Walker & Dunlop Q4 Revenues up 61% to $350 Million and Net Income up 94% to $83 Million

Rhea-AI Summary

Walker & Dunlop reported strong Q4 2020 results with revenues of $349.7 million, up 61% YoY, and a net income of $83.1 million, reflecting a 94% increase. The total transaction volume rose to $14.2 billion, a 45% YoY increase. The servicing portfolio reached $107.2 billion, up 15% from Q4 2019. For the full year, revenues exceeded $1.1 billion, a 33% increase, and net income grew 42% to $246.2 million. The Board approved a 39% dividend increase to $0.50 per share.

Positive

• 61% increase in Q4 revenues to $349.7 million.
• Q4 net income rose 94% to $83.1 million.
• Total transaction volume increased 45% YoY to $14.2 billion.
• Full-year revenues over $1.1 billion, up 33% from 2019.
• 39% dividend increase to $0.50 per share.

Negative

• Adjusted EBITDA declined by 9% YoY to $58.2 million.
• Personnel expenses rose 63% YoY.

BETHESDA, Md., Feb. 4, 2021 /PRNewswire/ --

FOURTH QUARTER 2020 HIGHLIGHTS

• Total revenues of $349.7 million, up 61% from Q4'19
• Total transaction volume of $14.2 billion, up 45% from Q4'19
• Net income of $83.1 million, up 94% from Q4'19 and diluted earnings per share of $2.59, up 93% from Q4'19
• Servicing portfolio of $107.2 billion at December 31, 2020, up 15% from December 31, 2019
• Increased quarterly dividend by 39% to $0.50 per share

FULL-YEAR 2020 HIGHLIGHTS

• Record total revenues of $1.1 billion, up 33% from 2019
• Total transaction volume of $41.1 billion, up 29% from 2019
• Net income of $246.2 million, up 42% from 2019 and diluted earnings per share of $7.69, up 41% from 2019

Walker & Dunlop, Inc. (NYSE: WD) (the "Company") reported fourth quarter 2020 total revenues of $349.7 million, an increase of 61% over the fourth quarter of 2019. Net income for the fourth quarter of 2020 was $83.1 million, or $2.59 per diluted share, up 94% and 93%, respectively, from the fourth quarter of 2019. Fourth quarter 2020 adjusted EBITDA⁽¹⁾ was $58.2 million, down 9% over the same period in 2019. Fourth quarter total transaction volume increased 45% from the fourth quarter of 2019 to $14.2 billion, with debt financing and property sales volume up 45% and 44%, respectively. The Company's Board of Directors authorized an increase in the quarterly dividend by 39% to $0.50 per share.

Willy Walker, Chairman and CEO commented, "Our fourth-quarter financial performance was exceptional, closing out a transformative year for Walker & Dunlop, with our people, brand, and technology coming together to produce fantastic results for our clients and shareholders. These same growth drivers also contributed to our success in capturing new clients and loans to the company – in 2020, 66% of the loans we refinanced were new to Walker & Dunlop, and 23% of our total transaction volume was with new clients who had never worked with us before. Further, we ended the year with record volumes across the board, generating total debt financing and property sales volume of $41.1 billion, up 29% from 2019, which pushed annual total revenues to $1.1 billion, exceeding the target we established in 2015 to double revenues in five years. All of these achievements during the year contributed to record diluted earnings per share of $7.69, up 41% over 2019."

Mr. Walker continued, "Despite the many challenges that 2020 presented, our team continued to deliver for our clients, our communities, and one another every single day. As we move into 2021 and focus on our new five-year growth plan, the Drive to '25, we will continue to attract top talent to the platform, expand our brand through innovative marketing solutions, and use technology to be more insightful to clients, all helping us in our pursuit to become the premier commercial real estate finance company in the United States."

FOURTH QUARTER 2020 OPERATING RESULTS

TRANSACTION VOLUMES
(dollars in thousands)			Q4 2020			Q4 2019		$ Variance			% Variance
Fannie Mae		$	3,891,649		$	1,692,839		$	2,198,810		130	%
Freddie Mac			2,685,359			1,526,321			1,159,038		76
Ginnie Mae - HUD			844,221			197,350			646,871		328
Brokered			3,768,689			3,884,101			(115,412)		(3)
Principal Lending and Investing (2)			152,831			532,434			(379,603)		(71)
Debt financing volume		$	11,342,749		$	7,833,045		$	3,509,704		45	%
Property sales volume			2,846,276			1,979,010			867,266		44
Total transaction volume		$	14,189,025		$	9,812,055		$	4,376,970		45	%

