Walter Investment Management Corp. Announces Results for the Fourth Quarter and Fiscal Year 2012, Guidance for 2013 and Recent Events

Mar 18, 2013, 22:30 ET from Walter Investment Management Corp.

TAMPA, Fla., March 18, 2013 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced highlights and results for the quarter and full year ended December 31, 2012.

  • The GAAP net loss for the year ended December 31, 2012 was $22.1 million, or $0.73 per diluted share, compared to a net loss of $66.4 million or $2.41 per diluted share for 2011. The GAAP net loss for the fourth quarter was $34.1 million, or $0.98 per diluted share, compared to a net loss of $3.9 million, or $0.14 per diluted share in the fourth quarter of 2011.  2012 results were impacted by a charge of $48.6 million, reflecting the loss on the early extinguishment of the Company's debt. 
  • Pro-Forma Adjusted EBITDA for the year was $241.7 million, slightly above the high end of the range of previously provided guidance of $225 to $240 million.  This compares to 2011 Pro Forma Adjusted EBITDA of $211.0 million, reflecting 15% year-over-year growth, strong earnings from incentives and performance based fees, and growth in the EBITDA contributions from the ARM and Loans and Residuals segments, as well as a solid contribution from the Reverse Mortgage business acquired near the end of the year.
  • Adjusted EBITDA for the fourth quarter was $64.1 million, reflecting increased cash flows from the residual trusts and a solid contribution by the Reverse Mortgage business.  This compares to Pro-Forma Adjusted EBITDA of $55.0 million in the fourth quarter of 2011.
  • Core earnings for the full year doubled to $83.1 million after taxes, or $2.73 per diluted share, as compared to $41.5 million after taxes, or $1.50 per diluted share, for the full year 2011. Core earnings for the fourth quarter was $22.5 million after taxes, or $0.64 per diluted share, compared to $16.1 million, or $0.56 per diluted share, in the fourth quarter of last year.  

Recent Developments

  • On December 31, 2012, the Company signed a definitive agreement to acquire Security One Lending ("S1L"), a leading retail and wholesale reverse loan originator based in San Diego, California.  The assets acquired and liabilities assumed in conjunction with this transaction have been included in the Company's consolidated balance sheets as of December 31, 2012.
  • On January 3, 2013, the Company signed a definitive agreement to acquire approximately $93 billion in unpaid principal balance ("UPB") of Fannie Mae backed residential servicing assets ("MSRs") and other intangibles, including related advance receivables of approximately $1 billion, from Bank of America ("BofA").   In addition, the Company signed a definitive agreement to acquire a servicing platform from MetLife Bank.
  • On January 31, 2013, the Company closed an $825 million incremental first lien term loan facility, which was upsized from its original $475 million launch based on significant demand and the company's expectations for its ability to utilize that financing to fund growth opportunities.
  • On January 31, 2013, the Company completed the previously announced acquisitions of the originations and capital markets platforms, as well as the purchases of approximately $44 billion in UPB of Fannie Mae MSRs and other intangibles from Residential Capital, LLC ("ResCap") and $84 billion in UPB of Fannie Mae MSRs and other intangibles from BofA.  Pro-forma for all of the announced acquisitions, the Company's serviced portfolio is estimated at a UPB of $245 billion.
  • On March 1, 2013, the Company completed the acquisition of the correspondent lending and wholesale broker business from Ally Bank, enhancing the channel capabilities of the Originations platform.  The Company also completed the previously announced acquisition of the MetLife Bank servicing platform on this date.

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.  

"We are extremely pleased with the growth and strategic development of our business, as well as our operational accomplishments, in 2012," said Mark J. O'Brien, Walter Investment's Chairman and CEO.  "Our solid execution against our plans is especially evident in the targeted acquisitions of significant Fannie Mae MSRs from ResCap and BofA, our successful efforts in extending our capabilities in the forward market into the reverse sector with the acquisitions of RMS and S1L, and with the very tactical acquisition of the ResCap originations and capital markets platforms, which will diversify our revenue streams and extend the duration of our servicing portfolio through HARP retention and recapture efforts.   We expect each of these acquisitions to contribute to the profitable and sustainable long-term growth of our business and will leverage and enhance the capabilities of our fee-for-service, value–added business model."

