THIRD QUARTER 2022 HIGHLIGHTS
- Total transaction volume of $16.9 billion, down 8% from Q3’21
- Total revenues of $315.6 million, down 9% from Q3’21
- Net income of $46.8 million and diluted earnings per share of $1.40, down 35% and 37%, respectively, from Q3’21
- Adjusted EBITDA1 of $75.0 million, up 4% from Q3’21
- Servicing portfolio of $120.8 billion at September 30, 2022 up 6% from September 30, 2021
- Declared quarterly dividend of $0.60 per share for the fourth quarter
YEAR-TO-DATE 2022 HIGHLIGHTS
- Total transaction volume of $52.1 billion, up 27% from 2021
- Total revenues of $975.9 million, up 15% from 2021
- Net income of $172.3 million and diluted earnings per share of $5.13, down 7% and 10%, respectively, from 2021
- Adjusted EBITDA1 of $232.5 million, up 16% from 2021
BETHESDA, Md. , Nov. 9, 2022 /PRNewswire/ — Walker & Dunlop, Inc. (NYSE: WD) (the “Company” or “W&D”) reported total revenues of $315.6 million for the third quarter of 2022, a decrease of 9% year over year. Third quarter total transaction volume was $16.9 billion, down 8% year over year. Net income for the third quarter of 2022 was $46.8 million or $1.40 per diluted share, down 35% and 37%, respectively, from the third quarter of 2021. Total revenues, net income, and diluted earnings per share were significantly impacted by a year-over-year decrease in non-cash MSR income due to spread compression on our Fannie Mae lending. Third quarter 2022 adjusted EBITDA1 was $75.0 million, up 4% over the same period in 2021, driven by the growth in cash revenues from our services businesses. The Company’s Board of Directors declared a dividend of $0.60 per share for the fourth quarter of 2022.
“W&D delivered exceptional service to our clients during a very challenging third quarter, and in the process, closed $17 billion of total transaction volume, down only 8% from last year,” commented Walker & Dunlop Chairman and CEO Willy Walker. “Our deep lending partnerships with Fannie Mae, Freddie Mac, and HUD provide counter-cyclical capital to the markets, and our year-to-date market share with Fannie Mae is 17%, up from 14% last year. Similar to the Great Financial Crisis and 2020 Pandemic, Walker & Dunlop’s focus on the multifamily market, exceptional credit track-record, access to counter-cyclical capital, and overall size and cost efficiency position us extremely well to gain share and grow in 2023.”
Mr. Walker continued, “Our business generates strong cash flows in up and down markets thanks to our Agency lending and the recurring revenues from our $138 billion servicing and asset management businesses. As a result, while total revenues and earnings were down on the quarter due to lower non-cash mortgage servicing rights, adjusted EBITDA was up 4% to $75 million.”
“The current economic outlook is uncertain. Yet we are confident in achieving our five-year, Drive to ’25 business plan. Our people, brand and technology lead the market, and our recent investments in Alliant, Zelman, small balance lending, and appraisals add fast growing, technologically-enabled businesses to W&D. We are well positioned to adjust to current market disruptions, and come out faster and better than the competition – like we have done before.”
CONSOLIDATED THIRD QUARTER 2022 OPERATING RESULTS
|
TRANSACTION VOLUMES |
||||||||||||
|
(dollars in thousands) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Fannie Mae |
$ |
3,038,788 |
$ |
3,271,765 |
$ |
(232,977) |
(7) |
% |
||||
|
Freddie Mac |
1,885,492 |
2,591,906 |
(706,414) |
(27) |
||||||||
|
Ginnie Mae – HUD |
338,054 |
522,093 |
(184,039) |
(35) |
||||||||
|
Brokered (2) |
6,601,244 |
6,402,862 |
198,382 |
3 |
||||||||
|
Principal Lending and Investing (3) |
62,015 |
472,142 |
(410,127) |
(87) |
||||||||
|
Debt financing volume |
$ |
11,925,593 |
$ |
13,260,768 |
$ |
(1,335,175) |
(10) |
% |
||||
|
Property sales volume |
4,993,615 |
5,230,093 |
(236,478) |
(5) |
||||||||
|
Total transaction volume |
$ |
16,919,208 |
$ |
18,490,861 |
$ |
(1,571,653) |
(8) |
% |
||||
Discussion of Results:
- Total debt financing volume remained strong at $11.9 billion in the third quarter of 2022, despite a 10% decline from the third quarter of 2021. The decrease was driven by a 16% decline in GSE financing volume, primarily with Freddie Mac, whose overall market volumes also decreased 17% in the third quarter of 2022 from the prior year period. Fannie Mae volume decreased 7% in the third quarter of 2022; however, our Fannie Mae year-to-date market share remained strong at 17%, which reflects our leadership position in the multifamily financing market.
- The decrease in HUD debt financing volumes was due to continued high levels of inflation and a dramatically increasing interest-rate environment during the quarter, which made HUD’s construction and streamlined refinancing products less favorable sources of financing for our multifamily properties.
- The increase in brokered volume in the third quarter of 2022 reflects our team’s ability to meet our clients’ broad range of capital needs and the impact of our investments in people, brand and technology during challenging market conditions.
- The decrease in principal lending and investing volume, which includes interim loans, originations for WDIP separate accounts, and interim lending for our joint venture, was a result of the shifting credit market outlook in a volatile interest rate environment that led to a more conservative approach to bridge lending during the quarter.
- Property sales volume decreased only 5% in the third quarter of 2022, despite a 17% year-over-year decline in market-wide multifamily property sales volume according to Real Capital Analytics. The strength of our brand and platform allowed our team to retain market share in the third quarter of 2022.
|
MANAGED PORTFOLIO |
||||||||||||
|
(dollars in thousands, unless otherwise noted) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Fannie Mae |
$ |
58,426,446 |
$ |
52,317,953 |
$ |
6,108,493 |
12 |
% |
||||
|
Freddie Mac |
37,241,471 |
38,039,014 |
(797,543) |
(2) |
||||||||
|
Ginnie Mae – HUD |
9,634,111 |
9,894,893 |
(260,782) |
(3) |
||||||||
|
Brokered |
15,224,581 |
13,429,801 |
1,794,780 |
13 |
||||||||
|
Principal Lending and Investing |
251,815 |
238,713 |
13,102 |
5 |
||||||||
|
Total Servicing Portfolio |
$ |
120,778,424 |
$ |
113,920,374 |
$ |
6,858,050 |
6 |
% |
||||
|
Assets under management |
17,017,355 |
2,309,332 |
14,708,023 |
637 |
||||||||
|
Total Managed Portfolio |
$ |
137,795,779 |
$ |
116,229,706 |
$ |
21,566,073 |
19 |
% |
||||
|
Custodial escrow account balance at period end (in billions) |
$ |
3.1 |
$ |
3.0 |
||||||||
|
Weighted-average servicing fee rate (basis points) |
24.7 |
24.6 |
||||||||||
|
Weighted-average remaining servicing portfolio term (years) |
8.9 |
9.2 |
||||||||||
Discussion of Results:
- Our servicing portfolio continues to expand as a result of the strong Fannie Mae and brokered debt financing volumes over the past 12 months, partially offset by payoffs of loans.
- During the third quarter of 2022, we added $1.8 billion of net loans to our servicing portfolio, and over the past 12 months, we added $6.9 billion of net loans to our servicing portfolio, 89% of which were Fannie Mae loans.
- $6.2 billion of Agency loans in our servicing portfolio are scheduled to mature over the next two years. These loans, with a relatively low weighted-average servicing fee of 17.1 basis points, represent only 5% of the total portfolio.
