Walker & Dunlop Reports Results for Q4 2023

Share Name	Share Symbol	Market	Type
Walker & Dunlop Inc	NYSE:WD	NYSE	Common Stock

	Price Change	% Change	Share Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-2.53	-2.26%	109.37	111.85	109.34	111.47	103,420	21:55:33

Walker & Dunlop (NYSE:WD)
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Strongest Quarterly Results of the Year Driven by Highest Transaction Volume of 2023

FOURTH QUARTER 2023 HIGHLIGHTS

Total transaction volume of $9.3 billion, down 17% from Q4’22
Total revenues of $274.3 million, down 3% from Q4’22
Net income of $31.6 million and diluted earnings per share of $0.93, down 24% and 25%, respectively, from Q4’22
Adjusted EBITDA1 of $87.6 million, down 5% from Q4’22
Adjusted core EPS2 of $1.42, up 1% from Q4’22
Servicing portfolio of $130.5 billion as of December 31, 2023, up 6% from December 31, 2022
Declared quarterly dividend of $0.65 per share for the first quarter of 2024, up 3% from the fourth quarter of 2023

FULL YEAR 2023 HIGHLIGHTS

Total transaction volume of $33.0 billion, down 48% from 2022
Total revenues of $1.1 billion, down 16% from 2022
Net income of $107.4 million and diluted earnings per share of $3.18, both down 50% from 2022
Adjusted EBITDA of $300.1 million, down 8% from 2022
Adjusted core EPS of $4.68, down 16% from 2022

Walker & Dunlop, Inc. (NYSE: WD) (the “Company,” “Walker & Dunlop,” or “W&D”) reported its strongest quarterly results of 2023 in the fourth quarter. Total revenues were $274.3 million in the fourth quarter, a decrease of 3% year over year. Fourth quarter total transaction volume was $9.3 billion, down 17% year over year. Net income for the fourth quarter of 2023 was $31.6 million, or $0.93 per diluted share, down 24% and 25%, respectively, year over year. Adjusted EBITDA was down only 5% over the same period in 2022, reflecting the stability of revenues from our servicing and asset management segment. The Company’s Board of Directors declared a dividend of $0.65 per share for the first quarter of 2024, the sixth consecutive year the dividend has increased.

“We ended 2023 with solid fourth quarter financial results thanks to $9.3 billion of sales and financing volume, combined with our recurring revenues from servicing and asset management, which drove our highest revenues and quarterly earnings of 2023," commented Walker & Dunlop Chairman and CEO Willy Walker. "In an extremely challenging year -- when W&D's sales and financing volumes were off by 48% -- it is a true testament to our business model, active management, and talented team that we generated over $300 million of adjusted EBITDA, only down 8% for the year."

“Walker & Dunlop's consistently conservative credit culture and focus on the multifamily industry paid dividends in 2023 and positions us well for any market rebound in 2024," continued Walker. "But the commercial real estate market has plenty of challenges ahead, and the severity of those challenges will depend on the timing, pace, and degree of rate cuts. We are very bullish about Walker & Dunlop's long-term outlook, and optimistic that 2024 will bring an uptick in financing and sales volumes throughout the CRE ecosystem." Walker concluded, "W&D has the people, brand and technology to continue gaining market share and outperforming the competition."

CONSOLIDATED FOURTH QUARTER 2023 OPERATING RESULTS

TRANSACTION VOLUMES

(dollars in thousands)

Q4 2023

Q4 2022

$ Variance

% Variance

Fannie Mae

1,692,405

994,590

697,815

Freddie Mac

1,308,263

2,305,826

(997,563

)

(43

)

Ginnie Mae - HUD

316,960

186,784

130,176

Brokered (3)

2,885,454

4,375,704

(1,490,250

)

(34

)

Principal Lending and Investing (4)

218,750

31,512

187,238

594

Debt financing volume

6,421,832

7,894,416

(1,472,584

)

(19

Property sales volume

2,877,399

3,315,287

(437,888

)

(13

)

Total transaction volume

9,299,231

11,209,703

(1,910,472

)

(17

Discussion of Results:

Total debt financing volume decreased 19% due to the continued challenging macroeconomic environment in the fourth quarter of 2023. The $9.3 billion in total transaction volume represents a 9% sequential increase in transaction volume from the third quarter and our highest quarterly volume of 2023.
Fannie Mae transaction volume increased 70% in the fourth quarter of 2023 and solidified our ranking as the #1 Fannie Mae Lender in 2023 for the fifth consecutive year. We ended the year as the #3 Freddie Mac Optigo Lender and the second largest combined GSE lender in the country.
The 70% increase in HUD debt financing volumes reflected our strongest quarter of the year amidst high interest rates and elongated processing times, which impacted our overall HUD pipeline throughout the year.
The decrease in brokered debt and property sales volume was driven by higher interest rates, decreased liquidity supplied to the commercial real estate sector, and dramatically lower acquisition and capital markets activity as the commercial real estate industry continues to adjust to this macroeconomic environment.

