EX-99 2 exhibit-112906.htm PRESS RELEASE


News Release

 

For Further Information

Media Relations:

Nick Iammartino, 816-854-4556, nick.iammartino@hrblock.com

Investor Relations:

Scott Dudley, 816-854-4505, scott.dudley@hrblock.com

 

 

H&R BLOCK ANNOUNCES FISCAL 2007 SECOND QUARTER RESULTS

 

Tax Services Prepared for Solid Upcoming Season

Weakness in Mortgage Industry Drives Larger Loss

 

FOR RELEASE Nov. 30, 2006 4:00 p.m. EST

 

KANSAS CITY, Mo. – H&R Block Inc. (NYSE: HRB) today reported a net loss of $156.5 million, or 49 cents per basic and diluted share, for the fiscal 2007 second quarter ended Oct. 31, compared with a loss of $81.2 million, or 25 cents per share, in the year-ago quarter. Due to the seasonality of its Tax Services business segment, the company normally reports an operating loss for its fiscal first and second quarters. Revenues in the quarter were $563.2 million versus $605.0 million in the prior-year period.

 

“Our largest business, Tax Services, performed in line with expectations. Pre-season results in November were encouraging, and we believe H&R Block is solidly positioned for a successful tax season,” said Mark A. Ernst, chairman and chief executive officer. “In Business Services, RSM McGladrey reported strong top-line revenue growth, and Consumer Financial Services moved closer to our profitability targets.

 

“The issue for us in the second quarter was ongoing weakness in the mortgage industry,” Ernst continued. Option One Mortgage was affected by the industrywide trend of reduced origination volumes, reduced gain on sale margins and increased provisions for loan losses.

 

“As we consider strategic alternatives for Option One, we remain focused on maintaining its position as a leading non-prime originator,” Ernst said, citing a recently announced restructuring to further align capacity and costs with lower volumes. H&R Block announced Nov. 6 that it was evaluating strategic alternatives for Option One, including sale or a public market transaction.

 

“We expect to determine our course of action during the first quarter of calendar 2007,” Ernst said.

 

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H&R Block Reports Fiscal 2007 Second Quarter Results/page 2

 

For the six months ended Oct. 31, 2006, H&R Block reported a net loss of $287.8 million, or 89 cents per share, compared with a loss of $109.2 million, or 33 cents per share, for the same period of fiscal 2006. Six-month revenues were $1.1 billion in fiscal 2007 versus $1.2 billion last year.

 

Tax Services

 

Second quarter 2007 revenues edged up 2 percent to $82.1 million from $80.8 million in the prior-year period. A pretax loss of $167.4 million in the fiscal 2007 quarter compared with a $142.9 million loss posted last year, and was primarily due to added costs associated with offices that opened early in November, initiatives to ensure systemwide operational readiness for the upcoming tax season, and the incremental off-season costs of a larger number of offices. The company’s office network is on track to grow by 300 to 400 locations for the coming tax season to about 12,500 across the United States, after adding approximately 1,000 offices in fiscal 2006.

 

“We are pleased with the execution of our strategy to open some offices earlier and with the success of our pre-tax season loan product,” Ernst said. In early November, H&R Block announced plans to strengthen its competitive leadership in the early season by offering an Instant Money Advance Loan that can save clients up to 50 percent on fees versus competitive offerings and can link with a low-cost bank account.

 

For the first six months of fiscal 2007, revenues of $148.1 million were up 7 percent from $138.0 million last year. The pretax loss of $320.6 million compares with a loss of $287.4 million in the year-ago period.

 

Mortgage Services

 

Mortgage Services revenues decreased to $140.6 million in the fiscal 2007 second quarter from $235.8 million last year. The decrease was driven by lower originations and by a decrease in gains on sale due to lower than expected loan sale premiums and higher provisions for loan losses. The business posted a pretax loss of $39.0 million versus pretax income of $48.8 million a year ago.

 

Non-prime loan origination volume was $6.6 billion versus a record $12.2 billion in the year-ago quarter and $7.8 billion in the first quarter of fiscal 2007, as softness in the U.S. housing market and tightened loan underwriting continued to suppress loan volume.

 

Net gain on sale-gross margin for Mortgage Services was 37 basis points compared with 81 basis points in the fiscal year’s first quarter, reflecting losses on derivatives and lower loan sale premiums.

