Exhibit 99.1

Picture 2

 

Walker & Dunlop Revenues Grow 12% to $200 Million

Diluted Earnings Per Share Up to $1.33

 

SECOND QUARTER 2019 HIGHLIGHTS

·

Total transaction volume of $7.3 billion, up 18% from Q2'18

·

Total revenues of $200.3 million, up 12% from Q2'18

·

Net income of $42.2 million, up 3% from Q2'18 and diluted earnings per share of $1.33, up 6% from Q2’18

·

Adjusted EBITDA1 of $62.6 million, up 25% over Q2'18

·

Servicing portfolio of $89.9 billion at June 30, 2019, up 16% from June 30, 2018

·

Declared dividend of $0.30 per share for the quarter

 

YEAR-TO-DATE 2019 HIGHLIGHTS

·

Total transaction volume of $13.2 billion, up 20% from 2018

·

Total revenues of $387.8 million, up 19% from 2018

·

Net income of $86.4 million, up 11% from 2018 and diluted earnings per share of $2.72, up 13% from 2018

·

Adjusted EBITDA of $129.3 million, up 27% over 2018

 

Bethesda, MD – August 7, 2019

Walker & Dunlop, Inc. (NYSE: WD) (the “Company”), one of the fastest growing commercial real estate finance companies in the United States, reported second quarter 2019 total revenues of $200.3 million, an increase of 12% over the second quarter of 2018 and  a second quarter record. Net income for the second quarter of 2019 was $42.2 million, or $1.33 per diluted share, up 3% and 6% from the second quarter of last year, respectively. Second quarter 2019 adjusted EBITDA was $62.6 million, an increase of 25% over the same period in 2018. Total transaction volume grew 18% from the prior-year quarter to $7.3 billion, with mortgage banking volume up 9% and property sales volume up 128%. The Company’s Board of Directors declared a $0.30 per share dividend for the third quarter of 2019.

 

“The second quarter of 2019 was another period of strong financial performance for Walker & Dunlop, as our team, brand and execution of strategic initiatives continued to drive top and bottom-line growth,” commented Willy Walker, Chairman and Chief Executive Officer. “The current macro economic environment, with low interest rates and limited inflationary pressures, is an extremely positive backdrop for our business that should continue to benefit asset owners and attract large amounts of capital into commercial real estate. These economic drivers, coupled with the consistent hiring of new mortgage bankers and property sales brokers to our platform, drove Q2 total transaction volume to $7.3 billion, an increase of 18% year over year. 16% growth in our loan servicing portfolio was a key driver of our second quarter net income and strong diluted earnings per share of $1.33, up 6% from Q2’18, and exceptional adjusted EBITDA of $63 million, up 25% from Q2’18.”

 

Mr. Walker continued, “Walker & Dunlop’s big company capabilities coupled with the touch and feel of a family business is what makes our client experience and company unique.  These differentiators have allowed us to attract top talent to our platform, build our client base to include the largest owners and operators of commercial real estate in the country, and continue to deliver strong financial performance to our shareholders year after year. We are extremely focused on the opportunities ahead to continue growing our company and creating value for our employees, clients, and shareholders.”

 

 

 

SECOND QUARTER 2019 OPERATING RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

TRANSACTION VOLUMES

(dollars in thousands)

 

Q2 2019

 

 

Q2 2018

 

$ Variance

 

% Variance

Fannie Mae

$

2,357,560

 

$

2,269,544

 

$

88,016

 

 4

%

Freddie Mac

 

1,532,939

 

 

1,316,491

 

 

216,448

 

16

 

Ginnie Mae - HUD

 

191,502

 

 

230,710

 

 

(39,208)

 

(17)

 

Brokered

 

1,945,006

 

 

1,656,348

 

 

288,658

 

17

 

Principal Lending and Investing2

 

177,844

 

 

236,355

 

 

(58,511)

 

(25)

 

Mortgage banking volume

$

6,204,851

 

$

5,709,448

 

$

495,403

 

 9

%

Property sales volume

 

1,101,518

 

 

483,575

 

 

617,943

 

128

 

Total transaction volume

$

7,306,369

 

$

6,193,023

 

$

1,113,346

 

18

%

 

Discussion of Results:

 

·

We continue to see high demand for debt financing due to the strength of the U.S. commercial real estate market, strong macro conditions, and low interest rate environment. In addition, steady household formation and a lack of supply of single-family housing is driving persistent demand for multifamily rental properties. In the second quarter of 2019, 90% of our mortgage banking volume was for multifamily properties.