- The mortgage servicing rights (“MSRs”) associated with our servicing portfolio had a fair value of $1.3 billion as of September 30, 2022, compared to $1.2 billion as of September 30, 2021. We added net MSRs from originations of $37.9 million over the past 12 months, despite a decline of $11.0 million from the last quarter.
- Assets under management (“AUM”) as of September 30, 2022 consisted of $14.7 billion of Affordable funds, $1.4 billion of commercial real estate loans and funds, and $0.9 billion of loans in our interim lending joint venture. The year-over-year increase in AUM is driven by the acquisition of Alliant in the fourth quarter of 2021 that added $14.3 billion of Affordable assets under management upon closing.
|
KEY PERFORMANCE METRICS |
||||||||||||
|
(dollars in thousands, except per share amounts) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Walker & Dunlop net income |
$ |
46,833 |
$ |
71,721 |
$ |
(24,888) |
(35) |
% |
||||
|
Adjusted EBITDA |
74,990 |
72,430 |
2,560 |
4 |
||||||||
|
Diluted EPS |
$ |
1.40 |
$ |
2.21 |
$ |
(0.81) |
(37) |
% |
||||
|
Operating margin |
17 |
% |
27 |
% |
||||||||
|
Return on equity |
11 |
22 |
||||||||||
|
Key Expense Metrics (as a percentage of total revenues): |
||||||||||||
|
Personnel expenses |
50 |
% |
49 |
% |
||||||||
|
Other operating expenses |
11 |
7 |
||||||||||
Discussion of Results:
- The decrease in Walker & Dunlop net income was the result of a 43% decrease in income from operations, primarily due to compressed servicing fees on new debt financing volume and an associated decline in non-cash revenues. This decrease was partially offset by a 67% decrease in income tax expense primarily due to (i) the decrease in income from operations and (ii) a one-time benefit to tax expense related to our corporate restructuring and repatriation of intellectual property acquired from GeoPhy earlier this year, which reduced our tax expense by $6.3 million, partially offset by lower realizable excess tax benefits in the current year due to a lower vesting price.
- The increase in adjusted EBITDA was the result of Alliant asset management fees and other revenues due to the acquisition of Alliant in the fourth quarter of 2021, a substantial increase in escrow earnings, higher servicing fees, and lower variable compensation expense. These benefits to adjusted EBITDA were partially offset by decreases in loan origination fees and property sales broker fees and an increase in other operating expenses.
- Operating margin decreased due to the aforementioned decrease in income from operations.
- Return on equity declined due to a 22% increase in stockholders’ equity over the past year combined with the 35% decrease in net income.
- Other operating expenses as a percentage of total revenues increased due to (i) our overall growth in the past year, which included additional expenses from acquired subsidiaries and increases in travel and entertainment costs year over year, as those costs have resumed to pre-pandemic levels in 2022 and (ii) the decrease in total revenues.
|
KEY CREDIT METRICS |
||||||||||||
|
(dollars in thousands) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
At-risk servicing portfolio (7) |
$ |
53,430,615 |
$ |
48,209,532 |
$ |
5,221,083 |
11 |
% |
||||
|
Maximum exposure to at-risk portfolio (8) |
10,826,654 |
9,784,054 |
1,042,600 |
11 |
||||||||
|
Defaulted loans |
$ |
78,203 |
$ |
48,481 |
$ |
29,722 |
61 |
% |
||||
|
Key credit metrics (as a percentage of the at-risk portfolio): |
||||||||||||
|
Defaulted loans |
0.15 |
% |
0.10 |
% |
||||||||
|
Allowance for risk-sharing |
0.09 |
0.13 |
||||||||||
|
Key credit metrics (as a percentage of maximum exposure): |
||||||||||||
|
Allowance for risk-sharing |
0.46 |
% |
0.63 |
% |
||||||||
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 loans added to the portfolio during the past 12 months. As of September 30, 2022, there were two defaulted loans that were provisioned for in 2019 and one loan that was provisioned for in 2021. The two properties that defaulted in 2019 have been foreclosed on and final settlement of any losses will occur in the future upon disposition of the assets by Fannie Mae. 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 $251.8 million as of September 30, 2022 compared to $238.7 million as of September 30, 2021. There was one defaulted loan in our interim loan portfolio as of September 30, 2022, which was provisioned for in the third quarter of 2020. All other loans in the on-balance sheet interim loan portfolio are current and performing as of September 30, 2022. The interim loan joint venture holds $0.9 billion of loans as of September 30, 2022, compared to $0.9 billion as of September 30, 2021. We share in a small portion of the risk of loss, and as of September 30, 2022, all loans in the interim loan joint venture are current and performing.
THIRD QUARTER 2022 – FINANCIAL RESULTS BY SEGMENT
|
FINANCIAL RESULTS – CAPITAL MARKETS |
||||||||||||
|
(dollars in thousands) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Loan origination and debt brokerage fees, net |
$ |
89,752 |
$ |
121,133 |
$ |
(31,381) |
(26) |
% |
||||
|
Fair value of expected net cash flows from servicing, net (“MSR income”) |
55,291 |
89,482 |
(34,191) |
(38) |
||||||||
|
Property sales broker fees |
30,308 |
33,677 |
(3,369) |
(10) |
||||||||
|
Net warehouse interest income, LHFS |
2,178 |
3,723 |
(1,545) |
(41) |
||||||||
|
Other revenues |
5,845 |
3,026 |
2,819 |
93 |
||||||||
|
Total revenues |
$ |
183,374 |
$ |
251,041 |
$ |
(67,667) |
(27) |
% |
||||
|
Personnel |
$ |
125,980 |
$ |
139,890 |
$ |
(13,910) |
(10) |
% |
||||
|
Amortization and depreciation |
952 |
17 |
935 |
5,500 |
||||||||
|
Other operating expenses |
6,063 |
4,628 |
1,435 |
31 |
||||||||
|
Total expenses |
$ |
132,995 |
$ |
144,535 |
$ |
(11,540) |
(8) |
% |
||||
|
Income from operations |
$ |
50,379 |
$ |
106,506 |
$ |
(56,127) |
(53) |
% |
||||
|
Income tax expense |
12,751 |
25,660 |
(12,909) |
(50) |
||||||||
|
Walker & Dunlop net income |
$ |
37,628 |
$ |
80,846 |
$ |
(43,218) |
(53) |
% |
||||
|
Key revenue metrics (as a percentage of debt financing volume): |
||||||||||||
|
Origination fee margin (4) |
0.76 |
% |
0.95 |
% |
||||||||
|
MSR margin (5) |
0.47 |
0.70 |
||||||||||
|
Agency MSR margin (6) |
1.05 |
1.40 |
||||||||||
|
Key performance metrics: |
||||||||||||
|
Operating margin |
27 |
% |
42 |
% |
||||||||
|
Adjusted EBITDA |
$ |
119 |
$ |
21,288 |
$ |
(21,169) |
(99) |
% |
||||
Capital Markets – Discussion of Quarterly Results:
The Capital Markets segment includes our Agency lending, debt brokerage, property sales, and appraisal and valuation services.
- The decrease in loan origination and debt brokerage fees, net (“origination fees”) was the result of the decrease in our origination fee margin and overall debt financing volume. The decline in the origination fee margin was largely due to the significant decline in our Agency debt financing volume, particularly with HUD, which is typically our most profitable product.
- The decrease in MSR income is attributable to the decrease in our Agency MSR margins and a decrease in overall debt financing volume. The decline in the Agency MSR margin was primarily related to the declines in our HUD and Fannie Mae volumes, and a large decline in the weighted-average servicing fee on our Fannie Mae loans, as spreads tightened due to interest rates increasing dramatically in the third quarter. The decrease in the MSR margin was driven by the decrease in the Agency MSR margin, as we saw an increase in our brokered debt financing volume as a percentage of overall debt financing volume.
