Walter Investment Management Corp. Announces Full Year And Fourth Quarter 2015 Highlights And Financial Results

Feb 29, 2016, 06:30 ET from Walter Investment Management Corp.

TAMPA, Fla., Feb. 29, 2016 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced operational highlights and financial results for the full year and quarter ended December 31, 2015.

2015 Operational Highlights and Recent Developments

  • Net loss of $7.00 per share; Adjusted Earnings of $1.98 per share after tax
  • Non-cash goodwill and fair value charges drove $6.36 of the per share net loss
  • 4% growth in the serviced portfolio to $266.6 billion of UPB as compared to 2014; ranked nationally as the 8th largest servicer(1)
  • Servicing segment delivered full-year AEBITDA margin of 16 bps
  • 36% growth in Originations funded volumes to $25.1 billion as compared to 2014; ranked nationally as the 14th largest originator(1)
  • Assisted approximately 53,200 homeowners in obtaining modifications and originated approximately 38,300 HARP loans
  • Recently executed agreements to add approximately $13.4 billion in UPB to our servicing portfolio with minimal capital outlays

2015 Financial Results

GAAP net loss for the year ended December 31, 2015 was ($263.2) million, or ($7.00) per share, as compared to a GAAP net loss of ($110.3) million, or ($2.93) per share for 2014. Included in the 2015 net loss are pre-tax, non-cash charges of  $207.6 million for goodwill impairment, or $4.00 per share after tax(2) and $143.3 million resulting from changes in valuation inputs and other assumptions used in the fair value of assets and liabilities carried at fair value, or $2.36 per share after tax(2). Adjusted Earnings for the year was $74.3 million after tax(2), or $1.98 per share(2), and Adjusted EBITDA ("AEBITDA") for the full year 2015 was $549.7 million.

The goodwill impairment includes a charge of $151.0 million incurred in the fourth quarter related to the Servicing segment and a charge of $56.6 million incurred in the second quarter related to the Reverse Mortgage segment. The goodwill impairment charge related to the Servicing segment was primarily the result of higher discount rates applied to forecasted cash flows driven by the decline in the Company's stock price which has been impacted by continued challenges in the Company's industry, market developments, as well as the impact these factors have had on certain Company specific matters.

(1) Source: Inside Mortgage Finance

(2) This calculation assumes an Effective tax rate of 38% and 39% for 2015 and 2014, respectively.  Note, the goodwill impairment charge in the Servicing segment is tax deductible for GAAP while the goodwill impairment charge recorded by the Reverse segment is not.

The Company reported a GAAP net loss for the fourth quarter of 2015 of ($117.1) million, or ($3.16) per diluted share, as compared to a GAAP net loss of ($44.0) million, or ($1.17) per diluted share, for the fourth quarter of 2014.  The current quarter includes a pre-tax, non-cash charge of $151.0 million, or $2.53 per share after tax(1), for goodwill impairment in the Servicing segment. Adjusted Loss for the fourth quarter of 2015 was ($5.0) million after tax(1), or ($0.14) per share(1), relatively flat as compared to the prior year quarter. Adjusted EBITDA for the quarter was $101.2 million, an increase of approximately 19% when compared to the prior year quarter primarily driven by lower levels of operating expenses. These lower levels of expenses were driven in part, by actions taken throughout 2015 to improve operating efficiency.

(1) This calculation assumes an effective tax rate of 38% and 39% for 2015 and 2014, respectively.  Note, the goodwill impairment charge in the Servicing segment is tax deductible for GAAP while the goodwill impairment charge recorded by the Reverse segment is not.

"We are embarking on a transformation of our businesses to create a best-in-class experience for homeowners. The ambition of this transformation is to make us the partner of choice for homeowners, regulators and other stakeholders. As we undertake this mission, the Company is pleased to have added significant shareholder representation to the Board," said Denmar J. Dixon, Walter Investment's Vice Chairman, Chief Executive Officer and President.

Earlier this year, Walter launched a company-wide project to transform processes and identify and deploy technology solutions to drive substantial improvement in costs, revenues and compliance.  Mr. Dixon continued, "Our goal is to improve the overall customer experience dramatically, help us drive down our cash costs of operations and at the same time drive long-term growth in per-share intrinsic value."

The Company is intently focused on lowering cash costs, and has initiated a comprehensive review of its cost structure and operations. During this process, we are evaluating investments and other uses of cash against return hurdles and opportunity costs, and are planning to repurchase or pay down debt during the year ahead. Improving Walter's financial strength is a key objective over the near term. Walter's cash flows, focus on expanding our sub-servicing business and disciplined requirements for new cash investments should lead to a stronger balance sheet. Under the Company's 2016 debt reduction plan, Walter is targeting a leverage ratio of 3.4X to 3.6X by the end of the year.

The Company is actively pursuing potential business opportunities with the goal of significantly increasing its mix of sub-servicing business. In 2015, the Company grew its Servicing segment's portfolio by 4% through its originations efforts and opportunistic portfolio purchases without raising capital. The Originations segment capitalized on an attractive rate environment and delivered strong results from both the retention and correspondent channels.

Mr. Dixon noted that the Reverse Mortgage segment encountered significant operational challenges during the year, resulting in a disappointing financial result, "We are taking steps which we believe will drive meaningful improvement in the business in 2016."

