Walter Investment Announces Second Quarter 2016 Financial Results
OREANDA-NEWS. Walter Investment Management Corp.today announced operational highlights and financial results for the quarter ended June 30, 2016.
Second Quarter 2016 Operational Highlights and Recent Developments
- Capital efficiency
- Entered into a series of agreements with a subsidiary of New Residential Investment Corp (NYSE: NRZ) for the sale of mortgage servicing rights for approximately $231 million, which Ditech will sub-service, and a forward flow arrangement for originated MSR
- Increased cash and cash equivalents by $118.5 MN during the quarter
- Completed MSR sales of $8.5 billion UPB, retaining servicing on $4.1 billion UPB with shared recapture economics
- Improved liquidity by approximately $60 million as a result of advance initiatives
- Process efficiency
- Actions already completed this year expected to result in approximately $75 million of annual savings
- Actions taken during the current quarter include workforce reduction, exit of 5 regional servicing locations, consolidation of IT staff into centers of excellence, and redesign of certain servicing operational groups
- Engaged workforce and new leadership
- New executive chairman and interim CEO effective June 30, 2016
- Industry veteran hired as permanent CEO expected to begin Q4 2016
Second Quarter 2016 Financial Results
GAAP net loss for the quarter ended June 30, 2016 was $232.4 million, or ($6.49) per share, as compared to a GAAP net loss of $38.1 million, or ($1.01) per share for the quarter ended June 30, 2015. The 2016 net loss includes goodwill impairment charges of $133.6 million after tax, or ($3.73) per share(1), and non-cash charges of $82.7 million after tax, or ($2.31) per share(1), resulting from fair value changes due to changes in valuation inputs and other assumptions. Adjusted EBITDA ("AEBITDA") for the current quarter was $98.8 million and Adjusted Earnings was $2.4 million after tax, or $0.07 per share(1).
The goodwill impairment charges incurred in the current quarter relate to the Servicing and ARM reporting units within the Servicing segment and were primarily the result of elevated discount rates applied to lower re-forecasted cash flows.
"While second quarter performance showed improvement in some areas as compared to the prior quarter, our results continue to fall short of expectations, driven by both external factors such as the declining interest rate environment as well as internal operational inefficiencies," said George M. Awad, Walter Investment's Executive Chairman of the Board and Interim Chief Executive Officer. "We remain resolute on achieving sustainable growth, delivering consistent profitability and maximizing our capital allocation. Our strategy to achieve these goals is founded on three pillars: capital efficiency, process efficiency and an engaged workforce and new leadership.
For capital efficiency, we have entered into a strategic capital arrangement that bolsters our transition to a more fee-for-service business model, including sales of mortgage servicing rights, origination flow purchases and expansion of sub-servicing opportunities. We are also pursuing additional opportunities to establish flow arrangements with other entities. Furthermore, we are evaluating strategic options for the Reverse Mortgage business and continuing to focus on de-leveraging opportunities, including debt reduction as well as aggressive efforts to reduce advances.
Process efficiencies have been a key focus of the Company, as we announced a company-wide process re-engineering initiative earlier this year that includes a comprehensive review of our cost structure and operations. We have already taken actions this year in conjunction with our transformation efforts that will result in approximately $75 million of annual savings, including further site consolidation, operational realignment, a more focused collections strategy and the redesign of certain operational procedures. Additionally, we are targeting at least $75 million of incremental annual savings through identified actions to be completed by the end of 2017. Technology enhancement and automation are key drivers of achieving our process efficiencies.
Lastly, our success isn't possible without an engaged and unified workforce. Building off of our brand consolidation from 2015, we are extending our solidarity as a unified company by forming a single culture across the organization based on newly launched values. Additionally, I am delighted to announce that Anthony Renzi will be joining Walter as Chief Executive Officer, and is expected to be on board in the fourth quarter. Mr. Renzi brings with him over 30 years of experience in the mortgage industry and will be an integral part of leading Walter through its transformation.
I am excited to be leading the Company through this transformative period as we continue to strive to become our customers' lifelong partner in homeownership. By executing on our strategy, we are positioning ourselves to deliver future earnings growth and drive value for our stakeholders," concluded Awad.
Second Quarter 2016 Financial and Operating Overview
Total revenue for the second quarter of 2016 was $187.5 million, a decrease of $225.0 million as compared to the prior year quarter, primarily due to $192.0 million lower net servicing revenue and fees, including $188.6 million higher fair value losses on mortgage servicing rights driven by a higher assumed conditional prepayment rate resulting from declining interest rates and forward projections of interest rate curves. Additionally, the current quarter reflects $19.2 million lower net gains on sales of loans primarily due to a lower volume of locked loans in the current quarter as compared to the prior year quarter, $8.1 million lower other revenues driven by lower fair value gains relating to charged-off loans, and $6.3 million lower interest income on loans primarily due to the sale of the residual interests in seven of the Residual Trusts in the prior year quarter.
Total expenses for the second quarter of 2016 were $565.7 million, 32% higher as compared to the prior year quarter, reflecting a $158.9 million higher goodwill impairment charge as compared to the charge taken in the prior year quarter. Operating expenses for the period declined $15.3 million as compared to the prior year period with $9.5 million lower salaries and benefits largely from fewer employees as compared to the prior year quarter and $6.3 million lower general and administrative expenses.