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    Walter Investment Management Corp. Announces Second Quarter 2015 Highlights And Financial Results

    08/10/15

    TAMPA, Fla., Aug. 10, 2015 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced operational highlights and financial results for the quarter ended June 30, 2015.

    Second Quarter 2015 Operational Highlights

    • Adjusted Earnings of $24.4 million after taxes, or $0.65 per share
    • Servicing segment delivered 16 bps of AEBITDA margin
    • Assisted approximately 12,500 homeowners in obtaining modifications and originated approximately 10,500 HARP loans
    • 66% growth in Originations segment funded volumes to $7.2 billion as compared to the prior year quarter
    • Reverse Mortgage segment issued $442 million of HMBS, an increase of 23% over the prior year quarter
    • Completed sale of residual interest in seven Residual Trusts, generating approximately $190 million in cash proceeds

    Second Quarter 2015 Financial Highlights

    The Company reported a GAAP net loss for the second quarter of 2015 of ($38.1) million, or ($1.01) per diluted share, as compared to a GAAP net loss of ($12.9) million, or ($0.34) per diluted share, for the second quarter of 2014. The quarters ended June 30, 2015 and June 30, 2014 each include pre-tax charges related to goodwill impairment in the Reverse Mortgage segment of $56.5 million, or $1.50 per share, and $82.3 million, or $2.18 per share, respectively.  Adjusted Earnings for the second quarter of 2015 was $24.4 million after taxes(1), or $0.65 per share(1), a decrease of 65% as compared to the prior year quarter.  Adjusted EBITDA for the quarter was $140.4 million, a 30% decline when compared to the prior year quarter.  Adjusted results in the prior year quarter included the benefit of $34.2 million of performance fees earned by the investment management business and higher levels of earnings in the Originations business.

    (1) Note that this calculation excludes the effect of the goodwill impairment, including its impact to the Company's effective tax rates for 2015 and 2014. This calculation assumes an effective tax rate of 38% and 39% for 2015 and 2014, respectively.

    "We delivered strong operational results in our core segments as AEBITDA profitability in our Servicing business was in-line with our expectations, our Originations business capitalized on retention opportunities and demonstrated strong performance in the correspondent channel and our Reverse Mortgage business delivered positive AEBITDA and Adjusted Earnings.  The Servicing business added $17.1 billion in UPB of product to its serviced portfolio and maintained strong Adjusted Earnings profitability.  Our Originations business funded $7.2 billion in UPB during the quarter, delivering strong margins from the retention channel and increasing production in the correspondent channel where overall volume growth combined with a shift to more GNMA production drove margin improvement.  We have completed a comprehensive review of the Reverse Mortgage business and believe the steps implemented to drive process improvements will result in improved future profitability," said Mark J. O'Brien, Walter Investment's Chairman and CEO.

    "We continue to focus on the combination of our Green Tree and Ditech entities under the name 'Ditech, a Walter Company,' which we believe will leverage talent across these organizations and enhance the value of the brand by improving the customer experience, streamlining processes and enhancing retention efforts.  In conjunction with the combination of Green Tree and Ditech and our other cost savings initiatives, we have realized cost savings of approximately $24 million in the first half of 2015 as compared to the fourth quarter 2014 run-rate. We have also made significant progress on our planned WCO-related initiatives, including our contribution of Marix, a FNMA and FRE approved servicer to WCO.  We have executed an initial sub-servicing agreement with Marix and assisted with the sourcing of new portfolio opportunities for WCO, including potential bulk MSR acquisitions."

    Second Quarter 2015 Financial and Operating Highlights

    Total revenues for the second quarter of 2015 of $412.4 million were relatively flat as compared to the same period of 2014.  Net servicing revenues and fees increased $82.9 million as compared to the prior year quarter, primarily driven by an $84.7 million favorable change in the fair value of servicing rights resulting from the rising interest rate environment.  This increase was partially offset by a $25.2 million decline in net gains on sales of loans driven primarily by a shift in volume mix from the consumer lending channel to the lower margin correspondent lending channel, a $20.1 million unfavorable change in the net fair value of reverse loans and related HMBS obligations resulting from the rising interest rate environment and a decline in interest income on loans of $16.0 million related primarily to the sale of the residual interests in the Residual Trusts.  Results for the prior year period also reflect $34.2 million in performance fees earned by our investment management business.

