WALTER INVESTMENT MANAGEMENT CORP TAMPA, Fla., May 7, 2015 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced operational highlights and financial results for the quarter ended March 31, 2015.
First Quarter 2015 Operational Highlights and Recent Developments
-- Adjusted Earnings of $38.3 million after taxes, or $1.02 per share
-- Servicing segment delivered 17 bps of AEBITDA margin, at the high end of
the previously provided target range
-- Assisted approximately 15,000 homeowners in obtaining modifications and
originated approximately 10,700 HARP loans
-- 56% growth in Originations segment funded volumes to $5.5 billion as
compared to the prior year quarter
-- Reverse Mortgage segment issued $413 million of HMBS ranking it as the
largest HMBS issuer by UPB for the quarter
-- Servicing business awarded a 5-STAR designation, the highest designation
under FNMA's STAR program, for 2014 servicing performance
-- Executed agreements to acquire MSRs on approximately $9.6 BN of UPB from
Ocwen and $5.6 BN of UPB from EverBank, currently under sub-servicing
contract, expected to close during Q2 2015
-- Completed dispositions of certain non-core assets, generating proceeds
of ~$220 million
-- Board of Directors authorized a share repurchase program of up to $50
million through May 31, 2016
First Quarter 2015 Financial Highlights
The Company reported GAAP net loss for the first quarter of 2015 of ($31.0) million, or ($0.82) per diluted share, compared to net income of $17.4 million, or $0.45 per share for the first quarter of 2014. Included in the first quarter 2015 net loss are $44.5 million or $1.18 per share of after tax charges resulting from changes in valuation inputs and other assumptions used in the fair value of assets and liabilities carried at fair value. Adjusted Earnings for the first quarter of 2015 was $38.3 million after taxes, or $1.02 per share, a decrease of 34% as compared to the prior year quarter. Adjusted EBITDA for the quarter was $162.7 million, a 3% decline when compared to the prior year quarter.
"We continue to execute against the strategic initiatives we laid out for you on our third quarter 2014 call and have completed a significant portion of the sales of our non-core assets we previously described. In April 2015, we sold our residual interest in seven of the Residual Trusts, generating cash proceeds of approximately $190 million and, when coupled with the cash proceeds of approximately $30 million from the sale of our strategic investment in a third party reverse mortgage business, have generated cash of approximately $220 million providing us with additional flexibility to evaluate our capital structure and reinvest in our business," said Mark J. O'Brien, Walter Investment's Chairman and CEO.
"Our segments' operational performance in the first quarter of 2015 demonstrates the strong execution we anticipate from our Servicing and Originations businesses for 2015, as Servicing continues to perform amongst the top of its FNMA STAR peer group and Originations further develops its Correspondent, Retail and Consumer Direct channels while remaining focused on maximizing Retention opportunities embedded within our Serviced portfolio. Reverse tail draw experience is increasing, driving higher originations volumes and blended cash margins."
First Quarter 2015 Financial and Operating Highlights
Total revenue for the first quarter of 2015 was $310.9 million, a decrease of $59.1 million as compared to the first quarter of 2014, primarily related to an $81.9 million decline in net servicing fees and revenues comprised of an $81.6 million greater fair value charge for mortgage servicing rights. Total revenue also reflects a $9.3 million decline in insurance revenue due to the loss of commissions earned on GSE lender-placed policies beginning June 1, 2014, offset by a $21.2 million increase in net gains on sales of loans reflecting higher locked volumes due to strong execution gains in a low interest rate environment in the current quarter and a $13.5 million increase in net fair value gains on reverse loans. Total expense increased 10% from $338.5 million in the first quarter of 2014 to $371.4 million in the first quarter of 2015, primarily reflecting the impact of $16.1 million of additional curtailable charges associated with regulatory developments during the quarter and $11.3 million of higher salaries and benefits driven by higher accruals for incentive pay largely resulting from a higher volume of loans funded.