MANAGED PORTFOLIO

(dollars in thousands, unless otherwise noted)

Q4 2023

Q4 2022

$ Variance

% Variance

Fannie Mae

63,699,106

59,226,168

4,472,938

Freddie Mac

39,330,545

37,819,256

1,511,289

Ginnie Mae - HUD

10,460,884

9,868,453

592,431

Brokered

16,940,850

16,013,143

927,707

Principal Lending and Investing

40,139

206,835

(166,696

)

(81

)

Total Servicing Portfolio

130,471,524

123,133,855

7,337,669

Assets under management

17,321,452

16,748,449

573,003

Total Managed Portfolio

147,792,976

139,882,304

7,910,672

Custodial escrow account balance at period end (in billions)

2.7

Weighted-average servicing fee rate (basis points)

24.1

24.5

Weighted-average remaining servicing portfolio term (years)

8.2

8.8

Discussion of Results:

Our servicing portfolio continues to expand as a result of the additional GSE debt financing volumes over the past 12 months, partially offset by principal paydowns and loan payoffs.
During the fourth quarter of 2023, we added $1.5 billion of net loans to our servicing portfolio, and over the past 12 months, we added $7.3 billion of net loans to our servicing portfolio, 82% of which were Fannie Mae and Freddie Mac loans.
$10.2 billion of Agency loans in our servicing portfolio are scheduled to mature over the next two years. These loans, with a low weighted-average servicing fee of 19 basis points, represent only 9% of our total Agency loans in the portfolio.
The mortgage servicing rights (“MSRs”) associated with our servicing portfolio had a fair value of $1.4 billion as of both December 31, 2023 and 2022.
Assets under management as of December 31, 2023 consisted of $15.1 billion of LIHTC, $1.4 billion of debt funds, and $0.9 billion of equity funds. The $0.6 billion increase is due to increased syndication activity of tax credit funds and the closing of Fund VII at Walker & Dunlop Investment Partners (“WDIP”).

KEY PERFORMANCE METRICS

(dollars in thousands, except per share amounts)

Q4 2023

Q4 2022

$ Variance

% Variance

Walker & Dunlop net income

31,599

41,492

(9,893

)

(24

Adjusted EBITDA

87,582

92,625

(5,043

)

Diluted EPS

0.93

1.24

(0.31

)

(25

Adjusted core EPS

1.42

1.41

0.01

Operating margin

Return on equity

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

Personnel expenses

Other operating expenses

Discussion of Results:

The decrease in Walker & Dunlop net income was the result of a 17% decrease in income from operations and an increase in our effective tax rate due to a one-time benefit in 2022.
The decrease in adjusted EBITDA was primarily the result of lower investment management fees, from a decline in disposition activity due to the challenging market, largely offset by increased placement fees and other interest income and lower personnel expenses.
Operating margin decreased due to the decline in total transaction volume that lowered income from operations. Our transaction-related businesses are scaled to execute a significantly larger volume of business, and lower commercial real estate transaction activity continues to put downward pressure on our operating margins.
Return on equity declined primarily due to the 24% decrease in net income combined with a 2% increase in stockholders’ equity over the past year.
Personnel expenses as a percentage of total revenues decreased to 46%, driven by the impact of our workforce reduction that became effective in May of 2023 and decreased variable compensation costs for our production team.
Other operating expenses as a percentage of total revenues increased as a result of a $13.5 million benefit from contingent consideration liability fair value adjustments and no goodwill impairment in the fourth quarter of 2022. In the fourth quarter of 2023, there was goodwill impairment that substantially offset the contingent consideration liability fair value adjustments.

KEY CREDIT METRICS

(dollars in thousands)

Q4 2023

Q4 2022

$ Variance

% Variance

At-risk servicing portfolio (5)

58,801,055

54,232,979

4,568,076

Maximum exposure to at-risk portfolio (6)

11,949,041

10,993,596

955,445

Defaulted loans (7)

27,214

36,983

(9,769

)

(26

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

Defaulted loans

0.05

0.07

Allowance for risk-sharing

0.05

0.08

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

Allowance for risk-sharing

0.26

0.40

Discussion of Results:

Our at-risk servicing portfolio, which is comprised of loans subject to a defined risk-sharing formula, increased primarily due to the level of Fannie Mae loans added to the portfolio during the past 12 months. As of December 31, 2023, three at-risk loans were in default with an aggregate UPB of $27.2 million compared to two at-risk loans with an aggregate UPB of $37.0 million that were in default as of December 31, 2022. The collateral-based reserve on defaulted loans was $2.8 million and $4.4 million as of December 31, 2023 and December 31, 2022, respectively. The at-risk servicing portfolio continues to exhibit strong credit quality, with very low levels of delinquencies and strong operating performance of the underlying properties in the portfolio.
The on-balance sheet interim loan portfolio, which is comprised of loans for which we have full risk of loss, was $40.1 million as of December 31, 2023 compared to $206.8 million as of December 31, 2022. We did not have any defaulted loans in our interim loan portfolio as of December 31, 2023, compared to one defaulted loan of $14.7 million in our interim loan portfolio as of December 31, 2022. During 2023, we sold the defaulted asset. One of the two remaining loans in the on-balance sheet interim loan portfolio is current and performing as of December 31, 2023. The other loan, with an unpaid principal balance of $14.2 million, matured in December 2023, and the sponsor is in process of refinancing the loan. We do not expect any loss from this loan. The interim loan joint venture held $710.0 million of loans as of December 31, 2023 and $892.8 million of loans as of December 31, 2022. We share in a small portion of the risk of loss, and, as of December 31, 2023, all loans in the interim loan joint venture are current and performing.
We take credit risk exclusively on loans backed by multifamily assets and have no credit exposure to losses in any other sector of the commercial real estate lending market.

FOURTH QUARTER 2023 - FINANCIAL RESULTS BY SEGMENT

Interest expense on corporate debt is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s use of that corporate debt.

Income tax expense is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s income from operations, except for significant, one-time tax activities, which are allocated entirely to the segment impacted by the tax activity.

