Walker & Dunlop Inc.: Walker & Dunlop Reports 8% Net Income Growth on Highest Loan Origination Volume in Company History

Tickers: WD

Walker & Dunlop Reports 8% Net Income Growth on Highest Loan Origination Volume in Company History Adjusted EBITDA Grows 88% Year Over Year

SECOND QUARTER 2017 HIGHLIGHTS

  • Total revenues of $166.4 million, up 13% from Q2 '16

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    Net income of $34.6 million, or $1.08 per diluted share, up 8% from Q2 '16

  • Adjusted EBITDA1 of $51.0 million, up 88% from Q2 '16

  • Total transaction volume of $6.0 billion, up 12% from Q2 '16

  • Servicing portfolio of $66.3 billion at June 30, 2017, up 16% from June 30, 2016

  • Net MSR additions from loan originations during the quarter of $10.6 million compared to $1.7 million for Q2 '16

    YEAR-TO-DATE 2017 HIGHLIGHTS

  • Total revenues of $324.9 million, up 34% from 2016

  • Net income of $77.8 million, or $2.43 per diluted share, up 64% from 2016

  • Adjusted EBITDA of $101.3 million, up 70% from 2016

  • Total transaction volume of $11.0 billion, up 38% from 2016

  • Operating margin of 35% compared to 31% in 2016

  • Return on equity of 24% compared to 19% in 2016

    Bethesda, MD - August 2, 2017 - Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported second quarter 2017 net income of $34.6 million, or $1.08 per diluted share, representing an 8% increase in net income over second quarter 2016. Total revenues for the second quarter 2017 were $166.4 million, a 13% increase from the prior-year second quarter. Adjusted EBITDA for the second quarter 2017 was a record $51.0 million compared to $27.1 million for the second quarter 2016, an 88% increase.

    "A 33% year-over-year increase in mortgage bankers and brokers at Walker & Dunlop, coupled with the underlying health of the commercial real estate industry and our company's expanding reputation as an industry leader, drove record loan origination volume of $5.7 billion, net income growth of 8% and $1.08 of diluted earnings per share," commented Willy Walker, Chairman and CEO. "Record loan origination volume and the continued growth of our loan servicing portfolio produced 88% growth in adjusted EBITDA to a record $51 million. Earning over $100 million in adjusted EBITDA in the first half of 2017 demonstrates the profitability of our business model and long-term value of the mortgage servicing rights we have accumulated so success- fully."

    Mr. Walker continued, "W&D's client base continues to expand, creating growth opportunities across our business such as our joint venture with Blackstone Mortgage Trust and the recently announced engagement to finance Greystar's acquisition of Monogram. These business opportunities only exist due to the exceptional performance of the W&D team every day.

    "Based on our extremely strong financial performance in the first half of 2017 and positive macro-economic drivers behind commercial real estate, we are confident in our ability to exceed the annual financial and operational goals we set out at the beginning of the year and to continue to grow in the years to come."

    SECOND QUARTER 2017 OPERATING RESULTS

    TRANSACTION VOLUMES

    (dollars in thousands)

    Q2 2017

    Q2 2016

    $ Variance

    % Variance

    Fannie Mae

    $

    2,188,841

    $

    2,398,404

    $

    (209,563)

    (9)

    %

    Freddie Mac

    1,111,434

    1,002,453

    108,981

    11

    Ginnie Mae - HUD

    403,981

    111,927

    292,054

    261

    Brokered

    1,948,918

    1,093,932

    854,986

    78

    Interim Loans

    26,637

    158,565

    (131,928)

    (83)

    Loan origination volume

    $

    5,679,811

    $

    4,765,281

    $

    914,530

    19

    %

    Investment sales volume

    351,825

    623,995

    (272,170)

    (44)

    Total transaction volume

    $

    6,031,636

    $

    5,389,276

    $

    642,360

    12

    %

    Discussion of Results:

  • The increase in total transaction volume was largely the result of an increase in the average number of mortgage bankers and brokers from 99 during the second quarter 2016 to 140 during the same period in 2017.

  • We continue to experience strong total transaction volume due to the continued strength of the commercial real estate and multifamily market, a low interest rate environment, and robust demand for rental properties.