Segments
During the three months ended March 31, 2015, we took steps to simplify our business and reorganized our reportable segments to align with our changes in the management reporting structure. As a result of this reorganization, we modified the Servicing segment by combining the Asset Receivables Management, Insurance, and Loans and Residuals businesses into the Servicing segment. The Company also made a change to the composition of indirect costs and depreciation and amortization allocated to the business segments and established an intersegment charge between the Servicing and Originations segments for certain loan originations associated with the Company's mortgage loan servicing portfolio. We believe the changes in our reportable business segments reflect the way management, under its new reporting structure, monitors performance, aligns strategies and allocates resources in the current environment, while altogether improving efficiencies. We now manage our Company in three reportable segments: Servicing, Originations, and Reverse Mortgage. Our Other non-reportable segment primarily consists of the assets and liabilities of the Non-Residual Trusts, corporate debt and our asset management business, which we operate through Green Tree Investment Management ("GTIM"). The Company has recast the segment operating results of prior periods to reflect these changes.
Results for the Company's segments are presented below.
Servicing
The Servicing segment generated revenue of $143.8 million in the first quarter of 2015, a 41% decline as compared to first quarter 2014 revenue of $245.6 million. The change was primarily comprised of an $81.6 million greater fair value charge for mortgage servicing rights, a $13.6 million decline in incentive and performance fees as modification fees and success fees earned under HAMP decreased $11.9 million as compared to the same period of 2014 due primarily to a lower volume of completed modifications and lower fees for maintenance of modified loans under performing status as the underlying loans are no longer eligible for HAMP incentive fees. Results also reflect a $9.3 million decline in insurance revenue due to the loss of commissions earned on GSE lender-placed policies beginning June 1, 2014, offset by increased servicing fees of $5.8 million resulting from growth in the third-party servicing portfolio. Revenues for the quarter ended March 31, 2015 included $170.7 million of servicing fees, $25.1 million of incentive and performance-based fees, and $23.5 million of ancillary and other fees.
Expense for the Servicing segment was $194.2 million, an increase of 9% as compared to the prior year quarter reflecting an increase of $3.5 million in expenses relating to the provision on advances and compensating interest, $2.6 million due primarily to the reduction in allowance for loan loss requirements taken in the first quarter of 2014 and $3.1 million in additional costs to support efficiency and technology related initiatives. Expenses also included $11.5 million of depreciation and amortization costs and $29.2 million of interest expense.
The segment generated Adjusted Earnings of $40.1 million for the first quarter of 2015 and AEBITDA of $103.1 million, a decline of 64% and 29%, respectively, primarily due to lower revenues which were largely impacted by a decline in incentive and performance fees and insurance revenues and higher expenses, mainly general and administrative and allocated indirect expenses as discussed above. Adjusted Earnings decline is also impacted by higher realization of cash flows, including the effects of accelerated prepayments, of $32.7 million.
The Servicing segment ended the quarter with approximately 2.2 million total accounts serviced with a UPB of approximately $236.4 billion. During the quarter, the Company experienced a net disappearance rate of 13.8% in line with the net disappearance rate in the prior year quarter of 13.5%.
Originations
The Originations segment generated revenue of $130.3 million in the first quarter, an increase of 19% as compared to the prior year quarter driven by a higher total volume of locked loans, partially offset by a shift in volume from the higher margin retention channel to the lower margin correspondent channel in the current quarter. Expense for the Originations segment of $88.5 million, which includes $7.8 million of interest expense and $3.2 million of depreciation and amortization, declined 7% as compared to the prior year quarter primarily reflecting expense reductions as the business works to align the employee base to match the scope and scale of current operations. Results also reflect the impact of intersegment retention expense related to fees incurred on loan originations that resulted from access to the Servicing segment's servicing portfolio for which there was a related capitalized servicing right recorded by the Servicing segment. As a result of lower funded volumes in the retention channel as compared to the prior year period, intersegment retention expense declined $3.9 million during the three months ended March 31, 2015 as compared to the same period of 2014.
The segment generated Adjusted Earnings of $44.3 million for the first quarter of 2015 and AEBITDA of $46.7 million, a 113% and 99% increase in both metrics, respectively, as compared to the first quarter of 2014 due primarily to higher net gains on sales of loans and lower expenses, mainly a reduction in salaries and benefits and the intersegment retention expense as discussed above.
The total pull-through adjusted locked volume for the first quarter was $6.9 billion, as compared to $3.6 billion for the first quarter of 2014 as volumes in the correspondent lending channel grew 188% as compared to the prior year period. Funded loans in the current quarter totaled $5.5 billion, with 33% of that volume in the consumer lending channel and 67% generated by the correspondent lending channel. Direct margins in the consumer lending channel were 196 bps in the first quarter of 2015, a decrease of 14 bps as compared to the prior year quarter.
