Home Loan Servicing Solutions, Ltd. Reports EPS of $0.56 and Net Income of $40.1 Million in the Fourth Quarter of 2013
February 06 2014 - 7:30AM
Home Loan Servicing Solutions, Ltd. ("HLSS" or the "Company")
(Nasdaq:HLSS) today reported net income of $40.1 million, or $0.56
per ordinary share, for the fourth quarter of 2013.
Fourth quarter business performance highlights:
- Earned a record $40.1 million, or $0.56 per ordinary
share.
- Declared monthly dividends of $0.15 per share totaling $32.0
million for the quarter.
- Completed the issuance of $300 million of three-year term notes
secured by servicing advance receivables at a weighted average
interest spread over LIBOR of 1.40% in November.
- Earnings include a $0.04 per share benefit from lower than
expected annualized prepayment speed of 12.4 percent, a new low for
this asset class.
- There was no change in servicing asset valuations.
Subsequent to the end of the fourth quarter of 2013:
- On January 16, 2014, we declared monthly dividends of $0.15 per
ordinary share for each of the months of January, February and
March 2014.
- On January 17, 2014, we completed the issuance of $600 million
of one-year and $200 million of three-year term notes secured by
servicing advance receivables at a weighted average interest spread
over LIBOR of 1.09%.
- On February 4, 2014, we amended the purchase and subservicing
agreements with Ocwen to change the capital charge rate on
servicing advances in excess of the contractual target from a fixed
rate to a variable rate of LIBOR + 2.75%. This amendment also
provides that HLSS will continue to receive income on the loans in
its portfolio that are refinanced by Ocwen.
"Prepayment speeds slowed in the fourth quarter reflecting the
seasoning of assets on Ocwen's servicing platform and reached a new
low for this asset class" said Chairman William Erbey. "This
contributed to HLSS' record earnings in the fourth quarter and
could continue to provide benefits going forward."
"The amendment to the terms of our agreement with Ocwen enhances
the alignment of interests between our businesses and reduces risk
for HLSS. Given current forward rates, we see the amendment to the
capital charge as neutral to earnings over the life of the
contract" said President and CEO John Van Vlack.
For more information on prior releases and SEC Filings, please
refer to the "Shareholders" section of our website at
www.hlss.com.
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 more than 25 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 consolidated results of
operations in accordance with U.S. GAAP ("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 format 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
December 31, 2013: |
Consolidated
Results (GAAP) |
Adjustments |
Management Reporting
(Non-GAAP) |
|
|
|
|
Revenue |
|
|
|
|
|
|
|
Servicing fee
revenue |
$ — |
$ 201,582 |
$ 201,582 |
Interest income - notes
receivable – Rights to MSRs |
77,237 |
(77,237) |
— |
Interest income –
other |
1,299 |
— |
1,299 |
Related party
revenue(1) |
353 |
— |
353 |
Total revenue |
78,889 |
124,345 |
203,234 |
|
|
|
|
Operating expenses |
|
|
|
Compensation and
benefits |
948 |
— |
948 |
Servicing expense |
— |
103,115 |
103,115 |
Amortization of MSRs |
— |
21,230 |
21,230 |
Related party expenses
(2) |
720 |
— |
720 |
General and administrative
expenses |
1,991 |
— |
1,991 |
Total operating
expenses |
3,659 |
124,345 |
128,004 |
Income from operations |
$ 75,230 |
$ — |
$ 75,230 |
|
|
|
|
|
|
|
|
For the three months ended
December 31, 2012: |
Condensed Consolidated
Results (GAAP) |
Adjustments |
Management Reporting
(Non-GAAP) |
|
|
|
|
Revenue |
|
|
|
|
|
|
|
Servicing fee
revenue |
$ — |
$ 60,599 |
$ 60,599 |
Interest income - notes
receivable – Rights to MSRs |
27,157 |
(27,157) |
— |
Interest income –
other |
(173) |
— |
(173) |
Related party
revenue(1) |
652 |
— |
652 |