    Total expenses for the second quarter of 2015 were 8% lower as compared to the second quarter of 2014, declining to $428.0 million, principally reflecting the Reverse Mortgage segment's current quarter goodwill impairment charge of $56.5 million, which was $25.7 million lower than the charge taken in the prior year period.  As a result of these goodwill impairment charges, the Reverse Mortgage reporting unit no longer has goodwill. Results also reflect $6.0 million lower interest expense in the current quarter as compared to the second quarter of 2014 primarily due to the sale of the residual interests in the Residual Trusts.

    Segments

    Results for the Company's segments are presented below.

    Servicing

    The Servicing segment generated total revenue of $274.2 million in the second quarter of 2015, a 35% increase as compared to second quarter 2014 revenue of $202.9 million.  The change was primarily comprised of an $84.7 million favorable change in the fair value of servicing rights and a $12.3 million increase in other income reflecting strong performance on our acquired charged-off loans, partially offset by a $16.0 million decline in interest income resulting primarily from the sale of the residual interests in the Residual Trusts, $8.4 million lower insurance revenue due to the loss of commissions earned on GSE lender-placed policies beginning June 1, 2014 and a $5.7 million unfavorable change in fair value of our excess servicing spread liability.  Servicing revenues for the quarter ended June 30, 2015 included $175.3 million of servicing fees, $26.5 million of incentive and performance-based fees and $23.6 million of ancillary and other fees.

    Expense for the Servicing segment was $189.0 million, a decline of 16% as compared to the prior year quarter.  The change was driven by a $25.7 million decrease in operational expenses resulting primarily from $13.2 million in accruals in the second quarter of 2014 for loss contingencies and legal expenses due to legal and regulatory matters outside of the normal course of business and $9.1 million lower salaries and benefits driven by fewer employees, as well as $9.9 million lower interest expense primarily as a result of the sale of the residual interests in the Residual Trusts.  Expenses also included $11.4 million of depreciation and amortization costs.

    The segment generated Adjusted Earnings of $36.4 million for the second quarter of 2015 and AEBITDA of $97.6 million, a decline of 32% and 4%, respectively, as compared to the second quarter of 2014.  The variance in Adjusted Earnings as compared to the prior year quarter was primarily due to lower revenues adjusted for the impact of changes in fair value due to changes in valuation inputs, partially offset by lower expenses.  These lower revenues include $18.0 million in higher realization of cash flows, which include the effect of accelerated prepayments.

    The Servicing segment ended the quarter with approximately 2.2 million total accounts serviced with a UPB of approximately $243.2 billion. During the quarter, the Company experienced a net disappearance rate of 15.5%, an increase from the net disappearance rate in the prior year quarter of 13.8% as a result of increased levels of prepayments in the continued low interest rate environment.

    Originations

    The Originations segment generated revenue of $128.7 million in the second quarter, a decline of 14% as compared to the prior year quarter primarily due to a $29.0 million decline in net gains on sales of loans driven by a shift in volume from the higher margin retention channel to the lower margin correspondent channel, partially offset by $7.4 million higher other revenues primarily as a result of reinstating certain origination fees.  Expenses for the Originations segment of $95.7 million, which include $9.9 million of interest expense and $2.7 million of depreciation and amortization, remained relatively flat as compared to the prior year quarter, increasing only $3.8 million primarily driven by $3.3 million higher interest expense as a result of a higher volume of loan fundings partially offset by lower average cost of debt.

    The segment generated Adjusted Earnings of $35.3 million for the second quarter of 2015 and AEBITDA of $39.5 million, a 46% and 40% decline, respectively, as compared to the second quarter of 2014 due primarily to lower net gains on sales of loans and higher interest-related expenses, partially offset by higher origination fee income.

    The total pull-through adjusted locked volume for the second quarter was $6.3 billion, as compared to $5.6 billion for the second quarter of 2014 as volumes in the correspondent lending channel grew 53% as compared to the prior year period. Funded loans in the current quarter totaled $7.2 billion, with approximately 28% of that volume in the consumer lending channel and approximately 72% generated by the correspondent lending channel.  Funded loans in the second quarter of 2014 totaled $4.4 billion, with approximately 53% of that volume in the consumer lending channel and approximately 47% driven by the correspondent lending channel.  The combined direct margin for the current quarter was 100 bps, with a direct margin of 255 bps in the consumer lending channel, a decrease of 40 bps as compared to the prior year quarter.  In the correspondent lending channel, overall volume growth combined with a shift to more GNMA production drove margin expansion of 50 bps, as compared to the second quarter of 2014, to 45 bps for the current quarter. 

