage of the
unpaid principal balance of the collateral at such date.
WEIGHTED AVERAGE COUPON - Represents the interest rate of the
underlying mortgage loans weighted by the unpaid principal balance of the
underlying mortgage loans at the respective date.
WEIGHTED AVERAGE DSCR - Represents debt service coverage ratio, which
is calculated by dividing cash flow available for debt service by debt service
and applies to the multi-family and commercial securities.
WEIGHTED AVERAGE LTV - Represents the ratio of the unpaid principal
balance including arrearage to the value of the underlying collateral and
applies to the single-family residential securities.
LOANS AVAILABLE FOR SALE. Loans which the Company presently does not
intend to hold to maturity are designated as available for sale and are carried
at the lower of cost or aggregate market value. Loans available for sale, which
are comprised primarily of subprime single family residential loans, decreased
by $15,894 or 35% during the six months ended June 30, 2000.
Composition of Loans Available for Sale. The following table sets forth
the composition of the Company's loans available for sale by type of loan at the
dates indicated.
June 30, December 31,
2000 1999
---------------- ----------------
Single family residential loans...... $ 29,233 $ 45,084
Consumer loans....................... 86 129
---------------- ----------------
$ 29,319 $ 45,213
================ ================
The loans available for sale portfolio is secured by mortgages on
property located throughout the United States. The following table sets forth
the five states in which the largest amount of properties securing the Company's
loans available for sale were located at June 30, 2000:
<TABLE>
<CAPTION>
Single family
Residential Consumer Total
------------ ------------ ------------
<S> <C> <C> <C>
New Jersey....................................... $ 6,409 $ -- $ 6,409
Florida.......................................... 4,151 44 4,195
New York......................................... 2,427 -- 2,427
California....................................... 2,253 -- 2,253
Illinois......................................... 2,212 -- 2,212
Other (1)........................................ 11,781 42 11,823
------------ ------------ ------------
Total............................................ $ 29,233 $ 86 $ 29,319
============ ============ ============
</TABLE>
(1) Consists of properties located in 32 other states, none of which
aggregated over $2,012 in any one state.
41
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Activity in Loans Available for Sale. The following table sets forth
the activity in the Company's net loans available for sale during the periods
indicated:
<TABLE>
<CAPTION>
Three Months Six Months
---------------------- ----------------------
For the periods ended June 30, 2000 1999 2000 1999
---------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period ......... $ 36,843 $ 374,094 $ 45,213 $ 177,847
Purchases:
Single family residential ........... -- 32,440 -- 47,103
Originations:
Single family residential (1) ....... -- 195,482 -- 481,720
Sales (2) ............................. (4,798) (457,052) (7,759) (558,517)
Decrease in lower of cost or market
valuation allowance ................. 134 2,609 176 1,964
Principal repayments, net of capitalized
interest ............................ (1,926) (12,866) (4,248) (10,591)
Transfer to real estate owned .......... (934) (2,282) (4,063) (7,101)
--------- --------- --------- ---------
Net (decrease) increase in loans .... (7,524) (241,669) (15,894) (45,422)
--------- --------- --------- ---------
Balance at end of period ............... $ 29,319 $ 132,425 $ 29,319 $ 132,425
========= ========= ========= =========
</TABLE>
(1) Includes $152,965 and $293,007 originated by Ocwen UK during the three
and six months ended June 30, 1999, respectively.
(2) Included the sales for the six months ended June 30, 1999 in the
securitization of 2,192 of domestic subprime single family residential
loans with an unpaid principal balance of $235,572 and 8,983 foreign
subprime single family loans with an unpaid principal balance of
$295,157. See "Results of Operations - Non-interest Income."
The following table presents a summary of the Company's non-performing
loans in the loans available for sale portfolio at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Non-performing loans:
Single family loans............................ $ 9,364 $ 15,319
Consumer loans................................. 3 1
---------------- ----------------
$ 9,367 $ 15,320
================ ================
Non-performing loans as a percentage of:
Total loans available for sale................. 31.95% 33.88%
Total assets................................... 0.28% 0.46%
</TABLE>
Non-performing loans available for sale consist primarily of subprime
single family residential loans, reflecting the higher risk associated with such
loans.
LOAN PORTFOLIO, NET. Loans held for investment in the Company's loan
portfolio are carried at amortized cost, less an allowance for loan losses,
because the Company has the ability and presently intends to hold them to
maturity.
42
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Composition of Loan Portfolio. The following table sets forth the
composition of the Company's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Single family residential loans..................... $ 3,272 $ 4,334
Multi-family residential loans:
Permanent....................................... 14,008 23,430
Construction.................................... 67,423 57,936
---------------- ----------------
Total multi-family residential............... 81,431 81,366
---------------- ----------------
Commercial real estate:
Hotels:
Construction................................. 38,500 38,645
Office buildings............................... 46,951 64,745
Land........................................... 1 2,238
---------------- ----------------
Total commercial real estate.................. 85,452 105,628
Consumer............................................ 62 82
---------------- ----------------
Total loans.................................... 170,217 191,410
Undisbursed loan proceeds........................... (15,432) (24,654)
Unamortized deferred fees........................... (856) (2,089)
Allowance for loan losses........................... (5,439) (7,259)
---------------- ----------------
Loans, net..................................... $ 148,490 $ 157,408
================ ================
</TABLE>
The loan portfolio is secured by mortgages on properties located
throughout the United States. The following table sets forth the five states in
which the largest amount of properties securing the Company's loans were located
at June 30, 2000:
<TABLE>
<CAPTION>
Single Family Multi-family Commercial
Residential Residential Real Estate Consumer Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
New York........................ $ 649 $ 40,835 $ 19,766 $ -- $ 61,250
California...................... 402 24,629 226 -- 25,257
Delaware........................ 434 -- 13,156 -- 13,590
Florida......................... 88 330 11,366 -- 11,784
Virginia........................ -- -- 8,950 -- 8,950
Other (1)....................... 1,699 15,637 31,988 62 49,386
------------ ----------- ----------- ----------- -----------
Total........................... $ 3,272 $ 81,431 $ 85,452 $ 62 $ 170,217
============ =========== =========== =========== ===========
</TABLE>
(1) Consists of properties located in 19 other states, none of which
aggregated over $8,067 in any one state.
43
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Activity in the Loan Portfolio. The following table sets forth the
activity in the Company's gross loan portfolio during the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
---------------------- ----------------------
For the periods ended June 30, 2000 1999 2000 1999
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period .. $ 156,119 $ 177,511 $ 157,408 $ 230,312
Originations:
Multi-family residential loans 2,277 1,758 12,490 4,225
Commercial real estate loans.. 186 6,400 1,156 11,500
--------- --------- --------- ---------
Total loans originated(1)... 2,463 8,158 13,646 15,725
Sales (2) ....................... (7,500) (3,394) (7,751) (25,486)
Principal repayments ............ (15,075) (48,392) (26,383) (86,231)
Transfer to real estate owned ... (431) (106) (705) (2,572)
Decrease in undisbursed loan
proceeds........................ 10,617 1,211 9,222 1,804
Decrease in unamortized deferred
fees............................ 632 573 1,233 1,051
Decrease(increase) in allowance
for loan losses ................ 1,665 (1,883) 1,820 (925)
--------- --------- --------- ---------
Net decrease in loans............ (7,629) (43,833) (8,918) (96,634)
--------- --------- --------- ---------
Balance at end of period..... $ 148,490 $ 133,678 $ 148,490 $ 133,678
========= ========= ========= =========
</TABLE>
(1) Originations for the six months ended June 30, 2000 represent fundings
on previously originated construction loans.
(2) Included in sales for the six months ended June 30, 1999 is the
securitization of 384 single family residential loans with an aggregate
unpaid principal balance of $24,880.
The following table sets forth certain information relating to the
Company's non-performing loans in its loan portfolio at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Non-performing loans:
Single family residential loans................. $ 1,184 $ 982
Multi-family residential loans (1).............. 9,431 11,037
Commercial real estate and other (2)............ 15,267 19,360
------------ ------------
Total........................................ $ 25,882 $ 31,379
============ ============
Non-performing loans as a percentage of:
Total loans (3)................................. 16.81% 19.06%
Total assets.................................... 0.77% 0.95%
Allowance for loan losses as a percentage of:
Total loans (3).............................. 3.53% 4.41%
Non-performing loans......................... 21.01% 23.13%
</TABLE>
(1) Non-performing multi-family residential loans at June 30, 2000 were
comprised of 12 loans, all of which management believes are adequately
collateralized and reserved.
(2) Non-performing commercial real estate loans at June 30, 2000 were
comprised of 11 loans, all of which management believes are adequately
collateralized and reserved.
(3) Total loans is net of undisbursed loan proceeds and unamortized
deferred fees.
