Walter Investment Management Corp. Announces Record Second Quarter 2013 Financial And Operating Results

TAMPA, Fla., Aug. 8, 2013 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced financial results for the quarter ended June 30, 2013, as well as updates on operational highlights and recent developments for the Company.

The Company reported GAAP net income for the second quarter of 2013 of $143.2 million, or $3.75 per diluted share, compared to net income of $0.4 million, or $0.01 per diluted share, in the second quarter of 2012.  Core earnings for the second quarter was $178.4 million after taxes, or $4.75 per diluted share, an almost ten-fold increase as compared to the same quarter of last year and 216% greater than in the first quarter of 2013. Adjusted EBITDA for the quarter was $262.1 million, also significantly higher when compared to Adjusted EBITDA of $58.2 million in the second quarter of 2012 and $140.0 million in the first quarter of 2013.

Second quarter results reflected strong earnings growth in both the Servicing and Origination segments, as well as continued strong contributions from the Reverse segment and the Company's other ancillary businesses.  The Servicing segment achieved further increases in earnings from its first half of 2013 portfolio additions of approximately 1.1 million units, over 550,000 of which were boarded in the second quarter, as well as significant increases in incentive, performance and ancillary fees.  Servicing results reflected favorable fair value increases on the Company's mortgage servicing rights ("MSRs") which added approximately $1.52 to both GAAP and core earnings per share.  Origination segment earnings increased strongly on expected growth in Consumer Direct lending volumes and attractive margins.  During the second quarter of 2013, the Company made a correction to its accounting for servicing rights and related intangible assets.  There was no significant impact on previously reported net income, earnings per share, stockholders' equity, or on net cash used in operating activities, and the impact was not material to the Company's consolidated financial statements for any of its previously reported periods.

"Walter Investment continues to execute solidly against its strategic plan, producing strong operational and financial results across our major segments in the second quarter," said Mark J. O'Brien, Walter Investment's Chairman and CEO.  "Our core Servicing segment continued to deliver solid growth in profits and exceptional operational performance from both existing and recently acquired portfolios of new business.  The Originations segment delivered robust production for the quarter generating significant earnings at strong margins, capitalizing on the HARP origination opportunities embedded in our portfolios."

Other notable developments included:

  • On June 19, 2013, Green Tree Servicing , a top rated specialty servicer, had  four of its five servicer ratings upgraded to 2+ and its remaining servicer rating reaffirmed at 2+ by Fitch Ratings. 
  • On July 18, 2013, Green Tree Servicing entered into an agreement to service approximately 130,000 consumer finance loans, significantly extending the Company's core servicing competency into the unsecured product space.
  • On July 29, 2013, the Company entered into a strategic relationship with UFG Holdings, LLC  ("UFG") in connection with UFG's announced acquisition of Urban Financial Group wherein the company will provide a loan to UFG and receive a warrant to purchase approximately 19% of the members interests and establish a reverse mortgage servicing flow purchase arrangement with the Company's subsidiary, Reverse Mortgage Solutions.

Second Quarter 2013 Financial and Operating Highlights

Total revenue for the second quarter was $569.2 million, as compared to $150.9 million in the year-ago period.  The year-over-year increase in revenue reflects a $168.6 million increase in net servicing revenue and fees and an increase of $235.9 million of net gain on sales of loans from the Originations segment.  The Reverse Mortgage segment generated $6.6 million of servicing fees and revenue for the quarter.  Net other revenues increased $16.2 million driven primarily by higher fee income in the Originations segment. 

Other gains shown in the income statement increased from $0.8 million in the second quarter of 2012 to $28.4 million in the second quarter of 2013, principally reflecting net fair value gains from the reverse mortgage business.

Total expense increased from $150.9 million in the second quarter of 2012 to $359.0 million in the second quarter of 2013.  The year-over-year increase reflects additional operating and overhead costs, including salaries and benefits and general and administrative expenses, associated with growth in the serviced portfolio and the acquisition and expansion of other businesses.  The additions of the Reverse Mortgage and Originations segments added approximately $45.8 million and $104.0 million to expenses, respectively.  Expenses also reflected $8.3 million in higher legal, due diligence and other costs associated with increased corporate and business development activities.  Interest expense increased by $23.8 million over the prior year reflecting increased corporate debt outstanding and increased warehouse activity at the Company's Originations and Reverse Mortgage segments. 

Segments

Results for the Company's segments are presented below.

Servicing

The Servicing segment generated revenue of $244.9 million in the second quarter, which included $145.4 million of gross servicing fees, $26.3 million of incentive and performance-based fees, and $17.9 million of ancillary and other revenue and fees.  Servicing revenues for the second quarter of 2013 are net of $10.3 million in amortization on MSRs accounted for at amortized costs, but include $93.7 million of positive fair value adjustments related to MSRs accounted for at fair value.

Servicing segment revenues were up 186% from the second quarter of 2012, principally reflecting the significant increase in UPB serviced over the past year, as well as the positive fair value adjustment recognized in the second quarter of this year.  The segment continued its trend of producing strong results from its efforts with respect to generating incentive and performance-based fees, which are up by 83% over the prior year.  For example, the application of proprietary protocols to the recently acquired first lien GSE pools resulted in a reduction of 30+ day delinquencies by approximately 120 bps as compared to the first quarter of 2013.  These recently acquired pools are eligible for incentive fees, and results such as these are expected to lead to significant future incentive revenues.

