Press Release

Walker & Dunlop Announces First Quarter 2016 Earnings

Company Release - 5/4/2016 6:00 AM ET

BETHESDA, Md., May 4, 2016 /PRNewswire/ --

FIRST QUARTER 2016 HIGHLIGHTS

  • Net income of $15.5 million, or $0.50 per diluted share
  • Total transaction volume of $2.6 billion
  • Total revenues of $94.2 million
  • Adjusted EBITDA1 of $32.4 million
  • Servicing portfolio of $51.0 billion at March 31, 2016

Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported today first quarter 2016 net income of $15.5 million, or $0.50 per diluted share, a 27% decrease from first quarter 2015 net income of $21.3 million, or $0.66 per diluted share. Total revenues were $94.2 million for the first quarter 2016, a 16% decrease over the first quarter 2015.  Adjusted EBITDA for the first quarter 2016 was $32.4 million compared to $35.4 million for the first quarter 2015, an 8% decrease.

"Our first quarter financial results demonstrate Walker & Dunlop's ability to generate strong earnings of $0.50 per share and near record adjusted EBITDA of $32.4 million despite volatility in the capital markets that caused commercial real estate investors to hit the pause button during the first few months of the year," commented Walker & Dunlop Chairman and CEO Willy Walker.  "Multifamily property fundamentals remain strong, and Fannie Mae and Freddie Mac continue to be the dominant providers of capital to the sector.  Walker & Dunlop is well positioned to benefit from the continued strength in the multifamily sector.  And with the capital markets now stabilized and investor demand for properties and financing increasing, we have a strong second quarter pipeline and see great opportunity for continued growth in 2016 and beyond."

FIRST QUARTER 2016 OPERATING RESULTS

TOTAL REVENUES were $94.2 million for the first quarter 2016 compared to $112.1 million for the first quarter 2015, a 16% decrease. The decrease was the result of lower transaction volume, partially offset by higher gain on sale margins, a 55% increase in net warehouse interest income, and an 18% increase in servicing fees. Other revenues increased 6% due primarily to income from investment sales which we did not have in the first quarter 2015.

GAINS FROM MORTGAGE BANKING ACTIVITIES for the first quarter 2016 were $46.3 million compared to $72.7 million for the first quarter 2015, a 36% decrease.  The decrease was driven by lower loan originations, partially offset by an increase in the gain on sale margin from 167 basis points to 188 basis points as weighted average servicing fees increased quarter over quarter. GAINS ATTRIBUTABLE TO MORTGAGE SERVICING RIGHTS ("MSRs") decreased only 24% from the first quarter 2015 to $23.9 million while loan originations decreased 43%. LOAN ORIGINATION FEES were $22.4 million for the first quarter 2016 compared to $41.4 million for the first quarter 2015, a 46% decrease.

SERVICING FEES were $31.6 million for the first quarter 2016 compared to $26.8 million for the first quarter 2015. The 18% increase was driven by the growth in the servicing portfolio, which increased from $46.1 billion at March 31, 2015 to $51.0 billion at March 31, 2016.

NET WAREHOUSE INTEREST INCOME, which includes net interest earned on loans held for sale and loans held for investment (the Company's on balance sheet interim loan portfolio), was $6.7 million for the first quarter 2016, a 55% increase from $4.4 million for the first quarter 2015. The increase in net warehouse interest income was a result of the larger average balance of loans held for sale during the quarter.

TOTAL EXPENSES were $70.1 million for the first quarter 2016 compared to $76.7 million for the first quarter 2015, a 9% decrease, which was primarily driven by a 15% decrease in personnel costs due to lower variable compensation costs. As a percentage of total revenues, personnel expense was 36% during the first quarter of 2016 and 2015.

PROVISION (BENEFIT) FOR CREDIT LOSSES was a net benefit of $0.4 million for the first quarter 2016 compared to a provision of $0.1 million for the first quarter 2015. The benefit was the result of a decline in the outstanding balance of loans held for investment and the general reserves associated with it, along with improved credit quality in the at risk portfolio.