Full Year and Fourth Quarter 2015 Financial and Operating Overview

Total revenue for the year ended December 31, 2015 was $1.3 billion, a decline of $212.9 million or 14% as compared to the year ended December 31, 2014, primarily related to a $107.2 million decline in net servicing revenues and fees driven by a $128.5 million decrease in the fair value of mortgage servicing rights. Additionally, the current year had $60.2 million lower interest income on loans primarily due to the sale of the residual interests in seven of the Residual Trusts and $23.8 million lower insurance revenue driven by the loss of commissions earned on GSE lender-placed policies. Total expense of $1.7 billion for the year ended December 31, 2015 increased $86.7 million or 5% as compared to the year ended December 31, 2014, primarily due to a $125.3 million higher goodwill impairment charge in the current year, partially offset by $29.5 million lower interest expense primarily due to the sale of the residual interests in seven of the Residual Trusts and $5.5 million lower other expenses.

Total revenue for the fourth quarter of 2015 was $331.6 million, a slight increase as compared to the prior year quarter, driven by $56.9 million higher net servicing revenue and fees primarily related to favorable fair value gains on mortgage servicing rights, partially offset by $32.5 million lower fair value gains on reverse loans and liabilities and $20.6 million lower interest income on loans primarily due to the sale of the residual interests in the seven Residual Trusts in April 2015. Total expenses for the fourth quarter of 2015 were $548.3 million, 28% higher as compared to the fourth quarter of 2014. Results reflect a goodwill impairment charge of $151.0 million related to the Servicing business and $11.6 million higher curtailment expense in the Reverse Mortgage business, partially offset by $31.6 million lower accruals for loss contingencies and legal expenses due to legal and regulatory matters outside of the normal course of business, $15.3 million lower Servicing advance loss provisions and $13.5 million lower interest expense primarily due to the sale of the residual interests in seven of the Residual Trusts.

Fourth Quarter 2015 Segment Results

Results for the Company's segments are presented below.

Servicing

During the fourth quarter of 2015 the Servicing segment added approximately $10.0 of UPB to the serviced book of business through a combination of MSR acquisitions, sub-servicing arrangements, originated MSR and co-issue relationships, ending the quarter with approximately 2.1 million total accounts serviced with a UPB of approximately $246.6 billion. Ditech ended the year ranked as the 8th largest servicer in the nation by UPB. During the quarter, the Company experienced a net disappearance rate of 13.3% which was aided by the retention performance of the Originations segment.

The Servicing segment generated total revenue of $220.4 million in the fourth quarter of 2015, a 20% increase as compared to fourth quarter 2014 revenue of $183.3 million. The increase was primarily comprised of $42.5 million favorable fair value changes on our mortgage servicing rights and $12.5 million higher servicing fees, partially offset by $20.6 million lower interest income on loans resulting primarily from the sale of the residual interests in seven of the Residual Trusts. Servicing revenues for the quarter ended December 31, 2015 included $179.3 million of servicing fees, $23.9 million of incentive and performance-based fees and $28.4 million of ancillary and other fees.The segment recorded a favorable change in fair value resulting from changes in valuation inputs and other assumptions used in the fair value of assets and liabilities carried at fair value of $20.1 million for the quarter.

Expense for the Servicing segment was $369.6 million, an increase of 46% or $116.5 million as compared to the prior year quarter. The change was driven by a $151.0 million goodwill impairment charge partially offset by a $22.2 million decrease in operational expenses including $12.5 million lower accruals for loss contingencies and legal expenses and $15.3 million lower advance loss provisions, as well as $12.2 million lower interest expense primarily as a result of the sale of the residual interests in seven of the Residual Trusts. Expenses also included $11.1 million of depreciation and amortization costs. 

The segment generated AEBITDA of $90.4 million, an increase of 22% as compared to the fourth quarter of 2014, primarily due to lower expenses driven by cost-cutting initiatives implemented throughout 2015. The segment generated Adjusted Earnings of $18.7 million for the fourth quarter of 2015, a decline of 22% as compared to the prior year quarter primarily driven by lower revenues, which include a $23.9 million unfavorable change in the fair value of servicing rights attributable to higher realization of cash flows reflecting the impact of accelerated prepayments, partially offset by lower expenses. 

The Company recently made progress on its goals, executing agreements to add approximately $13.4 billion in UPB to the Servicing segment's portfolio with minimal capital outlays.

Originations

Total pull-through adjusted locked volume for the fourth quarter increased to $5.5 billion, as compared to $5.1 billion for the fourth quarter of 2014, driven by volume growth in the correspondent lending channel. Funded loans in the current quarter totaled $5.6 billion, an increase of 10.8% from the prior year quarter, with approximately 31% of that volume in the consumer lending channel and approximately 69% generated by the correspondent lending channel. Ditech ended the year ranked as the 14th largest originator in the nation by UPB. The combined direct margin for the current quarter was 63 bps, an overall increase of 13 bps from the prior year quarter, consisting of a weighted average of 97 bps direct margin in the consumer lending channel and 33 bps direct margin in the correspondent lending channel.  The Originations business delivered a recapture rate of 25% for the year.

The Originations segment generated revenue of $102.8 million in the fourth quarter of 2015, a 15% increase as compared to the prior year quarter primarily due to a $9.4 million increase in other revenues driven by higher origination fees and a $3.9 million increase in net gains on sales of loans.  Expenses for the Originations segment of $90.6 million, which include $8.5 million of interest expense and $2.7 million of depreciation and amortization, were relatively flat as compared to the prior year quarter.

The segment generated Adjusted Earnings of $17.0 million and AEBITDA of $20.5 million for the fourth quarter of 2015, an increase of $9.9 million and $10.9 million, respectively as compared to the prior year quarter, driven by the higher origination fee income in the current quarter.