44
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
MATCH FUNDED LOANS AND SECURITIES. Match funded loans and securities
are comprised of the following at the dates indicated:
June 30, December 31,
2000 1999
------------ ------------
Single family residential loans (1) ...... $ 92,930 $ 105,596
Allowance for loan losses ................ (433) (495)
------------ ------------
Match funded loans, net ............... 92,497 105,101
Match funded securities available for sale 38,587 52,693
------------ ------------
Balance at end of period ................. $ 131,084 $ 157,794
============ ============
(1) Includes $1,992 and $1,127 of non-performing loans at June 30, 2000 and
December 31, 1999, respectively.
The match funded loans are secured by mortgages on properties located
throughout the United States. The following table sets forth the five states in
which the largest amount of properties securing the Company's loans were located
at June 30, 2000:
Michigan............. $ 19,607
California........... 9,932
Florida.............. 6,173
Texas................ 5,848
Massachusetts........ 4,627
Other (1)............ 46,743
---------------
Total................ $ 92,930
===============
(1) Consists of properties located in 42 other states, none of which
aggregated over $3,773 in any one state.
45
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
The following tables detail the Company's match funded securities at
June 30, 2000, and its estimates of expected yields on such securities, taking
into consideration expected prepayment and loss rates together with other
factors.
<TABLE>
<CAPTION>
OVER
CLASS COLLATERIZATION
ISSUE DESIGNATION RATING COLLATERAL BALANCE LEVEL AT PRODUCT TYPE AT
SECURITIZATION SECURITY DATE LETTER AGENCIES ISSUANCE 6/30/00 6/30/00 6/30/00
-------------- -------- ---- ------ -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SASCO 1998-2(1) X Jan-98 NR S&P, Fitch $600,052 $ 208,230 2.32% OC 37% Fixed, 63% ARM
SASCO 1998-3(1) X Mar-98 NR S&P, Fitch 769,671 252,820 5.33% OC 16% Fixed, 84% ARM
MLMI 1998-FF1(2) X Jun-98 NR S&P, Fitch 198,155 51,359 5.79% OC 100% ARM
LHELT 1998-2(3) X Jun-98 NR Moody's, Fitch 209,225 102,008 7.71% OC 49% Fixed, 51% ARM
OCWEN 98-OAC-1(4) N/A Nov-98 NR S&P, Moody's 182,178 98,785 13.04% OC 27% Fixed, 73% ARM
WEIGHTED WEIGHTED ACTUAL ACTUAL ACTUAL
AVERAGE AVERAGE DELINQUENCY LIFE TO DATE LIFE TO DATE YIELD TO
INTEREST RATE LTV AT: AT: CPR AT LOSSES AT: MATURITY AT:
SECURITIZATION SECURITY AT: 6/30/00 6/30/00 6/30/00 6/30/00 6/30/00 PURCHASE 6/30/00
-------------- -------- ----------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SASCO 1998-2 X 11.27% 73.25% 20.75% 35.04% $8,751 16.00% (0.49)%
SASCO 1998-3 X 11.18 75.09 19.27 38.66 7,294 17.04 0.57
MLMI 1998-FF1 X 11.21 77.62 21.92 47.37 956 18.57 4.40
LHELT 1998-2 X 10.78 75.11 18.16 28.65 1,656 18.55 12.84
OCWEN 98-OAC-1 N/A 8.78 81.13 6.97 30.23 430 N/A N/A
</TABLE>
ISSUERS:
(1) Structured Asset Securities Corp.
(2) Merrill Lynch Mortgage Investors, Inc.
(3) Lehman Home Equity Loan Trust.
(4) Ocwen Mortgage Loan Trust.
<TABLE>
<CAPTION>
ANTICIPATED
ORIGINAL ANTICIPATED WEIGHTED
ANTICIPATED YIELD TO AVERAGE
YIELD TO MATURITY AT REMAINING
AMORTIZED COST FAIR VALUE PERCENT OWNED MATURITY 6/30/00 (1) COUPON LIFE(2)
-------------- ---------- ------------- -------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Match-funded securities....... $ 48,818 $ 38,587 100.00% 17.24% 2.80% 0.00% 4.10 years
=========== =========
</TABLE>
(1) Changes in the June 30, 2000 anticipated yield to maturity from that
originally anticipated are primarily the result of changes in
prepayment assumptions and, to a lesser extent, loss assumptions.
(2) Equals the weighted average duration based on the June 30, 2000 book
value.
For a glossary of the terms included in the above tables, see
"Securities Available for Sale."
DISCOUNT LOAN PORTFOLIO, NET. The discount loan portfolio decreased
$109,783 or 12% during the six months ended June 30, 2000. Resolutions and
repayments, transfers to real estate owned and sales more than offset
acquisitions during the period. Substantially all of the Company's discount loan
portfolio is secured by first mortgage liens on real estate.
46
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Composition of the Discount Loan Portfolio. The following table sets
forth the composition of the Company's discount loan portfolio by type of loan
at the dates indicated:
June 30, December 31,
2000 1999
----------- -----------
Single family residential loans ..... $ 458,673 $ 597,719
Multi-family residential loans ...... 196,841 191,971
Commercial real estate loans:
Office buildings ............... 99,645 97,784
Hotels ......................... 74,194 75,095
Retail properties .............. 102,311 105,247
Other properties ............... 73,243 87,148
----------- -----------
349,393 365,274
Other loans (1) ..................... 23,466 21,615
----------- -----------
Total discount loans ............. 1,028,373 1,176,579
----------- -----------
Unaccreted discount:
Single family residential loans (114,016) (147,630)
Multi-family residential loans . (38,175) (37,981)
Commercial real estate loans ... (49,877) (57,604)
Other loans .................... (271) (954)
----------- -----------
(202,339) (244,169)
----------- -----------
826,034 932,410
Undisbursed loan proceeds ........... (201) --
Allowance for loan losses ........... (22,387) (19,181)
----------- -----------
Discount loans, net ................. $ 803,446 $ 913,229
=========== ===========
(1) Includes $21,603 and $16,397 at June 30, 2000 and December 31, 1999,
respectively, of charged-off unsecured credit card receivables which
were acquired at a discount. Collections are accounted for under the
cost recovery method.
The discount loan portfolio is secured by mortgages on property located
throughout the United States. The following table sets forth the five states in
which the largest amount of properties securing the Company's discount loans
were located at June 30, 2000:
<TABLE>
<CAPTION>
Commercial
Single Family Multi-Family Real Estate
Residential Residential and Other Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
California............................ $ 31,084 $ 11,331 $ 75,937 $ 118,352
New York.............................. 34,096 2,008 42,735 78,839
Illinois.............................. 17,624 55,719 1,285 74,628
Michigan.............................. 12,305 36,047 21,573 69,925
Florida............................... 26,937 9,058 12,246 48,241
Other (1)............................. 222,611 44,503 168,935 436,049
----------- ----------- ----------- -----------
Total.............................. $ 344,657 $ 158,666 $ 322,711 $ 826,034
=========== =========== =========== ===========
</TABLE>
(1) Consists of properties located in 45 other states, none of which
aggregated over $38,353 in any one state.
47
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Activity in the Discount Loan Portfolio. The following table sets forth
the activity in the Company's net discount loan portfolio during the periods
indicated:
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------- ---------------------------
For the periods ended June 30, 2000 1999 2000 1999
--------------------------------------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period ........ $ 842,178 $ 893,180 $ 913,229 $ 1,026,511
Acquisitions (1):
Single family residential loans .... 90,222 233,207 149,159 274,083
Multi - family residential loans .... 5,977 39,275 21,294 71,959
Commercial real estate loans ........ 11,332 106,989 18,119 131,790
Other (2) ........................... 4,537 2,030 10,030 8,626
----------- ----------- ----------- -----------
112,068 381,501 198,602 486,458
----------- ----------- ----------- -----------
Resolutions and repayments (3) ........ (49,791) (75,252) (91,718) (123,942)
Loans transferred to real estate owned. (52,631) (37,468) (124,066) (108,162)
Sales (4) ............................. (60,035) (116,635) (131,024) (279,032)
Increase in undisbursed loan proceeds (201) -- (201) --
Decrease (increase) in discount ....... 14,056 (40,025) 41,830 5,935
Increase in allowance ................. (2,198) 3,463 (3,206) 996
----------- ----------- ----------- -----------
Balance at end of period .............. $ 803,446 $ 1,008,764 $ 803,446 $ 1,008,764
=========== =========== =========== ===========
Three Months Six Months
-------------------------- ---------------------------
For the periods ended June 30, 2000 1999 2000 1999
-------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NUMBER OF LOANS
Balance at beginning of period ........ 7,031 6,042 8,064 8,100
Acquisitions (1):
Single family residential loans .... 1,027 2,713 1,964 3,187
Multi - family residential loans .... 2 4 9 30
Commercial real estate loans ........ 2 57 6 116
Other ............................... -- -- 1 6
----------- ----------- ----------- -----------
1,031 2,774 1,980 3,339
----------- ----------- ----------- -----------
Resolutions and repayments (3) ........ (316) (305) (678) (528)
Loans transferred to real estate owned. (647) (468) (1,421) (1,170)
Sales (4) ............................. (736) (1,306) (1,582) (3,004)
----------- ----------- ----------- -----------
Balance at end of period .............. 6,363 6,737 6,363 6,737
=========== =========== =========== ===========
</TABLE>
(1) Acquisitions during the six months ended June 30, 2000 exclude
commercial and multi-family loans which are accounted for as
investments in real estate. See "Changes in Financial Condition -
Investments in Real Estate."
