Press Release

Walker & Dunlop Reports Q1 2018 Net Income of $37 Million

Adjusted EBITDA Increases to $52 Million

Company Release - 5/2/2018 6:00 AM ET

BETHESDA, Md., May 2, 2018 /PRNewswire/ --

FIRST QUARTER 2018 HIGHLIGHTS

  • Total transaction volume of $4.8 billion
  • Total revenues of $147.5 million
  • Net income of $36.9 million, or $1.16 per diluted share
  • Adjusted EBITDA1 of $52.1 million
  • Servicing portfolio of $76.0 billion at March 31, 2018
  • Declared $0.25 per share cash dividend for the second quarter 2018

Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported first quarter 2018 net income of $36.9 million, or $1.16 per diluted share, representing the third most-profitable quarter in its history. Total revenues for the first quarter 2018 were $147.5 million, generating adjusted EBITDA of $52.1 million. The results from the first quarter 2018 reflect the strength of Walker & Dunlop's brand and the scale and diversity of its business.

"Walker & Dunlop's strong first quarter results reflect the scale and diversification we've achieved through strategic investments in the platform over the past several years," commented Chairman and CEO, Willy Walker. "We earned net income of $37 million or $1.16 per diluted share on $4.8 billion of total transaction volume, the second strongest first quarter transaction volume in our history. Adjusted EBITDA increased year over year to $52 million, demonstrating the value of the long-term, prepayment-protected revenue streams generated by our $76 billion servicing portfolio."

Mr. Walker continued, "In the first few months of the year, we executed on several strategic initiatives that take us closer to achieving our goal of generating $1 billion in annual revenues by the end of 2020. In April, we completed the acquisition of JCR Capital, an alternative asset manager with a strong track record of raising capital to invest in debt, preferred equity, mezzanine equity and JV equity in the middle-market commercial real estate space. The acquisition of JCR is the first step towards achieving our goal of building an $8 to $10 billion asset management business. We also have continued to add bankers and brokers to W&D this year, including a capital markets team in Philadelphia and an investment sales team in Boston, both of which fill gaps in our platform in the Northeast, where we see a significant growth opportunity. We expect to continue to recruit and acquire additional broker and banker talent onto our platform as we seek to grow market share and achieve our long-term strategic goals."

FIRST QUARTER 2018 OPERATING RESULTS













TRANSACTION VOLUMES

(dollars in thousands)


Q1 2018



Q1 2017


$ Variance


% Variance

Fannie Mae

$

1,240,502


$

1,888,936


$

(648,434)


(34)

%

Freddie Mac


1,319,977



1,162,950



157,027


14


Ginnie Mae - HUD


352,416



207,032



145,384


70


Brokered


1,573,909



1,330,298



243,611


18


Interim Loans


24,713



136,550



(111,837)


(82)


Loan origination volume

$

4,511,517


$

4,725,766


$

(214,249)


(5)

%

Investment sales volume


337,745



286,730



51,015


18


Total transaction volume

$

4,849,262


$

5,012,496


$

(163,234)


(3)

%

 

Discussion of Results:

  • The 34% decrease in Fannie Mae loan origination volume year over year was due principally to a 35% decrease in Fannie Mae's overall loan originations during the first quarter 2018 compared to the first quarter 2017. In addition, we originated two large portfolios with Fannie Mae in the first quarter 2017 totaling $793.3 million while no similarly large portfolios were originated during the same period in 2018.
  • We continue to see strong demand for debt financing due to the strength of the commercial real estate and multifamily markets, positive macroeconomic fundamentals, a relatively low interest rate environment, and robust demand for rental properties. Even during this period of strong demand, we do experience quarterly variation in loan origination volumes.
  • Continued strong demand for floating-rate debt financing, a loan product Freddie Mac excels in, led to a slight increase in Freddie Mac's overall loan originations year over year. Additionally, we originated a $287.2 million portfolio of Freddie Mac loans during the first quarter 2018 compared to no large portfolios in the prior year quarter.
  • A $60.7 million period-over-period increase in construction lending was a significant 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.

