Walker & Dunlop Reports Q2 2023 Financial Results

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Continued Investments in People, Brand, and Technology Due to Strength of Recurring Revenues

SECOND QUARTER 2023 HIGHLIGHTS

  • Total transaction volume of $8.4 billion, down 63% from Q2’22

  • Total revenues of $272.6 million, down 20% from Q2’22

  • Net income of $27.6 million and diluted earnings per share of $0.82, both down 49% from Q2’22

  • Adjusted EBITDA1 of $70.5 million, down 26% from Q2’22

  • Adjusted core EPS2 of $0.98, down 44% from Q2’22

  • Servicing portfolio of $126.6 billion at June 30, 2023, up 6% from June 30, 2022

  • Declared quarterly dividend of $0.63 per share for the third quarter of 2023

YEAR-TO-DATE 2023 HIGHLIGHTS

  • Total transaction volume of $15.1 billion, down 57% from 2022

  • Total revenues of $511.4 million, down 23% from 2022

  • Net income of $54.3 million and diluted earnings per share of $1.61, both down 57% from 2022

  • Adjusted EBITDA1 of $138.5 million, down 12% from 2022

  • Adjusted core EPS2 of $2.14, down 24% from 2022

BETHESDA, Md., August 03, 2023--(BUSINESS WIRE)--Walker & Dunlop, Inc. (NYSE: WD) (the "Company," "Walker & Dunlop" or "W&D") reported second quarter total transaction volume of $8.4 billion, down 63% year over year, due to the Federal Reserve’s continued tightening. Despite dramatically lower transaction volume, Walker & Dunlop’s total revenues were down just 20% year over year due to the strength of recurring, non-transaction-based servicing and asset management revenues. Net income was $27.6 million in the second quarter, down 49% year over year, while adjusted EBITDA declined significantly less, at 26%, due to our access to counter-cyclical capital and the strength of our servicing and asset management businesses.

"Q2 2023 was a hugely challenging macro-economic environment for commercial real estate but appears to be the first quarter in building back from the dramatic Federal Reserve tightening cycle that began in 2022," commented Walker & Dunlop Chairman and CEO, Willy Walker. "Compared to the first quarter of 2023, our Q2 results showed sequential improvement with a 25% increase in total transaction volume driven predominantly by Fannie Mae and Freddie Mac. As a result of that top-line growth and continued expense management, diluted earnings per share and adjusted EBITDA both grew from Q1 to Q2. And year-to-date adjusted EBITDA is down just 12%, outperforming the majority of our commercial real estate services competitors and allowing us to continue investing in the people, brand, and technology of Walker & Dunlop."

CONSOLIDATED SECOND QUARTER 2023 OPERATING RESULTS

TRANSACTION VOLUMES

(dollars in thousands)

Q2 2023

Q2 2022

$ Variance

% Variance

Fannie Mae

$

2,230,952

$

3,918,400

$

(1,687,448

)

(43

)%

Freddie Mac

1,212,887

1,141,034

71,853

6

Ginnie Mae - HUD

147,773

201,483

(53,710

)

(27

)

Brokered (3)

3,316,223

9,258,490

(5,942,267

)

(64

)

Principal Lending and Investing (4)

-

131,551

(131,551

)

(100

)

Debt financing volume

$

6,907,835

$

14,650,958

$

(7,743,123

)

(53

)%

Property sales volume

1,504,383

7,892,062

(6,387,679

)

(81

)

Total transaction volume

$

8,412,218

$

22,543,020

$

(14,130,802

)

(63

)%

Discussion of Results:

  • The continued challenging macro-economic environment in the second quarter of 2023 primarily drove the 53% decrease in total debt financing volume, with a 43% decrease in Fannie Mae volumes, partially offset by a 6% increase in Freddie Mac volumes. Fannie Mae originations in the second quarter of 2022 included a $1.9 billion portfolio, with no comparable large transaction in the second quarter of 2023. The $8.4 billion in total transaction volumes represents a 25% sequential increase in transaction volumes from the first quarter of 2023.

  • HUD volumes decreased 27% in the second quarter of 2023 as the interest-rate environment and long processing times continued to make HUD’s construction and streamlined refinancing products a less favorable source of capital for multifamily properties.

  • Principal lending and investing volume activity, which includes interim loans, originations for WDIP separate accounts, and interim lending for our joint venture, remained inactive in the second quarter of 2023, reflecting the challenges of a higher rate environment within the transitional lending segment of the market.

  • The decrease in brokered debt and property sales volume was driven by higher interest rates, decreased liquidity supplied to the commercial real estate sector and dramatically lower acquisition and capital markets activity as the commercial real estate industry continues to adjust to a higher interest rate environment.

MANAGED PORTFOLIO

(dollars in thousands, unless otherwise noted)

Q2 2023

Q2 2022

$ Variance

% Variance

Fannie Mae

$

61,356,554

$

57,122,414

$

4,234,140

7

%

Freddie Mac

38,287,200

36,886,666

1,400,534

4

Ginnie Mae - HUD

10,246,632

9,570,012

676,620

7

Brokered

16,684,115

15,190,315

1,493,800

10

Principal Lending and Investing

71,680

252,100

(180,420

)

(72

)

Total Servicing Portfolio

$

126,646,181

$

119,021,507

$

7,624,674

6

%

Assets under management

16,903,055

16,692,556

210,499

1

Total Managed Portfolio

$

143,549,236

$

135,714,063

$

7,835,173

6

%

Custodial escrow account balance at period end (in billions)

$

2.8

$

2.3

Weighted-average servicing fee rate (basis points)

24.3

24.9

Weighted-average remaining servicing portfolio term (years)

8.6

8.9

Discussion of Results:

  • Our servicing portfolio continues to expand as a result of the additional GSE and brokered debt financing volumes over the past 12 months, partially offset by principal paydown and loan payoffs.

  • During the second quarter of 2023, we added $2.1 billion of net loans to our servicing portfolio, and over the past 12 months, we added $7.6 billion of net loans to our servicing portfolio, 74% of which were Fannie Mae and Freddie Mac loans.

  • $8.7 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 18.3 basis points, represent only 9% of our total Agency loans in the portfolio.

  • The mortgage servicing rights ("MSRs") associated with our servicing portfolio had a fair value of $1.4 billion as of June 30, 2023, compared to $1.3 billion as of June 30, 2022.

  • Assets under management ("AUM") as of June 30, 2023 consisted of $14.7 billion of tax-credit equity funds, $1.3 billion of commercial real estate loans and funds, and $0.9 billion of loans in our interim lending joint venture.