    Reverse Mortgage

    The Reverse Mortgage segment generated revenue of $20.2 million for the quarter, a 48% decline as compared to the prior year quarter reflecting lower net fair value gains on reverse loans and related HMBS obligations of $20.1 million, driven by unfavorable changes in non-cash fair value adjustments due to a higher LIBOR rate at June 30, 2015 as compared to prior periods. Current quarter revenues included a $6.8 million gain from the net impact of HECM loan and related HMBS obligation fair value adjustments, $11.9 million in net servicing revenue and fees and $1.4 million of other revenues.  Total expenses for the second quarter of $111.1 million, which include a $56.5 million goodwill impairment charge, declined 11% as compared to the prior year period primarily driven by the prior year quarter's $82.3 million goodwill impairment charge.  The decline in the goodwill impairment charge was partially offset by $11.1 million adjustments in the current quarter associated with legal and regulatory matters and curtailment costs outside of the normal course of business and $4.6 million higher salaries and benefits expense resulting from increased headcount and higher incentives related to an improvement in funded volume.

    The segment reported Adjusted Earnings of $2.5 million and AEBITDA of $3.7 million for the second quarter of 2015 as compared to Adjusted Loss of ($2.9) million and AEBITDA of ($1.7) million in the second 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, increased 22% as compared to the second quarter of 2014 resulting from an increase in volumes related to loans originated in the first quarter, prior to the implementation of the financial assessment requirement, which moved to funding during the current quarter.  Securitized volumes increased 23% compared to the prior year quarter.

    During the quarter ended June 30, 2015, as a result of a number of operational and market driven factors, RMS revised its multi-year forecast which led to the impairment of the remaining goodwill associated with the Reverse Mortgage business.

    Other Non-Reportable Segment

    The Other Non-Reportable segment generated revenue of $0.9 million for the second quarter of 2015 as compared to revenue of $35.6 million in the prior year quarter.  The prior year quarter included a $34.2 million performance fee earned by the Investment Management business. Total expenses in the current quarter of $43.6 million, which included $37.1 million related to corporate debt, remained relatively flat as compared to the second quarter of 2014.

    The Other non-reportable segment generated Adjusted Loss of ($34.8) million and AEBITDA of ($0.4) million for the second quarter of 2015 as compared to Adjusted Loss of ($0.4) million and AEBITDA of $34.0 million in the second quarter of 2014.

    About Walter Investment Management Corp.

    Walter Investment Management Corp. is a diversified mortgage banking firm focused primarily on the servicing and origination of residential loans, including reverse loans.  Based in Tampa, Fla., the Company has approximately 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 second quarter results and other general business matters during a conference call and live webcast to be held on Monday, August 10, 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 under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2015 and June 30, 2015 and in our other filings with the SEC.

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

    • our ability to operate our business in compliance with existing and future rules and regulations affecting our business, including those relating to the origination and servicing of residential loans, the management of third-party assets and the insurance industry (including lender-placed insurance), and changes to, and/or more stringent enforcement of, such rules and regulations;
    • increased scrutiny and potential enforcement actions by federal and state authorities;
    • the substantial resources (including senior management time and attention) we devote to, and the significant compliance costs we incur in connection with, regulatory and contractual 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 existing or future GSE, agency and other capital, net worth, liquidity and other financial requirements applicable to our business, and our ability to remain qualified as a GSE approved seller, servicer or component servicer, including the ability to continue to comply with the GSEs' respective residential loan and selling and servicing guides;
    • uncertainties relating to the status and future role of GSEs, and the effects of any changes to the origination and/or servicing requirements of the GSEs or various regulatory authorities or the servicing compensation structure for mortgage servicers pursuant to programs of GSEs or various regulatory authorities;
    • our ability to maintain our loan servicing, loan origination, insurance agency or collection agency licenses, or any other licenses necessary to operate our businesses, or changes to, or our ability to comply with, our licensing requirements;
    • our ability to comply with the servicing standards required by the National Mortgage Settlement;
    • our ability to comply with the terms of the stipulated order resolving allegations arising from an FTC and CFPB investigation of Green Tree Servicing;
    • operational risks inherent in the mortgage servicing and mortgage originations businesses, including reputational risk;
    • risks related to our substantial levels of indebtedness, including our ability to comply with covenants contained in our debt agreements, generate sufficient cash to service such indebtedness and refinance such indebtedness on favorable terms, as well as our ability to incur substantially more debt;
    • our ability to renew advance financing facilities or warehouse facilities and maintain borrowing capacity under such facilities;
    • our ability to maintain or grow our servicing business and our residential loan originations business;
    • our ability to achieve our strategic initiatives;
    • 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 and performance payments and ancillary fees on our servicing portfolio;
    • our ability to collect indemnification payments and enforce repurchase obligations relating to mortgage loans we purchase from our correspondent clients and our ability to collect indemnification payments relating to servicing rights we purchase from prior servicers;
    • local, regional, national and global economic trends and developments in general, and local, regional and national real estate and residential mortgage market trends in particular, including the volume and pricing of home sales, the credit quality of loan origination customers and uncertainty regarding the levels of mortgage originations and prepayments;
    • uncertainty as to the volume of originations activity we will benefit from prior to, and following, the expiration of HARP, which is scheduled to occur on December 31, 2016;
    • 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 and uncertainties arising from or relating to its bankruptcy filings, including potential liability for any taxes, interest and/or penalties owed by the Walter Energy consolidated group for the full or partial tax years during which certain of the Company's former subsidiaries were a part of such consolidated group and certain other tax risks allocated to us in connection with our spin-off from Walter Energy.