Discussion of Results:

• Agency volumes increased by 117% in the fourth quarter of 2020 compared to the fourth quarter of 2019, reflecting continued strong demand for multifamily assets by commercial real estate investors, and the Company's investments in people, brand and technology.
• Brokered volume was down slightly in the fourth quarter of 2020 compared to the fourth quarter of 2019 but has increased significantly from the second and third quarters of 2020. Although private capital providers continue to be cautious as a result of the market uncertainty related to the COVID-19 pandemic, financing on asset classes outside of multifamily and industrial picked up in the quarter compared to earlier in the year.
• Property sales volume grew year over year due to the strong growth in our investment sales business and an overall healthy multifamily acquisitions market.

MANAGED PORTFOLIO
(dollars in thousands)			Q4 2020			Q4 2019		$ Variance			% Variance
Fannie Mae		$	48,818,185		$	40,049,095		$	8,769,090		22	%
Freddie Mac			37,072,587			32,583,842			4,488,745		14
Ginnie Mae - HUD			9,606,506			9,972,989			(366,483)		(4)
Brokered			11,419,372			10,151,120			1,268,252		12
Principal Lending and Investing			295,322			468,123			(172,801)		(37)
Total servicing portfolio		$	107,211,972		$	93,225,169		$	13,986,803		15	%
Assets under management			1,816,421			1,958,078			(141,657)		(7)
Total Managed Portfolio		$	109,028,393		$	95,183,247		$	13,845,146		15	%
Weighted-average servicing fee rate (basis points)			24.0			23.2
Weighted-average remaining servicing portfolio term (years)			9.4			9.6

Discussion of Results:

• Our servicing portfolio continues to experience steady growth due to our significant Agency debt financing volumes and relatively few maturities and prepayments over the past year.
• During the fourth quarter of 2020, we added $3.8 billion of net loans to our servicing portfolio, and over the past 12 months, we added $14.0 billion of net loans to our servicing portfolio, 95% of which were Fannie Mae and Freddie Mac loans.
• Only $5.1 billion of Agency loans in our servicing portfolio, with a weighted-average servicing fee of 22.4 basis points, are scheduled to mature over the next two years.
• The increase in the weighted-average servicing fee was due primarily to an increase in Fannie Mae loans as a percentage of the overall servicing portfolio year over year.
• We added net mortgage servicing rights ("MSRs") from originations of $57.2 million in the quarter and $144.0 million over the past 12 months.
• The MSRs associated with our servicing portfolio had a fair value of $1.1 billion as of December 31, 2020, compared to $910.5 million as of December 31, 2019.
• Assets under management ("AUM") as of December 31, 2020 primarily consisted of $1.3 billion of loans and funds managed by WDIP and $558.1 million of loans in our interim lending joint venture. The year over year decrease in AUM is principally related to payoffs outpacing originations in our interim lending joint venture partially offset by WDIP's fundraising activity over the past 12 months.

REVENUES
(dollars in thousands)			Q4 2020			Q4 2019		$ Variance			% Variance
Loan origination and debt brokerage fees, net		$	120,956		$	69,921		$	51,035		73	%
Fair value of expected net cash flows from servicing, net ("MSR income")			121,566			47,771			73,795		154
Servicing fees			63,240			55,126			8,114		15
Net warehouse interest income, LHFS			5,261			769			4,492		584
Net warehouse interest income, LHFI			1,611			5,326			(3,715)		(70)
Escrow earnings and other interest income			2,566			12,988			(10,422)		(80)
Property sales broker fees			18,180			11,065			7,115		64
Other revenues			16,329			14,224			2,105		15
Total revenues		$	349,709		$	217,190		$	132,519		61	%
Key revenue metrics (as a percentage of debt financing volume):
Origination related fees (3)			1.08	%		0.93	%
MSR income (3)			1.09			0.65
MSR income - Agency loans (4)			1.64			1.40

Discussion of Results:

• The increase in loan origination and debt brokerage fees was driven by the 45% increase in overall debt financing volume and an increase in the volume of Agency loans as a percentage of overall debt financing volume.
• An increase in the volume of Fannie Mae loans as a percentage of Agency debt financing volumes, coupled with increases in the weighted average servicing fee on Fannie Mae loans led to the increase in MSR income from Agency loans as a percentage of debt financing volume.
• The $14.0 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, coupled with the increase in the servicing portfolio's weighted-average servicing fee.
• The increase in net warehouse interest income from loans held for sale ("LHFS") was due to a 131% increase in the average balance of LHFS outstanding and an increase in the net spread from 30 basis points in 2019 to 89 basis points in 2020 as the rate on mortgage loans from which we receive interest income declined at a slower rate than the short-term interest rates we pay for our warehouse borrowings.
• The decrease in net warehouse interest income from loans held for investment ("LHFI") was due to a smaller average balance of loans outstanding and a substantial decrease in the net spread. During 2019, the Company held a larger balance of loans that were fully funded with corporate cash, resulting in an overall higher net spread. During 2020, a much smaller balance of loans was fully funded with corporate cash.
• Escrow earnings and other interest income decreased due to a substantial year over year decrease in short-term interest rates, upon which our earnings rates are based.
• The increase in property sales broker fees was driven by the increase in property sales volume year over year.

EXPENSES
(dollars in thousands)			Q4 2020			Q4 2019		$ Variance			% Variance
Personnel		$	157,826		$	97,082		$	60,744		63	%
Amortization and depreciation			45,013			39,552			5,461		14
Provision (benefit) for credit losses			5,450			4,409			1,041		24
Interest expense on corporate debt			1,826			3,292			(1,466)		(45)
Other operating expenses			22,258			14,881			7,377		50
Total expenses		$	232,373		$	159,216		$	73,157		46	%
Key expense metrics (as a percentage of total revenues):
Personnel expenses			45	%		45	%
Other operating expenses			6			7

Discussion of Results:

• The increase in personnel expenses was largely the result of (i) an increase in commissions expense driven by the increase in loan origination and debt brokerage fees, (ii) an increase in the annual bonus expense driven by our record financial performance, and (iii) an increase in salaries and benefits resulting from an increase in average headcount as we continue to scale our business through strategic acquisitions and organic hiring.
• Amortization and depreciation increased primarily due to growth in the average balance of MSRs outstanding year over year.
• The increase in provision for credit losses in the fourth quarter of 2020 was primarily a result of the implementation of the current expected credit loss ("CECL") accounting standard in the first quarter of 2020, where the allowances are calculated based on an expected lifetime credit loss methodology as compared to the incurred loss methodology. The CECL implementation resulted in higher allowance balances in 2020, despite continued strong credit performance of our at-risk and balance sheet portfolios. Additionally, in 2019 we had an elevated provision expense of $4.4 million as a result of one defaulted loan. We have not experienced a significant deterioration in the overall credit quality of the at-risk servicing or balance sheet portfolios due to the COVID-19 pandemic.
• The decrease in the interest expense on corporate debt was driven by the decrease in the average 30-day LIBOR upon which our long-term debt interest was based and the repricing of the debt in the fourth quarter of 2019.
• The increase in other operating expenses is primarily related to the write-off of previously capitalized software implementation costs related to a planned servicing system conversion that was terminated in the quarter.

KEY PERFORMANCE METRICS
(dollars in thousands, except per share amounts)			Q4 2020			Q4 2019		$ Variance			% Variance
Walker & Dunlop net income		$	83,099		$	42,916		$	40,183		94	%
Adjusted EBITDA			58,161			64,076			(5,915)		(9)
Diluted EPS		$	2.59		$	1.34		$	1.25		93	%
Operating margin			34	%		27	%
Return on equity			29			17

Discussion of Results:

• The increase in net income was the result of a 102% increase in income from operations, as the growth in total revenues outpaced the increase in total expenses during the fourth quarter. MSR income was one of the primary drivers in the increase in revenues with a 154% year over year increase.
• Adjusted EBITDA decreased year over year due to lower escrow interest income and increases in personnel and other operating costs outpacing increases in loan origination and debt brokerage fees, servicing fees, and property sales broker fees.

KEY CREDIT METRICS
(dollars in thousands)			Q4 2020			Q4 2019		$ Variance			% Variance
At-risk servicing portfolio (5)		$	44,483,676		$	36,699,969		$	7,783,707		21	%
Maximum exposure to at-risk portfolio (6)			9,032,083			7,488,985			1,543,098		21
Defaulted loans		$	48,481		$	48,481		$	—		-	%
Key credit metrics (as a percentage of the at-risk portfolio):
Defaulted loans			0.11	%		0.13	%
Allowance for risk-sharing			0.17			0.03
Key credit metrics (as a percentage of maximum exposure):
Allowance for risk-sharing			0.83	%		0.15	%