KEY PERFORMANCE METRICS

(dollars in thousands, except per share amounts)

Q2 2023

Q2 2022

$ Variance

% Variance

Walker & Dunlop net income

$

27,635

$

54,286

$

(26,651

)

(49

)%

Adjusted EBITDA

70,501

94,844

(24,343

)

(26

)

Diluted EPS

$

0.82

$

1.61

$

(0.79

)

(49

)%

Adjusted core EPS

$

0.98

$

1.74

$

(0.76

)

(44

)%

Operating margin

13

%

22

%

Return on equity

7

14

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

Personnel expenses

49

%

49

%

Other operating expenses

11

11

Discussion of Results:

  • The decrease in Walker & Dunlop net income was largely the result of a 51% decrease in income from operations, primarily due to the decline in total transaction volume and associated revenues.

  • The decrease in adjusted EBITDA was primarily the result of lower origination fees (defined below), property sale broker fees, net warehouse interest income, and other revenues. These decreases were partially offset by increased escrow earnings and other interest income and lower personnel expense. During the second quarter of 2023, we resolved the only defaulted loan in the history of our interim loan program. The loan defaulted in 2019 and the collateral was sold in the second quarter. The sale returned $8.7 million to our balance sheet, and the $6.0 million allowance for loan losses was charged off, with an immaterial impact to the provision for loan losses. The charge off is included in adjusted EBITDA for the second quarter and contributed to the year-on-year decline in adjusted EBITDA.

  • Operating margin decreased due to the significant decline in total transaction volume this quarter, resulting in the aforementioned decrease in income from operations. Our transaction-related businesses are scaled to execute a significantly larger volume of business, and lower commercial real estate transaction activity has put pressure on our operating margins. The workforce reduction announced in April had a minimal impact on current quarter results but is expected to benefit our operating margin in the second half of the year.

  • Return on equity declined due to a 49% decrease in net income combined with a 4% increase in stockholders’ equity over the past year.

KEY CREDIT METRICS

(dollars in thousands)

Q2 2023

Q2 2022

$ Variance

% Variance

At-risk servicing portfolio (8)

$

56,430,098

$

51,905,985

$

4,524,113

9

%

Maximum exposure to at-risk portfolio (9)

11,346,580

10,525,093

821,487

8

Defaulted loans

$

36,983

$

78,659

$

(41,676

)

(53

)%

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

Defaulted loans

0.07

%

0.15

%

Allowance for risk-sharing

0.06

0.09

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

Allowance for risk-sharing

0.29

%

0.46

%

Discussion of Results:

  • Our at-risk servicing portfolio, which is comprised of loans subject to a defined risk-sharing formula, increased primarily due to the level of Fannie Mae loans added to the portfolio during the past 12 months. As of June 30, 2023, there were two defaulted loans. 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 $71.7 million as of June 30, 2023 compared to $252.1 million as of June 30, 2022. We did not have any defaulted loans in our interim loan portfolio as of June 30, 2023, compared to one defaulted loan of $14.7 million in our interim loan portfolio as of June 30, 2022. During the second quarter of 2023, we sold the defaulted asset and charged off the $6.0 million allowance for loan losses and recorded an immaterial amount of expense. The three remaining loans in the on-balance sheet interim loan portfolio are current and performing as of June 30, 2023. The interim loan joint venture held $895.5 million of loans as of June 30, 2023 and $899.3 million of loans as of June 30, 2022. We share in a small portion of the risk of loss, and as of June 30, 2023, all loans in the interim loan joint venture are current and performing.

  • We take credit risk exclusively on loans backed by multifamily assets and have no credit exposure to losses in any other sector of the commercial real estate lending market.




SECOND QUARTER 2023 - FINANCIAL RESULTS BY SEGMENT

FINANCIAL RESULTS - CAPITAL MARKETS

(dollars in thousands)

Q2 2023

Q2 2022

$ Variance

% Variance

Loan origination and debt brokerage fees, net ("Origination fees")

$

64,574

$

102,085

$

(37,511

)

(37

)%

Fair value of expected net cash flows from servicing, net ("MSR income")

42,058

51,949

(9,891

)

(19

)

Property sales broker fees

10,345

46,386

(36,041

)

(78

)

Net warehouse interest income (expense), LHFS

(2,752

)

3,707

(6,459

)

(174

)

Other revenues

11,760

11,491

269

2

Total revenues

$

125,985

$

215,618

$

(89,633

)

(42

)%

Personnel

$

93,067

$

138,716

$

(45,649

)

(33

)%

Amortization and depreciation

1,089

1,083

6

1

Interest expense on corporate debt

4,727

1,535

3,192

208

Other operating (income) expenses

5,200

5,873

(673

)

(11

)

Total expenses

$

104,083

$

147,207

$

(43,124

)

(29

)%

Income from operations

$

21,902

$

68,411

$

(46,509

)

(68

)%

Income tax expense

5,572

17,499

(11,927

)

(68

)

Net income before noncontrolling interests

$

16,330

$

50,912

$

(34,582

)

(68

)%

Less: net income (loss) from noncontrolling interests

223

653

(430

)

(66

)

Walker & Dunlop net income

$

16,107

$

50,259

$

(34,152

)

(68

)%

Key revenue metrics (as a percentage of debt financing volume):

Origination fee margin (5)

0.93

%

0.71

%

MSR margin (6)

0.61

0.36

Agency MSR margin (7)

1.17

0.99

Key performance metrics:

Operating margin

17

%

32

%

Adjusted EBITDA

$

(10,334

)

$

22,830

$

(33,164

)

(145

)%

Capital Markets - Discussion of Quarterly Results:

The Capital Markets segment includes our Agency lending, debt brokerage, property sales, appraisal and valuation services, and housing market research businesses.

  • The decrease in origination fees was primarily the result of a decrease in our overall debt financing volume, partially offset by an increase in Agency debt financing volume as a percentage of overall debt financing volume and the aforementioned $1.9 billion Fannie Mae portfolio that was originated in the second quarter of 2022 with no comparable activity in the second quarter of 2023. The portfolio had a much lower origination fee than is typical for smaller loans.

  • The decrease in MSR income is attributable to a 32% decrease in Agency debt financing volume, partially offset by a 18% increase in the Agency MSR margin. The aforementioned portfolio had a lower servicing fee, resulting in a low Agency MSR margin for the second quarter of 2022.

  • The decrease in property sales broker fees was primarily driven by the 81% decrease in property sales volumes.

  • The decrease in net warehouse interest income was primarily due to an inverted yield curve during the second quarter of 2023. Short-term interest rates upon which we incur interest expense were higher than the long-term mortgage rates upon which we earn interest income.

  • Personnel expense decreased primarily due to a decrease in commissions expense as a result of the decline in origination fees and property sales broker fees.

  • The increase in interest expense on corporate debt is the result of increases in both interest rates year over year, as our term loan carries a floating interest rate and the balance of our corporate debt.

