Press Release

Walker & Dunlop Reports 169% Growth in Q4 Net Income to $99 Million, Leading to Record Adjusted EBITDA of $55 Million

Initiates $0.25 per Share Quarterly Dividend

Company Release - 2/7/2018 6:00 AM ET

BETHESDA, Md., Feb. 7, 2018 /PRNewswire/ --

FOURTH QUARTER 2017 HIGHLIGHTS

  • Total transaction volume of $8.3 billion, up 33% from Q4 '16
  • Record total revenues of $207.2 million, up 16% from Q4 '16
  • Record net income of $99.0 million, or $3.06 per diluted share, up 169% from Q4 '16
    • Net income benefitted from a $58.3 million, or $1.80 per diluted share, reduction to income tax expense from tax reform legislation
    • Without the benefit from tax reform legislation, net income was $40.7 million, or $1.26 per diluted share, up 11% from Q4 '16
  • Record adjusted EBITDA1 of $54.7 million, up 58% from Q4 '16

FULL-YEAR 2017 HIGHLIGHTS

  • Total transaction volume of $27.9 billion, a 45% increase from 2016
  • Total revenues of $711.9 million, a 24% increase from 2016
  • Net income of $211.1 million, or $6.56 per diluted share, an 85% increase from 2016
    • Without the benefit from tax reform legislation mentioned above, net income was $152.8 million, or $4.76 per diluted share, up 34% from 2016
  • Adjusted EBITDA of $201.0 million, up 55% from 2016

Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported record fourth quarter 2017 net income of $99.0 million, or $3.06 per diluted share, representing a 169% increase in net income over the fourth quarter 2016. Without the benefit from tax legislation, net income was $40.7 million, or $1.26 per diluted share, an increase of 11%. Total revenues for the fourth quarter 2017 were $207.2 million, a new quarterly record, up 16% from the prior-year fourth quarter. Adjusted EBITDA for the fourth quarter 2017 was $54.7 million, also a new quarterly record, up 58% compared to the fourth quarter 2016.

"Walker & Dunlop had a fantastic fourth quarter, capping off a phenomenal 2017," commented Willy Walker, Chairman and CEO. "Record financial performance is a direct result of the client base we have built, the daily execution of the Walker & Dunlop team, and our business model. Every major financial metric was up dramatically from the previous year: total transaction volume of $28 billion was up 45%, net income of $211 million was up 85%, and adjusted EBITDA of $201 million was up 55%.  With strong fundamentals in the commercial real estate sector, and Walker & Dunlop's scaled lending platform and brand recognition, we expect to continue growing our company and financial results significantly faster than the competition."

Mr. Walker continued, "The dramatic growth of our lending platform and client base has built the eighth largest commercial loan servicing portfolio in the nation, which at over $75 billion, generates tremendous cash flow and adjusted EBITDA.  Walker & Dunlop's EBITDA in 2017 is ten times what it was in 2010.  Due to the fundamentals of the multifamily lending market, the defendable market position we have created, and the cash flow streams our business model generates, Walker & Dunlop's Board of Directors voted yesterday to initiate a $0.25 per share quarterly dividend. It is our expectation that we will increase the dividend over time while continuing to invest in the growth of our business."

 

FOURTH QUARTER 2017 OPERATING RESULTS













TRANSACTION VOLUMES

(dollars in thousands)


Q4 2017



Q4 2016


$ Variance


% Variance

Fannie Mae

$

2,426,878


$

2,273,379


$

153,499


7

%

Freddie Mac


1,665,787



1,231,766



434,021


35


Ginnie Mae - HUD


483,494



261,204



222,290


85


Brokered


2,154,644



1,304,724



849,920


65


Interim Loans


124,810



184,560



(59,750)


(32)


Loan origination volume

$

6,855,613


$

5,255,633


$

1,599,980


30

%

Investment sales volume


1,456,554



1,005,265



451,289


45


Total transaction volume

$

8,312,167


$

6,260,898


$

2,051,269


33

%

 

Discussion of Results:

  • The increase in total transaction volume was largely the result of (i) an increase in the average number of mortgage bankers and brokers from 113 during the fourth quarter 2016 to 143 during the same period in 2017 and (ii) the origination of two portfolios with $915.7 million of loans during the fourth quarter 2017 compared to one portfolio with $324.0 million of loans during the fourth quarter 2016.
  • We continue to experience strong total transaction volume due to the continued strength of the commercial real estate and multifamily markets, positive macroeconomic fundamentals, a relatively low interest rate environment, and robust demand for rental properties.
  • A $140.4 million period-over-period increase in construction lending was the primary contributor to the large percentage increase in HUD lending.
  • A substantial increase in the average number of mortgage bankers with a primary expertise in brokered loan originations was the largest driver of the increase in brokered loan origination volume.
  • The increase in investment sales volume year over year is due to an increase in the average number of investment sales professionals year over year.

 













SERVICING PORTFOLIO

(dollars in thousands)


Q4 2017



Q4 2016


$ Variance


% Variance

Fannie Mae

$

32,075,617


$

27,728,164


$

4,347,453


16

%

Freddie Mac


26,782,581



20,688,410



6,094,171


29


Ginnie Mae - HUD


9,640,312



9,155,794



484,518


5


Brokered


5,744,518



5,286,473



458,045


9


Interim Loans


249,138



222,313



26,825


12


Total servicing portfolio

$

74,492,166


$

63,081,154


$

11,411,012


18

%

Weighted-average servicing fee rate (basis points)


25.7



26.1







Weighted-average remaining term (years)


10.0



10.3







 

Discussion of Results:

  • Our servicing portfolio has experienced significant growth over the past year due to our record loan origination volumes and relatively few payoffs. During 2017, the Company originated $24.9 billion of loans, $17.2 billion of which were Agency loans. Additionally, the Company acquired a HUD servicing portfolio with an unpaid principal balance of $0.6 billion in 2017.
  • The decrease in the weighted-average servicing fee is the result of the addition of $7.0 billion of Freddie Mac, HUD, and brokered loans serviced compared to an increase of only $4.3 billion of Fannie Mae loans serviced. Fannie Mae loans have the highest servicing fees of all the loans types we service.
  • The slight decrease in the weighted-average remaining term is the result of the substantial increases in Fannie Mae, Freddie Mac, and brokered loans serviced compared to a lower increase in HUD loans serviced. Fannie Mae, Freddie Mac, and brokered loans typically have terms of 10 years or less, while HUD loans typically have terms of 30 years or more.
  • Fewer than $5.0 billion of Agency loans are scheduled to mature over the next two years.
  • During the fourth quarter 2017, we added $4.2 billion of net loans to our servicing portfolio, half of which were Fannie Mae loans.
  • Net MSR additions from loan originations during the quarter totaled $39.1 million.
  • During the fourth quarter 2017, we purchased the rights to service a HUD loan portfolio with an aggregate $0.6 billion unpaid principal balance from a third-party servicer for $7.8 million.
  • The mortgage servicing rights associated with the servicing portfolio had a fair value of $826.7 million as of December 31, 2017.












REVENUES

(dollars in thousands)


Q4 2017



Q4 2016


$ Variance


% Variance

Loan origination fees

$

76,557


$

52,679


$

23,878


45

%

Gains attributable to MSRs


52,901



65,100



(12,199)


(19)


Gains from mortgage banking activities


129,458



117,779



11,679


10


Servicing fees


46,713



39,370



7,343


19


Net warehouse interest income, LHFS


5,485



5,465



20


-


Net warehouse interest income, LHFI


1,204



2,337



(1,133)


(48)


Escrow earnings and other interest income


6,786



2,943



3,843


131


Other revenues


17,556



10,497



7,059


67


Total revenues

$

207,202


$

178,391


$

28,811


16

%

Key revenue metrics (as a percentage of loan origination volume):












Origination related fees


1.12

%


1.00

%






Gains attributable to MSRs


0.77



1.24







Gains attributable to MSRs - Agency loans 2


1.16



1.73







 

Discussion of Results:

  • The increase in loan origination fees to a quarterly record of $76.6 million was largely driven by the increase in loan origination activity in the fourth quarter 2017 compared to the prior-year fourth quarter.
  • The decrease in gains attributable to mortgage servicing rights ("MSRs") was primarily the result of a 28% decrease in the weighted-average servicing fee of Fannie Mae loans originated and a 46% increase in floating-rate loan origination volume from the fourth quarter 2016 to the fourth quarter 2017, partially offset by the increase in Freddie Mac and HUD loan origination volume year over year. The decline in the weighted-average servicing fee related largely to the aforementioned portfolios originated during the fourth quarter 2017. We record relatively less MSR income on (i) floating-rate loan originations as their estimated life is substantially shorter than fixed-rate loan originations and (ii) loan originations of large portfolios as their servicing fees are typically substantially less than those received on smaller loans.
  • The increase in the origination-related-fees key metric was primarily due to the mix of loan origination volume. HUD loan origination volume as a percentage of total loan origination volume increased from 5% during the fourth quarter 2016 to 7% during the fourth quarter 2017. The origination fees we receive on HUD loans are higher than any of our other loan types.
  • The decrease to the gains attributable to MSRs metric was due to a decrease in Fannie Mae loan origination volume as a percentage of total loan origination volume, an increase in brokered loan origination volume as a percentage of total loan origination volume, the decrease in the weighted-average servicing fee of Fannie Mae loans originated, and the increase in floating-rate loan origination volume. Fannie Mae loan origination volume as a percentage of total loan origination volume decreased from 43% during the fourth quarter 2016 to 35% during the current quarter. Brokered loan origination volume as a percentage of total loan origination volume increased to 31% during the fourth quarter 2017 from 25% during the same period in 2016.
  • The $11.4 billion increase in the servicing portfolio during the year was the principal driver of the substantial growth in servicing fees year over year.
  • Escrow earnings benefitted from an increase in the average balance of escrow accounts outstanding from the fourth quarter 2016 to the fourth quarter 2017. Additionally, the average placement fees on our escrow accounts has increased over the past year.
  • The increase in other revenues was principally due to an increase in revenues from investment sales activities, resulting primarily from the increase in investment sales volume, and an increase in prepayment fees.

 













EXPENSES

(dollars in thousands)


Q4 2017



Q4 2016


$ Variance


% Variance

Personnel

$

91,120


$

73,126


$

17,994


25

%

Amortization and depreciation


33,705



30,603



3,102


10


Provision (benefit) for credit losses


(27)



(778)



751


(97)


Interest expense on corporate debt


2,344



2,432



(88)


(4)


Other operating expenses


13,300



11,827



1,473


12


Total expenses

$

140,442


$

117,210


$

23,232


20

%

Key expense metrics (as a percentage of total revenues):












Personnel expenses


44

%


41

%






Other operating expenses


6



7







 

Discussion of Results:

  • Fixed compensation costs increased following acquisitions during the fourth quarter 2016 and first quarter 2017 and due to hiring to support the growth of the Company, resulting in a substantial increase in the average headcount from 539 in the fourth quarter 2016 to 622 in the same period in 2017.
  • Variable compensation costs increased as a result of a substantial increase in commissions expense resulting from the growth in total transaction volume and origination fees.
  • The increase in personnel expense metric was due to the increase in variable compensation costs. The annual personnel expense metric increased slightly from 40% in 2016 to 41% in 2017.
  • Amortization and depreciation costs increased due to the growth of the average balance of MSRs outstanding year over year. Over the past 12 months, we have added $112.8 million of MSRs, net of amortization and write offs due to prepayment.












