PR Newswire
TAMPA, Fla., Nov. 9, 2016
TAMPA, Fla., Nov. 9, 2016 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced operational highlights and financial results for the quarter ended September 30, 2016.
Third Quarter 2016 Operational Highlights and Recent Developments
Third Quarter 2016 Financial Results
GAAP net loss for the quarter ended September 30, 2016 was $101.8 million, or ($2.82) per share, as compared to a GAAP net loss of $76.9 million, or ($2.04) per share for the quarter ended September 30, 2015. The 2016 net loss includes goodwill and intangible assets impairment charges of $60.6 million after tax, or ($1.68) per share(3), and non-cash charges of $17.0 million after tax, or ($0.47) per share(3), resulting from fair value changes due to changes in valuation inputs and other assumptions. Adjusted EBITDA ("AEBITDA") for the current quarter was $93.7 million and Adjusted Loss was $6.3 million after tax, or ($0.17) per share(3).
(1) Transaction remains subject to GSE approval and other conditions to closing.
(2) Transactions subject to negotiation, finalization and execution of transaction documents and, thereafter, GSE approval and other conditions to closing, as applicable.
(3) Goodwill and intangible assets impairment charges of $97.7 million and non-cash charges of $27.4 million from fair value changes due to changes in valuation inputs and other assumptions are reflected net of tax using the Company's estimated effective tax rate of 38%.
The goodwill impairment charge incurred in the current quarter relates to the Servicing reporting unit and was primarily the result of lower forecasted cash flows due to continued level of elevated expenses during the third quarter. As a result of this goodwill impairment charge, the Servicing reporting unit no longer has goodwill. The intangible assets impairment was related to the Reverse Mortgage segment and was driven by the shift in strategic direction and reduced profitability expectations for the business.
"Since joining Walter I have channeled my energy to spending time in our business centers evaluating our organization front to back. Clearly we have work to do in a number of important areas but I was encouraged with what I learned and took quick initial actions to simplify, flatten and focus Walter on our customers, operational fundamentals, integration opportunities across our businesses and, most importantly, execution and performance accountability," said Anthony N. Renzi, Walter Investment's Chief Executive Officer and President. "I believe that the strategic pillars of capital efficiency, process efficiency and new leadership along with an engaged workforce are the foundation to achieving our goals of delivering consistent profitability and sustainable growth.
We continue to progress on our capital efficiency goals, including the transition to a more fee-for-service business, by completing a series of transactions with New Residential Mortgage, including selling MSRs with sub-servicing retained. These transactions allow us to reduce our interest rate risk exposure and free up capital. Additionally, the cash expected to be generated will enable us to further reduce our debt in the most efficient way possible.
Finally, we continue to take actions to reduce our cost structure and generate additional ways in which we can leverage Lean process improvements, technologies and automation, and employee training to drive process efficiencies and additional productivity. As we progress on these goals, we consistently focus on our core business fundamentals of caring for customers, managing risk and generating cash, with a strong emphasis on performance management and controls. I am excited to be a part of this organization and am ready to face the challenges ahead, confident that the changes underway will put Walter in the best position to succeed," concluded Mr. Renzi.
Third Quarter 2016 Financial and Operating Overview
Total revenue for the third quarter of 2016 was $297.3 million, an increase of $77.9 million as compared to the prior year quarter, primarily due to $113.4 million higher net servicing revenue and fees partially offset by $34.0 million lower fair value gains on reverse loans and liabilities. The increase in net servicing revenue resulted from $138.9 million lower fair value losses on mortgage servicing rights primarily due to market-driven changes in interest rates. Offsetting this increase was a $10.3 million unfavorable fair value change on servicing rights related liabilities, $7.9 million lower incentive and performance fees driven by lower completed modifications and $7.2 million lower servicing fees primarily due to run-off of the servicing portfolio and the sale of servicing rights for which we did not retain sub-servicing.
Total expenses for the third quarter of 2016 were $465.8 million, an increase of $101.7 million as compared to the prior year quarter, reflecting $97.7 million of goodwill and intangible assets impairment charges in the Servicing and Reverse Mortgage reporting units, respectively.
