Walter Investment Management Corp. Announces Strong First Quarter 2013 Financial and Operating Results

TAMPA, Fla., May 9, 2013 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced financial results for the quarter ended March 31, 2013, as well as updates on operational highlights and recent developments for the Company.

The Company reported GAAP net income for the first quarter of 2013 of $27.7 million, or $0.73 per diluted share, compared to net income of $5.1 million, or $0.17 per diluted share, in the first quarter of 2012.  First quarter results reflected strong earnings growth in the servicing segment from recent portfolio additions, and included significant increases in incentive, performance and ancillary fees.  First quarter results also included solid earnings contributions from the Reverse Mortgage and Originations segments.

Core earnings for the first quarter was $56.5 million after taxes, or $1.50 per diluted share, a 174% increase as compared to the same quarter of last year and 151% greater than in the fourth quarter of 2012. Core earnings were $20.6 million after taxes, or $0.71 per diluted share, for the first quarter of 2012, and $22.5 million after taxes, or $0.64 per diluted share, in the fourth quarter of 2012.   Adjusted EBITDA for the quarter was $140.0 million, also significantly higher when compared to Adjusted EBITDA of $59.1 million in the first quarter of 2012 and $64.1 million in the fourth quarter of 2012.

Other notable developments since the end of 2012 included:

  • As previously announced, the Company acquired the servicing rights for more than 1 million accounts with a UPB in excess of $130 billion in several transactions completed since the end of last year and finished the quarter with a combined forward and reverse serviced portfolio of nearly 2 million accounts with a UPB of $215 billion
  • On April 9, 2013, Green Tree Servicing was awarded one of only five 4 STAR servicer designations issued by Fannie Mae in recognition of outstanding servicing performance during 2012.
  • On April 9, 2013, the Company announced that its wholly owned subsidiary, Reverse Mortgage Solutions, Inc. ("RMS"), acquired a $12.2 billion UPB reverse mortgage servicing portfolio from Wells Fargo.  The portfolio of over 76,000 loans is expected to transfer to RMS during the third quarter of 2013.

"Walter Investment produced strong first quarter financial and operating results, while effectively managing the recent significant growth of our Company," said Mark J. O'Brien, Walter Investment's Chairman and CEO.  "Our servicing group absorbed a significant volume of boardings from the ResCap and BofA portfolio acquisitions, which are performing at or ahead of expectations. The Originations segment has ramped up significantly as it executes on our recapture strategies, and it is expected to remain on its steep growth trajectory, as the consumer direct channel hits its stride and the retail and correspondent channels develop.  The reverse mortgage business delivered a record quarter with the addition of the Security One Lending acquisition."

"The financial results we produced were very positive, and I commend all our employees for their success in executing against both our strategic and operational plans.  We believe that we are on track to deliver outstanding results for 2013, and we remain extremely well positioned to extend our track record of success beyond that," continued O'Brien.

First Quarter 2013 Financial and Operating Highlights

Total revenue for the first quarter was $291.8 million, as compared to $152.8 million in the year-ago period.  The year-over-year increase in revenue reflects a $61.3 million increase in net servicing revenue and fees and an increase of $78.4 million of net gain on sales of loans.  The Reverse Mortgage segment generated $6.7 million of servicing fees and revenue for the quarter.  The addition of the ResCap originations platform generated $74.1 million of net gains on the sales of loans in the first quarter.  Net other revenues increased $4.0 million

Other gains shown in the income statement increased from $4.8 million in the first quarter of 2012 to $35.5 million in the first quarter of 2013, principally reflecting net fair value gains from the addition of the reverse mortgage business.

Total expense increased from $149.3 million in the first quarter of 2012 to $280.8 million in the first 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.  The additions of the Reverse Mortgage and Originations segments added approximately $32.5 million and $39.4 million to expenses, respectively.  Expenses also reflected $11.2 million in higher legal, due diligence and other costs associated with increased corporate and business development activities, as well as a $3.7 million increase in the accrual for anticipated earn-outs to be paid in association with recent acquisitions.  Interest expense increased by $8.3 million over the prior year, reflecting increased corporate debt outstanding, partially offset by reductions in interest rates as a result of the Company's refinancing activities.  Depreciation and amortization increased by $18.4 million, principally reflecting the amortization of intangibles from the Company's various business and asset acquisitions over the last year.

Segments  
Results for the Company's segments are presented below, including the new Originations segment.