KEY PERFORMANCE METRICS

(dollars in thousands, except per share amounts)


Q4 2017



Q4 2016


$ Variance


% Variance

Walker & Dunlop net income

$

98,961


$

36,790


$

62,171


169

%

Adjusted EBITDA


54,657



34,625



20,032


58


Diluted EPS

$

3.06


$

1.16


$

1.90


164

%

Operating margin


32

%


34

%






Return on equity


55



25







 

Discussion of Results:

  • The fourth quarter marks the 11th quarter out of the past 12 that the Company has produced year-over-year net income and diluted EPS growth, with average quarterly net income growth of 70% and average quarterly diluted EPS growth of 71% during the three-year period.
  • The increase in net income is largely attributable to the aforementioned increase in total revenues on strong total transaction volume and a significant decrease in income tax expense. Income tax expense was a net benefit to the Company of $32.8 million during the fourth quarter 2017 compared to expense of $24.2 million during the same quarter last year. The net benefit for the quarter related to the enactment of the Tax Cuts and Jobs Act ("tax reform") in December 2017. The tax reform significantly reduced the statutory Federal income tax rate from 35% to 21%. The Company revalued its net deferred tax liabilities at December 31, 2017 using the new 21% Federal rate, resulting in a $58.3 million decrease in our net deferred tax liabilities with a corresponding decrease in income tax expense. The decrease in expense from tax reform was partially offset by an increase in income from operations year over year.
  • The increase in adjusted EBITDA was driven by increases in loan origination fees, servicing fees, escrow earnings and other interest income, and other revenues, partially offset by the increase in personnel costs.
  • The slight decrease in operating margin was driven primarily by the aforementioned increase in personnel expense and the decline in gains attributable to MSRs.
  • The increase in return on equity is largely related to the substantial increase in net income, partially offset by a $199.2 million increase in stockholders' equity over the past year due primarily to $211.1 million of net income recorded over the past year, partially offset by share repurchases and retirement. Return on equity without the benefit from tax reform was 22%.

 













KEY CREDIT METRICS

(dollars in thousands)


Q4 2017



Q4 2016


$ Variance


% Variance

At risk servicing portfolio 3

$

28,058,967


$

24,072,347


$

3,986,620


17

%

Maximum exposure to at risk portfolio 4


5,680,798



4,921,802



758,996


15


60+ day delinquencies within at risk portfolio

$

5,962


$


$

5,962


N/A

%

Key credit metrics (as a percentage of the at risk portfolio):












60+ day delinquencies


0.02

%


0.00

%






Allowance for risk-sharing


0.01



0.02







Key credit metrics (as a percentage of maximum exposure):












Allowance for risk-sharing


0.07

%


0.07

%






Allowance for risk-sharing and guaranty obligation


0.79



0.73







 

Discussion of Results:

  • Our at risk servicing portfolio, which is comprised of loans subject to a defined risk-sharing formula, increased due to the significant level of Fannie Mae loan origination volume during the past year. There was one loan 60+ day delinquent/defaulted in our at risk servicing portfolio at December 31, 2017.
  • The on-balance sheet interim-loan portfolio, which is comprised of loans for which the Company has full risk of loss, was $67.0 million at December 31, 2017 compared to $222.3 million at December 31, 2016. All of the Company's interim loans are current and performing at December 31, 2017. We expect to see a continued decline in this portfolio as most of our future loan originations are expected to be executed through our interim loan joint venture instead of originated using our balance sheet. The interim loan joint venture holds $182.2 million of loans as of December 31, 2017.

FULL-YEAR 2017 OPERATING RESULTS

Total transaction volume for the year ended December 31, 2017 was $27.9 billion compared to $19.3 billion for the same period last year, a 45% increase.

Total revenues for the year ended December 31, 2017 were $711.9 million compared to $575.3 million for the same period last year, a 24% increase. The change in total revenues was largely driven by a 20% increase in gains from mortgage banking activities due primarily to the significant increase in total transaction volume, a 25% increase in servicing fees related to an increase in our average servicing portfolio, a 122% increase in escrow earnings and other interest income resulting from an increase in escrow balances and the escrow earnings rate, and 50% growth in other revenues. Other revenues increased due to increases in investment sales broker fees, preferred equity investment income, prepayment fees, and assumption fees.