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. As of December 31, 2020, there were two defaulted loans that were provisioned for during the first and fourth quarters of 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.
• Pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Fannie Mae instituted a mortgage forbearance program in April 2020 in response to the COVID-19 crisis. Under the terms of the forbearance program, borrowers impacted by COVID-19 can request that debt service payments be deferred for a period of up to three months, after which the deferred payments must be repaid over a 12-month period. As of December 31, 2020, we had granted COVID-19-related forbearance on 14 loans in our at-risk servicing portfolio with three loans totaling $50.0 million in unpaid principal balance still in forbearance at the end of the quarter.
• The allowance for risk-sharing as a percentage of the at-risk portfolio increased due to the implementation of CECL during 2020 and due to our forecast of an increase in short-term future losses as a result of the COVID-19 pandemic. To date, we have not experienced a significant deterioration in the overall credit quality of the at-risk servicing portfolio due to the COVID-19 pandemic.
• The on-balance sheet interim loan portfolio, which is comprised of loans that the Company has full risk of loss, was $295.3 million at December 31, 2020 compared to $476.1 million at December 31, 2019. There was one defaulted loan in our interim loan portfolio at December 31, 2020, which defaulted and was partially provisioned for during 2019. We increased the allowance on that loan during the third and fourth quarters of 2020. All other loans in the on-balance sheet interim loan portfolio are current and performing as of December 31, 2020. The interim loan joint venture holds $484.8 million of loans as of December 31, 2020, 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 December 31, 2020.

FULL-YEAR 2020 OPERATING RESULTS

YEAR-TO-DATE KEY PERFORMANCE METRICS
(dollars in thousands)			2020			2019		$ Variance			% Variance
Total revenues		$	1,083,707		$	817,219		$	266,488		33	%
Total expenses			753,441			586,868			166,573		28
Net income			246,177			173,373			72,804		42
Adjusted EBITDA			215,849			247,907			(32,058)		(13)
Transaction Volume			41,084,046			31,967,064			9,116,982		29	%
Operating margin			30	%		28	%
Return on equity			23			18

Discussion of Results:

• The increase in total revenues was largely driven by:
• Loan origination and debt brokerage fees increasing by 39%, which was largely related to an increase in debt financing volume;
• MSR income increasing by 98%, which was attributable to the overall increase in Agency lending volume and an increase in the weighted-average servicing fee on Fannie Mae loan volume;
• Servicing fees increasing by 10% related to growth in our servicing portfolio and net warehouse interest income increasing 14% as a result of a substantially larger average balance of loans held for sale and a sharp increase in the spread on these loans; and
• The increases were partially offset by a 68% decline in escrow earnings and other interest income due to a substantial decline in short-term interest rates.
• The increase in total expenses was primarily driven by:
• Personnel expense increasing by 35% due to (i) an increase in commissions expense resulting from higher loan origination and debt brokerage fees due to the growth in debt financing volume, (ii) an increase in the annual bonus expense driven by our record Company financial performance year over year, (iii) higher salaries and benefits expenses resulting from a rise in average headcount due to the continued growth of our business, and (iv) higher retention costs due to the hiring of bankers and brokers over the past year. Personnel expenses as a percentage of total revenues increased only slightly to 43% from 42% year over year despite the increased expenses;
• Amortization and depreciation costs increasing by 11% 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 increasing mainly from the impact of CECL implementation in the first quarter of 2020. During the first quarter of 2020, the Company recorded a provision expense of $23.6 million as a result of an increase in expected losses in the at-risk servicing portfolio due to the COVID-19 related deterioration in economic conditions. The Company has recorded additional provision expense of $13.8 million during the subsequent quarters in 2020, primarily related to the increase in the at-risk servicing portfolio balance and a defaulted interim loan for which we recorded additional expense in the third and fourth quarters of 2020.
• Net income for the years ended December 31, 2020 and 2019 was $246.2 million and $173.4 million, respectively. The 42% increase in net income was primarily a result of a 43% increase in income from operations.
• Adjusted EBITDA for the years ended December 31, 2020 and 2019 was $215.9 million and $247.9 million, respectively. The 13% decrease was largely driven by the decrease in escrow earnings and an increase in personnel and other operating expenses, partially offset by increases in loan origination and debt brokerage fees and servicing fees.
• Total transaction volume for the years ended December 31, 2020 was $41.1 billion, a 29% increase from the same period last year.
• Operating margin for the years ended December 31, 2020 and 2019 was 30% and 28%, respectively. The increase in operating margin was due to a 33% increase in total revenues compared to a 28% increase in total expenses year over year.
• For the year ended December 31, 2020 and 2019, return on equity was 23% and 18%, respectively.

