Toggle SGML Header (+)


Section 1: 8-K (8-K)

wd_Current_Folio_8K_ER

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 8-K 

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 

 

Date of Report (Date of earliest event reported):  August 1, 2018

 

Walker & Dunlop, Inc.

 

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Maryland

  

001-35000

  

80-0629925

(State or other Jurisdiction of Incorporation)

 

(Commission File Number)

 

(IRS Employer Identification No.)

 

 

 

 

7501 Wisconsin Avenue
Suite 1200E
Bethesda, MD

  

20814

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (301) 215-5500

 

 

                                         Not applicable                                   

(Former name or former address if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

 Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 

 

 


 

Item 2.02.  Results of Operations and Financial Condition.

 

On August 1, 2018, Walker & Dunlop, Inc. (the “Company”) issued a press release reporting its financial results for the quarter and year-to-date period ended June 30, 2018. A copy of this press release is furnished herewith as Exhibit 99.1 and is hereby incorporated by reference into this Item 2.02.

 

The information contained in this current report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the Company under the Securities Act of 1933, as amended.

 

Item 9.01.  Financial Statements and Exhibits. 

 

(d)Exhibits.

 

The exhibit contained in this current report on Form 8-K shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the Company under the Securities Act of 1933, as amended.

 

 

 

 

Exhibit Number

   

Description

 

 

 

99.1

 

Press Release dated August 1, 2018

 

2


 

EXHIBIT INDEX

 

 

 

 

 

 

 

Exhibit Number

    

Description

 

 

 

99.1

 

Press Release dated August 1, 2018

 

 

3


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

 

 

Walker & Dunlop, Inc.

 

 

 

(Registrant)

 

 

 

 

 

 

 

 

Date:  August 1, 2018

 

By:

/s/ Stephen P. Theobald

 

 

 

Executive Vice President and Chief Financial Officer

 

4


(Back To Top)

Section 2: EX-99.1 (EX-99.1)

wd_EX_99_1

Exhibit 99.1

Picture 2

Walker & Dunlop Reports 19% Increase in Earnings

per Share on Net Income of $41 Million

 

 

SECOND QUARTER 2018 HIGHLIGHTS

·

Total transaction volume of $6.2 billion

·

Total revenues of $178.2 million

·

Net income of $41.1 million, or $1.28 per diluted share

·

Adjusted EBITDA1 of $50.0 million

·

Servicing portfolio of $77.8 billion at June 30, 2018

·

Declared $0.25 per share dividend for the third quarter 2018

·

Completed the acquisition of JCR Capital

 

YEAR-TO-DATE 2018 HIGHLIGHTS

·

Total transaction volume of $11.0 billion

·

Total revenues of $325.7 million

·

Net income of $78.0 million, or $2.44 per diluted share

·

Adjusted EBITDA of $102.1 million

 

Bethesda, MD – August 1, 2018Walker & Dunlop, Inc. (NYSE: WD) (the “Company”) reported second quarter 2018 net income of $41.1 million, or $1.28 per diluted share, an increase of 19% over the second quarter 2017 and the third most-profitable quarter in its history. Total revenues were $178.2 million, an increase of 7%,  generating adjusted EBITDA of $50.0 million. The Company ended the second quarter with cash and short-term cash investments of $175.1 million and declared a $0.25 per share dividend for the third quarter 2018.

 

“Q2 was another strong quarter of financial performance for Walker & Dunlop, with a 7% year-over-year increase in total revenues,” commented Chairman and CEO, Willy Walker. “Second quarter total transaction volume of $6.2 billion reflects continued growth at Walker & Dunlop and our increased relevance to our customers across the country. We earned net income of $41.1 million or $1.28 per diluted share, producing $50.0 million of adjusted EBITDA. We also continued to execute on our strategic growth initiatives during Q2, which included the acquisition and integration of JCR Capital, strong growth in interim loan originations, the addition of 13 talented mortgage bankers and brokers, and the expansion of our investment sales footprint into New England and Southern California.”

 

Mr. Walker continued, “We feel extremely well positioned to deliver an even stronger second half of 2018 given the levels of activity we’re seeing in the market and the healthy pipeline we’re carrying into the third quarter. We are confident in the outlook for our business due to macroeconomic conditions combined with the investments we have made to expand our service offerings and become more insightful into our customers’ businesses.” 