Reverse Mortgage
The Reverse Mortgage segment generated revenue of $43.9 million for the quarter, a 58% increase as compared to the prior year quarter reflecting higher net fair value gains on reverse loans and related HMBS obligations. Current quarter revenues included a $30.8 million gain from the net impact of HECM loan and related HMBS obligation fair value adjustments, $11.4 million in net servicing revenue and fees and $1.8 million of other revenues. Total expenses for the first quarter were $57.4 million, a 55% increase as compared to the prior year period primarily driven by higher salaries and benefits due to hiring to support the growth in the retail lending channel, additional curtailable charges associated with regulatory events during the quarter and accrual adjustments associated with legal and regulatory matters outside of normal course of business.
The segment reported Adjusted Loss of ($1.3) million and AEBITDA is break-even for the first quarter 2015 as compared to Adjusted Loss of ($2.1) million and AEBITDA of ($0.8) million in the first quarter of 2014 due primarily to the growth in cash generated from origination, purchase and securitization of HECMs and net servicing revenue and fees partially offset by higher expenses.
Funded origination volumes excluding tails in the segment increased 27% as compared to the first quarter of 2014 resulting from an increase in retail sales force and advertising spend as well as increased activity with our largest bulk provider. Securitized volumes remained flat as compared to the prior year quarter, but the blended cash margin increased 40 bps primarily as a result of a change in volume from the securitization of lower margin new originations to higher margin tails.
Other Segment
The Other segment generated revenue of $3.3 million for the first quarter of 2015 as compared to revenue of $1.3 million in the prior year quarter. Total expenses in the current quarter of $41.8 million, which included $36.7 million related to corporate debt, remained flat as compared to the first quarter of 2014. Additionally, the Other segment included $14.4 million of income in the first quarter of 2015 related to the sale of an investment accounted for using the equity method, comprised of an $11.8 million gain on sale and $2.6 million related to the settlement of a receivable that was repaid.
The Other segment generated Adjusted Loss of ($21.4) million and AEBITDA of $12.9 million for the first quarter of 2015 as compared to Adjusted Loss of ($34.4) million and AEBITDA of ($0.3) million in the first quarter of 2014.
Market Commentary
Current economic conditions remain favorable for Walter Investment's key operating businesses. We continue to see a benign rate environment with a gradual move toward higher rates as the economy strengthens. Lower than expected rates in the quarter caused an increase in CPR which drove a markdown in the fair value of MSR. Credit quality is improving in our servicing book and we continue to see a robust supply of MSR available in the market on both a bulk and flow purchase basis. Pricing has improved marginally in recent months although the market for the assets remains competitive.
Originations volumes are meeting or slightly exceeding expectations for the market overall assisted by the low rate environment. Margins are firm as the higher margin retention / refinance volumes remain at healthy levels. The purchase money market continues to be competitive at current and expected origination levels.
We expect the originations market in the Reverse sector to be impacted as the industry implements the new financial assessment guidelines. Given the lead time to implementation we would expect a smooth transition over the next several quarters.
About Walter Investment Management Corp.
Walter Investment Management Corp. is a diversified mortgage banking firm focused primarily on the servicing and origination of residential loans, including reverse loans. Based in Tampa, Fla., the Company has over 6,000 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 7, 2015, at 10 a.m. Eastern Time. To listen to the event live or in an archive, and to access presentation slides (which include supplemental information) which will be available for at least 30 days, visit the Company's website at www.walterinvestment.com.
This press release and the accompanying reconciliations include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see the reconciliations as well as "Non-GAAP Financial Measures" at the end of this press release.
Disclaimer and Cautionary Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described below and in more detail in our Annual Report on Form 10-K for the year ended December 31, 2014, under the caption "Risk Factors," in Part II, Item 1A, "Risk Factors" of our Quarterly Report on Form 10-Q and in our other filings with the SEC.