FINANCIAL RESULTS - SERVICING & ASSET MANAGEMENT

(dollars in thousands)

Q2 2023

Q2 2022

$ Variance

% Variance

Origination fees

$

394

$

520

$

(126

)

(24

)%

Servicing fees

77,061

74,260

2,801

4

Investment management fees

16,309

16,186

123

1

Net warehouse interest income, LHFI

1,226

1,561

(335

)

(21

)

Escrow earnings and other interest income

32,337

6,648

25,689

386

Other revenues

15,513

25,780

(10,267

)

(40

)

Total revenues

$

142,840

$

124,955

$

17,885

14

%

Personnel

$

21,189

$

17,819

$

3,370

19

%

Amortization and depreciation

53,550

58,469

(4,919

)

(8

)

Provision (benefit) for credit losses

(734

)

(4,840

)

4,106

(85

)

Interest expense on corporate debt

10,707

4,528

6,179

136

Other operating expenses

9,946

5,269

4,677

89

Total expenses

$

94,658

$

81,245

$

13,413

17

%

Income from operations

$

48,182

$

43,710

$

4,472

10

%

Income tax expense

14,787

11,175

3,612

32

Net income before noncontrolling interests

$

33,395

$

32,535

$

860

3

%

Less: net income (loss) from noncontrolling interests

(2,337

)

(832

)

(1,505

)

181

Walker & Dunlop net income

$

35,732

$

33,367

$

2,365

7

%

Key performance metrics:

Operating margin

34

%

35

%

Adjusted EBITDA

$

108,459

$

103,371

$

5,088

5

%

Servicing & Asset Management - Discussion of Quarterly Results:

The Servicing & Asset Management segment includes loan servicing, principal lending and investing, management of third-party capital invested in tax credit equity funds focused on the affordable housing sector and other commercial real estate, and real estate-related investment banking and advisory services.

  • The $7.6 billion net increase in the servicing portfolio over the past 12 months was the principal driver of the growth in servicing fees year over year, partially offset by a decrease in the servicing portfolio’s weighted-average servicing fee.

  • Escrow earnings and other interest income increased as a result of higher escrow earnings due to substantially higher short-term interest rates and an increase in the average escrow balance.

  • Other revenues decreased primarily due to a significant decline in prepayment activity and a decrease in syndication fees from our low-income housing tax credits ("LIHTC") operations.

  • Personnel expense increased due to increases in performance-based compensation expenses year over year, partially offset by a decrease in performance stock compensation expense in response to our overall financial performance.

  • For the second quarter of 2023, the benefit for credit losses was driven by an update in our collateral-based reserve for a property that was settled with Fannie Mae in July 2023. The settlement totaled $2.0 million and will be included as an adjustment to adjusted EBITDA and adjusted core EPS in the third quarter of 2023. For the second quarter of 2022, the benefit for credit losses was a result of a decrease in the forecast-period loss rate from 3.0 basis points as of March 31, 2022 to 2.2 basis points as of June 30, 2022, compared to no change in the forecast-period loss rate during the second quarter of 2023.

  • The increase in interest expense on corporate debt is the result of increases in both interest rates year over year, as our term loan carries a floating interest rate and the balance of our corporate debt.

  • Other operating expenses increased primarily due to an increase in other professional fees.

FINANCIAL RESULTS - CORPORATE

(dollars in thousands)

Q2 2023

Q2 2022

$ Variance

% Variance

Other interest income

$

3,049

$

103

$

2,946

2,860

%

Other revenues

741

172

569

331

Total revenues

$

3,790

$

275

$

3,515

1,278

%

Personnel

$

19,049

$

11,833

$

7,216

61

%

Amortization and depreciation

1,653

1,551

102

7

Interest expense on corporate debt

1,576

349

1,227

352

Other operating expenses

15,584

25,053

(9,469

)

(38

)

Total expenses

$

37,862

$

38,786

$

(924

)

(2

)%

Income from operations

$

(34,072

)

$

(38,511

)

$

4,439

(12

)%

Income tax expense

(9,868

)

(9,171

)

(697

)

8

Walker & Dunlop net income

$

(24,204

)

$

(29,340

)

$

5,136

(18

)%

Key performance metric:

Adjusted EBITDA

$

(27,624

)

$

(31,357

)

$

3,733

(12

)%

Corporate - Discussion of Quarterly Results:

The Corporate segment consists of corporate-level activities including accounting, information technology, legal, human resources, marketing, internal audit, and various other corporate groups ("support functions"). The Company does not allocate costs from these support functions to its other segments in presenting segment operating results.

  • The increase in total revenues was primarily driven by the increase in interest income from our corporate cash balances due to higher short-term interest rates.

  • Personnel expense increased due to increases in our variable compensation expense, as the Company reduced incentive compensation estimates in the second quarter of 2022 based on our overall financial performance without similar adjustments for the second quarter of 2023, partially offset by a decrease in performance stock compensation expense in response to our overall financial performance.

  • The increase in interest expense on corporate debt is the result of increases in both interest rates year over year, as our term loan carries a floating interest rate and the balance of our corporate debt.

  • Other operating expenses decreased due to cost saving strategies, resulting in lower professional, marketing, travel and entertainment, and other expenses.




CONSOLIDATED YEAR-TO-DATE 2023 OPERATING RESULTS

YEAR-TO-DATE OPERATING RESULTS AND KEY PERFORMANCE METRICS

(dollars in thousands)

YTD 2023

YTD 2022

$ Variance

% Variance

Debt financing volume

$

11,733,633

$

23,785,975

$

(12,052,342

)

(51

)%

Property sales volume

3,399,065

11,423,752

(8,024,687

)

(70

)

Total transaction volume

$

15,132,698

$

35,209,727

$

(20,077,029

)

(57

)%

Total revenues

511,361

660,292

(148,931

)

(23

)

Total expenses

440,744

496,692

(55,948

)

(11

)

Walker & Dunlop net income

$

54,300

$

125,495

$

(71,195

)

(57

)%

Adjusted EBITDA

138,476

157,480

(19,004

)

(12

)

Diluted EPS

$

1.61

$

...

3.73

$

(2.12

)

(57

)%

Adjusted core EPS

$

2.14

$

2.83

$

(0.69

)

(24

)%

Operating margin

14

%

25

%

Return on equity

6

16

Discussion of Year-to-Date Results:

  • The decrease in total transaction volume was primarily driven by a 39% decrease in Fannie Mae debt financing volume, a 62% decrease in brokered debt financing volume, and a 70% decrease in property sales volume, partially offset by a 3% increase in Freddie Mac debt financing volume.

  • The decrease in Walker & Dunlop net income was a result of the 57% decrease in income from operations.

  • The decrease in adjusted EBITDA was largely driven by decreases in origination fees and property sales broker fees driven by the decreases in related transaction volumes as well as the charge-off resulting from the sale of the only defaulted loan in our on-balance sheet interim loan program.

