Home Loan Servicing Solutions, Ltd. Reports EPS of $0.37 and Net Income of $6.6 Million in the Third Quarter of 2012
October 18 2012 - 7:30AM
Home Loan Servicing Solutions, Ltd. ("HLSS" or the "Company")
(Nasdaq:HLSS) today reported net income of $6.6 million, or $0.37
per ordinary share, for the third quarter of 2012.
Third quarter business performance highlights:
- Earned $6.6 million, or $0.37 per ordinary share.
- Declared dividends of $0.10 per share per month totaling $5.9
million for the quarter.
- Received gross proceeds of $249.9 million in connection with
the follow-on offering of 16,387,500 shares at $15.25 per ordinary
share on September 12, 2012. Proceeds from the offering were used
to acquire mortgage servicing assets related to non-agency mortgage
loans from Ocwen with an unpaid principle balance ("UPB") of $27.8
billion in September.
- In addition, completed the flow acquisition of mortgage
servicing assets related to non-agency mortgage loans with UPB of
$2.1 billion from Ocwen on August 1, 2012 resulting in ending UPB
of $46.5 billion.
- In connection with the acquisition of mortgage servicing assets
in September, executed swap of variable rate LIBOR for a fixed rate
of 52 basis points covering the projected interest exposure for
existing and newly acquired assets for a term of 60 months.
- Earnings include a $0.03 per share benefit from reduced
amortization due to the deferral of certain modifications as Ocwen
tested delinquent loans for HAMP 2 eligibility, and ending the
quarter on a Sunday delayed the receipt of certain loan payoffs.
These factors combined to reduce the annualized prepayment rate to
12.6% from 15.2% in the second quarter. There was no change
in servicing asset valuations.
Subsequent to the end of the third quarter of 2012:
- On October 1, 2012, the Company's Board of Directors declared a
monthly dividend of $0.11 per ordinary share with respect to each
of October, November and December 2012.
- On October 17, 2012, completed the issuance of $250 million of
one-year and $450 million of three-year term notes secured by
servicing advance receivables at a weighted average interest spread
over LIBOR of 1.55%. The proceeds were used to repay $600
million in term notes and to reduce borrowing on variable funding
notes with a weighted average interest spread of 2.93%.
"I am pleased with the execution of our first follow-on equity
offering and our recently completed term note issuance which
confirm our belief that both debt and equity investors appreciate
the quality of our assets and the exceptional value that HLSS
represents" said Chairman William Erbey.
"We are pleased with our results for the quarter which exceeded
our guidance primarily because lower than expected prepayments
reduced amortization" said President John Van
Vlack. "Following the deferral of modifications due to testing
for HAMP 2 eligibility and reduced payoff collections with the
quarter ending on a Sunday, we are seeing increased loan
modifications and payoff collections in October. Accordingly,
we expect to see a rebound in the prepayment rate in the fourth
quarter. Our growth outlook remains strong, as Ocwen will have
over $120 billion of servicing assets available for purchase once
it completes the announced acquisition of Homeward planned for the
fourth quarter."
For more information on prior releases and SEC Filings, please
refer to the "Shareholders" section of our website at
www.hlss.com.
Home Loan Servicing Solutions (HLSS) is an internally-managed
owner of non-agency mortgage servicing assets with historically
stable valuations and cash flows. HLSS' assets are
predominately mortgage servicing advances that, along with the
related servicing rights, are over-collateralized 30 times by
residential real estate. HLSS' objective is to generate stable,
recurring fee-based earnings and dividends throughout the economic
cycle. For more information, visit www.hlss.com.
This news release contains 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.
Forward-looking statements are not guarantees of future
performance, and involve a number of assumptions, risks and
uncertainties that could cause actual results to differ materially.
Important factors that could cause actual results to differ
materially from those suggested by the forward-looking statements
include, but are not limited to, the following: general economic
and market conditions, prevailing interest rates, governmental
regulations and policies, availability of adequate and timely
sources of liquidity, our ability to maintain our PFIC status, real
estate market conditions and other risks detailed in HLSS' reports
and filings with the Securities and Exchange Commission. The
forward looking statements speak only as of the date they are made
and should not be relied upon. HLSS' undertakes no obligation to
update or revise the forward-looking statements.
The following table presents our condensed consolidated results
of operations in accordance with U.S. GAAP reconciled to our
internally reported financial results. Accordingly,
adjustments are made to reflect Servicing Fee Revenue, Servicing
Expense and Amortization Expense on a gross rather than a net
basis.
Our income from operations as presented in our Management
Reporting shown below should be considered in addition to, and not
as a substitute for, income from operations determined in
accordance with GAAP.