·

Fannie Mae and Freddie Mac origination volumes benefitted from continued strong market activity by the GSEs combined with our brand and reputation as a top GSE lender, which allowed our team to capture significant deal flow.

·

The second quarter 2019 decline in HUD volume is not indicative of any broad market trends or weakening demand for HUD loans. We remain focused on increasing the number of mortgage bankers on our platform with HUD expertise, having added teams in Chicago and Philadelphia already this year.

·

The increase in brokered loan originations reflects the growth in our team of mortgage bankers, continued market demand for all commercial real estate property types, and strong execution by our team. 

·

The decrease in principal lending and investing volume, which includes interim loans, originations for JCR separate accounts, and joint venture equity investments, was primarily due to a year-over-year decrease in interim loans originated for our balance sheet in the quarter. 

·

The substantial increase in property sales volume was the result of the investments we have made to expand the number of property sales brokers on the platform, including the addition of teams in three new markets in 2018, coupled with strong fundamentals supporting the multifamily market and continued investor appetite for multifamily assets. 

 

 

 

 

 

 

 

 

 

 

 

 

 

MANAGED PORTFOLIO

(dollars in thousands)

 

Q2 2019

 

 

Q2 2018

 

$ Variance

 

% Variance

Fannie Mae

$

38,236,807

 

$

33,606,531

 

$

4,630,276

 

14

%

Freddie Mac

 

31,811,145

 

 

28,197,494

 

 

3,613,651

 

13

 

Ginnie Mae - HUD

 

10,066,874

 

 

9,653,432

 

 

413,442

 

 4

 

Brokered

 

9,535,470

 

 

6,232,255

 

 

3,303,215

 

53

 

Principal Lending and Investing

 

246,729

 

 

131,029

 

 

115,700

 

88

 

Total servicing portfolio

$

89,897,025

 

$

77,820,741

 

$

12,076,284

 

16

%

Assets under management

 

1,595,446

 

 

932,318

 

 

663,128

 

71

 

Total Managed Portfolio

$

91,492,471

 

$

78,753,059

 

$

12,739,412

 

16

%

Weighted-average servicing fee rate (basis points)

 

23.4

 

 

25.4

 

 

 

 

 

 

Weighted-average remaining servicing portfolio term (years)

 

9.8

 

 

9.8

 

 

 

 

 

 

 

Discussion of Results:

 

·

During the second quarter of 2019, we added $2.2 billion of net loans to our servicing portfolio, nearly all of which were Fannie Mae and Freddie Mac loans. Over the past 12 months, we added $12.1 billion of net loans to our servicing portfolio, 68% of which were Fannie Mae and Freddie Mac loans.

·

Our servicing portfolio has experienced steady growth over the past year due to our significant mortgage banking volumes, relatively few maturities, and an acquisition of a small debt brokerage company and its related servicing in the fourth quarter of 2018.

·

The decrease in the weighted-average servicing fee was the result of the net addition of $7.3 billion of Freddie Mac, HUD, and brokered loans serviced compared to a net increase of only $4.6 billion of Fannie Mae loans serviced during the past 12 months, as Fannie Mae loans have the highest servicing fees of all the loan types we service because we share in the risk of loss. Additionally, the weighted-average servicing fee on our Fannie Mae originations has declined over the past 12 months and is less than the weighted-average servicing fee of Fannie Mae loans that have matured or prepaid over the past year. The decrease in the weighted-average servicing fee of Fannie Mae loans over the past year is largely due to intense competition for new loans and tighter credit spreads.

·

Only $3.8 billion of Agency loans in our servicing portfolio with a weighted-average servicing fee of 23.9 basis points are scheduled to mature over the next two years.

·

We added net mortgage servicing rights (“MSRs”) of $10.1 million during the quarter and $49.1 million over the past 12 months.

