Walker & Dunlop Revenues Increase 11% to $281 Million as Services Businesses Expand Dramatically

BETHESDA, Md., Aug. 5, 2021 /PRNewswire/ --

SECOND QUARTER 2021 HIGHLIGHTS

• Total transaction volume of $13.5 billion, up 90% from Q2'20
• Total revenues of $281.4 million, up 11% from Q2'20
• Net income of $56.1 million and diluted earnings per share of $1.73, down 10% and 11%, respectively, from Q2'20
• Adjusted EBITDA¹ of $66.5 million, up 37% from Q2'20
• Servicing portfolio of $112.3 billion at June 30, 2021, up 12% from June 30, 2020
• Benefit for credit losses of $4.3 million resulted in a $0.10 benefit to diluted earnings per share
• Declared quarterly dividend of $0.50 per share for the third quarter

YEAR-TO-DATE 2021 HIGHLIGHTS

• Total transaction volume of $22.6 billion, up 22% from 2020
• Total revenues of $505.7 million, up 4% from 2020
• Net income of $114.1 million and diluted earnings per share of $3.52, up 4% and 2%, respectively, from 2020
• Adjusted EBITDA¹ of $127.2 million, up 13% from 2020

Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported second quarter 2021 total revenues of $281.4 million, an increase of 11% year over year. Net income for the second quarter of 2021 was $56.1 million, or $1.73 per diluted share, down 10% and 11%, respectively, from the second quarter of 2020. Second quarter total transaction volume of $13.5 billion was up 90% from the second quarter of 2020, driven by record volumes of brokered debt and property sales, which increased 320% and 648%, respectively. Second quarter 2021 adjusted EBITDA¹ was $66.5 million, up 37% over the same period in 2020. The Company held $326.5 million of cash and cash equivalents as of June 30, 2021.

Willy Walker, Chairman and CEO, commented, "We generated total revenues of $281 million, up 11% from the second quarter of 2020, with a dramatic increase in the cash component of our revenues due to record debt brokerage and property sales volumes in the quarter. As a result, adjusted EBITDA was up 37% year-over year to $67 million."

Mr. Walker continued, "The investments we are making to hire the very best people, expand our brand, and apply innovative technology to our business are resulting in broader capabilities at Walker & Dunlop, reflected in the 90% increase in transaction volume in Q2. These investments in people, brand and technology are transforming our business from a mortgage-focused specialty finance company into a technology-enabled real estate services firm that executes and delivers capital solutions better, faster, and cheaper. As the fourth largest lender on commercial real estate in the United States, yet with only 1,100 employees, W&D is uniquely positioned to combine our people, brand and technology to scale our lending and services businesses into new markets, as we are doing today in small balance lending and appraisals, and accelerate our growth."

SECOND QUARTER 2021 OPERATING RESULTS

Discussion of Results:

• Agency debt financing volumes decreased by 31% in the second quarter of 2021 compared to the second quarter of 2020, driven by a decline in the overall lending volumes of Fannie Mae and Freddie Mac. Our year to date GSE market share has remained strong at 11%. HUD debt financing volume increased 5% from the prior year as the HUD product continues to be a favorable source of financing for multifamily properties, and our team continues to execute well for our clients.
• The increase in brokered loan originations to a quarterly record reflects the growth in our team of mortgage bankers, low demand in the second quarter of 2020 due to the pandemic, continued market demand from private capital providers and strong deal flow from our customers.
• The significant increase in principal lending and investing volume, which includes interim loans, originations for WDIP separate accounts, and joint venture interim lending, was primarily due to a year-over-year increase in loans originated for our interim loan program and our interim lending joint venture as we paused our interim lending operations in the second quarter of 2020 due to the pandemic.
• Property sales volume increased 648% in the second quarter of 2021 due to an extremely active multifamily acquisitions market, low demand in the second quarter of 2020 due to the pandemic, and the strong growth in our investment sales team, including additions of brokers in seven strategic markets over the past twelve months.

Discussion of Results:

• Our servicing portfolio continues to experience impressive growth due to our significant Agency debt financing volumes and limited maturities and prepayments over the past year.
• During the second quarter of 2021, we added $2.4 billion of net loans to our servicing portfolio, and over the past 12 months, we added $12.3 billion of net loans to our servicing portfolio, 86% of which were Fannie Mae and Freddie Mac loans.
• Only $6.8 billion of Agency loans in our servicing portfolio, with a weighted-average servicing fee of 18.5 basis points, are scheduled to mature over the next two years.
• The increase in the weighted-average servicing fee was primarily due to an increase in Fannie Mae loans as a percentage of the overall servicing portfolio year over year, coupled with a higher weighted-average servicing fee on Fannie Mae debt financing volumes over the past year.
• We added net mortgage servicing rights ("MSRs") from originations of $5.6 million in the quarter and $137.3 million over the past 12 months.
• The MSRs associated with our servicing portfolio had a fair value of $1.2 billion as of June 30, 2021, compared to $959.0 million as of June 30, 2020.
• Assets under management ("AUM") as of June 30, 2021 consisted of $1.2 billion of loans and funds managed by WDIP and $629.5 million of loans in our interim lending joint venture. The year-over-year decrease in AUM is principally related to an $73.3 million portfolio of loans that we directly serviced for our interim JV partner that matured in the second quarter of 2021.