Total expenses during the year ended December 31, 2017 and 2016 were $478.2 million and $389.5 million, respectively. The 23% increase in total expenses was due primarily to increases in personnel expense, amortization and depreciation costs, and other operating expenses. Personnel expenses as a percentage of total revenues increased slightly from 40% in 2016 to 41% in 2017. Personnel expense increased 27% mostly due to an increase in salaries expense resulting from a rise in average headcount year over year and an increase in commissions costs due to an increase in origination fees driven by the increase in total transaction volume. Amortization and depreciation costs increased 18% due to an increase in the average balance of MSRs outstanding year over year as we originated a record amount of loans in 2017. Other operating expenses increased 17% largely due to an increase in office expenses due to the increase in average headcount year over year.

Operating margin for the year ended December 31, 2017 and 2016 was 33% and 32%, respectively. Increased scale in the business year over year provided a lift to operating margin, as revenues grew 24% while expenses increased only 23%.

Net income for the year ended December 31, 2017 was $211.1 million compared to net income of $113.9 million for the same period last year, an 85% increase. The increase in net income is due to a 26% increase in income from operations combined with a significant decrease in income tax expense. The lower income tax expense is related to an increase of excess tax benefits of $8.9 million in 2017 and lower income tax due to tax reform, as discussed above. Diluted earnings per share grew 80% from $3.65 for 2016 to $6.56 in 2017.

For the year ended December 31, 2017 and 2016, adjusted EBITDA was $201.0 million and $129.9 million, respectively. The 55% increase was driven by significant growth in origination fees, servicing fees, escrow earnings and other interest income, and other revenues, partially offset by a large increase in personnel expenses.

For the year ended December 31, 2017, return on equity was 31% compared to 21% for the year ended December 31, 2016. The increase is largely related to the substantial increase in net income, partially offset by a $199.2 million increase in stockholders' equity over the past year due primarily to the net income recorded over the past 12 months, partially offset by share repurchases and retirement. Return on equity without the benefit from tax reform was 23%.

DIVIDENDS AND STOCK BUYBACK PROGRAM

On February 6, 2018, our Board of Directors declared a dividend of $0.25 per share for the first quarter of 2018. The dividend will be paid March 7, 2018 to all holders of record of our restricted and unrestricted common stock and restricted stock units as of February 23, 2018. This dividend represents the first such payment of dividends since the Company's initial public offering in December 2010. The Company expects to continue offering a quarterly dividend.

During the fourth quarter 2017, we repurchased 111 thousand of our shares of our common stock at a weighted-average price of $47.08 per share and 339 thousand with a weighted-average price of $47.10 for all of 2017.

On February 6, 2018, the Company's Board of Directors authorized the repurchase of up to $50.0 million of the Company's outstanding common stock over the coming one-year period.

Purchases made pursuant to the program will be made in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The repurchase program may be suspended or discontinued at any time.

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."
2 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 Agency volume.
3 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 a small number of Freddie Mac 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% 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% risk-sharing were to default, we 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. 
4 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.

Conference Call Information

The Company will host a conference call to discuss its quarterly and annual results on Wednesday, February 7, 2018 at 8:30 a.m. Eastern time. Analysts and investors interested in participating are invited to call (877) 888-4312 from within the United States or (785) 424-1876 from outside the United States and are asked to reference the Conference ID: WDQ417. 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. 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 services and 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 600 professionals in 28 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 and recoveries, stock-based compensation charges, and 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. 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

















December 31, 


September 30,


June 30,


March 31,


December 31, 


2017


2017


2017


2017


2016

(in thousands)

(unaudited)


(unaudited)


(unaudited)


(unaudited)



