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Home Loan Servicing Solutions, Ltd. Reports EPS of $0.56 and Net Income of $40.1 Million in the Fourth Quarter of 2013

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GEORGE TOWN, Grand Cayman, Feb. 6, 2014 (GLOBE NEWSWIRE) -- 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

Source:Home Loan Servicing Solutions, Ltd.