Servicing and Asset Management Segment
Drives Strong Recurring Revenues
THIRD QUARTER 2023 HIGHLIGHTS
- Total transaction volume of $8.6 billion, down 49% from
Q3’22
- Total revenues of $268.7 million, down 15% from Q3’22
- Net income of $21.5 million and diluted earnings per share of
$0.64, both down 54% from Q3’22
- Adjusted EBITDA1 of $74.1 million, down 1% from Q3’22
- Adjusted core EPS2 of $1.11, down 21% from Q3’22
- Servicing portfolio of $129.0 billion at September 30, 2023, up
7% from September 30, 2022
- Declared quarterly dividend of $0.63 per share for the fourth
quarter of 2023
YEAR-TO-DATE 2023 HIGHLIGHTS
- Total transaction volume of $23.7 billion, down 55% from
2022
- Total revenues of $780.1 million, down 20% from 2022
- Net income of $75.8 million and diluted earnings per share of
$2.25, both down 56% from 2022
- Adjusted EBITDA of $212.5 million, down 9% from 2022
- Adjusted core EPS of $3.25, down 26% from 2022
Walker & Dunlop, Inc. (NYSE: WD) (the “Company,” “Walker
& Dunlop,” or “W&D”) reported third quarter total
transaction volume of $8.6 billion, down 49% year over year, due to
the rapidly changing interest-rate environment and market dynamics
during the third quarter of 2023. The drop in total transaction
volume led to a decline in total revenues of 15% year over year.
Net income was $21.5 million in the third quarter, down 54% year
over year, while adjusted EBITDA declined only 1% due to the
stability of revenues from our servicing and asset management
segment.
"A 49% decrease in transaction volumes in the third quarter
comes from a dislocated market. A much smaller 15% reduction in
revenues is driven by dramatically lower originations offset by an
exceptional business model that includes long-term, recurring
revenue streams. An adjusted EBITDA reduction of just 1% is due to
a business model and management team working exceptionally well in
a highly challenging market. And that is the story of Walker &
Dunlop in Q3 and for all of 2023," commented Walker & Dunlop
Chairman and CEO Willy Walker.
"We will continue to invest in our people, brand and technology
in pursuit of our five-year business plan titled the Drive to '25.
Regardless of the rate environment in 2024, with a 73% increase in
multifamily maturities between 2023 and 2024, we plan to capitalize
on our brand and scale as financing and sales volumes return.”
CONSOLIDATED THIRD QUARTER 2023 OPERATING
RESULTS
TRANSACTION VOLUMES
(dollars in thousands)
Q3 2023
Q3 2022
$ Variance
% Variance
Fannie Mae
$
1,739,332
$
3,038,788
$
(1,299,456
)
(43
)%
Freddie Mac
1,072,048
1,885,492
(813,444
)
(43
)
Ginnie Mae - HUD
86,557
338,054
(251,497
)
(74
)
Brokered (3)
3,149,457
6,601,244
(3,451,787
)
(52
)
Principal Lending and Investing (4)
-
62,015
(62,015
)
(100
)
Debt financing volume
$
6,047,394
$
11,925,593
$
(5,878,199
)
(49
)%
Property sales volume
2,508,073
4,993,615
(2,485,542
)
(50
)
Total transaction volume
$
8,555,467
$
16,919,208
$
(8,363,741
)
(49
)%
Discussion of Results:
- Debt financing volumes decreased 49% primarily due to the
rapidly rising interest rate environment during the third quarter
2023.
- The decline in Fannie Mae and Freddie Mac (the “GSEs”) debt
financing volumes was a result of reduced market-wide transaction
volumes. The GSEs have only used 50% of their 2023 lending caps
through the first nine months of 2023. During that period, Walker
& Dunlop’s GSE market share was 11.3%.
- HUD volumes decreased 74% in the third quarter of 2023. As one
of the largest construction lenders with HUD, a rising interest
rate environment and elongated processing times are impacting our
HUD pipeline and drove the decrease.
- The decrease in brokered debt and property sales volume was
driven by higher interest rates, decreased liquidity supplied to
the commercial real estate sector, and dramatically lower
acquisition and capital markets activity as the commercial real
estate industry continues to adjust to a higher and evolving
interest-rate environment.
MANAGED PORTFOLIO
(dollars in thousands, unless otherwise
noted)
Q3 2023
Q3 2022
$ Variance
% Variance
Fannie Mae
$
62,850,853
$
58,426,446
$
4,424,407
8
%
Freddie Mac
38,656,136
37,241,471
1,414,665
4
Ginnie Mae - HUD
10,320,520
9,634,111
686,409
7
Brokered
17,091,925
15,224,581
1,867,344
12
Principal Lending and Investing
40,000
251,815
(211,815
)
(84
)
Total Servicing Portfolio
$
128,959,434
$
120,778,424
$
8,181,010
7
%
Assets under management
17,334,877
17,017,355
317,522
2
Total Managed Portfolio
$
146,294,311
$
137,795,779
$
8,498,532
6
%
Custodial escrow account balance at period
end (in billions)
$
2.8
$
3.1
Weighted-average servicing fee rate (basis
points)
24.2
24.7
Weighted-average remaining servicing
portfolio term (years)
8.4
8.9
Discussion of Results:
- Our servicing portfolio continues to expand as a result of the
additional GSE and brokered debt financing volumes over the past 12
months, partially offset by principal paydowns and loan
payoffs.
- During the third quarter of 2023, we added $2.3 billion of net
loans to our servicing portfolio, and over the past 12 months, we
added $8.2 billion of net loans to our servicing portfolio, 71% of
which were Fannie Mae and Freddie Mac loans.
- $9.7 billion of Agency loans in our servicing portfolio are
scheduled to mature over the next two years. These loans, with a
low weighted-average servicing fee of 18.7 basis points, represent
only 9% of our total Agency loans in the portfolio.
- The mortgage servicing rights (“MSRs”) associated with our
servicing portfolio had a fair value of $1.4 billion as of
September 30, 2023 compared to $1.3 billion as of September 30,
2022.
- Assets under management (“AUM”) as of September 30, 2023
consisted of $15.2 billion of tax-credit equity funds, $1.4 billion
of commercial real estate loans and funds, and $0.7 billion of
loans in our interim lending joint venture.
KEY PERFORMANCE METRICS
(dollars in thousands, except per share
amounts)
Q3 2023
Q3 2022
$ Variance
% Variance
Walker & Dunlop net income
$
21,458
$
46,833
$
(25,375)
(54)
%
Adjusted EBITDA
74,065
74,990
(925)
(1)
Diluted EPS
$
0.64
$
1.40
$
(0.76)
(54)
%
Adjusted core EPS
$
1.11
$
1.41
$
(0.30)
(21)
%
Operating margin
10
%
17
%
Return on equity
5
11
Key Expense Metrics (as a percentage of
total revenues):
Personnel expenses
51
%
50
%
Other operating expenses
11
11
Discussion of Results:
- The decrease in Walker & Dunlop net income was primarily
due to the decline in total transaction volume and associated
revenues, combined with an increase in the effective tax rate. The
effective tax rate increased from 14.0% in the third quarter of
2022 to 25.1% in the third quarter of 2023. The effective tax rate
was unusually low in the third quarter of 2022 due to a one-time
benefit to tax expense related to our corporate restructuring and
repatriation of intellectual property acquired from GeoPhy, which
reduced our tax expense by $6.3 million.
