HR Block 2006 Annual Report Download - page 96

The following table summarizes the key metrics related to our loan $5.1 million in additional occupancy costs and $3.2 million in higher
servicing business: allocated shared services. These increases were partially offset by a
(dollars in 000s)
$15.7 million decline in compensation and benefits resulting from
Year Ended April 30, 2006 2005 reductions in administrative and corporate headcount and lower
bonus accruals.
Average servicing portfolio:
With related MSRs $ 56,521,595 $ 41,021,448
Pretax income decreased $174.5 million, or 35.2%, for fiscal year 2006.
Without related MSRs 19,106,863 13,838,769
FISCAL 2005 COMPARED TO FISCAL 2004 –Mortgage Services’
$ 75,628,458 $ 54,860,217 revenues decreased $77.7 million, or 5.9%, compared to fiscal year 2004.
Revenues decreased primarily as a result of a decline in gains on sales
Ending servicing portfolio:
With related MSRs $ 62,910,568 $ 47,543,982
of mortgage loans.
Without related MSRs 10,471,509 20,450,482
Although origination volumes increased 33.3% over fiscal year 2004,
$ 73,382,077 $ 67,994,464 gains on sales of mortgage loans declined $143.6 million as a result of
increased price competition and poorer execution in the secondary
Number of loans serviced 441,981 435,290
Average delinquency rate 5.16% 4.85% market. As a result, our net margin declined to 1.12% from 2.22% in
Weighted average FICO score 621 618
fiscal year 2004.
Weighted average interest rate
The average market interest rate for a 2-year swap increased to 3.32%
(WAC) of portfolio 7.58% 7.46%
in fiscal year 2005 from 1.97% in 2004, while our WAC decreased to
Weighted average rate earned 0.38% 0.36%
7.36% from 7.39% for the same periods. Because our WAC did not
Carrying value of MSRs $ 272,472 $ 166,614
increase as quickly as market rates, our gross margin declined 125 basis
points from fiscal year 2004. During fiscal year 2005, we recorded
Loan servicing revenues increased $125.9 million, or 46.1%, compared $46.9 million in net gains, compared to a net loss of $12.0 million in
to the prior year. The increase reflects a higher loan servicing portfolio 2004, related to derivative instruments.
resulting from our loan origination growth. The average servicing In fiscal year 2005, we completed a sale of available-for-sale residual
portfolio for the year increased $20.8 billion, or 37.9%, to $75.6 billion, interests and recorded a gain of $15.4 million. We recorded a gain of
even with lower volumes in our sub-servicing business. The weighted $40.7 million in the prior year on similar transactions.
average rate earned on our entire servicing portfolio was 38 basis points Impairments of available-for-sale residual interests in securitizations
for fiscal year 2006, compared to 36 basis points in the prior year. of $12.2 million were recognized during fiscal year 2005 compared with
Total expenses for the current year increased $175.6 million, or 23.4%, $26.1 million in the prior year. The impairments in fiscal year 2004 were
from the prior year. Cost of services increased $75.6 million, or 34.2%, due primarily to loan performance of older residuals and changes in
mainly as a result of a higher average servicing portfolio during the assumptions to more closely align with the economic and interest
current year and increased amortization of MSRs. rate environment.
Cost of other revenues increased $88.3 million over fiscal year 2005, Total accretion of residual interests decreased $48.9 million from
and includes a $12.6 million restructuring charge associated with the fiscal year 2004. This decrease is primarily due to the sale of previously
closing of some of our branch offices. See additional discussion of the securitized residual interests during fiscal year 2004, which eliminated
restructuring charge in Item 8, note 16 to the consolidated financial future accretion on those residual interests.
statements. Compensation and benefits increased $53.8 million primarily During fiscal year 2005, our available-for-sale residual interests
due to an increase in the average number of sales associates during the continued to perform better than expected compared to internal
year to support higher loan volumes and the resulting increase in valuation models. We recorded favorable pretax mark-to-market
origination-based incentives, coupled with $6.7 million in severance adjustments, which increased the fair value of these residual interests
charges recorded as part of the restructuring. Occupancy expenses $154.3 million during fiscal year 2005. These adjustments were
increased $7.8 million primarily due to $5.9 million in lease termination recorded, net of write-downs of $58.3 million and deferred taxes of
costs recorded as part of the restructuring. Other expenses increased $36.6 million, in other comprehensive income and will be accreted into
$26.7 million primarily as a result of $20.1 million in additional interest income throughout the remaining life of these residual interests.
expense related to mortgage loans held on our balance sheet and Loan-servicing revenues increased $61.3 million, or 29.0%, over fiscal
$5.0 million of additional depreciation and amortization of our newly year 2004. The increase reflects a higher average loan-servicing portfolio.
implemented origination and servicing software. The average servicing portfolio for fiscal year 2005 increased 42.4%.
Selling, general and administrative expenses increased $11.7 million
primarily due to $15.3 million in additional marketing expenses,
26
H&R BLOCK 2006 Form 10K