DIVIDENDS AND SHARE REPURCHASES

On February 3, 2021, our Board of Directors declared a dividend of $0.50 per share for the first quarter of 2021, a 39% increase from the quarterly dividends declared in 2020. The dividend will be paid March 11, 2021 to all holders of record of our restricted and unrestricted common stock as of February 22, 2021.

During the first quarter of 2020, the Company's Board of Directors approved a stock repurchase program that permits the repurchase of up to $50.0 million of the Company's common stock over a 12-month period beginning on February 11, 2020. During the year ended December 31, 2020, the Company repurchased 459 thousand shares of its common stock under the share repurchase program at a weighted-average price of $56.77 per share. As of December 31, 2020, the Company had $23.9 million of authorized share repurchase capacity remaining under the 2020 share repurchase program.

On February 3, 2021, the Company's Board of Directors authorized the repurchase of up to $75 million of the Company's outstanding common stock over the coming one-year period ("2021 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.

_______________
(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."
(2)	Includes debt financing volumes from our interim loan platform, our interim loan joint venture, and WDIP separate accounts.
(3)	Excludes the income and debt financing volume from Principal Lending and Investing.
(4)	MSR income as a percentage of Agency volume.
(5)	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.
	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.
(6)	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.

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Thursday, February 4, 2021 at 8:30 a.m. Eastern time. Listeners can access the webcast via the link: https://walkerdunlop.zoom.us/webinar/register/WN_AuDjEvllR9i14yD-GIYm6w or by dialing +1 408 901 0584, Webinar ID 950 5361 4334, Password 857934. 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), headquartered in Bethesda, Maryland, is one of the largest commercial real estate finance companies in the United States. The Company provides a comprehensive range of capital solutions for all commercial real estate asset classes, as well as investment sales brokerage services to owners of multifamily properties. Walker & Dunlop is included on the S&P SmallCap 600 Index and was ranked as one of FORTUNE Magazine's Fastest Growing Companies in 2014, 2017, and 2018. Walker & Dunlop's 950+ professionals in 41 offices across the nation have an unyielding commitment to client satisfaction.

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 non-cash revenues such as 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) the impact of the COVID-19 pandemic on the Company's business, results of operations, and financial condition, including due to its principal and interest advance obligations on Fannie Mae and Ginnie Mae loans it services, and the domestic economy, (2) general economic conditions and multifamily and commercial real estate market conditions, (3) regulatory and/or legislative changes to Freddie Mac, Fannie Mae or HUD, (4) our ability to retain and attract loan originators and other professionals, and (5) 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.

 

Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited
	December 31,			September 30,			June 30,			March 31,			December 31,
	2020			2020			2020			2020			2019
(in thousands)
Assets
Cash and cash equivalents	$	321,097		$	294,873		$	275,202		$	205,309		$	120,685
Restricted cash		19,432			12,383			10,894			30,745			8,677
Pledged securities, at fair value		137,236			134,295			128,296			121,495			121,767
Loans held for sale, at fair value		2,449,198			3,227,287			1,733,598			1,186,577			787,035
Loans held for investment, net		360,402			342,056			404,527			454,213			543,542
Mortgage servicing rights		862,813			805,655			778,269			722,486			718,799
Goodwill and other intangible assets		250,838			251,002			251,165			247,257			182,959
Derivative assets		49,786			37,290			27,085			158,233			15,568
Receivables, net		65,735			51,837			50,188			52,185			52,146
Other assets		134,438			143,025			133,825			133,475			124,021
Total assets	$	4,650,975		$	5,299,703		$	3,793,049		$	3,311,975		$	2,675,199
Liabilities
Warehouse notes payable	$	2,517,156		$	3,328,327		$	1,863,654		$	1,305,846		$	906,128
Note payable		291,593			292,272			292,819			293,371			293,964
Guaranty obligation, net		52,306			53,474			54,872			55,758			54,695
Allowance for risk-sharing obligations		75,313			70,495			69,191			64,110			11,471
Derivative liabilities		5,066			3,858			13,739			172,623			36
Performance deposits from borrowers		14,468			9,079			11,696			29,575			7,996
Other liabilities		498,851			427,073			396,527			347,377			358,624
Total liabilities	$	3,454,753		$	4,184,578		$	2,702,498		$	2,268,660		$	1,632,914
Equity
Preferred shares	$	—		$	—		$	—		$	—		$	—
Common stock		307			306			304			303			300
Additional paid-in capital		241,004			230,302			238,094			236,007			237,877
Accumulated other comprehensive income (loss)		1,968			1,468			249			(1,181)			737
Retained earnings		952,943			883,049			851,904			801,139			796,775
Total stockholders' equity	$	1,196,222		$	1,115,125		$	1,090,551		$	1,036,268		$	1,035,689
Noncontrolling interests		—			—			—			7,047			6,596
Total equity	$	1,196,222		$	1,115,125		$	1,090,551		$	1,043,315		$	1,042,285
Commitments and contingencies		—			—			—			—			—
Total liabilities and equity	$	4,650,975		$	5,299,703		$	3,793,049		$	3,311,975		$	2,675,199