Reverse Mortgage

The Reverse Mortgage business grew its serviced portfolio 11% year over year to $20.1 billion of UPB at December 31, 2015. During the year, the business securitized $1.5 billion of HECM loans ranking it as the third largest issuer of HMBS in the nation by UPB. Additionally, during the first quarter the business entered into a new $100 million GNMA buy-out facility enhancing its liquidity position.

The Reverse Mortgage segment generated revenue of $18.1 million for the quarter, a 66% decline as compared to the prior year quarter reflecting lower net fair value gains on reverse loans and related HMBS obligations of $32.5 million, driven primarily by unfavorable changes in non-cash fair value adjustments due to a higher interest rates at December 31, 2015 as compared to the prior year period. Current quarter revenues included a gain of $8.0 million due to the net impact of HECM loan and related HMBS obligation fair value adjustments, $8.1 million in net servicing revenue and fees and $2.0 million of other revenues. Total expenses for the fourth quarter of $48.6 million were 13% lower as compared to the prior year period, primarily driven by $18.2 million lower expenses related to legal and regulatory matters partially offset by $11.6 million higher curtailment expenses, primarily related to regulatory developments in 2015 which led to additional charges around curtailable events.

The segment reported an Adjusted Loss of ($10.2) million and AEBITDA of ($9.0) million for the fourth quarter of 2015 as compared to Adjusted Earnings of $0.4 million and AEBITDA of $1.5 million in the fourth quarter of 2014 due primarily to lower levels of earnings from the origination, purchase and securitization of HECM loans, a reduction in net servicing revenue and fees and higher expenses primarily driven by normal course of business curtailment charges.

Securitized and funded originations volumes decreased as compared to the prior year quarter as volumes were negatively impacted by the financial assessment rules, operational disruption in the Company's retail channel and a decision to reduce participation in the correspondent market based on current pricing levels.

Other Non-Reportable Segment

The Other Non-Reportable segment generated revenue of $0.5 million for the fourth quarter of 2015 as compared to revenue of $1.1 million in the prior year quarter. Total expenses in the current quarter were $49.7 million compared to $42.8 million the prior year quarter, and included $35.6 million related to corporate debt.

The Other non-reportable segment generated Adjusted Loss of ($33.6) million and AEBITDA of ($0.7) million for the fourth quarter of 2015 as compared to Adjusted Loss of ($34.9) million and AEBITDA of ($0.4) million in the fourth quarter of 2014.

About Walter Investment Management Corp.

Walter Investment Management Corp. is a diversified mortgage banking firm focused primarily on the servicing and origination of residential loans, including reverse loans. Based in Tampa, Fla., the Company has approximately 5,900 employees and services a diverse loan portfolio.  For more information about Walter Investment Management Corp., please visit the Company's website at www.walterinvestment.com. The information on our website is not a part of this release.

Conference Call Webcast

Members of the Company's leadership team will discuss Walter Investment's full year and fourth quarter results and other general business matters during a conference call and live webcast to be held on Monday, February 29, 2016, at 10 a.m. Eastern Time. To listen to the event live or in an archive, and to access presentation slides (which include supplemental information) which will be available for at least 30 days, visit the Company's website at www.walterinvestment.com.

This press release and the accompanying reconciliations include non-GAAP financial measures.  For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see the reconciliations as well as "Non-GAAP Financial Measures" at the end of this press release.

Disclaimer and Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," "targets," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described below and in more detail under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015 and in our other filings with the SEC.

In particular (but not by way of limitation), the following important factors, risks and uncertainties could affect our future results, performance and achievements and could cause actual results, performance and achievements to differ materially from those expressed in the forward-looking statements:

  • our ability to operate our business in compliance with existing and future rules and regulations affecting our business, including those relating to the origination and servicing of residential loans, the management of third-party assets and the insurance industry (including lender-placed insurance), and changes to, and/or more stringent enforcement of, such rules and regulations;
  • increased scrutiny and potential enforcement actions by federal and state authorities;
  • the substantial resources (including senior management time and attention) we devote to, and the significant compliance costs we incur in connection with, regulatory compliance and regulatory examinations and inquiries, and any consumer redress, fines, penalties or similar payments we make in connection with resolving such matters;
  • uncertainties relating to interest curtailment obligations and any related financial and litigation exposure (including exposure relating to false claims);
  • potential costs and uncertainties, including the effect on future revenues, associated with and arising from litigation, regulatory investigations and other legal proceedings;
  • our dependence on U.S. government-sponsored entities (especially Fannie Mae) and agencies and their residential loan programs and our ability to maintain relationships with, and remain qualified to participate in programs sponsored by, such entities, our ability to satisfy various existing or future GSE, agency and other capital, net worth, liquidity and other financial requirements applicable to our business, and our ability to remain qualified as a GSE approved seller, servicer or component servicer, including the ability to continue to comply with the GSEs' respective residential loan and selling and servicing guides;
  • uncertainties relating to the status and future role of GSEs, and the effects of any changes to the origination and/or servicing requirements of the GSEs or various regulatory authorities or the servicing compensation structure for mortgage servicers pursuant to programs of GSEs or various regulatory authorities;
  • our ability to maintain our loan servicing, loan origination, insurance agency or collection agency licenses, or any other licenses necessary to operate our businesses, or changes to, or our ability to comply with, our licensing requirements;
  • our ability to comply with the servicing standards required by the National Mortgage Settlement;
  • our ability to comply with the terms of the stipulated order resolving allegations arising from an FTC and CFPB investigation of Ditech Financial;
  • operational risks inherent in the mortgage servicing and mortgage originations businesses, including reputational risk;
  • risks related to our substantial levels of indebtedness, including our ability to comply with covenants contained in our debt agreements, generate sufficient cash to service such indebtedness and refinance such indebtedness on favorable terms, as well as our ability to incur substantially more debt;
  • our ability to renew advance financing facilities or warehouse facilities and maintain borrowing capacity under such facilities;
  • our ability to maintain or grow our servicing business and our residential loan originations business;
  • our ability to achieve our strategic initiatives, particularly our ability to: execute and complete balance sheet management activities; complete the sale of our insurance business; make arrangements with potential capital partners; complete sales of assets to, and enter into other arrangements with, WCO; increase the mix of our fee-for-service business; reduce our debt; and develop new business, including acquisitions of MSRs or entering into new subservicing arrangements;
  • changes in prepayment rates and delinquency rates on the loans we service or sub-service;
  • the ability of our clients and credit owners to transfer or otherwise terminate our servicing or sub-servicing rights;
  • a downgrade of, or other adverse change relating to, our servicer ratings or credit ratings;
  • our ability to collect reimbursements for servicing advances and earn and timely receive incentive payments and ancillary fees on our servicing portfolio;
  • our ability to collect indemnification payments and enforce repurchase obligations relating to mortgage loans we purchase from our correspondent clients and our ability to collect in a timely manner indemnification payments relating to servicing rights we purchase from prior servicers;
  • local, regional, national and global economic trends and developments in general, and local, regional and national real estate and residential mortgage market trends in particular, including the volume and pricing of home sales and uncertainty regarding the levels of mortgage originations and prepayments;
  • uncertainty as to the volume of originations activity we will benefit from prior to, and following, the expiration of HARP, which is scheduled to occur on December 31, 2016, including uncertainty as to the number of "in-the-money" accounts we may be able to refinance;
  • risks associated with the origination, securitization and servicing of reverse mortgages, including changes to reverse mortgage programs operated by FHA, HUD or Ginnie Mae, our ability to accurately estimate interest curtailment liabilities, continued demand for HECM loans and other reverse mortgages, our ability to fund HECM repurchase obligations, our ability to fund principal additions on our HECM loans, and our ability to securitize our HECM loans and tails;
  • our ability to realize all anticipated benefits of past, pending or potential future acquisitions or joint venture investments;
  • the effects of competition on our existing and potential future business, including the impact of competitors with greater financial resources and broader scopes of operation;
  • changes in interest rates and the effectiveness of any hedge we may employ against such changes;
  • risks and potential costs associated with technology and cybersecurity, including: the risks of technology failures and of cyber-attacks against us or our vendors; our ability to adequately respond to actual or alleged cyber-attacks; and our ability to implement adequate internal security measures and protect confidential borrower information;
  • risks and potential costs associated with the implementation of new technology such as MSP,  the use of new vendors or the transfer of our servers or other infrastructure to new data center facilities;
  • our ability to comply with evolving and complex accounting rules, many of which involve significant judgment and assumptions;
  • uncertainties regarding impairment charges relating to our goodwill or other intangible assets;
  • our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures;
  • our ability to manage conflicts of interest relating to our investment in WCO and maintain our relationship with WCO; and
  • risks related to our relationship with Walter Energy and uncertainties arising from or relating to its bankruptcy filings, including potential liability for any taxes, interest and/or penalties owed by the Walter Energy consolidated group for the full or partial tax years during which certain of the Company's former subsidiaries were a part of such consolidated group and certain other tax risks allocated to us in connection with our spin-off from Walter Energy.

All of the above factors, risks and uncertainties are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors, risks and uncertainties emerge from time to time, and it is not possible for our management to predict all such factors, risks and uncertainties.

Although we believe that the assumptions underlying the forward-looking statements (including those relating to our outlook) contained herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these statements included herein may prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If we were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws.

Amounts or metrics that relate to future earnings projections are forward-looking and subject to significant business, economic, regulatory and competitive uncertainties, many of which are beyond the control of us and our management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. Nothing in this release should be regarded as a representation by any person that any target will be achieved and we undertake no duty to update any target. Please refer to the disclosures in this press release, in our Annual Report on Form 10-K for the year ended December 31, 2015 and our other filings with the SEC for important information regarding forward-looking statements and the use and limitations of non-GAAP financial measures. Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of any forward-looking financial measures presented herein.

In addition, this press release may contain statements of opinion or belief concerning market conditions and similar matters. In certain instances, those opinions and beliefs could be based upon general observations by members of our management, anecdotal evidence and/or our experience in the conduct of our business, without specific investigation or statistical analyses. Therefore, while such statements reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views and such views may not be shared by all who are involved in those industries or markets.

