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8-K - FORM 8-K - Walker & Dunlop, Inc.d44146d8k.htm

Exhibit 99.1

 

LOGO

Walker & Dunlop Reports Record Earnings Per Share

 

    Net income of $20.2 million, or $0.67 per diluted share, up 56% from Q2’14

 

    Record total revenues of $113.9 million, up 34% from Q2’14

 

    Adjusted EBITDA1 of $28.9 million, up 39% from Q2’14

 

    Loan origination volume of $3.5 billion, up 45% from Q2’14

 

    Servicing portfolio of $47.7 billion at June 30, 2015

Bethesda, MD – August 5, 2015 – Walker & Dunlop, Inc. (NYSE: WD) (the “Company”) reported today second quarter 2015 net income of $20.2 million, or $0.67 per diluted share, a 56% increase from second quarter 2014 net income of $12.9 million, or $0.40 per diluted share. Total revenues were $113.9 million for the second quarter 2015, a 34% increase over the second quarter 2014. Adjusted EBITDA for the second quarter 2015 was $28.9 million compared to $20.9 million for the second quarter 2014, a 39% increase.

“I would like to congratulate every member of the Walker & Dunlop team for generating record revenue and earnings per share during the second quarter of 2015,” commented Walker & Dunlop Chairman and CEO Willy Walker. “Our strong financial results are due to the fantastic group of professionals we have assembled and the market leadership position we have worked very hard to create. We continue to grow and gain market share, all while expanding our brand and expertise across the country.”

Investors in Walker & Dunlop own stock in a company that is generating strong top line revenue growth, record earnings per share, consistent cash flow, and long-term shareholder value by growing our loan servicing portfolio by 20% over the past year with no diminution to the average servicing fee nor average life of the portfolio,” continued Walker.

The investments we have made over the past several years to expand our footprint and product offering are showing strong results. We are in the midst of a mortgage refinancing cycle that is unprecedented. The volume of commercial mortgages originated in 2005, 2006, and 2007 had never been seen before, and the majority of that paper must be refinanced over the next several years. Walker & Dunlop has the platform, people, and market position to benefit tremendously from the need for commercial real estate financing.”


OPERATING RESULTS

TOTAL REVENUES were $113.9 million for the second quarter 2015 compared to $85.3 million for the second quarter 2014, a 34% increase. The increase was driven by the 45% increase in loan originations, which included a 44% increase in lending with Fannie Mae and Freddie Mac. Within the components of revenues, mortgage banking gains increased 34% to $70.0 million, servicing fees increased 17% to $28.1 million, net warehouse interest income increased 70% to $6.6 million and other revenues increased 100% to $8.1 million. The increase in other revenues was driven by fees earned on investment sales volume and $3.0 million in prepayment fee income received during the second quarter 2015, an increase of 73% from the second quarter 2014.

GAINS FROM MORTGAGE BANKING ACTIVITIES for the second quarter 2015 were $70.0 million compared to $52.2 million for the second quarter 2014, a 34% increase. This increase was primarily driven by the substantial growth in loan originations coupled with an increase in the weighted average servicing fee on Fannie Mae loans originated during the quarter. LOAN ORIGINATION FEES were $37.6 million for the second quarter 2015 compared to $29.5 million for the second quarter 2014, a 27% increase. GAINS ATTRIBUTABLE TO MORTGAGE SERVICING RIGHTS (“MSRs”) were $32.4 million for the second quarter 2015 compared to $22.7 million for the second quarter 2014, a 42% increase.

NET WAREHOUSE INTEREST INCOME, which includes interest earned on loans held for sale and our interim loan portfolio, was $6.6 million for the second quarter 2015, a 70% increase over $3.9 million for the second quarter 2014. The increase was driven by the growth in loans held for sale and loans in our interim loan portfolio during the quarter, which generated $4.3 million of interest income from loans held for sale and $2.3 million of interest income from our interim loan portfolio.

