HomeSide Inc., making its first quarterly earnings release since going public, reported strong results Wednesday, in keeping with Wall Street's expectations.
The Jacksonville, Fla.-based lender earned $14.1 million, or 37 cents a share, in its fiscal fourth quarter, which ended Feb. 28. Most analysts who follow the company regard HomeSide stock as a buy, and they were not disappointed by the company's initial report. The figure did not include a charge of $6.4 million for the early repayment of debt.
For the year, HomeSide exceeded analysts' estimates by earning $43.4 million, or $1.33 a share. Wall Street's consensus was $1.22.
HomeSide started operations in March 1996 by purchasing Bank of Boston's mortgage banking subsidiary. In May, it bought Barnett Banks' mortgage servicing unit.
The company went public in January but is still majority-owned by Bank of Boston, Barnett, and the venture capital firms Thomas H. Lee & Co. and Madison Dearborn Partners Inc.
Joe K. Pickett, HomeSide's chairman and chief executive, said it was able to post such results mainly because of successful cost-control measures, especially on the servicing side. He added that the company intended to keep costs at a minimum even as it continues to increase its origination volume and servicing portfolio.
"We anticipate that our low cost of servicing loans will enable us to maximize the bottom-line impact of increasing loan production and a growing servicing portfolio," Mr. Pickett said.
Thomas O'Donnell, an analyst with Smith Barney & Co., New York, said a large servicing portfolio would benefit HomeSide if interest rates continue to creep up. Even though financial stocks "have all been taken out and shot" because of investors' fear of higher interest rates, Mr. O'Donnell said the selloff in HomeSide was unjustified.
HomeSide's stock began trading in January at $15 a share. It rose as high as $18.875 before beginning to decline along with the rest of the financial services sector. HomeSide closed at $14.875 after releasing its earnings on Wednesday.
But as interest rates rise, the value of servicing increases since borrowers are less likely to prepay their loans. It also costs companies less to hedge their portfolio, Mr. O'Donnell noted.
HomeSide is nearing entry into the elite group of servicers with $100 billion portfolios. Following the company's sale of Honolulu Mortgage Corp. and its $1.9 billion servicing portfolio to Bank of America, HomeSide's portfolio totals approximately $90 billion. It is the seventh-largest servicer; the top six have servicing portfolios in excess of $100 billion.
