Press Release

Walker & Dunlop Reports Record Earnings

Company Release - 5/6/2015 6:00 AM ET

BETHESDA, Md., May 6, 2015 /PRNewswire/ --

  • Net income of $21.3 million, or $0.66 per diluted share
  • Adjusted EBITDA1 of $35.4 million, up 79% from Q1'14
  • Loan origination volume of $4.3 billion, up 175% from Q1'14
  • Total revenues of $112.1 million, up 73% from Q1'14
  • Servicing portfolio of $46.1 billion at March 31, 2015
  • Repurchased and retired 3 million shares

Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported today first quarter 2015 net income of $21.3 million, or $0.66 per diluted share, a 198% increase from first quarter 2014 net income of $7.1 million, or $0.21 per diluted share.  Total revenues were $112.1 million for the first quarter 2015, a 73% increase over first quarter 2014.  Revenue growth was driven by record origination volume of $4.3 billion including two large portfolio transactions, and a significant increase in lending with Fannie Mae and Freddie Mac.  Adjusted EBITDA for the first quarter 2015 was $35.4 million compared to $19.8 million for the first quarter 2014, a 79% increase.

"We have been acquiring businesses and hiring talented mortgage bankers since the economic crisis to create one of the largest commercial real estate lending platforms in the country in anticipation of the 2015, 2016, and 2017 commercial mortgage refinancing wave.  If Walker & Dunlop's record loan originations of $4.3 billion in the first quarter is any indication, the wave has hit," commented Walker & Dunlop Chairman and CEO Willy Walker.  "Our market leadership position in the multifamily financing space, coupled with the growth in our Capital Markets, Balance Sheet, and CMBS lending operations, made the first quarter a huge success and positions Walker & Dunlop extremely well to take advantage of the strong macro-economic environment surrounding commercial real estate over the next several years.

"Our financial results exceeded expectations as they have over the past three quarters, with strong revenue growth and tight cost control driving fantastic EPS and EBITDA growth.  We repurchased 3 million shares of our own stock while watching Fortress Investment Group, a fantastic partner for the past 2.5 years, sell their remaining shares in Walker & Dunlop, removing a significant overhang in our stock.  Our expanded capital markets team, growth in our CMBS conduit, strong returns from our balance sheet lending operation, and new investment sales platform add breadth and diversification to our lending platform as the market opportunities continue to increase." 

OPERATING RESULTS

TOTAL REVENUES of $112.1 million for the first quarter 2015 compared to $64.8 million for the first quarter 2014, a 73% increase. The increase was driven by the 175% increase in loan originations, which included a 306% increase in lending with Fannie Mae and Freddie Mac.  Within the components of revenue, mortgage banking gains increased 110% to $72.7 million, servicing fees increased 15% to $26.8 million, net warehouse interest income increased 95% to $4.4 million and other revenue increased 106% to $7.4 million.  The increase in other revenue was almost entirely driven by the $3.3 million increase in prepayment fee income received during the first quarter 2015, an increase of 221% from the first quarter 2014.

GAINS FROM MORTGAGE BANKING ACTIVITIES for the first quarter 2015 were $72.7 million compared to $34.6 million for the first quarter 2014, a 110% increase.   This increase in mortgage banking gains was primarily driven by the substantial increase in origination volumes. LOAN ORIGINATION FEES were $41.4 million for the first quarter 2015 compared to $20.7 million for the first quarter 2014, a 100% increase. GAINS ATTRIBUTABLE TO MORTGAGE SERVICING RIGHTS ("MSRs") were $31.3 million for the first quarter 2015 compared to $13.9 million for the first quarter 2014, a 125% increase.  

TOTAL EXPENSES were $76.7 million for the first quarter 2015 compared to total expenses of $52.9 million for the first quarter 2014, a 45% increase.  The increase in total expenses was primarily due to an increase in variable compensation related to the record loan origination volume, as well as an increase in write-offs of MSRs resulting from the aforementioned increase in prepayment activity within the servicing portfolio. Personnel expense for the first quarter 2015 was $40.0 million, an increase of 63% from $24.5 million for the first quarter 2014.  Personnel expense as a percentage of total revenues in the first quarter 2015 was 36% compared to 38% in the same quarter last year.