- The slight decrease in adjusted EBITDA was primarily the result
of lower fee income from the decline in total transaction volumes
and a decrease in net warehouse interest income. These decreases
were largely offset by increased placement fees and other interest
income (formerly known as “escrows and other interest income”) and
lower personnel and other operating expenses.
- Operating margin decreased due to the significant decline in
total transaction volume this quarter that decreased income from
operations. Our transaction-related businesses are scaled to
execute a significantly larger volume of business, and lower
commercial real estate transaction activity has put pressure on our
operating margins.
- Return on equity declined due to the 54% decrease in net income
combined with a 3% increase in stockholders’ equity over the past
year.
KEY CREDIT METRICS
(dollars in thousands)
Q3 2023
Q3 2022
$ Variance
% Variance
At-risk servicing portfolio (5)
$
57,857,659
$
53,430,615
$
4,427,044
8
%
Maximum exposure to at-risk portfolio
(6)
11,750,068
10,826,654
923,414
9
Defaulted loans (7)
$
—
$
78,203
$
(78,203
)
(100
)%
Key credit metrics (as a percentage of
the at-risk portfolio):
Defaulted loans
0.00
%
0.15
%
Allowance for risk-sharing
0.05
0.09
Key credit metrics (as a percentage of
maximum exposure):
Allowance for risk-sharing
0.26
%
0.46
%
Discussion of Results:
- Our at-risk servicing portfolio, which is comprised of loans
subject to a defined risk-sharing formula, increased primarily due
to the level of Fannie Mae loans added to the portfolio during the
past 12 months. As of September 30, 2023, no at-risk loans were in
default compared to three loans totaling $78.2 million as of
September 30, 2022, as losses on two loans were settled with Fannie
Mae over the past year, and another loan was brought current. The
at-risk servicing portfolio continues to exhibit strong credit
quality, with very low levels of delinquencies and strong operating
performance of the underlying properties in the portfolio.
- The on-balance sheet interim loan portfolio, which is comprised
of loans for which we have full risk of loss, was $40.0 million as
of September 30, 2023 compared to $251.8 million as of September
30, 2022. We did not have any defaulted loans in our interim loan
portfolio as of September 30, 2023, compared to one defaulted loan
of $14.7 million in our interim loan portfolio as of September 30,
2022. During the second quarter of 2023, we sold the defaulted
asset. The two remaining loans in the on-balance sheet interim loan
portfolio are current and performing as of September 30, 2023. The
interim loan joint venture held $736.3 million of loans as of
September 30, 2023 and $900.0 million of loans as of September 30,
2022. We share in a small portion of the risk of loss, and, as of
September 30, 2023, all loans in the interim loan joint venture are
current and performing.
- We take credit risk exclusively on loans backed by multifamily
assets and have no credit exposure to losses in any other sector of
the commercial real estate lending market.
THIRD QUARTER 2023 - FINANCIAL RESULTS BY
SEGMENT
FINANCIAL RESULTS - CAPITAL
MARKETS
(dollars in thousands)
Q3 2023
Q3 2022
$ Variance
% Variance
Loan origination and debt brokerage fees,
net ("Origination fees")
$
56,149
$
89,752
$
(33,603
)
(37
)%
Fair value of expected net cash flows from
servicing, net ("MSR income")
35,375
55,291
(19,916
)
(36
)
Property sales broker fees
16,862
30,308
(13,446
)
(44
)
Net warehouse interest income (expense),
LHFS
(2,565
)
2,178
(4,743
)
(218
)
Other revenues
11,875
11,011
864
8
Total revenues
$
117,696
$
188,540
$
(70,844
)
(38
)%
Personnel
$
97,973
$
128,981
$
(31,008
)
(24
)%
Amortization and depreciation
1,137
1,052
85
8
Interest expense on corporate debt
4,874
2,430
2,444
101
Other operating expenses
4,193
6,869
(2,676
)
(39
)
Total expenses
$
108,177
$
139,332
$
(31,155
)
(22
)%
Income from operations
$
9,519
$
49,208
$
(39,689
)
(81
)%
Income tax expense
2,386
12,468
(10,082
)
(81
)
Net income before noncontrolling
interests
$
7,133
$
36,740
$
(29,607
)
(81
)%
Less: net income (loss) from
noncontrolling interests
83
277
(194
)
(70
)
Walker & Dunlop net income
$
7,050
$
36,463
$
(29,413
)
(81
)%
Key revenue metrics (as a percentage of
debt financing volume):
Origination fee margin (8)
0.93
%
0.76
%
MSR margin (9)
0.58
0.47
Agency MSR margin (10)
1.22
1.05
Key performance metrics:
Operating margin
8
%
26
%
Adjusted EBITDA
$
(15,704
)
$
1,302
$
(17,006
)
(1,306
)%
Capital Markets - Discussion of
Quarterly Results:
The Capital Markets segment includes our Agency lending, debt
brokerage, property sales, appraisal and valuation services, and
housing market research businesses.
- The decrease in origination fees was primarily the result of a
decrease in our overall debt financing volume, partially offset by
an increase in the origination fee margin due to (i) an increase in
Agency debt financing volume as a percentage of overall debt
financing volume from 44% in the third quarter of 2022 to 48% in
the third quarter of 2023 and (ii) increased profitability from our
Agency debt financing volume.
- The decrease in MSR income is attributable to a 45% decrease in
Agency debt financing volume, partially offset by a 17 basis point
increase in the Agency MSR margin due to an increase in the
prepayment-protected term of the loans year over year.
- The decrease in property sales broker fees was primarily driven
by the decrease in property sales volumes.
- The significant decrease in net warehouse interest income was
driven by an inverted yield curve during the third quarter of 2023.
Short-term interest rates upon which we incur interest expense were
higher than the long-term mortgage rates upon which we earn
interest income.
- Personnel expense decreased primarily due to decreases in (i)
commissions expense as a result of the decline in origination fees
and property sales broker fees and (ii) salaries and bonuses due to
the workforce reduction announced in April and our financial
performance.
- The increase in interest expense on corporate debt is the
result of increases in (i) interest rates year over year, as our
term loan carries a floating interest rate, and (ii) the balance of
our corporate debt.
- The decrease in other operating expenses is the result of our
cost-reduction initiatives in 2023.
- The decrease in adjusted EBITDA is due to the decreases in
origination fees and property sales broker fees, partially offset
by the decreases in personnel costs and other operating
expenses.