- The decrease in property sales broker fees was driven by the 5% decrease in property sales volume year over year, and a decrease in the profitability of our property sales.
- The increase in other revenues was primarily due to an increase in appraisal revenues due to consolidating Apprise after our acquisition of GeoPhy in Q1 2022. The operating results for the third quarter of 2022 include appraisal revenue, while the operating results for the third quarter of 2021 do not, as we accounted for our investment in Apprise under the equity method in 2021.
- The decrease in personnel expense was primarily a result of the decrease in commissions expense due to the decrease in property sales broker fees and origination fees. This decrease was partially offset by an increase in salaries and benefits costs due to (i) acquisitions and hiring initiatives and (ii) consolidating Apprise after our acquisition of GeoPhy. The operating results for the third quarter of 2022 include compensation costs for Apprise, while the operating results for third quarter of 2021 do not as we accounted for our investment in Apprise under the equity method in 2021.
- Other operating expenses increased due to an increase in travel and entertainment expenses, which were still impacted by the effects of the pandemic in the third quarter of 2021.
|
FINANCIAL RESULTS – SERVICING & ASSET MANAGEMENT |
||||||||||||
|
(dollars in thousands) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Loan origination and debt brokerage fees, net |
$ |
1,106 |
$ |
2,109 |
$ |
(1,003) |
(48) |
% |
||||
|
Servicing fees |
75,975 |
70,628 |
5,347 |
8 |
||||||||
|
Investment management fees |
16,301 |
2,564 |
13,737 |
536 |
||||||||
|
Net warehouse interest income, LHFI |
1,802 |
1,860 |
(58) |
(3) |
||||||||
|
Escrow earnings and other interest income |
17,760 |
1,945 |
15,815 |
813 |
||||||||
|
Other revenues |
21,544 |
16,724 |
4,820 |
29 |
||||||||
|
Total revenues |
$ |
134,488 |
$ |
95,830 |
$ |
38,658 |
40 |
% |
||||
|
Personnel |
$ |
21,676 |
$ |
10,446 |
$ |
11,230 |
108 |
% |
||||
|
Amortization and depreciation |
57,239 |
52,388 |
4,851 |
9 |
||||||||
|
Provision (benefit) for credit losses |
1,218 |
1,266 |
(48) |
(4) |
||||||||
|
Other operating expenses |
6,043 |
3,199 |
2,844 |
89 |
||||||||
|
Total expenses |
$ |
86,176 |
$ |
67,299 |
$ |
18,877 |
28 |
% |
||||
|
Income from operations |
$ |
48,312 |
$ |
28,531 |
$ |
19,781 |
69 |
% |
||||
|
Income tax expense |
12,110 |
7,040 |
5,070 |
72 |
||||||||
|
Net income before noncontrolling interests |
$ |
36,202 |
$ |
21,491 |
$ |
14,711 |
68 |
% |
||||
|
Less: net income (loss) from noncontrolling interests |
(174) |
69 |
(243) |
N/A |
||||||||
|
Walker & Dunlop net income |
$ |
36,376 |
$ |
21,422 |
$ |
14,954 |
70 |
% |
||||
|
Key performance metrics: |
||||||||||||
|
Operating margin |
36 |
% |
30 |
% |
||||||||
|
Adjusted EBITDA |
$ |
107,517 |
$ |
82,810 |
$ |
24,707 |
30 |
% |
||||
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, including housing market research.
- The $6.9 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, combined with the slight increase in the servicing portfolio’s weighted-average servicing fee.
- Investment management fees increased principally due to the added fees from Alliant, with no comparable activity in the prior year period as this acquisition of Alliant occurred in the fourth quarter of 2021.
- Escrow earnings and other interest income increased as a result of higher escrow earnings due to substantially higher short-term interest rates, partially offset by a smaller average escrow balance.
- Other revenues increased as a result of an increase in revenues from our LIHTC operations, partially offset by a decrease in prepayment fees.
- Personnel expense increased year over year principally as a result of higher salaries, benefits, and bonus costs due to the acquisition of Alliant.
- Amortization and depreciation increased as a result of the growth in the average balance of MSRs outstanding year over year and an increase in amortization of intangible assets from the Alliant acquisition.
- The increase in other operating expenses was largely attributable to increases in professional fees and other operating expenses due to the Alliant acquisition.
|
FINANCIAL RESULTS – CORPORATE |
||||||||||||
|
(dollars in thousands) |
Q3 2022 |
Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Escrow earnings and other interest income |
$ |
369 |
$ |
87 |
$ |
282 |
324 |
% |
||||
|
Other revenues |
(2,620) |
(668) |
(1,952) |
292 |
||||||||
|
Total revenues |
$ |
(2,251) |
$ |
(581) |
$ |
(1,670) |
287 |
% |
||||
|
Personnel |
$ |
9,403 |
$ |
19,845 |
$ |
(10,442) |
(53) |
% |
||||
|
Amortization and depreciation |
1,655 |
1,093 |
562 |
51 |
||||||||
|
Interest expense on corporate debt |
9,306 |
1,766 |
7,540 |
427 |
||||||||
|
Other operating expenses |
21,885 |
17,009 |
4,876 |
29 |
||||||||
|
Total expenses |
$ |
42,249 |
$ |
39,713 |
$ |
2,536 |
6 |
% |
||||
|
Income from operations |
$ |
(44,500) |
$ |
(40,294) |
$ |
(4,206) |
10 |
% |
||||
|
Income tax expense |
(17,329) |
(9,747) |
(7,582) |
78 |
||||||||
|
Walker & Dunlop net income |
$ |
(27,171) |
$ |
(30,547) |
$ |
3,376 |
(11) |
% |
||||
|
Key performance metric: |
||||||||||||
|
Adjusted EBITDA |
$ |
(32,646) |
$ |
(31,668) |
$ |
(978) |
3 |
% |
||||
Corporate – Discussion of Quarterly Results:
- Personnel expense decreased primarily due to a decrease in performance-based variable compensation as costs for both subjective bonus and performance stock plans decreased substantially compared to the prior year period.
- The significant increase in interest expense on corporate debt is primarily the result of our debt refinancing in the fourth quarter of 2021. The new term loan carries a floating interest rate and the principal balance increased significantly from $292 million to $600 million. We also incurred additional interest expense related to a fixed-rate note payable assumed in the acquisition of Alliant in the fourth quarter of 2021.
- Other operating expenses increased in the third quarter primarily due to: (i) office expenses related to our recent acquisitions and overall growth; and (ii) an increase in travel and entertainment expenses, which were still impacted by the effects of the pandemic in the third quarter of 2021.
CONSOLIDATED YEAR-TO-DATE 2022 OPERATING RESULTS
|
YEAR-TO-DATE OPERATING RESULTS AND KEY PERFORMANCE METRICS |
||||||||||||
|
(dollars in thousands) |
YTD Q3 2022 |
YTD Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Debt financing volume |
$ |
35,711,568 |
$ |
31,096,071 |
$ |
4,615,497 |
15 |
% |
||||
|
Property sales volume |
16,417,367 |
9,967,385 |
6,449,982 |
65 |
||||||||
|
Total transaction volume |
$ |
52,128,935 |
$ |
41,063,456 |
$ |
11,065,479 |
27 |
% |
||||
|
Total revenues |
975,903 |
851,989 |
123,914 |
15 |
||||||||
|
Total expenses |
758,112 |
609,778 |
148,334 |
24 |
||||||||
|
Walker & Dunlop net income |
$ |
172,328 |
$ |
185,831 |
$ |
(13,503) |
(7) |
% |
||||
|
Adjusted EBITDA |
232,470 |
199,611 |
32,859 |
16 |
||||||||
|
Diluted EPS |
$ |
5.13 |
$ |
5.73 |
$ |
(0.60) |
(10) |
% |
||||
|
Operating margin |
22 |
% |
28 |
% |
||||||||
|
Return on equity |
14 |
20 |
||||||||||
Discussion of Results:
- The increase in total transaction volume was primarily driven by a 33% increase in Fannie Mae debt financing volume, a 27% increase in brokered debt financing volume, and a 65% increase in property sales volume, partially offset by a 49% decline in HUD debt financing volume.