(2) For the six months ended June 30, 2000, consists of charged-off
unsecured credit card receivables acquired at a discount.
(3) Resolutions and repayments consists of loans which were resolved in a
manner which resulted in partial or full repayment of the loan to the
Company, as well as principal payments on loans which have been brought
current in accordance with their original or modified terms (whether
pursuant to forbearance agreements or otherwise) or on other loans
which have not been resolved.
(4) Sales for the six months ended June 30, 1999 include the securitization
of performing single family discount loans. See "Results of Operations
- Non-interest Income."
48
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Payment Status of Discount Loans. The following table sets forth
certain information relating to the payment status of loans in the Company's
discount loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
PRINCIPAL AMOUNT
Loans without Forbearance Agreements:
Current..................................... $ 500,778 $ 509,845
Past due 31 days to 89 days................. 10,929 23,438
Past due 90 days or more.................... 380,895 448,312
Acquired and servicing not yet transferred.. 53,534 87,538
--------------- ---------------
Subtotal................................. 946,136 1,069,133
--------------- ---------------
Loans with Forbearance Agreements:
Current..................................... 5,855 2,958
Past due 31 days to 89 days................. 4,572 8,904
Past due 90 days or more.................... 71,810 95,584
--------------- ---------------
Subtotal(1)(2)........................... 82,237 107,446
--------------- ---------------
Total......................................... $ 1,028,373 $ 1,176,579
=============== ===============
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
PERCENTAGE OF LOANS
Loans without Forbearance Agreements:
Current..................................... 48.70% 43.33%
Past due 31 days to 89 days................. 1.06 1.99
Past due 90 days or more.................... 37.04 38.10
Acquired and servicing not yet
transferred.............................. 5.21 7.44
----------- -----------
Subtotal................................. 92.01 90.86
----------- -----------
Loans with Forbearance Agreements:
Current..................................... 0.57 0.25
Past due 31 days to 89 days................. 0.44 0.76
Past due 90 days or more.................... 6.98 8.13
----------- -----------
Subtotal................................. 7.99 9.14
----------- -----------
Total......................................... 100.00% 100.00%
=========== ===========
</TABLE>
(1) Includes $81,894 of loans which were less than 90 days past due under
the terms of the forbearance agreements at June 30, 2000, of which
$73,594 were current and $8,300 were past due 31 to 89 days.
(2) Includes $95,218 of loans which were less than 90 days past due under
the terms of the forbearance agreements at December 31, 1999, of which
$67,897 were current and $27,321 were past due 31 to 89 days.
49
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
ALLOWANCES FOR LOAN LOSSES. The Company maintains an allowance for loan
losses for each of its loan, discount loan and match funded loan portfolios at a
level which management considers adequate to provide for potential losses in
each portfolio based upon an evaluation of known and inherent risks in such
portfolios. The following table sets forth the breakdown of the allowance for
loan losses on the Company's loan portfolio, discount loans and match funded
loans by loan category and the percentage of allowance and loans in each
category to totals in the respective portfolios at the dates indicated:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------- --------------------------------------------
Allowance Loan Balance Allowance Loan Balance
------------------- ------------------- ----------------- ----------------------
Amount Percent Amount Percent Amount Percent Amount Percent
--------- ------- --------- --------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan portfolio:
Single family................ $ 97 1.8% $ 3,272 1.9% $ 87 1.2% $ 4,334 2.3%
Multi-family................. 1,276 23.5 81,431 47.8 1,722 23.7 81,366 42.5
Commercial real estate....... 4,066 74.7 85,452 50.3 5,450 75.1 105,628 55.2
Consumer..................... -- -- 62 -- -- -- 82 --
--------- -------- --------- --------- -------- -------- ----------- ---------
$ 5,439 100.0% $ 170,217 100.0% $ 7,259 100.0% $ 191,410 100.0%
========= ======== ========= ========= ======== ======== =========== =========
Discount loans:
Single family................ $ 8,636 38.6% $ 344,657 41.7% $ 11,081 57.8% $ 450,089 48.3%
Multi-family................. 956 4.3 158,666 19.2 1,681 8.8 153,990 16.5
Commercial real estate....... 8,218 36.7 299,516 36.3 5,152 26.8 307,670 33.0
Other........................ 4,577 20.4 23,195 2.8 1,267 6.6 20,661 2.2
--------- -------- --------- --------- -------- -------- ----------- ---------
$ 22,387 100.0% $ 826,034 100.0% $ 19,181 100.0% $ 932,410 100.0%
========= ======== ========= ========= ======== ======== =========== =========
Match funded loans:
Single family residential loans $ 433 100.0% $ 92,930 100.0% $ 495 100.0% $ 105,596 100.0%
========= ======== ========= ========= ======== ======== =========== =========
</TABLE>
The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any other category.
The following table sets forth an analysis of activity in the allowance
for loan losses relating to the Company's loan portfolio and discount loan
portfolio during the six months ended June 30, 2000:
<TABLE>
<CAPTION>
Balance Balance
December 31, June 30,
1999 Provision Charge-offs Recoveries 2000
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loan portfolio:
Single family................... $ 87 $ 10 $ -- $ -- $ 97
Multi-family.................... 1,722 (446) -- -- 1,276
Commercial real estate.......... 5,450 (979) (405) -- 4,066
---------- ----------- ---------- ---------- ----------
$ 7,259 $ (1,415) $ (405) $ -- $ 5,439
========== =========== ========== ========== ==========
Discount loans:
Single family................... $ 11,081 $ (596) $ (2,375) $ 526 $ 8,636
Multi-family.................... 1,681 17 (742) -- 956
Commercial...................... 5,152 4,489 (1,441) 18 8,218
Other........................... 1,267 3,310 -- -- 4,577
---------- ----------- ---------- ---------- ----------
$ 19,181 $ 7,220 $ (4,558) $ 544 $ 22,387
========== =========== ========== ========== ==========
Match funded loans:
Single family residential loans $ 495 $ (62) $ -- $ -- $ 433
========== =========== ========== ========== ==========
</TABLE>
INVESTMENTS IN LOW-INCOME HOUSING TAX CREDIT INTERESTS. The Company
invests in multi-family residential projects which have been allocated
low-income housing tax credits under Section 42 of the Internal Revenue Code of
1986, as amended, by a state tax credit allocating agency.
50
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
The carrying value of the Company's investments in low-income housing
tax credit interests are as follows at the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Investments solely as a limited partner made prior to May 18, 1995............. $ 16,051 $ 17,327
Investments solely as a limited partner made on or after May 18, 1995 (1)...... 50,210 59,541
Investments both as a limited and, through subsidiaries, as a general partner.. 78,597 74,121
----------- -----------
$ 144,858 $ 150,989
=========== ===========
</TABLE>
(1) The decrease in the balance during the six months ended June 30, 2000
is due to the sale of investments in ten projects during the first
quarter which had an aggregate carrying value of $27,402 for a loss of
$261, offset by the investment in new and existing projects.
The qualified affordable housing projects underlying the Company's
investments in low-income housing tax credit interests are geographically
located throughout the United States. At June 30, 2000, the Company's largest
single investment was $7,974, which related to a project located in Columbia,
South Carolina.
Investments by the Company in low-income housing tax credit interests
made on or after May 18, 1995, in which the Company invests solely as a limited
partner, are accounted for using the equity method in accordance with the
consensus of the Emerging Issues Task Force as recorded in Issue Number 94-1.
Limited partnership investments made prior to May 18, 1995, are accounted for
under the effective yield method as a reduction of income tax expense.
Low-income housing tax credit partnerships in which the Company invests both as
a limited and, through a subsidiary, as general partner are presented on a
consolidated basis.
Income on the Company's limited partnership investments made prior to
May 18, 1995 is recorded under the level yield method as a reduction of income
tax expense, and amounted to $658 and $749 for the second quarter of 2000 and
1999, respectively, and $1,341 and $1,519 for the six months ended June 30, 2000
and 1999, respectively. For limited partnership investments made after May 18,
1995, and for investments as a limited partner and, through subsidiaries, as a
general partner, the Company recognized tax credits of $2,044 and $3,849 for the
second quarter of 2000 and 1999, respectively, and $5,076 and $7,544 for the six
months ended June 30, 2000 and 1999, respectively, which are also reported as a
reduction of income tax expense. The Company also recorded a loss from
operations on the underlying real estate after depreciation of $839 and $1,599
for the second quarter of 2000 and 1999, respectively, and $2,339 and $3,463 for
the six months ended June 30, 2000 and 1999, respectively.