In particular (but not by way of limitation), the following important factors, risks and uncertainties could affect our future results, performance and achievements and could cause actual results, performance and achievements to differ materially from those expressed in the forward-looking statements:
-- our ability to operate our business in compliance with existing and
future rules and regulations affecting our business, including those
relating to the origination and servicing of residential loans, the
management of third-party assets and the insurance industry (including
lender-placed insurance), and changes to, and/or more stringent
enforcement of, such rules and regulations;
-- increased scrutiny and potential enforcement actions by federal and
state agencies;
-- the substantial resources (including senior management time and
attention) we devote to, and the significant compliance costs we incur
in connection with, regulatory compliance and regulatory examinations
and inquiries, and any consumer redress, fines, penalties or similar
payments we make in connection with resolving such matters;
-- uncertainties relating to interest curtailment obligations and any
related financial and litigation exposure (including exposure relating
to false claims or relating to a pending investigation by the Department
of Justice and the HUD Office of Inspector General);
-- potential costs and uncertainties associated with and arising from
litigation, regulatory investigations and other legal proceedings;
-- our dependence on U.S. government-sponsored entities (especially Fannie
Mae) and agencies and their residential loan programs and our ability to
maintain relationships with, and remain qualified to participate in
programs sponsored by, such entities, our ability to satisfy various
GSE, agency and other capital requirements applicable to our business,
and our ability to remain qualified as a GSE approved seller, servicer
or component servicer, including the ability to continue to comply with
the GSEs' respective residential loan and selling and servicing guides;
-- uncertainties relating to the status and future role of GSEs, and the
effects of any changes to the origination and/or servicing requirements
of the GSEs or various regulatory authorities or the servicing
compensation structure for mortgage servicers pursuant to programs of
GSEs or various regulatory authorities;
-- our ability to maintain our loan servicing, loan origination, insurance
agency or collection agency licenses, or any other licenses necessary to
operate our businesses, or changes to, or our ability to comply with,
our licensing requirements;
-- our ability to comply with the servicing standards required by the
National Mortgage Settlement;
-- our ability to comply with the terms of the stipulated order resolving
allegations arising from an FTC and CFPB investigation of Green Tree
Servicing;
-- operational risks inherent in the mortgage servicing business, including
reputational risk;
-- risks related to our substantial levels of indebtedness, including our
ability to comply with covenants contained in our debt agreements,
generate sufficient cash to service such indebtedness and refinance such
indebtedness on favorable terms, as well as our ability to incur
substantially more debt;
-- our ability to renew advance financing facilities or warehouse
facilities and maintain borrowing capacity under such facilities;
-- our ability to maintain or grow our servicing business and our
residential loan originations business;
-- our ability to achieve our strategic initiatives;
-- changes in prepayment rates and delinquency rates on the loans we
service or sub-service;
-- the ability of our clients and credit owners to transfer or otherwise
terminate our servicing or sub-servicing rights;
-- a downgrade in our servicer ratings or credit ratings;
-- our ability to collect reimbursements for servicing advances and earn
and timely receive incentive payments and ancillary fees on our
servicing portfolio;
-- local, regional, national and global economic trends and developments in
general, and local, regional and national real estate and residential
mortgage market trends in particular, including the volume and pricing
of home sales and uncertainty regarding the levels of mortgage
originations and prepayments;
-- uncertainty as to the volume of originations activity we will benefit
from following the expiration of HARP, which is scheduled to occur on
December 31, 2015;
-- risks associated with the origination, securitization and servicing of
reverse mortgages, including changes to reverse mortgage programs
operated by FHA, HUD or Ginnie Mae, our ability to accurately estimate
interest curtailment liabilities, continued demand for HECM loans and
other reverse mortgages, our ability to fund HECM repurchase
obligations, our ability to fund principal additions on our HECM loans,
and our ability to securitize our HECM loans and tails;
-- our ability to implement strategic initiatives, particularly as they
relate to our ability to raise capital, make arrangements with potential
capital partners and develop new business, including acquisitions of
mortgage servicing rights and the development of our originations
business, all of which are subject to customer demand and various
third-party approvals;
-- our ability to realize all anticipated benefits of past, pending or
potential future acquisitions or joint venture investments;
-- the effects of competition on our existing and potential future
business, including the impact of competitors with greater financial
resources and broader scopes of operation;
-- changes in interest rates and the effectiveness of any hedge we may
employ against such changes;
-- risks and potential costs associated with technology and cybersecurity,
including the risks of technology failures and of cyber-attacks against
us or our vendors, our ability to adequately respond to actual or
alleged cyber-attacks and our ability to implement adequate internal
security measures and protect confidential borrower information;
-- our ability to comply with evolving and complex accounting rules, many
of which involve significant judgment and assumptions;
-- uncertainties regarding impairment charges relating to our goodwill or
other intangible assets;
-- our ability to maintain effective internal controls over financial
reporting and disclosure controls and procedures;
-- our ability to manage conflicts of interest relating to our investment
in WCO; and
-- risks related to our relationship with Walter Energy, including tax
risks allocated to us in connection with our spin-off from Walter
Energy.