1

 


 

Picture 8

Second Quarter 2018 Earnings Release

 

SECOND QUARTER 2018 OPERATING RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

TRANSACTION VOLUMES

(dollars in thousands)

 

Q2 2018

 

 

Q2 2017

 

$ Variance

 

% Variance

Fannie Mae

$

2,269,544

 

$

2,188,841

 

$

80,703

 

 4

%

Freddie Mac

 

1,316,491

 

 

1,111,434

 

 

205,057

 

18

 

Ginnie Mae - HUD

 

230,710

 

 

403,981

 

 

(173,271)

 

(43)

 

Brokered

 

1,700,498

 

 

1,948,918

 

 

(248,420)

 

(13)

 

Interim Loans

 

192,205

 

 

26,637

 

 

165,568

 

622

 

Loan origination volume

$

5,709,448

 

$

5,679,811

 

$

29,637

 

 1

%

Investment sales volume

 

483,575

 

 

351,825

 

 

131,750

 

37

 

Total transaction volume

$

6,193,023

 

$

6,031,636

 

$

161,387

 

 3

%

 

Discussion of Results:

 

·

We continue to see strong demand for debt financing due to the strength of the commercial real estate and multifamily markets, positive macroeconomic fundamentals, a relatively low and stabilizing interest rate environment, and robust demand for rental properties. Even during this period of strong demand, we do experience quarterly variation in loan origination volumes within our loan products.

·

Overall volumes with Fannie Mae and Freddie Mac increased due to continued strength in the multifamily financing market and the growth in the number of mortgage bankers and brokers on our platform. In particular, the Capital Markets team increased its Agency loan originations year over year by $100 million.

·

During the quarter, the flattening of the yield curve drove more borrowers to choose fixed-rate financing, and Freddie Mac responded with attractive pricing, leading to the high growth rate in our Freddie Mac loan originations.

·

We originated eight interim loan deals during the second quarter 2018, both for our balance sheet and our Interim Loan JV as we saw more opportunities to meet the financing needs of strong sponsors despite the intensely competitive nature of the market for transitional lending.

·

We benefitted from an increase in the number of investment sales brokers year over year, enabling us to grow investment sales volume by 37%, significantly faster than the market.

 

 

 

 

 

 

 

 

 

 

 

 

MANAGED PORTFOLIO

(dollars in thousands)

 

Q2 2018

 

 

Q2 2017

 

$ Variance

 

% Variance

Fannie Mae

$

33,606,531

 

$

29,573,946

 

$

4,032,585

 

14

%

Freddie Mac

 

28,197,494

 

 

22,380,103

 

 

5,817,391

 

26

 

Ginnie Mae - HUD

 

9,653,432

 

 

8,919,840

 

 

733,592

 

 8

 

Brokered

 

6,232,255

 

 

5,128,453

 

 

1,103,802

 

22

 

Interim Loans

 

131,029

 

 

288,412

 

 

(157,383)

 

(55)

 

Total servicing portfolio

$

77,820,741

 

$

66,290,754

 

$

11,529,987

 

17

%

Assets under management

 

932,318

 

 

 —

 

 

932,318

 

N/A

 

Total Managed Portfolio

$

78,753,059

 

$

66,290,754

 

$

12,462,305

 

19

%

Weighted-average servicing fee rate (basis points)

 

25.4

 

 

26.5

 

 

 

 

 

 

Weighted-average remaining term in the servicing portfolio (years)

 

9.8

 

 

10.1

 

 

 

 

 

 

 

Discussion of Results:

 

·

During the second quarter 2018, we added $2.0 billion of net loans to our servicing portfolio, the majority of which were Fannie Mae and Freddie Mac loans.

·

Our servicing portfolio has experienced strong growth over the past year due to our significant loan origination volumes and relatively few payoffs. During the past 12 months, we have originated $24.7 billion of loans, $17.0 billion of which were Agency loans.

2


 

Picture 8

Second Quarter 2018 Earnings Release

 

·

The decrease in the weighted-average servicing fee is the result of the net addition of $7.7 billion of Freddie Mac, HUD, and brokered loans serviced compared to a net increase of only $4.0 billion of Fannie Mae loans serviced during the past 12 months. Fannie Mae loans have the highest servicing fees of all the loan types we service.