  • Operating margin decreased primarily as a result of the significant decline in our transaction activity. The workforce reduction announced in April is expected to benefit our operating margin in the second half of the year.

  • Return on equity declined due to a 57% decrease in net income combined with a 4% increase in stockholders’ equity over the past year.




YEAR-TO-DATE 2023 – FINANCIAL RESULTS BY SEGMENT

YEAR-TO-DATE FINANCIAL RESULTS - CAPITAL MARKETS

(dollars in thousands)

YTD 2023

YTD 2022

$ Variance

% Variance

Origination fees

$

111,530

$

183,908

$

(72,378

)

(39

)%

MSR income

72,071

104,679

(32,608

)

(31

)

Property sales broker fees

21,969

69,784

(47,815

)

(69

)

Net warehouse interest income (expense), LHFS

(4,441

)

7,237

(11,678

)

(161

)

Other revenues

28,860

18,827

10,033

53

Total revenues

$

229,989

$

384,435

$

(154,446

)

(40

)%

Personnel

$

183,529

$

243,675

$

(60,146

)

(25

)%

Amortization and depreciation

2,275

1,139

1,136

100

Interest expense on corporate debt

8,996

3,058

5,938

194

Other operating (income) expenses

10,844

13,074

(2,230

)

(17

)

Total expenses

$

205,644

$

260,946

$

(55,302

)

(21

)%

Income from operations

$

24,345

$

123,489

$

(99,144

)

(80

)%

Income tax expense

6,076

29,410

(23,334

)

(79

)

Net income before noncontrolling interests

$

18,269

$

94,079

$

(75,810

)

(81

)%

Less: net income (loss) from noncontrolling interests

1,658

718

940

131

Walker & Dunlop net income

$

16,611

$

93,361

$

(76,750

)

(82

)%

Capital Markets - Discussion of Year-to-Date Results:

  • The decrease in origination fees was primarily the result of a decrease in our overall debt financing volume, partially offset by an increase in Agency debt financing volume as a percentage of overall debt financing volume and the aforementioned $1.9 billion Fannie Mae portfolio that was originated in 2022 with no comparable activity in 2023. The portfolio had a much lower origination fee than is typical for smaller loans.

  • The decrease in MSR income is primarily attributable to a 30% decrease in Agency debt financing volume.

  • The decrease in property sales broker fees was primarily driven by a 70% decrease in property sales volumes.

  • The decrease in net warehouse interest income was primarily due to an inverted yield curve during the first half of 2023. Short-term interest rates upon which we incur interest expense were higher than the long-term mortgage rates upon which we earn interest income.

  • The increase in other revenues was primarily a result of an increase in investment banking revenues, driven by a large transaction closed by our team during the first quarter of 2023.

  • The decrease in personnel expense was primarily driven by a decrease in commissions expense related to lower year over year property sales broker fees and origination fees.

  • The increase in interest expense on corporate debt is the result of increases in both interest rates year over year, as our term loan carries a floating interest rate and the balance of our corporate debt.

YEAR-TO-DATE FINANCIAL RESULTS - SERVICING & ASSET MANAGEMENT

(dollars in thousands)

YTD 2023

YTD 2022

$ Variance

% Variance

Origination fees

$

522

$

1,007

$

(485

)

(48

)%

Servicing fees

152,827

146,941

5,886

4

Investment management fees

31,482

31,044

438

1

Net warehouse interest income, LHFI

2,916

2,804

112

4

Escrow earnings and other interest income

61,161

8,406

52,755

628

Other revenues

27,128

41,246

(14,118

)

(34

)

Total revenues

$

276,036

$

231,448

$

44,588

19

%

Personnel

$

36,530

$

34,483

$

2,047

6

%

Amortization and depreciation

107,560

113,362

(5,802

)

(5

)

Provision (benefit) for credit losses

(11,509

)

(14,338

)

2,829

(20

)

Interest expense on corporate debt

20,289

9,064

11,225

124

Other operating expenses

11,426

10,298

1,128

11

Total expenses

$

164,296

$

152,869

$

11,427

7

%

Income from operations

$

111,740

$

78,579

$

33,161

42

%

Income tax expense

27,891

18,715

9,176

49

Net income before noncontrolling interests

$

83,849

$

59,864

$

23,985

40

%

Less: net income (loss) from noncontrolling interests

(2,967

)

(1,576

)

(1,391

)

88

Walker & Dunlop net income

$

86,816

$

61,440

$

25,376

41

%

Servicing & Asset Management - Discussion of Year-to-Date Results:

  • The $7.6 billion net increase in the servicing portfolio over the past 12 months was the principal driver of the growth in servicing fees year over year, partially offset by a decrease in the servicing portfolio’s weighted-average servicing fee.

  • Escrow earnings and other interest income increased as a result of higher escrow earnings due to substantially higher short-term interest rates and a slight increase in average escrow balance.

  • Other revenues decreased primarily due to a significant decline prepayment activity, partially offset by an increase in syndication fees from our LIHTC operations.

  • Personnel expense increased largely due to an increase in commissions expense.

  • For both 2023 and 2022, the benefits for credit losses were primarily due to the impact of updating our historical loss rate factor. The updates occurred in the first quarter of each year and resulted in a reduction of the historical loss rate for both 2023 and 2022. Additionally, the change in the forecast-period loss rate during the second quarter of 2022, discussed above, impacted the year-to-date period.

  • The increase in interest expense on corporate debt is the result of increases in both interest rates year over year, as our term loan carries a floating interest rate and the balance of our corporate debt.

YEAR-TO-DATE FINANCIAL RESULTS - CORPORATE

(dollars in thousands)

YTD 2023

YTD 2022

$ Variance

% Variance

Other interest income

$

5,149

$

148

$

5,001

3,379

%

Other revenues

187

44,261

(44,074

)

(100

)

Total revenues

$

5,336

$

44,409

$

(39,073

)

(88

)%

Personnel

$

31,859

$

34,391

$

(2,532

)

(7

)%

Amortization and depreciation

3,423

2,754

669

24

Interest expense on corporate debt

2,999

695

2,304

332

Other operating expenses

32,523

45,037

(12,514

)

(28

)

Total expenses

$

70,804

$

82,877

$

(12,073

)

(15

)%

Income from operations

$

(65,468

)

$

(38,468

)

$

(27,000

)

70

%

Income tax expense

(16,341

)

(9,162

)

(7,179

)

78

Walker & Dunlop net income

$

(49,127

)

$

(29,306

)

$

(19,821

)

68

%

Corporate - Discussion of Year-to-Date Results:

  • The increase in other interest income was primarily driven by interest income from our corporate cash balances due to higher short-term interest rates.