INCOME FROM OPERATIONS was $35.4 million for the first quarter 2015, an increase of 197% over first quarter 2014 income from operations, producing an OPERATING MARGIN of 32% for the first quarter 2015 compared to an operating margin of 18% for the first quarter 2014.

ADJUSTED EBITDA was $35.4 million for the first quarter 2015 compared to $19.8 million in the prior year, a 79% increase. The increase is primarily due to higher origination volumes and associated fees, larger servicing fees, increased net warehouse interest income, and greater prepayment fee income, partially offset by higher personnel expense.

ANNUALIZED RETURN ON EQUITY was 19.6% for the first quarter 2015 compared to 7.3% in the first quarter 2014.  Record net income generated during the first quarter 2015 drove ROE to exceed the Company's targeted range of low to mid-teens.

LOAN ORIGINATION VOLUME

LOAN ORIGINATIONS were $4.3 billion for the first quarter 2015 compared to $1.6 billion for the first quarter 2014, a 175% increase.  Loan originations with Fannie Mae and Freddie Mac were $3.4 billion, up 306% from the first quarter 2014.  Brokered loan originations totaled $760.3 million, an 83% increase from the first quarter 2014.  HUD loan originations totaled $156.9 million, a 39% decrease from the first quarter 2014. Interim loan originations totaled $8.4 million, a 90% decrease from the first quarter 2014. Originations for the Company's CMBS partnership were $64.1 million for the first quarter 2015 compared to zero for the same quarter last year. Loan originations during the quarter benefitted from two large portfolios financed through Fannie Mae and Freddie Mac, totaling approximately $1.1 billion.

SERVICING PORTFOLIO

The SERVICING PORTFOLIO totaled $46.1 billion at March 31, 2015, an 18% increase from $38.9 billion at March 31, 2014. During the preceding 12 months, $7.2 billion in net loans were added to the servicing portfolio of which 81% were Fannie Mae and Freddie Mac loans. The portfolio maintained an average loan term of 10.1 years and a WEIGHTED AVERAGE SERVICING FEE of 24 basis points. SERVICING FEES were $26.8 million for the first quarter 2015 compared to $23.3 million for the first quarter 2014, a 15% increase, driven by the growth in the portfolio.

CREDIT QUALITY AND RISK-SHARING OBLIGATIONS

The Company's AT RISK SERVICING PORTFOLIO, which is comprised of loans subject to a defined risk-sharing formula, was $17.5 billion at March 31, 2015 compared to $15.1 billion at March 31, 2014.  The Company's at risk servicing portfolio continues to demonstrate strong credit performance:

60+ DAY DELINQUENCIES were $22.5 million or 13 basis points of the at risk servicing portfolio at March 31, 2015. There were no loans 60+ days delinquent at March 31, 2014. 

THE PROVISION FOR RISK-SHARING OBLIGATIONS associated with loans in the at risk servicing portfolio was $0.2 million for the first quarter 2015 compared to a net benefit of $0.3 million for the first quarter 2014. There were no NET WRITE-OFFS for the first quarter 2015 compared to $1.4 million for the first quarter 2014, or one basis point of the March 31, 2014 at risk servicing portfolio.  Net write-offs represent the settlement of the Company's guaranty obligations related to losses provisioned for in prior periods.  

The on-balance sheet INTERIM LOAN PORTFOLIO, which is comprised of loans for which we have full risk of loss, was $233.7 million at March 31, 2015 compared to $187.2 million at March 31, 2014. Although all of our interim loans are current and performing, the Company provides a general reserve for potential losses.  For the first quarter 2015, the provision for loan losses was a net benefit of $0.1 million compared to the first quarter 2014 expense of $0.2 million.

OTHER HIGHLIGHTS

On March 16, 2015, the Company repurchased and retired 3 million shares of its common stock for $46.8 million.  The repurchase did not have a significant impact on first quarter earnings per share or return on equity.

On April 21, 2015, the Company announced the acquisition of a controlling interest in the investment sales platform of Engler Financial Group (Engler).  Engler is focused exclusively on providing investment sales services to owners of multifamily properties in the southeastern United States. Walker & Dunlop Investment Sales, as the new entity is known, will expand the platform nationally.  Walker & Dunlop does not expect the transaction to have a material impact on its second quarter financial results but expects the transaction to be accretive in 2015. 