TOTAL EXPENSES were $81.3 million for the second quarter 2015 compared to total expenses of $64.4 million for the second quarter 2014, a 26% increase. The increase in total expenses was primarily due to an increase in personnel costs on the strength of our total transaction volume and financial performance, as well as an increase in amortization and depreciation expense resulting from the growth of our mortgage servicing portfolio. Personnel expense for the second quarter 2015 was $46.0 million, an increase of 35% from $34.1 million for the second quarter 2014. Fixed compensation costs have increased following the acquisitions of Johnson Capital and Engler Financial Group, and our variable compensation costs have increased due to greater commission and bonus expenses. Personnel expense as a percentage of total revenues, however, was unchanged from the second quarter 2014 at 40%.

OPERATING MARGIN was 29% for the second quarter 2015 which compared favorably to an operating margin of 25% for the second quarter 2014. The increase in operating margin was driven by the scale of our loan originations business, as total revenues grew 34% while total expenses grew only 26%.

ADJUSTED EBITDA was $28.9 million for the second quarter 2015 compared to $20.9 million for the second quarter 2014, a 39% increase. The increase was driven by significant growth in our cash earnings such as origination fees, servicing fees and net interest income, partially offset by the aforementioned increase in personnel expenses.

ANNUALIZED RETURN ON EQUITY was 20% for the second quarter 2015 compared to 14% for the second quarter 2014. In the second quarter 2015, return on equity benefitted from the increase in net income and the share repurchase which was completed at the end of the first quarter 2015.

 

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TOTAL TRANSACTION VOLUME

TOTAL TRANSACTION VOLUME was $3.8 billion, which includes loan origination volume and investment sales volume. Loan origination volume is comprised of Walker & Dunlop’s core lending and brokerage products, and investment sales volume reflects the sales volume closed by the Company’s new investment sales business.

LOAN ORIGINATION VOLUME was $3.5 billion for the second quarter 2015 compared to $2.4 billion for the second quarter 2014, a 45% increase. Loan originations with Fannie Mae and Freddie Mac were both $1.1 billion representing increases of 21% and 79% from the second quarter 2014, respectively. Brokered loan originations totaled $938.7 million, a 55% increase from the second quarter 2014. HUD loan originations totaled $150.2 million, a 5% decrease from the second quarter 2014. Interim loan originations totaled $106.5 million, a 62% increase from the second quarter 2014. Originations for the Company’s CMBS partnership were $34.7 million for the second quarter 2015 compared to zero for the same quarter last year.

INVESTMENT SALES VOLUME was $319.0 million for the second quarter 2015, its first quarter of operations on our platform.

SERVICING PORTFOLIO

The SERVICING PORTFOLIO totaled $47.7 billion at June 30, 2015, a 20% increase from $39.8 billion at June 30, 2014. During the preceding 12 months, $7.9 billion in net loans were added to the servicing portfolio, of which 83% are Fannie Mae and Freddie Mac loans. The portfolio maintained an average loan term of 10 years and a WEIGHTED AVERAGE SERVICING FEE of 24 basis points. SERVICING FEES were $28.1 million for the second quarter 2015 compared to $24.0 million for the second quarter 2014, a 17% increase, driven by the growth in the portfolio.

CREDIT QUALITY AND RISK-SHARING OBLIGATIONS

The Company’s AT RISK SERVICING PORTFOLIO, which is comprised of loans subject to a defined risk-sharing formula, was $18.4 billion at June 30, 2015 compared to $15.7 billion at June 30, 2014. The Company’s at risk servicing portfolio continues to demonstrate exceptional credit performance, as there were no 60+ DAY DELINQUENCIES at June 30, 2015 or 2014.

THE PROVISION FOR RISK-SHARING OBLIGATIONS associated with loans in the at risk servicing portfolio was $0.1 million for the second quarter 2015 compared to $0.4 million for the second quarter 2014. There were $0.8 million of NET WRITE-OFFS for the second quarter 2015 compared to $1.3 million for the second quarter 2014. Net write-offs represent the settlement of the Company’s guaranty obligations related to losses provisioned for in prior periods.