 

Loan loss provisions totaled 69 basis points in the second quarter due to continued high default rates and greater loss severity. As a result of changes in loss severity estimates, the second quarter provision includes approximately 19 basis points related to production in prior periods.

 

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H&R Block Reports Fiscal 2007 Second Quarter Results/page 3

 

“We believe changes we’ve made to our operations, products and pricing will improve loan performance and profitability as underwriting changes make their way through our loan pipeline,” Ernst stated.

 

Non-prime loan origination costs were 1.59 percent of origination volume in the second quarter of 2007 versus 1.41 percent in the year’s first quarter and 1.29 percent a year ago, reflecting declines in origination volumes without a fully corresponding ability to reduce fixed costs.

 

“We should see benefits in the future from our work to implement further improvements in the origination process along with staffing and technology changes,” Ernst added.

 

Option One’s mortgage servicing portfolio was $73.0 billion at the end of the quarter, down approximately $2 billion from the first quarter of fiscal 2007. Compared with the first quarter, servicing revenue rose to $113.7 million from $109.0 million, while pretax income declined 2 percent to $20.7 million.

 

The company incurred $12.2 million in residual asset impairments, which were recorded as a reduction in gains on sale of mortgage assets in the income statement. The company also realized a net write-up to residuals of $7.6 million in the second quarter, which was recorded in other comprehensive income, net of deferred taxes.

 

For the first six months of fiscal 2007, revenues decreased to $310.3 million from $540.8 million in the prior year period, and a pretax loss of $44.0 million compared with pretax income of $179.5 million last year.

 

Business Services

 

Business Services revenues rose 37 percent to $229.1 million in the 2007 second quarter from $166.8 million a year earlier. The majority of the increase was due to the addition of American Express Tax and Business Services (Amex TBS), which was acquired effective Oct. 1, 2005. RSM McGladrey’s legacy tax, accounting and consulting operations also achieved solid double-digit growth.

 

The segment’s pretax loss of $18.7 million versus $2.1 million a year ago primarily reflects higher off-season costs associated with the addition of Amex TBS, incremental spending to build brand awareness, and higher losses in certain of its extended businesses.

 

Six-month segment revenues were $434.2 million, up 48 percent from $293.7 million in last year’s period. The fiscal year-to-date pretax loss was $33.3 million versus a loss of $8.9 million in the prior year period.

 

Consumer Financial Services

 

Consumer Financial Services became a new segment effective May 1, 2006, and comprises H&R Block Financial Advisors, H&R Block Mortgage and H&R Block Bank (which began operations May 1). Second quarter revenues for the segment were

 

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H&R Block Reports Fiscal 2007 Second Quarter Results/page 4

 

$112.4 million versus $121.7 million last year, while the pretax loss decreased to $6.6 million from $10.5 million last year.

 

“Our new segment is moving toward profitability,” Ernst said. “The financial advisory and retail mortgage businesses will continue to build on strong relationships with our tax professionals to provide clients with integrated financial advice and products, and we’re excited about the opportunities our new bank brings.”

 

H&R Block Financial Advisors again improved its results over prior year. Financial advisor productivity rose 4 percent over last year’s quarter. The company continued to be successful in recruiting top producers in a highly competitive market.

 

H&R Block Mortgage Corp. originated $769.3 million in loans during the second quarter, selling $471.2 million of non-prime loans to Option One and the remaining prime production to a third party.

 

Total assets for H&R Block Bank grew to $762.1 million at the end of the second quarter from $566.8 million three months earlier. “The Bank continues to build its deposit base and the investment side of its balance sheet, moving its performance metrics closer to planned levels for its initial year of operation,” Ernst said.

 

For the first six months of fiscal 2007, segment revenues were $220.7 million versus $246.1 million, and pretax loss was $14.4 million versus $14.2 million last year.

 

Dividend Approved

 

H&R Block’s board of directors yesterday approved a quarterly cash dividend of 13.5 cents per share, payable Jan. 2, 2007, to shareholders of record Dec. 12, 2006. The payment will be the company’s 177th consecutive quarterly dividend.