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

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

    Amounts or metrics that relate to future earnings projections are forward-looking and subject to significant business, economic, regulatory and competitive uncertainties, many of which are beyond the control of us and our management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. Nothing in this 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, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2015 and June 30, 2015 and our other filings with the SEC for important information regarding forward-looking statements and the use and limitations of Non-GAAP Financial Measures. Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of any forward-looking financial measures presented herein.

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


     

     

     

    Walter Investment Management Corp. and Subsidiaries

    Consolidated Statements of Comprehensive Income (Loss)

     (in thousands, except per share data)




    For the Three Months
     Ended June 30,


    For the Six Months
     Ended June 30,



    2015


    2014


    2015


    2014

    REVENUES









    Net servicing revenue and fees


    $

    223,915



    $

    140,976



    $

    314,802



    $

    313,768


    Net gains on sales of loans


    119,399



    144,611



    244,626



    248,645


    Interest income on loans


    18,186



    34,218



    50,127



    68,640


    Net fair value gains on reverse loans and related HMBS obligations


    6,815



    26,936



    37,589



    44,172


    Insurance revenue


    11,429



    19,806



    25,560



    43,194


    Other revenues


    32,689



    47,166



    50,586



    65,242


    Total revenues


    412,433



    413,713



    723,290



    783,661











    EXPENSES









    Salaries and benefits


    143,157



    145,502



    290,385



    281,399


    General and administrative


    142,100



    142,341



    270,747



    251,206


    Interest expense


    68,665



    74,690



    143,536



    149,539


    Depreciation and amortization


    16,093



    18,391



    32,725



    37,035


    Goodwill impairment


    56,539



    82,269



    56,539



    82,269


    Other expenses, net


    1,401



    3,978



    5,448



    4,203


    Total expenses


    427,955



    467,171



    799,380



    805,651











    OTHER GAINS (LOSSES)









    Other net fair value gains (losses)


    3,326



    1,532



    2,454



    (971)


    Other


    (2,803)





    8,959




    Total other gains (losses)


    523



    1,532



    11,413



    (971)











    Loss before income taxes


    (14,999)



    (51,926)



    (64,677)



    (22,961)


    Income tax expense (benefit)


    23,120



    (38,997)



    4,450



    (27,409)


    Net income (loss)


    $

    (38,119)



    $

    (12,929)



    $

    (69,127)



    $

    4,448











    Comprehensive income (loss)


    $

    (38,030)



    $

    (12,924)



    $

    (69,011)



    $

    4,457











    Net income (loss)


    $

    (38,119)



    $

    (12,929)



    $

    (69,127)



    $

    4,448











    Basic earnings (loss) per common and common equivalent share


    $

    (1.01)



    $

    (0.34)



    $

    (1.83)



    $

    0.12


    Diluted earnings (loss) per common and common equivalent share


    (1.01)



    (0.34)



    (1.83)



    0.12











    Weighted-average common and common equivalent shares outstanding — basic


    37,759



    37,673



    37,739



    37,552


    Weighted-average common and common equivalent shares outstanding — diluted


    37,759



    37,673



    37,739



    38,074


     

     

     


    Walter Investment Management Corp. and Subsidiaries

    Consolidated Balance Sheets

    (in thousands, except share and per share data)




    June 30, 2015


    December 31, 2014

    ASSETS





    Cash and cash equivalents


    $

    343,780



    $

    320,175


    Restricted cash and cash equivalents


    850,533



    733,015


    Residential loans at amortized cost, net (includes $3,585 and $10,033 in allowance for loan losses at June 30, 2015 and December 31, 2014, respectively)