·

The decrease in the weighted-average remaining term is the result of the $11.0 billion increase in Fannie Mae, Freddie Mac, and brokered loans serviced compared to an increase of $0.7 billion in HUD loans serviced during the past 12 months. Fannie Mae, Freddie Mac, and brokered loans typically have terms of 10 years or fewer, while HUD loans typically have terms of 30 years or more.

·

Fewer than $5.0 billion of Agency loans in our servicing portfolio are scheduled to mature over the next two years.

·

Net mortgage servicing rights (“MSRs”) from loan originations during the quarter increased $6.1 million. Over the past 12 months, net MSR additions from loan originations were $56.2 million.

·

The MSRs associated with the servicing portfolio had a fair value of $842.6 million as of June 30, 2018.

·

Assets under management represent the loans and investments managed by JCR Capital and the loans we manage for our interim lending joint venture, both of which are new since the second quarter 2017.

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

(dollars in thousands)

 

Q2 2018

 

 

Q2 2017

 

$ Variance

 

% Variance

Loan origination fees

$

55,193

 

$

57,507

 

$

(2,314)

 

(4)

%

Gains attributable to MSRs

 

47,044

 

 

44,669

 

 

2,375

 

 5

 

Gains from mortgage banking activities

 

102,237

 

 

102,176

 

 

61

 

 —

 

Servicing fees

 

49,317

 

 

43,214

 

 

6,103

 

14

 

Net warehouse interest income, LHFS

 

1,482

 

 

2,430

 

 

(948)

 

(39)

 

Net warehouse interest income, LHFI

 

910

 

 

3,370

 

 

(2,460)

 

(73)

 

Escrow earnings and other interest income

 

9,276

 

 

4,514

 

 

4,762

 

105

 

Investment sales broker fees

 

3,758

 

 

2,367

 

 

1,391

 

59

 

Other revenues

 

11,224

 

 

8,336

 

 

2,888

 

35

 

Total revenues

$

178,204

 

$

166,407

 

$

11,797

 

 7

%

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

 

 

 

 

 

 

 

 

 

 

 

Origination related fees

 

0.97

%

 

1.01

%

 

 

 

 

 

Gains attributable to MSRs

 

0.82

 

 

0.79

 

 

 

 

 

 

Gains attributable to MSRs - Agency loans2

 

1.23

 

 

1.21

 

 

 

 

 

 

 

Discussion of Results:

 

·

The decrease in loan origination fees was primarily driven by the decreases in HUD and brokered loan origination activity in the second quarter 2018 compared to the prior-year second quarter.

·

The increase in gains attributable to MSRs is primarily the result of the increase in GSE loan origination activity and a decrease in GSE floating-rate loan origination volume as a percentage of total GSE loan origination volume, partially offset by a decrease in HUD loan origination volume. Gains attributable to MSRs are smaller for adjustable-rate loans compared to fixed-rate loans since adjustable-rate loans have shorter expected lives.

·

The $11.5 billion increase in the servicing portfolio over the past 12 months was the principal driver of the substantial growth in servicing fees year over year.

·

The decrease in net warehouse interest income from loans held for sale was due to a significantly lower net interest margin year over year, partially offset by a slight increase in the average balance of loans held for sale. The decrease in the net interest margin is related to a substantial year-over-year increase in the short-term rates at which we borrow with a much smaller increase in the long-term interest rates on the loans we fund through those borrowings, resulting from a flattening of the yield curve year over year.

3


 

Picture 8

Second Quarter 2018 Earnings Release

 

·

The decrease in net warehouse interest income from loans held for investment was due to a lower average balance of loans outstanding resulting from the creation of our interim loan joint venture at the end of the second quarter 2017. We transferred a significant portion of our loans held for investment to the joint venture in the third quarter 2017, shortly after its formation. Additionally, a large portion of the interim loan originations subsequent to the creation of the joint venture have been held by the joint venture. We own a 15% interest in the joint venture.

·

Escrow earnings benefitted from an increase in the average balance of escrow accounts outstanding from the second quarter 2017 to the second quarter 2018. Additionally, the average placement fee on our escrow accounts has increased significantly over the past year as short-term interest rates have increased.