1 Adjusted EBITDA is a non-GAAP financial measure the Company presents to help investors better understand our operating performance.  For a reconciliation of adjusted EBITDA to GAAP net income, refer to the sections of this press release below titled "Non-GAAP Financial Measures" and "Adjusted Financial Metrics Reconciliation to GAAP."

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Wednesday, May 6, 2015 at 8:30 a.m. Eastern time. Analysts and investors interested in participating are invited to call (877) 876-9176 from within the United States or (785) 424-1667 from outside the United States and are asked to reference the Conference ID: WDQ115. A simultaneous webcast of the call will be available on the Investor Relations section of the Walker & Dunlop website at http://www.walkerdunlop.com. Presentation materials, related to the conference call, will be posted to the Investor Relations section of the Company's website prior to the call.

A telephonic replay of the call will also be available from approximately 11:00 a.m. Eastern time May 6, 2015 through May 20, 2015. Please call (800) 839-2434 from the United States or (402) 220-7211 from outside the United States. An audio replay will also be available on the Investor Relations section of the Company's website, along with the presentation materials.

About Walker & Dunlop

Walker & Dunlop (NYSE: WD), headquartered in Bethesda, Maryland, is one of the largest commercial real estate finance companies in the United States providing financing and investment sales  to owners of multifamily and commercial properties. Walker & Dunlop which is included in the S&P Small Cap 600 Index, has more than 450 professionals with an unyielding commitment to client satisfaction located in 23 cities nationwide.

Non-GAAP Financial Measures  

To supplement the financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company presents adjusted EBITDA. Adjusted EBITDA is not a recognized measurement under GAAP. When analyzing our operating performance, readers should use adjusted EBITDA in addition to, and not as an alternative for, net income. Adjusted EBITDA represents net income before income taxes, interest expense on our term loan facility, depreciation and amortization, provision for credit losses, net of write-offs, stock based incentive compensation charges, and removes the benefit of non-cash revenues such as gains attributable to MSRs. Because not all companies use identical calculations, our presentation of adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, adjusted EBITDA is not intended to be a measure of free cash flow for our management's discretionary use, as it does not reflect certain cash requirements such as tax and debt service payments. The amounts shown for adjusted EBITDA may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges, that are used to determine compliance with financial covenants.

We use adjusted EBITDA to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. Since we find adjusted EBITDA to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that this non-GAAP measure, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;
  • the ability to better identify trends in the Company's underlying business and perform related trend analyses; and
  • a better understanding of how management plans and measures the Company's underlying business.

Adjusted EBITDA is not in accordance with or an alternative for GAAP net income, and may be different from adjusted EBITDA measures used by other companies. We believe that adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that adjusted EBITDA should only be used to evaluate the Company's results of operations in conjunction with the GAAP net income. The presentation of this additional information is not meant to be considered in isolation or as a substitute for GAAP net income. We compensate for the limitations of this non-GAAP financial measure by relying upon GAAP results to gain a complete picture of our performance.

For more information on adjusted EBITDA, refer to the section of this press release below titled "Adjusted Financial Metrics Reconciliation to GAAP."

Forward-Looking Statements   

Some of the statements contained in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as ''may,'' ''will,'' ''should,'' ''expects,'' ''intends,'' ''plans,'' ''anticipates,'' ''believes,'' ''estimates,'' ''predicts,'' or ''potential'' or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement.

While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to: (1) general economic conditions and multifamily and commercial real estate market conditions, (2) regulatory and or legislative changes to Freddie Mac, Fannie Mae or HUD, (3)  our ability to retain and attract loan originators and other professionals, and (4) changes in federal government fiscal and monetary policies, including any constraints or cuts in federal funds allocated to HUD for loan originations. 

For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see the section titled ''Risk Factors" in our most recent Annual Report on Form 10-K and in our subsequent SEC filings.  Such filings are available publicly on our Investor Relations web page at www.walkerdunlop.com.