INVESTMENTS IN UNCONSOLIDATED ENTITIES. Investments in unconsolidated
entities totaled $31,098 at June 30, 2000, a $6,020 decrease as compared to the
balance at December 31, 1999 of $37,118. This decrease was primarily due to a
$5,579 decrease in the Company's 35.84% equity investment in Kensington. The
investment in Kensington declined during this period as a result of the
Company's $4,112 share of Kensington's losses, including goodwill amortization,
and $1,417 of net unrealized foreign currency losses. See "Asset and Liability
Management - Foreign Currency Exchange Rate Risk Management" for information
regarding the Company's hedging activities related to its investment in
Kensington.
REAL ESTATE OWNED, NET. Real estate owned, net, increased by $15,170 or
9% during the six months ended June 30, 2000 due primarily to foreclosures and
acquisitions in excess of sales. Real estate owned consists almost entirely of
properties acquired by foreclosure or deed-in-lieu thereof on loans in the
Company's discount loan portfolio.
51
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
The following table sets forth certain information relating to the
Company's real estate owned at the dates indicated.
June 30, December 31,
2000 1999
------------ ------------
Discount loan portfolio:
Single family residential.............. $ 72,633 $ 72,193
Multi-family residential............... 12,012 2,601
Commercial real estate................. 92,820 85,233
------------ ------------
Total.............................. 177,465 160,027
Loan portfolio............................ 1,587 2,183
Loans available for sale.................. 3,624 5,296
------------ ------------
Total.............................. $ 182,676 $ 167,506
============ ============
The following table sets forth certain geographical information by type
of property at June 30, 2000 related to the Company's real estate owned.
<TABLE>
<CAPTION>
Multi-family Residential
Single Family Residential and Commercial Total
------------------------- ------------------------- ------------------------
No. of No. of No. of
Amount Properties Amount Properties Amount Properties
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Florida.................. $ 5,367 103 $ 48,571 6 $ 53,938 109
Georgia.................. 1,074 23 15,394 1 16,468 24
Connecticut.............. 3,134 33 12,543 2 15,677 35
California............... 5,861 70 6,929 8 12,790 78
Arizona.................. 585 12 9,659 1 10,244 13
Other (1)................ 60,469 1,448 13,090 25 73,559 1,473
-------- -------- --------- -------- --------- --------
Total................. $ 76,490 1,689 $ 106,186 43 $ 182,676 1,732
======== ======== ========= ======== ========= ========
</TABLE>
(1) Consists of properties located in 45 other states, none of which
aggregated over $7,032 in any one state.
The following tables set forth the activity in the real estate owned
during the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
---------------------- ----------------------
For the periods ended June 30, 2000 1999 2000 1999
------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
AMOUNT
Balance at beginning of period ........... $ 185,498 $ 208,831 $ 167,506 $ 201,551
Properties acquired through foreclosure
or deed-in-lieu thereof:
Discount loans ......................... 52,631 37,468 124,066 108,162
Loans available for sale ............... 934 2,282 4,063 7,101
Loan portfolio ......................... 431 106 705 2,572
Less discount transferred .............. (16,771) (13,418) (37,014) (34,303)
--------- --------- --------- ---------
37,225 26,438 91,820 83,532
--------- --------- --------- ---------
Acquired in connection with acquisitions
of discount loans ...................... 5,002 23,330 8,593 31,490
Sales .................................... (43,186) (71,722) (81,390) (131,476)
Change in valuation allowance ............ (1,863) (3,715) (3,853) (1,935)
--------- --------- --------- ---------
Balance at end of period ................. $ 182,676 $ 183,162 $ 182,676 $ 183,162
========= ========= ========= =========
</TABLE>
52
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------- ---------------------------
For the periods ended June 30, 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NUMBER OF PROPERTIES
Balance at beginning of period............. 1,716 1,873 1,672 1,999
Properties acquired through foreclosure or
deed-in-lieu thereof:
Discount loans........................... 647 468 1,421 1,170
Loans available for sale................. 18 35 39 91
Loan portfolio........................... 2 2 5 4
----------- ----------- ----------- -----------
667 505 1,465 1,265
----------- ----------- ----------- -----------
Acquired in connection with acquisitions of
discount loans.......................... 154 429 157 575
Sales...................................... (805) (941) (1,562) (1,973)
----------- ----------- ----------- -----------
Balance at end of period................... 1,732 1,866 1,732 1,866
=========== =========== =========== ===========
</TABLE>
The following table sets forth the amount of time that the Company had
held its real estate owned at the dates indicated.
June 30, December 31,
2000 1999
--------------- ---------------
One to two months.................... $ 39,093 $ 30,695
Three to four months................. 26,923 26,532
Five to six months................... 14,316 11,263
Seven to 12 months................... 16,417 28,606
Over 12 months....................... 85,927 70,410
--------------- ---------------
$ 182,676 $ 167,506
=============== ===============
The Company actively manages its real estate owned. Sales of real
estate owned resulted in (losses) gains, net of the provision for loss, of
$(625) and $(5,281) during the three and six months ended June 30 2000,
respectively, as compared to $2,426 and $6,527 during the three and six months
ended June 30, 1999, respectively, which are included in determining the
Company's (loss) income on real estate owned. The average period during which
the Company held the $81,390 and $131,476 of real estate owned which was sold
during the six months ended June 30, 2000 and 1999 respectively, was 6 months.
The following table sets forth the activity, in the aggregate, in the
valuation allowances on real estate owned during the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------- ----------------------------
For the periods ended June 30, 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at beginning of period.......... $ 19,171 $ 13,545 $ 17,181 $ 15,325
Provisions for losses................... 7,752 9,779 16,964 14,840
Charge-offs and sales................... (5,889) (6,064) (13,111) (12,905)
----------- ----------- ----------- -----------
Balance at end of period................ $ 21,034 $ 17,260 $ 21,034 $ 17,260
=========== =========== =========== ===========
Valuation allowance as a percentage of
total gross real estate owned (1).... 10.33% 8.61% 10.33% 8.61%
</TABLE>
(1) The increase at June 30, 2000 as compared to June 30, 1999 reflects an
increase in the amount of real estate owned which the Company has held
in excess of one year. The increase in the amount of real estate owned
which the Company has held in excess of one year at June 30, 2000 as
compared to June 30, 1999 primarily reflects the anticipated migration
of a large retail property which is currently being repositioned for
sale. At December 31, 1999, the valuation allowance as a percentage of
total gross real estate owned was 9.30%.
53
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
INVESTMENTS IN REAL ESTATE. The Company's investment in real estate
consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Properties held for investment (1):
Office buildings .................................. $ 32,102 $ 202,607
Retail ............................................ 9,622 33,224
Building improvements ............................. 8,472 17,590
Tenant improvements and lease commissions ......... 892 8,150
Furniture and fixtures ............................ 47 44
------------ ------------
51,135 261,615
Accumulated depreciation .......................... (1,788) (9,011)
------------ ------------
49,347 252,604
------------ ------------
Loans accounted for as investments in real estate (2):
Multi-family residential .......................... 97 --
Nonresidential .................................... 89,011 --
------------ ------------
89,108 --
------------ ------------
Properties held for lease:
Land and land improvements ........................ 1,256 1,256
Building .......................................... 15,082 14,629
Accumulated depreciation .......................... (517) (248)
------------ ------------
15,821 15,637
------------ ------------
Investment in real estate partnerships (3) ........ 11,607 --
------------ ------------
$ 165,883 $ 268,241
============ ============
</TABLE>
(1) Acquired as a result of the acquisition of OAC. The decline in balances
during the six months of 2000 is due to the transfer of properties from
held for investment to held for sale. See "Real Estate Held for Sale."
The Company's properties held for investment at June 30, 2000 are
comprised of the following:
<TABLE>
<CAPTION>
Date
Acquired Property Location Square Feet Property Type % Leased Book Value
-------- -------- -------- ----------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
07/22/98 841 Prudential Drive.... Jacksonville, FL 550,000 Office Bldg. 98.0% $ 32,459
04/09/98 7075 Bayers Road........ Halifax, Nova Scotia 402,529 Shopping Ctr. 64.0 18,676
Accumulated depreciation (1,788)
------------
$ 49,347
============
</TABLE>
(2) Certain acquisition, development and construction loans were acquired
in January 2000 in which the Company participates in the expected
residual profits of the underlying real estate and the borrower has not
contributed substantial equity to the project. As such, the Company has
accounted for these loans under the equity method of accounting as
though it had an investment in a real estate limited partnership.