FINANCIAL RESULTS - SERVICING
& ASSET MANAGEMENT
(dollars in thousands)
Q3 2023
Q3 2022
$ Variance
% Variance
Origination fees
$
—
$
1,106
$
(1,106
)
(100
)%
Servicing fees
79,200
75,975
3,225
4
Investment management fees
13,362
16,301
(2,939
)
(18
)
Net warehouse interest income, LHFI
534
1,802
(1,268
)
(70
)
Placement fees and other interest
income
39,475
17,760
21,715
122
Other revenues
15,569
16,378
(809
)
(5
)
Total revenues
$
148,140
$
129,322
$
18,818
15
%
Personnel
$
17,139
$
18,728
$
(1,589
)
(8
)%
Amortization and depreciation
54,375
57,139
(2,764
)
(5
)
Provision (benefit) for credit losses
421
1,218
(797
)
(65
)
Interest expense on corporate debt
11,096
6,324
4,772
75
Other operating expenses
5,039
5,237
(198
)
(4
)
Total expenses
$
88,070
$
88,646
$
(576
)
(1
)%
Income from operations
$
60,070
$
40,676
$
19,394
48
%
Income tax expense
15,040
10,204
4,836
47
Net income before noncontrolling
interests
$
45,030
$
30,472
$
14,558
48
%
Less: net income (loss) from
noncontrolling interests
(397
)
(451
)
54
(12
)
Walker & Dunlop net income
$
45,427
$
30,923
$
14,504
47
%
Key performance metrics:
Operating margin
41
%
31
%
Adjusted EBITDA
$
124,849
$
106,281
$
18,568
17
%
Servicing & Asset Management -
Discussion of Quarterly Results:
The Servicing & Asset Management segment includes loan
servicing, principal lending and investing, management of
third-party capital invested in tax credit equity funds focused on
the affordable housing sector and other commercial real estate, and
real estate-related investment banking and advisory services.
- The $8.2 billion net increase in the servicing portfolio over
the past 12 months was the principal driver of the growth in
servicing fees year over year, partially offset by a decrease in
the servicing portfolio’s weighted-average servicing fee.
- Placement fees and other interest income increased largely as a
result of higher placement fees from escrow deposits due to
substantially higher short-term interest rates.
- Personnel expense was lower due to a decrease in
performance-based compensation expenses year over year.
- The decrease in the provision (benefit) for credit losses was
related to a lower increase in the at-risk servicing portfolio
during the third quarter of 2023 than during the third quarter of
2022.
- The increase in interest expense on corporate debt is the
result of increases in (i) interest rates year over year, as our
term loan carries a floating interest rate, and (ii) the balance of
our corporate debt.
- The increase in adjusted EBITDA was largely the result of a
significant increase in placement fees and other interest
income.
FINANCIAL RESULTS -
CORPORATE
(dollars in thousands)
Q3 2023
Q3 2022
$ Variance
% Variance
Other interest income
$
3,525
$
369
$
3,156
855
%
Other revenues
(618
)
(2,620
)
2,002
(76
)
Total revenues
$
2,907
$
(2,251
)
$
5,158
(229
)%
Personnel
$
21,395
$
9,350
$
12,045
129
%
Amortization and depreciation
1,967
1,655
312
19
Interest expense on corporate debt
1,624
552
1,072
194
Other operating expenses
19,297
21,885
(2,588
)
(12
)
Total expenses
$
44,283
$
33,442
$
10,841
32
%
Income (loss) from operations
$
(41,376
)
$
(35,693
)
$
(5,683
)
16
%
Income tax expense (benefit)
(10,357
)
(15,140
)
4,783
(32
)
Walker & Dunlop net income
(loss)
$
(31,019
)
$
(20,553
)
$
(10,466
)
51
%
Key performance metric:
Adjusted EBITDA
$
(35,080
)
$
(32,593
)
$
(2,487
)
8
%
Corporate - Discussion of Quarterly
Results:
The Corporate segment consists of corporate-level activities
including accounting, information technology, legal, human
resources, marketing, internal audit, and various other corporate
groups (“support functions”). The Company does not allocate costs
from these support functions to its other segments in presenting
segment operating results.
- The increase in total revenues was primarily driven by the
increase in interest income from our corporate cash balances due to
higher short-term interest rates combined with an increase in
average balances held in interest earning accounts. Additionally,
other revenues, which primarily consist of gains and losses on
equity-method investments, shifted to a smaller loss year over year
due to improved performance of several equity-method
investments.
- The increase in personnel expense is related to the timing of
adjustments to performance-based compensation. In the third quarter
of 2022, we significantly decreased the accruals for subjective
bonuses and performance-based stock compensation due to the
Company’s performance during the third quarter of 2022 and
expectations for the remainder of the year, resulting in very low
net personnel expenses. For the third quarter of 2023, there were
no such adjustments.
- The increase in interest expense on corporate debt is the
result of increases in (i) interest rates year over year, as our
term loan carries a floating interest rate, and (ii) the balance of
our corporate debt.
- The decrease in other operating expenses is the result of our
cost-reduction initiatives in 2023.
CONSOLIDATED YEAR-TO-DATE 2023 OPERATING
RESULTS
YEAR-TO-DATE OPERATING RESULTS
AND KEY PERFORMANCE METRICS
(dollars in thousands)
YTD 2023
YTD 2022
$ Variance
% Variance
Debt financing volume
$
17,781,027
$
35,711,568
$
(17,930,541
)
(50
)%
Property sales volume
5,907,138
16,417,367
(10,510,229
)
(64
)
Total transaction volume
$
23,688,165
$
52,128,935
$
(28,440,770
)
(55
)%
Total revenues
780,104
975,903
(195,799
)
(20
)
Total expenses
681,274
758,112
(76,838
)
(10
)
Walker & Dunlop net income
$
75,758
$
172,328
$
(96,570
)
(56
)%
Adjusted EBITDA
212,541
232,470
(19,929
)
(9
)
Diluted EPS
$
2.25
$
5.13
$
(2.88
)
(56
)%
Adjusted core EPS
$
3.25
$
4.38
$
(1.13
)
(26
)%
Operating margin
13
%
22
%
Return on equity
6
14
Discussion of Year-to-Date
Results:
- The decrease in total transaction volume was driven by declines
in every execution, including a 36% decrease in Agency debt
financing volume, a 59% decrease in brokered debt financing volume,
and a 64% decrease in property sales volume.
- The decrease in Walker & Dunlop net income was primarily
driven by the decreased transaction volume.
- The decrease in adjusted EBITDA was driven by decreases in (i)
origination fees and property sales broker fees driven by the
decreases in related transaction volumes and (ii) net warehouse
interest income due to the inverted yield curve throughout 2023,
partially offset by an increase in placement fees and other
interest income and investment banking fees and decreases in (i)
commissions costs from lower transaction volume, and (ii) other
operating expenses due to our cost-reduction initiatives that have
resulted in $16.0 million in savings year to date in 2023.
- Operating margin decreased primarily as a result of the
significant decline in our transaction activity.
- Return on equity declined largely as a result of the 56%
decrease in net income combined with a 3% increase in stockholders’
equity over the past year.