 

Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
Unaudited
	Quarterly Trends															Years ended
																December 31,
(in thousands, except per share amounts)	Q4 2020			Q3 2020			Q2 2020			Q1 2020			Q4 2019			2020			2019
Revenues
Loan origination and debt brokerage fees, net	$	120,956		$	83,825		$	77,907		$	76,373		$	69,921		$	359,061		$	258,471
Fair value of expected net cash flows from servicing, net		121,566			78,065			90,369			68,000			47,771			358,000			180,766
Servicing fees		63,240			60,265			56,862			55,434			55,126			235,801			214,550
Net warehouse interest income		6,872			7,558			9,401			5,495			6,095			29,326			25,699
Escrow earnings and other interest income		2,566			2,275			2,671			10,743			12,988			18,255			56,835
Other revenues		34,509			15,028			15,615			18,112			25,289			83,264			80,898
Total revenues	$	349,709		$	247,016		$	252,825		$	234,157		$	217,190		$	1,083,707		$	817,219
Expenses
Personnel	$	157,826		$	114,548		$	106,920		$	89,525		$	97,082		$	468,819		$	346,168
Amortization and depreciation		45,013			41,919			42,317			39,762			39,552			169,011			152,472
Provision for credit losses		5,450			3,483			4,903			23,643			4,409			37,479			7,273
Interest expense on corporate debt		1,826			1,786			2,078			2,860			3,292			8,550			14,359
Other operating expenses		22,258			16,165			13,069			18,090			14,881			69,582			66,596
Total expenses	$	232,373		$	177,901		$	169,287		$	173,880		$	159,216		$	753,441		$	586,868
Income from operations	$	117,336		$	69,115		$	83,538		$	60,277		$	57,974		$	330,266		$	230,351
Income tax expense		34,237			15,925			21,479			12,672			15,019			84,313			57,121
Net income before noncontrolling interests	$	83,099		$	53,190		$	62,059		$	47,605		$	42,955		$	245,953		$	173,230
Less: net income (loss) from noncontrolling interests		—			—			—			(224)			39			(224)			(143)
Walker & Dunlop net income	$	83,099		$	53,190		$	62,059		$	47,829		$	42,916		$	246,177		$	173,373
Net change in unrealized gains and losses on pledged available-for-sale securities		500			1,219			1,430			(1,917)			(278)			1,232			812
Walker & Dunlop comprehensive income	$	83,599		$	54,409		$	63,489		$	45,912		$	42,638		$	247,409		$	174,185
Basic earnings per share	$	2.63		$	1.69		$	1.98		$	1.53		$	1.38		$	7.85		$	5.61
Diluted earnings per share		2.59			1.66			1.95			1.49			1.34			7.69			5.45
Cash dividends declared per common share		0.36			0.36			0.36			0.36			0.30			1.44			1.20
Basic weighted-average shares outstanding		30,635			30,560			30,352			30,226			29,996			30,444			29,913
Diluted weighted-average shares outstanding		31,227			31,074			30,860			31,160			30,976			31,083			30,815

 