- The decrease in Walker & Dunlop net income was primarily a result of a 10% decrease in income from operations, partially offset by the decrease in income tax expense.
- The increase in adjusted EBITDA was largely driven by increases in (i) property sales revenues, (ii) servicing fees, (iii) escrow earnings, and (iv) revenues from Alliant and Zelman, with minimal comparable revenue in the prior year period. These increases were partially offset by a decrease in origination fees and increases in personnel expenses and other operating expenses from those aforementioned acquisitions.
- Operating margin declined principally due to the significant decrease in MSR income and increased expenses from companies we acquired over the past year.
- Return on equity declined due to a 22% increase in stockholders’ equity over the past year, combined with the 7% decrease in net income.
YEAR-TO-DATE 2022 – FINANCIAL RESULTS BY SEGMENT
|
YEAR-TO-DATE FINANCIAL RESULTS – CAPITAL MARKETS |
||||||||||||
|
(dollars in thousands) |
YTD Q3 2022 |
YTD Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Loan origination and debt brokerage fees, net |
$ |
273,660 |
$ |
302,011 |
$ |
(28,351) |
(9) |
% |
||||
|
Fair value of expected net cash flows from servicing, net (“MSR income”) |
159,970 |
209,266 |
(49,296) |
(24) |
||||||||
|
Property sales broker fees |
100,092 |
65,173 |
34,919 |
54 |
||||||||
|
Net warehouse interest income, LHFS |
9,415 |
9,066 |
349 |
4 |
||||||||
|
Other revenues |
12,503 |
8,721 |
3,782 |
43 |
||||||||
|
Total revenues |
$ |
555,640 |
$ |
594,237 |
$ |
(38,597) |
(6) |
% |
||||
|
Personnel |
$ |
363,619 |
$ |
332,519 |
$ |
31,100 |
9 |
% |
||||
|
Amortization and depreciation |
1,762 |
556 |
1,206 |
217 |
||||||||
|
Other operating expenses |
16,757 |
11,628 |
5,129 |
44 |
||||||||
|
Total expenses |
$ |
382,138 |
$ |
344,703 |
$ |
37,435 |
11 |
% |
||||
|
Income from operations |
$ |
173,502 |
$ |
249,534 |
$ |
(76,032) |
(30) |
% |
||||
|
Income tax expense |
42,074 |
58,014 |
(15,940) |
(27) |
||||||||
|
Walker & Dunlop net income |
$ |
131,428 |
$ |
191,520 |
$ |
(60,092) |
(31) |
% |
||||
Capital Markets – Discussion of Year-to-Date Results:
- The decrease in loan origination and debt brokerage fees, net (“origination fees”) was primarily the result of a shift in the mix of our debt financing volume, which included a significant decrease in HUD debt financing volume and an increase in debt brokerage volume. This shift caused a decrease in our origination fee margin, which was partially offset by the overall increase in debt financing volume.
- The decrease in MSR income was primarily related to (i) a nearly 50% decrease in HUD transaction volume and (ii) a decrease in the weighted-average servicing fee on Fannie Mae volume, due to spread compression caused by the rapid increases in interest rates, partially offset by the 33% increase in Fannie Mae volume.
- The increase in property sales broker fees was driven by the 65% increase in property sales volume year over year, partially offset by a lower margin on property sales.
- The increase in other revenues was primarily due to an increase in appraisal revenues due to consolidating Apprise after our acquisition of GeoPhy in Q1 2022. The operating results for 2022 include appraisal revenue, while the operating results for 2021 do not as we accounted for our investment in Apprise under the equity method in 2021.
- Personnel expense increased primarily as a result of (i) an increase in salaries and benefits costs due to acquisitions and consolidating Apprise after our acquisition of GeoPhy, and (ii) an increase in commissions expense due to the increase in property sales broker fees, partially offset by a decrease in origination fees. The operating results for 2022 include compensation costs for Apprise, while the operating results for 2021 do not as we accounted for our investment in Apprise under the equity method in 2021.
- The increase in other operating expenses was largely attributable to increases in travel and entertainment, which were still impacted by the pandemic in 2021.
|
YEAR-TO-DATE FINANCIAL RESULTS – SERVICING & ASSET MANAGEMENT |
||||||||||||
|
(dollars in thousands) |
YTD Q3 2022 |
YTD Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Loan origination and debt brokerage fees, net |
$ |
2,113 |
$ |
4,582 |
$ |
(2,469) |
(54) |
% |
||||
|
Servicing fees |
222,916 |
205,658 |
17,258 |
8 |
||||||||
|
Investment management fees |
47,345 |
9,115 |
38,230 |
419 |
||||||||
|
Net warehouse interest income, LHFI |
4,606 |
5,702 |
(1,096) |
(19) |
||||||||
|
Escrow earnings and other interest income |
26,166 |
5,712 |
20,454 |
358 |
||||||||
|
Other revenues |
74,959 |
28,381 |
46,578 |
164 |
||||||||
|
Total revenues |
$ |
378,105 |
$ |
259,150 |
$ |
118,955 |
46 |
% |
||||
|
Personnel |
$ |
62,195 |
$ |
27,004 |
$ |
35,191 |
130 |
% |
||||
|
Amortization and depreciation |
170,930 |
145,161 |
25,769 |
18 |
||||||||
|
Provision (benefit) for credit losses |
(13,120) |
(14,380) |
1,260 |
(9) |
||||||||
|
Other operating expenses |
18,721 |
8,056 |
10,665 |
132 |
||||||||
|
Total expenses |
$ |
238,726 |
$ |
165,841 |
$ |
72,885 |
44 |
% |
||||
|
Income from operations |
$ |
139,379 |
$ |
93,309 |
$ |
46,070 |
49 |
% |
||||
|
Income tax expense |
33,799 |
21,693 |
12,106 |
56 |
||||||||
|
Net income before noncontrolling interests |
$ |
105,580 |
$ |
71,616 |
$ |
33,964 |
47 |
% |
||||
|
Less: net income (loss) from noncontrolling interests |
(1,032) |
69 |
(1,101) |
N/A |
||||||||
|
Walker & Dunlop net income |
$ |
106,612 |
$ |
71,547 |
$ |
35,065 |
49 |
% |
||||
Servicing & Asset Management – Discussion of Year-to-Date Results:
- The $6.9 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, combined with a slight increase in the servicing portfolio’s weighted-average servicing fee.
- Investment management fees and other revenues increased principally due to the additions of income from Alliant and Zelman, coupled with an increase in prepayment fees.
- Escrow earnings and other interest income increased as a result of higher escrow earnings due to higher short-term interest rates.
- Personnel expense increased year over year principally as a result of higher salaries, benefits, and bonus costs due to the acquisitions of Alliant and Zelman.
- Amortization and depreciation increased as a result of the growth in the average balance of MSRs outstanding year over year and an increase in prepayment activity. Additionally, we had a substantial increase in amortization of intangible assets as a result of our acquisitions over the past year.