  • The decrease in other revenues was primarily driven by a $39.6 million gain from the revaluation of an equity-method investment in connection with an acquisition, a unique transaction in 2022. Additionally, income from equity-method investments decreased.

  • The increase in interest expense on corporate debt is the result of increases in both interest rates year over year, as our term loan carries a floating interest rate and the balance of our corporate debt.

  • Other operating expenses decreased primarily due to lower professional fees and reduced travel and entertainment expenses. In the first quarter of 2022, we incurred professional fees associated with an acquisition, with no comparable activity in 2023.




CAPITAL SOURCES AND USES

On August 2, 2023, the Company’s Board of Directors declared a dividend of $0.63 per share for the third quarter of 2023. The dividend will be paid on September 1, 2023 to all holders of record of the Company’s restricted and unrestricted common stock as of August 17, 2023.

On January 12, 2023, the Company entered into a lender joinder agreement and amendment to our existing credit agreement that provided for an incremental term loan with a principal amount of $200 million. The incremental term loan bears interest at a rate equal to adjusted Term SOFR plus 3.00% per annum and matures in December 2028. Proceeds from the debt were used to repay $116 million of debt assumed in the Company’s acquisition of Alliant and strengthen its balance sheet for general corporate purposes.

On February 20, 2023, our Board of Directors authorized the repurchase of up to $75.0 million of the Company’s outstanding common stock over a 12-month period ending February 23, 2024 ("2023 Share Repurchase Program"). As of June 30, 2023, the Company had $75.0 million of authorized share repurchase capacity remaining under the 2023 Share Repurchase Program.

Any purchases made pursuant to the 2023 Share Repurchase Program will be made in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The repurchase program may be suspended or discontinued at any time.

____________________________________________

(1)

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

(2)

Adjusted core EPS is a non-GAAP financial measure the Company presents to help investors better understand our operating performance. For a reconciliation of Adjusted core EPS to Diluted EPS, refer to the sections of this press release below titled "Non-GAAP Financial Measures" and "Adjusted Core EPS Reconciliation."

(3)

Brokered transactions for life insurance companies, commercial banks, and other capital sources.

(4)

Includes debt financing volumes from our interim loan program, our interim loan joint venture, and WDIP separate accounts.

(5)

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.

(6)

MSR income as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing.

(7)

MSR income as a percentage of Agency debt financing volume.

(8)

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.

(9)

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 Thursday, August 3, 2023 at 8:00 a.m. Eastern time. Listeners can access the call via the dial-in number and webcast link below. Presentation materials related to the conference call will be posted to the Investor Relations section of the Company’s website prior to the call. An audio replay will also be available on the Investor Relations section of the Company’s website, along with the presentation materials.

Phone: (877) 400-0505 from within the United States; (773) 305-6865 from outside the United States
Confirmation Code: 9150804
Webcast Link: https://event.webcasts.com/starthere.jsp?ei=1622205&tp_key=e9b6ffd7ce

ABOUT WALKER & DUNLOP

Walker & Dunlop (NYSE: WD) is one of the largest commercial real estate finance and advisory services firms in the United States. Our ideas and capital create communities where people live, work, shop, and play. The diversity of our people, breadth of our brand and technological capabilities make us one of the most insightful and client-focused firms in the commercial real estate industry.

NON-GAAP FINANCIAL MEASURES

To supplement our financial statements presented in accordance with United States generally accepted accounting principles ("GAAP"), the Company uses adjusted EBITDA, adjusted core net income, and adjusted core EPS, which are non-GAAP financial measures. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. When analyzing our operating performance, readers should use adjusted EBITDA, adjusted core net income, and adjusted core EPS in addition to, and not as an alternative for, net income and diluted EPS.

Adjusted core net income and adjusted core EPS represent net income adjusted for amortization and depreciation, provision (benefit) for credit losses, net write-offs, the fair value of expected net cash flows from servicing, net, the income statement impact from periodic revaluation and accretion associated with contingent consideration liabilities related to acquired companies, and other one-time adjustments, such as the gain associated with the revaluation of our previously held equity-method investment in connection with an acquisition and one-time benefit to tax expense related to our corporate restructuring and repatriation of intellectual property from an acquired subsidiary. Adjusted EBITDA represents net income before income taxes, interest expense on our corporate debt, and amortization and depreciation, adjusted for provision (benefit) for credit losses, net write-offs, stock-based incentive compensation charges, the fair value of expected net cash flows from servicing, net, the write-off of the unamortized balance of premium associated with the repayment of a portion of our corporate debt, and the gain from revaluation of a previously held equity-method investment. Furthermore, adjusted EBITDA is not intended to be a measure of free cash flow for our management's discretionary use, as it does not reflect certain cash requirements such as tax and debt service payments. The amounts shown for adjusted EBITDA may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges that are used to determine compliance with financial covenants. Because not all companies use identical calculations, our presentation of adjusted EBITDA, adjusted core net income and adjusted core EPS may not be comparable to similarly titled measures of other companies.

We use adjusted EBITDA, adjusted core net income, and adjusted core EPS to evaluate the operating performance of our business, for comparison with forecasts and strategic plans and for benchmarking performance externally against competitors. We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financial information, provide useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;

  • the ability to better identify trends in the Company's underlying business and perform related trend analyses; and

  • a better understanding of how management plans and measures the Company's underlying business.

We believe that these non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these non-GAAP financial measures should only be used to evaluate the Company's results of operations in conjunction with the Company’s GAAP financial information. For more information on adjusted EBITDA, adjusted core net income, and adjusted core EPS, refer to the section of this press release below titled "Adjusted Financial Measure Reconciliation to GAAP" and "Adjusted Financial Measure Reconciliation to GAAP By Segment."

FORWARD-LOOKING STATEMENTS

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

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

While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to: (1) general economic conditions and multifamily and commercial real estate market conditions, (2) changes in interest rates, (3) regulatory and/or legislative changes to Freddie Mac, Fannie Mae or HUD, (4) our ability to retain and attract loan originators and other professionals, (5) success of our various investments funded with corporate capital, and (6) changes in federal government fiscal and monetary policies, including any constraints or cuts in federal funds allocated to HUD for loan originations.