    542,892



    1,314,539


    Residential loans at fair value


    12,922,303



    11,832,630


    Receivables, net (includes $20,800 and $25,201 at fair value at June 30, 2015 and December 31, 2014, respectively)


    259,920



    215,629


    Servicer and protective advances, net (includes $105,445 and $112,427 in allowance for uncollectible advances at June 30, 2015 and December 31, 2014, respectively)


    1,550,592



    1,761,082


    Servicing rights, net (includes $1,797,721 and $1,599,541 at fair value at June 30, 2015 and December 31, 2014, respectively)


    1,917,551



    1,730,216


    Goodwill


    518,929



    575,468


    Intangible assets, net


    95,784



    103,503


    Premises and equipment, net


    109,831



    124,926


    Other assets (includes $79,257 and $68,151 at fair value at June 30, 2015 and December 31, 2014, respectively)


    232,417



    280,794


    Total assets


    $

    19,344,532



    $

    18,991,977







    LIABILITIES AND STOCKHOLDERS EQUITY





    Payables and accrued liabilities (includes $13,753 and $30,024 at fair value at June 30, 2015 and December 31, 2014, respectively)


    $

    622,868



    $

    663,829


    Servicer payables


    704,318



    584,567


    Servicing advance liabilities


    1,245,318



    1,365,885


    Warehouse borrowings


    1,620,260



    1,176,956


    Excess servicing spread liability at fair value


    64,556



    66,311


    Corporate debt


    2,266,105



    2,267,799


    Mortgage-backed debt (includes $616,794 and $653,167 at fair value at June 30, 2015 and December 31, 2014, respectively)


    1,108,032



    1,751,459


    HMBS related obligations at fair value


    10,588,671



    9,951,895


    Deferred tax liability, net


    108,355



    86,617


    Total liabilities


    18,328,483



    17,915,318







    Stockholders' equity:





    Preferred stock, $0.01 par value per share:





    Authorized - 10,000,000 shares





    Issued and outstanding - 0 shares at June 30, 2015 and December 31, 2014





    Common stock, $0.01 par value per share:





    Authorized - 90,000,000 shares





    Issued and outstanding - 37,792,297 and 37,711,623 shares at June 30, 2015 and December 31, 2014, respectively


    377



    377


    Additional paid-in capital


    609,044



    600,643


    Retained earnings


    406,117



    475,244


    Accumulated other comprehensive income


    511



    395


    Total stockholders' equity


    1,016,049



    1,076,659


    Total liabilities and stockholders' equity


    $

    19,344,532



    $

    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 represent reductions in cash available to us;
    • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future;
    • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect non-cash compensation which is and will remain a key element of our overall long-term incentive compensation package;
    • Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect the change in fair value 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 Results of Operations and Non-GAAP Financial Measures

    For the Three Months Ended June 30, 2015

    (in thousands)




    Servicing

    Originations

    Reverse Mortgage

    Other

    Eliminations

    Total Consolidated

    REVENUES:








    Servicing revenue and fees


    $

    214,437


    $


    $

    11,915


    $


    $

    (2,437)


    $

    223,915


    Gain on loan sales, net


    3,795


    115,604





    119,399


    Interest income on loans


    18,174


    12





    18,186


    Insurance revenue


    11,429






    11,429


    Net fair value gains on reverse loans and related HMBS obligations




    6,815




    6,815


    Other income


    26,361


    13,086


    1,442


    854


    (9,054)


    32,689


    Total revenues


    274,196


    128,702


    20,172


    854


    (11,491)


    412,433


    EXPENSES:








    Interest expense


    20,534


    9,934


    1,132


    37,065



    68,665


    Depreciation and amortization


    11,412


    2,692


    1,986


    3



    16,093


    Goodwill impairment




    56,539




    56,539


    Other expenses, net


    157,053


    83,111


    51,475


    6,510


    (11,491)


    286,658


    Total expenses


    188,999


    95,737


    111,132


    43,578


    (11,491)


    427,955


    OTHER GAINS (LOSSES)








    Net fair value gains (losses)


    (98)




    3,424



    3,326


    Other


    (2,803)






    (2,803)


    Total other gains (losses)


    (2,901)




    3,424



    523


    Income (loss) before income taxes


    82,296


    32,965


    (90,960)


    (39,300)



    (14,999)


    ADJUSTED EARNINGS BEFORE TAXES








    Goodwill impairment




    56,539




    56,539


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


    (64,359)






    (64,359)