The on-balance sheet INTERIM LOAN PORTFOLIO, which is comprised of loans for which we have full risk of loss, was $317.3 million at June 30, 2015 compared to $194.3 million at June 30, 2014. Although all of our interim loans are current and performing, the Company provides a general reserve for potential losses. For the second quarter 2015, the provision for loan losses was $0.3 million compared to the second quarter 2014 benefit of $0.1 million.

ACQUISITION OF ENGLER FINANCIAL GROUP

On April 21, 2015, Walker & Dunlop completed its acquisition of 75% of certain assets and assumption of certain liabilities of Engler Financial Group, LLC (“EFG”). EFG is a real estate investment advisory and brokerage firm based in the Southeast serving the multifamily market. The overall purchase price was comprised primarily of cash. On the balance sheet, $1.4 million of the purchase price was allocated to the value of the pipeline of investment sales opportunities, with substantially all the remainder of the purchase price, or $15.7 million, recorded as goodwill.

 

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Because the Company only purchased 75% of the net assets, 25% of the goodwill relates to the interest retained by the sellers. The sellers’ interest, or $4.3 million, is presented on the balance sheet as noncontrolling interests. On the income statement, investment sales revenues are included in “Other” revenue, and personnel costs and the other general and administrative costs are presented in the corresponding line items. Noncontrolling interests on the income statement, which was $0.1 million for the second quarter 2015, represents the earnings of the joint venture retained by the sellers.

YEAR-TO-DATE RESULTS

TOTAL REVENUES for the six months ended June 30, 2015 were $226.0 million compared to $150.1 million for the same period last year, a 51% increase. The increase in total revenues was largely driven by a 97% increase in LOAN ORIGINATION VOLUME from $4.0 billion to $7.8 billion, which also contributed to a 64% increase in GAINS FROM MORTGAGE BANKING ACTIVITIES to $142.7 million. The increase in total revenues was also attributable to increases in servicing fees, as well as net interest income received on both loans held for sale and the interim loan portfolio.

TOTAL EXPENSES for the six months ended June 30, 2015 were $158.0 million compared to $117.3 million for the six months ended June 30, 2014, an increase of 35%. The increase in total expenses was due primarily to increased personnel expenses and amortization and depreciation costs. Personnel expenses have increased following our recent acquisitions and as a result of greater commissions and bonus expenses resulting from strong total transaction volume and financial performance. Personnel expenses as a percentage of total revenues for the six months ended June 30, 2015 were 38% compared to 39% for the same period last year. Amortization and depreciation increased $4.6 million due to increased amortization of the growing MSR portfolio, and an additional $5.1 million from the write-off of MSRs following early prepayment in the low interest rate environment.

OPERATING MARGIN for the six months ended June 30, 2015 was 30% compared to operating margin of 22% for the same period last year. Increased scale in our business year over year provided a lift to our operating margin, as revenues have grown 51% while expenses have increased only 35%.

NET INCOME for the six months ended June 30, 2015 was $41.5 million, or $1.32 per diluted share, compared to net income of $20.1 million, or $0.61 per diluted share, for the same period last year, a 107% increase.

ADJUSTED EBITDA was $64.3 million for the six months ended June 30, 2015 compared to $40.7 million for the same period last year, a 58% increase. The increase was driven by significant growth in our cash earnings such as origination fees, servicing fees and net interest income, partially offset by the aforementioned increase in personnel expenses.

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.”

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Wednesday, August 5, 2015 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) 424-1666 from outside the United States and are asked to reference the Conference ID: WDQ215. 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.

 

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A telephonic replay of the call will also be available from approximately 11:00 a.m. Eastern time August 5, 2015 through August 19, 2015. Please call (800) 723-0389 from the United States or (402) 220-2647 from outside the United States. 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 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 almost 500 professionals in 24 offices across the nation with an unyielding commitment to client satisfaction.

Non-GAAP Financial Measures

To supplement the financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company presents adjusted EBITDA. Adjusted EBITDA is not a recognized measurement under 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, depreciation and amortization, provision for credit losses, net of write-offs, stock based incentive compensation charges, and removes the benefit of 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. Since we find adjusted EBITDA to be useful, we believe that investors benefit from seeing results “through the eyes” of management in addition to seeing GAAP results. 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.

