HR Block 2005 Annual Report Download - page 88

Mortgage Services – Financial Results (in 000s) The following table summarizes the key drivers of gains on
sales of mortgage loans:
Restated Restated
Year Ended April 30, 2005 2004 2003 (dollars in 000s)
Components of gains on Year Ended April 30, 2005 2004
sales: Application process:
Gain on mortgage Total number of applications 335,203 269,267
loans $ 772,061 $ 915,628 $ 792,072 Number of sales associates (1) 3,526 2,812
Gain (loss) on Closing ratio (2) 58.3% 57.7%
derivatives 46,853 (11,957) (4,141) Originations:
Gain on sales of Total number of originations 195,392 155,339
residual interests 15,396 40,689 93,307 WAC 7.36% 7.39%
Impairment of residual Average loan size (all loans) $ 159 $ 150
interests (12,235) (26,063) (54,111) Total originations $ 31,001,724 $ 23,256,013
822,075 918,297 827,127 Non-prime origination ratio 96.7% 94.6%
Direct origination and acquisition
Interest income:
expenses, net $ 378,674 $ 278,785
Accretion-residual
Revenue (loan value):
interests 137,610 186,466 146,343
Net gain on sale – gross margin 2.64% 3.89%
Other 11,850 5,064 5,421
(1) Includes all direct sales and back office sales support associates.
149,460 191,530 151,764 (2) Percentage of loans funded divided by total applications in the period.
Loan-servicing revenue 273,056 211,710 168,351
Other 1,427 2,172 2,838 Although origination volumes increased 33.3% over the prior
year, gains on sales of mortgage loans declined $143.6 million as a
Total revenues 1,246,018 1,323,709 1,150,080
result of increased price competition and poorer execution in the
Cost of services 221,300 193,018 141,419 secondary market. As a result, our net margin declined to 1.12%
Cost of non-service
revenues: from 2.22% in the prior year.
Compensation and The average market interest rate for a 2-year swap increased to
benefits 218,544 190,499 146,907 3.32% in fiscal year 2005 from 1.97% in 2004, while our WAC
Occupancy 33,155 25,635 22,701 decreased to 7.36% from 7.39% for the same periods. Because our
Other 72,803 71,634 74,332 WAC did not increase as quickly as market rates, our gross
324,502 287,768 243,940 margin declined 125 basis points from last year. To mitigate the
Selling, general and risk of short-term changes in market interest rates, we use
administrative 204,123 154,400 108,397 interest rate swaps, interest rate caps and forward loan sale
Total expenses 749,925 635,186 493,756 commitments. During the current year, we recorded $46.9 million
Pretax income $ 496,093 $ 688,523 $ 656,324 in net gains, compared to a net loss of $12.0 million in the prior
year, related to derivative instruments. See Item 8, note 9 to the
FISCAL 2005 COMPARED TO FISCAL 2004 ⬎⬎⬎ Mortgage consolidated financial statements.
Services’ revenues decreased $77.7 million, or 5.9%, compared to For the year ended April 30, 2004, we reclassified $167.7 million
the prior year. Revenues decreased primarily as a result of a from interest income to gains on sales of mortgage assets
decline in gains on sales of mortgage loans. representing excess cash received from our beneficial interest in
Trusts. The beneficial interest in Trusts is reported at fair value at
each balance sheet date. Changes in its fair value are included in
current period earnings. The excess cash received together with
the and mark-to-market adjustment for each period have been
classified as gain on sale of mortgage loans. This change had no
impact on our net income as previously reported.
In fiscal year 2005, we completed a sale of residual interests
and recorded a gain of $15.4 million. This sale accelerated cash
flows from these residual interests, effectively realizing
previously recorded unrealized gains included in other
H&R BLOCK 2005 Form 10K
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