 













SERVICING PORTFOLIO

(dollars in thousands)


Q1 2018



Q1 2017


$ Variance


% Variance

Fannie Mae

$

32,566,330


$

28,741,065


$

3,825,265


13

%

Freddie Mac


27,709,640



21,426,315



6,283,325


29


Ginnie Mae - HUD


9,634,192



9,073,355



560,837


6


Brokered


5,865,961



4,829,934



1,036,027


21


Interim Loans


215,481



313,355



(97,874)


(31)


Total servicing portfolio

$

75,991,604


$

64,384,024


$

11,607,580


18

%

Weighted-average servicing fee rate (basis points)


25.6



26.5







Weighted-average remaining term (years)


9.8



10.2







 

Discussion of Results:

  • During the first quarter 2018, we added $1.5 billion of net loans to our servicing portfolio, nearly all of which were Fannie Mae and Freddie Mac loans.
  • Our servicing portfolio has experienced significant growth over the past year due to our record loan origination volumes and relatively few payoffs. During the past 12 months, we have originated $24.7 billion of loans, $16.9 billion of which were Agency loans.
  • The decrease in the weighted-average servicing fee is the result of the net addition of $7.9 billion of Freddie Mac, HUD, and brokered loans serviced compared to an increase of only $3.8 billion of Fannie Mae loans serviced during the past 12 months. Fannie Mae loans have the highest servicing fees of all the loan types we service.
  • The decrease in the weighted-average remaining term is the result of the $11.1 billion increase in Fannie Mae, Freddie Mac, and brokered loans serviced compared to an increase of $0.6 billion in HUD loans serviced during the past 12 months. Fannie Mae, Freddie Mac, and brokered loans typically have terms of 10 years or fewer, while HUD loans typically have terms of 30 years or more.
  • Fewer than $5.0 billion of Agency loans in our servicing portfolio are scheduled to mature over the next two years.
  • Net mortgage servicing rights ("MSRs") from loan originations during the quarter decreased $3.7 million. The decrease was principally due to the relatively low volume of Fannie Mae loan originations, which produce the largest MSRs of all the loan products we originate. Over the past 12 months, net MSR additions were $68.5 million.
  • The MSRs associated with the servicing portfolio had a fair value of $841.4 million as of March 31, 2018.

 













REVENUES

(dollars in thousands)


Q1 2018



Q1 2017


$ Variance


% Variance

Loan origination fees

$

48,816


$

50,897


$

(2,081)


(4)

%

Gains attributable to MSRs


32,693



45,535



(12,842)


(28)


Gains from mortgage banking activities


81,509



96,432



(14,923)


(15)


Servicing fees


48,040



41,525



6,515


16


Net warehouse interest income, LHFS


1,108



3,675



(2,567)


(70)


Net warehouse interest income, LHFI


749



2,945



(2,196)


(75)


Escrow earnings and other interest income


7,348



3,292



4,056


123


Other revenues


8,698



10,643



(1,945)


(18)


Total revenues

$

147,452


$

158,512


$

(11,060)


(7)

%

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












Origination related fees


1.08

%


1.08

%






Gains attributable to MSRs


0.72



0.96







Gains attributable to MSRs - Agency loans 2


1.12



1.40







 

Discussion of Results:

  • The decrease in loan origination fees was driven by the decrease in loan origination activity in the first quarter 2018 compared to the prior-year first quarter.
  • The decreases in gains attributable to MSRs and the MSR gains metrics were primarily the result of the aforementioned decrease in Fannie Mae loan origination volume year over year.
  • The $11.6 billion increase in the servicing portfolio over the past 12 months was the principal driver of the substantial growth in servicing fees year over year.
  • The decrease in net warehouse interest income from loans held for sale was due to a lower average balance of loans outstanding during the first quarter 2018 compared to the first quarter 2017 and a significantly lower net interest margin year over year. The decrease in the net interest margin is related to a substantial increase in the short-term rates at which we borrow with a much smaller increase in the long-term interest rates on the loans we fund through those borrowings, resulting from a flattening of the yield curve year over year.
  • The decrease in net warehouse interest income from loans held for investment was due to a lower average balance of loans outstanding resulting from the creation of our interim loan joint venture in the second quarter 2017. We transferred a significant portion of our loans held for investment to the joint venture upon its formation. Additionally, substantially all of the interim loan originations subsequent to the creation of the joint venture have been held by the joint venture. We own a 15% interest in the joint venture.
  • Escrow earnings benefitted from an increase in the average balance of escrow accounts outstanding from the first quarter 2017 to the first quarter 2018. Additionally, the average placement fees on our escrow accounts has increased significantly over the past year as short-term interest rates have increased.
  • The decrease in other revenues was principally due to decreases in prepayment and assumption fees.