 

Other

 

Intersegment activities, which primarily involve sales of mortgage loans from Option One to H&R Block Bank, and from H&R Block Mortgage to Option One, are included in segment results but eliminated in consolidation. Intersegment gains of $4.1 million for the quarter and $14.4 million for the six-month period on loan sales from Option One to H&R Block Bank were eliminated in consolidation.

 

During the six months, the company reacquired 8.4 million shares of its common stock at a total cost of $186.6 million, or an average purchase price of $22.26 per share.

 

The company continues to expect fiscal 2007 earnings to be $1.20 to $1.45 per share, a lowered range announced Nov. 6 reflecting less favorable conditions in the mortgage market. The volatility within the earnings range will continue to be a function of the changing mortgage market and the company’s ability to effectively manage its mortgage business under those conditions during its assessment of strategic alternatives for Option One.

 

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H&R Block Reports Fiscal 2007 Second Quarter Results/page 5

 

Conference Call

 

H&R Block will host a conference call for analysts, institutional investors and shareholders at 5 p.m. EST (4 p.m. CST) on Thursday, Nov. 30. Mark Ernst and Bill Trubeck, executive vice president and chief financial officer, will discuss second quarter results and future expectations as well as respond to analysts' questions. To access the call, please dial the number below approximately five to 10 minutes prior to the scheduled starting time:

 

 

U.S./Canada (800) 706-7741 - Access Code: 90610612

 

International (617) 614-3471 - Access Code: 90610612

 

The call will be webcast in a listen-only format for the media and public. The link to the webcast can be obtained at www.hrblock.com. A supporting slide presentation will be available in connection with the webcast and can be accessed directly on H&R Block's Investor Relations Web site, at www.hrblock.com, by clicking on Our Company, then Block Investors.

 

A replay of the call will be available beginning at 6 p.m. EST Nov. 30 and continuing until 12:00 p.m. EST Jan. 14, 2007, by dialing (888) 286-8010 (U.S./Canada) or (617) 801-6888 (International). The replay access code is 83225731. A replay of the webcast will also be available on the company's Web site at www.hrblock.com.

 

Forward Looking Statement

The information contained in this press release may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based upon current information and management’s expectations regarding the company, speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such forward-looking statements.

 

Such differences could be caused by a number of factors including, but not limited to, the uncertainty of the entry by the company into an agreement regarding any sale or public market alternative involving the separation of Option One Mortgage Corp.; the uncertainty regarding the completion of any such transaction; the uncertainty that the company will achieve or exceed its revenue, earnings, and earnings-per-share growth goals or expectations for fiscal year 2007; the uncertainty of the company’s ability to purchase shares of its common stock pursuant to the board of directors’ authorization; the uncertainty of the impact and effect of changes in the non-prime mortgage market, including changes in interest rates, loan origination volume and levels of early payment defaults and resulting loan repurchases; changes in the company’s effective income tax rate; litigation involving the company and its subsidiaries; changes in market, economic, political or regulatory environments; changes in management and strategies; and risks described from time to time in reports and statements filed by the company and its subsidiaries with the Securities and Exchange Commission.

 

About H&R Block

H&R Block Inc. (NYSE: HRB) is a leading provider of tax, financial, mortgage, accounting and business consulting services and products.  H&R Block is the world’s largest tax services provider, having prepared more than 400 million tax returns since 1955.  The company and its subsidiaries generated revenues of $4.9 billion and net income of $490 million in fiscal year 2006.  The company operates in four principal business segments: Tax Services (income tax

 

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H&R Block Reports Fiscal 2007 Second Quarter Results/page 6

 

preparation and advice via in-office, online and software solutions); Mortgage Services (non-prime mortgage originations and loan servicing); Business Services (tax, accounting and consulting services for midsized businesses); and Consumer Financial Services (investment and financial advisory services, retail mortgage loans and banking services).  Headquartered in Kansas City, Mo., H&R Block markets its services and products under three leading brands – H&R Block, Option One and RSM McGladrey.  For more information visit our Online Press Center at www.hrblock.com.

