HR Block 2007 Annual Report Download - page 57

Discontinued Operations :: Operating Statistics(dollars in 000s) Discontinued Operations :: Operating Results (in 000s)
Year Ended April 30, 2007 2006 2005 Year Ended April 30, 2007 2006 2005
Components of gains on sales:
VOLUME OF LOANS
Gain on mortgage loans $101,980 $648,693 $811,734
ORIGINATED –
Gain (loss) on derivatives (11,042) 141,223 46,853
Wholesale (non-prime) $24,342,779 $36,028,794 $ 26,977,810
Loan sale repurchase
Retail:
reserves (388,733) (73,562) (39,673)
Non-prime 1,588,944 3,260,071 3,005,168
Gain on sales of residual
Prime 1,141,744 1,490,898 1,018,746
interests 7,038 31,463 15,396
$27,073,467 $40,779,763 $ 31,001,724 Impairment of residual
LOAN CHARACTERISTICS(1) interests (168,878) (34,107) (12,235)
Weighted average FICO score 613 622 614 (459,635) 713,710 822,075
Weighted average interest rate Interest income 55,024 133,703 149,581
for borrowers (WAC) 8.60% 7.87% 7.36% Loan servicing revenue 433,438 398,992 273,056
Weighted average loan-to- Other 45,747 51,643 28,938
value 82.2% 80.6% 78.9% Total revenues 74,574 1,298,048 1,273,650
ORIGINATION MARGIN (% OF
ORIGINATION VOLUME) –Cost of services 380,186 351,676 253,461
Loan sale premium (discount) (0.06%) 1.42% 2.77% Cost of other revenues 295,336 444,391 356,052
Residual cash flows from Impairments 350,878 ––
beneficial interest in Trusts 0.43% 0.51% 0.63% Selling, general and
Gain (loss) on derivatives (0.04%) 0.35% 0.15% administrative 281,182 185,070 174,035
Loan sale repurchase reserves (1.44%) (0.18%) (0.13%) Total expenses 1,307,582 981,137 783,548
Retained MSRs 0.64% 0.61% 0.44% Pretax income (loss) (1,233,008) 316,911 490,102
(0.47%) 2.71% 3.86% Income taxes (benefit) (425,018) 124,044 185,941
Cost of acquisition (0.14%) (0.37%) (0.54%) Net income (loss) $(807,990) $192,867 $304,161
Direct origination expenses (0.49%) (0.58%) (0.68%)
29 m
Net gain on sale –gross (1) Represents non-prime production.
margin (2) (1.10%) 1.76% 2.64% (2) Defined as gain on sale of mortgage loans (including gain or loss on derivatives,
Other revenues (0.11%) (0.02%) 0.03% mortgage servicing rights and net of direct origination and acquisition expenses)
Other cost of origination (1.61%) (1.33%) (1.55%) divided by origination volume.
(3) See ‘‘Reconciliation of Non-GAAP Financial Information’’ at the end of Item 7.
Net margin (loss) (2.80%) 0.41% 1.12% (4) Defined as total premium received divided by total balance of loans delivered to
Total cost of origination (3) 2.10% 1.91% 2.23% third-party investors or securitization vehicles (excluding mortgage servicing rights
Total cost of origination and and the effect of loan origination expenses).
acquisition 2.24% 2.28% 2.77%
LOAN DELIVERY–
Loan sales:
FISCAL 2007 COMPARED TO FISCAL 2006 –Conditions in the non-
Third-party buyers $26,295,714 $40,272,225 $ 30,975,523
prime mortgage industry were challenging throughout fiscal year 2007,
HRB Bank 1,181,498 ––
and particularly in our fourth quarter. Our mortgage operations, as well
$27,477,212 $40,272,225 $ 30,975,523
as the entire industry, were impacted by deteriorating conditions in the
Execution price (4) 1.10% 1.58% 3.01%
secondary market, where reduced investor demand for loan purchases,
higher investor yield requirements and increased estimates for future
losses reduced the value of non-prime loans. Under these conditions
non-prime originators generally reported significant increases in losses
and many were unable to meet their financial obligations. During the
fourth quarter we tightened our underwriting standards, which had the
effect of reducing our loan origination volumes, but we expect will
result in the origination of higher quality loans with better pricing in the
secondary markets.
The pretax loss of $1.2 billion includes losses of $50.2 million from
our Business Services and Tax Services discontinued operations, with
the remainder from our mortgage business. As discussed more fully
H&R BLOCK 2007 Form 10K