YEAR-TO-DATE 2023 – FINANCIAL RESULTS BY
SEGMENT
YEAR-TO-DATE FINANCIAL RESULTS
- CAPITAL MARKETS
(dollars in thousands)
YTD 2023
YTD 2022
$ Variance
% Variance
Origination fees
$
167,679
$
273,660
$
(105,981
)
(39
)%
MSR income
107,446
159,970
(52,524
)
(33
)
Property sales broker fees
38,831
100,092
(61,261
)
(61
)
Net warehouse interest income (expense),
LHFS
(7,006
)
9,415
(16,421
)
(174
)
Other revenues
40,735
29,838
10,897
37
Total revenues
$
347,685
$
572,975
$
(225,290
)
(39
)%
Personnel
$
281,502
$
372,656
$
(91,154
)
(24
)%
Amortization and depreciation
3,412
2,191
1,221
56
Interest expense on corporate debt
13,870
5,488
8,382
153
Other operating expenses
15,037
19,943
(4,906
)
(25
)
Total expenses
$
313,821
$
400,278
$
(86,457
)
(22
)%
Income from operations
$
33,864
$
172,697
$
(138,833
)
(80
)%
Income tax expense
8,462
41,878
(33,416
)
(80
)
Net income before noncontrolling
interests
$
25,402
$
130,819
$
(105,417
)
(81
)%
Less: net income (loss) from
noncontrolling interests
1,741
995
746
75
Walker & Dunlop net income
$
23,661
$
129,824
$
(106,163
)
(82
)%
Capital Markets - Discussion of
Year-to-Date Results:
- The decrease in origination fees was primarily the result of a
decrease in our overall debt financing volume, partially offset by
an increase in the origination fee margin due to (i) an increase in
Agency debt financing volume as a percentage of overall debt
financing volume and (ii) increased profitability in our GSE debt
financing volume.
- The decrease in MSR income is primarily attributable to a 36%
decrease in Agency debt financing volume partially offset by a
five-basis point increase in our Agency MSR margin.
- The decrease in property sales broker fees was primarily driven
by a 64% decrease in property sales volumes.
- The decrease in net warehouse interest income was primarily due
to an inverted yield curve during 2023. Short-term interest rates
upon which we incur interest expense were higher than the long-term
mortgage rates upon which we earn interest income.
- The increase in other revenues was primarily a result of an
increase in investment banking revenues, driven by a large
transaction closed by our team during the first quarter of 2023,
and assumptions fees.
- The decrease in personnel expense was primarily driven by a
decrease in commissions expense related to lower year-over-year
property sales broker fees and origination fees.
- The increase in interest expense on corporate debt is the
result of increases in (i) interest rates year over year, as our
term loan carries a floating interest rate, and (ii) the balance of
our corporate debt.
- The decrease in other operating expenses is the result of our
cost-reduction initiatives in 2023.
YEAR-TO-DATE FINANCIAL RESULTS
- SERVICING & ASSET MANAGEMENT
(dollars in thousands)
YTD 2023
YTD 2022
$ Variance
% Variance
Origination fees
$
522
$
2,113
$
(1,591
)
(75
)%
Servicing fees
232,027
222,916
9,111
4
Investment management fees
44,844
47,345
(2,501
)
(5
)
Net warehouse interest income, LHFI
3,450
4,606
(1,156
)
(25
)
Placement fees and other interest
income
100,636
26,166
74,470
285
Other revenues
42,697
57,624
(14,927
)
(26
)
Total revenues
$
424,176
$
360,770
$
63,406
18
%
Personnel
$
53,669
$
53,211
$
458
1
%
Amortization and depreciation
161,935
170,501
(8,566
)
(5
)
Provision (benefit) for credit losses
(11,088
)
(13,120
)
2,032
(15
)
Interest expense on corporate debt
31,385
15,388
15,997
104
Other operating expenses
16,465
15,535
930
6
Total expenses
$
252,366
$
241,515
$
10,851
4
%
Income from operations
$
171,810
$
119,255
$
52,555
44
%
Income tax expense
42,931
28,919
14,012
48
Net income before noncontrolling
interests
$
128,879
$
90,336
$
38,543
43
%
Less: net income (loss) from
noncontrolling interests
(3,364
)
(2,027
)
(1,337
)
66
Walker & Dunlop net income
$
132,243
$
92,363
$
39,880
43
%
Servicing & Asset Management -
Discussion of Year-to-Date Results:
- The $8.2 billion net increase in the servicing portfolio over
the past 12 months was the principal driver of the growth in
servicing fees year over year, partially offset by a decrease in
the servicing portfolio’s weighted-average servicing fee.
- Placement fees and other interest income increased, largely as
a result of higher placement fee revenue on escrow deposit accounts
due to substantially higher short-term interest rates, partially
offset by a slight decrease in average escrow deposits.
- Other revenues decreased primarily due to a significant decline
prepayment activity, partially offset by increases in syndication
and other miscellaneous fees from our LIHTC operations.
- The decrease in amortization and depreciation is largely the
result of a reduction in write offs of MSRs due to early loan
prepayments in a higher interest rate environment, partially offset
by an increase in amortization expense for existing MSRs.
- For both 2023 and 2022, the benefits for credit losses were
primarily due to the impact of updating our historical loss rate
factor. The updates occurred in the first quarter of each year and
resulted in a reduction of the historical loss rate for both 2023
and 2022. The historical loss rate adjustment in 2023 was less than
the adjustment in 2022.
- The increase in interest expense on corporate debt is the
result of increases in (i) interest rates year over year, as our
term loan carries a floating interest rate, and (ii) the balance of
our corporate debt.
YEAR-TO-DATE FINANCIAL RESULTS
- CORPORATE
(dollars in thousands)
YTD 2023
YTD 2022
$ Variance
% Variance
Other interest income
$
8,674
$
517
$
8,157
1,578
%
Other revenues
(431
)
41,641
(42,072
)
(101
)
Total revenues
$
8,243
$
42,158
$
(33,915
)
(80
)%
Personnel
$
53,254
$
43,741
$
9,513
22
%
Amortization and depreciation
5,390
4,409
981
22
Interest expense on corporate debt
4,623
1,247
3,376
271
Other operating expenses
51,820
66,922
(15,102
)
(23
)
Total expenses
$
115,087
$
116,319
$
(1,232
)
(1
)%
Income (loss) from operations
$
(106,844
)
$
(74,161
)
$
(32,683
)
44
%
Income tax expense (benefit)
(26,698
)
(24,302
)
(2,396
)
10
Walker & Dunlop net income
(loss)
$
(80,146
)
$
(49,859
)
$
(30,287
)
61
%
Corporate - Discussion of Year-to-Date
Results:
- The increase in other interest income was primarily driven by
interest income from our corporate cash balances due to higher
short-term interest rates year over year combined with an increase
in the average balance held in interest earnings accounts.
- The decrease in other revenues was primarily driven by a $39.6
million gain from the revaluation of an equity-method investment in
connection with an acquisition, a unique transaction in 2022.
Additionally, income from equity-method investments decreased,
partially offset by an increase in revenues from our deferred
compensation plan.