 

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Adjusted EBITDA is not in accordance with or an alternative for net income, and may be different from adjusted EBITDA measures used by other companies. 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. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income. We compensate for the limitations of this non-GAAP financial measure by relying upon GAAP results to gain a complete picture of our performance.

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 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 in our subsequent SEC filings. Such filings are available publicly on our Investor Relations web page at www.walkerdunlop.com.

Contacts:

 

Investors:

   Media:

Claire Harvey

   Susan Weber

Vice President, Investor Relations

   Senior Vice President, Marketing

Phone: 301/634-2143

   Phone: 301/215-5515

charvey@walkerdunlop.com

   sweber@walkerdunlop.com

 

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Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2015 and December 31, 2014

(In thousands, except per share data)

 

     June 30,      December 31,  
     2015      2014  
     (unaudited)         

Assets

     

Cash and cash equivalents

   $ 67,789      $ 113,354  

Restricted cash

     9,232        13,854  

Pledged securities, at fair value

     69,045        67,719  

Loans held for sale, at fair value

     883,336        1,072,116  

Loans held for investment, net

     314,737        223,059  

Servicing fees and other receivables, net

     29,290        23,234  

Derivative assets

     27,427        14,535  

Mortgage servicing rights

     395,020        375,907  

Goodwill and other intangible assets

     92,390        76,586  

Other assets

     23,268        29,026  
  

 

 

    

 

 

 

Total assets

   $ 1,911,534      $ 2,009,390  
  

 

 

    

 

 

 

Liabilities

     

Accounts payable and other liabilities

   $ 151,583      $ 145,141  

Performance deposits from borrowers

     8,663        13,668  

Derivative liabilities

     3,516        4,877  

Guaranty obligation, net of accumulated amortization

     27,140        24,975  

Allowance for risk-sharing obligations

     3,304        3,904  

Warehouse notes payable

     1,109,895        1,214,279  

Note payable

     164,627        169,095  
  

 

 

    

 

 

 

Total liabilities

   $ 1,468,728      $ 1,575,939  
  

 

 

    

 

 

 

Equity

     

Preferred shares, Authorized 50,000, none issued.

   $ —        $ —    

Common stock, $0.01 par value. Authorized 200,000; issued and outstanding 29,155 shares at June 30, 2015 and 31,822 shares at December 31, 2014

     291        318  

Additional paid-in capital

     206,862        224,164  

Retained earnings

     231,368        208,969  
  

 

 

    

 

 

 

Total stockholders’ equity

   $ 438,521      $ 433,451  
  

 

 

    

 

 

 

Noncontrolling interests

     4,285        —    
  

 

 

    

 

 

 

Total equity

   $ 442,806      $ 433,451  
  

 

 

    

 

 

 

Commitments and contingencies

     —          —    

Total liabilities and equity

   $ 1,911,534      $ 2,009,390  
  

 

 

    

 

 

 

 

 

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Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except per share data)

Unaudited

 

     For the three months ended
June 30,
     For the six months ended
June 30,
 
     2015      2014      2015      2014  

Revenues

           

Gains from mortgage banking activities

   $ 69,950      $ 52,241      $ 142,670      $ 86,827  

Servicing fees

     28,058        23,962        54,899        47,305  

Net warehouse interest income

     6,610        3,896        10,964        6,132  

Escrow earnings and other interest income

     1,170        1,120        1,957        2,195  

Other

     8,138        4,067        15,557        7,660  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 113,926      $ 85,286      $ 226,047      $ 150,119  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Personnel

   $ 45,993      $ 34,053      $ 86,038      $ 58,588  

Amortization and depreciation

     23,470        19,097        48,144        37,556  

Provision for credit losses

     398        279        482        108  

Interest expense on corporate debt

     2,472        2,621        4,949        5,194  

Other operating expenses

     8,951        8,305        18,386        15,832  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

   $ 81,284      $ 64,355      $ 157,999      $ 117,278  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

   $ 32,642      $ 20,931      $ 68,048      $ 32,841  

Income tax expense

     12,351        8,017        26,444        12,783  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income before noncontrolling interests