Assets















Cash and cash equivalents

$

191,218


$

85,363


$

53,338


$

50,745


$

118,756

Restricted cash


6,677



17,179



15,768



9,313



9,861

Pledged securities, at fair value


97,859



95,102



92,401



86,900



84,850

Loans held for sale, at fair value


951,829



3,275,761



1,608,025



1,230,311



1,858,358

Loans held for investment, net


66,510



152,050



167,540



311,242



220,377

Servicing fees and other receivables, net


41,693



34,476



34,794



35,882



29,459

Derivative assets


10,357



43,853



24,991



15,446



61,824

Mortgage servicing rights


634,756



587,909



573,159



562,530



521,930

Goodwill and other intangible assets


124,543



124,571



124,621



124,670



97,372

Other assets


82,985



84,196



71,398



54,499



49,645

Total assets

$

2,208,427


$

4,500,460


$

2,766,035


$

2,481,538


$

3,052,432
















Liabilities















Accounts payable and other liabilities

$

238,538


$

255,785


$

229,471


$

205,100


$

232,231

Performance deposits from borrowers


6,461



16,575



14,894



9,424



10,480

Derivative liabilities


1,850



175



500



9,449



4,396

Guaranty obligation, net


41,187



38,300



36,492



35,311



32,292

Allowance for risk-sharing obligations


3,783



3,769



3,648



3,546



3,613

Warehouse notes payable


937,769



3,305,589



1,630,268



1,406,462



1,990,183

Note payable


163,858



163,935



164,011



164,088



164,163

Total liabilities

$

1,393,446


$

3,784,128


$

2,079,284


$

1,833,380


$

2,437,358
















Equity















Preferred shares

$


$


$


$


$

Common stock


300



299



301



301



296

Additional paid-in capital


229,173



226,098



222,989



218,908



228,889

Retained earnings


579,943



484,963



458,819



424,252



381,031

Total stockholders' equity

$

809,416


$

711,360


$

682,109


$

643,461


$

610,216

Noncontrolling interests


5,565



4,972



4,642



4,697



4,858

Total equity

$

814,981


$

716,332


$

686,751


$

648,158


$

615,074

Commitments and contingencies










Total liabilities and equity

$

2,208,427


$

4,500,460


$

2,766,035


$

2,481,538


$

3,052,432
















 

 

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited, except for the year ended December 31, 2016)



Quarterly Trends


Years ended

















December 31, 

(in thousands, except per share amounts)

Q4 2017


Q3 2017


Q2 2017


Q1 2017


Q4 2016


2017


2016

Revenues





















Gains from mortgage banking activities

$

129,458


$

111,304


$

102,176


$

96,432


$

117,779


$

439,370


$

367,185

Servicing fees


46,713



44,900



43,214



41,525



39,370



176,352



140,924

Net warehouse interest income


6,689



5,358



5,800



6,620



7,802



24,467



23,727

Escrow earnings and other interest income


6,786



5,804



4,514



3,292



2,943



20,396



9,168

Other


17,556



12,370



10,703



10,643



10,497



51,272



34,272

Total revenues

$

207,202


$

179,736


$

166,407


$

158,512


$

178,391


$

711,857


$

575,276






















Expenses





















Personnel

$

91,120


$

78,469


$

63,516


$

56,172


$

73,126


$

289,277


$

227,491

Amortization and depreciation


33,705



32,343



32,860



32,338



30,603



131,246



111,427

Provision (benefit) for credit losses


(27)



9



(93)



(132)



(778)



(243)



(612)

Interest expense on corporate debt


2,344



2,555



2,443



2,403



2,432



9,745



9,851

Other operating expenses


13,300



11,664



11,599



11,608



11,827



48,171



41,338

Total expenses

$

140,442


$

125,040


$

110,325


$

102,389


$

117,210


$

478,196


$

389,495

Income from operations

$

66,760


$

54,696


$

56,082


$

56,123


$

61,181


$

233,661


$

185,781

Income tax expense (benefit)


(32,794)



19,988



21,570



13,063



24,175



21,827



71,470

Net income before noncontrolling interests

$

99,554


$

34,708


$

34,512


$

43,060


$

37,006


$

211,834


$

114,311

Less: net income (loss) from noncontrolling interests


593



330



(55)



(161)



216



707



414

Walker & Dunlop net income

$

98,961


$

34,378


$

34,567


$

43,221


$

36,790


$

211,127


$

113,897






















Basic earnings per share

$

3.30


$

1.14


$

1.15


$

1.45


$

1.25


$

7.03


$

3.87

Diluted earnings per share

$

3.06


$

1.06


$

1.08


$

1.35


$

1.16


$

6.56


$

3.65






















Basic weighted average shares outstanding


30,027



30,085



30,131



29,809



29,477



30,014



29,432

Diluted weighted average shares outstanding


32,293



32,312



32,097



32,006



31,701



32,205



31,172

 