- The increase in personnel expense is related to (i) an increase
in corporate average headcount, which was the primary driver in
increased subjective bonus and salaries and benefits expenses, and
(ii) and increase in deferred compensation costs, partially offset
by a decrease in performance-based stock compensation expense. The
corporate average headcount for the nine months ended September 30,
2023 does not fully reflect the impact of our workforce reduction
that we announced in April and that was effective at the beginning
of May.
- The increase in interest expense on corporate debt is the
result of increases in (i) interest rates year over year, as our
term loan carries a floating interest rate, and (ii) the balance of
our corporate debt.
- The decrease in other operating expenses is the result of our
cost-reduction initiatives in 2023.
CAPITAL SOURCES AND USES
On November 8, 2023, the Company’s Board of Directors declared a
dividend of $0.63 per share for the fourth quarter of 2023. The
dividend will be paid on December 8, 2023 to all holders of record
of the Company’s restricted and unrestricted common stock as of
November 24, 2023.
On January 12, 2023, the Company entered into a lender joinder
agreement and amendment to our existing credit agreement that
provided for an incremental term loan with a principal amount of
$200 million. The incremental term loan bears interest at a rate
equal to adjusted Term SOFR plus 3.00% per annum and matures in
December 2028. Proceeds from the debt were used to repay $116
million of debt assumed in the Company’s acquisition of Alliant and
strengthen its balance sheet for general corporate purposes.
On February 20, 2023, our Board of Directors authorized the
repurchase of up to $75.0 million of the Company’s outstanding
common stock over a 12-month period ending February 23, 2024 (“2023
Share Repurchase Program”). As of September 30, 2023, the Company
had $75.0 million of authorized share repurchase capacity remaining
under the 2023 Share Repurchase Program.
Any purchases made pursuant to the 2023 Share Repurchase 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,” “Adjusted
Financial Measure Reconciliation to GAAP” and “Adjusted Financial
Measure Reconciliation to GAAP by Segment.”
(2)
Adjusted core EPS is a non-GAAP
financial measure the Company presents to help investors better
understand our operating performance. For a reconciliation of
Adjusted core EPS to Diluted EPS, refer to the sections of this
press release below titled “Non-GAAP Financial Measures” and
“Adjusted Core EPS Reconciliation.”
(3)
Brokered transactions for life
insurance companies, commercial banks, and other capital
sources.
(4)
Includes debt financing volumes
from our interim loan program, our interim loan joint venture, and
WDIP separate accounts.
(5)
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.
(6)
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.
(7)
Defaulted loans represent loans
in our Fannie Mae at-risk portfolio which are probable of
foreclosure or that have foreclosed and for which we have recorded
a collateral-based reserve (i.e. loans where we have assessed a
probable loss). Other loans that have defaulted but not foreclosed
or that are not probable of foreclosure are not included here.
Additionally, loans that have foreclosed or are probable of
foreclosure but are not expected to result in a loss to us are not
included here.
(8)
Origination fees as a percentage
of debt financing volume. Excludes the income and debt financing
volume from Principal Lending and Investing.
(9)
MSR income as a percentage of
debt financing volume. Excludes the income and debt financing
volume from Principal Lending and Investing.
(10)
MSR income as a percentage of
Agency debt financing volume.
CONFERENCE CALL INFORMATION
The Company will host a conference call to discuss its quarterly
results on Thursday, November 9, 2023 at 8:30 a.m. Eastern
time. Listeners can access the call via the dial-in number and
webcast link below. 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.
Phone: (888) 204-4368 from within the United States; (773)
305-6853 from outside the United States
Confirmation Code: 1462801
Webcast Link:
https://event.webcasts.com/starthere.jsp?ei=1622436&tp_key=aa06dbe41d
ABOUT WALKER & DUNLOP
Walker & Dunlop (NYSE: WD) is one of the largest commercial
real estate finance and advisory services firms in the United
States. Our ideas and capital create communities where people live,
work, shop, and play. The diversity of our people, breadth of our
brand and technological capabilities make us one of the most
insightful and client-focused firms in the commercial real estate
industry.
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, adjusted core net
income, and adjusted core EPS, which are non-GAAP financial
measures. The presentation of these non-GAAP financial measures 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, adjusted core net income, and
adjusted core EPS in addition to, and not as an alternative for,
net income and diluted EPS.
Adjusted core net income and adjusted core EPS represent net
income adjusted for amortization and depreciation, provision
(benefit) for credit losses, net write-offs, the fair value of
expected net cash flows from servicing, net, the income statement
impact from periodic revaluation and accretion associated with
contingent consideration liabilities related to acquired companies,
net of goodwill impairment resulting directly from the revaluation
of contingent consideration liabilities, and other one-time
adjustments, such as the gain associated with the revaluation of
our previously held equity-method investment in connection with an
acquisition, one-time benefit to tax expense related to our
corporate restructuring and repatriation of intellectual property
from an acquired subsidiary, and goodwill impairment resulting from
our annual goodwill impairment test or our quarterly evaluations of
recoverability. Adjusted EBITDA represents net income before income
taxes, interest expense on our corporate debt, and amortization and
depreciation, adjusted for provision (benefit) for credit losses,
net write-offs, stock-based incentive compensation charges, the
fair value of expected net cash flows from servicing, net, the
write-off of the unamortized balance of premium associated with the
repayment of a portion of our corporate debt, goodwill impairment,
and the gain from revaluation of a previously held equity-method
investment. The goodwill impairment that is incorporated into the
calculation of Adjusted EBITDA includes goodwill impairment
resulting from our annual goodwill impairment test and the
quarterly evaluations of recoverability. Goodwill impairment that
results from a downward fair value adjustment to contingent
consideration liabilities is not included as an adjustment to GAAP
net income to arrive at Adjusted EBITDA since the goodwill
impairment is offset by the downward fair value adjustment to the
contingent consideration liability, resulting in no net impact to
GAAP net income. 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. Because not all
companies use identical calculations, our presentation of adjusted
EBITDA, adjusted core net income and adjusted core EPS may not be
comparable to similarly titled measures of other companies.
We use adjusted EBITDA, adjusted core net income, and adjusted
core EPS 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 these
non-GAAP measures, when read in conjunction with the Company's GAAP
financial information, provide 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 these non-GAAP financial measures have
limitations in that they do not reflect all of the amounts
associated with the Company's results of operations as determined
in accordance with GAAP and that these non-GAAP financial measures
should only be used to evaluate the Company's results of operations
in conjunction with the Company’s GAAP financial information. For
more information on adjusted EBITDA, adjusted core net income, and
adjusted core EPS, refer to the section of this press release below
titled “Adjusted Financial Measure Reconciliation to GAAP” and
“Adjusted Financial Measure Reconciliation to GAAP By Segment.”
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) changes in interest rates, (3) regulatory and/or
legislative changes to Freddie Mac, Fannie Mae or HUD, (4) our
ability to retain and attract loan originators and other
professionals, (5) success of our various investments funded with
corporate capital, and (6) changes in federal government fiscal and
monetary policies, including any constraints or cuts in federal
funds allocated to HUD for loan originations.