Discussion of Results:

• The increase in loan origination and debt brokerage fees, net was driven by the substantial increase in overall debt financing volume, partially offset by the slight decrease in the origination fee margin as shown above.
• The decrease in MSR income was primarily related to the decrease in Agency debt financing volume year over year.
• The increase in brokered loan originations led to decreases in our origination fee and MSR margins in the second quarter of 2021. The slight decrease in Agency MSR margin was a result of a decrease in Fannie Mae debt financing volume.
• The $12.3 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, combined with the significant increase 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 59% decrease in the average balance of LHFS outstanding, partially offset by a 12% increase in the net spread.
• The decrease in net warehouse interest income from loans held for investment ("LHFI") was primarily due to a 28% lower average balance of loans outstanding.
• Escrow earnings and other interest income decreased primarily due to a significant year-over-year decrease in short-term interest rates, upon which our earnings rates are based, partially offset by an increase in the average balance of escrow accounts.
• The increase in property sales broker fees was driven by the significant increase in property sales volume year over year.
• Other revenues increased principally due to increases in investment management fees.

Discussion of Results:

• The increase in personnel expenses was primarily the result of increased commissions expense due to the increase in loan origination and debt brokerage fees, net and property sales revenues during the second quarter of 2021. In addition, strategic acquisitions and hiring initiatives contributed to a 19% increase in average headcount and associated salaries and benefits.
• Amortization and depreciation increased as a result of the growth in the average balance of MSRs outstanding year over year.
• The benefit for credit losses in the second quarter is related to the allowance for risk-sharing obligations. The loss rate used for the forecast period decreased to three basis points as of June 30, 2021 from four basis points as of March 31, 2021 due to further improvements in unemployment rates, resulting in a reduction in the allowance for risk-sharing obligations, with a corresponding benefit for credit losses. In 2020, the loss rate used for the forecasted period remained constant from March 31, 2020 to June 30, 2020, resulting in a small provision for credit losses from the growth of the at-risk servicing portfolio.
• The increase in other operating expenses was largely attributable to increases in travel and entertainment, professional fees, and miscellaneous expenses, all of which are attributable to the overall growth of the Company over the past year and low costs in these areas in the second quarter of 2020 due to the pandemic.

Discussion of Results:

• The decrease in net income was the result of an 11% decrease in income from operations, as total expenses increased at a higher rate than total revenues year over year, partially offset by a lower effective income tax rate due to an increase in excess tax benefits recognized year over year due to a significant number of options exercised during the second quarter of 2021.
• Adjusted EBITDA increased year over year largely due to higher loan origination and debt brokerage fees, net, servicing fees, and property sales revenues. These increases were partially offset by the increases in personnel expense and other operating expenses and the decrease in warehouse interest 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 June 30, 2021, there were two defaulted loans that were provisioned for in 2019. Both properties have been foreclosed on and final settlement of any losses will occur in the future upon disposition of the assets by Fannie Mae.
• The on-balance sheet interim loan portfolio, which is comprised of loans that we have full risk of loss, was $276.7 million at June 30, 2021 compared to $336.5 million at June 30, 2020. There was one defaulted loan in our interim loan portfolio at June 30, 2021, which defaulted and was provisioned for in prior years. All other loans in the on-balance sheet interim loan portfolio are current and performing as of June 30, 2021. The interim loan joint venture holds $629.5 million of loans as of June 30, 2021, for which we indirectly share in a small portion of the risk of loss, compared to $624.1 million as of June 30, 2020. All loans in the interim loan joint venture are current and performing as of June 30, 2021.

YEAR-TO-DATE 2021 OPERATING RESULTS

Discussion of Results:

The 4% increase in total revenues was largely driven by:

Significant Increases

• Loan origination and debt brokerage fees, net (19%), primarily from the overall increase in debt financing volume
• Servicing fees (20%) related to growth in our servicing portfolio and the weighted-average servicing fee of the portfolio
• Property sales broker fees (139%), due to the increase in property sales volume
• Other revenues (11%), mostly from investment management fees

Significant Decreases (partially offsetting the increases noted above)

• MSR income (24%), largely the result of a decrease in Fannie Mae debt financing volume
• Warehouse interest income (38%), due to decreases in LHFS and LHFI outstanding and net spreads
• Escrow earnings and other interest income (71%), primarily from a substantial year-over-year decline in short-term interest rates, partially offset by an increase in the average balance of escrow accounts outstanding

The 4% increase in total expenses was primarily driven by:

Significant Increases

• Personnel expense (21%), primarily due to (i) higher commissions expense resulting from higher loan origination and debt brokerage fees, net and property sales revenues, and (ii) increased salaries and benefits expenses resulting from a rise in average headcount due to strategic acquisitions and hiring initiatives
• Amortization and depreciation costs (16%), largely due to an increase in the average balance of MSRs outstanding year over year
• Other operating expenses (20%), primarily resulting from increases in travel and entertainment, professional fees, and miscellaneous expenses, all of which are primarily attributable to the overall growth of the Company over the past year and low costs in these areas in 2020 due to the pandemic