 

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, 2015 and December 31, 2014

(In thousands, except per share data)





















March 31,


December 31,










2015


2014










(unaudited)




Assets











Cash and cash equivalents

$

65,516

$

113,354



Restricted cash



21,794


13,854



Pledged securities, at fair value


68,103


67,719



Loans held for sale, at fair value


1,293,186


1,072,116



Loans held for investment, net


231,740


223,059



Servicing fees and other receivables, net


28,724


23,234



Derivative assets


38,495


14,535



Mortgage servicing rights


375,159


375,907



Goodwill and other intangible assets


76,205


76,586



Other assets



28,581


33,663


Total assets



$

2,227,503

$

2,014,027














Liabilities and stockholders' equity


















Liabilities










Accounts payable and other liabilities

$

133,742

$

145,141



Performance deposits from borrowers


20,431


13,668



Derivative liabilities


14,821


4,877



Guaranty obligation, net of accumulated amortization


25,333


24,975



Allowance for risk-sharing obligations


4,054


3,904



Warehouse notes payable


1,444,085


1,216,245



Note payable



171,393


171,766


Total liabilities


$

1,813,859

$

1,580,576














Stockholders' Equity







Preferred shares, Authorized 50,000, none issued.

$

$



Common stock, $0.01 par value. Authorized 200,000; issued








and outstanding 28,926 shares at March 31, 2015








and 31,822 shares at December 31, 2014


289


318



Additional paid-in capital


202,140


224,164



Retained earnings


211,215


208,969


Total stockholders' equity

$

413,644

$

433,451


Commitments and contingencies 




Total liabilities and stockholders' equity

$

2,227,503

$

2,014,027














 

 

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except per share data)

Unaudited

























For the three months ended
March 31,












2015


2014


Revenues













Gains from mortgage banking activities




$

72,720

$

34,586



Servicing fees








26,841


23,343



Net warehouse interest income








4,354


2,236



Escrow earnings and other interest income



787


1,075



Other








7,419


3,593


Total revenues







$

112,121

$

64,833
















Expenses













Personnel







$

40,045

$

24,535



Amortization and depreciation








24,674


18,459



Provision (benefit) for credit losses






84


(171)



Interest expense on corporate debt







2,477


2,573



Other operating expenses








9,435


7,527


Total expenses







$

76,715

$

52,923


Income from operations 







$

35,406

$

11,910



Income tax expense








14,093


4,766


Net income







$

21,313

$

7,144
















Basic earnings per share







$

0.68

$

0.21


Diluted earnings per share







$

0.66

$

0.21
















Basic weighted average shares outstanding




31,515


33,548


Diluted weighted average shares outstanding



32,464


33,859
















 

 

SUPPLEMENTAL OPERATING DATA

Unaudited




For the three months ended
March 31,

(dollars in thousands )



2015


2014

Origination Data:






Fannie Mae


$

1,362,664

$

459,281

Freddie Mac



1,996,002


368,437

Ginnie Mae - HUD



156,949


257,783

Brokered (1)



760,263


415,825

Interim Loans



8,420


81,250

CMBS (2)



64,100


Total Originations


$

4,348,398

$

1,582,576







Key Performance Metrics:






Operating margin



32%


18%

Return on equity



20%


7%

Net income


$

21,313

$

7,144

Adjusted EBITDA (3)


$

35,408

$

19,793

Diluted EPS


$

0.66

$

0.21







Key Expense Metrics (as a percentage






of total revenues):






Personnel expenses



36%


38%

Other operating expenses



8%


12%







Key Origination Metrics (as a






percentage of origination volume):






Origination related fees



0.95%


1.31%

Fair value of MSRs created, net



0.72%


0.88%

Fair value of MSRs created, net as a percentage



of GSE and HUD origination volume (4)



0.89%


1.28%




As of March 31, 




2015


2014

Servicing Portfolio by Product:






Fannie Mae


$

20,801,580

$

19,046,644

Freddie Mac



14,545,426


10,472,763

Ginnie Mae - HUD



5,775,968


5,099,601

Brokered (1)



4,498,161


4,102,707

Interim Loans



233,738


187,150

CMBS (5)



211,787


-

Total Servicing Portfolio


$

46,066,660

$

38,908,865







Key Servicing Metric (end of period):






Weighted-average servicing fee rate



0.24%


0.24%













(1) Brokered transactions for commercial mortgage backed securities, life

companies, and commercial banks.






(2) Brokered transactions for our CMBS partnership. For the three months ended

March 31, 2015, the CMBS partnership's loan originations totaled $95.9 million.

(3) This is a non-GAAP financial measure. For more information on


adjusted EBITDA, refer to the section above titled "Non-GAAP Financial Measures."

(4) The fair value of the expected net cash flows associated with the servicing of the loan,

net of any guaranty obligations retained, as a percentage of GSE and HUD volume.

No MSRs are recorded for "brokered" transactions or interim loan program originations.