The following details explain the changes in these expense items at a consolidated corporate level:

Interest expense on corporate debt increased $6.5 million or 54% from the fourth quarter of 2022 to the fourth quarter of 2023 due to increases in (i) the interest rate as our corporate debt’s floating rate is tied to short-term interest rates, (ii) the outstanding principal balance of corporate debt.
Income tax expense increased $0.8 million or 8% from the fourth quarter of 2022 to the fourth quarter of 2023 primarily as a result of a decrease in realizable excess tax benefits and a one-time tax benefit during 2022 related to the GeoPhy acquisition, partially offset by a 17% decrease in income from operations.

FINANCIAL RESULTS - CAPITAL MARKETS

(dollars in thousands)

Q4 2023

Q4 2022

$ Variance

% Variance

Loan origination and debt brokerage fees, net ("Origination fees")

64,946

72,119

(7,173

)

(10

Fair value of expected net cash flows from servicing, net ("MSR income")

34,471

31,790

2,681

Property sales broker fees

15,135

20,490

(5,355

)

(26

)

Net warehouse interest income (expense), LHFS

(2,491

)

252

(2,743

)

(1,088

)

Other revenues

17,020

11,208

5,812

Total revenues

129,081

135,859

(6,778

)

Personnel

93,948

113,355

(19,407

)

(17

Amortization and depreciation

1,138

893

245

Interest expense on corporate debt

4,909

3,159

1,750

Goodwill impairment

48,000

—

48,000

N/A

Fair value adjustments to contingent consideration liabilities

(48,500

)

(18,000

)

(30,500

)

169

Other operating expenses

4,957

6,945

(1,988

)

(29

)

Total expenses

104,452

106,352

(1,900

)

Income from operations

24,629

29,507

(4,878

)

(17

Income tax expense

6,362

(1,070

)

7,432

(695

)

Net income before noncontrolling interests

18,267

30,577

(12,310

)

(40

Less: net income (loss) from noncontrolling interests

748

102

646

633

Walker & Dunlop net income

17,519

30,475

(12,956

)

(43

Key revenue metrics (as a percentage of debt financing volume):

Origination fee margin (8)

1.05

0.92

MSR margin (9)

0.56

0.40

Agency MSR margin (10)

1.04

0.91

Key performance metrics:

Operating margin

Adjusted EBITDA

(1,608

)

6,411

(8,019

)

(125

Capital Markets - Discussion of Quarterly Results:

The Capital Markets segment includes our Agency lending, debt brokerage, property sales, appraisal and valuation services, and housing market research businesses.

The decrease in origination fees was primarily the result of a decrease in our overall debt financing volume, partially offset by an increase in the origination fee margin due to an increase in Agency debt financing volume as a percentage of overall debt financing volume from 44% in the fourth quarter of 2022 to 52% in the fourth quarter of 2023.
The increase in MSR income was attributable to the increase in the Agency MSR margin shown above due to an increase in Fannie Mae volume as a percentage of Agency debt financing volume, which increased the estimated fair value of the future cash flows, partially offset by a decrease in Agency debt financing volume.
The decrease in property sales broker fees was primarily driven by the decrease in transaction activity and a decline in the profitability of the sales.
The decrease in net warehouse interest income was driven by an inverted yield curve during the fourth quarter of 2023. Short-term interest rates upon which we incur interest expense were higher than the long-term mortgage rates upon which we earn interest income.
The increase in other revenues is primarily related to an increase in investment banking revenues year over year.
Personnel expense decreased primarily due to decreases in (i) commissions expense as a result of the decline in origination fees and property sales broker fees and (ii) salaries and bonuses due to the workforce reduction in the second quarter of 2023.
The goodwill impairment in the fourth quarter of 2023 was due to market conditions leading to lower projected cash flows from the GeoPhy acquisition, compared to no impairment in 2022.
In the fourth quarter of 2023, the fair value adjustment to contingent consideration liabilities resulted in a $48.5 million benefit compared to an $18.0 million benefit in the fourth quarter of 2022 due to a reduction in forecasted cash flows for the contingent consideration liability related to our 2022 acquisition of GeoPhy.
The decrease in adjusted EBITDA was due to the decreases in origination fees, property sales broker fees, and net warehouse interest income (expense), partially offset by the increase in other revenues, the decrease in personnel expenses and the decrease in other operating expenses.

FINANCIAL RESULTS - SERVICING & ASSET MANAGEMENT

(dollars in thousands)

Q4 2023

Q4 2022

$ Variance

% Variance

Origination fees

1,262

115

1,147

997

Servicing fees

79,887

77,275

2,612

Investment management fees

537

24,586

(24,049

)

(98

)

Net warehouse interest income, LHFI

414

1,504

(1,090

)

(72

)

Placement fees and other interest income

40,738

24,844

15,894

Other revenues

16,829

18,336

(1,507

)

Total revenues

139,667

146,660

(6,993

)

Personnel

20,738

16,759

3,979

Amortization and depreciation

53,043

55,014

(1,971

)

Provision (benefit) for credit losses

636

1,142

(506

)

(44

)

Interest expense on corporate debt

11,104

8,233

2,871

Fair value adjustments to contingent consideration liabilities

—

4,488

(4,488

)

(100

)

Other operating expenses

12,117

10,715

1,402

Total expenses

97,638

96,351

1,287

Income from operations

42,029

50,309

(8,280

)

(16

Income tax expense

11,269

3,209

8,060

251

Net income before noncontrolling interests

30,760

47,100

(16,340

)

(35

Less: net income (loss) from noncontrolling interests

(3,311

)

(3,959

)

648

(16

)

Walker & Dunlop net income

34,071

51,059

(16,988

)

(33

Key performance metrics:

Operating margin

Adjusted EBITDA

110,543

114,541

(3,998

)

Servicing & Asset Management - Discussion of Quarterly Results:

The Servicing & Asset Management segment includes loan servicing, principal lending and investing, management of third-party capital invested in tax credit equity funds focused on the affordable housing sector and other commercial real estate, and real estate-related investment banking and advisory services.