All of the above factors, risks and uncertainties are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors, risks and uncertainties emerge from time to time, and it is not possible for our management to predict all such factors, risks and uncertainties.
Although we believe that the assumptions underlying the forward-looking statements (including those relating to our outlook) contained herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these statements included herein may prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If we were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws.
Amounts or metrics that relate to future earnings projections are forward-looking and subject to significant business, economic, regulatory and competitive uncertainties, many of which are beyond the control of us and our management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. Nothing in this report should be regarded as a representation by any person that any target will be achieved and we undertake no duty to update any target. Please refer to the disclosures in this press release, in our Annual Report on Form 10-K for the year ended December 31, 2014, in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and our other filings with the SEC for important information regarding forward-looking statements and the use and limitations of Non-GAAP Financial Measures. Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of any forward-looking financial measures presented herein.
In addition, this press release may contain statements of opinion or belief concerning market conditions and similar matters. In certain instances, those opinions and beliefs could be based upon general observations by members of our management, anecdotal evidence and/or our experience in the conduct of our business, without specific investigation or statistical analyses. Therefore, while such statements reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views that are necessarily shared by all who are involved in those industries or markets.
Walter Investment Management Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands, except per share data)
For the Three Months
Ended March 31,
---------------
2015 2014
---- ----
REVENUES
Net servicing revenue and fees $90,887 $172,792
Net gains on sales of loans 125,227 104,034
Interest income on loans 31,941 34,422
Net fair value gains on reverse loans and 30,774 17,236
related HMBS obligations
Insurance revenue 14,131 23,388
Other revenues 17,897 18,076
------ ------
Total revenues 310,857 369,948
EXPENSES
Salaries and benefits 147,228 135,897
General and administrative 128,647 108,865
Interest expense 74,871 74,849
Depreciation and amortization 16,632 18,644
Other expenses, net 4,047 225
----- ---
Total expenses 371,425 338,480
OTHER GAINS (LOSSES)
Other net fair value losses (872) (2,503)
Other 11,762 -
------ ---
Total other gains (losses) 10,890 (2,503)
Income (loss) before income taxes (49,678) 28,965
Income tax expense (benefit) (18,670) 11,588
------- ------
Net income (loss) $(31,008) $17,377
======== =======
Comprehensive income (loss) $(30,981) $17,381
======== =======
Net income (loss) $(31,008) $17,377
Basic earnings (loss) per common and $(0.82) $0.46
common equivalent share
Diluted earnings (loss) per common and (0.82) 0.45
common equivalent share
Weighted-average common and common equivalent 37,718 37,429
shares outstanding - basic
Weighted-average common and common equivalent 37,718 38,005
shares outstanding - diluted
Walter Investment Management Corp. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, 2015 December 31,
2014
----
ASSETS
Cash and cash equivalents $338,490 $320,175
Restricted cash and cash equivalents 837,628 733,015
Residential loans at amortized cost, net 1,288,898 1,314,539
(includes $10,660 and $10,033 in allowance
for loan losses at March 31, 2015 and
December 31, 2014, respectively)
Residential loans at fair value 12,204,837 11,832,630
Receivables, net (includes $22,935 and 248,378 215,629
$25,201 at fair value at March 31, 2015
and December 31, 2014, respectively)
Servicer and protective advances, net 1,612,988 1,761,082
(includes $116,874 and $112,427 in
allowance for uncollectible advances at
March 31, 2015 and December 31, 2014,
respectively)
Servicing rights, net (includes $1,570,320 1,693,982 1,730,216
and $1,599,541 at fair value at March
31, 2015 and December 31, 2014, respectively)
Goodwill 575,468 575,468
Intangible assets, net 99,583 103,503
Premises and equipment, net 115,837 124,926
Other assets (includes $100,735 and $68,151 292,078 280,794
at fair value at March 31, 2015 and
December 31, 2014, respectively)
Total assets $19,308,167 $18,991,977
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Payables and accrued liabilities (includes $37,937 $669,313 $663,829
and $30,024 at fair value at March 31, 2015
and December 31, 2014, respectively)