(3) Consists of interests in five limited partnerships operating as real
estate ventures, consisting of multi-family type properties.
54
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
REAL ESTATE HELD FOR SALE. The Company's real estate held for sale at
June 30, 2000 is comprised of the following properties:
<TABLE>
<CAPTION>
Date
Acquired Property Location Square Feet Property Type % Leased Book Value
-------- -------- -------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
04/08/98 225 Bush Street......... San Francisco, CA 570,637 Office Bldg. 98.0% $ 131,348
09/23/97 450 Sansome Street...... San Francisco, CA 130,437 Office Bldg. 87.0 28,755
09/03/97 10 U.N. Plaza........... San Francisco, CA 71,636 Office Bldg. 96.0 11,999
11/10/97 Cortez Plaza............ Bradenton, FL 289,686 Shopping Ctr. 95.7 21,613
10/01/98 Holiday Village......... Havre, MT 223,355 Shopping Ctr. 48.4 1,526
-------------
$ 195,241
=============
</TABLE>
The Company has engaged unaffiliated third parties to market and sell
the properties listed above. These properties were previously held for
investment. The office buildings were reclassified to held for sale during
the first quarter of 2000 and the shopping centers were reclassified during the
second quarter of 2000.
During the second quarter of 2000, the Company sold its office building
located at 690 Market Street in San Francisco, for $28,000, less commissions and
closing costs which had a book value of $23,273, for a gain of $3,897. The net
proceeds consisted of cash of approximately $7,100 and a note receivable of
$19,000.
DEPOSITS. Deposits decreased $200,153 or 11% during the six months
ended June 30, 2000 primarily as a result of a $205,638 decrease in non-interest
bearing checking accounts. The following table sets forth information related to
the Company's deposits at the dates indicated.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
-------------------------- --------------------------
% of % of
Total Total
Amount Deposits Amount Deposits
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Non-interest bearing checking accounts $ 74,635 4% $ 280,273 15%
NOW and money market checking accounts 12,322 1 30,343 2
Savings accounts ..................... 1,375 -- 1,361 --
----------- ----------- ----------- -----------
88,332 5 311,977 17
----------- ----------- ----------- -----------
Certificates of deposit (1)(2) ....... 1,559,505 -- 1,536,997 --
Unamortized deferred fees ............ (5,704) -- (6,688) --
----------- ----------- ----------- -----------
Total certificates of deposit ........ 1,553,801 95 1,530,309 83
----------- ----------- ----------- -----------
Total deposits .................... $ 1,642,133 100% $ 1,842,286 100%
=========== =========== =========== ===========
</TABLE>
(1) Included $1,406,963 and $1,449,873 at June 30, 2000 and December 31,
1999, respectively, of deposits originated through national, regional
and local investment banking firms which solicit deposits from their
customers, all of which are non-cancelable.
(2) At June 30, 2000 and December 31, 1999, certificates of deposit issued
on an uninsured basis (greater than $100,000) amounted to $124,664 and
$155,205, respectively. Of the $124,664 of uninsured deposits at June
30, 2000, $49,867 were from political subdivisions in New Jersey and
secured or collateralized as required under state law.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. Securities sold under
agreements to repurchase of $421,049 at June 30, 2000, increased $373,685 or
789% during the six months ended June 30, 2000. From time to time the Company
utilizes such collateralized borrowings as additional sources of liquidity. The
securities sold under agreements to repurchase at June 30, 2000 are primarily
collateralized by CMOs.
BONDS-MATCH FUNDED AGREEMENTS. Bonds-match funded agreements of
$121,797 at June 30, 2000, decreased $19,718 or 14% during the six months ended
June 30, 2000.
55
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
Bonds-match funded agreements were comprised of the following at the
dates indicated:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
--------------- -----------------
<S> <C> <C>
OAC Mortgage Residential Securities, Inc (1)........... $ 86,118 $ 100,968
Ocwen NIM Corp.(2)..................................... 35,679 40,547
--------------- ---------------
$ 121,797 $ 141,515
=============== ===============
</TABLE>
(1) Acquired in connection with the acquisition of OAC. Originally arose in
connection with a previous securitization of loans by OAC which was
accounted for as a financing transaction.
(2) In December 1999, the Company transferred four unrated residual
securities to Ocwen NIM Corp. in exchange for non-recourse notes. The
transaction was accounted for as a financing.
NOTES, DEBENTURES AND OTHER INTEREST-BEARING OBLIGATIONS. Notes,
debentures and other interest-bearing obligations mature as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
2003:
11.875% Notes due October 1........................... $ 103,850 $ 103,850
2004:
Loan due May 24 (LIBOR plus 150 basis points)......... 6,236 6,236
2005:
12% Subordinated Debentures due June 15............... 67,000 67,000
11.5% Senior Notes due July 1 (1)..................... 110,997 140,487
----------- -----------
$ 288,083 $ 317,573
=========== ===========
</TABLE>
(1) The $29,490 decline in the outstanding balance is due to repurchases in
the open market during both the first and second quarters of 2000.
These repurchases resulted in extraordinary gains of $1,984 ($1,369 net
of taxes) and $5,093 ($3,575 net of taxes), for the three and six
months ended June 30, 2000, respectively.
56
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT. Obligations outstanding
under lines of credit decreased $3,116 or 2% during the six months ended June
30, 2000. The Company, through its subsidiaries, has obtained secured lines of
credit arrangements from various unaffiliated financial institutions as follows:
<TABLE>
<CAPTION>
Balance Amount of Committed Maturity
Entity Outstanding Facility Amount Date Interest Rate(4)
-------------------- -------------- -------------- -------------- ------------ -------------------------
<S> <C> <C> <C> <C>
JUNE 30, 2000:
OFS (1)............. $ 10,061 $ 35,000 $ 35,000 May 2001 LIBOR + 175 basis points
-- 25,000 -- May 2001 LIBOR + 175 basis points
OAC (2)............. 99,689 200,000 115,580 June 2001 LIBOR + 240 basis points
75,000 75,000 75,000 April 2001 LIBOR + 175 basis points
-------------
$ 184,750
=============
DECEMBER 31, 1999:
OFS (3)............. $ 2,041 $ 200,000 $ 100,000 July 2001 LIBOR + 75 basis points
3,770 115,000 100,000 May 2000 LIBOR + 95 - 150 basis points
15,227 50,000 50,000 May 2000 LIBOR + 137.5 basis points
7,658 25,000 -- May 2000 LIBOR + 175 basis points
OAC (2)............. 84,170 200,000 200,000 June 2001 LIBOR + 175 basis points
75,000 75,000 75,000 April 2001 LIBOR + 175 basis points
-------------
$ 187,866
=============
</TABLE>
(1) These lines were used to fund subprime mortgage loan originations,
generally advanced at a rate of 65% to 75% of the principal balance of
the mortgage loan and are secured by such mortgage loans.
(2) These lines are collateralized by commercial loans and investments in
real estate
(3) These lines were used to fund subprime mortgage loan originations,
generally advanced at a rate of 80% to 98% of the principal balance of
the mortgage loan and are secured by such mortgage loans.
(4) LIBOR was 6.64% and 5.82% at June 30, 2000 and December 31, 1999,
respectively.
COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY. The
outstanding balance of the 10.875% Capital Securities amounted to $101,390 at
June 30, 2000, a decline of $8,610 from the balance outstanding at December 31,
1999. During the three months ended June 30, 2000, the Company repurchased
$8,610 of its Capital Securities in the open market, resulting in an
extraordinary gain of $3,670 ($2,532 net of taxes). See Note 3 to the Interim
Consolidated Financial Statements included in Item 1 hereof (which is
incorporated herein by reference).
STOCKHOLDERS' EQUITY. Stockholders' equity decreased $16,806 or 3%
during the six months ended June 30, 2000. The decrease was primarily due to a
net loss of $6,497, the repurchase of 1,388,300 shares of common stock in the
aggregate amount of $8,996 during the first quarter and a $1,458 decline in
unrealized gains on securities available for sale. See Consolidated Statements
of Changes in Stockholders' Equity in the Interim Consolidated Financial
Statements included in Item 1 herein (which is incorporated herein by
reference).
LIQUIDITY, COMMITMENTS AND OFF-BALANCE SHEET RISKS
The primary sources of funds for liquidity consist of deposits, FHLB
advances, reverse repurchase agreements, lines of credit and maturities and
payments of principal and interest on loans and securities and proceeds from
sales and securitizations thereof.
Sources of liquidity include certificates of deposit obtained primarily
from wholesale sources. At June 30, 2000, the Company had $1,553,801 of
certificates of deposit, including $1,406,963 of brokered certificates of
deposit obtained through national, regional and local investment banking firms,
all of which are non-cancelable. At the same date, scheduled
57
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
maturities of certificates of deposit during the 12 months ending June 30, 2001
and 2002, and thereafter amounted to $878,926, $521,067 and $153,808,
respectively.