The $7.3 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, partially offset by a slight decrease in the servicing portfolio’s weighted-average servicing fee.
Investment management fees decreased as a result of lower dispositions revenue from our LIHTC funds. As tax credit investments in our managed portfolio mature, they are sold or recapitalized. The disruption in the acquisitions market and tighter liquidity led to a slowdown in disposition activity year over year.
Placement fees and other interest income increased largely as a result of higher placement fees from escrow deposits due to substantially higher short-term interest rates.
The increase in personnel expense was primarily the result of increases in salaries and benefits and commission costs. The aforementioned workforce reduction did not have a material impact on this segment given the stability in earnings and operations. Commission expense increased primarily due to an increase in syndication fees from higher annual syndication volumes in 2023 compared to 2022.
The change in fair value adjustments to contingent consideration liabilities was primarily due to a contingent consideration revaluation related to Alliant in the fourth quarter of 2022 with no comparable activity in the fourth quarter of 2023.
Other operating expenses increased primarily as a result of elevated professional fees, due to increased syndication activity. Much of the professional fees incurred from the syndication activity are reimbursable from the LIHTC funds.
Adjusted EBITDA decreased primarily due to the decrease in investment management fees.

FINANCIAL RESULTS - CORPORATE

(dollars in thousands)

Q4 2023

Q4 2022

$ Variance

% Variance

Other interest income

4,472

1,303

3,169

243

Other revenues

1,116

(972

)

2,088

(215

)

Total revenues

5,588

331

5,257

1,588

Personnel

11,179

7,644

3,535

Amortization and depreciation

1,834

2,023

(189

)

Interest expense on corporate debt

2,585

718

1,867

260

Other operating expenses

17,281

22,588

(5,307

)

(23

)

Total expenses

32,879

32,973

(94

)

Income (loss) from operations

(27,291

)

(32,642

)

5,351

(16

Income tax expense (benefit)

(7,300

)

7,400

(14,700

)

(199

)

Walker & Dunlop net income (loss)

(19,991

)

(40,042

)

20,051

(50

Key performance metric:

Adjusted EBITDA

(21,353

)

(28,327

)

6,974

(25

Corporate - Discussion of Quarterly Results:

The Corporate segment consists of corporate-level activities including accounting, information technology, legal, human resources, marketing, internal audit, and various other corporate groups (“support functions”). The Company does not allocate costs from these support functions to its other segments in presenting segment operating results.

The increase in total revenues was primarily driven by the increase in interest income from our corporate cash balances due to higher short-term interest rates, combined with an increase in average balances held in interest earning accounts. Additionally, other revenues, which primarily consist of gains and losses on equity-method investments, shifted from a loss in the fourth quarter of 2022 to a gain in the fourth quarter of 2023 due to improved performance of several equity-method investments.
The increase in personnel expense was related to an increase in subjective bonuses, partially offset by small decreases in other personnel expenses. Subjective bonuses were reduced for company performance in the fourth quarter of 2022 by a greater amount than the fourth quarter of 2023.
The decrease in other operating expenses was the result of our cost-reduction initiatives in 2023.

CONSOLIDATED FULL YEAR 2023 OPERATING RESULTS

FULL YEAR OPERATING RESULTS AND KEY PERFORMANCE METRICS

(dollars in thousands)

2023

2022

$ Variance

% Variance

Debt financing volume

24,202,859

43,605,984

(19,403,125

)

(44

Property sales volume

8,784,537

19,732,654

(10,948,117

)

(55

)

Total transaction volume

32,987,396

63,338,638

(30,351,242

)

(48

Total revenues

1,054,440

1,258,753

(204,313

)

(16

)

Total expenses

916,243

993,788

(77,545

)

Walker & Dunlop net income

107,357

213,820

(106,463

)

(50

Adjusted EBITDA

300,123

325,095

(24,972

)

Diluted EPS

3.18

6.36

(3.18

)

(50

Adjusted core EPS

4.68

5.60

(0.92

)

(16

Operating margin

Return on equity

Discussion of Full Year Results:

The decrease in total transaction volume was driven by declines in every type of execution, including a 29% decrease in Agency debt financing volume and a 55% decrease in both brokered debt financing volume and property sales volume.
The decrease in Walker & Dunlop net income was primarily driven by the decreased transaction volume.
The 8% decrease in adjusted EBITDA was primarily the result of (i) lower fee income from the decline in total transaction volumes, (ii) decreases in investment management fees from lower LIHTC dispositions, and (iii) a decrease net warehouse interest income due to an inverted yield curve. These decreases were largely offset by increased placement fees and other interest income and lower personnel and other operating expenses resulting from our cost reduction initiatives implemented throughout 2023.
Operating margin decreased, primarily as a result of the significant decline in our transaction activity, coupled with a one-time acquisition related benefit from the GeoPhy transaction in 2022, and a net benefit from contingent consideration liability revaluations with no comparable benefit in 2023.
Adjusted core EPS was down only 16% despite the 48% decline in transaction volumes, illustrating the strength of our core operating results.
Return on equity declined, largely as a result of the 50% decrease in net income combined with a 2% increase in stockholders’ equity over the past year.