 

SUPPLEMENTAL OPERATING DATA

Unaudited
























Quarterly Trends


Years ended


















December 31, 


(dollars in thousands, except per share data)

Q4 2017


Q3 2017


Q2 2017


Q1 2017


Q4 2016


2017


2016


Transaction Volume:






















Loan Origination Volume by Product Type






















Fannie Mae

$

2,426,878


$

1,389,451


$

2,188,841


$

1,888,936


$

2,273,379


$

7,894,106


$

7,000,942


Freddie Mac


1,665,787



4,040,985



1,111,434



1,162,950



1,231,766



7,981,156



4,234,071


Ginnie Mae - HUD


483,494



263,714



403,981



207,032



261,204



1,358,221



879,941


Brokered (1)


2,154,644



1,893,047



1,948,918



1,330,298



1,304,724



7,326,907



4,189,116


Interim Loans


124,810



26,375



26,637



136,550



184,560



314,372



419,600


Total Loan Origination Volume

$

6,855,613


$

7,613,572


$

5,679,811


$

4,725,766


$

5,255,633


$

24,874,762


$

16,723,670


Investment Sales Volume


1,456,554



935,960



351,825



286,730



1,005,265



3,031,069



2,574,442


Total Transaction Volume

$

8,312,167


$

8,549,532


$

6,031,636


$

5,012,496


$

6,260,898


$

27,905,831


$

19,298,112
























Key Performance Metrics:






















Operating margin


32

%


30

%


34

%


35

%


34

%


33

%


32

%

Return on equity


55



20



21



28



25



31



21


Walker & Dunlop net income

$

98,961


$

34,378


$

34,567


$

43,221


$

36,790


$

211,127


$

113,897


Adjusted EBITDA (2)


54,657



45,000



50,988



50,305



34,625



200,950



129,928


Diluted EPS


3.06



1.06



1.08



1.35



1.16



6.56



3.65
























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




















Personnel expenses


44

%


44

%


38

%


35

%


41

%


41

%


40

%

Other operating expenses


6



6



7



7



7



7



7


 

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




















Origination related fees


1.12

%


0.79

%


1.01

%


1.08

%


1.00

%


0.99

%


1.04

%

Gains attributable to MSRs


0.77



0.67



0.79



0.96



1.24



0.78



1.15


Gains attributable to MSRs--Agency (3)


1.16



0.89



1.21



1.40



1.73



1.13



1.59
























Other Data:






















Market capitalization at period end

$

1,469,958


$

1,625,634


$

1,526,336


$

1,302,748


$

961,539








Closing share price at period end

$

47.50


$

52.33


$

48.83


$

41.69


$

31.20








Average headcount


622



609



594



573



539






























Servicing Portfolio by Product:






















Fannie Mae

$

32,075,617


$

30,005,596


$

29,573,946


$

28,741,065


$

27,728,164








Freddie Mac


26,782,581



25,930,819



22,380,103



21,426,315



20,688,410








Ginnie Mae - HUD


9,640,312



8,878,899



8,919,840



9,073,355



9,155,794








Brokered (1)


5,744,518



5,170,479



5,128,453



4,829,934



5,286,473








Interim Loans


249,138



298,889



288,412



313,355



222,313








Total Servicing Portfolio

$

74,492,166


$

70,284,682


$

66,290,754


$

64,384,024


$

63,081,154






























Key Servicing Metrics (end of period):






















Weighted-average servicing fee rate (bps)


25.7



25.7



26.5



26.5



26.1








Weighted-average remaining term (years)


10.0



9.9



10.1



10.2



10.3






















































 

(1)

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

(2)

This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section above titled "Non-GAAP Financial Measures."

(3)

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 Agency volume.