"With the closing of the ResCap and BofA purchases, Walter Investment will service a portfolio of nearly 2 million loans with a UPB of roughly $245 billion, concentrated in product backed by our strategic partner, Fannie Mae", continued O'Brien. "The 185% growth in our servicing book as compared to 2011 demonstrates not only our ability to capitalize on the near term opportunities currently available to specialty servicers, but also to do so in a thoughtful and deliberate nature consistent with our strategy and long-term vision for the Company."

Market Commentary and Outlook

In addition to results for the fourth quarter and the full year, the Company also provided additional information on its business development activities and outlook for 2013.

  • The Company's pipeline of business development opportunities continues to include a mix of subservicing, MSR acquisition and servicing platform opportunities and totals in excess of $300 billion in UPB.  Included in this pipeline are portfolios for which we are in exclusive negotiations with a UPB in excess of $40 billion.  Changes in the pipeline reflect the conversion of approximately $20 billion of UPB from the exclusive pipeline in the last 75 days.  Walter Investment continues to expect to convert a high percentage of the transactions in the exclusive pipeline in the near term.  There can be no guarantee, however, that any of the opportunities in our pipeline will result in purchases or contracts added by the Company.
  • Based on continued strong overall market conditions, contributions expected from the transactions completed by the Company last year and in the first quarter of 2013, and the robust pipeline for potential new business, the Company anticipates 2013 Adjusted EBITDA in a range of $650 million to $725 million.

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 our forward-looking financial measures for the year ending December 31, 2013.

Fourth Quarter 2012 Financial and Operating Highlights

The Company's results for all periods presented include the results of Walter Investment, while the results of Reverse Mortgage Solutions ("RMS") have been included for the period subsequent to its acquisition.

The Company's GAAP net loss for the fourth quarter was $34.1 million or $0.98 per diluted share, as compared to a net loss of $3.9 million, or $0.14 per diluted share, in the fourth quarter of 2011.  Results for the quarter reflect a charge of $48.6 million related to the loss incurred by the Company on the early extinguishment of its debt.

Core earnings after taxes for the fourth quarter was $22.5 million, or $0.64 per diluted share, compared to $16.1 million, or $0.56 per diluted share, in the fourth quarter of 2011.  Total accounts serviced were approximately one million with a UPB of $90.1 billion as of December 31, 2012. These amounts do not reflect the acquisitions from ResCap and Bank of America in the first quarter of 2013.

Total revenue for the fourth quarter was $176.4 million, as compared to $155.9 million in the year-ago period.  This year-over-year increase in revenue reflects a $21.5 million increase in servicing revenue and a $2.5 million net increase in other revenues, primarily from the addition of RMS, partially offset by a $3.5 million decline in interest income as compared to the prior year.

Total expense increased from $161.3 million in the fourth quarter of 2011 to $188.7 million in the fourth quarter of 2012.  The year-over-year increase reflects the additional operating and overhead costs, including salaries and benefits and general and administrative expenses, of RMS.  Increased expenses also reflected higher legal and due diligence costs associated with increased corporate and business development activities.

Walter Investment ended the quarter with liquidity of $566.8 million, including cash of $442.1 million and availability under our revolver of $124.7 million.  Walter expects to utilize this available cash in the first half of 2013 to fund the purchases and acquisitions noted previously.  Payments of $10.4 million were made to reduce outstanding Company indebtedness during the fourth quarter of 2012.

Segments

The results of the Company's segments are presented in the narrative below.  As a result of the acquisition of RMS a new "Reverse Mortgage" segment has been added.

Servicing

The Servicing segment generated revenue of $102.5 million in the fourth quarter, which included $71.8 million of servicing fees, $19.5 million of incentive and performance-based fees, and $10.8 million of ancillary and other fees.  Expense for the Servicing segment was $90.0 million, which included $20.7 million of depreciation and amortization costs.  The segment generated core earnings before income taxes of $31.3 million for the quarter ended December 31, 2012.  This compares to core earnings before income taxes of $27.7 million in the fourth quarter of 2011.

Asset Receivables Management ("ARM") and Insurance

The ARM segment generated revenue of $11.3 million and incurred expense of $8.0 million in the quarter ended December 31, 2012. Core earnings before income taxes was $5.4 million.  This compares to revenue of $7.1 million, expense of $6.5 million, and core earnings before income taxes of $2.8 million in the fourth quarter of 2011.  The year over year increase in core earnings was primarily a result of increased revenues from higher gross collections and a high recovery rate in the fourth quarter of 2012.