FULL YEAR 2023 – FINANCIAL RESULTS BY SEGMENT

Interest expense on corporate debt is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s use of that corporate debt.

The following details explain the changes in these expense items at a consolidated corporate level:

Interest expense on corporate debt increased $34.2 million, or 100%, from 2022 to 2023, due to increases in (i) the interest rate, as our corporate debt’s floating rate is tied to short-term interest rates and (ii) the outstanding principal balance of corporate debt.
Income tax expense decreased $21.0 million, or 37%, from 2022 to 2023, primarily as a result of a 48% decrease in income from operations, partially offset by a decrease in realizable excess tax benefits and a one-time tax benefit during 2022 resulting from the GeoPhy acquisition, with no comparable activity in 2023.

FULL YEAR FINANCIAL RESULTS - CAPITAL MARKETS

(dollars in thousands)

2023

2022

$ Variance

% Variance

Origination fees

232,625

345,779

(113,154

)

(33

MSR income

141,917

191,760

(49,843

)

(26

)

Property sales broker fees

53,966

120,582

(66,616

)

(55

)

Net warehouse interest income (expense), LHFS

(9,497

)

9,667

(19,164

)

(198

)

Other revenues

57,755

41,046

16,709

Total revenues

476,766

708,834

(232,068

)

(33

Personnel

375,450

485,958

(110,508

)

(23

Amortization and depreciation

4,550

3,084

1,466

Interest expense on corporate debt

18,779

8,647

10,132

117

Goodwill impairment

62,000

—

62,000

N/A

Fair value adjustments to contingent consideration liabilities

(62,500

)

(18,000

)

(44,500

)

247

Other operating expenses

19,994

29,817

(9,823

)

(33

)

Total expenses

418,273

509,506

(91,233

)

(18

Income from operations

58,493

199,328

(140,835

)

(71

Income tax expense

14,824

42,153

(27,329

)

(65

)

Net income before noncontrolling interests

43,669

157,175

(113,506

)

(72

Less: net income (loss) from noncontrolling interests

2,489

1,097

1,392

127

Walker & Dunlop net income

41,180

156,078

(114,898

)

(74

Capital Markets - Discussion of Full Year Results:

The decrease in origination fees was primarily the result of a decrease in our overall debt financing volume, partially offset by an increase in the origination fee margin due to (i) an increase in Agency debt financing volume as a percentage of overall debt financing volume and (ii) increased profitability in our GSE debt financing volume.
The decrease in MSR income was primarily attributable to a 29% decrease in Agency debt financing volume.
The decrease in property sales broker fees was driven by a 55% decrease in property sales volumes.
The decrease in net warehouse interest income was primarily due to an inverted yield curve during 2023. Short-term interest rates upon which we incur interest expense were higher than the long-term mortgage rates upon which we earn interest income.
The increase in other revenues was primarily related to an increase in investment banking revenues, as our investment banking team closed several large transactions in 2023 after a relatively quiet year for investment banking services in 2022.
The decrease in personnel expense was primarily driven by a decrease in commissions and other production incentive expenses related to lower transaction volumes year over year. Additionally, salaries and benefits costs and subjective bonus expense decreased as average headcount decreased due to the workforce reduction announced in April 2023.
The decrease in other operating expenses was due to cost-reduction initiatives across a variety of cost categories, with the most prominent decreases in professional fees and travel and entertainment costs.

FULL YEAR FINANCIAL RESULTS - SERVICING & ASSET MANAGEMENT

(dollars in thousands)

2023

2022

$ Variance

% Variance

Origination fees

1,784

2,228

(444

)

(20

Servicing fees

311,914

300,191

11,723

Investment management fees

45,381

71,931

(26,550

)

(37

)

Net warehouse interest income, LHFI

3,864

6,110

(2,246

)

(37

)

Placement fees and other interest income

141,374

51,010

90,364

177

Other revenues

59,526

75,960

(16,434

)

(22

)

Total revenues

563,843

507,430

56,413

Personnel

74,407

69,970

4,437

Amortization and depreciation

214,978

225,515

(10,537

)

Provision (benefit) for credit losses

(10,452

)

(11,978

)

1,526

(13

)

Interest expense on corporate debt

42,489

23,621

18,868

Fair value adjustments to contingent consideration liabilities

—

4,488

(4,488

)

(100

)

Other operating expenses

28,582

26,250

2,332

Total expenses

350,004

337,866

12,138

Income from operations

213,839

169,564

44,275

Income tax expense

54,198

35,859

18,339

Net income before noncontrolling interests

159,641

133,705

25,936

Less: net income (loss) from noncontrolling interests

(6,675

)

(5,986

)

(689

)

Walker & Dunlop net income

166,316

139,691

26,625

Servicing & Asset Management - Discussion of Full Year Results:

The $7.3 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, partially offset by a decline in the servicing portfolio’s weighted-average servicing fee.
Investment management fees decreased as a result of lower dispositions revenue from our LIHTC funds. As tax credit investments in our managed portfolio mature, they are sold or recapitalized. The disruption in the acquisitions market and tighter liquidity led to a slowdown in disposition activity year over year.
Placement fees and other interest income increased largely as a result of higher placement fee revenue on escrow deposit accounts and an increase in interest income from pledged securities due to substantially higher short-term interest rates.
Other revenues decreased primarily due to a significant decrease in prepayment activity, partially offset by an increase in syndication fees due to the higher volume of capital syndicated into our LIHTC funds.
The increase in personnel expense was primarily the result of increases in salaries and benefits and commission costs. The increase in salaries and benefits was due to annual salary increases, as the aforementioned workforce reduction did not have a material impact on this segment given the stability in earnings and operations. Commission accruals increased primarily due to the aforementioned increase in syndication fees.
The decrease in amortization and depreciation was largely the result of a reduction in write offs of MSRs due to early loan prepayments in a higher interest rate environment, partially offset by an increase in amortization expense for existing MSRs.
Other operating expenses increased primarily as a result of elevated professional fees, largely resulting from increased syndication activity.