OPERATING MARGIN was 26% for the first quarter 2016 down from 32% for the first quarter 2015. Lower operating margin is the result of lower transaction volume in the first quarter 2016.

ADJUSTED EBITDA was $32.4 million for the first quarter 2016 compared to $35.4 million for the first quarter 2015, a decrease of 8%. The decrease was driven by lower origination volume, partially offset by increases in servicing fees and net interest income and a decrease in variable compensation.   

ANNUALIZED RETURN ON EQUITY was 13% for the first quarter 2016 down from 20% for the first quarter 2015, due to lower net income and higher average equity.

TOTAL TRANSACTION VOLUME for the first quarter 2016 was $2.6 billion, down 40% from $4.3 billion for the first quarter 2015.  Total transaction volume includes loan origination and investment sales volumes.  LOAN ORIGINATION VOLUME was down 43% from the first quarter 2015 to $2.5 billion. Brokered loan originations totaled $804.2 million, a 6% increase from the first quarter 2015.  Loan originations with Fannie Mae were $763.2 million, a decrease of 44% from the first quarter 2015.  Loan originations with Freddie Mac were $703.8 million, a 65% decrease from the first quarter 2015. HUD loan originations totaled $124.2 million, a 21% decrease from the first quarter 2015. CMBS originations were $63.3 million for the first quarter 2016, a 1% decrease from the first quarter 2015. There were no interim loan originations during the quarter compared to $8.4 million during the first quarter 2015. INVESTMENT SALES VOLUME was $157.0 million for the first quarter 2016. The Company entered the investment sales business during the second quarter  2015, so there was no comparable volume in the first quarter 2015.

STOCK REPURCHASE PROGRAM

On February 9, 2016, the Company's Board of Directors authorized the repurchase of up to $75.0 million of its outstanding common stock over a one year period.  During the first quarter 2016 the Company repurchased 275 thousand shares for a total of $6.5 million.

SERVICING PORTFOLIO

The SERVICING PORTFOLIO totaled $51.0 billion at March 31, 2016, an increase of 11% from $46.1 billion at March 31, 2015. During the period, $4.9 billion in net loans were added to the servicing portfolio, the majority of which were Fannie Mae and Freddie Mac loans. The portfolio has a weighted average remaining term of 9.4 years and a 25 basis point WEIGHTED AVERAGE SERVICING FEE.

CREDIT QUALITY

The Company's AT RISK SERVICING PORTFOLIO, which is comprised of loans subject to a defined risk-sharing formula, was $20.1 billion at March 31, 2016 compared to $17.5 billion at March 31, 2015.  There were no 60+ DAY DELINQUENCIES in the Company's at risk servicing portfolio at March 31, 2016 compared to $22.5 million at March 31, 2015.

There were no NET WRITE-OFFS for the first quarter 2016 or the first quarter 2015.  

The on-balance sheet INTERIM LOAN PORTFOLIO, which is comprised of loans for which we have full risk of loss, was $191.8 million at March 31, 2016 compared to $233.7 million at March 31, 2015.  All of our interim loans are current and performing at March 31, 2016.

 

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 net income, refer to the sections of this press release below titled "Non-GAAP Financial Measures" and "Adjusted Financial Metric Reconciliation to GAAP."

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Wednesday, May 4, 2016 at 8:30 a.m. Eastern time. Analysts and investors interested in participating are invited to call (877) 876-9177 from within the United States or (785) 424-1666 from outside the United States and are asked to reference the Conference ID: WDQ116. 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 4, 2016 through May 18, 2016. Please call (800) 753-9197 from the United States or (402) 220-0689 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 SmallCap 600 Index, has over 500 professionals in 25 offices across the nation with an unyielding commitment to client satisfaction.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company uses adjusted EBITDA, a non-GAAP financial measure. The presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with 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, and amortization and depreciation, adjusted for provision for credit losses net of write-offs, stock-based incentive compensation charges, and non-cash revenues such as gains attributable to MSRs and mark to market effects from CMBS activities. 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. 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.