Walter Investment's Insurance segment generated revenue of $19.2 million, offset by expenses of $10.4 million for the fourth quarter.  Insurance segment core earnings before income taxes was $10.6 million for the quarter ended December 31, 2012.  This compares to revenue of $20.6 million, expense of $12.2 million, and core earnings before income taxes of $10.6 million in the fourth quarter of 2011.

Loans and Residuals

The Loans and Residuals segment, which includes the legacy Walter Investment owned portfolio, generated interest income of $36.7 million for the fourth quarter of 2012, slightly below interest income generated in the fourth quarter of 2011 as a result of anticipated portfolio run-off.  Total expense for the segment was $38.6 million, including $25.9 million of interest expense on securitized debt.  The Loans and Residuals segment generated pre-tax core earnings of $1.5 million for the fourth quarter of 2012, compared to pre-tax core earnings of $5.1 million for the fourth quarter of 2011.  Pre-tax core earnings declined as compared to the prior year period primarily as a result of lower net interest income and an increase to provision for losses of $2.6 million.

Performance of the Walter Investment legacy portfolio included delinquencies of 6.88% at December 31, 2012, 128 bps higher as compared to those at December 31, 2011, while REO inventory levels declined slightly as compared to the prior year period. 

Reverse Mortgage

The Reverse Mortgage segment generated revenue of $7.0 million for the months of November and December, which included $5.1 million in servicing fees and $1.9 million of net other revenue.  Total expenses were $11.2 million, offset by a $7.3 million other gain from the net impact of HECM loans and GNMA Trust liability fair value adjustments.  Segment core earnings before income taxes was $6.9 million in the fourth quarter.  The Reverse Mortgage segment contributed Adjusted EBITDA of $7.7 million for the last two months of 2012.  Segment core earnings and Adjusted EBITDA for the Reverse Mortgage segment 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.

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 4,200 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 fourth quarter and full year results and other general business matters during a conference call and live webcast to be held on Tuesday, March 19, 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.

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 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 EBITDA 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 origination and capital markets platforms, and the organizational structure, capital requirements and performance of the business after the acquisition;
  • The closing of the Security One Lending acquisition, and other business and asset acquisitions on schedule, and the addition of new business in 2013;
  • 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, related 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;
  • 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 December 31, 2012

($ in thousands)

 

Servicing

Asset Receivables Management

Insurance

Loans and

Residuals

Reverse Mortgage

Other

Eliminations

Total Consolidated

REVENUES

Servicing revenue and fees

$  102,040

$    11,292

$            -

$            -

$     5,134

$            -

$    (5,052)

$   113,414

Interest income on loans

-

-

-

36,654

-

-

-

36,654

Insurance revenue

-

-

19,149

-

-

-

-

19,149

Other revenues

492

49

82

5

1,858

4,722

(48)

7,160

Total revenues

102,532

11,341

19,231

36,659

6,992

4,722

(5,100)

176,377

EXPENSES

Interest expense

1,074

-

-

25,853

1,217

17,180

-

45,324

Depreciation and amortization

20,749

1,873

1,351

-

1,942

84

-

25,999

Provision for loan losses

-

-

-

5,230

-

-

-

5,230

Other expenses, net

68,174

6,150

9,052

7,541

7,991

18,324

(5,100)

112,132

Total expenses

89,997

8,023

10,403

38,624

11,150

35,588

(5,100)

188,685

OTHER GAINS (LOSSES)

Net fair value gains (losses)

(273)

-

-

(421)

7,279

(759)

-

5,826

Losses on extinguishments

-

-

-

-

-

(48,579)

-

(48,579)

Total other gains (losses)

(273)

-

-

(421)

7,279

(49,338)

-

(42,753)

Income (loss) before income taxes

12,262

3,318

8,828

(2,386)

3,121

(80,204)

-

(55,061)

