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FIRST QUARTER 2023 HIGHLIGHTS
BETHESDA, Md.–(BUSINESS WIRE)–Walker & Dunlop, Inc. (NYSE: WD) (the “Company,” “Walker & Dunlop” or “W&D”) reported total revenues of $238.7 million for the first quarter of 2023, a decrease of 25% year over year. First quarter total transaction volume was $6.7 billion, down 47% year over year. Net income for the first quarter of 2023 was $26.7 million, or $0.79 per diluted share, both down 63% year over year, as the first quarter of 2022 included a one-time benefit of $39.6 million that contributed $0.92 to diluted earnings per share. Adjusted EBITDA1 was $68.0 million, up 9% over the same period in 2022. Adjusted core EPS was $1.17, up 10% year over year. The Company’s Board of Directors declared a dividend of $0.63 per share for the second quarter of 2023.
“Dramatically higher interest rates and market uncertainty pushed transaction volumes down across the commercial real estate industry in Q1 2023,” commented Walker & Dunlop Chairman and CEO, Willy Walker. “Our team, working closely with our clients, closed $6.7 billion of financing and sales transactions, down 47% from Q1 2022. Due to Walker & Dunlop’s scaled loan servicing and asset management platforms, we generated $68 million of adjusted EBITDA, up 9% over Q1 2022, and adjusted core EPS of $1.17, up 10%. That’s W&D’s counter-cyclical business model kicking in!”
“After reducing costs and lowering headcount by 8%, we are well positioned to operate at lower transaction volumes should they persist,” continued Mr. Walker. “Yet as the largest combined Fannie Mae and Freddie Mac lender on multifamily properties in the country, we expect GSE volumes to increase from Q1’23 levels. As banks pull back from commercial real estate lending, we expect our brokers to be hired more frequently to assist our clients in finding the best capital solution available. And as bank capital exits the market, we expect non-bank, private capital to step-in — with the help of Walker & Dunlop.”
CONSOLIDATED FIRST QUARTER 2023 OPERATING RESULTS |
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TRANSACTION VOLUMES |
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(dollars in thousands) |
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Q1 2023 |
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|
Q1 2022 |
|
$ Variance |
|
% Variance |
||||
Fannie Mae |
|
$ |
1,358,708 |
|
$ |
1,998,374 |
|
$ |
(639,666 |
) |
|
(32 |
) |
% |
Freddie Mac |
|
|
975,737 |
|
|
987,849 |
|
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(12,112 |
) |
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(1 |
) |
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Ginnie Mae – HUD |
|
|
127,599 |
|
|
391,693 |
|
|
(264,094 |
) |
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(67 |
) |
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Brokered (3) |
|
|
2,363,754 |
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|
5,643,081 |
|
|
(3,279,327 |
) |
|
(58 |
) |
|
Principal Lending and Investing (4) |
|
|
– |
|
|
114,020 |
|
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(114,020 |
) |
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(100 |
) |
|
Debt financing volume |
|
$ |
4,825,798 |
|
$ |
9,135,017 |
|
$ |
(4,309,219 |
) |
|
(47 |
) |
% |
Property sales volume |
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1,894,682 |
|
|
3,531,690 |
|
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(1,637,008 |
) |
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(46 |
) |
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Total transaction volume |
|
$ |
6,720,480 |
|
$ |
12,666,707 |
|
$ |
(5,946,227 |
) |
|
(47 |
) |
% |
Discussion of Results:
MANAGED PORTFOLIO |
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(dollars in thousands, unless otherwise noted) |
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Q1 2023 |
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Q1 2022 |
|
$ Variance |
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% Variance |
||||
Fannie Mae |
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$ |
59,890,444 |
|
$ |
54,000,550 |
|
$ |
5,889,894 |
|
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11 |
|
% |
Freddie Mac |
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38,184,798 |
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36,965,185 |
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1,219,613 |
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3 |
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Ginnie Mae – HUD |
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10,027,781 |
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9,954,262 |
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73,519 |
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1 |
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Brokered |
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16,285,391 |
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15,115,619 |
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1,169,772 |
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8 |
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Principal Lending and Investing |