Sources of borrowings include FHLB advances, which are required to be
secured by single family and/or multi-family residential loans or other
acceptable collateral, and reverse repurchase agreements. At June 30, 2000, the
Company was eligible to borrow up to an aggregate of $623,212 from the FHLB of
New York (subject to the availability of acceptable collateral) and had $39,256
of residential loans and $10,742 of short duration CMOs (all of which were held
by the Bank) pledged as security for any such advances. At June 30, 2000, the
Company had contractual relationships with 12 brokerage firms and the FHLB of
New York pursuant to which it could obtain funds from reverse repurchase
agreements. At June 30, 2000, the Company had $196,974 of unrestricted cash and
cash equivalents, $124,558 of short duration CMOs and $132,803 of subordinate
and residual securities, including match funded securities, which could be used
to secure additional borrowings. At June 30, 2000, the Company had no
outstanding FHLB advances.
The Company believes that its existing sources of liquidity, including
internally generated funds, will be adequate to fund planned activities for the
foreseeable future, although there can be no assurances in this regard.
Moreover, the Company continues to evaluate other sources of liquidity, such as
lines of credit from unaffiliated parties, which will enhance the management of
its liquidity and the costs thereof.
The Company's operating activities (used) provided $(87,055) and
$102,420 of cash flows during the six months ended June 30, 2000 and 1999,
respectively. During the six months ended June 30, 2000, cash flows used by
operating activities primarily related to an increase in escrow advances and an
increase in accrued expenses, interest payable and other liabilities. During the
six months ended June 30, 1999, resources of cash were primarily provided from
sales of loans available for sale offset by the use of cash flows primarily
related to the purchase and origination of loans available for sale. The
increase in net cash flows used by operating activities during the six months
ended June 30, 2000 as compared to the six months ended June 30, 1999, was due
primarily to a decline in activity related to loans available for sale as a
result of the sale of Ocwen UK and the closing of domestic subprime lending
operations at OFS.
The Company's investing activities used cash flows totaling $189,714
and $78,317 during the six months ended June 30, 2000 and 1999, respectively.
During the foregoing periods, cash flows from investing activities were used
primarily to purchase securities available for sale, purchase discount loans and
for the purchase of and capital improvements to real estate held for investment.
Cash flows from investing activities were provided primarily by sales of,
maturities of and principal payments received on securities available for sale,
proceeds from sales of discount loans and proceeds from sales of real estate
owned. The increase in net cash used by investing activities during the six
months ended June 30, 2000 as compared to the six months ended June 30, 1999 was
due primarily to an increase in purchases of securities available for sale, and
an increase in purchases of and capital improvements to real estate held for
investment, offset by a decrease in discount loan purchases and sales of
securities available for sale.
The Company's financing activities provided (used) cash flows of
$113,729 and $(256,814) during the six months ended June 30, 2000 and 1999,
respectively. Cash flows from financing activities were primarily provided by
securities sold under agreements to repurchase and advances from the Federal
Home Loan Bank. Cash flows utilized in connection with financing activities were
primarily related to a decline in deposits, repayment of bonds-match funded
agreements, repayment of lines of credit and repurchase of debt. The increase in
cash provided by financing activities during the six months ended June 30, 2000
as compared to the six months ended June 30, 1999 was due primarily to an
increase in securities sold under agreements to repurchase.
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. government,
federal agency and other investments having maturities of five years or less
(currently not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less). The Bank's
liquidity, as measured for regulatory purposes, amounted to 5.54% at June 30,
2000.
As a result of a verbal agreement between the Bank and the OTS to
dividend subordinate and residual mortgage-related securities resulting from
securitization activities conducted by the Bank, the Bank has been limited in
its ability to pay cash dividends to the Company. The Bank held no subordinate
or residual mortgage-related securities at June 30, 2000. See "Regulatory
Capital Requirements."
There are restrictions on OAC's ability to pay dividends under the
Indenture governing OAC's 11.5% Redeemable Notes. As of June 30, 2000, OAC was
not permitted to pay dividends under the Indenture.
58
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands, except share data)
--------------------------------------------------------------------------------
At June 30, 2000, the Company had commitments of $21,318 related to the
funding of construction loans. Management believes that the Company has adequate
resources to fund all such unfunded commitments to the extent required and that
substantially all of such unfunded commitments will be funded during 2000. See
Note 7 to the Interim Consolidated Financial Statements included in Item 1
herein (which is incorporated herein by reference).
In addition to commitments to extend credit, the Company is party to
various off-balance sheet financial instruments in the normal course of the
Company's business in order to manage its interest rate risk and foreign
currency exchange rate risk. See Note 4 to the Interim Consolidated Financial
Statements included in Item 1 herein (which is incorporated herein by reference)
and "Asset and Liability Management" included in Item 3 herein.
REGULATORY CAPITAL AND OTHER REQUIREMENTS
Following an examination in late 1996 and early 1997, the Bank
committed to the OTS to maintain a core capital (leverage) ratio and a total
risk-based capital ratio of at least 9% and 13%, respectively. The Bank
continues to be in compliance with this commitment as well as the regulatory
capital requirements of general applicability, as indicated in Note 5 to the
Interim Consolidated Financial Statements included in Item 1 herein (which is
incorporated herein by reference). The Bank's core capital, Tier 1 risk-based
capital and total risk-based capital ratios at June 30, 2000 were 9.24%, 12.85%
and 17.14%, respectively, placing the Bank in the "well-capitalized" category as
defined by federal regulations. Based on discussions with the OTS, the Bank
believes that this commitment does not affect its status as a "well-capitalized"
institution, assuming the Bank's continued compliance with the regulatory
capital requirements required to be maintained by it pursuant to such
commitment.
YEAR 2000 DATE CONVERSION
The Company is currently not aware of any significant Year 2000 or
related problems that have arisen for its customers or vendors.
59
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in Thousands)
--------------------------------------------------------------------------------
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control risks associated with interest rate and foreign
currency exchange rate movements. In general, management's strategy is to match
asset and liability balances within maturity categories and to manage foreign
currency rate exposure related to its investments in non-U.S. dollar functional
currency operations in order to limit the Company's exposure to earnings
variations and variations in the value of assets and liabilities as interest
rates and foreign currency exchange rates change over time. The Company's asset
and liability management strategy is formulated and monitored by the
Asset/Liability Management Committee (the "Committee"), which is composed of
directors and officers of the Company, in accordance with policies approved by
the Board of Directors of the Company. The Committee meets to review, among
other things, the sensitivity of the Company's assets and liabilities to
interest rate changes and foreign currency exchange rate changes, the book and
market values of assets and liabilities, unrealized gains and losses, including
those attributable to hedging transactions, purchase and sale activity, and
maturities of investments and borrowings. The Committee also approves and
establishes pricing and funding decisions with respect to overall asset and
liability composition.
The Committee's methods for evaluating interest rate risk include an
analysis of the Company's interest rate sensitivity "gap," which is defined as
the difference between interest-earning assets and interest-bearing liabilities
maturing or repricing within a given time period. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income, while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to affect net interest income adversely.
Because different types of assets and liabilities with the same or similar
maturities may react differently to changes in overall market rates or
conditions, changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.
60
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in Thousands)
--------------------------------------------------------------------------------
The following table sets forth the estimated maturity or repricing of
the Company's interest-earning assets and interest-bearing liabilities at June
30, 2000. The amounts of assets and liabilities shown within a particular period
were determined in accordance with the contractual terms of the assets and
liabilities, except (i) adjustable-rate loans, performing discount loans,
securities and FHLB advances are included in the period in which they are first
scheduled to adjust and not in the period in which they mature, (ii) fixed-rate
mortgage-related securities reflect estimated prepayments, which were estimated
based on analyses of broker estimates, the results of a prepayment model
utilized by the Company and empirical data, (iii) non-performing discount loans
reflect the estimated timing of resolutions which result in repayment to the
Company, (iv) NOW and money market checking deposits and savings deposits, which
do not have contractual maturities, reflect estimated levels of attrition, which
are based on detailed studies of each such category of deposit by the Company,
and (v) escrow deposits and other non-interest bearing checking accounts, which
amounted to $74,635 at June 30, 2000, are excluded. Management believes that
these assumptions approximate actual experience and considers them reasonable;
however, the interest rate sensitivity of the Company's assets and liabilities
in the table could vary substantially if different assumptions were used or
actual experience differs from the historical experience on which the
assumptions are based.