SUPPLEMENTAL OPERATING DATA
Unaudited
	Quarterly Trends															Years ended
																December 31,
(dollars in thousands, except per share data)	Q4 2020			Q3 2020			Q2 2020			Q1 2020			Q4 2019			2020			2019
Transaction Volume:
Components of Debt Financing Volume
Fannie Mae	$	3,891,649		$	1,977,607		$	2,762,299		$	4,171,491		$	1,692,839		$	12,803,046		$	8,045,499
Freddie Mac		2,685,359			3,136,313			1,769,280			997,796			1,526,321			8,588,748			6,380,210
Ginnie Mae - HUD		844,221			373,480			640,150			354,687			197,350			2,212,538			848,359
Brokered (1)		3,768,689			1,711,541			1,495,500			3,993,885			3,884,101			10,969,615			10,363,953
Principal Lending and Investing (2)		152,831			105,488			14,091			107,950			532,434			380,360			935,941
Total Debt Financing Volume	$	11,342,749		$	7,304,429		$	6,681,320		$	9,625,809		$	7,833,045		$	34,954,307		$	26,573,962
Property Sales Volume		2,846,276			1,106,162			446,684			1,730,617			1,979,010			6,129,739			5,393,102
Total Transaction Volume	$	14,189,025		$	8,410,591		$	7,128,004		$	11,356,426		$	9,812,055		$	41,084,046		$	31,967,064
Key Performance Metrics:
Operating margin		34	%		28	%		33	%		26	%		27	%		30	%		28	%
Return on equity		29			20			23			19			17			23			18
Walker & Dunlop net income	$	83,099		$	53,190		$	62,059		$	47,829		$	42,916		$	246,177		$	173,373
Adjusted EBITDA (3)		58,161			45,165			48,394			64,129			64,076			215,849			247,907
Diluted EPS		2.59			1.66			1.95			1.49			1.34			7.69			5.45
Key Expense Metrics (as a percentage of total revenues):
Personnel expenses		45	%		46	%		42	%		38	%		45	%		43	%		42	%
Other operating expenses		6			7			5			8			7			6			8
Key Revenue Metrics (as a percentage of debt financing volume):
Origination related fees (4)		1.08	%		1.15	%		1.17	%		0.79	%		0.93	%		1.04	%		1.00	%
Gains attributable to MSRs (5)		1.09			1.08			1.36			0.71			0.65			1.04			0.71
Gains attributable to MSRs - Agency (6)		1.64			1.42			1.75			1.23			1.40			1.52			1.18
Other Data:
Market capitalization at period end	$	2,822,970		$	1,657,545		$	1,580,183		$	1,250,860		$	1,995,236
Closing share price at period end	$	92.02		$	53.00		$	50.81		$	40.27		$	64.68
Average headcount		870			887			860			837			815
Components of Servicing Portfolio:
Fannie Mae	$	48,818,185		$	46,224,549		$	45,160,004		$	41,166,040		$	40,049,095
Freddie Mac		37,072,587			35,726,109			33,222,090			32,191,699			32,583,842
Ginnie Mae - HUD		9,606,506			9,639,820			9,749,888			9,750,696			9,972,989
Brokered (7)		11,419,372			11,513,521			11,519,629			11,326,492			10,151,120
Principal Lending and Investing (8)		295,322			273,754			336,473			387,314			468,123
Total Servicing Portfolio	$	107,211,972		$	103,377,753		$	99,988,084		$	94,822,241		$	93,225,169
Assets under management (9)		1,816,421			1,936,679			1,884,673			2,001,984			1,958,078
Total Managed Portfolio	$	109,028,393		$	105,314,432		$	101,872,757		$	96,824,225		$	95,183,247
Key Servicing Portfolio Metrics (end of period):
Weighted-average servicing fee rate (bps)		24.0			23.4			23.3			23.3			23.2
Weighted-average remaining term (years)		9.4			9.4			9.5			9.5			9.6

_____________
(1)	Brokered transactions for life insurance companies, commercial banks, and other capital sources.
(2)	Includes debt financing volumes from our interim lending platform, our interim lending joint venture, and WDIP separate accounts.
(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)	Excludes the income and debt financing volume from Principal Lending and Investing.
(5)	The fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained. Excludes the income and debt financing volume from Principal Lending and Investing.
(6)	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 Agency volume.
(7)	Brokered loans serviced primarily for life insurance companies.
(8)	Consists of interim loans not managed for our interim loan joint venture.
(9)	Interim loans serviced for our interim loan joint venture and WDIP assets under management.

 