For a further discussion of these and other factors that could
cause future results to differ materially from those expressed or
contemplated in any forward-looking statements, see the section
titled “Risk Factors” in our most recent Annual Report on Form 10-K
and any updates or supplements in subsequent 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
Unaudited
September 30,
June 30,
March 31,
December 31,
September 30,
2023
2023
2023
2022
2022
(in thousands)
Assets
Cash and cash equivalents
$
236,321
$
228,091
$
188,389
$
225,949
$
152,188
Restricted cash
17,768
21,769
20,504
17,676
40,246
Pledged securities, at fair value
177,509
170,666
165,081
157,282
151,413
Loans held for sale, at fair value
758,926
1,303,686
934,991
396,344
2,180,117
Mortgage servicing rights
921,746
932,131
946,406
975,226
967,770
Goodwill
949,710
963,710
959,712
959,712
948,164
Other intangible assets
185,927
189,919
194,208
198,643
202,834
Receivables, net
265,234
242,397
224,776
202,251
216,963
Committed investments in tax credit
equity
212,296
165,136
207,750
254,154
214,430
Other assets, net
552,414
589,919
651,235
658,122
928,888
Total assets
$
4,277,851
$
4,807,424
$
4,493,052
$
4,045,359
$
6,003,013
Liabilities
Warehouse notes payable
$
790,742
$
1,342,187
$
1,031,277
$
537,531
$
2,540,106
Notes payable
774,677
775,995
777,311
704,103
711,107
Allowance for risk-sharing obligations
30,957
32,410
33,087
44,057
49,658
Commitments to fund investments in tax
credit equity
196,250
156,617
196,522
239,281
198,073
Other liabilities
754,234
775,718
739,759
803,558
809,366
Total liabilities
$
2,546,860
$
3,082,927
$
2,777,956
$
2,328,530
$
4,308,310
Stockholders' Equity
Common stock
$
328
$
327
$
327
$
323
$
323
Additional paid-in capital
420,062
412,182
405,303
412,636
407,417
Accumulated other comprehensive income
(loss)
(1,864
)
(1,465
)
(1,621
)
(1,568
)
(1,460
)
Retained earnings
1,287,653
1,287,334
1,281,119
1,278,035
1,256,663
Total stockholders’ equity
$
1,706,179
$
1,698,378
$
1,685,128
$
1,689,426
$
1,662,943
Noncontrolling interests
24,812
26,119
29,968
27,403
31,760
Total equity
$
1,730,991
$
1,724,497
$
1,715,096
$
1,716,829
$
1,694,703
Commitments and contingencies
—
—
—
—
—
Total liabilities and stockholders'
equity
$
4,277,851
$
4,807,424
$
4,493,052
$
4,045,359
$
6,003,013
Walker & Dunlop, Inc. and
Subsidiaries
Condensed Consolidated Statements
of Income and Comprehensive Income
Unaudited
Quarterly Trends
Nine months ended
September 30,
(in thousands, except per share
amounts)
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
2023
2022
Revenues
Loan origination and debt brokerage fees,
net ("Origination fees")
$
56,149
$
64,968
$
47,084
$
72,234
$
90,858
$
168,201
$
275,773
Fair value of expected net cash flows from
servicing, net ("MSR income")
35,375
42,058
30,013
31,790
55,291
107,446
159,970
Servicing fees
79,200
77,061
75,766
77,275
75,975
232,027
222,916
Property sales broker fees
16,862
10,345
11,624
20,490
30,308
38,831
100,092
Investment management fees
13,362
16,309
15,173
24,586
16,301
44,844
47,345
Net warehouse interest income
(expense)
(2,031
)
(1,526
)
1
1,756
3,980
(3,556
)
14,021
Placement fees and other interest
income
43,000
35,386
30,924
26,147
18,129
109,310
26,683
Other revenues
26,826
28,014
28,161
28,572
24,769
83,001
129,103
Total revenues
$
268,743
$
272,615
$
238,746
$
282,850
$
315,611
$
780,104
$
975,903
Expenses
Personnel
$
136,507
$
133,305
$
118,613
$
137,758
$
157,059
$
388,425
$
469,608
Amortization and depreciation
57,479
56,292
56,966
57,930
59,846
170,737
177,101
Provision (benefit) for credit losses
421
(734
)
(10,775
)
1,142
1,218
(11,088
)
(13,120
)
Interest expense on corporate debt
17,594
17,010
15,274
12,110
9,306
49,878
22,123
Other operating expenses
28,529
30,730
24,063
26,736
33,991
83,322
102,400
Total expenses
$
240,530
$
236,603
$
204,141
$
235,676
$
261,420
$
681,274
$
758,112
Income from operations
$
28,213
$
36,012
$
34,605
$
47,174
$
54,191
$
98,830
$
217,791
Income tax expense
7,069
10,491
7,135
9,539
7,532
24,695
46,495
Net income before noncontrolling
interests
$
21,144
$
25,521
$
27,470
$
37,635
$
46,659
$
74,135
$
171,296
Less: net income (loss) from
noncontrolling interests
(314
)
(2,114
)
805
(3,857
)
(174
)
(1,623
)
(1,032
)
Walker & Dunlop net income
$
21,458
$
27,635
$
26,665
$
41,492
$
46,833
$
75,758
$
172,328
Net change in unrealized gains (losses) on
pledged available-for-sale securities, net of taxes
(399
)
156
(53
)
(108
)
(1,238
)
(296
)
(4,018
)
Walker & Dunlop comprehensive
income
$
21,059
$
27,791
$
26,612
$
41,384
$
45,595
$
75,462
$
168,310
Effective Tax Rate
25
%
29
%
21
%
20
%
14
%
25
%
21
%
Basic earnings per share
$
0.64
$
0.82
$
0.80
$
1.25
$
1.41
$
2.26
$
5.18
Diluted earnings per share
0.64
0.82
0.79
1.24
1.40
2.25
5.13
Cash dividends paid per common share
0.63
0.63
0.63
0.60
0.60
1.89
1.80
Basic weighted-average shares
outstanding
32,737
32,695
32,529
32,361
32,290
32,654
32,300
Diluted weighted-average shares
outstanding
32,895
32,851
32,816
32,675
32,620
32,853
32,645
SUPPLEMENTAL OPERATING
DATA
Unaudited
Quarterly Trends
Nine months ended
September 30,
(in thousands, except per share data)
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
2023
2022
Transaction Volume:
Components of Debt Financing
Volume
Fannie Mae
$
1,739,332
$
2,230,952
$
1,358,708
$
994,590
$
3,038,788
$
5,328,992
$
8,955,562
Freddie Mac
1,072,048
1,212,887
975,737
2,305,826
1,885,492
3,260,672
4,014,375
Ginnie Mae - HUD
86,557
147,773
127,599
186,784
338,054
361,929
931,230
Brokered (1)
3,149,457
3,316,223
2,363,754
4,375,704
6,601,244
8,829,434
21,502,815
Principal Lending and Investing (2)
—
—
—
31,512
62,015
—
307,586
Total Debt Financing Volume
$
6,047,394
$
6,907,835
$
4,825,798
$
7,894,416
$
11,925,593
$
17,781,027
$
35,711,568
Property Sales Volume