Servicing

The Servicing segment generated revenue of $139.7 million in the first quarter, which included $121.9 million of gross servicing fees, $20.4 million of incentive and performance-based fees, and $14.4 million of ancillary and other revenue and fees.  Servicing revenues are net of $17.4 million in amortization and net fair value adjustments related to the segment's mortgage servicing rights ("MSRs").  Servicing segment revenues were up 59% from the first quarter of 2012, principally reflecting the significant increase in UPB serviced over the past year.  However, the segment has also seen strong results from its efforts with respect to generating incentive and performance-based fees, which are up by 37% over the prior year. Expense for the Servicing segment was $103.3 million, which included $8.9 million of depreciation and amortization costs and $2.4 million of interest expense.  The segment generated core earnings before income taxes of $52.1 million for the quarter ended March 31, 2013, a 68% increase compared to core earnings before income taxes of $31.1 million in the first quarter of 2012.

The Servicing segment finished the quarter with in excess of 1.9 million total accounts serviced, with a UPB of over $201 billion.  The Company started the quarter with $77 billion of UPB serviced and added more than $130 billion in UPB of servicing rights during the quarter.  During the quarter, the Company experienced net disappearance rates of 20%.  All of these results were in line with or better than Company expectations and projections.   

Reverse Mortgage

The Reverse Mortgage segment generated revenue of $14.1 million for the quarter, which included $6.7 million in servicing fees, $4.4 million in gain on sale revenue and $2.9 million of net other revenue.  Results also included a $36.8 million other gain from the net impact of HECM loans and HMBS fair value adjustments.  Total expenses were $38.8 million, including $3.5 million of interest expense and $2.7 million of depreciation and amortization.   The segment reported core earnings before income taxes of $18.4 million for the first quarter and Adjusted EBITDA of $19.5 million for the 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 $76.1 million in the first quarter, 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 $55.7 million, which included $15.6 million of depreciation and amortization costs.  The segment generated core earnings before income taxes of $21.9 million for the first quarter of 2013 and Adjusted EBITDA of $36.2 million

Realized gains on funded loans as a percentage of funded volume was 407 basis points for the quarter.  Loan closings in the first quarter totaled $292.0 million, with 81% of that volume in the consumer direct channel, while 6% and 13% were generated by the correspondent/wholesale and retail channels, respectively.  The total application pipeline as of March 31, 2013 was $2.7 billion, with locked applications of $1.9 billion.

Other Segments

The ARM segment generated revenue of $10.2 million and incurred expense of $7.8 million in the quarter ended March 31, 2013. Core earnings before income taxes was $4.0 million.  This compares to revenue of $8.3 million, expenses of $7.2 million, and core earnings before income taxes of $3.4 million in the first quarter of 2012. 

Walter Investment's Insurance segment generated revenue of $17.5 million, offset by expenses of $10.0 million for the first quarter.  Insurance segment core earnings before income taxes was $9.4 million for the quarter ended March 31, 2013.  This compares to revenue of $20.3 million, expenses of $10.8 million, and core earnings before income taxes of $11.7 million in the first quarter of 2012.  The decline as compared to the prior year period is largely driven by fewer new policy set-ups coupled with lower commission rates.

The Loans and Residuals segment, which includes the legacy Walter Investment owned portfolio, generated interest income of $36.9 million for the first quarter of 2013.  Total expense for the segment was $28.1 million, including $22.3 million of interest expense on securitized debt.  The Loans and Residuals segment generated pre-tax core earnings of $9.3 million for the first quarter of 2013, compared to pre-tax core earnings of $6.7 million for the first quarter of 2012.  The year over year increase in pre-tax core earnings was primarily driven by a decrease in net other expenses resulting from improved sales experience on REO properties and lower advance requirements.

Performance of the Walter Investment legacy portfolio included delinquencies of 5.88% at March 31, 2013, which was 42 bps higher than at March 31, 2012, but was100 bps improved as compared to the December 31, 2012.

Market Commentary and Outlook

The current economic environment is positive across business lines and is expected to remain so throughout 2013.  Sector specific drivers continue to provide strong opportunities for growth.  The Company continues to see significant activity in the market and dialogue with clients is accelerating after a short lull related to the absorption of the significant first quarter transactions.  The Company's pipeline of business development opportunities remains strong, totaling approximately $300 billion in UPB.  The pipeline of portfolios for which we are in exclusive negotiations declined to approximately $10 billion in UPB, as one subservicing transaction converted to a signed contract and a second subservicing transaction was withdrawn by the client from the market at this time.  The Company remains highly confident with respect to the significant levels of subserviced and MSR opportunities in both the current pipeline and in the overall market opportunity over the next 18 to 24 months. 