 

Tables follow

 

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KEY OPERATING RESULTS

Unaudited, amounts in thousands, except per share data

 

 

 

Three months ended October 31,

 

 

 

Revenues

 

Income (loss)

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Services

 

$

82,097

 

$

80,813

 

($167,442

)

($142,864

)

Mortgage Services

 

 

140,576

 

 

235,751

 

(39,041

)

48,800

 

Business Services

 

 

229,103

 

 

166,805

 

(18,744

)

(2,143

)

Consumer Financial Services

 

 

112,444

 

 

121,690

 

(6,640

)

(10,467

)

Corporate

 

 

6,725

 

 

4,383

 

(27,851

)

(26,695

)

Eliminations

 

 

(7,704

)

 

(4,399

)

(3,074

)

240

 

 

$

563,241

 

$

605,043

 

(262,792

)

(133,129

)

Income tax benefit

 

 

 

 

 

 

 

(106,332

)

(51,880

)

Net loss

 

 

 

 

 

 

 

($156,460

)

($81,249

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

 

 

 

 

 

 

(0.49

)

(0.25

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted shares outstanding

 

 

 

 

 

 

 

321,742

 

326,047

 

 

 

 

 

Six months ended October 31,

 

 

 

Revenues

 

Income (loss)

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Services

 

$

148,132

 

$

138,004

 

($320,590

)

($287,370

)

Mortgage Services

 

 

310,252

 

 

540,798

 

(43,965

)

179,464

 

Business Services

 

 

434,234

 

 

293,651

 

(33,309

)

(8,908

)

Consumer Financial Services

 

 

220,742

 

 

246,070

 

(14,420

)

(14,215

)

Corporate

 

 

12,283

 

 

9,387

 

(56,363

)

(48,457

)

Eliminations

 

 

(21,623

)

 

(7,874

)

(12,804

)

488

 

 

$

1,104,020

 

$

1,220,036

 

(481,451

)

(178,998

)

Income tax benefit

 

 

 

 

 

 

 

(193,614

)

(69,755

)

Net loss

 

 

 

 

 

 

 

($287,837

)

($109,243

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

 

 

 

 

 

 

($0.89

)

($0.33

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted shares outstanding

 

 

 

 

 

 

 

322,706

 

328,381

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Basic earnings per share is based on the weighted average number of shares outstanding. The dilutive effect of potential common shares is included in diluted earnings per share except in those periods with a loss.

Certain reclassifications have been made to prior year amounts to conform to the current period presentation. These reclassifications had no effect on the consolidated results of operations or stockholders’ equity as previously reported.

In March 2006, the Office of Thrift Supervision approved the charter of H&R Block Bank. The bank commenced operations on May 1, 2006, at which time we realigned our segments to reflect a new management reporting structure. The previously reported Investment Services segment, H&R Block Mortgage Corporation (which was previously included in the Mortgage Services segment), and H&R Block Bank are now being reported in the Consumer Financial Services segment.


 

CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts in thousands, except share data

 

 

 

 

October 31,

 

April 30,

 

 

 

2006

 

2006

 

ASSETS

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

442,273

 

$

694,358

 

Cash and cash equivalents - restricted

 

 

416,855

 

 

394,069

 

Marketable securities - trading

 

 

76,286

 

 

16,141

 

Receivables from customers, brokers, dealers and clearing

 

 

 

 

 

 

 

organizations, net

 

 

413,237

 

 

496,577

 

Receivables, net

 

 

413,320

 

 

467,677

 

Mortgage loans held for sale

 

 

432,064

 

 

236,399

 

Prepaid expenses and other current assets

 

 

574,538

 

 

483,215

 

Total current assets

 

 

2,768,573

 

 

2,788,436

 

 

 

 

 

 

 

 

 

Residual interests in securitizations - available-for-sale

 

 

148,966

 

 

159,058

 

Beneficial interest in Trusts - trading

 

 

123,278

 

 

188,014

 

Mortgage servicing rights

 

 

269,679

 

 

272,472

 

Mortgage loans held for investment

 

 

683,839

 

 

407,538

 

Property and equipment, net

 

 

467,543

 

 

443,785

 

Intangible assets, net

 

 

196,444

 

 

219,494

 

Goodwill, net

 

 

1,134,576

 

 

1,100,452

 

Other assets

 

 

413,993

 

 

409,886

 

Total assets

 

$

6,206,891

 

$

5,989,135

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Commercial paper

 

$

1,040,429

 

$

--

 