Expense for the Servicing segment was $131.5 million, which included $9.5 million of depreciation and amortization costs and $5.2 million of interest expense.  The segment generated core earnings before income taxes of $129.4 million for the quarter ended June 30, 2013, an increase of 394% as compared to core earnings before income taxes of $26.2 million in the second quarter of 2012.

For the quarter ended June 30, 2013, the Company made a correction to its accounting for servicing rights acquired at December 31, 2012 and during the three months ended March 31, 2013.  Effective with the change, the entire value is now reflected in Servicing rights, net, which increased servicing rights acquired and reduced intangibles by $412.4 million at March 31, 2013 and $17.4 million at December 31, 2012.  As a result, intangible amortization previously included in the Originations segment for the quarter ended March 31, 2013 of $14.1 million is now reflected as part of net servicing revenue and fees in the Servicing segment and in the consolidated statements of comprehensive income.

The effect of this change, beginning in the second quarter, is to include the amounts previously included in intangibles in MSRs accounted for at fair value.  This eliminates the related intangible amortization, which is instead reflected in the net disappearance of the servicing right, and the earnings impact is included as an adjustment to net servicing revenue and fees in the consolidated statements of comprehensive income. The Company believes this correction also improves comparability of Company results with industry peers.

The Servicing segment ended the quarter with approximately 1.9 million total accounts serviced, with a UPB of roughly $197 billion.  During the quarter, the Company experienced net disappearance rates of 21%.  All of these results were in line with or better than Company expectations and projections.   

Reverse Mortgage

The Reverse Mortgage segment generated revenue of $9.2 million for the quarter, which included $6.6 million in servicing fees, $0.3 million in gain on sale revenue and $2.4 million of net other revenue.  Results also included a $26.7 million other gain from the net impact of HECM loans and HMBS fair value adjustments.  Total expenses were $45.8 million, including $2.2 million of interest expense and $2.7 million of depreciation and amortization.   The segment reported core earnings before income taxes of $15.9 million and Adjusted EBITDA of $16.9 million for the second quarter.  Reverse Mortgage segment core earnings and Adjusted EBITDA reflect the exclusion of fair value adjustments made in accordance with GAAP and adds as "cash gain" the excess of proceeds received in GNMA financing transactions above the purchase price or cost for the related loans originated or acquired.

Originations

The Originations segment generated revenue of $251.2 million in the second quarter, an increase of $175.1 million, or 230%, over the prior quarter as the business continues to ramp, driven primarily by the consumer direct channel, which targets refinancing and recapture of HARP-eligible accounts from the serviced portfolio.   Expense for the Originations segment was $105.3 million, which included $8.6 million of interest expense and $2.7 million of depreciation and amortization.  The segment generated core earnings before income taxes of $148.7 million for the second quarter of 2013 and Adjusted EBITDA of $151.7 million

Realized gains on funded loans as a percentage of funded volume was 367 basis points for the quarter.  Loan closings in the second quarter totaled $4.7 billion, with 69% of that volume in the consumer lending channel and 31% generated by the business lending channel.  The total application pipeline as of June 30, 2013 was $9.1 billion, with locked applications of $4.2 billion.

Other Segments

The ARM segment generated revenue of $11.2 million and incurred expense of $7.3 million in the quarter ended June 30, 2013. Core earnings before income taxes was $5.5 million.  This compares to revenue of $9.5 million, expenses of $7.4 million, and core earnings before income taxes of $4.2 million in the second quarter of 2012. 

Walter Investment's Insurance segment generated revenue of $18.1 million, offset by expenses of $9.1 million for the second quarter.  Insurance segment core earnings before income taxes was $10.3 million for the quarter ended June 30, 2013.  This compares to revenue of $17.0 million, expenses of $10.0 million, and core earnings before income taxes of $8.8 million in the second quarter of 2012. 

The Loans and Residuals segment, which includes the legacy Walter Investment owned portfolio, generated interest income of $36.8 million for the second quarter of 2013.  Total expense for the segment was $26.6 million, including $21.8 million of interest expense on securitized debt.  The Loans and Residuals segment generated pre-tax core earnings of $10.7 million for the second quarter of 2013, compared to pre-tax core earnings of $8.2 million for the second quarter of 2012. The year over year increase in pre-tax core earnings was primarily driven by lower direct servicing expenses, due to a lower provision for losses impacted by improvements in actual frequency and severity.

Market Commentary and Outlook

Despite increased volatility in the market driven by interest rate movements, the base economic environment including a modest ramp in interest rates, moderate home price appreciation and a steady decline in unemployment, provides a supportive platform for Walter Investment's core business lines.  In addition, the Company  believes sector drivers including the regulatory environment, identification of core versus non-core customers at depositories, the burden of higher servicing costs and increased capital implications continue to support the strong operating environment for the business.  The pipeline of business development opportunities remains robust, totaling approximately $320 billion in UPB.  Transaction flow has picked up over the past 30 days, a trend expected to continue over the balance of 2013. The Company remains highly confident with respect to the significant levels of both subserviced and MSR purchase opportunities in both the current pipeline and in the overall market opportunity over the next 24 to 36 months. 