 













EXPENSES

(dollars in thousands)


Q1 2018



Q1 2017


$ Variance


% Variance

Personnel

$

55,273


$

56,172


$

(899)


(2)

%

Amortization and depreciation


33,635



32,338



1,297


4


Provision (benefit) for credit losses


(477)



(132)



(345)


261


Interest expense on corporate debt


2,179



2,403



(224)


(9)


Other operating expenses


12,951



11,608



1,343


12


Total expenses

$

103,561


$

102,389


$

1,172


1

%

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












Personnel expenses


37

%


35

%






Other operating expenses


9



7







 

Discussion of Results:

  • Fixed compensation costs increased due to acquisitions and hiring to support our growth, resulting in a 9% increase in the average headcount from 573 in the first quarter 2017 to 625 in the same period in 2018.
  • Variable compensation costs decreased as a result of a decrease in commissions expense resulting from the decreases in total transaction volume and origination fees and a decrease in the accrual for subjective bonuses.
  • The increase in the personnel expenses metric was due to lower total revenues and the increase in fixed compensation costs year over year.
  • 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 $68.5 million of MSRs, net of amortization and write offs due to prepayment.
  • The increase in other operating expenses stems from increased office and travel costs due to the increase in average headcount year over year and increased legal expenses in connection with our acquisition of JCR Capital Investment Corporation and subsidiaries in the second quarter 2018.

 













KEY PERFORMANCE METRICS

(dollars in thousands, except per share amounts)


Q1 2018



Q1 2017


$ Variance


% Variance

Walker & Dunlop net income

$

36,861


$

43,221


$

(6,360)


(15)

%

Adjusted EBITDA


52,149



50,305



1,844


4


Diluted EPS

$

1.16


$

1.35


$

(0.19)


(14)

%

Operating margin


30

%


35

%






Return on equity


18



28







 

Discussion of Results:

  • The average quarterly net income growth over the past 12 quarters is 53%, and the average quarterly diluted EPS growth is 52% during the three-year period.
  • The quarter-over-quarter decrease in net income is largely attributable to the aforementioned decrease in total revenues on decreased total transaction volume, partially offset by a 45% decrease in income tax expense. Income tax expense was $7.2 million for the first quarter 2018 compared to $13.1 million during the same quarter last year. The decrease was largely related to the enactment of the Tax Cuts and Jobs Act ("tax reform") in December 2017. Tax reform significantly reduced the statutory Federal income tax rate from 35% to 21%. The reduction in the statutory tax rate led to a decrease in our estimated annual effective tax rate from 38.6% for the first quarter of 2017 to 25.7% for the first quarter 2018. Partially offsetting the decrease in the estimated annual effective tax rate was a decrease in excess tax benefits from $8.7 million in the prior-year first quarter to $4.1 million for the current-year first quarter. The decrease in the excess tax benefits was driven primarily by a reduction in the number of shares that vested and the decrease in the Federal statutory tax rate. After applying the estimated annual effective tax rate to income from operations and then reducing income tax expense by excess tax benefits, the resulting effective tax rate for the first quarter 2018 was 16.4% compared to 23.3% for the first quarter 2017.
  • The increase in adjusted EBITDA was driven by increases in servicing fees and escrow earnings and other interest income and a decrease in personnel costs, partially offset by the decreases in origination fees, net warehouse interest income, and other revenues and the increase in other operating expenses.
  • The decrease in operating margin was driven by the aforementioned decline in gains attributable to MSRs.
  • The decrease in return on equity is largely related to the decrease in net income and a $183.4 million increase in stockholders' equity over the past 12 months due primarily to $204.8 million of net income recorded over the past year, partially offset by share repurchases and dividend payments.