Current portion of long-term debt

 

 

509,021

 

 

506,992

 

Accounts payable to customers, brokers and dealers

 

 

700,673

 

 

781,303

 

Customer deposits

 

 

595,769

 

 

--

 

Accounts payable, accrued expenses and other

 

 

651,156

 

 

768,505

 

Accrued salaries, wages and payroll taxes

 

 

146,589

 

 

330,946

 

Accrued income taxes

 

 

172,834

 

 

505,690

 

Total current liabilities

 

 

3,816,471

 

 

2,893,436

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

411,705

 

 

417,539

 

Other noncurrent liabilities

 

 

350,086

 

 

530,361

 

Total liabilities

 

 

4,578,262

 

 

3,841,336

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, no par, stated value $.01 per share

 

 

4,359

 

 

4,359

 

Additional paid-in capital

 

 

658,920

 

 

653,053

 

Accumulated other comprehensive income

 

 

21,593

 

 

21,948

 

Retained earnings

 

 

3,119,997

 

 

3,492,059

 

Less cost of 113,975,390 and 107,377,858 shares of

 

 

 

 

 

 

 

common stock in treasury

 

 

(2,176,240

)

 

(2,023,620

)

Total stockholders' equity

 

 

1,628,629

 

 

2,147,799

 

Total liabilities and stockholders' equity

 

$

6,206,891

 

$

5,989,135

 

 


 

CONDENSED CONSOLIDATED INCOME STATEMENTS

Unaudited, amounts in thousands, except per share data

 

 

 

 

Three Months Ended October 31,

 

Six Months Ended October 31,

 

 

 

2006

 

2005

 

2006

 

2005

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service revenues

 

$

462,828

 

$

384,263

 

$

884,527

 

$

699,391

 

Other revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains on sales of mortgage assets, net

 

 

38,601

 

 

147,267

 

 

102,514

 

 

383,698

 

Interest income

 

 

44,599

 

 

55,010

 

 

85,609

 

 

104,263

 

Product and other revenues

 

 

17,213

 

 

18,503

 

 

31,370

 

 

32,684

 

 

 

 

563,241

 

 

605,043

 

 

1,104,020

 

 

1,220,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

492,861

 

 

398,064

 

 

948,359

 

 

748,990

 

Cost of other revenues

 

 

97,236

 

 

134,864

 

 

189,250

 

 

258,221

 

Selling, general and administrative

 

 

229,116

 

 

195,702

 

 

435,705

 

 

377,246

 

 

 

 

819,213

 

 

728,630

 

 

1,573,314

 

 

1,384,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(255,972

)

 

(123,587

)

 

(469,294

)

 

(164,421

)

Interest expense

 

 

(12,091

)

 

(12,385

)

 

(24,226

)

 

(24,820

)

Other income, net

 

 

5,271

 

 

2,843

 

 

12,069

 

 

10,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before tax benefit

 

 

(262,792

)

 

(133,129

)

 

(481,451

)

 

(178,998

)

Income tax benefit

 

 

(106,332

)

 

(51,880

)

 

(193,614

)

 

(69,755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

($156,460

)

 

($81,249

)

 

($287,837

)

 

($109,243

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

 

($0.49

)

 

($0.25

)

 

($0.89

)

 

($0.33

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted shares outstanding

 

 

321,742

 

 

326,047

 

 

322,706

 

 

328,381

 

 


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited, amounts in thousands

 

 

 

 

Six Months Ended October 31,

 

 

 

2006

 

2005

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

($287,837

)

($109,243

)

Adjustments to reconcile net loss to net cash

 

 

 

 

 

used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

96,384

 

90,173

 

Accretion of residual interests in securitizations

 

(26,387

)

(64,341

)

Impairment of available-for-sale residual interests in securitizations

 

29,502

 

20,613

 

Additions to trading residual interests in securitizations

 

(111,405

)

(185,645

)

Proceeds from net interest margin transactions, net

 

52,580

 

85,472

 

Realized gain on sale of available-for-sale residual interests

 

--

 

(28,675

)

Additions to mortgage servicing rights

 

(92,914

)

(136,294

)

Amortization and impairment of mortgage servicing rights

 

95,707

 

56,980

 

Tax benefits from stock-based compensation

 

