Home Loan Servicing Solutions, Ltd. Reports EPS of $0.76 and Net Income of $54.1 Million in the Second Quarter of 2014 and De...
July 17 2014 - 7:30AM
Home Loan Servicing Solutions, Ltd. ("HLSS", "our", "we" or the
"Company") (Nasdaq:HLSS) today reported net income of $54.1
million, or $0.76 per ordinary share, for the second quarter of
2014. Additionally, the Company's Board of Directors today declared
monthly dividends of $0.16 per ordinary share for July, August and
September 2014.
Second quarter business performance highlights:
- Earned $41.4 million, or $0.58 per ordinary share, after
adjusting for the increase in the fair value of our MSR assets of
$12.7 million, or $0.18 per ordinary share. The increase in the
annualized prepayment speed to 10.9 percent reduced earnings by
$0.02 per ordinary share relative to first quarter earnings.
- Issued $400 million of unrated four-year term notes secured by
servicing advance receivables at a weighted average fixed interest
rate of 2.88%.
- Acquired re-performing whole loans with an aggregate UPB of
$396.9 million from a large bank. The purchase price for these
loans was $276.3 million.
- Borrowed $219.5 million on a new $290.0 million mortgage loan
facility to finance the re-performing loan purchase.
Subsequent to the end of the second quarter of 2014:
- On July 16, 2014, entered into agreements to extend the
maturity of our variable funding notes with an aggregate borrowing
capacity of $2.1 billion to August 28, 2015.
- On July 17, 2014, declared monthly dividends of $0.16 per
ordinary share for each of the months of July, August and September
2014.
"After adjusting for the revaluation of our MSR assets, earnings
were close to the high-end of our expectations as prepayment speeds
increased only modestly from the record low last quarter. This
increase was due to the predicted recovery in the rate of
liquidations on seriously delinquent loans," said President and CEO
John Van Vlack. "Earnings stability will benefit from the issuance
of four-year fixed rate term notes and from the reinvestment of
cash generated in excess of our dividend in the purchase of
re-performing loans."
"As an asset class, I expect re-performing loans to provide an
attractive risk-adjusted yield based on the Company's experience
with modified loans in our existing servicing portfolio," said
Chairman William Erbey. "The strategic fit of re-performing loans
is enhanced as the income generated from the prepayment of loans
purchased at a discount offers a hedge against prepayments in HLSS'
existing non-agency MSRs."
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 residential mortgage
assets with historically stable valuations and cash flows. HLSS'
largest asset is mortgage servicing advances that, along with the
related servicing rights, are over-collateralized more than 25
times by the underlying 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.
All statements, other than statements of historical facts, included
in this press release, including, without limitation, statements we
make about our business model, dividend, future earnings,
financing, market opportunities, asset performance, asset
valuation, business strategy and expectations and objectives for
our future performance, are forward-looking statements. These
forward-looking statements include declarations regarding our
management's beliefs and current expectations. All forward-looking
statements are subject to certain risks, uncertainties and
assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking
statements. Important factors that could cause or contribute to
such difference include those risks specific to our business
detailed within our reports and filings with the SEC, including our
Annual Report on Form 10-K for the year ended December 31, 2013,
filed with the SEC on February 6, 2014 (the "2013 Form 10-K") and
our Quarterly Report on Form 10-Q for the quarter ended June 30,
2014 (the "Q2 Form 10-Q"). You should not place undue reliance on
such forward-looking statements, which speak only as of their
dates. We undertake no obligation to update or revise
forward-looking statements¸ whether as a result of new information,
future events or otherwise. You should carefully consider the risk
factors described under the heading "Risk Factors" within our 2013
Form 10-K and our Q2 Form 10-Q.