FULL YEAR FINANCIAL RESULTS - CORPORATE

(dollars in thousands)

2023

2022

$ Variance

% Variance

Other interest income

13,146

1,820

11,326

622

Other revenues

685

40,669

(39,984

)

(98

)

Total revenues

13,831

42,489

(28,658

)

(67

Personnel

64,433

51,438

12,995

Amortization and depreciation

7,224

6,432

792

Interest expense on corporate debt

7,208

1,965

5,243

267

Other operating expenses

69,101

86,581

(17,480

)

(20

)

Total expenses

147,966

146,416

1,550

Income (loss) from operations

(134,135

)

(103,927

)

(30,208

)

Income tax expense (benefit)

(33,996

)

(21,978

)

(12,018

)

Walker & Dunlop net income (loss)

(100,139

)

(81,949

)

(18,190

)

Corporate - Discussion of Full Year Results:

The increase in other interest income was driven by interest income from our corporate cash balances due to higher short-term interest rates year over year combined with an increase in the average balance held in interest earnings accounts.
The decrease in other revenues was primarily driven by a $39.6 million gain from the revaluation of an equity-method investment in connection with an acquisition, a unique transaction in 2022.
The increase in personnel expense was primarily the result of increases in (i) subjective bonuses which were reduced below target payouts in both 2023 and 2022 due to Company performance, but to a greater extent in 2022, and (ii) deferred compensation costs with an equal and offsetting impact to revenues as the assets held in the trust are marked-to-market periodically, partially offset by (i) a decrease in stock compensation expense as we were accruing performance-based stock compensation at a lower overall rate in 2023 than in 2022.
The decrease in other operating expenses was largely the result of our cost-reduction initiatives in 2023.

CAPITAL SOURCES AND USES

On February 14, 2024, the Company’s Board of Directors declared a dividend of $0.65 per share for the first quarter of 2024, a 3% increase from the fourth quarter of 2023. This is the sixth consecutive annual increase in the Company’s dividend and represents 160% growth in the dividend since it was initiated in 2018. The dividend will be paid on March 15, 2024 to all holders of record of the Company’s restricted and unrestricted common stock as of March 1, 2024.

On January 12, 2023, the Company entered into a lender joinder agreement and amendment to our existing credit agreement that provided for an incremental term loan with a principal amount of $200 million. The incremental term loan bears interest at a rate equal to adjusted Term SOFR plus 3.00% per annum and matures in December 2028. Proceeds from the debt were used to repay $116 million of debt assumed in the Company’s acquisition of Alliant and to strengthen the balance sheet for general corporate purposes.

On February 20, 2023, our Board of Directors authorized the repurchase of up to $75.0 million of the Company’s outstanding common stock over a 12-month period ending February 23, 2024 (“2023 Share Repurchase Program”). As of December 31, 2023, the Company had $75.0 million of authorized share repurchase capacity remaining under the 2023 Share Repurchase Program.

On February 14, 2024, our Board of Directors authorized the repurchase of up to $75.0 million of the Company’s outstanding common stock over a 12-month period ending February 23, 2025 (“2024 Share Repurchase Program”).

Any purchases made pursuant to the 2024 Share Repurchase Program will be made in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The repurchase program may be suspended or discontinued at any time.

(1)

Adjusted EBITDA is a non-GAAP financial measure the Company presents to help investors better understand our operating performance. For a reconciliation of adjusted EBITDA to net income, refer to the sections of this press release below titled “Non-GAAP Financial Measures,” “Adjusted Financial Measure Reconciliation to GAAP” and “Adjusted Financial Measure Reconciliation to GAAP by Segment.”

(2)

Adjusted core EPS is a non-GAAP financial measure the Company presents to help investors better understand our operating performance. For a reconciliation of Adjusted core EPS to Diluted EPS, refer to the sections of this press release below titled “Non-GAAP Financial Measures” and “Adjusted Core EPS Reconciliation.”

(3)

Brokered transactions for life insurance companies, commercial banks, and other capital sources.

(4)

Includes debt financing volumes from our interim loan program, our interim loan joint venture, and WDIP separate accounts.

(5)

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.

(7)

Defaulted loans represent loans in our Fannie Mae at-risk portfolio which are probable of foreclosure or that have foreclosed and for which we have recorded a collateral-based reserve (i.e. loans where we have assessed a probable loss). Other loans that have defaulted but not foreclosed or that are not probable of foreclosure are not included here. Additionally, loans that have foreclosed or are probable of foreclosure but are not expected to result in a loss to us are not included here.

(8)

Origination fees as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing.

(9)

MSR income as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing.

(10)

MSR income as a percentage of Agency debt financing volume.