Servicer payables 695,299 584,567
Servicing advance liabilities 1,284,804 1,365,885
Warehouse borrowings 1,187,543 1,176,956
Excess servicing spread liability at fair value 63,349 66,311
Corporate debt 2,266,831 2,267,799
Mortgage-backed debt (includes $635,239 1,706,367 1,751,459
and $653,167 at fair value at March 31, 2015
and December 31, 2014, respectively)
HMBS related obligations at fair value 10,304,384 9,951,895
Deferred tax liability, net 81,316 86,617
------ ------
Total liabilities 18,259,206 17,915,318
Stockholders' equity:
Preferred stock, $0.01 par value per share:
Authorized - 10,000,000 shares
Issued and outstanding - 0 shares at - -
March 31, 2015 and December 31, 2014
Common stock, $0.01 par value per share:
Authorized - 90,000,000 shares
Issued and outstanding - 37,732,229 and 377 377
37,711,623 shares at March 31, 2015 and
December 31, 2014, respectively
Additional paid-in capital 603,926 600,643
Retained earnings 444,236 475,244
Accumulated other comprehensive income 422 395
--- ---
Total stockholders' equity 1,048,961 1,076,659
Total liabilities and stockholders' equity $19,308,167 $18,991,977
=========== ===========
Non-GAAP Financial Measures
We manage our Company in three reportable segments: Servicing, Originations and Reverse Mortgage. We measure the performance of our business segments through the following measures: income (loss) before income taxes, Adjusted Earnings (Loss), and Adjusted EBITDA. Management considers Adjusted Earnings (Loss) and Adjusted EBITDA, both non-GAAP financial measures, to be important in the evaluation of our business segments and of the Company as a whole, as well as for allocating capital resources to our segments. Adjusted Earnings (Loss) and Adjusted EBITDA are utilized by management to assess the underlying operational performance of the continuing operations of the business. In addition, analysts, investors, and creditors may use these measures when analyzing our operating performance. Adjusted Earnings (Loss) and Adjusted EBITDA are not presentations made in accordance with GAAP and our use of these measures and terms may vary from other companies in our industry.
Adjusted Earnings (Loss) is a supplemental metric used by management to evaluate our Company's underlying key drivers and operating performance of the business. Adjusted Earnings (Loss) is defined as income (loss) before income taxes plus changes in fair value due to changes in valuation inputs and other assumptions, estimated settlements and costs for certain legal and regulatory matters, goodwill impairment (if any), certain depreciation and amortization costs related to the increased basis in assets (including servicing rights and sub-servicing contracts) acquired within business combination transactions (or step-up depreciation and amortization), transaction and integration costs, share-based compensation expense, non-cash interest expense, the net impact of the Non-Residual Trusts, fair value to cash adjustments for reverse loans, and certain other cash and non-cash adjustments, primarily including certain non-recurring costs. Adjusted Earnings (Loss) excludes unrealized changes in fair value of MSRs that are based on projections of expected future cash flows and prepayments. Adjusted Earnings (Loss) includes both cash and non-cash gains from mortgage loan origination activities. Non-cash gains are net of non-cash charges or reserves provided. Adjusted Earnings (Loss) includes cash generated from reverse mortgage origination activities. Adjusted Earnings (Loss) may from time to time also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors with a supplemental means of evaluating our operating performance.
Adjusted EBITDA eliminates the effects of financing, income taxes and depreciation and amortization. Adjusted EBITDA is defined as income (loss) before income taxes, depreciation and amortization, interest expense on corporate debt, amortization of servicing rights and other fair value adjustments, estimated settlements and costs for certain legal and regulatory matters, goodwill impairment (if any), fair value to cash adjustment for reverse loans, non-cash interest income, share-based compensation expense, servicing fee economics, Residual Trusts cash flows, transaction and integration related costs, the net impact of the Non-Residual Trusts and certain other cash and non-cash adjustments primarily including the net provision for the repurchase of loans sold, provision for loan losses and certain non-recurring costs. Adjusted EBITDA includes both cash and non-cash gains from mortgage loan origination activities. Adjusted EBITDA excludes the impact of fair value option accounting on certain assets and liabilities and includes cash generated from reverse mortgage origination activities. Adjusted EBITDA may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a supplemental means of evaluating our operating performance.
Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as alternatives to (i) net income (loss) or any other performance measures determined in accordance with GAAP or (ii) operating cash flows determined in accordance with GAAP. Adjusted Earnings (Loss) and Adjusted EBITDA have important limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Some of the limitations of these metrics are:
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect cash
expenditures for long-term assets and other items that have been and
will be incurred, future requirements for capital expenditures or
contractual commitments;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect changes in,
or cash requirements for, our working capital needs;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect certain tax
payments that represents reductions in cash available to us;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect any cash
requirements for the assets being depreciated and amortized that may
have to be replaced in the future;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect non-cash
compensation which is and will remain a key element of our overall
long-term incentive compensation package;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect the change
in fair value of servicing rights due to changes in valuation inputs or
other assumptions; and
-- Adjusted EBITDA does not reflect the significant interest expense or the
cash requirements necessary to service interest or principal payments on
our corporate debt and excess servicing spread liability, although they
do reflect interest expense associated with our servicing advance
liabilities, master repurchase agreements, mortgage-backed debt, and
HMBS related obligations.
Because of these limitations, Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted Earnings (Loss) and Adjusted EBITDA only as supplements. Users of our financial statements are cautioned not to place undue reliance on Adjusted Earnings (Loss) and Adjusted EBITDA.
Walter Investment Management Corp.
Segment Revenues and Operating Income
For the Three Months Ended March 31, 2015
(in thousands)
Servicing Originations Reverse Other Eliminations Total
Mortgage Consolidated
-------- ------------
REVENUES:
Servicing revenue and fees $81,827 $ - $11,406 $ - $(2,346) $90,887
Gain on loan sales, net (91) 125,416 (98) - - 125,227
Interest income on loans 31,916 25 - - - 31,941
Insurance revenue 14,131 - - - - 14,131
Net fair value gains on reverse loans and related - - 30,774 - - 30,774
HMBS obligations
Other income 15,980 4,859 1,845 3,293 (8,080) 17,897
------ ----- ----- ----- ------
Total revenues 143,763 130,300 43,927 3,293 (10,426) 310,857
------- ------- ------ ----- ------- -------
EXPENSES:
Interest expense 29,225 7,813 1,099 36,734 - 74,871
Depreciation and amortization 11,473 3,187 1,968 4 - 16,632
Other expenses, net 153,503 77,502 54,317 5,026 (10,426) 279,922
Total expenses 194,201 88,502 57,384 41,764 (10,426) 371,425
------- ------ ------ ------ ------- -------
OTHER GAINS (LOSSES)
Net fair value gains (losses) (234) - - (638) - (872)
Other - - - 11,762 - 11,762
Total other gains (losses) (234) - - 11,124 - 10,890
---- --- --- ------ --- ------
Income (loss) before income taxes (50,672) 41,798 (13,457) (27,347) - (49,678)
ADJUSTED EARNINGS BEFORE TAXES
Changes in fair value due to changes in valuation 73,771 - - - - 73,771
inputs and other assumptions
Step-up depreciation and amortization 7,044 1,170 1,328 - - 9,542
Step-up amortization of sub-servicing rights 4,887 - - - - 4,887
Non-cash interest expense 755 - - 2,564 - 3,319
Share-based compensation expense 2,005 797 536 85 - 3,423
Fair value to cash adjustment for reverse loans - - (4,355) - - (4,355)
Curtailment expense - - 16,074 - - 16,074
Other 2,351 528 (1,399) 3,329 - 4,809
----- --- ------ ----- --- -----
Total adjustments 90,813 2,495 12,184 5,978 - 111,470
------ ----- ------ ----- --- -------
Adjusted Earnings before taxes 40,141 44,293 (1,273) (21,369) - 61,792
ADJUSTED EBITDA
Amortization of servicing rights and other fair value 56,272 - 555 - - 56,827
adjustments
Interest expense on debt 2,596 - 1 34,170 - 36,767
Depreciation and amortization 4,429 2,017 640 4 - 7,090
Other (318) 403 74 61 - 220
---- --- --- --- --- ---
Total adjustments 62,979 2,420 1,270 34,235 - 100,904
------ ----- ----- ------ --- -------
Adjusted EBITDA $103,120 $46,713 $(3) $12,866 $ - $162,696
======== ======= === ======= === === ========
Walter Investment Management Corp.