Based on the overall strong market conditions, robust pipeline activity and the progress and results of recent acquisitions, the Company is increasing its previously provided estimated AEBITDA range for 2013 from $650 to $725 million to $700 to $740 million.  In addition, the Company is increasing its estimated core earnings for 2013 to a range of $8.90 to $9.40 per diluted share. The increase in fair value of MSRs of approximately $1.52 per diluted share recognized in the second quarter is included in these estimates.  The previously discussed accounting change in accounting for intangibles represents an approximately $1.88 per share increase in the estimate for core earnings for 2013 versus previous estimates.  Adjusting for both the MSR accounting impact and the fair value increase recorded for the second quarter, updated estimates represents an approximately 14% increase in core earnings per share over the previous estimate, at the midpoints of  these estimates.  

Additionally, based on the Company's outlook for market and economic conditions and solid expectations for performance in its key businesses, Walter Investment is providing after tax core earnings per share estimates for 2014 of $6.00 to $6.50 per share.  This range includes estimates for certain business development and growth opportunities, depreciation and amortization and the Company's expected capital structure.  Neither 2013 nor 2014 estimates include an estimate for future fair value adjustments.

About Walter Investment Management Corp.

Walter Investment Management Corp. is an asset manager, mortgage servicer and originator focused on finding solutions for consumers and credit owners.  Based in Tampa, Fla., the Company has over 6,200 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 second quarter results and other general business matters during a conference call and live webcast to be held on Thursday, August 8, 2013, at 10 a.m. Eastern Time.  To listen to the event live or in an archive, 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 "Use of Non-GAAP Measures" at the end of this press release.  

Disclaimer and Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking statements, including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning Walter Investment's plans, beliefs, objectives, expectations, level of confidence, guidance and intentions and other statements that are not historical or current facts. Forward-looking statements are based on Walter Investment's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. In addition, these statements are based on a number of assumptions that are subject to change.  Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by Walter Investment that the projections will prove to be correct. This document speaks only as of this date. Walter Investment disclaims any duty to update the information herein except as otherwise required by law.

Factors that could cause Walter Investment's results to differ materially from current expectations or affect the Company's ability to achieve anticipated core earnings and AEBITDA include, but are not limited to:


  • Regulatory changes and changes in delinquency and default rates that could adversely affect the costs of our businesses such that they are higher than expected;
  • Prepayment speeds, delinquency and default rates of the portfolios we service;
  • Our inability to achieve anticipated incentive fees, which are subject to certain factors beyond the Company's control and which are difficult to estimate with any degree of certainty in advance;
  • The achievement of anticipated volumes and margins from the origination of both forward and reverse mortgages, which can be affected by multiple factors, many of which are beyond our control;
  • Assumptions with regard to the HARP eligible population of the portfolios we service, customer take up rates, our recapture rates, the origination margins for HARP refinancing and anticipated changes to the HARP program which may increase competition;
  • Assumptions with regard to contributions from originations are also subject to the integration of the ResCap originations and capital markets platforms, and the organizational structure, capital requirements and performance of the business after the acquisition;
  • Assumptions regarding the continuation in all material respects, of government programs related to our business
  • The impact of regulatory scrutiny on our lender placed insurance, including limitations that may be imposed on fees and commissions by regulators and customers that we may earn on such business
  • The timely and efficient transfer of assets acquired to the Company's platforms and the efficient integration of the acquired businesses, including achievement of synergies related thereto;
  • The accuracy of our expectations regarding the value of, and contributions from, acquired MSRs, intangibles and other assets, including the accuracy of our assumptions as to the performance of the assets we acquire, which are subject to and affected by many factors, some of which are beyond our control, and could differ materially from our estimates;
  • Errors in our financial models or changes in assumptions could result in our estimates and expectations being materially inaccurate which may adversely affect our earnings;
  • Changes in accounting;
  • The effects of competition on our existing and potential future business;
  • Our ability to service our existing or future indebtedness;
  • Other factors that may affect the Company's earnings or costs; and
  • Other factors relating to our business in general as detailed in Walter Investment's 2012 Annual Report on Form 10-K and other periodic reports filed with the U.S. Securities and Exchange Commission.

 

 

Walter Investment Management Corp.

Segment Revenues and Operating Income

For the Three Months Ended June 30, 2013

($ in thousands)


























Servicing


Asset Receivables Management


Insurance


Loans and Residuals


Reverse Mortgage


Originations


Other


Eliminations


Total Consolidated



REVENUES





















Net servicing revenue and fees


$    244,432


$            11,102


$           -


$              -


$       6,624


$                     -


$              -


$       (4,852)


$          257,306



Net gains on sales of loans


-


-


-


-


250


235,699


-


-


235,949



Interest income on loans


-


-


-


36,796


-


-


-


-


36,796



Insurance revenue


-


-


18,050


-


-


-


-


-


18,050



Other revenues


457


69


6


1


2,366


15,527


2,706


-


21,132



Total revenues


244,889


11,171


18,056


36,797


9,240


251,226


2,706


(4,852)


569,233



EXPENSES





















Interest expense


5,166


-


-


21,800


2,166


8,600


30,558


-


68,290



Depreciation and amortization


9,445


1,614


1,168


-


2,691


2,689


7


-


17,614



Provision for loan losses


-


-


-


95


-


-


-


-


95



Other expenses, net


116,914


5,722


7,934


4,718


40,931


94,058


7,625


(4,852)


273,050



Total expenses


131,525


7,336


9,102


26,613


45,788


105,347


38,190


(4,852)


359,049



OTHER GAINS (LOSSES)





















Net fair value gains on reverse loan and related HMBS oblig.


