Following its aggressive mortgage servicing portfolio expansion, Walter Investment Management Corp.’s whopping $142.8 million annual net income increase in the second quarter was not much of a surprise.
The Tampa, Fla.-based diversified company reported total net income of $143.2 million, or $3.75 per share, compared to merely $400,000, or $0.01 per share, in the second quarter of 2012. Core earnings were $178.4 million after taxes, “an almost tenfold increase” compared to the same quarter of last year and 216% greater than in
Second-quarter results also are in line with Walter’s plans to actively continue to bid for new deals well into 2014 following a style the firm’s top executives have described as “fundamentally conservative.”
The second-quarter results reflect strong earnings growth in servicing, origination and “continued strong contributions from the reverse segment,” Walter's ancillary businesses.
"Our core servicing segment continued to deliver solid growth in profits and exceptional operational performance from both existing and recently acquired portfolios,” said Walter's chairman and CEO, Mark O'Brien, due to a combination of quantitative and qualitative changes.
More specifically, “due to portfolio additions of approximately 1.1 million units” in the first half of 2013, of which over 550,000 were boarded in the second quarter, and “significant increases in incentive and performance-based fees,” which were up by 83% over 2012.
For example, the application of proprietary protocols to the recently acquired first-lien GSE pools resulted in a reduction of 30-plus-day delinquencies by approximately 120 bps compared to the first quarter. Executives note that recently acquired pools are eligible for incentive fees. Hence, “results such as these are expected to lead to significant future incentive revenue.”
Annual servicing revenue was up 186% due to the significant increase in UPB serviced and related positive fair value adjustments recognized in the second quarter of this year. As a result favorable fair value increases on its mortgage servicing rights added approximately $1.52 to both GAAP and core earnings per share.
The servicing segment generated revenue of $244.9 million in the second quarter, which included $145.4 million of gross servicing fees, $26.3 million of incentive and performance-based fees, and $17.9 million of ancillary and other revenue and fees. The reverse mortgage segment generated $6.6 million of servicing fees and revenue for the quarter.
Total revenue for the second quarter was $569.2 million, compared to $150.9 million in 2012, mostly due to a combined year-over-year increase of $168.6 million in net servicing revenue and fees, and a $235.9 million increase of net gain on sales of loans from the originations business.
According to O'Brien, “the originations segment capitalized on the HARP origination opportunities” embedded in Walter’s portfolios. For example, a $16.2 million increase in net other revenue was also driven “primarily by higher fee income in the originations segment.”
"Walter Investment continues to execute solidly against its strategic plan," O’Brien said.
During the quarter it included an agreement with Green Tree Servicing, which will service approximately 130,000 consumer finance loans, significantly extending Walter’s “core servicing competency into the unsecured product space,” executives said.
In addition, in July Walter entered into a