·

The increase in investment sales broker fees was due to the increased investment sales volume noted above.

·

The increase in other revenues was principally due to an increase in investment management fees due to the acquisition of JCR Capital.

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

(dollars in thousands)

 

Q2 2018

 

 

Q2 2017

 

$ Variance

 

% Variance

Personnel

$

71,426

 

$

63,516

 

$

7,910

 

12

%

Amortization and depreciation

 

35,489

 

 

32,860

 

 

2,629

 

 8

 

Provision (benefit) for credit losses

 

800

 

 

(93)

 

 

893

 

(960)

 

Interest expense on corporate debt

 

2,343

 

 

2,443

 

 

(100)

 

(4)

 

Other operating expenses

 

15,176

 

 

11,599

 

 

3,577

 

31

 

Total expenses

$

125,234

 

$

110,325

 

$

14,909

 

14

%

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

 

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

40

%

 

38

%

 

 

 

 

 

Other operating expenses

 

 9

 

 

 7

 

 

 

 

 

 

 

Discussion of Results:

 

·

Personnel expense increased primarily due to acquisitions and hiring to support our growth, resulting in an 11% increase in the average headcount from 594 in the second quarter 2017 to 659 in the same period in 2018. We have (i) increased our hiring efforts related to mortgage bankers and investment sales brokers as part of our strategic initiative to increase our total transaction volume over the coming years and (ii) added employees through the acquisition of JCR Capital at the beginning of the second quarter 2018.

·

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 $65.8 million of MSRs, net of amortization and write offs due to prepayment.

·

The increase in other operating expenses stems primarily from increased (i) office and travel costs due to the increase in average headcount year over year, (ii) legal expenses in connection with our acquisition of JCR Capital, and (iii) recruiting fees due to the aforementioned increased hiring.

 

 

 

 

 

 

 

 

 

 

 

 

KEY PERFORMANCE METRICS

(dollars in thousands, except per share amounts)

 

Q2 2018

 

 

Q2 2017

 

$ Variance

 

% Variance

Walker & Dunlop net income

$

41,112

 

$

34,567

 

$

6,545

 

19

%

Adjusted EBITDA

 

49,969

 

 

50,988

 

 

(1,019)

 

(2)

 

Diluted EPS

$

1.28

 

$

1.08

 

$

0.20

 

19

%

Operating margin

 

30

%

 

34

%

 

 

 

 

 

Return on equity

 

20

 

 

21

 

 

 

 

 

 

 

Discussion of Results:

 

·

Over the past four quarters, the average quarterly year-over-year net income growth is 47%, and the average quarterly year-over-year diluted EPS growth is 45%.

4


 

Picture 8

Second Quarter 2018 Earnings Release

 

·

The increase in net income is largely attributable to a 45% decrease in income tax expense. Income tax expense was $11.9 million for the second quarter 2018 compared to $21.6 million during the same quarter last year. The decrease in income tax expense was largely related to the enactment of the Tax Cuts and Jobs Act (“tax reform”) in December 2017. Tax reform significantly reduced the statutory Federal income tax rate from 35% to 21%. The reduction in the statutory tax rate led to a decrease in our estimated annual effective tax rate from 38.6% for the second quarter of 2017 to 25.7% for the second quarter 2018. Additionally, excess tax benefits increased from $0.1 million in the prior-year second quarter to $1.7 million for the current-year second quarter. The increase in the excess tax benefits was driven primarily by an increase in the number of options exercised, partially offset by the decrease in the Federal statutory tax rate. After applying the estimated annual effective tax rate to income from operations and then reducing income tax expense by excess tax benefits, the resulting effective tax rate for the second quarter 2018 was 22.5% compared to 38.5% for the second quarter 2017.

·

The decrease in adjusted EBITDA was driven by the increases in personnel and other operating expenses and decreases in loan origination fees and net warehouse interest income, mostly offset by increases in servicing fees,  escrow earnings and other interest income, and other revenues.

·

The decrease in operating margin was primarily driven by the aforementioned increase in personnel expense.