2,508,073
1,504,383
1,894,682
3,315,287
4,993,615
5,907,138
16,417,367
Total Transaction Volume
$
8,555,467
$
8,412,218
$
6,720,480
$
11,209,703
$
16,919,208
$
23,688,165
$
52,128,935
Key Performance Metrics:
Operating margin
10
%
13
%
14
%
17
%
17
%
13
%
22
%
Return on equity
5
7
6
10
11
6
14
Walker & Dunlop net income
$
21,458
$
27,635
$
26,665
$
41,492
$
46,833
$
75,758
$
172,328
Adjusted EBITDA (3)
74,065
70,501
67,975
92,625
74,990
212,541
232,470
Diluted EPS
0.64
0.82
0.79
1.24
1.40
2.25
5.13
Adjusted core EPS (4)
1.11
0.98
1.17
1.41
1.41
3.25
4.38
Key Expense Metrics (as a percentage of
total revenues):
Personnel expenses
51
%
49
%
50
%
49
%
50
%
50
%
48
%
Other operating expenses
11
11
10
9
11
11
10
Key Revenue Metrics (as a percentage of
debt financing volume):
Origination fee margin (5)
0.93
%
0.93
%
0.97
%
0.92
%
0.76
%
0.94
%
0.77
%
MSR margin (6)
0.58
0.61
0.62
0.40
0.47
0.60
0.45
Agency MSR margin (7)
1.22
1.17
1.22
0.91
1.05
1.20
1.15
Other Data:
Market capitalization at period end
$
2,433,494
$
2,586,519
$
2,489,200
$
2,542,476
$
2,708,162
Closing share price at period end
$
74.24
$
79.09
$
76.17
$
78.48
$
83.73
Average headcount
1,344
1,385
1,440
1,464
1,452
Components of Servicing Portfolio (end
of period):
Fannie Mae
$
62,850,853
$
61,356,554
$
59,890,444
$
59,226,168
$
58,426,446
Freddie Mac
38,656,136
38,287,200
38,184,798
37,819,256
37,241,471
Ginnie Mae - HUD
10,320,520
10,246,632
10,027,781
9,868,453
9,634,111
Brokered (8)
17,091,925
16,684,115
16,285,391
16,013,143
15,224,581
Principal Lending and Investing (9)
40,000
71,680
187,505
206,835
251,815
Total Servicing Portfolio
$
128,959,434
$
126,646,181
$
124,575,919
$
123,133,855
$
120,778,424
Assets under management (10)
17,334,877
16,903,055
16,654,566
16,748,449
17,017,355
Total Managed Portfolio
$
146,294,311
$
143,549,236
$
141,230,485
$
139,882,304
$
137,795,779
Key Servicing Portfolio Metrics (end of
period):
Custodial escrow deposit balance (in
billions)
$
2.8
$
2.8
$
2.2
$
2.7
$
3.1
Weighted-average servicing fee rate (basis
points)
24.2
24.3
24.3
24.5
24.7
Weighted-average remaining servicing
portfolio term (years)
8.4
8.6
8.7
8.8
8.9
____________________________________________
(1)
Brokered transactions for life
insurance companies, commercial banks, and other capital
sources.
(2)
Includes debt financing volumes
from our interim lending platform, our interim lending joint
venture, and WDIP separate accounts.
(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)
This is a non-GAAP financial
measure. For more information on adjusted core EPS, refer to the
section above titled “Non-GAAP Financial Measures.”
(5)
Origination fees as a percentage
of debt financing volume. Excludes the income and debt financing
volume from Principal Lending and Investing.
(6)
MSR income as a percentage of
debt financing volume. Excludes the income and debt financing
volume from Principal Lending and Investing.
(7)
MSR income as a percentage of
Agency debt financing volume.
(8)
Brokered loans serviced primarily
for life insurance companies.
(9)
Consists of interim loans not
managed for our interim loan joint venture.
(10)
Walker & Dunlop Affordable
Equity (“WDAE”), formerly known as “Alliant” assets under
management, commercial real estate loans and funds managed by WDIP,
and interim loans serviced for our interim loan joint venture.
KEY CREDIT METRICS
Unaudited
September 30,
June 30,
March 31,
December 31,
September 30,
(dollars in thousands)
2023
2023
2023
2022
2022
Risk-sharing servicing
portfolio:
Fannie Mae Full Risk
$
53,549,966
$
52,383,701
$
50,713,349
$
50,046,219
$
49,241,243
Fannie Mae Modified Risk
9,295,368
8,947,292
9,170,127
9,172,626
9,177,094
Freddie Mac Modified Risk
23,415
23,515
23,515
23,615
23,615
Total risk-sharing servicing
portfolio
$
62,868,749
$
61,354,508
$
59,906,991
$
59,242,460
$
58,441,952
Non-risk-sharing servicing
portfolio:
Fannie Mae No Risk
$
5,519
$
25,561
$
6,968
$
7,323
$
8,109
Freddie Mac No Risk
38,632,721
38,263,685
38,161,283
37,795,641
37,217,856
GNMA - HUD No Risk
10,320,520
10,246,632
10,027,781
9,868,453
9,634,111
Brokered
17,091,925
16,684,115
16,285,391
16,013,143
15,224,581
Total non-risk-sharing servicing
portfolio
$
66,050,685
$
65,219,993
$
64,481,423
$
63,684,560
$
62,084,657
Total loans serviced for others
$
128,919,434
$
126,574,501
$
124,388,414
$
122,927,020
$
120,526,609
Interim loans (full risk) servicing
portfolio
40,000
71,680
187,505
206,835
251,815
Total servicing portfolio unpaid
principal balance
$
128,959,434
$
126,646,181
$
124,575,919
$
123,133,855
$
120,778,424
Interim Loan Joint Venture Managed Loans
(1)
$
736,320
$
895,491
$
894,829
$
892,808
$
900,037
At-risk servicing portfolio (2)
$
57,857,659
$
56,430,098
$
54,898,461
$
54,232,979
$
53,430,615
Maximum exposure to at-risk portfolio
(3)
11,750,068
11,346,580
11,132,473
10,993,596
10,826,654
Defaulted loans(4)
—
36,983
36,983
36,983
78,203
Defaulted loans as a percentage of the
at-risk portfolio
0.00
%
0.07
%
0.07
%
0.07
%
0.15
%
Allowance for risk-sharing as a percentage
of the at-risk portfolio
0.05
0.06
0.06
0.08
0.09
Allowance for risk-sharing as a percentage
of maximum exposure
0.26
0.29
0.30
0.40
0.46
____________________________________________
(1)
This balance consists entirely of
interim loan joint venture managed loans. We indirectly share in a
portion of the risk of loss associated with interim loan joint
venture managed loans through our 15% equity ownership in the joint
venture. We had no exposure to risk of loss for the loans serviced
directly for our interim loan joint venture partner. The balance of
this line is included as a component of assets under management in
the Supplemental Operating Data table.
(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 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.