Core Earnings

Step-up depreciation and amortization

16,036

1,873

1,351

-

1,101

84

-

20,445

Losses on extinguishment of debt

-

-

-

-

-

48,579

-

48,579

Share-based compensation expense

1,940

196

431

-

153

256

-

2,976

Transaction and integration costs

854

-

-

-

-

8,356

-

9,210

Non-cash fair value adjustments

-

-

-

-

2,554

-

-

2,554

Non-cash interest expense

235

-

28

3,932

-

-

-

4,195

Net impact of Non-Residual Trusts

-

-

-

-

-

3,334

-

3,334

Other

-

-

-

-

-

116

-

116

Total adjustments

19,065

2,069

1,810

3,932

3,808

60,725

-

91,409

Core earnings (loss) before

income taxes

31,327

5,387

10,638

1,546

6,929

(19,479)

-

36,348

Adjusted EBITDA

Interest expense on debt

3

-

-

-

-

17,160

-

17,163

Depreciation and amortization

4,713

-

-

-

841

-

-

5,554

Non-cash interest income

(489)

-

(81)

(2,800)

(119)

-

-

(3,489)

Provision for loan losses

-

-

-

5,230

-

-

-

5,230

Residual Trusts cash flows

-

-

-

3,237

-

-

-

3,237

Pro forma synergies

-

-

-

-

-

-

-

-

Other

490

15

44

(1,052)

22

512

-

31

Total adjustments

4,717

15

(37)

4,615

744

17,672

-

27,726

Adjusted EBITDA

$    36,044

$      5,402

$    10,601

$     6,161

$     7,673

$    (1,807)

$            -

$     64,074

 

Walter Investment Management Corp.

Segment Revenues and Operating Income

For the Year Ended December 31, 2012

($ in thousands)

 

Servicing

Asset Receivables Management

Insurance

Loans and

Residuals

Reverse Mortgage

Other

Eliminations

Total Consolidated

REVENUES

Servicing revenue and fees

$  395,913

$    38,876

$            -

$            -

$     5,134

$            -

$   (20,953)

$   418,970

Interest income on loans

-

-

-

154,351

-

-

-

154,351

Insurance revenue

-

-

73,249

-

-

-

-

73,249

Other revenues

2,773

49

659

5

1,858

15,123

(48)

20,419

Total revenues

398,686

38,925

73,908

154,356

6,992

15,123

(21,001)

666,989

EXPENSES

Interest expense

4,882

-

-

96,337

1,217

77,235

-

179,671

Depreciation and amortization

84,474

7,774

5,377

-

1,942

161

-

99,728

Provision for loan losses

-

-

-

13,352

-

-

-

13,352

Other expenses, net

262,515

22,623

35,175

28,623

7,991

39,684

(21,001)

375,610

Total expenses

351,871

30,397

40,552

138,312

11,150

117,080

(21,001)

668,361

OTHER GAINS (LOSSES)

Net fair value gains (losses)

(1,056)

-

-

(116)

7,279

8,393

-

14,500

Losses on extinguishments

-

-

-

-

-

(48,579)

-

(48,579)

Total other gains (losses)

(1,056)

-

-

(116)

7,279

(40,186)

-

(34,079)

Income (loss) before income taxes

45,759

8,528

33,356

15,928

3,121

(142,143)

-

(35,451)

Core Earnings

Step-up depreciation and amortization

65,768

7,774

5,377

-

1,101

161

-

80,181

Losses on extinguishment of debt

-

-

-

-

-

48,579

-

48,579

Share-based compensation expense

10,171

868

2,167

-

153

847

-

14,206

Transaction and integration costs

2,722

-

-

-

-

13,060

-

15,782

Non-cash fair value adjustments

-

-

-

-

2,554

-

-

2,554

Non-cash interest expense

919

-

214

4,943

-

-

-

6,076

Net impact of Non-Residual Trusts

-

-

-

-

-

945

-

945

Other

-

-

-

-

-

1,269

-

1,269

Total adjustments

79,580

8,642

7,758

4,943

3,808

64,861

-

169,592

Core earnings (loss) before income taxes

125,339

17,170

41,114

20,871

6,929

(77,282)

-

134,141

Pro-Forma Adjusted EBITDA

Interest expense on debt

129

-

-

-

-

77,216

-

77,345

Depreciation and amortization

18,706

-

-

-

841

-

-

19,547

Non-cash interest income

(2,725)

-

(655)

(14,501)

(119)

-

-

(18,000)

Provision for loan losses

-

-

-

13,352

-

-

-

13,352

Residual Trusts cash flows

-

-

-

9,342

-

-

-

9,342

Pro forma synergies

2,651

-

-

-

-

1,118

-

3,769

Other

1,489

39

77

(221)

22

819

-

2,225

Total adjustments

20,250

39

(578)

7,972

744

79,153

-

107,580

Pro-Forma Adjusted EBITDA

$  145,589

$    17,209

$    40,536

$    28,843

$     7,673

$     1,871

$            -

$   241,721

 

Walter Investment Management Corp.