 

 

 

 

 

 

 

 

 

 

 

 

KEY CREDIT METRICS

(dollars in thousands)

 

Q2 2018

 

 

Q2 2017

 

$ Variance

 

% Variance

At risk servicing portfolio3

$

29,951,211

 

$

26,095,958

 

$

3,855,253

 

15

%

Maximum exposure to at risk portfolio4

 

6,165,096

 

 

5,282,883

 

 

882,213

 

17

 

60+ day delinquencies within at risk portfolio

$

5,962

 

$

 —

 

$

5,962

 

N/A

%

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

 

 

 

 

 

 

 

 

 

 

 

60+ day delinquencies

 

0.02

%

 

0.00

%

 

 

 

 

 

Allowance for risk-sharing

 

0.01

 

 

0.01

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Allowance for risk-sharing

 

0.07

%

 

0.07

%

 

 

 

 

 

Allowance for risk-sharing and guaranty obligation

 

0.75

 

 

0.76

 

 

 

 

 

 

 

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 12 months.  There was one loan 60+ days delinquent in our at risk servicing portfolio at June 30, 2018.

·

The on-balance sheet interim-loan portfolio, which is comprised of loans for which the Company has full risk of loss, was $131.0 million at June 30, 2018 compared to $288.4 million at June 30, 2017. All of the Company’s interim loans are current and performing at June 30, 2018. We expect to see a continued decline in this portfolio as most of our future loan originations are expected to be executed through our interim loan joint venture instead of originated using our balance sheet. The interim loan joint venture holds $119.1  million of loans as of June 30, 2018.

YEAR-TO-DATE 2018 OPERATING RESULTS 

   

Total transaction volume for the six months ended June 30, 2018 was $11.0 billion, a less than 1% decrease from the same period last year.  

   

Total revenues for the six months ended June 30, 2018 were $325.7 million compared to $324.9 million for the same period last year, a less than 1% increase. The change in total revenues was largely driven by a 15% increase in servicing fees related to an increase in our average servicing portfolio, a 113% increase in escrow earnings and other interest income resulting from an increase in escrow balances and the escrow earnings rate, and a 53% growth in investment sales broker fees due to an increase in investment sale volume. Largely offsetting these increases were a 7%  decrease in gains from mortgage banking activities due primarily to a decrease in Fannie Mae loan origination volume and a 66% decrease in net warehouse interest income. The decrease in net warehouse interest income was the result of a lower average balance of loans held for investment and a lower net interest spread on loans held for sale. 

   

5


 

Picture 8

Second Quarter 2018 Earnings Release

 

Total expenses for the six months ended June 30, 2018 and 2017 were $228.8 million and $212.7 million, respectively. The 8% increase in total expenses was due primarily to increases in personnel expense, amortization and depreciation costs, and other operating expenses. Personnel expenses as a percentage of total revenues increased slightly from 37% in 2017 to 39% in 2018. Personnel expense increased 6% mostly due to an increase in salaries expense resulting from a rise in average headcount year over year. Amortization and depreciation costs increased 6% due to an increase in the average balance of MSRs outstanding year over year. Other operating expenses increased 21% largely due to increases in (i) office and travel and entertainment expenses due to the increase in average headcount year over year, (ii) legal costs related to the acquisition of JCR Capital, and (iii) recruiting costs related to our mortgage banker and broker and investment sales broker hiring activity.  

   

Operating margin for the six months ended June 30, 2018 and 2017 was 30% and 35%, respectively. The decrease in operating margin was due to an 8% increase in total expenses due to the growth in headcount and a less than 1% increase in total revenues.  

   

Net income for the six months ended June 30, 2018 was $78.0 million compared to net income of $77.8 million for the same period last year, a less than 1% increase. The increase in net income is due to a 45%  decrease in income tax expense, nearly entirely offset by a 14% decrease in income from operations. The lower income tax expense is related to a lower Federal statutory income tax rate due to tax reform, as discussed above, partially offset by a decrease in the reduction in income tax expense from excess tax benefits from $8.8 million during the six months ended June 30, 2017 to $5.8 million during the same period in 2018. Diluted earnings per share were essentially flat year over year.  

   

For the six months ended June 30, 2018 and 2017, adjusted EBITDA was $102.1 million and $101.3 million, respectively. The 1% increase was driven by growth in servicing fees, escrow earnings and other interest income, and other revenues, partially offset by increases in personnel expense and other operating expenses and a decrease in net warehouse interest income.  