For the three months ended
September 30, 2012: |
Condensed Consolidated
Results (GAAP) |
Adjustments |
Management Reporting
(Non-GAAP) |
|
|
|
|
Revenue |
|
|
|
Servicing fee
revenue |
$ — |
$27,689 |
$27,689 |
Interest income - notes
receivable – Rights to MSRs |
14,017 |
(14,017) |
— |
Professional
services |
669 |
— |
669 |
Interest income –
other |
146 |
— |
146 |
Total revenue |
14,832 |
13,672 |
28,504 |
|
|
|
|
Operating
expenses |
|
|
Compensation and
benefits |
1,257 |
— |
1,257 |
Servicing expense |
— |
10,633 |
10,633 |
Amortization of MSRs |
— |
3,039 |
3,039 |
General and administrative
expenses |
679 |
— |
679 |
Total operating
expenses |
1,936 |
13,672 |
15,608 |
Income from operations |
$12,896 |
$ — |
$12,896 |
|
HOME LOAN SERVICING
SOLUTIONS, LTD. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(Dollars in thousands,
except share data) |
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months |
Nine
months |
For the periods ended September
30, |
2012 |
2011 |
2012 |
2011 |
Revenue |
|
|
|
|
Interest income – notes
receivable – Rights to MSRs |
$14,017 |
$ — |
$27,542 |
$ — |
Interest income –
other |
146 |
— |
283 |
— |
Total interest
income |
14,163 |
— |
27,825 |
— |
Other revenue |
669 |
— |
1,664 |
— |
Total revenue |
14,832 |
— |
29,489 |
— |
|
|
|
|
|
Operating expenses |
|
|
|
|
Compensation and
benefits |
1,257 |
— |
2,682 |
— |
General and administrative
expenses |
679 |
38 |
1,625 |
82 |
Total operating
expenses |
1,936 |
38 |
4,307 |
82 |
Income (loss) from
operations |
12,896 |
(38) |
25,182 |
(82) |
|
|
|
|
|
Other expense |
|
|
|
|
Interest expense |
6,252 |
— |
12,507 |
— |
Other expense |
6,252 |
— |
12,507 |
— |
Income (loss) before income taxes |
6,644 |
(38) |
12,675 |
(82) |
Income tax expense |
72 |
— |
149 |
— |
Net income
(loss) |
$6,572 |
$(38) |
$12,526 |
$(82) |
|
|
|
|
|
Earnings (loss) per
share |
|
|
|
|
Basic |
$0.37 |
$(1.90) |
$1.04 |
$(4.08) |
Diluted |
$0.37 |
$(1.90) |
$1.04 |
$(4.08) |
|
|
|
|
|
Weighted average ordinary
shares outstanding |
|
|
|
Basic |
17,581,593 |
20,000 |
12,008,394 |
20,000 |
Diluted |
17,581,593 |
20,000 |
12,008,394 |
20,000 |
|
|
|
|
|
Dividends declared per
share |
$0.34 |
$0.00 |
$0.94 |
$0.00 |
|
HOME LOAN SERVICING
SOLUTIONS, LTD. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Dollars in thousands,
except share data) |
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
September 30, |
December 31, |
|
2012 |
2011 |
Assets |
|
|
Cash |
$33,750 |
$283 |
Match funded
advances |
1,446,091 |
— |
Notes receivable – Rights to
MSRs |
177,730 |
— |
Other assets |
45,334 |
2,860 |
Total assets |
$1,702,905 |
$3,143 |
|
|
|
Liabilities and Equity |
|
|
Liabilities |
|
|
Match funded
liabilities |
$1,250,912 |
$ — |
Dividends payable |
3,058 |
— |
Other liabilities |
30,948 |
3,134 |
Total liabilities |
1,284,918 |
3,134 |
|
|
|
Equity |
|
|
Equity – Ordinary shares, $.01
par value; 200,000,000 and 5,000,000 shares authorized; 30,584,718
and 20,000 shares issued and outstanding at September 30, 2012 and
December 31, 2011, respectively |
$306 |
$ — |
Additional paid-in
capital |
415,155 |
300 |
Retained earnings (accumulated
deficit) |
3,889 |
(291) |
Accumulated other comprehensive
income (loss) |
(1,363) |
— |
Total equity |
417,987 |
9 |
Total liabilities and
equity |
$1,702,905 |
$3,143 |
CONTACT: James E. Lauter
Senior Vice President &
Chief Financial Officer
T: (561) 682-7561
E: James.Lauter@hlss.com
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