Segment Revenues and Operating Income

For the Three Months Ended December 31, 2011

($ in thousands)

 

Servicing

Asset Receivables Management

Insurance

Loans and

Residuals

Other

Eliminations

Total Consolidated

REVENUES

Servicing revenue and fees

$    92,386

$      7,149

$            -

$            -

$            -

$    (7,617)

$      91,918

Interest income on loans

-

-

-

40,171

-

-

40,171

Insurance revenue

-

-

20,065

-

-

(321)

19,744

Other revenues

1,111

-

490

-

2,466

-

4,067

Total revenues

93,497

7,149

20,555

40,171

2,466

(7,938)

155,900

EXPENSES

Interest expense

1,659

-

-

24,240

20,958

-

46,857

Depreciation and amortization

23,001

2,051

1,609

-

15

-

26,676

Provision for loan losses

-

-

-

2,651

-

-

2,651

Other expenses, net

60,305

4,497

10,585

8,552

9,157

(7,938)

85,158

Total expenses

84,965

6,548

12,194

35,443

30,130

(7,938)

161,342

OTHER GAINS (LOSSES)

Net fair value gains (losses)

(298)

-

-

1,305

(655)

-

352

Gain on extinguishments

-

-

-

-

-

-

-

Other

-

-

-

-

1,758

-

1,758

Total other gains (losses)

(298)

-

-

1,305

1,103

-

2,110

Income (loss) before income taxes

8,234

601

8,361

6,033

(26,561)

-

(3,332)

Core Earnings

Step-up depreciation and amortization

17,524

2,051

1,608

-

15

-

21,198

Transaction and integration costs

-

-

-

-

4,340

-

4,340

Net impact of Non-Residual Trusts

-

-

-

-

3,170

-

3,170

Share-based compensation expense

1,636

124

406

-

117

-

2,283

Non-cash interest expense

298

-

179

687

-

-

1,164

Other

-

-

-

(1,646)

(1,304)

-

(2,950)

Total adjustments

19,458

2,175

2,193

(959)

6,338

-

29,205

Core earnings (loss) before

income taxes

27,692

2,776

10,554

5,074

(20,223)

-

25,873

Pro-Forma Adjusted EBITDA

Interest expense on debt

88

-

-

-

20,957

-

21,045

Non-cash interest income

(977)

-

(488)

(3,262)

-

-

(4,727)

Pro forma synergies

2,185

-

149

-

1,330

-

3,664

Pro forma monetized assets

-

-

-

-

-

-

-

Depreciation and amortization

5,477

-

1

-

-

-

5,478

Residual Trusts cash flows

-

-

-

(264)

-

-

(264)

Provision for loan losses

-

-

-

2,651

-

-

2,651

Other

666

21

87

462

5

-

1,241

Total adjustments

7,439

21

(251)

(413)

22,292

-

29,088

Pro-Forma Adjusted EBITDA

$    35,131

$      2,797

$    10,303

$     4,661

$     2,069

$            -

$      54,961

 

Walter Investment Management Corp.

Segment Revenues and Operating Income

For the Year Ended December 31, 2011

($ in thousands)

 

Servicing

Asset Receivables Management

Insurance

Loans and Residuals

Other

Eliminations

Total Consolidated

REVENUES

Servicing revenue and fees

$  197,265

$     14,275

$            -

$            -

$            -

$   (25,363)

$   186,177

Interest income on loans

-

-

-

164,794

-

-

164,794

Insurance revenue

-

-

43,752

-

-

(2,101)

41,651

Other revenues

2,993

-

1,245

-

5,614

-

9,852

Total revenues

200,258

14,275

44,997

164,794

5,614

(27,464)

402,474

EXPENSES

Interest expense

3,096

-

-

91,075

42,075

-

136,246

Depreciation and amortization

46,438

3,906

2,706

-

28

-

53,078

Provision for loan losses

-

-

-

6,016

-

-

6,016

Other expenses, net

135,994

8,995

29,990

37,223

29,668

(27,464)