Walter Investment Management Corp. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (in thousands, except per share data)

For the Years Ended December 31,

2015

2014

2013

REVENUES

Net servicing revenue and fees

$

494,267

$

601,510

$

783,389

Net gains on sales of loans

453,840

462,172

598,974

Interest income on loans

74,365

134,555

144,651

Net fair value gains on reverse loans and related HMBS obligations

98,265

109,972

120,382

Insurance revenue

47,201

71,010

84,478

Other revenues

106,321

107,934

70,625

Total revenues

1,274,259

1,487,153

1,802,499

EXPENSES

Salaries and benefits

576,817

578,627

549,799

General and administrative

574,091

577,506

480,377

Interest expense

273,606

303,103

272,655

Depreciation and amortization

69,128

72,721

71,027

Goodwill impairment

207,557

82,269

Other expenses, net

10,557

10,803

9,395

Total expenses

1,711,756

1,625,029

1,383,253

OTHER GAINS (LOSSES)

Gains (losses) on extinguishments

4,660

(12,489)

Other net fair value gains

7,398

19,280

6,061

Other

21,013

(744)

Total other gains (losses)

33,071

18,536

(6,428)

Income (loss) before income taxes

(404,426)

(119,340)

412,818

Income tax expense (benefit)

(141,236)

(9,012)

159,351

Net income (loss)

$

(263,190)

$

(110,328)

$

253,467

OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAXES

Change in postretirement benefits liability

193

138

58

Amortization of realized losses on closed hedges

(145)

(127)

Unrealized gain on available-for-sale security in other assets

503

77

75

Other comprehensive income before taxes

696

70

6

Income tax expense for other comprehensive income items

278

173

1

Other comprehensive income (loss)

418

(103)

5

Total comprehensive income (loss)

$

(262,772)

$

(110,431)

$

253,472

Net income (loss)

$

(263,190)

$

(110,328)

$

253,467

Basic earnings (loss) per common and common equivalent share

$

(7.00)

$

(2.93)

$

6.75

Diluted earnings (loss) per common and common equivalent share

(7.00)

(2.93)

6.63

Weighted-average common and common equivalent shares outstanding —       basic

37,578

37,631

37,003

Weighted-average common and common equivalent shares outstanding —       diluted

37,578

37,631

37,701

 

 

Walter Investment Management Corp. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share data)

December 31,

2015

2014

ASSETS

Cash and cash equivalents

$

202,828

$

320,175

Restricted cash and cash equivalents

708,099

733,015

Residential loans at amortized cost, net (includes $4,457 and $10,033 in allowance for loan losses       at December 31, 2015 and 2014, respectively)

541,406

1,314,539

Residential loans at fair value

12,673,439

11,832,630

Receivables, net (includes $16,542 and $25,201 at fair value at December 31, 2015 and 2014,

     respectively)

214,398

215,629

Servicer and protective advances, net (includes $120,338 and $112,427 in allowance for       uncollectible advances at December 31, 2015 and 2014, respectively)

1,595,911

1,761,082

Servicing rights, net (includes $1,682,016 and $1,599,541 at fair value at December 31, 2015 and       2014, respectively)

1,788,576

1,730,216

Goodwill

367,911

575,468

Intangible assets, net

84,038

103,503

Premises and equipment, net

106,481

124,926

Deferred tax asset, net

108,050

Other assets (includes $58,512 and $68,151 at fair value at December 31, 2015 and 2014,       respectively)

200,364

238,400

Total assets

$

18,591,501

$

18,949,583

LIABILITIES AND STOCKHOLDERS' EQUITY

Payables and accrued liabilities (includes $6,475 and $30,024 at fair value at December 31, 2015       and 2014, respectively)

$

639,980

$

663,829

Servicer payables

603,692

584,567

Servicing advance liabilities

1,229,280

1,365,885

Warehouse borrowings

1,340,388

1,176,956

Servicing rights related liabilities at fair value

117,000

66,311

Corporate debt

2,157,424

2,237,037

Mortgage-backed debt (includes $582,340 and $653,167 at fair value at December 31, 2015 and       2014, respectively)

1,051,679

1,739,827

HMBS related obligations at fair value

10,647,382

9,951,895

Deferred tax liability, net

86,617

Total liabilities

17,786,825

17,872,924

Commitments and contingencies (Note 29)

Stockholders' equity:

Preferred stock, $0.01 par value per share:

Authorized - 10,000,000 shares

Issued and outstanding - 0 shares at December 31, 2015 and 2014

Common stock, $0.01 par value per share:

Authorized - 90,000,000 shares

Issued and outstanding - 35,573,405 and 37,711,623 shares at December 31, 2015 and       2014, respectively

355

377

Additional paid-in capital

591,454

600,643

Retained earnings

212,054

475,244

Accumulated other comprehensive income

813

395

Total stockholders' equity

804,676

1,076,659

Total liabilities and stockholders' equity

$

18,591,501

$

18,949,583

 

Non-GAAP Financial Measures

We manage our Company in three reportable segments: Servicing, Originations and Reverse Mortgage. We measure the performance of our business segments through the following measures: income (loss) before income taxes, Adjusted Earnings (Loss), and Adjusted EBITDA. Management considers Adjusted Earnings (Loss) and Adjusted EBITDA, both non-GAAP financial measures, to be important in the evaluation of our business segments and of the Company as a whole, as well as for allocating capital resources to our segments. Adjusted Earnings (Loss) and Adjusted EBITDA are supplemental metrics utilized by management to assess the underlying key drivers and operational performance of the continuing operations of the business. In addition, analysts, investors, and creditors may use these measures when analyzing our operating performance. Adjusted Earnings (Loss) and Adjusted EBITDA are not presentations made in accordance with GAAP and our use of these measures and terms may vary from other companies in our industry.