8,888

 

14,129

 

Excess tax benefits from stock-based compensation

 

(1,567

)

--

 

Other net changes in working capital, net of acquisitions

 

(953,243

)

(448,028

)

Net cash used in operating activities

 

(1,190,292

)

(704,859

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Cash received from residual interests in securitizations

 

6,422

 

64,377

 

Cash received from sale of residual interests in securitizations

 

--

 

30,497

 

Mortgage loans originated for investment, net

 

(278,003

)

--

 

Purchases of property and equipment

 

(94,787

)

(77,635

)

Payments made for business acquisitions, net of cash acquired

 

(13,609

)

(200,309

)

Other, net

 

8,088

 

13,151

 

Net cash used in investing activities

 

(371,889

)

(169,919

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Repayments of commercial paper

 

(2,295,573

)

(1,101,729

)

Proceeds from issuance of commercial paper

 

3,336,002

 

1,599,904

 

Customer deposits

 

595,769

 

--

 

Dividends paid

 

(84,225

)

(77,381

)

Acquisition of treasury shares

 

(186,560

)

(259,745

)

Excess tax benefits from stock-based compensation

 

1,567

 

--

 

Proceeds from exercise of stock options

 

10,640

 

42,663

 

Other, net

 

(67,524

)

(36,657

)

Net cash provided by financing activities

 

1,310,096

 

167,055

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(252,085

)

(707,723

)

Cash and cash equivalents at beginning of the period

 

694,358

 

1,100,213

 

Cash and cash equivalents at end of the period

 

$442,273

 

$392,490

 

 

 

 

 

 

 

Supplementary cash flow data:

 

 

 

 

 

Income taxes paid

 

$313,016

 

$169,223

 

Interest paid

 

49,575

 

50,098

 

 


 

SELECTED OPERATING DATA

Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Services

 

Three months ended

 

 

 

10/31/2006

 

10/31/2005

 

% change

 

7/31/2006

 

% change

 

Volume of loans originated and purchased (thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third-party brokers

 

$

6,149,293

 

$

11,078,960

 

-44.5

%

$

7,207,631

 

-14.7

%

Intersegment (HRBMC)

 

 

471,182

 

 

1,111,924

 

-57.6

%

 

584,426

 

-19.4

%

 

$

6,620,475

 

$

12,190,884

 

-45.7

%

$

7,792,057

 

-15.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan characteristics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average loan size (thousands)

 

$

202

 

$

189

 

6.9

%

$

205

 

-1.5

%

Weighted average interest rate (WAC)

 

 

8.75

%

 

7.48

%

1.27

%

 

8.68

%

0.07

%

Weighted average FICO score

 

 

611

 

 

629

 

 

 

 

614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan sales (thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third-party buyers

 

$

6,228,161

 

$

12,067,658

 

-48.4

%

$

7,654,445

 

-18.6

%

Intersegment (HRB Bank)

 

 

169,622

 

 

—

 

**

 

 

553,502

 

-69.4

%

 

$

6,397,783

 

$

12,067,658

 

-47.0

%

$

8,207,947

 

-22.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans serviced

 

 

427,590

 

 

500,935

 

-14.6

%

 

439,707

 

-2.8

%

Servicing portfolio (billions)

 

$

73.0

 

$

82.4

 

-11.4

%

$

74.5

 

-2.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Financial Services

 

Three months ended

 

 

 

10/31/2006

 

10/31/2005

 

% change

 

7/31/2006

 

% change

 

Broker-dealer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traditional brokerage accounts (1)

 

 

402,278

 

 

428,543

 

-6.1

%

 

409,147

 

-1.7

%

Average assets per traditional brokerage account

 

$

80,089

 

$

68,837

 

16.3

%

$

75,311

 

6.3

%

Ending balance of assets under administration (billions)

 

$

32.5

 

$

29.8

 

9.1

%

$

31.1

 

4.5

%

Average customer margin balances (millions)

 

$

404

 

$

560

 

-27.9

%

$

451

 

-10.5

%

Average payables to customers (millions)

 

$

601

 

$

794

 

-24.3

%

$

647

 

-7.1

%

Advisors

 

 

919

 

 

995

 

-7.6

%

 

938

 

-2.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Efficiency ratio (2)

 