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------------------------------
Within Four to More Than
Three Twelve One Year to Three Years
Months Months Three Years and Over Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS:
Interest-earning deposits ..................... $ 19,238 $ -- $ -- $ -- $ 19,238
Federal funds sold ............................ 173,500 -- -- -- 173,500
Securities available for sale ................. 279,406 255,956 182,185 83,926 801,473
Loans available for sale (1) .................. 1,167 13,652 8,533 5,967 29,319
Investment securities, net .................... 13,257 -- -- -- 13,257
Loan portfolio, net (1) ....................... 59,138 69,439 12,433 7,480 148,490
Match funded loans and securities ............. 7,311 52,463 33,506 37,804 131,084
Discount loan portfolio, net .................. 87,920 410,830 169,458 135,238 803,446
----------- ----------- ----------- ----------- -----------
Total rate-sensitive assets .................. 640,937 802,340 406,115 270,415 2,119,807
----------- ----------- ----------- ----------- -----------
RATE-SENSITIVE LIABILITIES:
NOW and money market checking deposits ........ 10,713 185 395 1,029 12,322
Savings deposits .............................. 105 196 387 687 1,375
Certificates of deposit ....................... 275,132 602,219 535,328 141,122 1,553,801
----------- ----------- ----------- ----------- -----------
Total interest-bearing deposits ............... 285,950 602,600 536,110 142,838 1,567,498
Securities sold under agreements to repurchase 421,050 -- -- -- 421,050
Bond-match funded loan agreements ............. 87,816 17,807 13,765 2,409 121,797
Obligations outstanding under lines of credit . 184,750 -- -- -- 184,750
Notes, debentures and other ................... 6,236 -- -- 281,847 288,083
----------- ----------- ----------- ----------- -----------
Total rate-sensitive liabilities ............. 985,802 620,407 549,875 427,094 2,583,178
----------- ----------- ----------- ----------- -----------
Interest rate sensitivity gap excluding
financial instruments ......................... (344,865) 181,933 (143,760) (156,679) (463,371)
FINANCIAL INSTRUMENTS:
Interest rate swaps ............................. 161,000 (75,000) (86,000) -- --
Swaption and put option contracts ............... -- 338 -- -- 338
Futures contracts ............................... 5,800 -- -- (5,800) --
----------- ----------- ----------- ----------- -----------
Total rate-sensitive financial instruments ...... 166,800 (74,662) (86,000) (5,800) 338
----------- ----------- ----------- ----------- -----------
Interest rate sensitivity gap including
financial instruments ........................ $ (178,065) $ 107,271 $ (229,760) $ (162,479) $ (463,033)
=========== =========== =========== =========== ===========
Cumulative interest rate sensitivity gap....... $ (178,065) $ (70,794) $ (300,554) $ (463,033)
=========== =========== =========== ===========
Cumulative interest rate sensitivity gap as a
percentage of total rate-sensitive assets.... (8.40)% (3.34)% (14.18)% (21.84)%
</TABLE>
(1) Balances have not been reduced for non-performing loans.
61
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in Thousands)
--------------------------------------------------------------------------------
The OTS has established specific minimum guidelines for thrift
institutions to observe in the area of interest rate risk as described in Thrift
Bulletin No. 13a, "Management of Interest Rate Risk, Investment Securities, and
Derivative Activities" ("TB 13a"). Under TB 13a, institutions are required to
establish and demonstrate quarterly compliance with board-approved limits on
interest rate risk that are defined in terms of net portfolio value ("NPV"),
which is defined as the net present value of an institution's existing assets,
liabilities and off-balance sheet instruments. These limits specify the minimum
net portfolio value ratio ("NPV Ratio") allowable under current interest rates
and hypothetical interest rate scenarios. An institution's NPV Ratio for a given
interest rate scenario is calculated by dividing the NPV that would result in
that scenario by the present value of the institution's assets in that same
scenario. The hypothetical scenarios are represented by immediate, permanent,
parallel movements (Shocks) in the term structure of interest rates of plus and
minus 100, 200 and 300 basis points from the actual term structure observed at
quarter end. The current NPV Ratio for each of the seven rate scenarios and the
corresponding limits approved by the Board of Directors, and as applied to OCN,
are as follows at June 30, 2000:
Board Limits Current
Rate Shock in basis points (minimum NPV Ratios) NPV Ratios
-------------------------- ------------------------- ----------------------
+300 5.00% 18.71%
+200 6.00% 18.57%
+100 7.00% 18.38%
0 8.00% 18.19%
-100 7.00% 18.04%
-200 6.00% 17.86%
-300 5.00% 17.74%
The Asset/Liability Committee also regularly reviews interest rate risk
by forecasting the impact of alternative interest rate environments on net
interest income and NPV and evaluating such impacts against the maximum
potential changes in net interest income and NPV that is authorized by the Board
of Directors, and as applied to OCN. The following table quantifies the
potential changes in net interest income and net portfolio value should interest
rates go up or down (shocked) 300 basis points, assuming the yield curves of the
rate shocks will be parallel to each other. The cash flows associated with the
loan portfolios and securities available for sale are calculated based on
prepayment and default rates that vary by asset. Projected losses, as well as
prepayments, are generated based upon the actual experience with the subject
pool, as well as similar, more seasoned pools. To the extent available, loan
characteristics such as loan-to-value ratio, interest rate, credit history,
prepayment penalty terms and product types are used to produce the projected
loss and prepayment assumptions that are included in the cash flow projections
of the securities. When interest rates are shocked, these projected loss and
prepayment assumptions are further adjusted. The base interest rate scenario
assumes interest rates at June 30, 2000. Actual results could differ
significantly from the OCN results estimated in the following table:
Estimated Changes in
-------------------------------
Rate Shock in basis points Net Interest NPV
---------------------------- ------------ ------------
+300 (19.94)% 0.17%
+200 (13.29)% 0.40%
+100 (6.65)% 0.20%
0 0.00% 0.00%
-100 6.65% 0.12%
-200 13.29% 0.22%
-300 19.94% 0.57%
The Committee is authorized to utilize a wide variety of off-balance
sheet financial techniques to assist it in the management of interest rate risk
and foreign currency exchange rate risk. These techniques include interest rate
exchange or "swap" agreements, U.S. Treasury interest rate futures contracts,
foreign currency futures contracts and foreign currency swap agreements and
European swaptions and put options.
INTEREST RATE RISK MANAGEMENT. The Company utilizes interest rate swaps
to protect against the decrease in value of a fixed-rate asset or the increase
in borrowing cost from a short-term, fixed-rate liability, such as reverse
repurchase agreements, in an increasing interest-rate environment. The Company
had entered into interest rate swaps with an aggregate notional amount of
$161,000 and $200,780 at June 30, 2000 and December 31, 1999, respectively.
62
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
(Dollars in Thousands)
--------------------------------------------------------------------------------
The Company also enters into U.S. Treasury futures contracts to offset
declines in the market value of its fixed-rate loans and certain fixed-rate
mortgage-backed and related securities available for sale in the event of an
increasing interest rate environment. The Company had entered into futures
contracts with an aggregate notional amount of $5,800 and $19,000 at June 30,
2000 and December 31, 1999.
The Company entered into swaption and put option contracts to mitigate
its interest rate exposure on anticipated future funding related to certain of
its investments in low-income housing tax credit interests. The Company had
entered into European swaptions and put options with an aggregate notional
amount of $14,300 and $20,900 at June 30, 2000 and December 31, 1999,
respectively.
See Note 4 to the Interim Consolidated Financial Statements included in
Item 1 herein (which is incorporated herein by reference) for additional
disclosures regarding the Company's interest rate derivative financial
instruments.
FOREIGN CURRENCY EXCHANGE RATE RISK MANAGEMENT. The Company has entered
into foreign currency derivatives to hedge its equity investment in Kensington,
its investments in foreign subsidiaries which own residual interests backed by
residential loans originated in the UK ("UK residuals") and in the shopping
enter located in Halifax, Nova Scotia (the "Nova Scotia Shopping Center").
The Company's hedges (currency futures and swaps), the related foreign
currency equity investment, the related investments in foreign subsidiaries, and
the net exposures as of June 30, 2000 and December 31, 1999 were as follows.
Investment Hedge Net Exposure
----------- ---------- ------------
JUNE 30, 2000:
Kensington...................... $ 30,021 $ 32,441 $ 2,420
UK residuals.................... $ 16,991 $ 16,705 $ (286)
Nova Scotia Shopping Center..... $ 19,765 $ 19,692 $ (73)
DECEMBER 31, 1999:
Kensington...................... $ 36,215 $ 37,546 $ 1,331
UK residuals.................... $ 28,098 $ 25,758 $ (2,340)
Nova Scotia Shopping Center..... $ 14,844 $ 16,074 $ 1,230
The net exposures are subject to gain or loss if foreign currency
exchange rates fluctuate. See the "Foreign Currency Management" section of Note
4 to the Interim Consolidated Financial Statements included in Item 1 herein
(which is incorporated herein by reference) for additional disclosures regarding
the Company's foreign currency derivative financial instruments.