Adjusted Earnings (Loss) is defined as income (loss) before income taxes plus changes in fair value due to changes in valuation inputs and other assumptions; certain depreciation and amortization costs related to the increased basis in assets (including servicing rights and sub-servicing contracts) acquired within business combination transactions (or step-up depreciation and amortization); goodwill impairment, if any; the provision for curtailment expense, net of expected third-party recoveries; share-based compensation expense; non-cash interest expense; restructuring costs; estimated settlements and costs for certain legal and regulatory matters; fair value to cash adjustments for reverse loans; and select other cash and non-cash adjustments primarily including certain non-recurring costs; severance; gain or loss on extinguishment of debt; the net impact of the Non-Residual Trusts; and transaction and integration costs. Adjusted Earnings (Loss) excludes unrealized changes in fair value of MSRs that are based on projections of expected future cash flows and prepayments. Adjusted Earnings (Loss) includes both cash and non-cash gains from mortgage loan origination activities. Non-cash gains are net of non-cash charges or reserves provided. Adjusted Earnings (Loss) includes cash generated from reverse mortgage origination activities. Adjusted Earnings (Loss) may from time to time also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors with a supplemental means of evaluating our operating performance.

Adjusted EBITDA eliminates the effects of financing, income taxes and depreciation and amortization. Adjusted EBITDA is defined as income (loss) before income taxes; amortization of servicing rights and other fair value adjustments; interest expense on corporate debt; depreciation and amortization; goodwill impairment, if any; the provision for curtailment expense, net of expected third-party recoveries; share-based compensation expense; restructuring costs; estimated settlements and costs for certain legal and regulatory matters; fair value to cash adjustments for reverse loans; and select other cash and non-cash adjustments primarily certain non-recurring costs; the net provision for the repurchase of loans sold; non-cash interest income; severance; gain or loss on extinguishment of debt; interest income on unrestricted cash and cash equivalents; the net impact of the Non-Residual Trusts; the provision for loan losses; Residual Trust cash flows; transaction and integration costs; and servicing fee economics. Adjusted EBITDA includes both cash and non-cash gains from mortgage loan origination activities. Adjusted EBITDA excludes the impact of fair value option accounting on certain assets and liabilities and includes cash generated from reverse mortgage origination activities. Adjusted EBITDA may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a supplemental means of evaluating our operating performance.

Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as alternatives to (i) net income (loss) or any other performance measures determined in accordance with GAAP or (ii) operating cash flows determined in accordance with GAAP. Adjusted Earnings (Loss) and Adjusted EBITDA have important limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Some of the limitations of these metrics are:

  • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect cash expenditures for long-term assets and other items that have been and will be incurred, future requirements for capital expenditures or contractual commitments;
  • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect certain tax payments that represent reductions in cash available to us;
  • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future;
  • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect non-cash compensation which is and will remain a key element of our overall long-term incentive compensation package;
  • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect the change in fair value due to changes in valuation inputs and other assumptions;
  • Adjusted EBITDA does not reflect the change in fair value resulting from the realization of expected cash flows; and
  • Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our servicing rights related liabilities and corporate debt, although they do reflect interest expense associated with our servicing advance liabilities, master repurchase agreements, mortgage-backed debt, and HMBS related obligations.

Because of these limitations, Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted Earnings (Loss) and Adjusted EBITDA only as supplements. Users of our financial statements are cautioned not to place undue reliance on Adjusted Earnings (Loss) and Adjusted EBITDA.

Walter Investment Management Corp. Segment Results of Operations and Non-GAAP Financial Measures For the Three Months Ended December 31, 2015 (in thousands)

Servicing

Originations

Reverse Mortgage

Other

Eliminations

Total Consolidated

REVENUES:

Servicing revenue and fees

$

176,139

$

$

8,080

$

$

(2,983)

$

181,236

Gain on loan sales, net

2,281

89,933

782

92,996

Interest income on loans

11,816

12

11,828

Insurance revenue

12,878

12,878

Net fair value gains on reverse loans and related HMBS obligations

8,032

8,032

Other income

17,244

12,872

2,003

459

(7,972)

24,606

Total revenues

220,358

102,817

18,115

459

(10,173)

331,576

EXPENSES:

Interest expense

18,420

8,512

828

35,582

63,342

Depreciation and amortization

11,115

2,728

1,910

4

15,757

Goodwill impairment

151,018

151,018

Other expenses, net

188,997

79,322

45,840

14,149

(10,173)

318,135

Total expenses

369,550

90,562

48,578

49,735

(10,173)

548,252

OTHER GAINS (LOSSES)

Net fair value gains (losses)

620

3,205

3,825

Gain (loss) on extinguishment of debt

4,660

4,660

Total other gains (losses)

620

7,865

8,485

Income (loss) before income taxes

(148,572)

12,255

(30,463)

(41,411)

(208,191)

ADJUSTED EARNINGS (LOSS)

Goodwill impairment

151,018

151,018

Changes in fair value due to changes in valuation inputs and other assumptions

(20,114)

(20,114)

Step-up depreciation and amortization

6,785

568

1,193

8,546

Step-up amortization of sub-servicing rights

4,401

4,401

Non-cash interest expense

(210)

2,832

2,622

Share-based compensation expense

4,226

1,820

646

(100)

6,592

Fair value to cash adjustment for reverse loans

9,938

9,938

Curtailment expense

7,407

7,407

Legal and regulatory matters

18,227

555

18,782

Restructuring costs

723

1,623

667

3,013

Other

2,193

713

(107)

5,077

7,876

Total adjustments

167,249

4,724

20,299

7,809

200,081

Adjusted Earnings (Loss)

18,677

16,979

(10,164)

(33,602)

(8,110)

ADJUSTED EBITDA

Amortization of servicing rights and other fair value adjustments

66,520

477

66,997

Interest expense on debt

1,792

32,751

34,543

Depreciation and amortization

4,330

2,160

717

4

7,211

Other

(916)

1,334

(36)