  • The increase in HUD loan origination volume period over period was attributable to the increase in the average number of mortgage bankers and brokers combined with program changes introduced by HUD in 2016 that reduced the cost of borrow- ing, resulting in HUD loans becoming a more attractive financing option to our borrowers.

  • An increase in the average number of mortgage bankers with a primary expertise in brokered loan originations from 42 during the second quarter 2016 to 77 during the second quarter 2017 was the primary driver for the increase in brokered loan origi- nation volume.

  • The decline in investment sales volume year over year is consistent with the decline in the broader multifamily investment sales market.

    SERVICING PORTFOLIO

    (dollars in thousands)

    Q2 2017

    Q2 2016

    $ Variance

    % Variance

    Fannie Mae

    $

    29,573,946

    $

    24,884,039

    $

    4,689,907

    19

    %

    Freddie Mac

    22,380,103

    18,880,690

    3,499,413

    19

    Ginnie Mae - HUD

    8,919,840

    9,396,321

    (476,481)

    (5)

    Brokered

    5,128,453

    3,918,682

    1,209,771

    31

    Interim Loans

    288,412

    242,092

    46,320

    19

    Total servicing portfolio

    $

    66,290,754

    $

    57,321,824

    $

    8,968,930

    16

    %

    Weighted-average servicing fee rate (basis points)

    26.5

    25.0

    Weighted-average remaining term (years)

    10.1

    10.4

    Discussion of Results:

  • Our servicing portfolio has experienced significant growth over the past year due to our record loan origination volumes and relatively few payoffs.

  • The weighted-average servicing fee increased since the second quarter 2016 as we have originated more Fannie Mae loans than any other product over the past 12 months. Fannie Mae loans carry the highest servicing fees of any of our loan products due to their risk-sharing provisions.

  • During the second quarter 2017, there were $1.9 billion of net loan additions to the servicing portfolio.

    REVENUES

    (dollars in thousands)

    Q2 2017

    Q2 2016

    $ Variance

    % Variance

    Loan origination fees

    $

    57,507

    $

    46,874

    $

    10,633

    23

    %

    Gains attributable to MSRs

    44,669

    55,579

    (10,910)

    (20)

    Gains from mortgage banking activities

    102,176

    102,453

    (277)

    -

    Servicing fees

    43,214

    32,771

    10,443

    32

    Net warehouse interest income, LHFS

    2,430

    2,130

    300

    14

    Net warehouse interest income, LHFI

    3,370

    1,450

    1,920

    132

    Escrow earnings and other interest income

    4,514

    1,955

    2,559

    131

    Other revenues

    10,703

    7,099

    3,604

    51

    Total revenues

    $

    166,407

    $

    147,858

    $

    18,549

    13

    %

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

    Origination related fees

    1.01

    %

    0.98

    %

    Gains attributable to MSRs

    0.79

    1.17

    Gains attributable to MSRs-Agency loans2

    1.21

    1.58

    Discussion of Results:

  • The increase in loan origination fees to a quarterly record of $57.5 million was largely driven by the increase in loan origi- nation activity in the second quarter 2017 compared to the prior-year second quarter.

  • The decrease in gains attributable to mortgage servicing rights ("MSRs") was primarily the result of a decrease in Fannie Mae loan origination volume year over year and a 20% increase in floating-rate loan origination volume from the second quarter 2016 to the second quarter 2017. We record relatively less MSR income on floating-rate loan originations as their estimated life is substantially shorter than fixed-rate loan originations.

  • During the past 12 months, the Company has originated $19.9 billion of loans, facilitating substantial growth in servicing fees year over year.

  • The increase in net warehouse interest income from our on-balance-sheet interim loans was attributable to a 56% year-over- year increase in the average balance of loans outstanding.

  • Escrow earnings benefitted from an increase in the average balance of escrow accounts outstanding from the second quarter 2016 to the second quarter 2017. Additionally, the average earnings rate on our escrow accounts increased over the past year.

