Walker & Dunlop Grows Market Share in Challenging Q4

Servicing and Asset Management Businesses Shine

FOURTH QUARTER 2022 HIGHLIGHTS

• Total transaction volume of $11.2 billion, down 59% from Q4’21
• Total revenues of $282.9 million, down 31% from Q4’21
• Net income of $41.5 million and diluted earnings per share of $1.24, down 48% and 49%, respectively, from Q4’21
• Adjusted EBITDA¹ of $92.6 million, down 16% from Q4’21
• Servicing portfolio of $123.1 billion at December 31, 2022 up 6% from December 30, 2021
• Declared quarterly dividend of $0.63 per share for the first quarter of 2023, marking the fifth consecutive annual increase

FULL YEAR 2022 HIGHLIGHTS

• Total transaction volume of $63.3 billion, down 7% from 2021
• Total revenues of $1.3 billion, flat from 2021
• Net income of $213.8 million and diluted earnings per share of $6.36, down 20% and 22%, respectively, from 2021
• Adjusted EBITDA¹ of $325.1 million, up 5% from 2021
• Combined GSE market share of 12.7%, our highest GSE market share to date, and ranked as #1 overall GSE lender
• Ranked #1 Fannie Mae DUS^® Lender and #3 Freddie Mac Optigo^® Lender for 2022

BETHESDA, Md.–(BUSINESS WIRE)–Walker & Dunlop, Inc. (NYSE: WD) (the “Company”, “Walker & Dunlop” or “W&D”) reported total revenues of $282.9 million for the fourth quarter of 2022, a decrease of 31% year over year. Fourth quarter total transaction volume was $11.2 billion, down 59% year over year. Net income for the fourth quarter of 2022 was $41.5 million, or $1.24 per diluted share, down 48% and 49%, respectively, from the fourth quarter of 2021. Fourth quarter 2022 adjusted EBITDA¹ was $92.6 million, down 16% over the same period in 2021. The Company’s Board of Directors authorized a 5% increase in the quarterly dividend to $0.63 per share, the fifth consecutive year the dividend has increased.

“The second half of 2022 was extremely challenging due to macroeconomic headwinds and capital markets disruptions caused by aggressive Federal Reserve market intervention. Yet Walker & Dunlop’s recurring revenue streams from servicing and asset management, access to counter-cyclical capital from Fannie Mae and Freddie Mac, and market positioning as a trusted advisor to our clients, allowed us to deliver financial results significantly better than the dramatic drop-off in deal volume,” commented Walker & Dunlop Chairman and CEO, Willy Walker. “Walker & Dunlop’s scaled lending partnerships with the GSEs ended the year as the #1 Fannie Mae DUS® lender for the 4th straight year, #3 Freddie Mac Optigo® lender, and the #1 overall GSE multifamily lender in the country for the first time ever.”

Mr. Walker continued, “We remain focused on our five-year business plan, the Drive to ’25, and have confidence that we will achieve the ambitious goals of $2 billion in revenue and $13 of diluted earnings per share in 2025 due to increased demand for our services coming out of the Federal Reserve’s tightening cycle. Our business model is unique in generating both transaction volume growth along with recurring revenues from servicing and asset management fees. And our focus on the multifamily industry, from a transaction and credit exposure standpoint, has been unique and wildly valuable. Our team, brand and technology are positioned to deliver great growth over the coming years.”

CONSOLIDATED FOURTH QUARTER 2022 OPERATING RESULTS

Discussion of Results:

• Total debt financing volume decreased in a challenging macro-economic environment during the fourth quarter of 2022 to $11.2 billion. Despite a slowdown in market wide transaction activity in 2022, Walker & Dunlop’s leadership position in the multifamily financing market was evident by its ranking as the #1 Fannie Mae lender for 2022 for the fourth consecutive year, delivering a record market share of 16.5%. Freddie Mac volumes increased 49% in the fourth quarter of 2022, contributing to a record combined GSE market share of 12.7%.
• The decrease in HUD debt financing volumes was due to inflationary impacts on building products and a dramatically increasing interest-rate environment during the quarter, which made HUD’s construction and streamlined refinancing products less favorable sources of capital for multifamily properties.
• The decrease in principal lending and investing volume, which includes interim loans, originations for WDIP separate accounts, and interim lending for our joint venture, was a result of the shifting credit market outlook in a volatile interest rate environment that led to a continued conservative approach to bridge lending during the quarter.
• Brokered debt and property sales volume decreased 66% and 64%, respectively, in the fourth quarter of 2022. These declines were the result of challenging macro-economic conditions the decreased liquidity supplied to the commercial real estate sector, and dramatically slowed acquisitions and capital markets activity in the fourth quarter of 2022.