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187,505 |
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221,649 |
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(34,144 |
) |
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(15 |
) |
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Total Servicing Portfolio |
|
$ |
124,575,919 |
|
$ |
116,257,265 |
|
$ |
8,318,654 |
|
|
7 |
|
% |
Assets under management |
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16,654,566 |
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16,687,112 |
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(32,546 |
) |
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– |
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Total Managed Portfolio |
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$ |
141,230,485 |
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$ |
132,944,377 |
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$ |
8,286,108 |
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6 |
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% |
Custodial escrow account balance at period end (in billions) |
|
$ |
2.2 |
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$ |
2.5 |
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Weighted-average servicing fee rate (basis points) |
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24.3 |
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25.0 |
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Weighted-average remaining servicing portfolio term (years) |
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8.7 |
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9.1 |
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Discussion of Results:
KEY PERFORMANCE METRICS |
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(dollars in thousands, except per share amounts) |
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Q1 2023 |
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Q1 2022 |
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$ Variance |
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% Variance |
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Walker & Dunlop net income |
|
$ |
26,665 |
|
$ |
71,209 |
|
$ |
(44,544 |
) |
|
(63 |
) |
% |
||
Adjusted EBITDA |
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|
67,975 |
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|
62,636 |
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|
5,339 |
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9 |
|
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Diluted EPS |
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$ |
0.79 |
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$ |
2.12 |
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$ |
(1.33 |
) |
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(63 |
) |
% |
||
Adjusted core EPS |
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$ |
1.17 |
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$ |
1.06 |
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$ |
0.11 |
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|
10 |
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% |
||
Operating margin |
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14 |
% |
|
28 |
% |
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Return on equity |
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6 |
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19 |
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Key Expense Metrics (as a percentage of total revenues): |
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Personnel expenses |
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50 |
% |
|
45 |
% |
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Other operating expenses |
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|
10 |
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10 |
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Discussion of Results:
KEY CREDIT METRICS |
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(dollars in thousands) |
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Q1 2023 |
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Q1 2022 |
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$ Variance |
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% Variance |
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At-risk servicing portfolio (8) |
|
$ |
54,898,461 |
|
$ |
50,176,521 |
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$ |
4,721,940 |
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9 |
|
% |
||
Maximum exposure to at-risk portfolio (9) |
|
|
11,132,473 |
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|
10,178,454 |
|
|
954,019 |
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9 |
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Defaulted loans |
|
$ |
36,983 |
|
$ |
78,659 |
|
$ |
(41,676 |
) |
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(53 |
) |
% |
||
Key credit metrics (as a percentage of the at-risk portfolio): |
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Defaulted loans |
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0.07 |
