Ocwen Financial Corp. (OCN) reported its preliminary fourth quarter operating earnings per share of 7 cents, substantially short of the Zacks Consensus Estimate of 16 cents. However, this compares favorably with the loss of 7 cents in the year-ago quarter due to reduced unrealized losses on auction rate securities in the reported quarter.
 
Results were helped by strong growth in servicing segment, reduction in operating and interest expenses that led to increase in operating income margin. However, this was partially offset by declining top-line growth across most of the segments.
 
GAAP net income was $9.4 million or 9 cents per share as compared to a net loss of $4.3 million or 7 cents per share in the year-ago quarter. During the reported quarter, Ocwen completed the sale of Bankhaus Oswald Kruber, recognizing an after-tax income of $2.5 million or 2 cents per share from discontinued operations.
 
Total revenue declined 34.7% year over year to $72.7 million. Servicing and sub-servicing fees decreased 19.5% year over year to $62.6 million, process management fees decreased 69.2% year over year to $9.7 million and other revenues declined 81.0% to $0.4 million. Operating expenses decreased drastically by 52.3% year-over-year to $36.5 million and interest expense declined 36.3% year over year to $12.8 million.
 
For full year 2009, income from continuing operations before income taxes was $93.3 million, compared to $31.0 million in 2008. The improvement of 201% was driven by a $46.7 million swing in gains versus losses in trading securities, a $23.6 million reduction in interest expense and a reduction of equity in losses of unconsolidated entities of $10.2 million. Operating loss per share was 4 cents as compared to operating earnings of 30 cents per share in 2008. Total revenue declined 22.6% from 2008 to $380.7 million. Operating expenses decreased 27.1% from 2008 to $235.7 million
 
At Dec 31, 2009, Ocwen recorded cash of $90.9 million and debt securities of $95.6 million.
 
Business Update
 
In December 2009, Ocwen issued $210 million of advance receivable backed notes under the Troubled Asset-Backed Securities Loan Facility (TALF) program and another $200 million in February 2010.  These financings were for terms of 30 and 24 months and fixed interest rates at 4.14% and 3.59%, respectively. As a result of these two financings, Ocwen’s asset liability structure is asset sensitive.
 
During the reported quarter, Ocwen completed 15,677 modifications, thereby exceeding the top end of the previous guidance of 10,000-15,000 modifications. This increased 124% over the prior quarter and included 4,296 Home Affordable Modification Program (HAMP) modifications.
 
Growth Strategy in 2010
 
While the Ocwen management aims to improve efficiencies to further reduce costs and raise quality, reduce asset intensity and enhance return on equity; the company has formed a three pronged approach to achieve growth. These include expansion of governmental servicing and special servicing activities, development in flow FHA servicing and acquisition of existing servicing portfolios. Ocwen is evaluating four servicing acquisitions, 2 of which, totaling $35 billion, are nearing final decisions.
 
Ocwen’s estimated fourth quarter 2009 financial results are preliminary and subject to change.
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