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

Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited

June 30,

March 31,

December 31,

September 30,

June 30,

2023

2023

2022

2022

2022

(in thousands)

Assets

Cash and cash equivalents

$

228,091

$

188,389

$

225,949

$

152,188

$

151,252

Restricted cash

21,769

20,504

17,676

40,246

34,361

Pledged securities, at fair value

170,666

165,081

157,282

151,413

149,560

Loans held for sale, at fair value

1,303,686

934,991

396,344

2,180,117

931,516

Mortgage servicing rights

932,131

946,406

975,226

967,770

978,745

Goodwill

963,710

959,712

959,712

948,164

937,881

Other intangible assets

189,919

194,208

198,643

202,834

207,024

Receivables, net

242,397

224,776

202,251

216,963

236,786

Committed investments in tax credit equity

165,136

207,750

254,154

214,430

187,393

Other assets, net

589,919

651,235

658,122

928,888

720,254

Total assets

$

4,807,424

$

4,493,052

$

4,045,359

$

6,003,013

$

4,534,772

Liabilities

Warehouse notes payable

$

1,342,187

$

1,031,277

$

537,531

$

2,540,106

$

1,115,900

Notes payable

775,995

777,311

704,103

711,107

719,210

Allowance for risk-sharing obligations

32,410

33,087

44,057

49,658

48,475

Commitments to fund investments in tax credit equity

156,617

196,522

239,281

198,073

173,740

Other liabilities

775,718

739,759

803,558

809,366

811,672

Total liabilities

$

3,082,927

$

2,777,956

$

2,328,530

$

4,308,310

$

2,868,997

Stockholders' Equity

Common stock

$

327

$

327

$

323

$

323

$

323

Additional paid-in capital

412,182

405,303

412,636

407,417

403,668

Accumulated other comprehensive income (loss)

(1,465

)

(1,621

)

(1,568

)

(1,460

)

(222

)

Retained earnings

1,287,334

1,281,119

1,278,035

1,256,663

1,229,712

Total stockholders’ equity

$

1,698,378

$

1,685,128

$

1,689,426

$

1,662,943

$

1,633,481

Noncontrolling interests

26,119

29,968

27,403

31,760

32,294

Total equity

$

1,724,497

$

1,715,096

$

1,716,829

$

1,694,703

$

1,665,775

Commitments and contingencies

—

—

—

—

—

Total liabilities and stockholders' equity

$

4,807,424

$

4,493,052

$

4,045,359

$

6,003,013

$

4,534,772

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

Quarterly Trends

Six months ended

June 30,

(in thousands, except per share amounts)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

Revenues

Loan origination and debt brokerage fees, net

$

64,968

$

47,084

$

72,234

$

90,858

$

102,605

$

112,052

$

184,915

Fair value of expected net cash flows from servicing, net ("MSR income")

42,058

30,013

31,790

55,291

51,949

72,071

104,679

Servicing fees

77,061

75,766

77,275

75,975

74,260

152,827

146,941

Property sales broker fees

10,345

11,624

20,490

30,308

46,386

21,969

69,784

Investment management fees

16,309

15,173

24,586

16,301

16,186

31,482

31,044

Net warehouse interest income

(1,526

)

1

1,756

3,980

5,268

(1,525

)

10,041

Escrow earnings and other interest income

35,386

30,924

26,147

18,129

6,751

66,310

8,554

Other revenues

28,014

28,161

28,572

24,769

37,443

56,175

104,334

Total revenues

$

272,615

$

238,746

$

282,850

$

315,611

$

340,848

$

511,361

$

660,292

Expenses

Personnel

$

133,305

$

118,613

$

137,758

$

157,059

$

168,368

$

251,918

$

312,549

Amortization and depreciation

56,292

56,966

57,930

59,846

61,103

113,258

117,255

Provision (benefit) for credit losses

(734

)

(10,775

)

1,142

1,218

(4,840

)

(11,509

)

(14,338

)

Interest expense on corporate debt

17,010

15,274

12,110

9,306

6,412

32,284

12,817

Other operating expenses

30,730

24,063

26,736

33,991

36,195

54,793

68,409

Total expenses

$

236,603

$

204,141

$

235,676

$

261,420

$

267,238

$

440,744

$

496,692

Income from operations

$

36,012

$

34,605

$

47,174

$

54,191

$

73,610

$

70,617

$

163,600

Income tax expense

10,491

7,135

9,539

7,532

19,503

17,626

38,963

Net income before noncontrolling interests

$

25,521

$

27,470

$

37,635

$

46,659

$

54,107

$

52,991

$

124,637

Less: net income (loss) from noncontrolling interests

(2,114

)

805

(3,857

)

(174

)

(179

)

(1,309

)

(858

)

Walker & Dunlop net income

$

27,635

$

26,665

$

41,492

$

46,833

$

54,286

$

54,300

$

125,495

Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes

156

(53

)

(108

)

(1,238

)

(1,810

)

103

(2,780

)

Walker & Dunlop comprehensive income

$

27,791

$

26,612

$

41,384

$

45,595

$

52,476

$

54,403

$

122,715

Effective Tax Rate

29

%

21

%

20

%

14

%

26

%

25

%

24

%

Basic earnings per share

$

0.82

$

0.80

$

1.25

$

1.41

$

1.63

$

1.62

$

3.77

Diluted earnings per share

0.82

0.79

1.24

1.40

1.61

1.61

3.73

Cash dividends paid per common share

0.63

0.63

0.60

0.60

0.60

0.63

0.60

Basic weighted-average shares outstanding

32,695

32,529

32,361

32,290

32,388

32,612

32,304

Diluted weighted-average shares outstanding

32,851

32,816

32,675

32,620

32,694

32,834

32,657

SUPPLEMENTAL OPERATING DATA
Unaudited

Quarterly Trends

Six months ended

June 30,

(in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

Transaction Volume:

Components of Debt Financing Volume

Fannie Mae

$

2,230,952

$

1,358,708

$

994,590

$

3,038,788

$

3,918,400

$

3,589,660

$

5,916,774

Freddie Mac

1,212,887

975,737

2,305,826

1,885,492

1,141,034

2,188,624

2,128,883

Ginnie Mae - HUD

147,773

127,599

186,784

338,054

201,483

275,372

593,176

Brokered (1)

3,316,223

2,363,754

4,375,704

6,601,244

9,258,490

5,679,977

14,901,571

Principal Lending and Investing (2)

—

—

31,512

62,015

131,551

—

245,571

Total Debt Financing Volume

$

6,907,835

$

4,825,798

$

7,894,416

$

11,925,593

$

14,650,958

$

11,733,633

$

23,785,975

Property Sales Volume

1,504,383

1,894,682

3,315,287

4,993,615

7,892,062

3,399,065

11,423,752

Total Transaction Volume

$

8,412,218

$

6,720,480

$

11,209,703

$

16,919,208

$

22,543,020

$

15,132,698

$

35,209,727

Key Performance Metrics:

Operating margin

13

%

14

%

17

%

17

%

22

%

14

%

25

%

Return on equity

7

6

10

11

14

6

16

Walker & Dunlop net income

$

27,635

$

26,665

$

41,492

$

46,833

$

54,286

$

54,300

$

125,495

Adjusted EBITDA (3)

70,501

67,975

92,625

74,990

94,844

138,476

157,480

Diluted EPS

0.82

0.79

1.24

1.40

1.61

1.61

3.73

Adjusted core EPS (4)