197

579

Total adjustments

71,726

3,494

1,158

32,952

109,330

Adjusted EBITDA

$

90,403

$

20,473

$

(9,006)

$

(650)

$

$

101,220

 

 

Walter Investment Management Corp. Segment Results of Operations and Non-GAAP Financial Measures For the Three Months Ended December 31, 2014 (in thousands)

Servicing

Originations

Reverse Mortgage

Other

Eliminations

Total Consolidated

REVENUES:

Servicing revenue and fees

$

117,180

$

$

9,827

$

$

(2,676)

$

124,331

Gain on loan sales, net

86,012

86,012

Interest income on loans

32,430

34

32,464

Insurance revenue

13,250

13,250

Net fair value gains on reverse loans and related HMBS obligations

40,532

40,532

Other income

20,398

3,501

2,794

1,103

(6,893)

20,903

Total revenues

183,258

89,547

53,153

1,103

(9,569)

317,492

EXPENSES:

Interest expense

30,579

8,013

1,287

36,963

76,842

Depreciation and amortization

11,306

4,189

2,270

3

17,768

Other expenses, net

211,197

75,340

52,485

5,792

(9,569)

335,245

Total expenses

253,082

87,542

56,042

42,758

(9,569)

429,855

OTHER GAINS (LOSSES)

Net fair value gains (losses)

966

2,491

3,457

Other

(154)

(154)

Total other gains (losses)

812

2,491

3,303

Income (loss) before income taxes

(69,012)

2,005

(2,889)

(39,164)

(109,060)

ADJUSTED EARNINGS (LOSS)

Changes in fair value due to changes in valuation inputs and other assumptions

44,041

44,041

Step-up depreciation and amortization

6,101

2,275

1,681

10,057

Step-up amortization of sub-servicing contracts

9,337

9,337

Non-cash interest expense

(1,017)

2,554

1,537

Share-based compensation expense

2,159

791

462

(450)

2,962

Fair value to cash adjustments for reverse loans

(18,271)

(18,271)

Curtailment expense

21

21

Legal and regulatory matters

30,727

907

18,755

50,389

Restructuring costs

1,657

1,657

Other

(1)

1,076

612

2,166

3,853

Total adjustments

93,004

5,049

3,260

4,270

105,583

Adjusted Earnings (Loss)

23,992

7,054

371

(34,894)

(3,477)

ADJUSTED EBITDA

Amortization of servicing rights and other fair value adjustments

42,996

589

43,585

Interest expense on debt

2,278

3

34,409

36,690

Depreciation and amortization

5,205

1,914

589

3

7,711

Other

(201)

614

(38)

85

460

Total adjustments

50,278

2,528

1,143

34,497

88,446

Adjusted EBITDA

$

74,270

$

9,582

$

1,514

$

(397)

$

$

84,969

 

 

Walter Investment Management Corp. Segment Results of Operations and Non-GAAP Financial Measures For the Year Ended December 31, 2015 (in thousands)

Servicing

Originations

Reverse Mortgage

Other

Eliminations

Total Consolidated

REVENUES:

Servicing revenue and fees

$

462,544

$

$

42,648

$

$

(10,925)

$

494,267

Gain on loan sales, net

3,699

448,533

(98)

1,706

453,840

Interest income on loans

74,303

62

74,365

Insurance revenue

47,201

47,201

Net fair value gains on reverse loans and related HMBS obligations

98,265

98,265

Other income

81,756

45,250

6,794

5,345

(32,824)

106,321

Total revenues

669,503

493,845

147,609

5,345

(42,043)

1,274,259

EXPENSES:

Interest expense

85,482

36,470

3,902

147,752

273,606

Depreciation and amortization

45,437

15,811

7,865

15

69,128

Goodwill impairment

151,018

56,539

207,557

Other expenses, net

663,545

318,028

191,640

30,295

(42,043)

1,161,465

Total expenses

945,482

370,309

259,946

178,062

(42,043)

1,711,756

OTHER GAINS (LOSSES)

Net fair value gains (losses)

75

7,323

7,398

Gain (loss) on extinguishment of debt

4,660

4,660

Other

6,134

14,879

21,013

Total other gains (losses)

6,209

26,862

33,071

Income (loss) before income taxes

(269,770)

123,536

(112,337)

(145,855)

(404,426)

ADJUSTED EARNINGS (LOSS)

Goodwill impairment

151,018

56,539

207,557

Changes in fair value due to changes in valuation inputs and other assumptions

137,198

137,198

Step-up depreciation and amortization

27,697

7,424

5,178

40,299

Step-up amortization of sub-servicing rights

18,965

18,965

Non-cash interest expense

1,283

10,815

12,098

Share-based compensation expense

12,700

5,557

2,395

285

20,937

Fair value to cash adjustment for reverse loans

2,291

2,291

Curtailment expense

30,419

30,419

Legal and regulatory matters

20,445

5,575

26,020

Restructuring costs

6,462

2,608

1,640

851

11,561

Other

3,776

1,272

349

11,547

16,944

Total adjustments

379,544

16,861

104,386

23,498

524,289

Adjusted Earnings (Loss)

109,774

140,397

(7,951)

(122,357)

119,863

ADJUSTED EBITDA

Amortization of servicing rights and other fair value adjustments

250,539

2,053

252,592

Interest expense on debt

8,779

2

136,938

145,719

Depreciation and amortization

17,740

8,387

2,687

15

28,829

Other

(6,556)

8,827

139

306

2,716

Total adjustments

270,502

17,214

4,881

137,259

429,856

Adjusted EBITDA

$

380,276

$

157,611

$

(3,070)