214,406

Total expenses

185,528

12,901

32,696

134,314

71,771

(27,464)

409,746

OTHER GAINS (LOSSES)

Net fair value gains (losses)

(607)

-

-

965

(1,410)

-

(1,052)

Gain on extinguishments

-

-

-

95

-

-

95

Other

-

-

-

-

2,096

-

2,096

Total other gains (losses)

(607)

-

-

1,060

686

-

1,139

Income (loss) before income taxes

14,123

1,374

12,301

31,540

(65,471)

-

(6,133)

Core Earnings

Step-up depreciation and amortization

35,729

3,906

2,674

-

15

-

42,324

Transaction and integration costs

-

-

-

-

19,179

-

19,179

Net impact of Non-Residual Trusts

-

-

-

-

6,855

-

6,855

Share-based compensation expense

3,427

192

1,183

-

195

-

4,997

Non-cash interest expense

607

-

513

1,901

-

-

3,021

Other

-

-

-

(1,646)

(1,624)

-

(3,270)

Total adjustments

39,763

4,098

4,370

255

24,620

-

73,106

Core earnings (loss) before income taxes

53,886

5,472

16,671

31,795

(40,851)

-

66,973

Pro-Forma Adjusted EBITDA

Interest expense on debt

185

-

-

-

42,075

-

42,260

Non-cash interest income

(2,339)

-

(1,241)

(13,725)

-

-

(17,305)

Pro forma synergies

8,862

-

596

-

7,370

16,828

Pro forma monetized assets

-

-

-

(13,305)

-

(13,305)

Depreciation and amortization

10,709

-

32

-

13

-

10,754

Residual Trusts cash flows

-

-

-

9,108

-

-

9,108

Provision for loan losses

-

-

-

6,016

-

-

6,016

Other

872

43

295

1,872

(918)

-

2,164

Total adjustments

18,289

43

(318)

(10,034)

48,540

-

56,520

Pro-Forma Adjusted EBITDA

$    72,175

$      5,515

$    16,353

$    21,761

$     7,689

$            -

$   123,493

 

Walter Investment Management Corp. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(in thousands, except per share amounts)

For the Three Months Ended

For the Year Ended

December 31,

December 31,

2012

2011

2012

2011

REVENUES

Servicing revenue and fees

$        113,414

$          91,918

$        418,970

$        186,177

Interest income on loans

36,654

40,171

154,351

164,794

Insurance revenue

19,149

19,744

73,249

41,651

Other revenues

7,160

4,067

20,419

9,852

Total revenues

176,377

155,900

666,989

402,474

EXPENSES

Salaries and benefits

64,609

50,608

230,107

117,736

Interest expense

45,324

46,857

179,671

136,246

General and administrative

45,652

30,614

136,236

78,597

Depreciation and amortization

25,999

26,676

99,728

53,078

Provision for loan losses

5,230

2,651

13,352

6,016

Other expenses, net

1,871

3,936

9,267

18,073

Total expenses

188,685

161,342

668,361

409,746

OTHER GAINS (LOSSES)

Net fair value gains (losses)

5,826

352

14,500

(1,052)

Gains (losses) on extinguishments

(48,579)

-

(48,579)

95

Other 

-

1,758

-

2,096

Total other gains (losses)

(42,753)

2,110

(34,079)

1,139

Income (loss) before income taxes

(55,061)

(3,332)

(35,451)

(6,133)

Income tax expense (benefit)

(20,953)

600

(13,317)

60,264

Net income (loss)

$         (34,108)

$           (3,932)

$         (22,134)

$         (66,397)

OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAXES

Change in postretirement benefits liability

(92)

(882)

19

(1,248)

Amortization of realized gain on closed hedges

140

(32)

68

(154)

Unrealized gain (loss) on available-for-sale security in other assets

(55)

(3)

24

36

Other comprehensive income (loss) before taxes

(7)

(917)

111

(1,366)

Income tax expense (benefit) for items of other comprehensive income (loss)

8

(749)

34

(531)

Other comprehensive income (loss)

(15)

(168)

77

(835)

Comprehensive loss

$         (34,123)

$           (4,100)

$         (22,057)

$         (67,232)

Net loss

$         (34,108)

$           (3,932)

$         (22,134)