-


-


-


-


26,731


-


-


-


26,731



Other net fair value (losses)


(179)


-


-


566


-


-


1,269


-


1,656



Total other gains (losses)


(179)


-


-


566


26,731


-


1,269


-


28,387



Income (loss) before income taxes


113,185


3,835


8,954


10,750


(9,817)


145,879


(34,215)


-


238,571
























Core Earnings





















Step-up depreciation and amortization


6,029


1,483


1,018


-


2,353


1,933


5


-


12,821



Step-up amortization of sub-servicing rights (MSRs)


8,125


-


-


-


-


-


-


-


8,125



Non-cash fair value adjustments for reverse mortgages


-


-


-


-


16,886


-


-


-


16,886



Non-cash interest expense


210


-


(19)


(40)


-


-


2,163


-


2,314



Share-based compensation expense


1,895


151


311


-


436


885


174


-


3,852



Transaction and integration costs


-


-


-


-


-


-


4,001


-


4,001



Net impact of Non-Residual Trusts


-


-


-


-


-


-


33


-


33



Other


-


-


-


-


6,000


-


(63)


-


5,937



Total adjustments


16,259


1,634


1,310


(40)


25,675


2,818


6,313


-


53,969



Core earnings (loss) before income taxes


129,444


5,469


10,264


10,710


15,858


148,697


(27,902)


-


292,540
























Adjusted EBITDA





















Interest expense on debt


-


-


-


-


9


-


28,395


-


28,404



Depreciation and amortization


3,416


131


150


-


338


756


2


-


4,793



Amortization and fair value adjustments of servicing rights


(62,868)


-


-


-


875


-


-


-


(61,993)



Provision for loan losses


-


-


-


95


-


-


-


-


95



Residual Trusts cash flows


-


-


-


1,077


-


-


-


-


1,077



Non-cash interest income


(359)


-


7


(4,085)


(135)


-


-


-


(4,572)



Other


687


10


26


(747)


(51)


2,266


(389)


-


1,802



Total adjustments


(59,124)


141


183


(3,660)


1,036


3,022


28,008


-


(30,394)



Adjusted EBITDA


$     70,320


$              5,610


$   10,447


$       7,050


$     16,894


$          151,719


$          106


$               -


$          262,146












































 

 



Walter Investment Management Corp.

Segment Revenues and Operating Income

For the Three Months Ended June 30, 2012

($ in thousands)





Servicing


Asset Receivables Management


Insurance


Loans and Residuals


Originations


Other


Eliminations


Total Consolidated



REVENUES



















Net servicing revenue and fees


$     84,454


$        9,501


$           -


$              -


$              -


$              -


$       (5,285)


$       88,670



Interest income on loans


-


-


-


40,453


-


-


-


40,453



Insurance revenue


-


-


16,803


-


-


-


-


16,803



Other revenues


1,033


-


187


-


1,480


2,263


-


4,963



Total revenues


85,487


9,501


16,990


40,453


1,480


2,263


(5,285)


150,889



EXPENSES



















Interest expense


1,228


-


-


23,425


-


19,870


-


44,523



Depreciation and amortization


8,588


1,893


1,310


-


15


8


-


11,814



Provision for loan losses


-


-


-


1,957


-


-


-


1,957



Other expenses, net


70,585


5,545


8,703


7,322


1,324


4,414


(5,285)


92,608



Total expenses


80,401


7,438


10,013


32,704


1,339


24,292


(5,285)


150,902



OTHER GAINS (LOSSES)



















Other net fair value gains (losses)


(246)


-


-


118


-


916


-


788



Total other gains (losses)


(246)


-


-


118


-


916


-


788



Income (loss) before income taxes


4,840


2,063


6,977


7,867


141


(21,113)


-


775






















Core Earnings



















Step-up depreciation and amortization


6,649


1,893


1,310


-


15


8


-


9,875



Step-up amortization of sub-servicing rights (MSRs)


10,543


-


-


-


-


-


-


10,543



Non-cash interest expense


151


-


55


345


-


-


-


551



Share-based compensation expense


2,600


219


507


-


36


252


-


3,614



Transaction and integration costs


1,464


-


-


-


-


691


-


2,155



Net impact of Non-Residual Trusts


-


-


-


-


-


1,068


-


1,068



Other


-


-


-


-


-


480


-


480



Total adjustments


21,407


2,112


1,872


345


51


2,499


-


28,286



Core earnings (loss) before income taxes


26,247


4,175


8,849


8,212


192


(18,614)


-


29,061






















Adjusted EBITDA



















Interest expense on debt


44


-


-


-


-


19,871


-


19,915



Depreciation and amortization


1,939


-


-


-


-


-


-


1,939



Amortization and fair value adjustments of servicing rights


2,668


-


-


-


-


-


-


2,668



Provision for loan losses


-


-


-


1,957


-


-


-


1,957



Residual Trusts cash flows


-


-


-


5,363


-


-


-


5,363



Non-cash interest income


(1,030)


-


(187)


(4,637)


-


-


-


(5,854)



Pro forma synergies


1,225


-


-


-


-


216


-


1,441



Other


316


8


14


1,405


1


6


-


1,750



Total adjustments


5,162


8


(173)


4,088


1


20,093


-


29,179



Adjusted EBITDA


$     31,409


$        4,183


$    8,676


$     12,300


$          193


$       1,479


$               -


$       58,240








































 

 

Walter Investment Management Corp.