Discussion of Results:

• Our servicing portfolio continues to expand as a result of the strong Fannie Mae and brokered debt financing volumes over the past 12 months, partially offset by principal paydowns and loan payoffs.
• During the fourth quarter of 2022, we added $2.4 billion of net loans to our servicing portfolio, and over the past 12 months, we added $7.4 billion of net loans to our servicing portfolio, 78% of which were Fannie Mae loans.
• $7.1 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 18.0 basis points, represent only 6% of the total portfolio.
• The mortgage servicing rights (“MSRs”) associated with our servicing portfolio had a fair value of $1.4 billion as of December 31, 2022, compared to $1.3 billion as of December 31, 2021. We added net MSRs of $7.5 million in the quarter and $21.4 million over the past 12 months.
• Assets under management (“AUM”) as of December 31, 2022 consisted of $14.5 billion of tax-credit equity funds, $1.4 billion of commercial real estate loans and funds, and $0.9 billion of loans in our interim lending joint venture, and drove the 190% growth in investment management revenues from $25.6 million in 2021 to $74.4 million in 2022.

Discussion of Results:

• The decrease in Walker & Dunlop net income was the result of a 57% decrease in income from operations, primarily due to the decline in total transaction volume and associated revenues.
• The decrease in adjusted EBITDA was the result of decreases in loan origination fees and property sales broker fees, and an increase in other operating expenses, partially offset by a substantial increase in escrow earnings, higher servicing fees, and lower variable compensation expense.
• Diluted EPS decreased 49% in the fourth quarter of 2022, while adjusted core EPS decreased 38%. Adjusted core EPS is a new non-GAAP financial measure that highlights the core operating performance of our business. Please refer to the sections of this press release below titled “Non-GAAP Financial Measures,” and “Adjusted Core EPS Reconciliation.”
• Operating margin decreased due to the aforementioned decrease in income from operations.
• Return on equity declined due to a 9% increase in stockholders’ equity over the past year combined with a 48% decrease in net income.

Discussion of Results:

• Our at-risk servicing portfolio, which is comprised of loans subject to a defined risk-sharing formula, increased due to the significant level of Fannie Mae loans added to the portfolio during the past 12 months. As of December 31, 2022, 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 $206.8 million as of December 31, 2022 compared to $235.5 million as of December 31, 2021. There was one defaulted loan in our interim loan portfolio as of December 31, 2022. We increased the reserve on this loan by $2.2 million during the fourth quarter of 2022. All other loans in the on-balance sheet interim loan portfolio are current and performing as of December 31, 2022. The interim loan joint venture holds $0.9 billion of loans as of December 31, 2022, compared to $0.8 billion as of December 31, 2021. We share in a small portion of the risk of loss, and as of December 31, 2022, all loans in the interim loan joint venture are current and performing.

FOURTH QUARTER 2022 – FINANCIAL RESULTS BY SEGMENT

Capital Markets – Discussion of Quarterly Results:

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

• The decrease in loan origination and debt brokerage fees, net (“origination fees”) was the result of the decrease in our overall debt financing volume. The increase in the origination fee margin was largely due to the mix of our origination volume, including an increase in our Freddie Mac debt financing volume and a decrease in our brokered debt financing volume as a percentage of overall debt financing volume.
• The decrease in MSR income is attributable to the decrease in our Agency MSR margins and a decrease in overall debt financing volume. The decline in the Agency MSR margin was primarily related to the declines in our HUD and Fannie Mae volumes, coupled with a decline in the weighted-average servicing fee on our Fannie Mae loans, as spreads tightened due to rapidly rising interest rates.
• The decrease in property sales broker fees was driven by the 64% decrease in property sales volume year over year, driven by economic uncertainty that caused a broad slowdown in acquisitions activity across the commercial real estate sector.
• The increase in other revenues was primarily due to an increase in appraisal revenues due to consolidating Apprise after our acquisition of GeoPhy in Q1 2022. The operating results for the fourth quarter of 2022 include appraisal revenue, while the operating results for the fourth quarter of 2021 do not, as we accounted for our investment in Apprise under the equity method in 2021.
• The decrease in personnel expense was primarily a result of the decrease in commissions expense due to the decline in property sales broker fees and origination fees. This decrease was partially offset by an increase in salaries and benefits costs due to (i) the GeoPhy acquisition and (ii) consolidating Apprise after our acquisition of GeoPhy. The operating results for the fourth quarter of 2022 include compensation costs for Apprise, while the operating results for the fourth quarter of 2021 do not as we accounted for our investment in Apprise under the equity method in 2021.
• The increase in interest expense on corporate debt was primarily driven by the sharp increase in interest rates year over year, as our term loan carries a floating interest rate.
• Other operating expenses decreased primarily due to a net reduction related to our periodic revaluation of performance based earnouts. The net fair value adjustment reflects actual results to date for the acquired businesses, and the expected impact of the current macroeconomic conditions on the timing and achievement of the earnout milestones. This decrease was partially offset by increased travel and entertainment expenses, which were still impacted by the effects of the pandemic in the fourth quarter of 2021.