   $ 20,291      $ 12,914      $ 41,604      $ 20,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income from noncontrolling interests

     138        —          138        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Walker & Dunlop net income

   $ 20,153      $ 12,914      $ 41,466      $ 20,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.69       $ 0.41       $ 1.37       $ 0.61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.67       $ 0.40       $ 1.32       $ 0.61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average shares outstanding

     29,057        31,711         30,279         32,624   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average shares outstanding

     30,239        31,951         31,344         32,897   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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SUPPLEMENTAL OPERATING DATA

 

     For the three months
ended June 30,
    For the six months
ended June 30,
 
(dollars in thousands )    2015     2014     2015     2014  

Loan Origination Volume:

        

Fannie Mae

   $ 1,138,334     $ 942,504     $ 2,500,998     $ 1,401,785  

Freddie Mac

     1,099,830       613,347       3,095,832       981,784  

Ginnie Mae - HUD

     150,171       157,251       307,120       415,034  

Brokered (1)

     938,725       606,507       1,698,988       1,022,332  

Interim Loans

     106,525       65,805       114,945       147,055  

CMBS (2)

     34,685       —         98,785       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Loan Origination Volume

   $ 3,468,270     $ 2,385,414     $ 7,816,668     $ 3,967,990  
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment Sales Volume

     319,035       —         319,035       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Transaction Volume

   $ 3,787,305     $ 2,385,414     $ 8,135,703     $ 3,967,990  
  

 

 

   

 

 

   

 

 

   

 

 

 

Key Performance Metrics:

        

Operating margin

     29     25     30     22

Return on equity

     20     14     19     10

Walker & Dunlop net income

   $ 20,153      $ 12,914      $ 41,466      $ 20,058   

Adjusted EBITDA (3)

   $ 28,856      $ 20,921      $ 64,264      $ 40,714   

Diluted EPS

   $ 0.67      $ 0.40      $ 1.32      $ 0.61   

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

        

Personnel expenses

     40     40     38     39

Other operating expenses

     8     10     8     11

Key Origination Metrics (as a percentage of origination volume):

        

Origination related fees

     1.08     1.24     1.01     1.26

Fair value of MSRs created, net

     0.93     0.95     0.81     0.92

Fair value of MSRs created, net as a percentage of GSE and HUD origination volume (4)

     1.35     1.33     1.08     1.31

 

     As of June 30,  
Servicing Portfolio by Product:    2015     2014  

Fannie Mae

   $ 21,826,463     $ 19,524,654  

Freddie Mac

     15,186,774       10,922,884  

Ginnie Mae - HUD

     5,941,152       5,012,368  

Brokered (1)

     4,166,257       4,139,507  

Interim Loans

     317,343       194,320  

CMBS (5)

     275,750       —    
  

 

 

   

 

 

 

Total Servicing Portfolio

   $ 47,713,739     $ 39,793,733  
  

 

 

   

 

 

 

Key Servicing Metric (end of period):

    

Weighted-average servicing fee rate

     0.24     0.24

 

(1) Brokered transactions for commercial mortgage backed securities, life insurance companies, and commercial banks.
(2) Brokered transactions for the CMBS Partnership. For the six months ended June 30, 2015, the CMBS Partnership’s loan originations totaled $160.1 million.
(3) This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section above titled “Non-GAAP Financial Measures.”
(4) 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 GSE and HUD volume. No MSRs are recorded for “brokered” transactions or Interim Program originations.
(5) All loans originated by the CMBS Partnership, whether brokered by us or not, are serviced by us.

 

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ADJUSTED FINANCIAL METRIC RECONCILIATION TO GAAP

Unaudited

 

     For the three months ended
June 30,
    For the six months ended
June 30,
 
(in thousands)    2015     2014     2015     2014  

Reconciliation of Net Income to Adjusted EBITDA

        

Walker & Dunlop Net Income

   $ 20,153      $ 12,914      $ 41,466      $ 20,058   

Recurring Adjustments:

        

Income tax expense

     12,351        8,017        26,444        12,783   

Interest expense

     2,472        2,621        4,949        5,194   

Amortization and depreciation

     23,470        19,097        48,144        37,556   

Provision for credit losses

     398        279        482        108   

Net write-offs

     (808     (1,264     (808     (2,625

Stock compensation expense

     3,178        2,003        7,262        4,274   

Gains attributable to mortgage servicing rights (1)

     (32,358     (22,746     (63,675     (36,634
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 28,856      $ 20,921      $ 64,264      $ 40,714   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): Represents the fair value of the expected net cash flows from servicing recognized at commitment, net of the expected guaranty obligation.