CONFERENCE CALL INFORMATION

The Company will host a conference call to discuss its quarterly results on Thursday, February 15, 2024 at 8:00 a.m. Eastern time. Listeners can access the call via the dial-in number and webcast link below. 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.

Phone: (888) 256-1007 from within the United States; (773) 305-6853 from outside the United States

Confirmation Code: 8217003

Webcast Link: https://event.webcasts.com/starthere.jsp?ei=1653633&tp_key=8cfbb57f45

ABOUT WALKER & DUNLOP

Walker & Dunlop (NYSE: WD) is one of the largest commercial real estate finance and advisory services firms in the United States. Our ideas and capital create communities where people live, work, shop, and play. The diversity of our people, breadth of our brand and technological capabilities make us one of the most insightful and client-focused firms in the commercial real estate industry.

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, adjusted core net income, and adjusted core EPS, which are non-GAAP financial measures. The presentation of these non-GAAP financial measures 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, adjusted core net income, and adjusted core EPS in addition to, and not as an alternative for, net income and diluted EPS.

Adjusted core net income and adjusted core EPS represent net income adjusted for amortization and depreciation, provision (benefit) for credit losses, net write-offs, the fair value of expected net cash flows from servicing, net, the income statement impact from periodic revaluation and accretion associated with contingent consideration liabilities related to acquired companies, and other one-time adjustments, such as the gain associated with the revaluation of our previously held equity-method investment in connection with an acquisition, one-time benefit to tax expense related to our corporate restructuring and repatriation of intellectual property from an acquired subsidiary, and goodwill impairment. Adjusted EBITDA represents net income before income taxes, interest expense on our corporate debt, and amortization and depreciation, adjusted for provision (benefit) for credit losses, net write-offs, stock-based incentive compensation charges, the fair value of expected net cash flows from servicing, net, the write-off of the unamortized balance of premium associated with the repayment of a portion of our corporate debt, the gain from revaluation of a previously held equity-method investment, goodwill impairment, and contingent consideration liability fair value adjustments when the fair value adjustment is a triggering event for a goodwill impairment assessment. 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. Because not all companies use identical calculations, our presentation of adjusted EBITDA, adjusted core net income and adjusted core EPS may not be comparable to similarly titled measures of other companies.

We use adjusted EBITDA, adjusted core net income, and adjusted core EPS 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 these non-GAAP measures, when read in conjunction with the Company's GAAP financial information, provide 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 these non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these non-GAAP financial measures should only be used to evaluate the Company's results of operations in conjunction with the Company’s GAAP financial information. For more information on adjusted EBITDA, adjusted core net income, and adjusted core EPS, refer to the section of this press release below titled “Adjusted Financial Measure Reconciliation to GAAP” and “Adjusted Financial Measure Reconciliation to GAAP By Segment.”

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) changes in interest rates, (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, (5) success of our various investments funded with corporate capital, and (6) 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

Consolidated Balance Sheets

Unaudited

December 31,

September 30,

June 30,

March 31,

December 31,

2023

2022

(in thousands)

Assets

Cash and cash equivalents

328,698

236,321

228,091

188,389

225,949

Restricted cash

21,422

17,768

21,769

20,504

17,676

Pledged securities, at fair value

184,081

177,509

170,666

165,081

157,282

Loans held for sale, at fair value

594,998

758,926

1,303,686

934,991

396,344

Mortgage servicing rights

907,415

921,746

932,131

946,406

975,226

Goodwill

901,710

949,710

963,710

959,712

Other intangible assets

181,975

185,927

189,919

194,208

198,643

Receivables, net

233,563

265,234

242,397

224,776

202,251

Committed investments in tax credit equity

154,028

212,296

165,136

207,750

254,154

Other assets, net

541,103

552,414

589,919

651,235

658,122

Total assets

4,048,993

4,277,851

4,807,424

4,493,052

4,045,359

Liabilities

Warehouse notes payable

596,178

790,742

1,342,187

1,031,277

537,531

Notes payable

773,358

774,677

775,995

777,311

704,103

Allowance for risk-sharing obligations

31,601

30,957

32,410

33,087

44,057

Deferred tax liabilities, net

241,169

243,442

243,424

243,485

Commitments to fund investments in tax credit equity

140,259

196,250

156,617

196,522

239,281

Other liabilities

520,299

510,792

532,276

496,335

560,073

Total liabilities

2,302,864

2,546,860

3,082,927

2,777,956

2,328,530

Stockholders' Equity

Common stock

329

328

327

323

Additional paid-in capital

425,488

420,062

412,182

405,303

412,636

Accumulated other comprehensive income (loss)

(479

)

(1,864

)

(1,465

)

(1,621

)

(1,568

)

Retained earnings

1,298,412

1,287,653

1,287,334

1,281,119

1,278,035

Total stockholders’ equity

1,723,750

1,706,179

1,698,378

1,685,128

1,689,426

Noncontrolling interests

22,379

24,812

26,119

29,968

27,403

Total equity

1,746,129

1,730,991

1,724,497

1,715,096

1,716,829

Commitments and contingencies

—

Total liabilities and stockholders' equity

4,048,993

4,277,851

4,807,424

4,493,052

4,045,359

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

Unaudited

Quarterly Trends

Years ended

December 31,

(in thousands, except per share amounts)

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Q4 2022

2023

2022

Revenues

Origination fees

66,208

56,149

64,968

47,084

72,234

234,409

348,007

MSR income

34,471

35,375

42,058

30,013

31,790

141,917

191,760

Servicing fees

79,887

79,200

77,061

75,766

77,275

311,914

300,191

Property sales broker fees

15,135

16,862

10,345

11,624

20,490

53,966

120,582

Investment management fees

537

13,362

16,309

15,173

24,586

45,381

71,931

Net warehouse interest income (expense)