Segment Revenues and Operating Income

For the Six Months Ended June 30, 2013

($ in thousands)




Servicing


Asset Receivables Management


Insurance


Loans and Residuals


Reverse Mortgage


Originations


Other


Eliminations


Total Consolidated

REVENUES



















Net servicing revenue and fees


$    369,559


$            21,192


$           -


$              -


$     13,372


$                     -


$              -


$       (9,808)


$          394,315

Net gains on sales of loans


-


-


-


-


4,633


309,761


-


-


314,394

Interest income on loans


-


-


-


73,694


-


-


-


-


73,694

Insurance revenue


-


-


35,584


-


-


-


-


-


35,584

Other revenues


919


133


13


4


5,311


17,524


5,122


(39)


28,987

Total revenues


370,478


21,325


35,597


73,698


23,316


327,285


5,122


(9,847)


846,974

EXPENSES



















Interest expense


7,576


-


-


44,096


5,695


9,306


55,759


-


122,432

Depreciation and amortization


18,302


3,370


2,482


-


5,414


4,366


13


-


33,947

Provision for loan losses


-


-


-


1,821


-


-


-


-


1,821

Other expenses, net


208,962


11,752


16,442


8,822


73,454


133,475


24,533


(9,847)


467,593

Total expenses


234,840


15,122


18,924


54,739


84,563


147,147


80,305


(9,847)


625,793

OTHER GAINS (LOSSES)



















Net fair value gains on reverse loan and related HMBS oblig.


-


-


-


-


63,519


-


-


-


63,519

Other net fair value (losses)


(424)


-


-


404


-


-


415


-


395

Total other gains (losses)


(424)


-


-


404


63,519


-


415


-


63,914

Income (loss) before income taxes


135,214


6,203


16,673


19,363


2,272


180,138


(74,768)


-


285,095




















Core Earnings



















Step-up depreciation and amortization


12,218


2,956


2,482


-


4,804


3,210


11


-


25,681

Step-up amortization of sub-servicing rights (MSRs)


16,235


-


-


-


-


-


-


-


16,235

Non-cash fair value adjustments for reverse mortgages


-


-


-


-


20,422


-


-


-


20,422

Non-cash interest expense


430


-


-


637


-


-


4,250


-


5,317

Share-based compensation expense


3,392


289


650


-


723


1,153


335


-


6,542

Transaction and integration costs


-


-


-


-


-


-


20,328


-


20,328

Net impact of Non-Residual Trusts


-


-


-


-


-


-


(446)


-


(446)

Other


-


-


-


-


6,000


-


(52)


-


5,948

Total adjustments


32,275


3,245


3,132


637


31,949


4,363


24,426


-


100,027

Core earnings (loss) before income taxes


167,489


9,448


19,805


20,000


34,221


184,501


(50,342)


-


385,122




















Adjusted EBITDA



















Interest expense on debt


-


-


-


-


26


-


51,509


-


51,535

Depreciation and amortization


6,084


414


-


-


610


1,156


2


-


8,266

Amortization and fair value adjustments of servicing rights


(39,497)


-


-


-


1,793


-


-


-


(37,704)

Provision for loan losses


-


-


-


1,821


-


-


-


-


1,821

Residual Trusts cash flows


-


-


-


1,477


-


-


-


-


1,477

Non-cash interest income


(820)


-


-


(8,034)


(286)


-


-


-


(9,140)

Other


1,130


18


44


(2,439)


(14)


2,307


(285)


-


761

Total adjustments


(33,103)


432


44


(7,175)


2,129


3,463


51,226


-


17,016

Adjusted EBITDA


$    134,386


$              9,880


$   19,849


$     12,825


$     36,350


$          187,964


$          884


$               -


$          402,138




















 

 

Segment Revenues and Operating Income

For the Six Months Ended June 30, 2012

($ in thousands)





Servicing


Asset Receivables Management


Insurance


Loans and Residuals


Originations


Other


Eliminations


Total Consolidated



REVENUES



















Net servicing revenue and fees


$   171,269


$       17,829


$           -


$              -


$              -


$              -


$     (10,695)


$     178,403



Interest income on loans


-


-


-


79,733


-


-


-


79,733



Insurance revenue


-


-


36,765


-


-


-


-


36,765



Other revenues


1,819


-


489


-


2,098


4,423


-


8,829



Total revenues


173,088


17,829


37,254


79,733


2,098


4,423


(10,695)