  

For the six months ended June 30, 2018, return on equity was 19% compared to 24% for the six months ended June 30, 2017. The decrease is largely related to the minimal increase in net income, while stockholders’ equity increased $186.2 million over the past year due primarily to the net income recorded over the past 12 months, including the large reduction to the Company’s net deferred tax liabilities in the fourth quarter 2017 due to tax reform, partially offset by share repurchases and dividend payments.

 

DIVIDENDS AND SHARE REPURCHASES

 

On July 31, 2018, our Board of Directors declared a dividend of $0.25 per share for the third quarter 2018. The dividend will be paid September 4, 2018 to all holders of record of our restricted and unrestricted common stock and restricted stock units as of August 17, 2018.

 

During the first quarter 2018, we repurchased 244 thousand shares of our common stock at a weighted-average price of $46.77 per share under our 2017 share repurchase program. We did not repurchase any shares of our common stock during the first or second quarters 2018 under our 2018 share repurchase program, which is approved by our Board of Directors for repurchases of up to $50.0 million.


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” and “Adjusted Financial Metric Reconciliation to GAAP.” 

2  The fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained, as a percentage of Agency volume.

3  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. 

4  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

6


 

Picture 8

Second Quarter 2018 Earnings Release

 

maximum exposure is not representative of the actual loss we would incur.

 

Conference Call Information

 

The Company will host a conference call to discuss its quarterly results on Wednesday, August 1, 2018 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) 424-1669 from outside the United States and are asked to reference the Conference ID: WDQ218. 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. 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 services and 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 650 professionals in 29 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 (benefit) for credit losses net of write-offs, stock-based incentive compensation charges, and non-cash revenues such as gains attributable to MSRs. 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

7


 

Picture 8

Second Quarter 2018 Earnings Release

 

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 and any updates or supplements in our most-recent Quarterly Report 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.

 

Contacts:

 

 

 

Investors:

Media:

Kelsey Montz

Susan Weber

Vice President, Investor Relations

Chief Marketing Officer

Phone 301.202.3207

Phone 301.215.5515

investorrelations@walkeranddunlop.com

info@walkeranddunlop.com

 

Phone  301.215.5500

7501 Wisconsin Avenue, Suite 1200E

Bethesda, Maryland 20814

 

 

8


 

\\walkerdunlop.com\DFS\Shares\Marketing\!2017 Letterhead\Logos and PMS Colors\WalkerDunlop_horizontal_CMYK.jpg

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

    

March 31,

    

December 31,

    

September 30,

    

June 30, 

 

2018

 

2018

 

2017

 

2017

 

2017

(in thousands)

(unaudited)

 

(unaudited)

 

 

 

(unaudited)

 

(unaudited)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

81,531

 

$

193,695

 

$

191,218

 

$

85,363

 

$

53,338

Restricted cash

 

29,986

 

 

16,991

 

 

6,677

 

 

17,179

 

 

15,768

Pledged securities, at fair value

 

105,803

 

 

102,059

 

 

97,859

 

 

95,102

 

 

92,401

Loans held for sale, at fair value

 

1,257,256

 

 

787,552

 

 

951,829

 

 

3,275,761

 

 

1,608,025

Loans held for investment, net

 

130,397

 

 

59,886

 

 

66,510

 

 

152,050

 

 

167,540

Servicing fees and other receivables, net

 

44,804

 

 

30,829

 

 

41,693

 

 

34,476

 

 

34,794

Derivative assets

 

26,632

 

 

20,417

 

 

10,357

 

 

43,853

 

 

24,991

Mortgage servicing rights

 

638,914

 

 

631,031

 

 

634,756

 

 

587,909

 

 

573,159

Goodwill and other intangible assets

 

157,240

 

 

124,526

 

 

124,543

 

 

124,571

 

 

124,621

Other assets

 

88,017

 

 

84,291

 

 

82,985

 

 

84,196

 

 

71,398

Total assets

$

2,560,580

 

$

2,051,277

 

$

2,208,427

 

$

4,500,460

 

$

2,766,035

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

$

188,321

 

$

184,079

 

$

238,538

 

$

255,785

 