- The increase in other operating expenses was largely attributable to increases in other professional fees and other expenses due to the acquisitions of Alliant and Zelman.
|
YEAR-TO-DATE FINANCIAL RESULTS – CORPORATE |
||||||||||||
|
(dollars in thousands) |
YTD Q3 2022 |
YTD Q3 2021 |
$ Variance |
% Variance |
||||||||
|
Escrow earnings and other interest income |
$ |
517 |
$ |
260 |
$ |
257 |
99 |
% |
||||
|
Other revenues |
41,641 |
(1,658) |
43,299 |
(2,612) |
||||||||
|
Total revenues |
$ |
42,158 |
$ |
(1,398) |
$ |
43,556 |
(3,116) |
% |
||||
|
Personnel |
$ |
43,794 |
$ |
48,294 |
$ |
(4,500) |
(9) |
% |
||||
|
Amortization and depreciation |
4,409 |
3,162 |
1,247 |
39 |
||||||||
|
Interest expense on corporate debt |
22,123 |
5,291 |
16,832 |
318 |
||||||||
|
Other operating expenses |
66,922 |
42,487 |
24,435 |
58 |
||||||||
|
Total expenses |
$ |
137,248 |
$ |
99,234 |
$ |
38,014 |
38 |
% |
||||
|
Income from operations |
$ |
(95,090) |
$ |
(100,632) |
$ |
5,542 |
(6) |
% |
||||
|
Income tax expense |
(29,378) |
(23,396) |
(5,982) |
26 |
||||||||
|
Walker & Dunlop net income |
$ |
(65,712) |
$ |
(77,236) |
$ |
11,524 |
(15) |
% |
||||
Corporate – Discussion of Year-to-Date Results:
- As part of the GeoPhy acquisition, we acquired the other 50% ownership interest in Apprise. The revaluation of our existing 50% ownership interest in Apprise resulted in a $39.6 million increase in other revenues and was a unique transaction.
- Personnel expense decreased primarily due to a decrease in performance-based variable compensation as costs for both subjective bonus and performance stock plans decreased compared to the prior year period, partially offset by increased salaries and benefits costs due to an increase in the average headcount year over year.
- Interest expense on corporate debt increased primarily due to (i) the refinancing of our corporate debt in the fourth quarter of 2021, which increased the principal balance of our debt from $292 million to $600 million, (ii) an increase in SOFR to which our corporate debt is indexed, and (iii) the assumption of Alliant’s note payable following the acquisition in the fourth quarter of 2021.
- Other operating expenses increased primarily due to (i) increased office expenses to support our overall growth and lease for our new headquarters, (ii) increased other professional fees, (iii) and an increase in travel and entertainment expenses, which were still impacted by the effects of the pandemic during 2021.
CAPITAL SOURCES AND USES
On November 8, 2022, the Company’s Board of Directors declared a dividend of $0.60 per share for the fourth quarter of 2022. The dividend will be paid on December 9, 2022 to all holders of record of the Company’s restricted and unrestricted common stock as of November 25, 2022.
On February 2, 2022, our Board of Directors authorized the repurchase of up to $75.0 million of the Company’s outstanding common stock over the coming one-year period (“2022 Share Repurchase Program”). During the nine months ended September 30, 2022, the Company repurchased 0.1 million shares of its common stock under the share repurchase program at a weighted average price of $101.77 per share and immediately retired the shares, reducing stockholders’ equity by $11.1 million. As of September 30, 2022, the Company still had $63.9 million of authorized share repurchase capacity remaining under the 2022 Share Repurchase Program.
Any future purchases made pursuant to the 2022 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) |
Brokered transactions for life insurance companies, commercial banks, and other capital sources. |
|
(3) |
Includes debt financing volumes from our interim loan program, our interim loan joint venture, and WDIP separate accounts. |
|
(4) |
Loan origination and debt brokerage fees, net as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing. |
|
(5) |
MSR income 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 Agency debt financing volume. |
|
(7) |
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. |
|
|
(8) |
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, November 9, 2022 at 8:30 a.m. Eastern time. Listeners can access the webcast via the link: https://walkerdunlop.zoom.us/webinar/register/WN_uyMNWYwyTTamgbUdQwZCPA or by dialing +1 408 901 0584, Webinar ID 851 8324 3316, Password 121022. 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) is one of the largest providers of capital to the commercial real estate industry in the United States, enabling real estate owners and operators to bring their visions of communities — where people live, work, shop and play — to life. Our people, brand, and technology make W&D one of the most insightful and customer-focused firms in our industry. With more than 1,400 employees across every major U.S. market, Walker & Dunlop has consistently been named one of Fortune‘s Great Places to Work® and is committed to making the commercial real estate industry more inclusive and diverse while creating meaningful social, environmental, and economic change in our communities.
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 Alliant’s note payable, and amortization and depreciation, adjusted for provision (benefit) for credit losses net of write-offs, stock-based incentive compensation charges, the fair value of expected net cash flows from servicing, net, and non-cash charges associated with the extinguishment of long-term debt, and the gain associated with the revaluation of our previously held equity-method investment in connection with our acquisition of GeoPhy. 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 on both a consolidated and segment basis. For more information on adjusted EBITDA, 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) regulatory and/or legislative changes to Freddie Mac, Fannie Mae or HUD, (3) our ability to retain and attract loan originators and other professionals, (4) risks related to our recently completed acquisitions, including our ability to integrate and achieve the expected benefits of such acquisitions, and (5) 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, |