·

The MSRs associated with our servicing portfolio had a fair value of $874.0 million as of June 30, 2019, compared to $842.6 million as of June 30, 2018.

·

Assets under management as of June 30, 2019 consisted of $1.0 billion of loans and funds managed by our registered investment adviser, JCR Capital Investment Corporation, and $574.4 million of loans we manage for our interim lending joint venture and for an affiliate of Blackstone Mortgage Trust. The year-over-year increase is related to JCR Capital’s fundraising activity over the past 12 months and growth in the interim loan portfolio.

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

(dollars in thousands)

 

Q2 2019

 

 

Q2 2018

 

$ Variance

 

% Variance

Loan origination fees

$

65,610

 

$

55,193

 

$

10,417

 

19

%

Gains attributable to MSRs

 

41,271

 

 

47,044

 

 

(5,773)

 

(12)

 

Gains from mortgage banking activities

 

106,881

 

 

102,237

 

 

4,644

 

 5

 

Servicing fees

 

53,006

 

 

49,317

 

 

3,689

 

 7

 

Net warehouse interest income, LHFS

 

210

 

 

1,482

 

 

(1,272)

 

(86)

 

Net warehouse interest income, LHFI

 

6,201

 

 

910

 

 

5,291

 

581

 

Escrow earnings and other interest income

 

14,616

 

 

9,276

 

 

5,340

 

58

 

Property sales broker fees

 

5,752

 

 

3,758

 

 

1,994

 

53

 

Other revenues

 

13,659

 

 

11,224

 

 

2,435

 

22

 

Total revenues

$

200,325

 

$

178,204

 

$

22,121

 

12

%

Key revenue metrics (as a percentage of mortgage banking volume):

 

 

 

 

 

 

 

 

 

 

 

Origination related fees3

 

1.08

%

 

1.00

%

 

 

 

 

 

Gains attributable to MSRs3

 

0.68

 

 

0.86

 

 

 

 

 

 

Gains attributable to MSRs - Agency loans4

 

1.01

 

 

1.23

 

 

 

 

 

 

 

Discussion of Results:

 

·

The increase in loan origination fees was the result of the 9% increase in overall mortgage banking volume and an 8% increase in the origination fee rate.

·

A 24% year-over-year decline in the weighted-average servicing fee on Fannie Mae loan originations was the primary driver of the decrease in gains attributable to MSRs. Second quarter 2019 Fannie Mae volume included one $540 million portfolio that carried a signficantly lower servicing fee than a typical Fannie Mae loan.

·

The $12.1 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 the decline in the servicing portfolio’s weighted-average servicing fee.

·

The decrease in net warehouse interest income from loans held for sale (“LHFS”) was due to a significantly lower net interest margin year over year resulting from a flattening of the yield curve and the tightening of credit spreads.

·

The increase in net warehouse interest income from loans held for investment (“LHFI”) was due to a larger average balance of loans outstanding, as the Company’s principal lending and investing volume was a record in 2018 with few payoffs in the first half of 2019.

·

Escrow earnings and other interest income benefitted from an 8% increase in the average balance of escrow accounts outstanding from the second quarter of 2018 to the second quarter of 2019 due to the net increase in the servicing portfolio. 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 property sales broker fees was primarily the result of the increase in property sales volume year over year.

·

The increase in other revenues was principally due to an increase in prepayment fees.

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

(dollars in thousands)

 

Q2 2019

 

 

Q2 2018

 

$ Variance

 

% Variance

Personnel

$

84,398

 

$

71,426

 

$

12,972

 

18

%

Amortization and depreciation

 

37,381

 

 

35,489

 

 

1,892

 

 5

 

Provision for credit losses

 

961

 

 

800

 

 

161

 

20

 

Interest expense on corporate debt

 

3,777

 

 

2,343

 

 

1,434

 

61

 

Other operating expenses

 

16,830

 

 

15,176

 

 

1,654

 

11

 

Total expenses

$

143,347

 

$

125,234

 

$

18,113

 

14

%

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

 

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

42

%

 

40

%

 

 

 

 

 

Other operating expenses

 

 8

 

 

 9

 

 

 

 

 

 

 

Discussion of Results:

 

·

The growth in personnel expenses was largely the result of a 12% increase in average headcount and associated salaries and benefits as we continue to scale our business through strategic acquisitions and organic hiring and the substantial increase in commissions expense driven by greater total transaction volume and the associated revenues.