303,730



EXPENSES



















Interest expense


2,723


-


-


47,403


-


40,235


-


90,361



Depreciation and amortization


17,239


3,897


2,657


-


25


15


-


23,833



Provision for loan losses


-


-


-


3,526


-


-


-


3,526



Other expenses, net


137,246


10,708


18,123


14,788


2,095


10,261


(10,695)


182,526



Total expenses


157,208


14,605


20,780


65,717


2,120


50,511


(10,695)


300,246



OTHER GAINS (LOSSES)



















Other net fair value gains (losses)


(532)


-


-


(177)


-


6,260


-


5,551



Total other gains (losses)


(532)


-


-


(177)


-


6,260


-


5,551



Income (loss) before income taxes


15,348


3,224


16,474


13,839


(22)


(39,828)


-


9,035






















Core Earnings



















Step-up depreciation and amortization


13,345


3,897


2,657


-


25


15


-


19,939



Step-up amortization of sub-servicing rights (MSRs)


20,687


-


-


-


-


-




20,687



Non-cash interest expense


437


-


148


1,052


-


-


-


1,637



Share-based compensation expense


6,067


475


1,300


-


64


457


-


8,363



Transaction and integration costs


1,464


-


-


-


-


2,108


-


3,572



Net impact of Non-Residual Trusts


-


-


-


-


-


(1,934)


-


(1,934)



Other


-


-


-


-


-


929


-


929



Total adjustments


42,000


4,372


4,105


1,052


89


1,575


-


53,193



Core earnings (loss) before income taxes


57,348


7,596


20,579


14,891


67


(38,253)


-


62,228






















Adjusted EBITDA



















Interest expense on debt


107


-


-


-


-


40,236


-


40,343



Depreciation and amortization


3,894


-


-


-


-


-


-


3,894



Amortization and fair value adjustments of servicing rights


5,439


-


-


-


-


-


-


5,439



Provision for loan losses


-


-


-


3,526


-


-


-


3,526



Residual Trusts cash flows


-


-


-


5,625


-


-


-


5,625



Non-cash interest income


(1,776)


-


(486)


(8,122)


-


-


-


(10,384)



Pro forma synergies


2,651


-


-


-


-


1,118


-


3,769



Other


577


11


14


2,202


1


85


-


2,890



Total adjustments


10,892


11


(472)


3,231


1


41,439


-


55,102



Adjusted EBITDA


$     68,240


$        7,607


$  20,107


$     18,122


$            68


$       3,186


$               -


$     117,330








































 

 

Walter Investment Management Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share data)














For the Three Months Ended


For the Six Months Ended




June 30


June 30




2013


2012


2013


2012











REVENUES









Net servicing revenue and fees

$        257,306


$          88,670


$        394,315


$        178,403

Net gains on sales of loans

235,949


-


314,394


-

Interest income on loans

36,796


40,453


73,694


79,733

Insurance revenue

18,050


16,803


35,584


36,765

Other revenues


21,132


4,963


28,987


8,829

               Total revenues

569,233


150,889


846,974


303,730











EXPENSES









Salaries and benefits

145,282


55,541


252,015


112,944

General and administrative

125,712


33,887


213,152


62,916

Interest expense


68,290


44,523


122,432


90,361

Depreciation and amortization

17,614


11,814


33,947


23,833

Provision for loan losses

95


1,957


1,821


3,526

Other expenses, net

2,056


3,180


2,426


6,666

                Total expenses

359,049


150,902


625,793


300,246











OTHER GAINS









Net fair value gains on reverse loans and related HMBS obligations

26,731


-


63,519


-

Other net fair value gains

1,656


788


395


5,551

               Total other gains

28,387


788


63,914


5,551











Income before income taxes

238,571


775


285,095


9,035

Income tax expense

95,339


347


114,114


3,472

               Net income

$        143,232


$              428


$        170,981


$            5,563











Comprehensive Income

$        143,211


$              422


$        170,958


$            5,615











Net Income


$        143,232


$              428


$        170,981


$            5,563











Basic earnings per common and common equivalent share

$             3.82


$             0.01


$             4.56


$             0.19

Diluted earnings per common and common equivalent share

3.75


0.01


4.47


0.19

 

 

Walter Investment Management Corp. and Subsidiaries

Consolidated Balance Sheets


(in thousands, except share and per share data)












June 30,


December 31,





2013


2012





(Unaudited)



ASSETS













Cash and cash equivalents


$       532,620


$       442,054

Restricted cash and cash equivalents


1,057,503


653,338

Residential loans at amortized cost, net


1,443,707


1,490,321

Residential loans at fair value


10,184,477


6,710,211

Receivables, net (includes $50,890 and $53,975 at fair value)




269,021


259,009

Servicer and protective advances, net


1,044,410


173,047

Servicing rights, net (includes $880,950 and $0 at fair value)


1,074,783


242,712

Goodwill



654,565


580,378

Intangible assets, net


137,909


144,492

Premises and equipment, net


155,411


137,785

Other assets (includes $229,383 and $949 at fair value)


375,806


144,830

               Total assets


$   16,930,212


$   10,978,177








LIABILITIES AND STOCKHOLDERS' EQUITY












Payables and accrued liabilities (includes $85,723 and $25,348 at
  fair value)


$       701,349


$       260,610

Servicer payables


959,565


587,929

Servicing advance liabilities


737,629


100,164

Debt 




3,625,115


1,146,249

Mortgage-backed debt (includes $721,080 and $757,286 at fair value)