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 June
30, 2014: |
Condensed Consolidated
Results (GAAP) |
Adjustments |
Management Reporting
(Non-GAAP) |
|
|
|
|
Revenue |
|
|
|
|
|
|
|
Servicing fee revenue |
$ — |
$ 185,690 |
$ 185,690 |
Interest income - notes receivable –
Rights to MSRs |
89,969 |
(89,969) |
— |
Interest income – other |
7,790 |
— |
7,790 |
Related party revenue(1) |
773 |
— |
773 |
Total revenue |
98,532 |
95,721 |
194,253 |
|
|
|
|
Operating expenses |
|
|
|
Compensation and benefits |
2,031 |
— |
2,031 |
Servicing expense |
— |
90,901 |
90,901 |
Amortization of MSRs |
— |
17,535 |
17,535 |
Change in fair value of Notes receivable
– Rights to MSRs |
— |
(12,715) |
(12,715) |
Related party expenses (2) |
496 |
— |
496 |
General and administrative expenses |
1,949 |
— |
1,949 |
Total operating expenses |
4,476 |
95,721 |
100,197 |
Income from operations |
$ 94,056 |
$ — |
$ 94,056 |
|
(1) Revenue earned as part of our
Professional Services Agreement with Ocwen Financial Corporation
(together with its subsidiaries, collectively "Ocwen"). |
(2) Expenses incurred as part of
our Professional Services Agreement and Administrative Services
Agreement with Ocwen and Altisource Portfolio Solutions, S.A.,
respectively. |
HOME LOAN SERVICING
SOLUTIONS, LTD. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(Dollars in thousands,
except share data) |
(UNAUDITED) |
|
|
Three
months |
Six
months |
For the periods ended June
30, |
2014 |
2013 |
2014 |
2013 |
Revenue |
|
|
|
|
Interest income – notes receivable –
Rights to MSRs |
$ 89,969 |
$ 49,852 |
$ 171,821 |
$ 94,422 |
Interest income – other |
7,790 |
97 |
10,750 |
199 |
Total interest income |
97,759 |
49,949 |
182,571 |
94,621 |
Related party revenue |
773 |
560 |
1,401 |
967 |
Total revenue |
98,532 |
50,509 |
183,972 |
95,588 |
|
|
|
|
|
Operating expenses |
|
|
|
|
Compensation and benefits |
2,031 |
1,602 |
3,765 |
2,768 |
Related party expenses |
496 |
226 |
868 |
452 |
General and administrative expenses |
1,949 |
734 |
4,098 |
1,379 |
Total operating expenses |
4,476 |
2,562 |
8,731 |
4,599 |
|
|
|
|
|
Income from operations |
94,056 |
47,947 |
175,241 |
90,989 |
|
|
|
|
|
Other expense |
|
|
|
|
Interest expense |
40,001 |
20,034 |
77,512 |
38,276 |
Other expense |
40,001 |
20,034 |
77,512 |
38,276 |
|
|
|
|
|
Income before income taxes |
54,055 |
27,913 |
97,729 |
52,713 |
Income tax expense |
— |
27 |
— |
39 |
Net income |
$ 54,055 |
$ 27,886 |
$ 97,729 |
$ 52,674 |
|
|
|
|
|
Earnings per
share |
|
|
|
|
Basic |
$ 0.76 |
$ 0.48 |
$ 1.38 |
$ 0.92 |
Diluted |
$ 0.76 |
$ 0.48 |
$ 1.38 |
$ 0.92 |
|
|
|
|
|
Weighted average ordinary shares
outstanding |
|
|
|
|
Basic |
71,016,771 |
57,633,399 |
71,016,771 |
57,133,888 |
Diluted |
71,016,771 |
57,633,399 |
71,016,771 |
57,133,888 |
|
|
|
|
|
Dividends declared per
share |
$ 0.48 |
$ 0.42 |
$ 0.93 |
$ 0.80 |
HOME LOAN SERVICING
SOLUTIONS, LTD. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Dollars in thousands,
except share data) |
(UNAUDITED) |
|
June 30,
2014 |
December 31,
2013 |
Assets |
|
|
Cash and cash equivalents |
$ 89,418 |
$ 87,896 |
Match funded advances |
6,133,758 |
6,387,781 |
Notes receivable – Rights to MSRs |
629,579 |
651,060 |
Loans held for investment |
802,091 |
— |
Related party receivables |
17,054 |
70,049 |
Deferred tax assets |
1,024 |
1,024 |
Other assets |
261,579 |
130,153 |
Total assets |
$ 7,934,503 |
$ 7,327,963 |
|
|
|
Liabilities and Equity |
|
|
Liabilities |
|
|
Match funded liabilities |
$ 5,593,927 |
$ 5,715,622 |
Other borrowings |
1,049,728 |
343,386 |
Dividends payable |
11,363 |
10,653 |
Income taxes payable |
600 |
682 |
Deferred tax liabilities |
578 |
1,266 |
Related party payables |
2,990 |
10,732 |
Other liabilities |
11,147 |
11,884 |
Total liabilities |
6,670,333 |
6,094,225 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
Equity – Ordinary shares, $.01 par value;
200,000,000 shares authorized; 71,016,771 and 71,016,771 shares
issued and outstanding at June 30, 2014 and December 31, 2013,
respectively |
710 |
710 |
|
Additional paid-in capital |
1,210,121 |
1,210,057 |
|
Retained earnings |
52,488 |
20,804 |
|
Accumulated other comprehensive income,
net of tax |
851 |
2,167 |
|
Total equity |
1,264,170 |
1,233,738 |
|
Total liabilities and equity |
$ 7,934,503 |
$ 7,327,963 |
|
CONTACT: James E. Lauter
Senior Vice President &
Chief Financial Officer
T: +1 345-815-3932
E: James.Lauter@hlss.com
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