    EXPENSES

    (dollars in thousands)

    Q2 2017

    Q2 2016

    $ Variance

    % Variance

    Personnel

    $

    63,516

    $

    55,758

    $

    7,758

    14

    %

    Amortization and depreciation

    32,860

    26,425

    6,435

    24

    Provision (benefit) for credit losses

    (93)

    292

    (385)

    (132)

    Interest expense on corporate debt

    2,443

    2,465

    (22)

    (1)

    Other operating expenses

    11,599

    11,212

    387

    3

    Total expenses

    $

    110,325

    $

    96,152

    $

    14,173

    15

    %

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

    Personnel expenses

    38

    %

    38

    %

    Other operating expenses

    7

    8

    Discussion of Results:

  • Fixed compensation costs increased following acquisitions during the fourth quarter 2016 and first quarter 2017 and due to hiring to support the growth of the Company, resulting in a substantial increase in the average headcount from 506 in the second quarter 2016 to 594 in the same period in 2017.

  • Variable compensation costs increased as a result of increased commissions expense resulting from the growth in loan orig- ination volume and the corresponding increase in loan origination fees, partially offset by a decrease in bonus expense. The

    decrease in bonus expense is due to the Company's relative outperformance during the second quarter 2016, which was a record at the time.

  • Although compensation costs have increased, personnel expense as a percentage of total revenues has remained consistent.

  • Amortization and depreciation costs increased due to the growth of the average balance of MSRs outstanding year over year. Over the past 12 months, we have added $105.1 million of MSRs, net of write offs due to prepayment.

    KEY PERFORMANCE METRICS

    (dollars in thousands, except per share amounts)

    Q2 2017

    Q2 2016

    $ Variance

    % Variance

    Walker & Dunlop net income

    $ 34,567

    $ 32,021

    $ 2,546

    8 %

    Adjusted EBITDA

    50,988

    27,090

    23,898

    88

    Diluted EPS

    $ 1.08

    $ 1.05

    $ 0.03

    3 %

    Operating margin

    34 %

    35 %

    Return on equity

    21

    25

    Discussion of Results:

  • The second quarter marks the 11th quarter out of the past 12 quarters that the Company has produced year-over-year net income and diluted EPS growth.

  • The increase in net income is largely attributable to the increase in total revenues.

  • The substantial increase in adjusted EBITDA was driven by increases in loan origination fees, servicing fees, and interest income, partially offset by the increase in personnel costs.

  • The slight decrease in operating margin was driven primarily by the change in the mix of loan origination volume. During the second quarter 2017, brokered loan origination volume represented 34% of total loan origination volume compared to 23% during the year-ago quarter. Brokered loan originations have the lowest operating margin of all of our loan products.

  • The decrease in return on equity is largely related to a $148.4 million increase in stockholders' equity over the past year due primarily to the $144.2 million of net income recorded over the past 12 months.

    KEY CREDIT METRICS

    (dollars in thousands)

    Q2 2017

    Q2 2016

    $ Variance

    % Variance

    At risk servicing portfolio3

    $

    26,095,958

    $

    21,259,296

    $

    4,836,662

    23

    %

    Maximum exposure to at risk portfolio4

    5,282,883

    4,285,966

    996,917

    23

    60+ day delinquencies within at risk portfolio

    $

    -

    $

    -

    $

    -

    N/A

    %

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

    60+ day delinquencies

    0.00

    %

    0.00

    %

    Allowance for risk-sharing

    0.01

    0.03

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

    Allowance for risk-sharing

    0.07

    %

    0.14

    %

    Allowance for risk-sharing and guaranty obligation

    0.76

    0.80

    Discussion of Results:

  • Our at risk servicing portfolio, which is comprised of loans subject to a defined risk-sharing formula, increased due to the significant level of Fannie Mae loan origination volume during the past year. There were no 60+ day delinquencies or defaults in our at risk servicing portfolio at June 30, 2017, the ninth consecutive quarter we have not had any 60+ day delinquent loans in our at risk servicing portfolio.

  • The on-balance sheet interim-loan portfolio, which is comprised of loans for which the Company has full risk of loss, was

$168.7 million at June 30, 2017 compared to $242.1 million at June 30, 2016. All of the Company's interim loans are current and performing at June 30, 2017.

Walker & Dunlop Inc. published this content on 02 August 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 02 August 2017 10:20:03 UTC.