% |
|
0.16 |
% |
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Allowance for risk-sharing |
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0.06 |
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0.11 |
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Key credit metrics (as a percentage of maximum exposure): |
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Allowance for risk-sharing |
|
|
0.30 |
% |
|
0.52 |
% |
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Discussion of Results:
FIRST QUARTER 2023 – FINANCIAL RESULTS BY SEGMENT |
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FINANCIAL RESULTS – CAPITAL MARKETS |
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(dollars in thousands) |
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Q1 2023 |
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Q1 2022 |
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$ Variance |
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% Variance |
|
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Loan origination and debt brokerage fees, net |
|
$ |
46,956 |
|
|
$ |
81,823 |
|
$ |
(34,867 |
) |
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(43 |
) |
% |
||
Fair value of expected net cash flows from servicing, net (“MSR income”) |
|
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30,013 |
|
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|
52,730 |
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(22,717 |
) |
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(43 |
) |
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Property sales broker fees |
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|
11,624 |
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|
23,398 |
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(11,774 |
) |
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(50 |
) |
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Net warehouse interest income (expense), LHFS |
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(1,689 |
) |
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|
3,530 |
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(5,219 |
) |
|
(148 |
) |
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||
Other revenues |
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|
17,100 |
|
|
|
7,336 |
|
|
9,764 |
|
|
133 |
|
|
||
Total revenues |
|
$ |
104,004 |
|
|
$ |
168,817 |
|
$ |
(64,813 |
) |
|
(38 |
) |
% |
||
Personnel |
|
$ |
90,462 |
|
|
$ |
104,959 |
|
$ |
(14,497 |
) |
|
(14 |
) |
% |
||
Amortization and depreciation |
|
|
1,186 |
|
|
|
56 |
|
|
1,130 |
|
|
2,018 |
|
|
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Interest expense on corporate debt |
|
|
4,269 |
|
|
|
1,523 |
|
|
2,746 |
|
|
180 |
|
|
||
Other operating (income) expenses |
|
|
5,644 |
|
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|
7,201 |
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(1,557 |
) |
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(22 |
) |
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Total expenses |
|
$ |
101,561 |
|
|
$ |
113,739 |
|
$ |
(12,178 |
) |
|
(11 |
) |
% |
||
Income from operations |
|
$ |
2,443 |
|
|
$ |
55,078 |
|
$ |
(52,635 |
) |
|
(96 |
) |
% |
||
Income tax expense |
|
|
504 |
|
|
|
11,911 |
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(11,407 |
) |
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(96 |
) |
|
||
Net income before noncontrolling interests |
|
$ |
1,939 |
|
|
$ |
43,167 |
|
$ |
(41,228 |
) |
|
(96 |
) |
% |
||
Less: net income (loss) from noncontrolling interests |
|
|
1,435 |
|
|
|
65 |
|
|
1,370 |
|
|
N/A |
|
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||
Walker & Dunlop net income |
|
$ |
504 |
|
|
$ |
43,102 |
|
$ |
(42,598 |
) |
|
(99 |
) |
% |
||
Key revenue metrics (as a percentage of debt financing volume): |
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Origination fee margin (5) |
|
|
0.97 |
|
% |
|
0.90 |
% |
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MSR margin (6) |
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|
0.62 |
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|
0.58 |
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Agency MSR margin (7) |
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|
1.22 |
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|
1.56 |
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Key performance metrics: |
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Operating margin |
|
|
2 |
|
% |
|
33 |
% |
|
|
|
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|
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Adjusted EBITDA |
|
$ |
(18,687 |
) |
|
$ |
8,534 |
|
$ |
(27,221 |
) |
|
(319 |
) |
% |
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.
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FINANCIAL RESULTS – SERVICING & ASSET MANAGEMENT |
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(dollars in thousands) |
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|
Q1 2023 |
|
|
Q1 2022 |
|
|
$ Variance |
|
% Variance |
|
||||||
Loan origination and debt brokerage fees, net |
|
$ |
128 |
|
|
$ |
487 |
|
|
$ |
(359 |