 

 KEY CREDIT METRICS

Unaudited



December 31, 


September 30,


June 30,


March 31,


December 31, 


(dollars in thousands)

2017


2017


2017


2017


2016


Risk-sharing servicing portfolio:
















Fannie Mae Full Risk

$

24,173,829


$

22,966,583


$

22,491,811


$

21,465,009


$

20,669,404


Fannie Mae Modified Risk


7,491,822



6,858,310



6,878,981



7,035,879



6,396,812


Freddie Mac Modified Risk


53,207



53,217



53,225



53,359



53,368


Interim Program JV Modified Risk (1)


182,175



146,125








Total risk-sharing servicing portfolio

$

31,901,033


$

30,024,235


$

29,424,017


$

28,554,247


$

27,119,584


















Non risk-sharing servicing portfolio:
















Fannie Mae No Risk

$

409,966


$

180,703


$

203,154


$

240,177


$

661,948


Freddie Mac No Risk


26,729,374



25,877,602



22,326,878



21,372,956



20,635,042


GNMA - HUD No Risk


9,640,312



8,878,899



8,919,840



9,073,355



9,155,794


Brokered


5,744,518



5,170,479



5,128,453



4,829,934



5,286,473


Total non risk-sharing servicing portfolio

$

42,524,170


$

40,107,683


$

36,578,325


$

35,516,422


$

35,739,257


Total loans serviced for others

$

74,425,203


$

70,131,918


$

66,002,342


$

64,070,669


$

62,858,841


Interim loans (full risk) servicing portfolio


66,963



152,764



288,412



313,355



222,313


Total servicing portfolio unpaid principal balance

$

74,492,166


$

70,284,682


$

66,290,754


$

64,384,024


$

63,081,154


















At risk servicing portfolio (2)

$

28,058,967


$

26,556,339


$

26,095,958


$

25,187,219


$

24,072,347


Maximum exposure to at risk portfolio (3)


5,680,798



5,420,386



5,282,883



5,183,874



4,921,802


60+ day delinquencies, within at risk portfolio (4)


5,962



5,962








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


5,962



5,962
























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


0.02

%


0.02

%


0.00

%


0.00

%


0.00

%

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


0.01



0.01



0.01



0.01



0.02


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


63.45



63.22



N/A



N/A



N/A


Allowance for risk-sharing as a percentage of
maximum exposure


0.07



0.07



0.07



0.07



0.07


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


0.79



0.78



0.76



0.75



0.73


 

 

(1)

We indirectly share in a portion of the risk of loss associated with these loans through our 15% equity ownership in our Interim Program joint venture.



(2)

 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 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.



(3)

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.



(4)

September 30, 2017 includes loans that are not 60+ days delinquent but have defaulted.

 

 

ADJUSTED FINANCIAL METRIC RECONCILIATION TO GAAP

Unaudited


















Years ended December 31, 

(in thousands)

Q4 2017


Q3 2017


Q2 2017


Q1 2017


Q4 2016


2017


2016


2010

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA



















Walker & Dunlop Net Income

$

98,961


$

34,378


$

34,567


$

43,221


$

36,790


$

211,127


$

113,897


$

8,227

Income tax expense (benefit)


(32,794)



19,988



21,570



13,063



24,175



21,827



71,470



31,915

Interest expense on corporate debt


2,344



2,555



2,443



2,403



2,432



9,745



9,851



1,334

Amortization and depreciation


33,705



32,343



32,860



32,338



30,603



131,246



111,427



16,959

Provision (benefit) for credit losses


(27)



9



(93)



(132)



(778)



(243)



(612)



7,469

Net recoveries (write-offs)










810





(1,757)



(2,148)

Stock compensation expense


5,369



6,508



4,310



4,947



5,693



21,134



18,477



49

Gains attributable to mortgage servicing rights (1)


(52,901)



(50,781)



(44,669)



(45,535)



(65,100)



(193,886)



(192,825)



(43,052)

Adjusted EBITDA

$

54,657


$

45,000


$

50,988


$

50,305


$

34,625


$

200,950


$

129,928


$

20,753

























 

(1)

Represents the fair value of the expected net cash flows from servicing recognized at commitment, net of the expected guaranty obligation.


 

Cision View original content:http://www.prnewswire.com/news-releases/walker--dunlop-reports-169-growth-in-q4-net-income-to-99-million-leading-to-record-adjusted-ebitda-of-55-million-300594741.html

SOURCE Walker & Dunlop, Inc.