    Step-up depreciation and amortization


    6,923


    618


    1,328




    8,869


    Step-up amortization of sub-servicing rights


    4,940






    4,940


    Non-cash interest expense


    363




    2,660



    3,023


    Share-based compensation expense


    3,123


    1,453


    284


    146



    5,006


    Fair value to cash adjustment for reverse loans




    24,149




    24,149


    Curtailment expense




    6,488




    6,488


    Legal and regulatory matters


    544



    4,628




    5,172


    Other


    2,554


    215


    63


    1,677



    4,509


    Total adjustments


    (45,912)


    2,286


    93,479


    4,483



    54,336


    Adjusted Earnings before taxes


    36,384


    35,251


    2,519


    (34,817)



    39,337


    ADJUSTED EBITDA








    Amortization of servicing rights and other fair value adjustments


    59,649



    522




    60,171


    Interest expense on debt


    2,121




    34,405



    36,526


    Depreciation and amortization


    4,489


    2,074


    658


    3



    7,224


    Other


    (5,090)


    2,140


    25


    26



    (2,899)


    Total adjustments


    61,169


    4,214


    1,205


    34,434



    101,022


    Adjusted EBITDA


    $

    97,553


    $

    39,465


    $

    3,724


    $

    (383)


    $


    $

    140,359


     

     

     

    Walter Investment Management Corp.

    Segment Results of Operations and Non-GAAP Financial Measures

    For the Three Months Ended June 30, 2014

    (in thousands)




    Servicing

    Originations

    Reverse Mortgage

    Other

    Eliminations

    Total Consolidated

    REVENUES:








    Servicing revenue and fees


    $

    134,800


    $


    $

    8,777


    $


    $

    (2,601)


    $

    140,976


    Gain on loan sales, net



    144,611





    144,611


    Interest income on loans


    34,218






    34,218


    Insurance revenue


    19,806






    19,806


    Net fair value gains on reverse loans and related HMBS obligations




    26,936




    26,936


    Other income


    14,038


    5,688


    3,005


    35,612


    (11,177)


    47,166


    Total revenues


    202,862


    150,299


    38,718


    35,612


    (13,778)


    413,713


    EXPENSES:








    Interest expense


    30,479


    6,627


    775


    36,809



    74,690


    Depreciation and amortization


    11,872


    4,230


    2,286


    3



    18,391


    Goodwill impairment




    82,269




    82,269


    Other expenses, net


    182,788


    81,041


    39,104


    2,666


    (13,778)


    291,821


    Total expenses


    225,139


    91,898


    124,434


    39,478


    (13,778)


    467,171


    OTHER GAINS (LOSSES)








    Net fair value gains (losses)


    (1,072)




    2,604



    1,532


    Total other gains (losses)


    (1,072)




    2,604



    1,532


    Income (loss) before income taxes


    (23,349)


    58,401


    (85,716)


    (1,262)



    (51,926)


    ADJUSTED EARNINGS BEFORE TAXES








    Goodwill impairment




    82,269




    82,269


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


    43,376






    43,376


    Step-up depreciation and amortization


    7,108


    2,443


    1,781




    11,332


    Step-up amortization of sub-servicing contracts


    7,682






    7,682


    Non-cash interest expense


    1,640




    2,399



    4,039


    Share-based compensation expense


    2,942


    1,098


    786


    (18)



    4,808


    Fair value to cash adjustments for reverse loans




    (5,883)




    (5,883)


    Legal and regulatory matters


    13,192






    13,192


    Other


    808


    2,797


    3,907


    (1,475)



    6,037


    Total adjustments


    76,748


    6,338


    82,860


    906



    166,852


    Adjusted Earnings before taxes


    53,399


    64,739


    (2,856)


    (356)



    114,926


    ADJUSTED EBITDA








    Amortization of servicing rights and other fair value adjustments


    41,989



    693




    42,682


    Interest expense on debt


    19



    8


    34,410



    34,437


    Depreciation and amortization


    4,764


    1,787


    505


    3



    7,059


    Other


    1,714


    (1,293)


    (47)


    (82)



    292


    Total adjustments


    48,486


    494


    1,159


    34,331



    84,470


    Adjusted EBITDA


    $

    101,885


    $

    65,233


    $

    (1,697)


    $

    33,975


    $


    $

    199,396


     

     

    Walter Investment Management Corp.