KEY CREDIT METRICS
Unaudited
	December 31,			September 30,			June 30,			March 31,			December 31,
(dollars in thousands)	2020			2020			2020			2020			2019
Risk-sharing servicing portfolio:
Fannie Mae Full Risk	$	39,835,534		$	37,018,792		$	35,707,326		$	34,148,159		$	33,063,130
Fannie Mae Modified Risk		8,948,472			9,165,490			9,411,097			6,973,167			6,939,349
Freddie Mac Modified Risk		37,018			52,685			52,696			52,706			52,817
Total risk-sharing servicing portfolio	$	48,821,024		$	46,236,967		$	45,171,119		$	41,174,032		$	40,055,296
Non-risk-sharing servicing portfolio:
Fannie Mae No Risk	$	34,180		$	40,267		$	41,581		$	44,715		$	46,616
Freddie Mac No Risk		37,035,568			35,673,424			33,169,394			32,138,992			32,531,025
GNMA - HUD No Risk		9,606,506			9,639,820			9,749,888			9,750,696			9,972,989
Brokered		11,419,372			11,513,521			11,519,629			11,326,492			10,151,120
Total non-risk-sharing servicing portfolio	$	58,095,626		$	56,867,032		$	54,480,492		$	53,260,895		$	52,701,750
Total loans serviced for others	$	106,916,650		$	103,103,999		$	99,651,611		$	94,434,927		$	92,757,046
Interim loans (full risk) servicing portfolio		295,322			273,754			336,473			387,314			468,123
Total servicing portfolio unpaid principal balance	$	107,211,972		$	103,377,753		$	99,988,084		$	94,822,241		$	93,225,169
Interim Loan Joint Venture Managed Loans (1)	$	558,161		$	639,466		$	695,267		$	802,559		$	741,000
At-risk servicing portfolio (2)	$	44,483,676		$	41,848,548		$	40,640,024		$	37,864,262		$	36,699,969
Maximum exposure to at-risk portfolio (3)		9,032,083			8,497,807			8,266,261			7,729,120			7,488,985
Defaulted loans		48,481			48,481			48,481			48,481			48,481
Specifically identified at-risk loan balances associated with allowance for risk-sharing obligations		48,481			48,481			48,481			48,481			48,481
Defaulted loans as a percentage of the at-risk portfolio		0.11	%		0.12	%		0.12	%		0.13	%		0.13	%
Allowance for risk-sharing as a percentage of the at-risk portfolio		0.17			0.17			0.17			0.17			0.03
Allowance for risk-sharing as a percentage of maximum exposure		0.83			0.83			0.84			0.83			0.15

_____________
(1)	Includes $73.3 million as of December 31, 2020 and September 30, 2020, $71.1 million as of June 30, 2020 and March 31 2020, and $70.5 million as of December 31, 2019 of loans managed directly for our interim loan joint venture partner and interim loan joint venture managed loans. We indirectly share in a portion of the risk of loss associated with interim loan joint venture managed loans through our 15% equity ownership in the joint venture. We have no exposure to risk of loss for the loans serviced directly for our interim loan joint venture partner. The balance of this line is included as a component of assets under management in the Supplemental Operating Data table.
(2)	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. 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.
(3)	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.

 

ADJUSTED FINANCIAL METRIC RECONCILIATION TO GAAP
Unaudited
	Quarterly Trends															Years ended
																December 31,
(in thousands)	Q4 2020			Q3 2020			Q2 2020			Q1 2020			Q4 2019			2020			2019
Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA
Walker & Dunlop Net Income	$	83,099		$	53,190		$	62,059		$	47,829		$	42,916		$	246,177		$	173,373
Income tax expense		34,237			15,925			21,479			12,672			15,019			84,313			57,121
Interest expense on corporate debt		1,826			1,786			2,078			2,860			3,292			8,550			14,359
Amortization and depreciation		45,013			41,919			42,317			39,762			39,552			169,011			152,472
Provision (benefit) for credit losses		5,450			3,483			4,903			23,643			4,409			37,479			7,273
Net write-offs		—			—			—			—			—			—			—
Stock compensation expense		10,102			6,927			5,927			5,363			6,659			28,319			24,075
Fair value of expected net cash flows from servicing, net		(121,566)			(78,065)			(90,369)			(68,000)			(47,771)			(358,000)			(180,766)
Adjusted EBITDA	$	58,161		$	45,165		$	48,394		$	64,129		$	64,076		$	215,849		$	247,907

 

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SOURCE Walker & Dunlop, Inc.

FAQ

What was Walker & Dunlop's revenue for Q4 2020?

Walker & Dunlop reported Q4 2020 revenues of $349.7 million, up 61% from Q4 2019.

How much did the net income increase in Walker & Dunlop's Q4 2020 results?

Net income for Q4 2020 increased by 94% to $83.1 million.

What was the total transaction volume for Walker & Dunlop in Q4 2020?

The total transaction volume for Q4 2020 was $14.2 billion, a 45% increase from the previous year.

What was the dividend declared by Walker & Dunlop in February 2021?

On February 3, 2021, Walker & Dunlop declared a dividend of $0.50 per share, a 39% increase.

What was the total revenue for Walker & Dunlop in 2020?

In 2020, Walker & Dunlop achieved total revenues of over $1.1 billion, up 33% year-over-year.