Servicing & Asset Management – Discussion of Quarterly Results:

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

• The $7.4 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 slight decrease in the servicing portfolio’s weighted-average servicing fee.
• Investment management fees increased primarily due to the added revenues from Alliant, with only limited comparable activity in the prior year period as the acquisition of Alliant occurred late in the fourth quarter of 2021.
• Escrow earnings and other interest income increased as a result of higher escrow earnings due to substantially higher short-term interest rates, partially offset by a smaller average escrow balance.
• Other revenues decreased primarily due to a decline in prepayment fees, partially offset by gains from our equity method investments.
• Personnel expense increased year over year primarily due to higher salaries, benefits, and bonus costs due to the acquisition of Alliant.
• Amortization and depreciation decreased as a result of lower prepayments in our servicing portfolio due to rising interest rates, partially offset by an increase in amortization of intangible assets from the recent acquisitions.
• The significant increase in interest expense on corporate debt is the result of an increase in the balance of corporate debt to support the acquisition of Alliant late in 2021, coupled with a sharp increase in interest rates year over year, as our term loan carries a floating interest rate. We also incurred additional interest expense related to a fixed-rate note payable assumed in the acquisition of Alliant late in the fourth quarter of 2021.
• The increase in other operating expenses was largely attributable to increases in professional fees and other operating expenses due to the operations of Alliant, for which there was limited comparable activity in the prior quarter, as the acquisition occurred late in the fourth quarter of 2021.

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.

• Personnel expense decreased primarily due to a decrease in performance-based variable compensation, as costs for both subjective bonus and performance stock plans decreased substantially compared to the prior year period. Due to our overall financial performance, the bonus pools for our senior executive officers, other senior management, and the general employee bonus pool were funded at 25%, 50%, and 75% of their respective targets.
• Other operating expenses increased primarily due to (i) increased office expenses assumed in the acquisitions of Zelman, Alliant and GeoPhy and lease for our new headquarters, (ii) increased other professional fees from acquisition related activity, (iii) and an increase in travel and entertainment expenses, which were still impacted by the effects of the pandemic during 2021.

CONSOLIDATED FULL YEAR 2022 OPERATING RESULTS

Discussion of Results:

• The decrease in total transaction volume was driven by a 52% decrease in HUD transaction volume, a 13% decrease in brokered transaction volume, and a 77% decrease in principal lending volume, partially offset by a 7% increase in Fannie Mae transaction volume.
• The decrease in Walker & Dunlop net income was the result of a 25% decrease in income from operations primarily due to lower transaction volumes in our higher margin Fannie Mae and HUD executions.
• The increase in adjusted EBITDA was primarily a result of increases in (i) servicing fees, (ii) escrow earnings, and (iii) revenues from the recent acquisitions of Alliant and Zelman, with minimal comparable revenue in the prior year period. These increases were partially offset by a decrease in transaction related revenues and increases in personnel expenses from the aforementioned recent acquisitions.
• Diluted EPS decreased 22% in 2022, while our adjusted core EPS decreased 11% year over year.
• Operating margin declined primarily due to the significant decrease in transaction related revenues and an increase in the cost of borrowing due to sharp increases in interest rates over the past year.
• Return on equity declined due to a 9% increase in stockholders’ equity over the past year, combined with the 20% decrease in net income.

FULL YEAR 2022 – FINANCIAL RESULTS BY SEGMENT

Contacts

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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