) |
|
(74 |
) |
% |
||
Servicing fees |
|
|
75,766 |
|
|
|
72,681 |
|
|
|
3,085 |
|
|
4 |
|
|
||
Investment management fees |
|
|
15,173 |
|
|
|
14,858 |
|
|
|
315 |
|
|
2 |
|
|
||
Net warehouse interest income, LHFI |
|
|
1,690 |
|
|
|
1,243 |
|
|
|
447 |
|
|
36 |
|
|
||
Escrow earnings and other interest income |
|
|
28,824 |
|
|
|
1,758 |
|
|
|
27,066 |
|
|
1,540 |
|
|
||
Other revenues |
|
|
11,615 |
|
|
|
15,466 |
|
|
|
(3,851 |
) |
|
(25 |
) |
|
||
Total revenues |
|
$ |
133,196 |
|
|
$ |
106,493 |
|
|
$ |
26,703 |
|
|
25 |
|
% |
||
Personnel |
|
$ |
15,341 |
|
|
$ |
16,664 |
|
|
$ |
(1,323 |
) |
|
(8 |
) |
% |
||
Amortization and depreciation |
|
|
54,010 |
|
|
|
54,893 |
|
|
|
(883 |
) |
|
(2 |
) |
|
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Provision (benefit) for credit losses |
|
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(10,775 |
) |
|
|
(9,498 |
) |
|
|
(1,277 |
) |
|
13 |
|
|
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Interest expense on corporate debt |
|
|
9,582 |
|
|
|
4,536 |
|
|
|
5,046 |
|
|
111 |
|
|
||
Other operating expenses |
|
|
1,480 |
|
|
|
5,029 |
|
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(3,549 |
) |
|
(71 |
) |
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Total expenses |
|
$ |
69,638 |
|
|
$ |
71,624 |
|
|
$ |
(1,986 |
) |
|
(3 |
) |
% |
||
Income from operations |
|
$ |
63,558 |
|
|
$ |
34,869 |
|
|
$ |
28,689 |
|
|
82 |
|
% |
||
Income tax expense |
|
|
13,104 |
|
|
|
7,540 |
|
|
|
5,564 |
|
|
74 |
|
|
||
Net income before noncontrolling interests |
|
$ |
50,454 |
|
|
$ |
27,329 |
|
|
$ |
23,125 |
|
|
85 |
|
% |
||
Less: net income (loss) from noncontrolling interests |
|
|
(630 |
) |
|
|
(744 |
) |
|
|
114 |
|
|
(15 |
) |
|
||
Walker & Dunlop net income |
|
$ |
51,084 |
|
|
$ |
28,073 |
|
|
$ |
23,011 |
|
|
82 |
|
% |
||
Key performance metrics: |
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Operating margin |
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|
48 |
|
% |
|
33 |
|
% |
|
|
|
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|
||||
Adjusted EBITDA |
|
$ |
112,975 |
|
|
$ |
86,236 |
|
|
$ |
26,739 |
|
|
31 |
|
% |
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.
FINANCIAL RESULTS – CORPORATE |
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(dollars in thousands) |
|
|
Q1 2023 |
|
|
Q1 2022 |
|
|
$ Variance |
|
% Variance |
|
||||
Escrow earnings and other interest income |
|
$ |
2,100 |
|
|
$ |
45 |
|
|
$ |
2,055 |
|
|
4,567 |
|
% |
Other revenues |
|
|
(554 |
) |
|
|
44,089 |
|
|
|
(44,643 |
) |
|
(101 |
) |
|
Total revenues |
|
$ |
1,546 |
|
|
$ |
44,134 |
|
|
$ |
(42,588 |
) |
|
(96 |
) |
% |
Personnel |
|
$ |
12,810 |
|
|
$ |
22,558 |
|
|
$ |
(9,748 |
) |
|
(43 |
) |
% |
Amortization and depreciation |
|
|
1,770 |
|
|
|
1,203 |
|
|
|
567 |
|
|
47 |
|
|
Interest expense on corporate debt |
|
|
1,423 |
|
|
|
346 |
|
|
|
1,077 |
|
|
311 |
|
|
Other operating expenses |
|
|
16,939 |
|
|
|
19,984 |
|
|
|
(3,045 |
) |
|
(15 |
) |
|
Total expenses |
|
$ |
32,942 |
|
|
$ |
44,091 |
|
|
$ |
(11,149 |
) |
|
(25 |
) |
% |
Income from operations |
|
$ |
(31,396 |
) |
|
$ |
43 |
|
|
$ |
(31,439 |
) |
|
(73,114 |
) |
% |
Income tax expense |
|
|
(6,473 |
) |
|
|
9 |
|
|
|
(6,482 |
) |
|
(72,022 |
) |
|
Walker & Dunlop net income |
|
$ |
(24,923 |
) |
|
$ |
34 |
|
|
$ |
(24,957 |
) |
|
(73,403 |
) |
% |
Key performance metric: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA |
|
$ |
(26,313 |
) |
|
$ |
(32,134 |
) |
|
$ |
5,821 |
|
|
(18 |
) |
% |
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.
CAPITAL SOURCES AND USES
On May 3, 2023, the Company’s Board of Directors declared a dividend of $0.63 per share for the second quarter of 2023. The dividend will be paid on June 2, 2023 to all holders of record of the Company’s restricted and unrestricted common stock as of May 18, 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 March 31, 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.” |
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(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.” |
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(3) |
Brokered transactions for life insurance companies, commercial banks, and other capital sources. |
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(4) |
Includes debt financing volumes from our interim loan program, our interim loan joint venture, and WDIP separate accounts. |
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(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. |
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(6) |
MSR income as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing. |
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(7) |
MSR income as a percentage of Agency debt financing volume. |
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(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. |
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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. |
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(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. |
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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