$         (66,397)

Basic earnings (loss) per common and common equivalent share

$            (0.98)

$            (0.14)

$            (0.73)

$            (2.41)

Diluted earnings (loss) per common and common equivalent share

(0.98)

(0.14)

(0.73)

(2.41)

Total dividends declared per common and common equivalent share

-

-

-

0.22

Weighted-average common and common equivalent shares outstanding — basic

34,850

28,609

30,397

27,593

Weighted-average common and common equivalent shares outstanding — diluted

34,850

28,609

30,397

27,593

 

Walter Investment Management Corp. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share amounts)

December 31,

December 31,

2012

2011

ASSETS

Cash and cash equivalents

$       442,054

$         18,739

Restricted cash and cash equivalents

653,338

353,216

Residential loans (includes $6,710,211 and $672,714 at fair value)

8,220,967

2,278,402

Allowance for loan losses

(20,435)

(13,824)

Residential loans, net

8,200,532

2,264,578

Receivables, net (includes $53,975 and $81,782 at fair value)

259,009

229,779

Servicer and protective advances, net

173,047

140,690

Servicing rights, net

225,278

250,329

Goodwill

580,378

470,291

Intangible assets, net

161,926

137,482

Premises and equipment, net

137,785

130,410

Other assets

144,830

118,028

Total assets

$   10,978,177

$    4,113,542

LIABILITIES AND STOCKHOLDERS' EQUITY

Payables and accrued liabilities (includes $24,246 and $21,515 at   fair value)

$       260,610

$       217,929

Servicer payables

587,929

244,302

Servicing advance liabilities

100,164

107,039

Debt 

1,146,249

742,626

Mortgage-backed debt (includes $757,286 and $811,245 at fair value)

2,072,728

2,224,754

Liability to GNMA Trusts at fair value

5,874,552

-

Deferred tax liability, net

41,017

43,360

Total liabilities

10,083,249

3,580,010

Stockholders' equity:

Preferred stock, $0.01 par value per share:

Authorized - 10,000,000 shares

Issued and outstanding - 0 shares at December 31,

2012 and December 31, 2011

-

-

Common stock, $0.01 par value per share:

Authorized - 90,000,000 shares

Issued and outstanding - 36,687,785 and 27,875,158

at December 31, 2012 and December 31, 2011,

respectively

367

279

Additional paid-in capital

561,963

178,598

Retained earnings

332,105

354,239

Accumulated other comprehensive income

493

416

Total stockholders' equity

894,928

533,532

Total liabilities and stockholders' equity

$   10,978,177

$    4,113,542

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

December 31,

December 31,

2012

2011

Restricted cash and cash equivalents

$         58,253

$         59,685

Residential loans (includes $646,498 and $672,714 at fair value)

2,142,418

2,266,965

Allowance for loan losses

(20,138)

(13,604)

Residential loans, net

2,122,280

2,253,361

Receivables, net (includes $53,975 and $81,782 at fair value)

53,975

81,782

Servicer and protective advances, net

77,082

59,921

Other assets

62,683

63,498

Total assets

$    2,374,273

$    2,518,247

LIABILITIES OF CONSOLIDATED VARIABLE INTEREST ENTITIES FOR WHICH CREDITORS OR BENEFICIAL INTEREST HOLDERS DO NOT HAVE RECOURSE TO THE COMPANY:

Payables and accrued liabilities 

$           9,007

$         10,163

Servicing advance liabilities

64,552

48,736

Mortgage-backed debt (includes $757,286 and $811,245 at fair value)

2,072,728

2,224,754

Total liabilities

$    2,146,287

$    2,283,653

 

Reconciliation of GAAP Income Before Income Taxes to

Non-GAAP Core Earnings and Pro-Forma Adjusted EBITDA

For the Quarter and Full Year Ended December 31, 2012

(in millions except per share amounts)

 

Core Earnings

For the Three Months Ended

For the Year Ended

December 31, 2012

December 31, 2012

Loss before income taxes

$                                    (55.1)

$                                (35.5)

Add back:

Step-up depreciation and amortization

20.4

80.1

Losses on extinguishment of debt

48.6

48.6

Share-based compensation expense

3.0

14.2

Transaction and integration costs

9.2

15.8

Non-cash fair value adjustments

2.6

2.6

Non-cash interest expense

4.2