||||||||||
|
2022 |
2022 |
2022 |
2021 |
2021 |
||||||||||
|
(in thousands) |
||||||||||||||
|
Assets |
||||||||||||||
|
Cash and cash equivalents |
$ |
152,188 |
$ |
151,252 |
$ |
141,375 |
$ |
305,635 |
$ |
318,188 |
||||
|
Restricted cash |
40,246 |
34,361 |
41,584 |
42,812 |
34,875 |
|||||||||
|
Pledged securities, at fair value |
151,413 |
149,560 |
148,647 |
148,996 |
148,774 |
|||||||||
|
Loans held for sale, at fair value |
2,180,117 |
931,516 |
703,629 |
1,811,586 |
2,711,900 |
|||||||||
|
Loans held for investment, net |
247,106 |
247,243 |
216,620 |
269,125 |
233,685 |
|||||||||
|
Mortgage servicing rights |
967,770 |
978,745 |
976,554 |
953,845 |
929,825 |
|||||||||
|
Goodwill |
948,164 |
937,881 |
908,744 |
698,635 |
333,249 |
|||||||||
|
Other intangible assets |
202,834 |
207,024 |
211,405 |
183,904 |
8,454 |
|||||||||
|
Derivative assets |
255,295 |
59,810 |
112,023 |
37,364 |
85,486 |
|||||||||
|
Receivables, net |
216,963 |
236,786 |
249,305 |
212,019 |
106,228 |
|||||||||
|
Committed investments in tax credit equity |
214,430 |
187,393 |
223,771 |
177,322 |
— |
|||||||||
|
Other assets, net |
426,487 |
413,201 |
405,974 |
364,746 |
206,198 |
|||||||||
|
Total assets |
$ |
6,003,013 |
$ |
4,534,772 |
$ |
4,339,631 |
$ |
5,205,989 |
$ |
5,116,862 |
||||
|
Liabilities |
||||||||||||||
|
Warehouse notes payable |
$ |
2,545,406 |
$ |
1,125,677 |
$ |
924,280 |
$ |
1,941,572 |
$ |
2,848,579 |
||||
|
Notes payable |
711,107 |
719,210 |
726,555 |
740,174 |
289,763 |
|||||||||
|
Allowance for risk-sharing obligations |
49,658 |
48,475 |
53,244 |
62,636 |
61,607 |
|||||||||
|
Derivative liabilities |
24,054 |
17,176 |
12,400 |
6,403 |
13,263 |
|||||||||
|
Commitments to fund investments in tax credit equity |
198,073 |
173,740 |
206,605 |
162,747 |
— |
|||||||||
|
Other liabilities |
780,012 |
784,719 |
779,376 |
714,250 |
519,714 |
|||||||||
|
Total liabilities |
$ |
4,308,310 |
$ |
2,868,997 |
$ |
2,702,460 |
$ |
3,627,782 |
$ |
3,732,926 |
||||
|
Stockholders’ Equity |
||||||||||||||
|
Common stock |
$ |
323 |
$ |
323 |
$ |
324 |
$ |
320 |
$ |
312 |
||||
|
Additional paid-in capital |
407,417 |
403,668 |
387,009 |
393,022 |
271,562 |
|||||||||
|
Accumulated other comprehensive income (loss) |
(1,460) |
(222) |
1,588 |
2,558 |
2,737 |
|||||||||
|
Retained earnings |
1,256,663 |
1,229,712 |
1,205,384 |
1,154,252 |
1,090,506 |
|||||||||
|
Total stockholders’ equity |
$ |
1,662,943 |
$ |
1,633,481 |
$ |
1,594,305 |
$ |
1,550,152 |
$ |
1,365,117 |
||||
|
Noncontrolling interests |
31,760 |
32,294 |
42,866 |
28,055 |
18,819 |
|||||||||
|
Total equity |
$ |
1,694,703 |
$ |
1,665,775 |
$ |
1,637,171 |
$ |
1,578,207 |
$ |
1,383,936 |
||||
|
Commitments and contingencies |
— |
— |
— |
— |
— |
|||||||||
|
Total liabilities and stockholders’ equity |
$ |
6,003,013 |
$ |
4,534,772 |
$ |
4,339,631 |
$ |
5,205,989 |
$ |
5,116,862 |
||||
|
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 2022 |
Q2 2022 |
Q1 2022 |
Q4 2021 |
Q3 2021 |
2022 |
2021 |
|||||||||||||
|
Revenues |
||||||||||||||||||||
|
Loan origination and debt brokerage fees, net |
$ |
90,858 |
$ |
102,605 |
$ |
82,310 |
$ |
139,421 |
$ |
123,242 |
$ |
275,773 |
$ |
306,593 |
||||||
|
Fair value of expected net cash flows from servicing, net (“MSR income”) |
55,291 |
51,949 |
52,730 |
77,879 |
89,482 |
159,970 |
209,266 |
|||||||||||||
|
Servicing fees |
75,975 |
74,260 |
72,681 |
72,808 |
70,628 |
222,916 |
205,658 |
|||||||||||||
|
Property sales broker fees |
30,308 |
46,386 |
23,398 |
54,808 |
33,677 |
100,092 |
65,173 |
|||||||||||||
|
Investment management fees |
16,301 |
16,186 |
14,858 |
13,699 |
2,564 |
47,345 |
9,115 |
|||||||||||||
|
Net warehouse interest income |
3,980 |
5,268 |
4,773 |
7,340 |
5,583 |
14,021 |
14,768 |
|||||||||||||
|
Escrow earnings and other interest income |
18,129 |
6,751 |
1,803 |
2,178 |
2,032 |
26,683 |
5,972 |
|||||||||||||
|
Other revenues |
24,769 |
37,443 |
66,891 |
39,056 |
19,082 |
129,103 |
35,444 |
|||||||||||||
|
Total revenues |
$ |
315,611 |
$ |
340,848 |
$ |
319,444 |
$ |
407,189 |
$ |
346,290 |
$ |
975,903 |
$ |
851,989 |
||||||
|
Expenses |
||||||||||||||||||||
|
Personnel |
$ |
157,059 |
$ |
168,368 |
$ |
144,181 |
$ |
195,670 |
$ |
170,181 |
$ |
469,608 |
$ |
407,817 |
||||||
|
Amortization and depreciation |
59,846 |
61,103 |
56,152 |
61,405 |
53,498 |
177,101 |
148,879 |
|||||||||||||
|
Provision (benefit) for credit losses |
1,218 |
(4,840) |
(9,498) |
1,093 |
1,266 |
(13,120) |
(14,380) |
|||||||||||||
|
Interest expense on corporate debt |
9,306 |
6,412 |
6,405 |
2,690 |
1,766 |
22,123 |
5,291 |
|||||||||||||
|
Other operating expenses |
33,991 |
36,195 |
32,214 |
36,484 |
24,836 |
102,400 |
62,171 |
|||||||||||||
|
Total expenses |
$ |
261,420 |
$ |
267,238 |
$ |
229,454 |
$ |
297,342 |
$ |
251,547 |
$ |
758,112 |
$ |
609,778 |
||||||
|
Income from operations |
$ |
54,191 |
$ |
73,610 |
$ |
89,990 |
$ |
109,847 |
$ |
94,743 |
$ |
217,791 |
$ |
242,211 |
||||||
|
Income tax expense |
7,532 |
19,503 |
19,460 |
30,117 |
22,953 |
46,495 |
56,311 |
|||||||||||||
|
Net income before noncontrolling interests |
$ |
46,659 |
$ |
54,107 |
$ |
70,530 |
$ |
79,730 |
$ |
71,790 |
$ |
171,296 |
$ |
185,900 |
||||||
|
Less: net income (loss) from noncontrolling interests |
(174) |
(179) |
(679) |
(201) |
69 |
(1,032) |
69 |
|||||||||||||
|
Walker & Dunlop net income |
$ |
46,833 |
$ |
54,286 |
$ |
71,209 |
$ |
79,931 |
$ |
71,721 |
$ |
172,328 |
$ |
185,831 |
||||||
|
Net change in unrealized gains (losses) on pledged |
(1,238) |
(1,810) |
(970) |
(179) |
159 |
(4,018) |
769 |
|||||||||||||
|
Walker & Dunlop comprehensive income |
$ |
45,595 |
$ |
52,476 |
$ |
70,239 |
$ |
79,752 |
$ |
71,880 |
$ |
168,310 |
$ |
186,600 |
||||||
|
Basic earnings per share |
$ |
1.41 |
$ |
1.63 |
$ |
2.14 |
$ |
2.46 |
$ |
2.23 |
$ |
5.18 |