 













KEY CREDIT METRICS

(dollars in thousands)


Q1 2018



Q1 2017


$ Variance


% Variance

At risk servicing portfolio 3

$

28,883,122


$

25,187,219


$

3,695,903


15

%

Maximum exposure to at risk portfolio 4


5,912,327



5,183,874



728,453


14


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



0.01







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












Allowance for risk-sharing


0.05

%


0.07

%






Allowance for risk-sharing and guaranty obligation


0.75



0.75







 

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 12 months. There was one loan 60+ days delinquent in our at risk servicing portfolio at March 31, 2018.
  • The on-balance sheet interim-loan portfolio, which is comprised of loans for which the Company has full risk of loss, was $60.2 million at March 31, 2018 compared to $313.4 million at March 31, 2017. All of the Company's interim loans are current and performing at March 31, 2018. 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 $155.3 million of loans as of March 31, 2018.

DIVIDENDS AND SHARE REPURCHASES

On May 1, 2018, our Board of Directors declared a dividend of $0.25 per share for the second quarter 2018. The dividend will be paid June 5, 2018 to all holders of record of our restricted and unrestricted common stock and restricted stock units as of May 18, 2018.

During the first quarter 2018, we repurchased 244 thousand shares of our common stock at a weighted-average price of $46.77 per share.

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 results on Wednesday, May 2, 2018 at 8:30 a.m. Eastern time. Analysts and investors interested in participating are invited to call (877) 876-9174 from within the United States or (785) 424-1672 from outside the United States and are asked to reference the Conference ID: WDQ118. 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 650 professionals in 29 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 (benefit) for credit losses net of write-offs, stock-based incentive 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

















March 31, 


December 31,


September 30,


June 30,


March 31, 


2018


2017


2017


2017


2017

(in thousands)

(unaudited)




(unaudited)


(unaudited)


(unaudited)

Assets















Cash and cash equivalents

$

193,695


$

191,218


$

85,363


$

53,338


$

50,745

Restricted cash


16,991



6,677



17,179



15,768



9,313

Pledged securities, at fair value


102,059



97,859



95,102



92,401



86,900

Loans held for sale, at fair value


787,552



951,829



3,275,761



1,608,025



1,230,311

Loans held for investment, net


59,886



66,510



152,050



167,540



311,242

Servicing fees and other receivables, net


30,829



41,693



34,476



34,794



35,882

Derivative assets


20,417



10,357



43,853



24,991



15,446

Mortgage servicing rights


631,031



634,756



587,909



573,159



562,530

Goodwill and other intangible assets


124,526



124,543



124,571



124,621



124,670

Other assets


84,291



82,985



84,196



71,398



54,499

Total assets

$

2,051,277


$

2,208,427


$

4,500,460


$

2,766,035


$

2,481,538
















Liabilities















Accounts payable and other liabilities

$

184,079


$

238,538


$

255,785


$

229,471


$

205,100

Performance deposits from borrowers


16,717



6,461



16,575



14,894



9,424

Derivative liabilities


7,455



1,850



175



500



9,449

Guaranty obligation, net


41,424



41,187



38,300



36,492



35,311

Allowance for risk-sharing obligations


3,058



3,783



3,769



3,648



3,546

Warehouse notes payable


802,496



937,769



3,305,589



1,630,268



1,406,462

Note payable


163,781



163,858



163,935



164,011



164,088

Total liabilities

$

1,219,010


$

1,393,446


$

3,784,128


$

2,079,284


$

1,833,380
















Equity















Preferred shares

$


$


$


$


$

Common stock


301



300



299



301



301

Additional paid-in capital


226,332



229,080



225,985



222,874



218,801

Accumulated other comprehensive income (loss)


(34)



93



113



115



107

Retained earnings


600,257



579,943



484,963



458,819



424,252

Total stockholders' equity

$

826,856


$

809,416


$

711,360


$

682,109


$

643,461

Noncontrolling interests


5,411



5,565



4,972



4,642



4,697

Total equity

$

832,267


$

814,981


$

716,332


$

686,751


$

648,158

Commitments and contingencies










Total liabilities and equity

$

2,051,277


$

2,208,427


$

4,500,460


$

2,766,035


$

2,481,538
















 


 

 

Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)


















Quarterly Trends


(in thousands, except per share amounts)