Segment Results
Results for the Company's segments are presented below.
Servicing
Ditech is nationally ranked as a top 10 servicer by UPB, servicing approximately 2.0 million accounts, with a UPB of approximately $235.0 billion as of September 30, 2016. On October 3, 2016, the Company closed on the previously announced sale of mortgage servicing rights to NRM, with sub-servicing retained. The Company also agreed in October to the sale of an incremental $5.0 billion UPB of mortgage servicing rights to NRM, with sub-servicing expected to be retained(1). Additionally, Walter Investment, WCO and NRM are negotiating transaction documents relating to a sale of substantially all of WCO's assets to NRM, including approximately $24.0 billion UPB of base MSR related to WCO excess servicing spread assets(2). Ditech expects to sub-service all of the mortgage servicing rights to be sold by WCO and Ditech to NRM in connection with these transactions. During the three months ended September 30, 2016, the Company experienced a net disappearance rate of 17.7%, an increase of 3.3% as compared to the prior year quarter.
(1) Transaction remains subject to GSE approval and other conditions to closing.
(2) Transactions subject to negotiation, finalization and execution of transaction documents and, thereafter, GSE approval and other conditions to closing, as applicable.
The Servicing segment reported $161.6 million of pre-tax loss for the third quarter of 2016 as compared to a pre-tax loss of $152.8 million in the prior year quarter. During the current quarter, the segment generated revenue of $148.9 million, a $117.7 million increase as compared to the third quarter of 2015. This increase was primarily the result of $138.9 million lower fair value losses on our mortgage servicing rights, partially offset by $10.3 million of unfavorable fair value changes on servicing rights related liabilities and $7.5 million lower servicing fees driven by the run-off of the servicing portfolio and the sale of servicing rights for which we did not retain sub-servicing.
Expense for the Servicing segment was $309.7 million, an increase of $116.9 million as compared to the prior year quarter, reflecting $91.0 million of goodwill impairment charges. Operating expenses were $189.7 million, $25.7 million higher as compared to the prior year quarter, driven by additional costs to support efficiency and technology-related initiatives including our servicing platform conversion as well as higher legal accruals for loss contingencies and other legal expenses. Current quarter expenses also included $16.7 million of interest expense and $12.3 million of depreciation and amortization.
The segment generated AEBITDA of $48.4 million and Adjusted Loss of $17.7 million, a decline of $40.8 million and $32.3 million, respectively, as compared to the prior year quarter. These declines were primarily due to a higher level of expenses coupled with lower incentive and performance fees and lower servicing fees.
Originations
Ditech is nationally ranked as a top 20 originator by UPB, generating total pull-through adjusted locked volume for the third quarter of $5.8 billion. While total pull-through adjusted locked volumes declined $0.5 billion as compared to the prior year quarter, there was an increase in locked volumes of $0.2 billion in the higher margin consumer lending channel. Funded loans in the current quarter totaled $5.3 billion, a decrease of 23% from the prior year quarter, primarily driven by declines in the correspondent channel. The combined direct margin for the current quarter was 109 bps, an increase of 3 bps from the prior year quarter, consisting of a weighted average of 189 bps direct margin in the consumer lending channel and 53 bps direct margin in the correspondent channel. The Originations business delivered a recapture rate of 16% for the current quarter.
The Originations segment reported $51.7 million of pre-tax income for the three months ended September 30, 2016, an increase of $15.2 million over the prior year quarter. The segment generated revenue of $133.4 million in the third quarter of 2016, relatively flat as compared to the prior year quarter. Net gains on sales of loans improved $5.7 million as compared to the prior year quarter, primarily due to strong margins driven by a channel mix shift to the higher margin consumer channel, partially offset by $4.3 million lower originations fee income on lower volumes.
Expenses for the Originations segment of $81.8 million declined 14% compared to the prior year quarter, driven by $5.6 million lower salaries and benefits on lower average headcount and $4.6 million lower general and administrative expenses primarily driven by a lower volume of loan fundings and decreased advertising. Expenses for the quarter also included $8.7 million of interest expense and $2.3 million of depreciation and amortization.