 

40

%

 

n/a

 

 

 

 

35

%

5.0

%

Annualized net interest margin (3)

 

 

2.68

%

 

n/a

 

 

 

 

3.65

%

-1.0

%

Annualized return on average assets (4)

 

 

1.48

%

 

n/a

 

 

 

 

1.15

%

0.3

%

Total ending assets (thousands)

 

$

762,075

 

 

n/a

 

 

 

$

566,792

 

34.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail mortgage activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume of loans originated (thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

769,344

 

$

1,541,848

 

-50.1

%

$

844,314

 

-8.9

%

To retail tax clients

 

$

123,405

 

$

220,056

 

-43.9

%

$

140,243

 

-12.0

%

Average loan size (thousands)

 

$

171

 

$

152

 

12.5

%

$

175

 

-2.3

%

 

 

(1) Includes only accounts with a positive period-end balance.

(2) Non-interest expenses divided by total revenue less interest expense. See reconcilation of non-GAAP financial measures.

(3) Annualized net interest revenue divided by average assets. See reconcilation of non-GAAP financial measures.

(4) Annualized pretax banking income divided by average assets. See reconcilation of non-GAAP financial measures.

 


 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Unaudited, dollars in thousands

 

 

 

 

Three Months Ended

 

 

 

October 31, 2006

 

October 31, 2005

 

July 31, 2006

 

Origination Margin:

 

 

 

 

 

 

 

 

 

 

Total Mortgage Services expenses

 

$

179,617

 

$

186,951

 

$

174,600

 

Add: Costs netted against gain on sale

 

 

60,786

 

 

161,028

 

 

74,594

 

Less:

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

(79,625

)

 

(67,811

)

 

(78,688

)

Cost of acquisition

 

 

(34,543

)

 

(107,366

)

 

(40,688

)

Allocated support departments and other

 

 

(21,220

)

 

(15,881

)

 

(19,676

)

Net costs to originate

 

$

105,015

 

$

156,921

 

$

110,142

 

 

 

 

 

 

 

 

 

 

 

 

Origination volume

 

$

6,620,475

 

$

12,190,884

 

$

7,792,057

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of origination

 

 

1.59

%

 

1.29

%

 

1.41

%

 

 

 

 

 

 

 

 

 

 

 

Efficiency Ratio:

 

 

 

 

 

 

 

 

 

 

Total Consumer Financial Services expenses

 

$

119,084

 

 

 

 

$

116,078

 

Less: Interest and non-banking expenses

 

 

(117,244

)

 

 

 

 

(114,744

)

Non-interest banking expenses

 

$

1,840

 

 

 

 

$

1,334

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Financial Services revenues

 

$

112,444

 

 

 

 

$

108,298

 

Less: Non-banking revenues and interest expense

 

 

(107,820

)

 

 

 

 

(104,457

)

Banking revenue net of interest expense

 

$

4,624

 

 

 

 

$

3,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40

%

 

 

 

 

35

%

 

 

 

 

 

 

 

 

 

 

 

Net Interest Margin:

 

 

 

 

 

 

 

 

 

 

Net interest revenue - banking

 

$

4,392

 

 

 

 

$

3,729

 

 

 

 

 

 

 

 

 

 

 

 

Net interest revenue - banking (annualized)

 

$

17,568

 

 

 

 

$

14,916

 

 

 

 

 

 

 

 

 

 

 

 

Divided by average assets

 

$

656,024

 

 

 

 

$

408,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.68

%

 

 

 

 

3.65

%

 

 

 

 

 

 

 

 

 

 

 

Return on Average Assets:

 

 

 

 

 

 

 

 

 

 

Total Consumer Financial Services pretax

 

 

($6,640

)

 

 

 

 

($7,780

)

Less: Non-banking pretax loss

 

 

(9,060

)

 

 

 

 

(8,949

)

Pretax banking income

 

$

2,420

 

 

 

 

$

1,169

 

 

 

 

 

 

 

 

 

 

 

 

Pretax banking income - annualized

 

$

9,680

 

 

 

 

$

4,676

 

 

 

 

 

 

 

 

 

 

 

 

Divided by average assets

 

$

656,024

 

 

 

 

$

408,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.48

%

 

 

 

 

1.15

%