Q1 2018


Q4 2017


Q3 2017


Q2 2017


Q1 2017


Revenues
















Gains from mortgage banking activities

$

81,509


$

129,458


$

111,304


$

102,176


$

96,432


Servicing fees


48,040



46,713



44,900



43,214



41,525


Net warehouse interest income


1,857



6,689



5,358



5,800



6,620


Escrow earnings and other interest income


7,348



6,786



5,804



4,514



3,292


Other


8,698



17,556



12,370



10,703



10,643


Total revenues

$

147,452


$

207,202


$

179,736


$

166,407


$

158,512


















Expenses
















Personnel

$

55,273


$

91,120


$

78,469


$

63,516


$

56,172


Amortization and depreciation


33,635



33,705



32,343



32,860



32,338


Provision (benefit) for credit losses


(477)



(27)



9



(93)



(132)


Interest expense on corporate debt


2,179



2,344



2,555



2,443



2,403


Other operating expenses


12,951



13,300



11,664



11,599



11,608


Total expenses

$

103,561


$

140,442


$

125,040


$

110,325


$

102,389


Income from operations

$

43,891


$

66,760


$

54,696


$

56,082


$

56,123


Income tax expense (benefit)


7,184



(32,794)



19,988



21,570



13,063


Net income before noncontrolling interests

$

36,707


$

99,554


$

34,708


$

34,512


$

43,060


Less: net income (loss) from noncontrolling interests


(154)



593



330



(55)



(161)


Walker & Dunlop net income

$

36,861


$

98,961


$

34,378


$

34,567


$

43,221


Other comprehensive income (loss), net of tax:
















Net change in unrealized gains and losses on pledged available-for-sale securities


(127)



(20)



(2)



8




Walker & Dunlop comprehensive income

$

36,734


$

98,941


$

34,376


$

34,575


$

43,221


















Basic earnings per share

$

1.23


$

3.30


$

1.14


$

1.15


$

1.45


Diluted earnings per share

$

1.16


$

3.06


$

1.06


$

1.08


$

1.35


Cash dividends declared per common share

$

0.25


$


$


$


$


















Basic weighted average shares outstanding


29,982



30,027



30,085



30,131



29,809


Diluted weighted average shares outstanding


31,865



32,293



32,312



32,097



32,006


 

 

 


 

SUPPLEMENTAL OPERATING DATA
Unaudited


















Quarterly Trends


(dollars in thousands, except per share data)

Q1 2018


Q4 2017


Q3 2017


Q2 2017


Q1 2017


Transaction Volume:
















Loan Origination Volume by Product Type
















Fannie Mae

$

1,240,502


$

2,426,878


$

1,389,451


$

2,188,841


$

1,888,936


Freddie Mac


1,319,977



1,665,787



4,040,985



1,111,434



1,162,950


Ginnie Mae - HUD


352,416



483,494



263,714



403,981



207,032


Brokered (1)


1,573,909



2,154,644



1,893,047



1,948,918



1,330,298


Interim Loans


24,713



124,810



26,375



26,637



136,550


Total Loan Origination Volume

$

4,511,517


$

6,855,613


$

7,613,572


$

5,679,811


$

4,725,766


Investment Sales Volume


337,745



1,456,554



935,960



351,825



286,730


Total Transaction Volume

$

4,849,262


$

8,312,167


$

8,549,532


$

6,031,636


$

5,012,496


















Key Performance Metrics:
















Operating margin


30

%


32

%


30

%


34

%


35

%

Return on equity


18



55



20



21



28


Walker & Dunlop net income

$

36,861


$

98,961


$

34,378


$

34,567


$

43,221


Adjusted EBITDA (2)


52,149



54,657



45,000



50,988



50,305


Diluted EPS


1.16



3.06



1.06



1.08



1.35

















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














Personnel expenses


37

%


44

%


44

%


38

%


35

%

Other operating expenses


9



6



6



7



7


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














Origination related fees


1.08

%


1.12

%


0.79

%


1.01

%


1.08

%

Gains attributable to MSRs


0.72



0.77



0.67



0.79



0.96


Gains attributable to MSRs--Agency (3)


1.12



1.16



0.89



1.21



1.40


















Other Data:
















Market capitalization at period end

$

1,841,829


$

1,469,958


$

1,625,634


$

1,526,336


$

1,302,748


Closing share price at period end

$

59.42


$

47.50


$

52.33


$

48.83


$

41.69


Average headcount


625



622



609



594



573


















Servicing Portfolio by Product:
