 

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Key Credit Metrics

Unaudited

 

     As of and for the three months
ended June 30,
    As of and for the six months
ended June 30,
 
(Dollars in thousands)    2015     2014     2015     2014  

Key Credit Metrics

        

Risk-sharing servicing portfolio:

        

Fannie Mae Full Risk

   $ 15,976,417     $ 13,629,747     $ 15,976,417     $ 13,629,747  

Fannie Mae Modified Risk

     4,956,854       4,392,372       4,956,854       4,392,372  

Freddie Mac Modified Risk

     53,619       53,752       53,619       53,752  

GNMA-HUD Full Risk

     4,658       4,797       4,658       4,797  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total risk-sharing servicing portfolio

   $ 20,991,548     $ 18,080,668     $ 20,991,548     $ 18,080,668  

Non risk-sharing servicing portfolio:

        

Fannie Mae No Risk

   $ 893,192     $ 1,502,535     $ 893,192     $ 1,502,535  

Freddie Mac No Risk

     15,133,155       10,869,132       15,133,155       10,869,132  

GNMA-HUD No Risk

     5,936,494       5,007,571       5,936,494       5,007,571  

Brokered

     4,166,257       4,139,507       4,166,257       4,139,507  

CMBS

     275,750       —         275,750       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non risk-sharing servicing portfolio

   $ 26,404,848     $ 21,518,745     $ 26,404,848     $ 21,518,745  

Total loans serviced for others

   $ 47,396,396     $ 39,599,413     $ 47,396,396     $ 39,599,413  

Interim loans (full risk) servicing portfolio

   $ 317,343     $ 194,320     $ 317,343     $ 194,320  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total servicing portfolio unpaid principal balance

   $ 47,713,739     $ 39,793,733     $ 47,713,739     $ 39,793,733  
  

 

 

   

 

 

   

 

 

   

 

 

 

At risk servicing portfolio (1)

   $ 18,442,415     $ 15,698,224     $ 18,442,415     $ 15,698,224  

Maximum exposure to at risk portfolio (2)

     4,332,963       3,735,832       4,332,963       3,735,832  

60+ Day delinquencies, within at risk portfolio

     —         —         —         —    

At risk loan balances associated with allowance for risk-sharing obligations

   $ 16,884     $ 40,381     $ 16,884     $ 40,381  

Allowance for risk-sharing obligations:

        

Beginning balance

   $ 4,054     $ 5,662     $ 3,904     $ 7,363  

Provision for risk-sharing obligations

     58       408       208       68  

Net write-offs

     (808 )     (1,264 )     (808 )     (2,625 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,304     $ 4,806     $ 3,304     $ 4,806  
  

 

 

   

 

 

   

 

 

   

 

 

 

60+ Day delinquencies as a percentage of the at risk portfolio

     0.00     0.00     0.00     0.00

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

     0.02     0.03     0.02     0.03

Net write-offs as a percentage of the at risk portfolio

     0.00     0.01     0.00     0.02

Allowance for risk-sharing as a percentage of the specifically identified at risk balances

     19.57     11.90     19.57     11.90

Allowance for risk-sharing as a percentage of maximum exposure

     0.08     0.13     0.08     0.13

Allowance for risk-sharing and guaranty obligation as a percentage of maximum exposure

     0.70     0.75     0.70     0.75

 

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(1) 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 an immaterial balance of Freddie Mac and GNMA-HUD 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% DUS 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% DUS risk-sharing was to default, the Company 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, all but three of the Company’s risk-sharing obligations that we have settled have been from full risk-sharing loans.

 

(2) 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.

 

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