(5) All loans originated by the CMBS partnership, whether brokered by us or not,

 are serviced by us.












 

 

ADJUSTED FINANCIAL METRIC RECONCILIATION TO GAAP

Unaudited








For the three months ended
March 31,



(in thousands)


2015


2014






Reconciliation of GAAP Net Income to Adjusted EBITDA 




GAAP net income

$

21,313

$

7,144

Recurring Adjustments:





Income tax expense


14,093


4,766

Interest expense


2,477


2,573

Amortization and depreciation


24,674


18,459

Provision (benefit) for credit losses


84


(171)

Net write-offs


-


(1,361)

Stock compensation expense


4,084


2,271

Gains attributable to mortgage servicing rights (1)


(31,317)


(13,888)

Adjusted EBITDA

$

35,408

$

19,793






(1): Represents the fair value of the expected net cash flows from servicing recognized

 at commitment, net of the expected guaranty obligation.




 

 

Key Credit Metrics

Unaudited









As of and for the three months
ended March 31,


(dollars in thousands)


2015


2014


Key Credit Metrics






Risk-sharing servicing portfolio:






Fannie Mae Full Risk

$

15,076,417

$

13,179,100


Fannie Mae Modified Risk


4,871,997


4,291,304


Freddie Mac Modified Risk


53,629


68,553


GNMA-HUD Full Risk


4,693


4,830


Total risk-sharing servicing portfolio

$

20,006,736

$

17,543,787








Non risk-sharing servicing portfolio:






Fannie Mae No Risk

$

853,166

$

1,576,240


Freddie Mac No Risk


14,491,797


10,404,210


GNMA-HUD No Risk


5,771,275


5,094,771


Brokered


4,498,161


4,102,707


CMBS


211,787



Total non risk-sharing servicing portfolio

$

25,826,186

$

21,177,928








Total loans serviced for others

$

45,832,922

$

38,721,715








Interim loans (full risk) servicing portfolio

$

233,738

$

187,150








Total servicing portfolio unpaid principal balance

$

46,066,660

$

38,908,865








At risk servicing portfolio (1)

$

17,486,146

$

15,079,283


Maximum exposure to at risk portfolio (2)


4,121,863


3,673,700


60+ Day delinquencies, within at risk portfolio


22,531



At risk loan balances associated with 






allowance for risk-sharing obligations

$

25,609

$

36,036








Allowance for risk-sharing obligations:






Beginning balance

$

3,904

$

7,363


    Provision for risk-sharing obligations


150


(340)


    Net write-offs



(1,361)


Ending balance

$

4,054

$

5,662








60+ Day delinquencies as a percentage






of the at risk portfolio


0.13%


0.00%


Allowance for risk-sharing as a percentage






of the at risk portfolio


0.02%


0.04%


Net write-offs as a percentage of the






at risk portfolio


0.00%


0.01%


Allowance for risk-sharing as a percentage






of the specifically identified at risk balances


15.83%


15.71%


Allowance for risk-sharing as a percentage






of maximum exposure


0.10%


0.15%


Allowance for risk-sharing and guaranty






obligation as a percentage of maximum exposure

0.71%


0.78%








 

(1)     At risk servicing portfolio is defined as the balance of Fannie Mae DUS loans subject to the risk-sharing formula described below, as well as an immaterial balance of Freddie Mac and GNMA-HUD loans on which we share in the risk of loss. Use of the at-risk portfolio provides for comparability of the full risk-sharing and modified risk-sharing loans because the provision and allowance for risk-sharing obligations are based on the at risk balances of the associated loans. Accordingly, we have presented the key statistics as a percentage of the at risk portfolio.

For example, a $15 million loan with 50% DUS risk-sharing has the same potential risk exposure as a $7.5 million loan with full DUS risk-sharing. Accordingly, if the $15 million loan with 50% DUS risk-sharing was to default, the Company would view the overall loss as a percentage of the at risk balance, or $7.5 million, to ensure comparability between all risk-sharing obligations. To date, all but three of the Company's risk-sharing obligations that we have settled have been from full risk-sharing loans.

(2)     Represents the maximum loss we would incur under our risk-sharing obligations if all of the loans we service, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement. The maximum exposure is not representative of the actual loss we would incur.

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/walker--dunlop-reports-record-earnings-300078149.html

SOURCE Walker & Dunlop, Inc.