The segment generated Adjusted Earnings of $55.7 million and AEBITDA of $58.0 million for the third quarter of 2016, an increase of $11.8 million and $7.0 million, respectively as compared to the prior year quarter, driven primarily by lower expenses.
Reverse Mortgage
The Reverse Mortgage business grew its serviced portfolio 5% as compared to the prior year quarter to $20.8 billion of UPB at September 30, 2016. During the third quarter, the business securitized $246 million of HECM loans.
The Reverse Mortgage segment reported $23.0 million of pre-tax loss in the current quarter, as compared to $22.5 million of pre-tax income in the prior year quarter. The segment generated revenue of $27.0 million for the quarter, a decline of $38.4 million as compared to the prior year quarter primarily due to $34.0 million of lower net fair value gains on reverse loans and related HMBS obligations largely resulting from a flattening in the interest rate curve in 2016 as compared to 2015. Current quarter revenues included $18.6 million net fair value gains on reverse loans and related HMBS obligations, $7.2 million in net servicing revenue and fees and $1.2 million of other revenues. Total expenses for the third quarter of $50.0 million increased $7.2 million as compared to the prior year quarter, primarily driven by $6.7 million of intangible assets impairment charges.
The segment reported an Adjusted Loss of $12.4 million and AEBITDA of ($10.9) million for the third quarter of 2016, a decrease of approximately $13.2 million in each metric as compared to the prior year period, reflecting lower securitization volumes driving a reduction in net servicing revenue and fees, partially offset by a decrease in salaries and benefits.
Other Non-Reportable Segment
The Other Non-Reportable segment reported $25.3 million of pre-tax loss for the third quarter of 2016, an improvement of $12.5 million as compared to the prior year quarter, primarily due to a $13.7 million net gain on debt extinguishment largely attributable to the repurchase of a portion of our Convertible Notes with a carrying value of $39.3 million. The segment reported nominal revenue in both the current and prior year quarters. Total expenses of $36.1 million in the current quarter decreased 16% as compared to the prior year quarter, driven by the resolution of certain matters within the Investment Management business and $1.4 million lower interest expense.
The Other non-reportable segment had an Adjusted Loss of $35.7 million and AEBITDA of ($1.7) million for the third quarter of 2016 as compared to an Adjusted Loss of $32.6 million and AEBITDA of $3.1 million in the third quarter of 2015.
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 5,000 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 third quarter results and other general business matters during a conference call and live webcast to be held on Wednesday, November 9, 2016, at 9 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 of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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," "seeks," "targets," 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, 2015 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016, June 30, 2016 and September 30, 2016 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:
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 press release 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, 2015, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016, June 30, 2016 and September 30, 2016 and our other filings with the SEC for important information regarding forward-looking statements and the use and limitations of non-GAAP financial measures.
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 | ||||||||||||||||
| ||||||||||||||||
| | For the Three Months | | For the Nine Months | ||||||||||||
| | 2016 | | 2015 | | 2016 | | 2015 | ||||||||
REVENUES | | | | | | | | | ||||||||
Net servicing revenue and fees | | $ | 111,629 | | | $ | (1,771) | | | $ | 37,803 | | | $ | 313,031 | |
Net gains on sales of loans | | 122,014 | | | 116,218 | | | 306,667 | | | 360,844 | | ||||
Interest income on loans | | 11,332 | | | 12,410 | | | 35,352 | | | 62,537 | | ||||
Net fair value gains on reverse loans and related HMBS | | 18,627 | | | 52,644 | | | 61,485 | | | 90,233 | | ||||
Insurance revenue | | 10,000 | | | 8,763 | | | 31,644 | | | 34,323 | | ||||
Other revenues | | 23,728 | | | 31,129 | | | 78,623 | | | 81,715 | | ||||
Total revenues | | 297,330 | | | 219,393 | | | 551,574 | | | 942,683 | | ||||
| | | | | | | | | ||||||||
EXPENSES | | | | | | | | | ||||||||
Salaries and benefits | | 133,199 | | | 142,088 | | | 399,519 | | | 432,473 | | ||||
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