1,980,868


2,072,728

HMBS related obligations at fair value


7,805,846


5,874,552

Deferred tax liability, net


45,813


41,017

               Total liabilities


15,856,185


10,083,249








Stockholders' equity:





               Preferred stock, $0.01 par value per share:





                                   Authorized - 10,000,000 shares





                                   Issued and outstanding - 0 shares at June 30, 2013 
                                   and
December 31, 2012

-


-

               Common stock, $0.01 par value per share:





                                   Authorized - 90,000,000 shares





                                   Issued and outstanding - 36,956,904 and 36,687,785 at

                                   June 30, 2013 and December 31, 2012, respectively

370


367

               Additional paid-in capital


570,101


561,963

               Retained earnings


503,086


332,105

               Accumulated other comprehensive income


470


493

                                   Total stockholders' equity


1,074,027


894,928

                                        Total liabilities and stockholders' equity


$   16,930,212


$   10,978,177















ASSETS OF CONSOLIDATED VARIABLE INTEREST ENTITIES THAT CAN ONLY BE USED TO SETTLE

 THE OBLIGATIONS OF CONSOLIDATED VARIABLE INTEREST ENTITIES:





June 30,


December 31,





2013


2012





(Unaudited)










Restricted cash and cash equivalents


$         57,278


$         58,253

Residential loans at amortized cost, net


1,427,715


1,475,782

Residential loans at fair value


613,627


646,498

Receivables, net (includes $50,890 and $53,975 at fair value)


50,890


53,975

Servicer and protective advances, net


78,309


77,082

Other assets



58,274


62,683

               Total assets


$    2,286,093


$    2,374,273








LIABILITIES OF CONSOLIDATED VARIABLE INTEREST ENTITIES FOR WHICH CREDITORS OR

BENEFICIAL INTEREST HOLDERS DO NOT HAVE RECOURSE TO THE COMPANY:








Payables and accrued liabilities 


$           8,753


$           9,007

Servicing advance liabilities


65,505


64,552

Mortgage-backed debt (includes $721,080 and $757,286 at fair value)


1,980,868


2,072,728

               Total liabilities


$    2,055,126


$    2,146,287

 

 

Reconciliation of GAAP Income Before Income Taxes to

Non-GAAP Core Earnings


(in millions except per share amounts)











For the Three Months Ended


For the Three Months Ended





June 30, 2013


June 30, 2012










Income before income taxes


$                                  238.6


$                                     0.8



Add back:







Transaction and integration costs


4.0


2.2



Step-up depreciation and amortization


12.8


9.9



Step-up amortization of sub-servicing rights (MSRs)


8.1


10.5



Non-cash fair value adjustments


16.9


-



Non-cash interest expense


2.3


0.5



Share-based compensation expense


3.9


3.6



Net impact of Non-Residual Trusts


-


1.1



Other


5.9


0.5



Core Earnings before income taxes


$                                  292.5


$                                   29.1



Core earnings after tax 


$                                  178.4


$                                   18.0



Core earnings after tax per diluted share


$                                   4.75


$                                   0.62










 

 

Reconciliation of GAAP Income Before Income Taxes to

Non-GAAP Adjusted EBITDA


(in millions)




For the Three Months Ended


For the Three Months Ended



June 30, 2013


June 30, 2012

Income before income taxes


$                                  238.6


$                                     0.8

Depreciation and amortization


17.6


11.8

Interest expense


30.7


20.4

Non-cash fair value adjustment


16.9


-

Transaction and integration-related costs


4.0


2.2

Non-cash share-based compensation expense


3.9


3.6

Provision for loan losses


0.1


2.0

Residual Trusts cash flows


1.1


5.4

Net impact of Non-Residual Trusts 


-


1.1

Pro forma synergies


-


1.4

Other


7.7


2.2

Amortization and fair value adjustments of servicing rights

(53.9)


13.2

Non-cash interest income


(4.6)


(5.9)

Adjusted EBITDA


$                                  262.1


$                                   58.2

 

 

Reconciliation of Estimated Core Earnings to

Estimated GAAP Income Before Income Taxes




For the Year Ended


For the Year Ended



December 31, 2013


December 31, 2014

Estimated pre-tax core earnings(1)


$                                  564.0


$                                 388.0

Less:





Step up depreciation and amortization, including step up amortization of sub-servicing contracts


(83.0)


(67.0)

Share-based compensation expense 


(12.0)


(14.0)

Transaction and integration costs(2) 


(20.3)


-

Non-cash fair value adjustments for reverse mortgages(3)


(20.4)


-

Non-cash interest expense


(12.0)


(10.0)

Other (2) 


(5.5)


-

Estimated income before income taxes


$                                  410.8


$                                 297.0


(1) At the mid-point of the earnings guidance range.

(2) We do not predict special items that might occur in the future. The amount reflected includes only actual amounts that occurred in the first half of 2013.

(3) Fair value adjustments are by their nature subject to multiple factors that could materially change these amounts, many of which are beyond our control. The amount reflected includes only actual amounts that occurred in the first half of 2013.

