Walker & Dunlop Inc.: Walker & Dunlop Announces First Quarter 2016 Earnings

Tickers: WD
BETHESDA, Md., May 4, 2016 /PRNewswire/ --

FIRST QUARTER 2016 HIGHLIGHTS

  • Net income of $15.5 million, or $0.50 per diluted share
  • Total transaction volume of $2.6 billion
  • Total revenues of $94.2 million
  • Adjusted EBITDA of $32.4 million
  • Servicing portfolio of $51.0 billion at March 31, 2016
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Walker & Dunlop, Inc. (NYSE: WD) (the 'Company') reported today first quarter 2016 net income of $15.5 million, or $0.50 per diluted share, a 27% decrease from first quarter 2015 net income of $21.3 million, or $0.66 per diluted share. Total revenues were $94.2 million for the first quarter 2016, a 16% decrease over the first quarter 2015. Adjusted EBITDA for the first quarter 2016 was $32.4 million compared to $35.4 million for the first quarter 2015, an 8% decrease.

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

FIRST QUARTER 2016 OPERATING RESULTS

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

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

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

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

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

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

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

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

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

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

STOCK REPURCHASE PROGRAM

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

SERVICING PORTFOLIO

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

CREDIT QUALITY

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

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

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

Adjusted EBITDA is a non-GAAP financial measure the Company presents to help investors better understand our operating performance. For a reconciliation of adjusted EBITDA to net income, refer to the sections of this press release below titled 'Non-GAAP Financial Measures' and 'Adjusted Financial Metric Reconciliation to GAAP.'

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Wednesday, May 4, 2016 at 8:30 a.m. Eastern time. Analysts and investors interested in participating are invited to call (877) 876-9177 from within the United States or (785) 424-1666 from outside the United States and are asked to reference the Conference ID: WDQ116. A simultaneous webcast of the call will be available on the Investor Relations section of the Walker & Dunlop website at http://www.walkerdunlop.com. Presentation materials, related to the conference call, will be posted to the Investor Relations section of the Company's website prior to the call.

A telephonic replay of the call will also be available from approximately 11:00 a.m. Eastern time May 4, 2016 through May 18, 2016. Please call (800) 753-9197 from the United States or (402) 220-0689 from outside the United States. An audio replay will also be available on the Investor Relations section of the Company's website, along with the presentation materials.

About Walker & Dunlop

Walker & Dunlop (NYSE: WD), headquartered in Bethesda, Maryland, is one of the largest commercial real estate finance companies in the United States providing financing and investment sales to owners of multifamily and commercial properties. Walker & Dunlop, which is included in the S&P SmallCap 600 Index, has over 500 professionals in 25 offices across the nation with an unyielding commitment to client satisfaction.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company uses adjusted EBITDA, a non-GAAP financial measure. The presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. When analyzing our operating performance, readers should use adjusted EBITDA in addition to, and not as an alternative for, net income. Adjusted EBITDA represents net income before income taxes, interest expense on our term loan facility, and amortization and depreciation, adjusted for provision for credit losses net of write-offs, stock-based incentive compensation charges, and non-cash revenues such as gains attributable to MSRs and mark to market effects from CMBS activities. Because not all companies use identical calculations, our presentation of adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, adjusted EBITDA is not intended to be a measure of free cash flow for our management's discretionary use, as it does not reflect certain cash requirements such as tax and debt service payments. The amounts shown for adjusted EBITDA may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges that are used to determine compliance with financial covenants.

We use adjusted EBITDA to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. We believe that this non-GAAP measure, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;
  • the ability to better identify trends in the Company's underlying business and perform related trend analyses; and
  • a better understanding of how management plans and measures the Company's underlying business.
We believe that adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that adjusted EBITDA should only be used to evaluate the Company's results of operations in conjunction with net income. For more information on adjusted EBITDA, refer to the section of this press release below titled 'Adjusted Financial Metric Reconciliation to GAAP.'

Forward-Looking Statements

Some of the statements contained in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as ''may,'' ''will,'' ''should,'' ''expects,'' ''intends,'' ''plans,'' ''anticipates,'' ''believes,'' ''estimates,'' ''predicts,'' or ''potential'' or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement.

While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to: (1) general economic conditions and multifamily and commercial real estate market conditions, (2) regulatory and or legislative changes to Freddie Mac, Fannie Mae or HUD, (3) our ability to retain and attract loan originators and other professionals, and (4) changes in federal government fiscal and monetary policies, including any constraints or cuts in federal funds allocated to HUD for loan originations.

For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see the section titled ''Risk Factors' in our most recent Annual Report on Form 10-K, as it may be updated or supplemented by our Quarterly Reports on Form 10-Q and our other filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.walkerdunlop.com.

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, 2016 and December 31, 2015

(In thousands, except per share data)

March 31,

December 31,

2016

2015

(unaudited)

Assets

Cash and cash equivalents

$

98,224

$

136,988

Restricted cash

10,006

5,306

Pledged securities, at fair value

75,225

72,190

Loans held for sale, at fair value

547,827

2,499,111

Loans held for investment, net

190,551

231,493

Servicing fees and other receivables, net

21,712

23,844

Derivative assets

16,130

11,678

Mortgage servicing rights

421,651

412,348

Goodwill and other intangible assets

91,439

91,488

Other assets

22,540

30,545

Total assets

$

1,495,305

$

3,514,991

Liabilities

Accounts payable and other liabilities

$

133,551

$

169,109

Performance deposits from borrowers

9,543

5,112

Derivative liabilities

7,563

1,333

Guaranty obligation, net of accumulated amortization

28,552

27,570

Allowance for risk-sharing obligations

5,149

5,586

Warehouse notes payable

640,307

2,649,470

Note payable

164,388

164,462

Total liabilities

$

989,053

$

3,022,642

Equity

Preferred shares, Authorized 50,000, none issued.

$

-

$

-

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

294

295

Additional paid-in capital

217,684

215,575

Retained earnings

283,950

272,030

Total stockholders' equity

$

501,928

$

487,900

Noncontrolling interests

4,324

4,449

Total equity

$

506,252

$

492,349

Total liabilities and equity

$

1,495,305

$

3,514,991

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except per share data)

Unaudited

For the three months ended March 31,

2016

2015

Revenues

Gains from mortgage banking activities

$

46,323

$

72,720

Servicing fees

31,649

26,841

Net warehouse interest income

6,731

4,354

Escrow earnings and other interest income

1,640

787

Other

7,898

7,419

Total revenues

$

94,241

$

112,121

Expenses

Personnel

$

34,230

$

40,045

Amortization and depreciation

25,155

24,674

Provision (benefit) for credit losses

(409)

84

Interest expense on corporate debt

2,469

2,477

Other operating expenses

8,614

9,435

Total expenses

$

70,059

$

76,715

Income from operations

$

24,182

$

35,406

Income tax expense

8,849

14,093

Net income before noncontrolling interests

$

15,333

$

21,313

Less: net income from noncontrolling interests

(125)

-

Walker & Dunlop net income

$

15,458

$

21,313

Basic earnings per share

$

0.52

$

0.68

Diluted earnings per share

$

0.50

$

0.66

Basic weighted average shares outstanding

29,489

31,515

Diluted weighted average shares outstanding

30,782

32,464

SUPPLEMENTAL OPERATING DATA

Unaudited

For the three months ended March 31,

(dollars in thousands)