Based on the overall strong market conditions, robust current pipeline activity and the progress and results of our recent acquisitions, the Company reaffirms its previously provided AEBITDA range for 2013 of $650 – 725 million.  Using the mid-point of the AEBITDA range, management's previously provided estimates for depreciation and amortization, and the Company's current capital structure, this translates into estimated after tax core earnings per share of approximately $5.06 for 2013.

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 4,800 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 first quarter results and other general business matters during a conference call and live webcast to be held on Thursday, May 9, 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 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 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, 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 March 31, 2013

($ in thousands)

 



Servicing


Asset

Receivables

Management


Insurance


Loans and

Residuals


Reverse

Mortgage


Originations


Other


Eliminations


Total

Consolidated

REVENUES



















Net servicing revenue and fees


$    139,198


$            10,090


$            -


$              -


$       6,748


$                     -


$              -


$        (4,956)


$          151,080

Net gains on sales of loans


-


-


-


-


4,383


74,062


-


-


78,445

Interest income on loans


-


-


-


36,898


-


-


-


-


36,898

Insurance revenue


-


-


17,534


-


-


-


-


-


17,534

Other revenues


462


64


7


3


2,945


1,997


2,416


(39)


7,855

Total revenues


139,660


10,154


17,541


36,901


14,076


76,059


2,416


(4,995)


291,812

EXPENSES



















Interest expense


2,410


-


-


22,296


3,529


706


25,201


-


54,142

Depreciation and amortization


8,857


1,756


1,464


-


2,723


15,598


6


-


30,404

Provision for loan losses


-


-


-


1,726


-


-


-


-


1,726

Other expenses, net


92,048


6,030


8,508


4,104


32,523


39,417


16,908


(4,995)


194,543

Total expenses


103,315


7,786


9,972


28,126


38,775


55,721


42,115


(4,995)


280,815

OTHER GAINS (LOSSES)



















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










36,788








36,788

Net fair value (losses)


(245)


-


-


(162)


-


-


(854)


-


(1,261)

Total other gains (losses)


(245)


-


-


(162)


36,788


-


(854)


-


35,527

Income (loss) before income taxes


36,100


2,368


7,569


8,613


12,089


20,338


(40,553)


-


46,524




















Core Earnings



















Step-up depreciation and amortization


6,189


1,473


1,464


-


2,451


1,277


6


-


12,860

Step-up amortization of sub-servicing contracts


8,110


-


-


-


-


-


-


-


8,110

Non-cash fair value adjustments for reverse mortgages


-


-


-


-


3,536


-


-


-


3,536

Non-cash interest expense


220


-


19


677


-


-


2,087


-


3,003

Share-based compensation expense


1,497


138


339


-


287


268


161


-


2,690

Transaction and integration costs


-


-


-


-


-


-


16,327


-


16,327

Net impact of Non-Residual Trusts


-


-


-


-


-


-


(479)


-


(479)

Other


-


-


-


-


-


-


11


-


11

Total adjustments


16,016


1,611


1,822


677


6,274


1,545


18,113


-


46,058

Core earnings (loss) before income taxes


52,116


3,979


9,391


9,290


18,363


21,883


(22,440)


-


92,582




















Adjusted EBITDA



















Interest expense on debt


-


-


-


-


17


-


23,114


-


23,131

Depreciation and amortization


2,668


283


-


-


272


14,321


-


-


17,544

Amortization and fair value adjustments of servicing rights


9,300


-


-


-


918


-


-


-


10,218

Provision for loan losses


-


-


-


1,726


-


-


-


-


1,726

Residual Trusts cash flows


-


-


-


400


-


-


-


-


400

Non-cash interest income


(461)


-


(7)


(3,949)


(151)


-


-


-


(4,568)

Other


443


8


18


(1,692)


37


41


104


-


(1,041)

Total adjustments


11,950


291


11


(3,515)


1,093


14,362


23,218


-


47,410

Adjusted EBITDA


$     64,066


$              4,270


$     9,402


$       5,775


$     19,456


$            36,245


$          778


$                -


$          139,992




















 

 

Walter Investment Management Corp.

 

Segment Revenues and Operating Income

For the Three Months Ended March 31, 2012

($ in thousands)



Servicing


Asset

Receivables

Management


Insurance


Loans and

Residuals


Originations


Other


Eliminations


Total

Consolidated

REVENUES

















Net servicing revenue and fees


$     86,815


$        8,328


$           -


$              -


$              -


$              -


$       (5,410)


$       89,733

Interest income on loans


-


-


-


39,280


-


-


-


39,280

Insurance revenue


-


-


19,962


-


-


-