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 net income.  For more information on adjusted EBITDA, refer to the section of this press release below titled "Adjusted Financial Metric 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, as it may be updated or supplemented by our Quarterly Reports on Form 10-Q and our other filings with the SEC.  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, 2016 and December 31, 2015

(In thousands, except per share data)











March 31, 


December 31, 




2016


2015




(unaudited)





Assets








Cash and cash equivalents


$

98,224


$

136,988


Restricted cash



10,006



5,306


Pledged securities, at fair value



75,225



72,190


Loans held for sale, at fair value



547,827



2,499,111


Loans held for investment, net



190,551



231,493


Servicing fees and other receivables, net



21,712



23,844


Derivative assets



16,130



11,678


Mortgage servicing rights



421,651



412,348


Goodwill and other intangible assets



91,439



91,488


Other assets



22,540



30,545


Total assets


$

1,495,305


$

3,514,991










Liabilities








Accounts payable and other liabilities


$

133,551


$

169,109


Performance deposits from borrowers



9,543



5,112


Derivative liabilities



7,563



1,333


Guaranty obligation, net of accumulated amortization



28,552



27,570


Allowance for risk-sharing obligations



5,149



5,586


Warehouse notes payable



640,307



2,649,470


Note payable



164,388



164,462


Total liabilities


$

989,053


$

3,022,642










Equity








Preferred shares, Authorized 50,000, none issued.


$


$


Common stock, $0.01 par value. Authorized 200,000; issued and outstanding 29,358 shares at March 31, 2016 and 29,466 shares at December 31, 2015



294



295


Additional paid-in capital



217,684



215,575


Retained earnings



283,950



272,030


Total stockholders' equity


$

501,928


$

487,900


Noncontrolling interests



4,324



4,449


Total equity


$

506,252


$

492,349










Total liabilities and equity


$

1,495,305


$

3,514,991


 


Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except per share data)

Unaudited





For the three months ended March 31, 



2016


2015


Revenues







Gains from mortgage banking activities

$

46,323


$

72,720


Servicing fees


31,649



26,841


Net warehouse interest income


6,731



4,354


Escrow earnings and other interest income


1,640



787


Other


7,898



7,419


Total revenues

$

94,241


$

112,121









Expenses







Personnel

$

34,230


$

40,045


Amortization and depreciation


25,155



24,674


Provision (benefit) for credit losses


(409)



84


Interest expense on corporate debt


2,469



2,477


Other operating expenses


8,614



9,435


Total expenses

$

70,059


$

76,715


Income from operations

$

24,182


$

35,406


Income tax expense


8,849



14,093


Net income before noncontrolling interests

$

15,333


$

21,313


Less:  net income from noncontrolling interests


(125)




Walker & Dunlop net income

$

15,458


$

21,313









Basic earnings per share

$

0.52


$

0.68


Diluted earnings per share

$

0.50


$

0.66









Basic weighted average shares outstanding


29,489



31,515


Diluted weighted average shares outstanding


30,782



32,464


 

SUPPLEMENTAL OPERATING DATA

Unaudited





For the three months ended March 31, 


(dollars in thousands)

2016


2015


Transaction Volume:







Fannie Mae

$

763,244


$

1,362,664


Freddie Mac


703,807



1,996,002


Ginnie Mae - HUD


124,208



156,949


Brokered (1)


804,181



760,263


Interim Loans




8,420


CMBS (2)


63,310



64,100


Total Loan Origination Volume

$

2,458,750


$

4,348,398


Investment Sales Volume


156,950




Total Transaction Volume

$

2,615,700


$

4,348,398









Key Performance Metrics:







Operating margin


26

%


32

%

Return on equity


13

%


20

%

Walker & Dunlop net income

$

15,458


$

21,313


Adjusted EBITDA (3)

$

32,416


$

35,408


Diluted EPS

$

0.50


$

0.66









Key Expense Metrics (as a percentage of total revenues):