$

14,902

$

$

549,719

 

 

Walter Investment Management Corp. Segment Results of Operations and Non-GAAP Financial Measures For the Year Ended December 31, 2014 (in thousands)

Servicing

Originations

Reverse Mortgage

Other

Eliminations

Total Consolidated

REVENUES:

Servicing revenue and fees

$

575,961

$

$

35,446

$

$

(9,897)

$

601,510

Gain on loan sales, net

462,172

462,172

Interest income on loans

134,472

83

134,555

Insurance revenue

71,010

71,010

Net fair value gains on reverse loans and related HMBS obligations

109,972

109,972

Other income

75,991

19,567

11,743

41,179

(40,546)

107,934

Total revenues

857,434

481,822

157,161

41,179

(50,443)

1,487,153

EXPENSES:

Interest expense

121,856

29,841

3,773

147,633

303,103

Depreciation and amortization

46,333

17,090

9,284

14

72,721

Goodwill impairment

82,269

82,269

Other expenses, net

716,992

317,787

163,003

19,597

(50,443)

1,166,936

Total expenses

885,181

364,718

258,329

167,244

(50,443)

1,625,029

OTHER GAINS (LOSSES)

Net fair value gains (losses)

(796)

20,076

19,280

Other

(744)

(744)

Total other gains (losses)

(1,540)

20,076

18,536

Income (loss) before income taxes

(29,287)

117,104

(101,168)

(105,989)

(119,340)

ADJUSTED EARNINGS (LOSS)

Goodwill impairment

82,269

82,269

Changes in fair value due to changes in valuation inputs and other assumptions

114,759

114,759

Step-up depreciation and amortization

26,587

9,903

7,081

1

43,572

Step-up amortization of sub-servicing rights

33,317

33,317

Non-cash interest expense

2,326

9,755

12,081

Share-based compensation expense

8,942

3,445

2,185

(39)

14,533

Fair value to cash adjustment for reverse loans

(24,602)

(24,602)

Curtailment expense

1,460

1,460

Legal and regulatory matters

75,564

907

24,297

100,768

Restructuring costs

1,657

2,887

4,544

Other

963

4,049

4,485

(7,091)

2,406

Total adjustments

264,115

21,191

97,175

2,626

385,107

Adjusted Earnings (Loss)

234,828

138,295

(3,993)

(103,363)

265,767

ADJUSTED EBITDA

Amortization of servicing rights and other fair value adjustments

156,131

2,683

158,814

Interest expense on debt

5,003

26

137,878

142,907

Depreciation and amortization

19,746

7,187

2,203

13

29,149

Other

8,741

(1,165)

(73)

44

7,547

Total adjustments

189,621

6,022

4,839

137,935

338,417

Adjusted EBITDA

$

424,449

$

144,317

$

846

$

34,572

$

$

604,184

 

 

Reconciliation of GAAP Loss Before Income Taxes to Non-GAAP AEBITDA (in millions)

For the Three Months Ended

For the Year Ended

December 31, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Loss before income taxes

$

(208.2)

$

(109.1)

$

(404.4)

$

(119.3)

Add/(Subtract):

Goodwill impairment

151.0

207.6

82.3

Amortization of servicing rights and other fair value adjustments

51.3

97.0

408.8

306.9

Interest expense

37.2

38.2

157.8

155.0

Depreciation and amortization

15.8

17.8

69.1

72.7

Curtailment expense

7.4

30.4

1.4

Share-based compensation expense

6.6

3.0

20.9

14.5

Fair value to cash adjustment for reverse loans

9.9

(18.3)

2.3

(24.6)

Legal and regulatory matters

18.8

50.4

26.0

100.8

Restructuring costs

3.0

1.7

11.6

4.5

Other

8.4

4.3

19.6

10.0

Sub-total

309.4

194.1

954.1

723.5

Adjusted EBITDA

$

101.2

$

85.0

$

549.7

$

604.2

 

 

Reconciliation of GAAP Loss Before Income Taxes to Non-GAAP Adjusted Earnings (Loss) (in millions, except per share amounts)

For the Three Months Ended

For the Year Ended

December 31, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Loss before income taxes

$

(208.2)

$

(109.1)

$

(404.4)

$

(119.3)

Add/(Subtract):

Goodwill impairment

151.0

207.6

82.3

Changes in fair value due to changes in valuation inputs and other assumptions

(20.1)

44.1

137.2

114.8

Curtailment expense

7.4

30.4

1.4

Step-up depreciation and amortization

8.6

10.1

40.3

43.6

Step-up amortization of sub-servicing rights

4.4

9.3

19.0

33.3

Share-based compensation expense

6.6

3.0

20.9

14.5

Non-cash interest expense

2.6

1.5

12.1

12.1

Fair value to cash adjustment for reverse loans

9.9

(18.3)

2.3

(24.6)

Legal and regulatory matters

18.8

50.4

26.0

100.8

Restructuring costs

3.0

1.7

11.6

4.5

Other

7.9

3.8

16.9

2.3

Adjusted Earnings (Loss)

$

(8.1)

$

(3.5)

$

119.9

$

265.7

Adjusted Earnings (Loss) after tax (38% in 2015 and 39% in 2014)

(5.0)

(2.1)

74.3

162.1

Adjusted Earnings (Loss) after taxes per common and common equivalent share.

$

(0.14)

$

(0.06)

$

1.98

$

4.31

 

SOURCE Walter Investment Management Corp.



RELATED LINKS

http://www.walterinvestment.com