$

229,471

Performance deposits from borrowers

 

29,083

 

 

16,717

 

 

6,461

 

 

16,575

 

 

14,894

Derivative liabilities

 

8,669

 

 

7,455

 

 

1,850

 

 

175

 

 

500

Guaranty obligation, net

 

42,470

 

 

41,424

 

 

41,187

 

 

38,300

 

 

36,492

Allowance for risk-sharing obligations

 

4,070

 

 

3,058

 

 

3,783

 

 

3,769

 

 

3,648

Warehouse notes payable

 

1,250,642

 

 

802,496

 

 

937,769

 

 

3,305,589

 

 

1,630,268

Note payable

 

163,704

 

 

163,781

 

 

163,858

 

 

163,935

 

 

164,011

Total liabilities

$

1,686,959

 

$

1,219,010

 

$

1,393,446

 

$

3,784,128

 

$

2,079,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Common stock

 

304

 

 

301

 

 

300

 

 

299

 

 

301

Additional paid-in capital

 

234,564

 

 

226,332

 

 

229,080

 

 

225,985

 

 

222,874

Accumulated other comprehensive income (loss)

 

(87)

 

 

(34)

 

 

93

 

 

113

 

 

115

Retained earnings

 

633,508

 

 

600,257

 

 

579,943

 

 

484,963

 

 

458,819

Total stockholders’ equity

$

868,289

 

$

826,856

 

$

809,416

 

$

711,360

 

$

682,109

Noncontrolling interests

 

5,332

 

 

5,411

 

 

5,565

 

 

4,972

 

 

4,642

Total equity

$

873,621

 

$

832,267

 

$

814,981

 

$

716,332

 

$

686,751

Commitments and contingencies

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total liabilities and equity

$

2,560,580

 

$

2,051,277

 

$

2,208,427

 

$

4,500,460

 

$

2,766,035

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 


 

 

\\walkerdunlop.com\DFS\Shares\Marketing\!2017 Letterhead\Logos and PMS Colors\WalkerDunlop_horizontal_CMYK.jpg

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 2018

 

Q1 2018

 

Q4 2017

 

Q3 2017

 

Q2 2017

 

2018

 

2017

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains from mortgage banking activities

$

102,237

 

$

81,509

 

$

129,458

 

$

111,304

 

$

102,176

 

$

183,746

 

$

198,608

Servicing fees

 

49,317

 

 

48,040

 

 

46,713

 

 

44,900

 

 

43,214

 

 

97,357

 

 

84,739

Net warehouse interest income

 

2,392

 

 

1,857

 

 

6,689

 

 

5,358

 

 

5,800

 

 

4,249

 

 

12,420

Escrow earnings and other interest income

 

9,276

 

 

7,348

 

 

6,786

 

 

5,804

 

 

4,514

 

 

16,624

 

 

7,806

Other

 

14,982

 

 

8,698

 

 

17,556

 

 

12,370

 

 

10,703

 

 

23,680

 

 

21,346

Total revenues

$

178,204

 

$

147,452

 

$

207,202

 

$

179,736

 

$

166,407

 

$

325,656

 

$

324,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel

$

71,426

 

$

55,273

 

$

91,120

 

$

78,469

 

$

63,516

 

$

126,699

 

$

119,688

Amortization and depreciation

 

35,489

 

 

33,635

 

 

33,705

 

 

32,343

 

 

32,860

 

 

69,124

 

 

65,198

Provision (benefit) for credit losses

 

800

 

 

(477)

 

 

(27)

 

 

 9

 

 

(93)

 

 

323

 

 

(225)

Interest expense on corporate debt

 

2,343

 

 

2,179

 

 

2,344

 

 

2,555

 

 

2,443

 

 

4,522

 

 

4,846

Other operating expenses

 

15,176

 

 

12,951

 

 

13,300

 

 

11,664

 

 

11,599

 

 

28,127

 

 

23,207

Total expenses

$

125,234

 

$

103,561

 

$

140,442

 

$

125,040

 

$

110,325

 

$

228,795

 

$

212,714

Income from operations

$

52,970

 

$

43,891

 

$

66,760

 

$

54,696

 

$

56,082

 

$

96,861

 

$

112,205

Income tax expense (benefit)