Personnel expenses


36

%


36

%

Other operating expenses


9

%


8

%








Key Origination Metrics (as a percentage of loan origination volume):







Origination related fees


0.91

%


0.95

%

Fair value of MSRs created, net


0.97

%


0.72

%

Fair value of MSRs created, net as a percentage of GSE and HUD origination volume (4)


1.50

%


0.89

%

 












As of March 31, 



Servicing Portfolio by Product:


2016


2015



Fannie Mae


$

23,304,910


$

20,801,580



Freddie Mac



18,146,813



14,545,426



Ginnie Mae - HUD



5,645,282



5,775,968



Brokered (1)



3,264,815



4,498,161



Interim Loans



191,822



233,738



CMBS



487,110



211,787



Total Servicing Portfolio


$

51,040,752


$

46,066,660












Key Servicing Metric (end of period):









Weighted-average servicing fee rate



0.25

%


0.24

%











(1)     Brokered transactions for commercial mortgage backed securities, life insurance companies, and commercial banks.

(2)     In 2015, this figure represents brokered transactions for our CMBS Platform.  In 2016, this figure represents loans originated by us for our CMBS Platform.

(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 portfolio originations.

 

ADJUSTED FINANCIAL METRIC RECONCILIATION TO GAAP

Unaudited











For the three months ended




March 31, 


(in thousands)


2016


2015


Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA








Walker & Dunlop Net Income


$

15,458


$

21,313


Income tax expense



8,849



14,093


Interest expense



2,469



2,477


Amortization and depreciation



25,155



24,674


Provision (benefit) for credit losses



(409)



84


Net write-offs






Stock compensation expense



3,858



4,084


Gains attributable to mortgage servicing rights (1)



(23,917)



(31,317)


Unrealized (gains) losses from CMBS activities



953




Adjusted EBITDA


$

32,416


$

35,408










(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, 




2016


2015


(dollars in thousands)








Risk-sharing servicing portfolio:








Fannie Mae Full Risk


$

17,642,364


$

15,076,417


Fannie Mae Modified Risk



4,905,037



4,871,997


Freddie Mac Modified Risk



53,498



53,629


GNMA - HUD Full Risk



4,547



4,693


Total risk-sharing servicing portfolio


$

22,605,446


$

20,006,736










Non risk-sharing servicing portfolio:








Fannie Mae No Risk


$

757,509


$

853,166


Freddie Mac No Risk



18,093,315



14,491,797


GNMA - HUD No Risk



5,640,735



5,771,275


Brokered



3,264,815



4,498,161


CMBS



487,110



211,787


Total non risk-sharing servicing portfolio


$

28,243,484


$

25,826,186










Total loans serviced for others


$

50,848,930


$

45,832,922










Interim loans (full risk) servicing portfolio



191,822



233,738










Total servicing portfolio unpaid principal balance


$

51,040,752


$

46,066,660










At risk servicing portfolio (1)


$

20,066,881


$

17,486,146


Maximum exposure to at risk portfolio (2)



4,165,215



4,121,863


60+ Day delinquencies, within at risk portfolio





22,531


At risk loan balances associated with allowance for risk-sharing obligations


$

16,884


$

25,609










Allowance for risk-sharing obligations:








Beginning balance


$

5,586


$

3,904


Provision (benefit) for risk-sharing obligations



(154)



150


Net write-offs






Other



(283)




Ending balance


$

5,149


$

4,054










60+ Day delinquencies as a percentage of the at risk portfolio



0.00

%


0.13

%

Allowance for risk-sharing as a percentage of the at risk portfolio



0.03

%


0.02

%

Net write-offs as a percentage of the at risk portfolio



0.00

%


0.00

%

Allowance for risk-sharing as a percentage of the specifically identified at risk balances



30.50

%


15.83

%

Allowance for risk-sharing as a percentage of maximum exposure



0.12

%


0.10

%

Allowance for risk-sharing and guaranty obligation as a percentage of maximum exposure



0.81

%


0.71

%









(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, substantially all of the 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.

 

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SOURCE Walker & Dunlop, Inc.