·

Amortization and depreciation increased due to the growth in the average balance of MSRs outstanding year over year.

·

An increase in the outstanding balance of our long-term debt was the primary driver of the increase in interest expense on corporate debt, partially offset by a lower interest rate. We refinanced and upsized our long-term debt in the fourth quarter of 2018.

·

The increase in other operating expenses stemmed primarily from increased office and travel costs due to the increase in our average headcount year over year and investments we are making in technology to improve the borrower experience and increase our employees’ productivity.

 

 

 

 

 

 

 

 

 

 

 

 

 

KEY PERFORMANCE METRICS

(dollars in thousands, except per share amounts)

 

Q2 2019

 

 

Q2 2018

 

$ Variance

 

% Variance

Walker & Dunlop net income

$

42,196

 

$

41,112

 

$

1,084

 

 3

%

Adjusted EBITDA

 

62,609

 

 

49,969

 

 

12,640

 

25

 

Diluted EPS

$

1.33

 

$

1.26

 

$

0.07

 

 6

%

Operating margin

 

28

%

 

30

%

 

 

 

 

 

Return on equity

 

18

 

 

20

 

 

 

 

 

 

 

Discussion of Results:

 

·

The increase in net income was the result of an 8% increase in income from operations, partially offset by an increase in the effective tax rate from 23% during the second quarter of 2018 to 26% for the second quarter of 2019. The increase in the effective tax rate was due to a reduction in excess tax benefits from employee stock option exercises and lower executive compensation deductions under the new tax laws.  

·

The increase in adjusted EBITDA was driven by increases in nearly all components of cash revenues, partially offset by increases in cash personnel expenses and other operating expenses.

·

The decrease in return on equity is primarily related to the year-over-year increase in stockholders’ equity, which grew at a higher rate than net income.

 

 

 

 

 

 

 

 

 

 

 

 

KEY CREDIT METRICS

(dollars in thousands)

 

Q2 2019

 

 

Q2 2018

 

$ Variance

 

% Variance

At risk servicing portfolio5

$

34,795,771

 

$

29,951,211

 

$

4,844,560

 

16

%

Maximum exposure to at risk portfolio6

 

7,118,314

 

 

6,165,096

 

 

953,218

 

15

 

Defaulted loans

$

20,981

 

$

5,962

 

$

15,019

 

252

%

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

 

 

 

 

 

 

 

 

 

 

 

Defaulted loans

 

0.06

%

 

0.02

%

 

 

 

 

 

Allowance for risk-sharing

 

0.02

 

 

0.01

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Allowance for risk-sharing

 

0.11

%

 

0.07

%

 

 

 

 

 

Allowance for risk-sharing and guaranty obligation

 

0.83

 

 

0.75

 

 

 

 

 

 

 

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 volume during the past 12 months. There was one defaulted loan in our at risk servicing portfolio at June 30, 2019, which defaulted and was provisioned for during the first quarter of 2019. No adjustments were made to that specific loan provision during the second quarter of 2019. All other loans in the at risk portfolio are current and performing as of June 30, 2019.

·

The on-balance sheet interim loan portfolio, which is comprised of loans for which the Company has full risk of loss, was $246.7 million at June 30, 2019 compared to $131.0 million at June 30, 2018. There was one defaulted loan in our interim loan portfolio at June 30, 2019, which defaulted and was provisioned for during the first quarter of 2019. In July 2019, a plan was agreed upon to recapitalize the project, bring in new property management, and extend the delinquent loan to allow the sponsor to correct weaknesses in the property. All other loans in the on-balance sheet interim loan portfolio are current and performing as of June 30, 2019. The interim loan joint venture holds $504.4 million of loans as of June 30, 2019, for which the Company indirectly shares in a small portion of the risk of loss. All loans in the interim loan joint venture are current and performing as of June 30, 2019.