Segment Revenues and Operating Income
For the Three Months Ended March 31, 2014
(in thousands)
Servicing Originations Reverse Other Eliminations Total
Mortgage Consolidated
REVENUES:
Servicing revenue and fees $167,226 $ - $7,610 $ - $(2,044) $172,792
Gain on loan sales, net - 104,034 - - - 104,034
Interest income on loans 34,422 - - - - 34,422
Insurance revenue 23,388 - - - - 23,388
Net fair value gains on reverse loans and related - - 17,236 - - 17,236
HMBS obligations
Other income 20,548 5,180 3,022 1,314 (11,988) 18,076
Total revenues 245,584 109,214 27,868 1,314 (14,032) 369,948
EXPENSES:
Interest expense 30,716 6,833 859 36,441 - 74,849
Depreciation and amortization 11,839 4,369 2,432 4 - 18,644
Other expenses, net 136,237 83,785 33,640 5,357 (14,032) 244,987
Total expenses 178,792 94,987 36,931 41,802 (14,032) 338,480
OTHER GAINS (LOSSES)
Net fair value gains (losses) (416) - - (2,087) - (2,503)
Total other gains (losses) (416) - - (2,087) - (2,503)
Income (loss) before income taxes 66,376 14,227 (9,063) (42,575) - 28,965
ADJUSTED EARNINGS BEFORE TAXES
Changes in fair value due to changes in valuation 25,618 - - - - 25,618
inputs and other assumptions
Step-up depreciation and amortization 7,151 2,853 1,893 1 - 11,898
Step-up amortization of sub-servicing contracts 8,465 - - - - 8,465
Non-cash interest expense 997 - - 2,313 - 3,310
Share-based compensation expense 1,992 777 459 265 - 3,493
Fair value to cash adjustments for reverse loans - - 4,661 - - 4,661
Other 152 2,978 (52) 5,566 - 8,644
Total adjustments 44,375 6,608 6,961 8,145 - 66,089
Adjusted Earnings before taxes 110,751 20,835 (2,102) (34,430) - 95,054
ADJUSTED EBITDA
Amortization of servicing rights and other fair value 23,918 - 750 - - 24,668
adjustments
Interest expense on debt 32 - 10 34,128 - 34,170
Servicing fee economics 9,750 - - - - 9,750
Depreciation and amortization 4,688 1,516 539 3 - 6,746
Other (3,661) 1,089 1 (16) - (2,587)
Total adjustments 34,727 2,605 1,300 34,115 - 72,747
Adjusted EBITDA $145,478 $23,440 $(802) $(315) $ - $167,801
Reconciliation of GAAP Income (Loss) Before Income Taxes to
Non-GAAP AEBITDA
(in millions)
For the Three Months Ended
--------------------------
March 31, 2015 March 31, 2014
-------------- --------------
Income (loss) before income taxes $(49.7) $29.0
Add/(Subtract):
Amortization and fair value
adjustments 135.5 58.8
Interest expense 40.1 37.5
Depreciation and amortization 16.6 18.6
Curtailment expense 16.1 -
Non-cash share-based compensation
expense 3.4 3.5
Fair value to cash adjustment for
reverse loans (4.3) 4.7
Servicing fee economics - 9.7
Other 5.0 6.0
--- ---
Sub-total 212.4 138.8
Adjusted EBITDA $162.7 $167.8
====== ======
Reconciliation of GAAP Income (Loss) Before Income Taxes to
Non-GAAP Adjusted Earnings
(in millions, except per share amounts)
For the Three Months Ended
--------------------------
March 31, 2015 March 31, 2014
-------------- --------------
Income (loss) before income taxes $(49.7) $29.0
Add/(Subtract):
Changes in fair value due to changes in valuation inputs and other 73.8 25.6
assumptions
Curtailment expense 16.1 -
Step-up depreciation and amortization 9.5 11.9
Step-up amortization of sub-servicing rights (MSRs) 4.9 8.5
Non-cash share-based compensation expense 3.4 3.5
Non-cash interest expense 3.3 3.3
Fair value to cash adjustment for reverse loans (4.3) 4.7
Other 4.8 8.6
--- ---
Adjusted Earnings before taxes $61.8 $95.1
Adjusted Earnings after tax (38% in 2015 and 39% in 2014) 38.3 58.0
Adjusted Earnings after taxes per common and common equivalent share. $1.02 $1.53
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SOURCE Walter Investment Management Corp.