63
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not, and certain statements
contained in future filings by the Company with the Securities and Exchange
Commission (the "Commission"), in the Company's press releases or in the
Company's other public or shareholder communications 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,
which are based on various assumptions (some of which are beyond the Company's
control), may be identified by reference to a future period(s) or by the use of
forward-looking terminology such as "anticipate," "believe," "commitment,"
"consider," "continue," "could," "encourage," "estimate," "expect," "foresee,"
"intend," "in the event of," "may," "plan," "present," "propose," "prospect,"
"update," "whether," "will," "would," future or conditional verb tenses, similar
terms, variations on such terms or negatives of such terms. Although the Company
believes the anticipated results or other expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurance that those results or expectations will be attained. 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, but
not limited to, international, national, regional or local economic environments
(particularly in the market areas where the Company operates), government fiscal
and monetary policies (particularly in the market areas where the Company
operates), prevailing interest or currency exchange rates, effectiveness of
interest rate, currency and other hedging strategies, laws and regulations
affecting financial institutions, investment companies and real estate
(including regulatory fees, capital requirements, access for disabled persons
and environmental compliance), uncertainty of foreign laws, competitive
products, pricing and conditions (including from competitors that have
significantly greater resources than the Company), credit, prepayment, basis,
default, subordination and asset/liability risks, loan servicing effectiveness,
ability to identify acquisitions and investment opportunities meeting the
Company's investment strategy, the course of negotiations and the ability to
reach agreement with respect to the material terms of any particular
transaction, satisfactory due diligence results, satisfaction or fulfillment of
agreed upon terms and conditions of closing or performance, the timing of
transaction closings, software integration, development and licensing,
availability of and costs associated with obtaining adequate and timely sources
of liquidity, 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, 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, changes in real estate
conditions (including liquidity, valuation, revenues, rental rates, occupancy
levels and competing properties), adequacy of insurance coverage in the event of
a loss, other factors generally understood to affect the real estate
acquisition, mortgage and leasing markets and securities investments, and other
risks detailed from time to time in the Company's reports and filings with the
Commission, including its periodic reports on Forms 10-Q, 8-K and 10-K and
Exhibit 99.1, titled Risk Factors, to the Company's Form 10-K for the year ended
December 31, 1999. Given these uncertainties, readers are cautioned not to place
undue reliance on such statements. The Company does not undertake, and
specifically disclaims any obligation, to release publicly the results of any
revisions that may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
64
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See "Note 7: Commitments and Contingencies" of the Company's
Consolidated Financial Statements.
Item 4. Submissions of Matters to a Vote of Security Holders.
(a) The annual meeting of stockholders of the Company was held on May 16,
2000.
(b) At the annual meeting of stockholders of the Company held on May 16,
2000, action was taken with respect to the election of directors of the
Company: 54,619,191 shares were voted for William C. Erbey, while
authority was withheld with respect to 537,226 shares; 54,613,290
shares were voted for W. C. Martin, while authority was withheld with
respect to 543,127 shares; 54,612,438 shares were voted for Howard H.
Simon, while authority was withheld with respect to 543,979 shares;
54,622,038 shares were voted for Barry N. Wish, while authority was
withheld with respect to 534,379 shares; 54,569,991 shares were voted
for Thomas F. Lewis, while authority was withheld with respect to
586,426 shares.
(c) In addition, stockholders ratified the appointment of
PricewaterhouseCoopers LLP as independent auditors (55,062,352 votes in
favor, 73,293 votes against and 20,772 votes abstained).
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
2.1 Agreement of Merger dated as of July 25, 1999 among Ocwen
Financial Corporation, Ocwen Asset Investment Corp. and Ocwen
Acquisition Company (1)
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Amended and Restated Bylaws (3)
4.0 Form of Certificate of Common Stock (2)
4.1 Form of Indenture between the Company and Bank One, Columbus,
NA as Trustee (2)
4.2 Form of Note due 2003 (included in Exhibit 4.1) (2)
4.3 Certificate of Trust of Ocwen Capital Trust I (4)
4.4 Amended and Restated Declaration of Trust of Ocwen Capital
Trust I (4)
4.5 Form of Capital Security of Ocwen Capital Trust I (5)
4.6 Form of Indenture relating to 10.875% Junior Subordinated
Debentures due 2027 of the Company (4)
4.7 Form of 10.875% Junior Subordinated Debentures due 2027 of
the Company (5)
4.8 Form of Guarantee of the Company relating to the Capital
Securities of Ocwen Capital Trust I (4)
4.9 Form of Indenture between the Company and The Bank of New
York as Trustee (6)
4.10 Form of Subordinated Debentures due 2005 (6)
4.11 Form of Indenture between OAC and Norwest Bank Minnesota,
National Association, as Trustee thereunder for the 11.5%
Redeemable Notes due 2005 (7)
10.1 Ocwen Financial Corporation 1996 Stock Plan for Directors, as
amended (8)
10.2 Ocwen Financial Corporation 1998 Annual Incentive Plan (9)
10.3 Loan Facility Agreement, dated April 23, 1999, among Ocwen
Limited, National Westminster Bank plc and Ocwen Financial
Corporation (10)
10.4 Loan Agreement, dated as of April 7, 1998, between OAIC Bush
Street, LLC and Salomon Brothers Realty Corp. (11)
10.5 Loan Agreement, dated as of April 24, 1998, between OAC and
Greenwich Financial Products Inc. (12)
10.6 Amended and Restated Loan Agreement, dated as of June 10,
1998, among, inter alia, OAIC California Partnership, L.P.,
OAIC California Partnership II, L.P., Salomon Brothers Realty
Corp. and LaSalle National Bank (13)
65
<PAGE>
10.7 Compensation and Indemnification Agreement, dated as of May
6, 1999, between OAC and the independent committee of the
Board of Directors (14)
10.8 Second Amendment to Guarantee of Payment, dated as of July 9,
1999, between Salomon Brothers Realty Corp. and Ocwen
Partnership, L.P. (14)
10.9 Indemnity agreement, dated August 24, 1999, among OCN and
OAC's Board of directors (14)
10.10 Amended Ocwen Financial Corporation 1991 Non-Qualified Stock
Option Plan, dated October 26, 1999 (15)
10.11 First Amendment to Agreement dated March 30, 2000 between HCT
and OAIC (16)
27.1 Financial Data Schedule for the three
months ended June 30, 2000 (filed herewith)
99.1 Risk factors (17)
(1) Incorporated by reference from the similarly described exhibit included
with the Registrant's Current Report on Form 8-K filed with the
Commission on July 26, 1999.
(2) Incorporated by reference from the similarly described exhibit filed in
connection with the Registrant's Registration Statement on Form S-1
(File No. 333-5153), as amended, declared effective by the Commission
on September 25, 1996.
(3) Incorporated by reference from the similarly described exhibit included
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
(4) Incorporated by reference from the similarly described exhibit filed in
connection with the Company's Registration Statement on Form S-1 (File
No. 333-28889), as amended, declared effective by the Commission on
August 6, 1997.
66
<PAGE>
Item 6. Exhibits and Reports on Form 8-K. (continued)
(5) Incorporated by reference from similarly described exhibit included
with Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(6) Incorporated by reference from the similarly described exhibit filed in
connection with Amendment No. 2 to Offering Circular on Form OC (on
Form S-1) filed on June 7, 1995.
(7) Incorporated by reference from OAC's Registration Statement on Form S-4
(File No. 333-64047), as amended, as declared effective by the
Commission on February 12, 1999.
(8) Incorporated by reference from the similarly described exhibit filed in
connection with the Registrant's Registration Statement on Form S-8 (
File No. 333-44999), effective when filed with the Commission on
January 28, 1998.
(9) Incorporated by reference from the similarly described exhibit to the
Company's Definitive Proxy Statement with respect to the Company's 1998
Annual Meeting of Shareholders filed with the Commission on March
31, 1998.
(10) Incorporated by reference from the similarly described exhibit filed in
connection with the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999.
(11) Incorporated by reference from the similarly described exhibit included
with the Registrant's current report on Form 8-K filed with the
Commission on July 26, 1999.
(12) Incorporated by reference from OAC's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998.
(13) Incorporated by reference from the Current Report on Form 8-K filed by
OAC with the Commission on April 23, 1998.
(14) Incorporated by reference from OAC's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1999.
(15) Incorporated by reference from a similarly described exhibit included
with the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000.
(16) Incorporated by reference from a similarly described exhibit included
with OAC's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000.
(17) Incorporated by reference from a similarly described exhibit included
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.
(b) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED JUNE 30, 2000.
NONE.
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, thereunto duly authorized.
OCWEN FINANCIAL CORPORATION
By: /s/ MARK S. ZEIDMAN
-------------------------------------
Mark S. Zeidman,
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
its principal financial officer)
Date: August 14, 2000
68