Total revenue |
27,636 |
33,442 |
61,078 |
|
|
|
|
Operating expenses |
|
|
|
Compensation and
benefits |
1,069 |
— |
1,069 |
Servicing expense |
— |
27,080 |
27,080 |
Amortization of MSRs |
— |
6,362 |
6,362 |
Related party expenses
(2) |
277 |
— |
277 |
General and administrative
expenses |
497 |
— |
497 |
Total operating
expenses |
1,843 |
33,442 |
35,285 |
Income from operations |
$ 25,793 |
$ — |
$ 25,793 |
|
|
|
|
(1) Revenue earned as part of our
Professional Services Agreement with Ocwen. |
|
|
|
(2) Expenses incurred as part of
our Professional Services Agreement and Administrative Services
Agreement with Ocwen and Altisource, respectively. |
|
HOME LOAN SERVICING
SOLUTIONS, LTD. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(Dollars in thousands,
except share data) |
(UNAUDITED) |
|
|
|
|
|
|
Three
months |
Twelve
months |
For the periods ended December
31, |
2013 |
2012 |
2013 |
2012 |
Revenue |
|
|
|
|
Interest income – notes
receivable – Rights to MSRs |
$ 77,237 |
$ 27,157 |
$ 245,863 |
$ 54,699 |
Interest income –
other |
1,299 |
(173) |
2,195 |
109 |
Total interest
income |
78,536 |
26,984 |
248,058 |
54,808 |
Related party
revenue |
353 |
652 |
1,811 |
2,316 |
Total revenue |
78,889 |
27,636 |
249,869 |
57,124 |
|
|
|
|
|
Operating expenses |
|
|
|
|
Compensation and
benefits |
948 |
1,069 |
5,825 |
3,751 |
Related party
expenses |
720 |
277 |
1,400 |
755 |
General and administrative
expenses |
1,991 |
497 |
4,645 |
1,644 |
Total operating
expenses |
3,659 |
1,843 |
11,870 |
6,150 |
|
|
|
|
|
Income from operations |
75,230 |
25,793 |
237,999 |
50,974 |
|
|
|
|
|
Other expense |
|
|
|
|
Interest expense |
35,715 |
11,550 |
110,071 |
24,057 |
Total other expense |
35,715 |
11,550 |
110,071 |
24,057 |
|
|
|
|
|
Income before income taxes |
39,515 |
14,243 |
127,928 |
26,917 |
Income tax benefit/(expense) |
582 |
103 |
(234) |
(46) |
Net
income |
$ 40,097 |
$ 14,346 |
$ 127,694 |
$ 26,871 |
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
$ 0.56 |
$ 0.44 |
$ 1.99 |
$ 1.56 |
Diluted |
$ 0.56 |
$ 0.44 |
$ 1.99 |
$ 1.56 |
|
|
|
|
|
Weighted average ordinary shares
outstanding |
|
|
|
|
Basic |
71,016,771 |
32,784,718 |
64,132,383 |
17,230,858 |
Diluted |
71,016,771 |
32,784,718 |
64,132,383 |
17,230,858 |
|
|
|
|
|
Dividends declared per
share |
$ 0.45 |
$ 0.42 |
$ 1.70 |
$ 1.45 |
|
HOME LOAN SERVICING
SOLUTIONS, LTD. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Dollars in thousands,
except share data) |
(UNAUDITED) |
|
|
|
|
December 31,
2013 |
December 31,
2012 |
|
|
|
Assets |
|
|
Cash and cash
equivalents |
$ 87,896 |
$ 76,048 |
Match funded
advances |
6,387,781 |
3,098,198 |
Notes receivable – Rights to
MSRs |
651,060 |
303,705 |
Related party
receivables |
70,049 |
28,271 |
Deferred tax assets |
1,024 |
— |
Other assets |
130,153 |
79,091 |
Total assets |
$ 7,327,963 |
$ 3,585,313 |
|
|
|
Liabilities and Equity |
|
|
Liabilities |
|
|
Match funded
liabilities |
$ 5,715,622 |
$ 2,690,821 |
Other borrowings |
343,386 |
— |
Dividends payable |
10,653 |
6,706 |
Income taxes payable |
682 |
46 |
Deferred tax
liabilities |
1,266 |
— |
Related party
payables |
10,732 |
2,874 |
Other liabilities |
11,884 |
4,233 |
Total liabilities |
6,094,225 |
2,704,680 |
|
|
|
|
|
|
Equity |
|
|
Equity – Ordinary shares, $.01
par value; 200,000,000 shares authorized; 71,016,771 and 55,884,718
shares issued and outstanding at December 31, 2013 and December 31,
2012, respectively |
710 |
559 |
Additional paid-in
capital |
1,210,057 |
876,657 |
Retained earnings |
20,804 |
4,493 |
Accumulated other comprehensive
income (loss), net of tax |
2,167 |
(1,076) |
Total equity |
1,233,738 |
880,633 |
Total liabilities and
equity |
$ 7,327,963 |
$ 3,585,313 |
CONTACT: James E. Lauter
Senior Vice President &
Chief Financial Officer
T: +1 345-815-3932
E: James.Lauter@hlss.com
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