Fannie Mae

$

32,566,330


$

32,075,617


$

30,005,596


$

29,573,946


$

28,741,065


Freddie Mac


27,709,640



26,782,581



25,930,819



22,380,103



21,426,315


Ginnie Mae - HUD


9,634,192



9,640,312



8,878,899



8,919,840



9,073,355


Brokered (1)


5,865,961



5,744,518



5,170,479



5,128,453



4,829,934


Interim Loans


215,481



249,138



298,889



288,412



313,355


Total Servicing Portfolio

$

75,991,604


$

74,492,166


$

70,284,682


$

66,290,754


$

64,384,024


















Key Servicing Metrics (end of period):
















Weighted-average servicing fee rate (bps)


25.6



25.7



25.7



26.5



26.5


Weighted-average remaining term (years)


9.8



10.0



9.9



10.1



10.2





















(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


















March 31, 


December 31,


September 30,


June 30,


March 31, 


(dollars in thousands)

2018


2017


2017


2017


2017


Risk-sharing servicing portfolio:
















Fannie Mae Full Risk

$

25,049,050


$

24,173,829


$

22,966,583


$

22,491,811


$

21,465,009


Fannie Mae Modified Risk


7,389,463



7,491,822



6,858,310



6,878,981



7,035,879


Freddie Mac Modified Risk


53,092



53,207



53,217



53,225



53,359


Interim Program JV Modified Risk (1)


155,324



182,175



146,125






Total risk-sharing servicing portfolio

$

32,646,929


$

31,901,033


$

30,024,235


$

29,424,017


$

28,554,247


















Non risk-sharing servicing portfolio:
















Fannie Mae No Risk

$

127,817


$

409,966


$

180,703


$

203,154


$

240,177


Freddie Mac No Risk


27,656,548



26,729,374



25,877,602



22,326,878



21,372,956


GNMA - HUD No Risk


9,634,192



9,640,312



8,878,899



8,919,840



9,073,355


Brokered


5,865,961



5,744,518



5,170,479



5,128,453



4,829,934


Total non risk-sharing servicing portfolio

$

43,284,518


$

42,524,170


$

40,107,683


$

36,578,325


$

35,516,422


Total loans serviced for others

$

75,931,447


$

74,425,203


$

70,131,918


$

66,002,342


$

64,070,669


Interim loans (full risk) servicing portfolio


60,157



66,963



152,764



288,412



313,355


Total servicing portfolio unpaid principal balance

$

75,991,604


$

74,492,166


$

70,284,682


$

66,290,754


$

64,384,024


















At risk servicing portfolio (2)

$

28,883,122


$

28,058,967


$

26,556,339


$

26,095,958


$

25,187,219


Maximum exposure to at risk portfolio (3)


5,912,327



5,680,798



5,420,386



5,282,883



5,183,874


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


5,962



5,962



5,962






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


5,962



5,962



5,962






















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


0.02

%


0.02

%


0.02

%


0.00

%


0.00

%

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


0.01



0.01



0.01



0.01



0.01


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


51.29



63.45



63.22



N/A



N/A


Allowance for risk-sharing as a percentage of maximum exposure


0.05



0.07



0.07



0.07



0.07


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


0.75



0.79



0.78



0.76



0.75


















 

(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

















(in thousands)

Q1 2018


Q4 2017


Q3 2017


Q2 2017


Q1 2017


Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA
















Walker & Dunlop Net Income

$

36,861


$

98,961


$

34,378


$

34,567


$

43,221


Income tax expense (benefit)


7,184



(32,794)



19,988



21,570



13,063


Interest expense on corporate debt


2,179



2,344



2,555



2,443



2,403


Amortization and depreciation


33,635



33,705



32,343



32,860



32,338


Provision (benefit) for credit losses


(477)



(27)



9



(93)



(132)


Net write-offs











Stock compensation expense


5,460



5,369



6,508



4,310



4,947


Gains attributable to mortgage servicing rights (1)


(32,693)



(52,901)



(50,781)



(44,669)



(45,535)


Adjusted EBITDA

$

52,149


$

54,657


$

45,000


$

50,988


$

50,305


















(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-q1-2018-net-income-of-37-million-300640742.html

SOURCE Walker & Dunlop, Inc.