    Segment Results of Operations and Non-GAAP Financial Measures

    For the Six Months Ended June 30, 2015

    (in thousands)




    Servicing

    Originations

    Reverse Mortgage

    Other

    Eliminations

    Total Consolidated

    REVENUES:








    Servicing revenue and fees


    $

    296,264


    $


    $

    23,321


    $


    $

    (4,783)


    $

    314,802


    Gain on loan sales, net


    3,704


    241,020


    (98)




    244,626


    Interest income on loans


    50,090


    37





    50,127


    Insurance revenue


    25,560






    25,560


    Net fair value gains on reverse loans and related HMBS obligations




    37,589




    37,589


    Other income


    42,341


    17,945


    3,287


    4,147


    (17,134)


    50,586


    Total revenues


    417,959


    259,002


    64,099


    4,147


    (21,917)


    723,290


    EXPENSES:








    Interest expense


    49,759


    17,747


    2,231


    73,799



    143,536


    Depreciation and amortization


    22,885


    5,879


    3,954


    7



    32,725


    Goodwill impairment




    56,539




    56,539


    Other expenses, net


    310,556


    160,613


    105,792


    11,536


    (21,917)


    566,580


    Total expenses


    383,200


    184,239


    168,516


    85,342


    (21,917)


    799,380


    OTHER GAINS (LOSSES)








    Net fair value gains (losses)


    (332)




    2,786



    2,454


    Other


    (2,803)




    11,762



    8,959


    Total other gains (losses)


    (3,135)




    14,548



    11,413


    Income (loss) before income taxes


    31,624


    74,763


    (104,417)


    (66,647)



    (64,677)


    ADJUSTED EARNINGS BEFORE TAXES








    Goodwill impairment




    56,539




    56,539


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


    9,412






    9,412


    Step-up depreciation and amortization


    13,967


    1,788


    2,656




    18,411


    Step-up amortization of sub-servicing rights


    9,827






    9,827


    Non-cash interest expense


    1,118




    5,224



    6,342


    Share-based compensation expense


    5,128


    2,250


    820


    231



    8,429


    Fair value to cash adjustment for reverse loans




    19,794




    19,794


    Curtailment expense




    22,562




    22,562


    Legal and regulatory matters


    2,218



    2,862




    5,080


    Other


    3,231


    743


    430


    5,006



    9,410


    Total adjustments


    44,901


    4,781


    105,663


    10,461



    165,806


    Adjusted Earnings before taxes


    76,525


    79,544


    1,246


    (56,186)



    101,129


    ADJUSTED EBITDA








    Amortization of servicing rights and other fair value adjustments


    115,921



    1,077




    116,998


    Interest expense on debt


    4,717



    1


    68,575



    73,293


    Depreciation and amortization


    8,918


    4,091


    1,298


    7



    14,314


    Other


    (5,408)


    2,543


    99


    87



    (2,679)


    Total adjustments


    124,148


    6,634


    2,475


    68,669



    201,926


    Adjusted EBITDA


    $

    200,673


    $

    86,178


    $

    3,721


    $

    12,483


    $


    $

    303,055


     

     

    Walter Investment Management Corp.

    Segment Results of Operations and Non-GAAP Financial Measures

    For the Six Months Ended June 30, 2014

    (in thousands)




    Servicing

    Originations

    Reverse Mortgage

    Other

    Eliminations

    Total Consolidated

    REVENUES:








    Servicing revenue and fees


    $

    302,026


    $


    $

    16,387


    $


    $

    (4,645)


    $

    313,768


    Gain on loan sales, net



    248,645





    248,645


    Interest income on loans


    68,640






    68,640


    Insurance revenue


    43,194






    43,194


    Net fair value gains on reverse loans and related HMBS obligations




    44,172




    44,172


    Other income


    34,586


    10,868


    6,027


    36,926


    (23,165)


    65,242


    Total revenues


    448,446


    259,513


    66,586


    36,926


    (27,810)


    783,661


    EXPENSES:








    Interest expense


    61,195


    13,460


    1,634


    73,250



    149,539


    Depreciation and amortization


    23,711


    8,599


    4,718


    7



    37,035


    Goodwill impairment




    82,269




    82,269


    Other expenses, net


    319,025


    164,826


    72,744


    8,023


    (27,810)


    536,808


    Total expenses


    403,931


    186,885


    161,365


    81,280


    (27,810)


    805,651


    OTHER GAINS (LOSSES)








    Net fair value gains (losses)


    (1,488)




    517



    (971)


    Total other gains (losses)


    (1,488)




    517



    (971)


    Income (loss) before income taxes


    43,027


    72,628


    (94,779)


    (43,837)



    (22,961)