 

 

Use of Non-GAAP Measures

Generally Accepted Accounting Principles ("GAAP") is the term used to refer to the standard framework of guidelines for financial accounting. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, the Company has provided non-GAAP financial measures, which it believes are useful to help investors better understand its financial performance, competitive position and prospects for the future.

Core earnings (pre-tax and after-tax), core earnings per share and Adjusted EBITDA are financial measures that are not in accordance with GAAP.  See the Definitions included in this document for a description of how these items are reported and see the Non-GAAP Reconciliations for a reconciliation of these measures to the most directly comparable GAAP financial measures.

The Company believes that these Non-GAAP Financial Measures can be useful to investors because they provide a means by which investors can evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period. 

Use of Core Earnings and Adjusted EBITDA by Management

The Company manages the business based upon the achievement of core earnings, Adjusted EBITDA and similar targets and has designed certain management incentives based upon the achievement of pre-tax income and Adjusted EBITDA in order to assess the underlying operational performance of the continuing operations of the business for the year and to have a basis to compare underlying operating results to prior and future periods.

Limitations on the Use of Core Earnings and Adjusted EBITDA

Since core earnings (pre-tax and after-tax) and core earnings per share measure the Company's financial performance excluding certain depreciation and amortization costs related to acquisitions, transaction and merger integration-related costs, share-based compensation expense, certain other non-cash adjustments, and the net impact of the consolidated Non-Residual Trust VIEs, they may not reflect all amounts associated with our results as determined in accordance with GAAP.

Adjusted EBITDA measures the Company's financial performance excluding depreciation and amortization costs, corporate and MSR facility interest expense, transaction and merger integration-related costs, share-based compensation expense, certain other non-cash adjustments, the net impact of the consolidated Non-Residual Trust VIEs and certain other items, including, but not limited to pro-forma synergies, they may not reflect all amounts associated with our results as determined in accordance with GAAP.

Core earnings (pre-tax and after-tax), core earnings per share and Adjusted EBITDA involve differences from segment profit (loss), income (loss) before income taxes, net income (loss), basic earnings (loss) per share and diluted earnings (loss) per share computed in accordance with GAAP. Core earnings (pre-tax and after-tax), core earnings per share  and Adjusted EBITDA should be considered as supplementary to, and not as a substitute for, segment profit (loss), income (loss) before income taxes, net income (loss), basic earnings (loss) per share and diluted earnings (loss) per share computed in accordance with GAAP as a measure of the Company's financial performance.

Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP earnings.  Further, the non-GAAP measures presented by Walter Investment may be defined or calculated differently from similarly titled measures of other companies.

Definitions

Core Earnings This disclaimer applies to every usage of Core Earnings and related terms such as Pre Tax Core Earnings, Core Earnings After Taxes and Core Earnings Per Share ("EPS") in this document.  Core Earnings is a metric that is used by management to exclude certain items in an attempt to provide a better earnings per share metric to evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period.  Core Earnings excludes certain depreciation and amortization costs related to business combination transactions, transaction and merger integration-related costs, share-based compensation expense, certain other non-cash adjustments, and the net impact of the consolidated Non-Residual Trust VIEsCore Earnings includes both cash and non-cash gains from forward mortgage origination activities.  Non-cash gains are net of non-cash charges or reserves provided.  Core Earnings excludes the impact of fair value option ("FVO") accounting and includes cash gains for reverse mortgage origination activities.  Core Earnings may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a means of evaluating our core operating performance.

Adjusted EBITDA This disclaimer applies to every usage of Adjusted EBITDA and related terms such as Pro-Forma Adjusted EBITDA and  AEBITDA in this document.  Adjusted EBITDA is a key performance metric used by management in evaluating the performance of our Company and its segments.  Adjusted EBITDA is generally presented in accordance with its definition in the Company's senior secured credit agreement, with certain exceptions, and represents income before income taxes, depreciation and amortization, interest expense on corporate debt, transaction and integration related costs, the net effect of the non-residual VIEs and certain other non-cash income and expense items. Adjusted EBITDA includes both cash and non-cash gains from forward mortgage origination activities.  Adjusted EBITDA excludes the impact of fair value option ("FVO") accounting and includes cash gains for reverse mortgage origination activities. Pro Forma Adjusted EBITDA includes an adjustment to reflect pro-forma synergies in 2011 and 2012 and to reflect Green Tree as having been acquired at the beginning of the year for periods prior to the actual acquisition date.  Adjusted EBITDA may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a means of evaluating our core operating performance. The definition of Adjusted EBITDA used in this document differs from the definition in the Company's senior secured credit agreement principally in that (i) the credit agreements include a pro forma adjustment for the projected EBITDA of acquisitions that were made less than twelve months ago and (ii) the senior secured credit agreement does not include the non-cash gains from forward mortgage origination activities in Adjusted EBITDA.

2013 Estimated Adjusted EBITDA, 2013 Estimated Core Earnings, 2014 Estimated Core Earnings and other 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 Walter Investment and its 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 presentation should be regarded as a representation by any person that this target will be achieved and the Company undertakes no duty to update this target.  Please refer to the introductory slides of this presentation, as well as additional disclosures in this Appendix and in our Form 10-K and other filings with the SEC, for important information regarding Forward Looking Statements and the use of Non-GAAP Financial Measures.

SOURCE Walter Investment Management Corp.



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