Significant Decreases (partially offsetting the increases noted above)

• Benefit for credit losses (155%), primarily due to a decrease in the loss rate used for the forecast period to three basis points as of June 30, 2021 from six basis points as of December 31, 2020 due to forecasted low unemployment rates, resulting in a significant benefit for credit losses for the six months ended June 30, 2021. For the six months ended June 30, 2020, the loss rate used for the forecast period increased from one basis point at the beginning of the year to seven basis points as of June 30, 2020 due to the pandemic, resulting in a large provision for credit losses

Net income for the six months ended June 30, 2021 and 2020 was $114.1 million and $109.9 million, respectively. The 4% increase in net income was primarily a result of a 3% increase in income from operations, combined with a lower effective tax rate due to increased excess tax benefits recognized year over year.

Adjusted EBITDA for the six months ended June 30, 2021 and 2020 was $127.2 million and $112.5 million, respectively. The 13% increase was largely driven by the increases in loan origination and debt brokerage fees, net, servicing fees and property sales revenues, partially offset by the decreases in escrow earnings and other interest income and warehouse interest income and the increases in personnel expenses and other operating expenses.

Operating margin for the six months ended June 30, 2021 and 2020 was 29% and 30%, respectively. The slight decrease in operating margin was due to the increase in total expenses outpacing the growth in total revenues year over year.     

DIVIDENDS AND SHARE REPURCHASES

On August 4, 2021, our Board of Directors declared a dividend of $0.50 per share for the third quarter of 2021. The dividend will be paid on September 3, 2021 to all holders of record of our restricted and unrestricted common stock as of August 19, 2021.

On February 3, 2021, our Board of Directors authorized the repurchase of up to $75 million of our outstanding common stock over a  one-year period ("2021 Share Repurchase Program"). We have not repurchased any shares of common stock under the share repurchase program.

Any future purchases made pursuant to the 2021 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.

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Thursday, August 5, 2021 at 8:30 a.m. Eastern time. Listeners can access the webcast via the link: https://walkerdunlop.zoom.us/webinar/register/WN_GUUdAlHzQAK02TFYgzWoew or by dialing +1 408 901 0584, Webinar ID 997 6568 1703, Password 625376. Presentation materials related to the conference call will be posted to the Investor Relations section of the Company's website prior to the call. An audio replay will also be available on the Investor Relations section of the Company's website, along with the presentation materials.

About Walker & Dunlop

Walker & Dunlop (NYSE: WD) is the largest provider of capital to the multifamily industry in the United States and the fourth largest lender on all commercial real estate including industrial, office, retail, and hospitality. Walker & Dunlop enables real estate owners and operators to bring their visions of communities — where Americans live, work, shop, and play — to life. The power of our people, premier brand, and industry-leading technology enables us to meet any client need – including financing, research, property sales, valuation, and advisory services. With over 1,000 employees across every major U.S. market, Walker & Dunlop has consistently been named one of Fortune's Great Places to Work® and is committed to making the commercial real estate industry more inclusive and diverse while creating meaningful social, environmental, and economic change in our communities.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with United States generally accepted accounting principles ("GAAP"), the Company uses adjusted EBITDA, a non-GAAP financial measure. The presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. When analyzing our operating performance, readers should use adjusted EBITDA in addition to, and not as an alternative for, net income. Adjusted EBITDA represents net income before income taxes, interest expense on our term loan facility, and amortization and depreciation, adjusted for provision (benefit) for credit losses net of write-offs, stock-based incentive compensation charges, and the fair value of expected net cash flows from servicing, net. Because not all companies use identical calculations, our presentation of adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, adjusted EBITDA is not intended to be a measure of free cash flow for our management's discretionary use, as it does not reflect certain cash requirements such as tax and debt service payments. The amounts shown for adjusted EBITDA may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges that are used to determine compliance with financial covenants.

We use adjusted EBITDA to evaluate the operating performance of our business, for comparison with forecasts and strategic plans and for benchmarking performance externally against competitors. We believe that this non-GAAP measure, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering:

• the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;
• the ability to better identify trends in the Company's underlying business and perform related trend analyses; and
• a better understanding of how management plans and measures the Company's underlying business.

We believe that adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that adjusted EBITDA should only be used to evaluate the Company's results of operations in conjunction with net income. For more information on adjusted EBITDA, refer to the section of this press release below titled "Adjusted Financial Metric Reconciliation to GAAP."

Forward-Looking Statements

Some of the statements contained in this press release

may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.

The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement.

While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to: (1) general economic conditions and multifamily and commercial real estate market conditions, (2) regulatory and/or legislative changes to Freddie Mac, Fannie Mae or HUD, (3) our ability to retain and attract loan originators and other professionals, and (4) changes in federal government fiscal and monetary policies, including any constraints or cuts in federal funds allocated to HUD for loan originations.

For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see the section titled "Risk Factors" in our most recent Annual Report on Form 10-K and any updates or supplements in subsequent Quarterly Reports on Form 10-Q and our other filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.walkerdunlop.com.