(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)
Defaulted loans represent loans
in our Fannie Mae at-risk portfolio which are probable of
foreclosure or that have foreclosed and for which we have recorded
a collateral-based reserve (i.e. loans where we have assessed a
probable loss). Other loans that have defaulted but not foreclosed
or that are not probable of foreclosure are not included here.
Additionally, loans that have foreclosed or are probable of
foreclosure but are not expected to result in a loss to us are not
included here.
ADJUSTED FINANCIAL MEASURE
RECONCILIATION TO GAAP
Unaudited
Quarterly Trends
Nine months ended
September 30,
(in thousands)
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
2023
2022
Reconciliation of Walker & Dunlop Net
Income to Adjusted EBITDA
Walker & Dunlop Net Income
$
21,458
$
27,635
$
26,665
$
41,492
$
46,833
$
75,758
$
172,328
Income tax expense
7,069
10,491
7,135
9,539
7,532
24,695
46,495
Interest expense on corporate debt
17,594
17,010
15,274
12,110
9,306
49,878
22,123
Amortization and depreciation
57,479
56,292
56,966
57,930
59,846
170,737
177,101
Provision (benefit) for credit losses
421
(734
)
(10,775
)
1,142
1,218
(11,088
)
(13,120
)
Net write-offs (1)
(2,008
)
(6,033
)
—
(4,631
)
—
(8,041
)
—
Stock-based compensation expense
7,427
7,898
7,143
6,833
5,546
22,468
27,154
Gain from revaluation of previously held
equity-method investment
—
—
—
—
—
—
(39,641
)
Write off of unamortized premium from
corporate debt repayment
—
—
(4,420
)
—
—
(4,420
)
—
Fair value of expected net cash flows from
servicing, net
(35,375
)
(42,058
)
(30,013
)
(31,790
)
(55,291
)
(107,446
)
(159,970
)
Adjusted EBITDA
$
74,065
$
70,501
$
67,975
$
92,625
$
74,990
$
212,541
$
232,470
____________________________________________
(1)
The net write-off in Q2 2023 is related to
the write off of the collateral-based reserves related to a loan
held for investment during the second quarter of 2023.
ADJUSTED FINANCIAL MEASURE
RECONCILIATION TO GAAP BY SEGMENT
Unaudited
Capital Markets
Three months ended September
30,
(in thousands)
2023
2022
Reconciliation of Walker & Dunlop Net
Income to Adjusted EBITDA
Walker & Dunlop Net Income
$
7,050
$
36,463
Income tax expense
2,386
12,468
Interest expense on corporate debt
4,874
2,430
Amortization and depreciation
1,137
1,052
Stock-based compensation expense
4,224
4,180
Fair value of expected net cash flows from
servicing, net
(35,375
)
(55,291
)
Adjusted EBITDA
$
(15,704
)
$
1,302
Servicing & Asset
Management
Three months ended September
30,
(in thousands)
2023
2022
Reconciliation of Walker & Dunlop Net
Income to Adjusted EBITDA
Walker & Dunlop Net Income
$
45,427
$
30,923
Income tax expense
15,040
10,204
Interest expense on corporate debt
11,096
6,324
Amortization and depreciation
54,375
57,139
Provision (benefit) for credit losses
421
1,218
Net write-offs
(2,008
)
—
Stock-based compensation expense
498
473
Adjusted EBITDA
$
124,849
$
106,281
Corporate
Three months ended September
30,
(in thousands)
2023
2022
Reconciliation of Walker & Dunlop Net
Income to Adjusted EBITDA
Walker & Dunlop Net Income
(Loss)
$
(31,019
)
$
(20,553
)
Income tax expense (benefit)
(10,357
)
(15,140
)
Interest expense on corporate debt
1,624
552
Amortization and depreciation
1,967
1,655
Stock-based compensation expense
2,705
893
Adjusted EBITDA
$
(35,080
)
$
(32,593
)
ADJUSTED CORE EPS
RECONCILIATION
Unaudited
Quarterly Trends
Nine months ended
September 30,
(in thousands)
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
2023
2022
Reconciliation of Walker & Dunlop Net
Income to Adjusted Core Net Income
Walker & Dunlop Net Income
$
21,458
$
27,635
$
26,665
$
41,492
$
46,833
$
75,758
$
172,328
Provision (benefit) for credit losses
421
(734
)
(10,775
)
1,142
1,218
(11,088
)
(13,120
)
Net write-offs(1)
(2,008
)
(6,033
)
—
(4,631
)
—
(8,041
)
—
Amortization and depreciation
57,479
56,292
56,966
57,930
59,846
170,737
177,101
Fair value of expected net cash flows from
servicing, net
(35,375
)
(42,058
)
(30,013
)
(31,790
)
(55,291
)
(107,446
)
(159,970
)
Contingent consideration accretion and
fair value adjustments, net of goodwill impairment(2)
574
176
177
(12,637
)
1,944
927
3,767
Gain from revaluation of previously held
equity-method investment
—
—
—
—
—
—
(39,641
)
Income tax expense adjustment(3)(4)
(5,285
)
(2,227
)
(3,372
)
(4,279
)
(7,391
)
(11,267
)
6,802
Adjusted Core Net Income
$
37,264
$
33,051
$
39,648
$
47,227
$
47,159
$
109,580
$
147,267
Reconciliation of Diluted EPS to Adjusted
core EPS
Walker & Dunlop Net Income
$
21,458
$
27,635
$
26,665
$
41,492
$
46,833
$
75,758
$
172,328
Diluted weighted-average shares
outstanding
32,895
32,851
32,816
32,675
32,620
32,853
32,645
Diluted EPS
$
0.64
$
0.82
$
0.79
$
1.24
$
1.40
$
2.25
$
5.13
Adjusted Core Net Income
$
37,264
$
33,051
$
39,648
$
47,227
$
47,159
$
109,580
$
147,267
Diluted weighted-average shares
outstanding
32,895
32,851
32,816
32,675
32,620
32,853
32,645
Adjusted Core EPS
$
1.11
$
0.98
$
1.17
$
1.41
$
1.41
$
3.25
$
4.38
____________________________________________
(1)
The net write-off in Q2 2023 is
related to the write off of the collateral-based reserves related
to a loan held for investment during the second quarter of
2023.
(2)
In cases where a fair value
adjustment to the contingent consideration liability also results
in goodwill impairment, the fair value adjustment is netted against
the corresponding and offsetting goodwill impairment.
(3)
Income tax impact of the above
adjustments to adjusted core net income. Uses quarterly or annual
effective tax rate as disclosed in the Consolidated Statements of
Income and Comprehensive Income in this “Press Release.”
(4)
Income tax expense adjustment for
Q3 2022 includes an adjustment for a one-time tax benefit of $6.3
million related to the corporate restructuring and repatriation of
intellectual property acquired from an acquired subsidiary.
Category: Earnings
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231109419901/en/
Headquarters: Phone
301.215.5500 info@walkeranddunlop.com
Investors: Kelsey Duffey
Senior Vice President, Investor Relations Phone 301.202.3207
investorrelations@walkeranddunlop.com
Media: Carol McNerney Chief
Marketing Officer Phone 301.215.5515 info@walkeranddunlop.com
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