0.98

1.17

1.41

1.41

1.74

2.14

2.83

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

Personnel expenses

49

%

50

%

49

%

50

%

49

%

49

%

47

%

Other operating expenses

11

10

9

11

11

11

10

Key Revenue Metrics (as a percentage of debt financing volume):

Origination fee margin (5)

0.93

%

0.97

%

0.92

%

0.76

%

0.71

%

0.95

%

0.78

%

MSR margin (6)

0.61

0.62

0.40

0.47

0.36

0.61

0.44

Agency MSR margin (7)

1.17

1.22

0.91

1.05

0.99

1.19

1.21

Other Data:

Market capitalization at period end

$

2,586,519

$

2,489,200

$

2,542,476

$

2,708,162

$

3,113,884

Closing share price at period end

$

79.09

$

76.17

$

78.48

$

83.73

$

96.34

Average headcount

1,385

1,440

1,464

1,452

1,406

Components of Servicing Portfolio (end of period):

Fannie Mae

$

61,356,554

$

59,890,444

$

59,226,168

$

58,426,446

$

57,122,414

Freddie Mac

38,287,200

38,184,798

37,819,256

37,241,471

36,886,666

Ginnie Mae - HUD

10,246,632

10,027,781

9,868,453

9,634,111

9,570,012

Brokered (8)

16,684,115

16,285,391

16,013,143

15,224,581

15,190,315

Principal Lending and Investing (9)

71,680

187,505

206,835

251,815

252,100

Total Servicing Portfolio

$

126,646,181

$

124,575,919

$

123,133,855

$

120,778,424

$

119,021,507

Assets under management (10)

16,903,055

16,654,566

16,748,449

17,017,355

16,692,556

Total Managed Portfolio

$

143,549,236

$

141,230,485

$

139,882,304

$

137,795,779

$

135,714,063

Key Servicing Portfolio Metrics (end of period):

Custodial escrow account balance (in billions)

$

2.8

$

2.2

$

2.7

$

3.1

$

2.3

Weighted-average servicing fee rate (basis points)

24.3

24.3

24.5

24.7

24.9

Weighted-average remaining servicing portfolio term (years)

8.6

8.7

8.8

8.9

8.9

____________________________________________

(1)

Brokered transactions for life insurance companies, commercial banks, and other capital sources.

(2)

Includes debt financing volumes from our interim lending platform, our interim lending joint venture, and WDIP separate accounts.

(3)

This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section above titled "Non-GAAP Financial Measures."

(4)

This is a non-GAAP financial measure. For more information on adjusted core EPS, refer to the section above titled "Non-GAAP Financial Measures."

(5)

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.

(6)

MSR income as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing.

(7)

MSR income as a percentage of Agency debt financing volume.

(8)

Brokered loans serviced primarily for life insurance companies.

(9)

Consists of interim loans not managed for our interim loan joint venture.

(10)

Alliant & WDIP assets under management and interim loans serviced for our interim loan joint venture.

KEY CREDIT METRICS
Unaudited

June 30,

March 31,

December 31,

September 30,

June 30,

(dollars in thousands)

2023

2023

2022

2022

2022

Risk-sharing servicing portfolio:

Fannie Mae Full Risk

$

52,383,701

$

50,713,349

$

50,046,219

$

49,241,243

$

47,461,520

Fannie Mae Modified Risk

8,947,292

9,170,127

9,172,626

9,177,094

9,651,421

Freddie Mac Modified Risk

23,515

23,515

23,615

23,615

23,715

Total risk-sharing servicing portfolio

$

61,354,508

$

59,906,991

$

59,242,460

$

58,441,952

$

57,136,656

Non-risk-sharing servicing portfolio:

Fannie Mae No Risk

$

25,561

$

6,968

$

7,323

$

8,109

$

9,473

Freddie Mac No Risk

38,263,685

38,161,283

37,795,641

37,217,856

36,862,951

GNMA - HUD No Risk

10,246,632

10,027,781

9,868,453

9,634,111

9,570,012

Brokered

16,684,115

16,285,391

16,013,143

15,224,581

15,190,315

Total non-risk-sharing servicing portfolio

$

65,219,993

$

64,481,423

$

63,684,560

$

62,084,657

$

61,632,751

Total loans serviced for others

$

126,574,501

$

124,388,414

$

122,927,020

$

120,526,609

$

118,769,407

Interim loans (full risk) servicing portfolio

71,680

187,505

206,835

251,815

252,100

Total servicing portfolio unpaid principal balance

$

126,646,181

$

124,575,919

$

123,133,855

$

120,778,424

$

119,021,507

Interim Loan Joint Venture Managed Loans (1)

$

895,491

$

894,829

$

892,808

$

900,037

$

899,287

At-risk servicing portfolio (2)

$

56,430,098

$

54,898,461

$

54,232,979

$

53,430,615

$

51,905,985

Maximum exposure to at-risk portfolio (3)

11,346,580

11,132,473

10,993,596

10,826,654

10,525,093

Defaulted loans

36,983

36,983

36,983

78,203

78,659

Defaulted loans as a percentage of the at-risk portfolio

0.07

%

0.07

%

0.07

%

0.15

%

0.15

%

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

0.06

0.06

0.08

0.09

0.09

Allowance for risk-sharing as a percentage of maximum exposure

0.29

0.30

0.40

0.46

0.46

____________________________________________

(1)

This balance consists entirely of interim loan joint venture managed loans. We indirectly share in a portion of the risk of loss associated with interim loan joint venture managed loans through our 15% equity ownership in the joint venture. We had no exposure to risk of loss for the loans serviced directly for our interim loan joint venture partner. The balance of this line is included as a component of assets under management in the Supplemental Operating Data table.

(2)

At-risk servicing portfolio is defined as the balance of Fannie Mae DUS loans subject to the risk-sharing formula described below, as well as a small number of Freddie Mac loans on which we share in the risk of loss. Use of the at-risk portfolio provides for comparability of the full risk-sharing and modified risk-sharing loans because the provision and allowance for risk-sharing obligations are based on the at-risk balances of the associated loans. Accordingly, we have presented the key statistics as a percentage of the at-risk portfolio. For example, a $15 million loan with 50% risk-sharing has the same potential risk exposure as a $7.5 million loan with full DUS risk sharing. Accordingly, if the $15 million loan with 50% risk-sharing were to default, we would view the overall loss as a percentage of the at-risk balance, or $7.5 million, to ensure comparability between all risk-sharing obligations. To date, substantially all of the risk-sharing obligations that we have settled have been from full risk-sharing loans.

(3)

Represents the maximum loss we would incur under our risk-sharing obligations if all of the loans we service, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement. The maximum exposure is not representative of the actual loss we would incur.

ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP
Unaudited

Quarterly Trends

Six months ended

June 30,

(in thousands)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

$

27,635

$

26,665

$

41,492

$

46,833

$

54,286

$

54,300

$

125,495

Income tax expense

10,491

7,135

9,539

7,532

19,503

17,626

38,963

Interest expense on corporate debt

17,010

15,274

12,110

9,306

6,412

32,284

12,817

Amortization and depreciation

56,292

56,966

57,930

59,846

61,103

113,258

117,255

Provision (benefit) for credit losses

(734

)

(10,775

)

1,142

1,218

(4,840

)

(11,509

)

(14,338

)

Net write-offs (1)

(6,033

)

—

(4,631

)

—

—

(6,033

)

—

Stock-based compensation expense

7,898

7,143

6,833

5,546

10,329

15,041

21,608

Gain from revaluation of previously held equity-method investment

—

—

—

—

—

—

(39,641

)

Write off of unamortized premium from corporate debt repayment

—

(4,420

)

—

—

—

(4,420

)

—

Fair value of expected net cash flows from servicing, net

(42,058

)

(30,013

)

(31,790

)

(55,291

)

(51,949

)

(72,071

)

(104,679

)

Adjusted EBITDA

$

70,501

$

67,975

$

92,625

$

74,990

$

94,844

$

138,476

$

157,480

____________________________________________

(1)

The net write-off in 2023 is related to a loan held for investment that was charged off during the second quarter of 2023.

ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP BY SEGMENT
Unaudited

Capital Markets

Three months ended

June 30,

Six months ended

June 30,

(in thousands)

2023

2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

$

16,107

$

50,259

$

16,611

$

93,361

Income tax expense

5,572

17,499

6,076

29,410

Interest expense on corporate debt

4,727

1,535

8,996

3,058

Amortization and depreciation

1,089

1,083

2,275

1,139

Stock-based compensation expense

4,229

4,403

9,092

9,075

Fair value of expected net cash flows from servicing, net

(42,058

)

(51,949

)

(72,071

)

(104,679

)

Adjusted EBITDA

$

(10,334

)

$

22,830

$

(29,021

)

$

31,364

Servicing & Asset Management

Three months ended

June 30,

Six months ended

June 30,

(in thousands)

2023

2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

$

35,732

$

33,367

$

86,816

$

61,440

Income tax expense

14,787

11,175

27,891

18,715

Interest expense on corporate debt

10,707

4,528

20,289

9,064

Amortization and depreciation

53,550

58,469

107,560

113,362

Provision (benefit) for credit losses

(734

)

(4,840

)

(11,509

)

(14,338

)

Net write-offs (1)

(6,033

)

—

(6,033

)

—

Write-off of unamortized premium from corporate debt repayment

—

—

(4,420

)

—

Stock-based compensation expense

450

672

840

1,364

Adjusted EBITDA

$

108,459

$

103,371

$

221,434

$

189,607

Corporate

Three months ended

June 30,

Six months ended

June 30,

(in thousands)

2023

2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

$

(24,204

)

$

(29,340

)

$

(49,127

)

$

(29,306

)

Income tax expense

(9,868

)

(9,171

)

(16,341

)

(9,162

)

Interest expense on corporate debt

1,576

349

2,999

695

Amortization and depreciation

1,653

1,551

3,423

2,754

Stock-based compensation expense

3,219

5,254

5,109

11,169

Gain from revaluation of previously held equity-method investment

—

—

—

(39,641

)

Adjusted EBITDA

$

(27,624

)

$

(31,357

)

$

(53,937

)

$

(63,491

)

____________________________________________

(1)

The net write-off in 2023 is related to a loan held for investment that was charged off during the second quarter of 2023.

ADJUSTED CORE EPS RECONCILIATION
Unaudited

Quarterly Trends

Six months ended

June 30,

(in thousands)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted Core Net Income

Walker & Dunlop Net Income

$

27,635

$

26,665

$

41,492

$

46,833

$

54,286

$

54,300

$

125,495

Provision (benefit) for credit losses

(734

)

(10,775

)

1,142

1,218

(4,840

)

(11,509

)

(14,338

)

Net write-offs(1)

(6,033

)

—

(4,631

)

—

—

(6,033

)

—

Amortization and depreciation

56,292

56,966

57,930

59,846

61,103

113,258

117,255

Fair value of expected net cash flows from servicing, net

(42,058

)

(30,013

)

(31,790

)

(55,291

)

(51,949

)

(72,071

)

(104,679

)

Contingent consideration accretion and fair value adjustments

176

177

(12,637

)

1,944

1,464

353

1,823

Gain from revaluation of previously held equity-method investment ("Apprise Gain")

—

—

—

—

—

—

(39,641

)

Income tax expense adjustment(2)(3)

(2,227

)

(3,372

)

(4,279

)

(7,391

)

(1,531

)

(5,990

)

9,426

Adjusted Core Net Income

$

33,051

$

39,648

$

47,227

$

47,159

$

58,533

$

72,308

$

95,341

Reconciliation of Diluted EPS to Adjusted core EPS

Walker & Dunlop Net Income

$

27,635

$

26,665

$

41,492

$

46,833

$

54,286

$

54,300

$

125,495

Diluted weighted-average shares outstanding

32,851

32,816

32,675

32,620

32,694

32,834

32,657

Diluted EPS

$

0.82

$

0.79

$

1.24

$

1.40

$

1.61

$

1.61

$

3.73

Adjusted Core Net Income

$

33,051

$

39,648

$

47,227

$

47,159

$

58,533

$

72,308

$

95,341

Diluted weighted-average shares outstanding

32,851

32,816

32,675

32,620

32,694

32,834

32,657

Adjusted Core EPS

$

0.98

$

1.17

$

1.41

$

1.41

$

1.74

$

2.14

$

2.83

____________________________________________

(1)

The net write-off in 2023 is related to a loan held for investment that was charged off during the second quarter of 2023.

(2)

Income tax impact of the above adjustments to adjusted core net income. Uses quarterly or annual effective tax rate as disclosed in the Consolidated Statements of Income and Comprehensive Income in this "Press Release".

(3)

Income tax expense adjustment for Q3 2022 includes an adjustment for a one-time tax benefit of $6.3 million related to the corporate restructuring and repatriation of intellectual property acquired from an acquired subsidiary.

Category: Earnings

View source version on businesswire.com: https://www.businesswire.com/news/home/20230802415690/en/

Contacts

Headquarters:
Phone 301.215.5500
info@walkeranddunlop.com

Investors:
Kelsey Duffey
Senior Vice President, Investor Relations
Phone 301.202.3207
investorrelations@walkeranddunlop.com

Media:
Carol McNerney
Chief Marketing Officer
Phone 301.215.5515
info@walkeranddunlop.com

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