$ |
5.80 |
||||||
|
Diluted earnings per share |
1.40 |
1.61 |
2.12 |
2.42 |
2.21 |
5.13 |
5.73 |
|||||||||||||
|
Cash dividends paid per common share |
0.60 |
0.60 |
0.60 |
0.50 |
0.50 |
1.80 |
1.50 |
|||||||||||||
|
Basic weighted-average shares outstanding |
32,290 |
32,388 |
32,219 |
31,343 |
31,064 |
32,300 |
30,969 |
|||||||||||||
|
Diluted weighted-average shares outstanding |
32,620 |
32,694 |
32,617 |
31,956 |
31,459 |
32,645 |
31,367 |
|||||||||||||
|
SUPPLEMENTAL OPERATING DATA Unaudited |
|||||||||||||||||||||
|
Quarterly Trends |
Nine months ended |
||||||||||||||||||||
|
September 30, |
|||||||||||||||||||||
|
(in thousands, except per share data) |
Q3 2022 |
Q2 2022 |
Q1 2022 |
Q4 2021 |
Q3 2021 |
2022 |
2021 |
||||||||||||||
|
Transaction Volume: |
|||||||||||||||||||||
|
Components of Debt Financing Volume |
|||||||||||||||||||||
|
Fannie Mae |
$ |
3,038,788 |
$ |
3,918,400 |
$ |
1,998,374 |
$ |
2,585,100 |
$ |
3,271,765 |
$ |
8,955,562 |
$ |
6,716,765 |
|||||||
|
Freddie Mac |
1,885,492 |
1,141,034 |
987,849 |
1,546,883 |
2,591,906 |
4,014,375 |
4,607,945 |
||||||||||||||
|
Ginnie Mae – HUD |
338,054 |
201,483 |
391,693 |
523,899 |
522,093 |
931,230 |
1,816,800 |
||||||||||||||
|
Brokered (1) |
6,601,244 |
9,258,490 |
5,643,081 |
12,684,294 |
6,402,862 |
21,502,815 |
16,985,932 |
||||||||||||||
|
Principal Lending and Investing (2) |
62,015 |
131,551 |
114,020 |
474,873 |
472,142 |
307,586 |
968,629 |
||||||||||||||
|
Total Debt Financing Volume |
$ |
11,925,593 |
$ |
14,650,958 |
$ |
9,135,017 |
$ |
17,815,049 |
$ |
13,260,768 |
$ |
35,711,568 |
$ |
31,096,071 |
|||||||
|
Property Sales Volume |
4,993,615 |
7,892,062 |
3,531,690 |
9,287,312 |
5,230,093 |
16,417,367 |
9,967,385 |
||||||||||||||
|
Total Transaction Volume |
$ |
16,919,208 |
$ |
22,543,020 |
$ |
12,666,707 |
$ |
27,102,361 |
$ |
18,490,861 |
$ |
52,128,935 |
$ |
41,063,456 |
|||||||
|
Key Performance Metrics: |
|||||||||||||||||||||
|
Operating margin |
17 |
% |
22 |
% |
28 |
% |
27 |
% |
27 |
% |
22 |
% |
28 |
% |
|||||||
|
Return on equity |
11 |
14 |
19 |
23 |
22 |
14 |
20 |
||||||||||||||
|
Walker & Dunlop net income |
$ |
46,833 |
$ |
54,286 |
$ |
71,209 |
$ |
79,931 |
$ |
71,721 |
$ |
172,328 |
$ |
185,831 |
|||||||
|
Adjusted EBITDA (3) |
74,990 |
94,844 |
62,636 |
109,667 |
72,430 |
232,470 |
199,611 |
||||||||||||||
|
Diluted EPS |
1.40 |
1.61 |
2.12 |
2.42 |
2.21 |
5.13 |
5.73 |
||||||||||||||
|
Key Expense Metrics (as a percentage of total revenues): |
|||||||||||||||||||||
|
Personnel expenses |
50 |
% |
49 |
% |
45 |
% |
48 |
% |
49 |
% |
48 |
% |
48 |
% |
|||||||
|
Other operating expenses |
11 |
11 |
10 |
9 |
7 |
10 |
7 |
||||||||||||||
|
Key Revenue Metrics (as a percentage of debt financing volume): |
|||||||||||||||||||||
|
Origination fee margin (4) |
0.76 |
% |
0.71 |
% |
0.90 |
% |
0.80 |
% |
0.95 |
% |
0.77 |
% |
1.00 |
% |
|||||||
|
MSR margin (5) |
0.47 |
0.36 |
0.58 |
0.45 |
0.70 |
0.45 |
0.69 |
||||||||||||||
|
Agency MSR margin (6) |
1.05 |
0.99 |
1.56 |
1.67 |
1.40 |
1.15 |
1.59 |
||||||||||||||
|
Other Data: |
|||||||||||||||||||||
|
Market capitalization at period end |
$ |
2,708,162 |
$ |
3,113,884 |
$ |
4,192,900 |
$ |
4,835,508 |
$ |
3,540,501 |
|||||||||||
|
Closing share price at period end |
$ |
83.73 |
$ |
96.34 |
$ |
129.42 |
$ |
150.88 |
$ |
113.50 |
|||||||||||
|
Average headcount |
1,452 |
1,406 |
1,353 |
1,128 |
1,084 |
||||||||||||||||
|
Components of Servicing Portfolio (end of period): |
|||||||||||||||||||||
|
Fannie Mae |
$ |
58,426,446 |
$ |
57,122,414 |
$ |
54,000,550 |
$ |
53,401,457 |
$ |
52,317,953 |
|||||||||||
|
Freddie Mac |
37,241,471 |
36,886,666 |
36,965,185 |
37,138,836 |
38,039,014 |
||||||||||||||||
|
Ginnie Mae – HUD |
9,634,111 |
9,570,012 |
9,954,262 |
9,889,289 |
9,894,893 |
||||||||||||||||
|
Brokered (7) |
15,224,581 |
15,190,315 |
15,115,619 |
15,035,439 |
13,429,801 |
||||||||||||||||
|
Principal Lending and Investing (8) |
251,815 |
252,100 |
221,649 |
235,543 |
238,713 |
||||||||||||||||
|
Total Servicing Portfolio |
$ |
120,778,424 |
$ |
119,021,507 |
$ |
116,257,265 |
$ |
115,700,564 |
$ |
113,920,374 |
|||||||||||
|
Assets under management (9) |
17,017,355 |
16,692,556 |
16,687,112 |
16,437,865 |
2,309,332 |
||||||||||||||||
|
Total Managed Portfolio |
$ |
137,795,779 |
$ |
135,714,063 |
$ |
132,944,377 |
$ |
132,138,429 |
$ |
116,229,706 |
|||||||||||
|
Key Servicing Portfolio Metrics: |
|||||||||||||||||||||
|
Custodial escrow account balance (in billions) |
$ |
3.1 |
$ |
2.3 |
$ |
2.5 |
$ |
3.7 |
$ |
3.0 |
|||||||||||
|
Weighted-average servicing fee rate (basis points) |
24.7 |
24.9 |
25.0 |
24.9 |
24.6 |
||||||||||||||||
|
Weighted-average remaining servicing portfolio term (years) |
8.9 |
8.9 |
9.1 |
9.2 |
9.2 |
||||||||||||||||
|
(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) |
Loan origination and debt brokerage fees, net as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing. |
|
(5) |
MSR income 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 Agency debt financing volume. |
|
(7) |
Brokered loans serviced primarily for life insurance companies. |
|
(8) |
Consists of interim loans not managed for our interim loan joint venture. |
|
(9) |
Alliant & WDIP assets under management and interim loans serviced for our interim loan joint venture. Alliant assets under management were acquired in December 2021. |
|
KEY CREDIT METRICS Unaudited |
|||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
|||||||||||
|
(dollars in thousands) |
2022 |
2022 |
2022 |
2021 |
2021 |
||||||||||
|
Risk-sharing servicing portfolio: |
|||||||||||||||
|
Fannie Mae Full Risk |
$ |
49,241,243 |
$ |
47,461,520 |
$ |
46,194,756 |
$ |
45,581,476 |
$ |
44,069,885 |
|||||
|
Fannie Mae Modified Risk |
9,177,094 |
9,651,421 |
7,794,710 |
7,807,853 |
8,235,475 |
||||||||||
|
Freddie Mac Modified Risk |
23,615 |
23,715 |
23,715 |
33,195 |
36,883 |
||||||||||
|
Total risk-sharing servicing portfolio |
$ |
58,441,952 |
$ |
57,136,656 |