YEAR-TO-DATE 2019 OPERATING RESULTS 

   

Total transaction volume for the six months ended June 30, 2019 was $13.2 billion, a 20% increase from the same period last year.  

   

Total revenues for the six months ended June 30, 2019 were $387.8 million compared to $325.7 million for the same period last year, a 19% increase. The change in total revenues was largely driven by (i) a 12% increase in gains from mortgage banking activities largely related to an increase in mortgage banking volume, (ii) an 8% increase in servicing fees related to growth in our servicing portfolio, (iii) a 73% increase in escrow earnings and other interest income resulting from an increase in escrow balances and the escrow earnings rate, (iv) a 216% increase in net warehouse interest income as a result of a substantially larger average balance of loans held for investment, and (v) 47% growth in other revenues due to increases in property sales broker fees, investment management fees, and prepayment fees.

 

   

Total expenses for the six months ended June 30, 2019 and 2018 were $274.7 million and $228.8 million, respectively. The 20% increase in total expenses was due to increases in all expense types. Personnel expense increased 23% year over year mostly due to increases in (i) salaries and benefits expenses resulting from a rise in average headcount due to the continued growth of our business,

(ii) commissions expense resulting from higher loan origination fees due to the growth in mortgage banking and property sales volumes, and (iii) bonus expense resulting from improved company financial performance year over year. Personnel expenses as a percentage of total revenues increased slightly from 39% in 2018 to 40% in 2019. Amortization and depreciation costs increased 9% due to an increase in the average balance of MSRs outstanding and an increase in write offs due to prepayments year over year. Provision for credit losses increased substantially year over year. In the first quarter of 2019, we experienced two defaults on loans for which we have credit risk: a $21.0 million loan in our at risk servicing portfolio and a $14.7 million loan in our interim lending portfolio.  The credit quality in the remainder of our at risk servicing and interim loan portfolios remain strong, as seen in the credit quality statistics shown in the Key Credit Metrics section above. Interest expense on corporate debt increased 64% as the balance of our long-term debt increased, partially offset by a decrease in the interest rate. Other operating expenses increased 15% largely due to increases in (i) office and travel expenses due to the increase in average headcount year over year, (ii) investments we are making in technology to improve the borrower experience and increase our employees’ productivity, and (iii) other professional expenses.

   

Operating margin for the six months ended June 30, 2019 and 2018 was 29% and 30%, respectively. The slight decrease in operating margin was due to a 20% increase in total expenses and a 19% increase in total revenues.

   

Net income for the six months ended June 30, 2019 was $86.4 million compared to net income of $78.0 million for the same period last year, an 11% increase. The increase in net income was the result of a 17% increase in income from operations, partially offset by an increase in the effective tax rate from 20% during the first half of 2018 to 24% for the first half of 2019. The increase in the effective tax rate was due to lower realizable excess tax benefits year over year due primarily to (i) a substantial reduction in the number of options exercised in the first half of 2019 compared to the same period in 2018 and (ii) lower executive compensation deductions in the first half of 2019 relative to the same period in 2018 as a result of the new tax laws.

   

For the six months ended June 30, 2019 and 2018, adjusted EBITDA was $129.3 million and $102.1 million, respectively. The 27% increase was driven by growth in origination fees, servicing fees, net warehouse interest income, escrow earnings and other interest income, and other revenues, partially offset by increases in personnel expense and other operating expenses.

  

For the six months ended June 30, 2019 and 2018, return on equity was 19%.

 

DIVIDENDS AND SHARE REPURCHASES

 

On August 6, 2019, our Board of Directors declared a dividend of $0.30 per share for the third quarter 2019. The dividend will be paid September 9, 2019 to all holders of record of our restricted and unrestricted common stock and restricted stock units as of August 23, 2019.

 

On February 5, 2019, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s outstanding common stock over a one-year period beginning February 11, 2019. During the second quarter of 2019, we repurchased 30 thousand shares of our common stock at a weighted average price of $51.88 per share.  We have $48.5 million of share repurchase capacity remaining under our 2019 share repurchase program. 

   

Purchases made pursuant to the 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.


The following information was filed by Walker Dunlop, Inc. (WD) on Wednesday, August 7, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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