    ADJUSTED EARNINGS BEFORE TAXES








    Goodwill impairment




    82,269




    82,269


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


    68,994






    68,994


    Step-up depreciation and amortization


    14,259


    5,296


    3,674


    1



    23,230


    Step-up amortization of sub-servicing rights


    16,147






    16,147


    Non-cash interest expense


    2,637




    4,712



    7,349


    Share-based compensation expense


    4,934


    1,875


    1,245


    247



    8,301


    Fair value to cash adjustment for reverse loans




    (1,222)




    (1,222)


    Legal and regulatory matters


    13,192






    13,192


    Other


    960


    5,775


    3,855


    4,091



    14,681


    Total adjustments


    121,123


    12,946


    89,821


    9,051



    232,941


    Adjusted Earnings before taxes


    164,150


    85,574


    (4,958)


    (34,786)



    209,980


    ADJUSTED EBITDA








    Amortization of servicing rights and other fair value adjustments


    65,907



    1,443




    67,350


    Interest expense on debt


    51



    18


    68,538



    68,607


    Depreciation and amortization


    9,452


    3,303


    1,044


    6



    13,805


    Other


    7,803


    (204)


    (46)


    (98)



    7,455


    Total adjustments


    83,213


    3,099


    2,459


    68,446



    157,217


    Adjusted EBITDA


    $

    247,363


    $

    88,673


    $

    (2,499)


    $

    33,660


    $


    $

    367,197


     

     

     

    Reconciliation of GAAP Loss Before Income Taxes to

    Non-GAAP AEBITDA

    (in millions)




    For the Three Months Ended


    For the Six Months Ended



    June 30, 2015


    June 30, 2014


    June 30, 2015


    June 30, 2014

    Loss before income taxes


    $

    (15.0)



    $

    (51.9)



    $

    (64.7)



    $

    (23.0)


    Add/(Subtract):









    Goodwill impairment


    56.5



    82.3



    56.5



    82.3


    Amortization of servicing rights and other fair value adjustments


    0.8



    93.7



    136.2



    152.5


    Interest expense


    39.5



    38.5



    79.6



    76.0


    Depreciation and amortization


    16.1



    18.4



    32.7



    37.0


    Curtailment expense


    6.5





    22.6




    Share-based compensation expense


    5.0



    4.8



    8.4



    8.3


    Fair value to cash adjustment for reverse loans


    24.1



    (5.9)



    19.8



    (1.2)


    Legal and regulatory matters


    5.2



    13.2



    5.1



    13.2


    Other


    1.6



    6.3



    6.8



    22.1


    Sub-total


    155.3



    251.3



    367.7



    390.2











    Adjusted EBITDA


    $

    140.3



    $

    199.4



    $

    303.0



    $

    367.2


     

     

     

    Reconciliation of GAAP Loss Before Income Taxes to

    Non-GAAP Adjusted Earnings

     (in millions, except per share amounts)




    For the Three Months Ended


    For the Six Months Ended



    June 30, 2015


    June 30, 2014


    June 30, 2015


    June 30, 2014










    Loss before income taxes


    $

    (15.0)



    $

    (51.9)



    $

    (64.7)



    $

    (23.0)


    Add/(Subtract):









    Goodwill impairment


    56.5



    82.3



    56.5



    82.3


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


    (64.3)



    43.4



    9.4



    69.0


    Curtailment expense


    6.5





    22.6




    Step-up depreciation and amortization


    8.9



    11.3



    18.4



    23.2


    Step-up amortization of sub-servicing rights


    4.9



    7.7



    9.8



    16.2


    Share-based compensation expense


    5.0



    4.8



    8.4



    8.3


    Non-cash interest expense


    3.0



    4.0



    6.3



    7.3


    Fair value to cash adjustment for reverse loans


    24.1



    (5.9)



    19.8



    (1.2)


    Legal and regulatory matters


    5.2



    13.2



    5.1



    13.2


    Other


    4.5



    6.0



    9.5



    14.7


    Adjusted Earnings before taxes


    $

    39.3



    $

    114.9



    $

    101.1



    $

    210.0


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


    24.4



    70.1



    62.7



    128.1


    Adjusted Earnings after taxes per common and common equivalent share.


    $

    0.65



    $

    1.86



    $

    1.66



    $

    3.36


     

     

     

    To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/walter-investment-management-corp-announces-second-quarter-2015-highlights-and-financial-results-300125859.html

    SOURCE Walter Investment Management Corp.

    Investor and Media Contact: Whitney Finch, Vice President of Investor Relations, 813.421.7694, wfinch@walterinvestment.com