$ |
54,013,181 |
$ |
53,422,524 |
$ |
52,342,243 |
|||||
|
Non-risk-sharing servicing portfolio: |
|||||||||||||||
|
Fannie Mae No Risk |
$ |
8,109 |
$ |
9,473 |
$ |
11,084 |
$ |
12,127 |
$ |
12,593 |
|||||
|
Freddie Mac No Risk |
37,217,856 |
36,862,951 |
36,941,470 |
37,105,641 |
38,002,131 |
||||||||||
|
GNMA – HUD No Risk |
9,634,111 |
9,570,012 |
9,954,262 |
9,889,289 |
9,894,893 |
||||||||||
|
Brokered |
15,224,581 |
15,190,315 |
15,115,619 |
15,035,438 |
13,429,801 |
||||||||||
|
Total non-risk-sharing servicing portfolio |
$ |
62,084,657 |
$ |
61,632,751 |
$ |
62,022,435 |
$ |
62,042,495 |
$ |
61,339,418 |
|||||
|
Total loans serviced for others |
$ |
120,526,609 |
$ |
118,769,407 |
$ |
116,035,616 |
$ |
115,465,019 |
$ |
113,681,661 |
|||||
|
Interim loans (full risk) servicing portfolio |
251,815 |
252,100 |
221,649 |
235,543 |
238,713 |
||||||||||
|
Total servicing portfolio unpaid principal balance |
$ |
120,778,424 |
$ |
119,021,507 |
$ |
116,257,265 |
$ |
115,700,562 |
$ |
113,920,374 |
|||||
|
Interim Loan Joint Venture Managed Loans (1) |
$ |
900,037 |
$ |
899,287 |
$ |
930,296 |
$ |
848,196 |
$ |
918,518 |
|||||
|
At-risk servicing portfolio (2) |
$ |
53,430,615 |
$ |
51,905,985 |
$ |
50,176,521 |
$ |
49,573,263 |
$ |
48,209,532 |
|||||
|
Maximum exposure to at-risk portfolio (3) |
10,826,654 |
10,525,093 |
10,178,454 |
10,056,584 |
9,784,054 |
||||||||||
|
Defaulted loans |
78,203 |
78,659 |
78,659 |
78,659 |
48,481 |
||||||||||
|
Defaulted loans as a percentage of the at-risk portfolio |
0.15 |
% |
0.15 |
% |
0.16 |
% |
0.16 |
% |
0.10 |
% |
|||||
|
Allowance for risk-sharing as a percentage of the at-risk portfolio |
0.09 |
0.09 |
0.11 |
0.13 |
0.13 |
||||||||||
|
Allowance for risk-sharing as a percentage of maximum exposure |
0.46 |
0.46 |
0.52 |
0.62 |
0.63 |
||||||||||
|
(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. |
|
ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP Unaudited |
|||||||||||||||||||||
|
Quarterly Trends |
Nine months ended |
||||||||||||||||||||
|
September 30, |
|||||||||||||||||||||
|
(in thousands) |
Q3 2022 |
Q2 2022 |
Q1 2022 |
Q4 2021 |
Q3 2021 |
2022 |
2021 |
||||||||||||||
|
Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA |
|||||||||||||||||||||
|
Walker & Dunlop Net Income |
$ |
46,833 |
$ |
54,286 |
$ |
71,209 |
$ |
79,931 |
$ |
71,721 |
$ |
172,328 |
$ |
185,831 |
|||||||
|
Income tax expense |
7,532 |
19,503 |
19,460 |
30,117 |
22,953 |
46,495 |
56,311 |
||||||||||||||
|
Interest expense on corporate debt |
9,306 |
6,412 |
6,405 |
2,690 |
1,766 |
22,123 |
5,291 |
||||||||||||||
|
Amortization and depreciation |
59,846 |
61,103 |
56,152 |
61,405 |
53,498 |
177,101 |
148,879 |
||||||||||||||
|
Provision (benefit) for credit losses |
1,218 |
(4,840) |
(9,498) |
1,093 |
1,266 |
(13,120) |
(14,380) |
||||||||||||||
|
Net write-offs |
— |
— |
— |
— |
— |
— |
— |
||||||||||||||
|
Stock-based compensation expense |
5,546 |
10,329 |
11,279 |
9,637 |
10,708 |
27,154 |
26,945 |
||||||||||||||
|
Gain from revaluation of previously held equity-method investment |
— |
— |
(39,641) |
— |
— |
(39,641) |
— |
||||||||||||||
|
Unamortized issuance costs from corporate debt retirement |
— |
— |
— |
2,673 |
— |
— |
— |
||||||||||||||
|
Fair value of expected net cash flows from servicing, net |
(55,291) |
(51,949) |
(52,730) |
(77,879) |
(89,482) |
(159,970) |
(209,266) |
||||||||||||||
|
Adjusted EBITDA |
$ |
74,990 |
$ |
94,844 |
$ |
62,636 |
$ |
109,667 |
$ |
72,430 |
$ |
232,470 |
$ |
199,611 |
|||||||
|
ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP BY SEGMENT Unaudited |
|||||||||||
|
Capital Markets |
|||||||||||
|
Three months ended |
Nine months ended |
||||||||||
|
(in thousands) |
2022 |
2021 |
2022 |
2021 |
|||||||
|
Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA |
|||||||||||
|
Walker & Dunlop Net Income |
$ |
37,628 |
$ |
80,846 |
$ |
131,428 |
$ |
191,520 |
|||
|
Income tax expense |
12,751 |
25,660 |
42,074 |
58,014 |
|||||||
|
Amortization and depreciation |
952 |
17 |
1,762 |
556 |
|||||||
|
Stock-based compensation expense |
4,079 |
4,247 |
12,961 |
11,809 |
|||||||
|
Fair value of expected net cash flows from servicing, net |
(55,291) |
(89,482) |
(159,970) |
(209,266) |
|||||||
|
Adjusted EBITDA |
$ |
119 |
$ |
21,288 |
$ |
28,255 |
$ |
52,633 |
|||
|
Servicing & Asset Management |
|||||||||||
|
Three months ended |
Nine months ended |
||||||||||
|
(in thousands) |
2022 |
2021 |
2022 |
2021 |
|||||||
|
Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA |
|||||||||||
|
Walker & Dunlop Net Income |
$ |
36,376 |
$ |
21,422 |
$ |
106,612 |
$ |
71,547 |
|||
|
Income tax expense |
12,110 |
7,040 |
33,799 |
21,693 |
|||||||
|
Amortization and depreciation |
57,239 |
52,388 |
170,930 |
145,161 |
|||||||
|
Provision (benefit) for credit losses |
1,218 |
1,266 |
(13,120) |
(14,380) |
|||||||
|
Stock-based compensation expense |
574 |
694 |
2,131 |
1,912 |
|||||||
|
Adjusted EBITDA |
$ |
107,517 |
$ |
82,810 |
$ |
300,352 |
$ |
225,933 |
|||
|
Corporate |
|||||||||||
|
Three months ended |
Nine months ended |
||||||||||
|
(in thousands) |
2022 |
2021 |
2022 |
2021 |
|||||||
|
Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA |
|||||||||||
|
Walker & Dunlop Net Income |
$ |
(27,171) |
$ |
(30,547) |
$ |
(65,712) |
$ |
(77,236) |
|||
|
Income tax expense |
(17,329) |
(9,747) |
(29,378) |
(23,396) |
|||||||
|
Interest expense on corporate debt |
9,306 |
1,766 |
22,123 |
5,291 |
|||||||
|
Amortization and depreciation |
1,655 |
1,093 |
4,409 |
3,162 |
|||||||
|
Stock-based compensation expense |
893 |
5,767 |
12,062 |
13,224 |
|||||||
|
Gain from revaluation of previously held equity-method investment |
— |
— |
(39,641) |
— |
|||||||
|
Adjusted EBITDA |
$ |
(32,646) |
$ |
(31,668) |
$ |
(96,137) |
$ |
(78,955) |
|||
View original content:https://www.prnewswire.com/news-releases/countercyclical-capital-and-recurring-revenues-drive-walker–dunlop-q3-performance-301672349.html
SOURCE Walker & Dunlop, Inc.