(2,077

)

(2,031

)

(1,526

)

1,756

(5,633

)

15,777

Placement fees and other interest income

45,210

43,000

35,386

30,924

26,147

154,520

52,830

Other revenues

34,965

26,826

28,014

28,161

28,572

117,966

157,675

Total revenues

274,336

268,743

272,615

238,746

282,850

1,054,440

1,258,753

Expenses

Personnel

125,865

136,507

133,305

118,613

137,758

514,290

607,366

Amortization and depreciation

56,015

57,479

56,292

56,966

57,930

226,752

235,031

Provision (benefit) for credit losses

636

421

(734

)

(10,775

)

1,142

(10,452

)

(11,978

)

Interest expense on corporate debt

18,598

17,594

17,010

15,274

12,110

68,476

34,233

Goodwill impairment

48,000

14,000

—

62,000

—

Fair value adjustments to contingent consideration liabilities

(48,500

)

(14,000

)

—

(13,512

)

(62,500

)

(13,512

)

Other operating expenses

34,355

28,529

30,730

24,063

40,248

117,677

142,648

Total expenses

234,969

240,530

236,603

204,141

235,676

916,243

993,788

Income from operations

39,367

28,213

36,012

34,605

47,174

138,197

264,965

Income tax expense

10,331

7,069

10,491

7,135

9,539

35,026

56,034

Net income before noncontrolling interests

29,036

21,144

25,521

27,470

37,635

103,171

208,931

Less: net income (loss) from noncontrolling interests

(2,563

)

(314

)

(2,114

)

805

(3,857

)

(4,186

)

(4,889

)

Walker & Dunlop net income

31,599

21,458

27,635

26,665

41,492

107,357

213,820

Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes

1,385

(399

)

156

(53

)

(108

)

1,089

(4,126

)

Walker & Dunlop comprehensive income

32,984

21,059

27,791

26,612

41,384

108,446

209,694

Effective Tax Rate

Basic earnings per share

0.94

0.64

0.82

0.80

1.25

3.20

6.43

Diluted earnings per share

0.93

0.64

0.82

0.79

1.24

3.18

6.36

Cash dividends paid per common share

0.63

0.60

2.52

2.40

Basic weighted-average shares outstanding

32,825

32,737

32,695

32,529

32,361

32,697

32,326

Diluted weighted-average shares outstanding

32,941

32,895

32,851

32,816

32,675

32,875

32,687

SUPPLEMENTAL OPERATING DATA

Unaudited

Quarterly Trends

Years ended

December 31,

(in thousands, except per share data and unless otherwise noted)

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Q4 2022

2023

2022

Transaction Volume:

Components of Debt Financing Volume

Fannie Mae

1,692,405

1,739,332

2,230,952

1,358,708

994,590

7,021,397

9,950,152

Freddie Mac

1,308,263

1,072,048

1,212,887

975,737

2,305,826

4,568,935

6,320,201

Ginnie Mae - HUD

316,960

86,557

147,773

127,599

186,784

678,889

1,118,014

Brokered (1)

2,885,454

3,149,457

3,316,223

2,363,754

4,375,704

11,714,888

25,878,519

Principal Lending and Investing (2)

218,750

—

31,512

218,750

339,098

Total Debt Financing Volume

6,421,832

6,047,394

6,907,835

4,825,798

7,894,416

24,202,859

43,605,984

Property Sales Volume

2,877,399

2,508,073

1,504,383

1,894,682

3,315,287

8,784,537

19,732,654

Total Transaction Volume

9,299,231

8,555,467

8,412,218

6,720,480

11,209,703

32,987,396

63,338,638

Key Performance Metrics:

Operating margin

Return on equity

Walker & Dunlop net income

31,599

21,458

27,635

26,665

41,492

107,357

213,820

Adjusted EBITDA (3)

87,582

74,065

70,501

67,975

92,625

300,123

325,095

Diluted EPS

0.93

0.64

0.82

0.79

1.24

3.18

6.36

Adjusted core EPS (4)

1.42

1.11

0.98

1.17

1.41

4.68

5.60

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

Personnel expenses

Other operating expenses

Key Revenue Metrics (as a percentage of debt financing volume):

Origination fee margin (5)

1.05

0.93

0.97

0.92

0.97

0.80

MSR margin (6)

0.56

0.58

0.61

0.62

0.40

0.59

0.44

Agency MSR margin (7)

1.04

1.22

1.17

1.22

0.91

1.16

1.10

Other Data:

Market capitalization at period end

3,719,589

2,433,494

2,586,519

2,489,200

2,542,476

Closing share price at period end

111.01

74.24

79.09

76.17

78.48

Average headcount

1,341

1,344

1,385

1,440

1,464

Components of Servicing Portfolio (end of period):

Fannie Mae

63,699,106

62,850,853

61,356,554

59,890,444

59,226,168

Freddie Mac

39,330,545

38,656,136

38,287,200

38,184,798

37,819,256

Ginnie Mae - HUD

10,460,884

10,320,520

10,246,632

10,027,781

9,868,453

Brokered (8)

16,940,850

17,091,925

16,684,115

16,285,391

16,013,143

Principal Lending and Investing (9)

40,139

40,000

71,680

187,505

206,835

Total Servicing Portfolio

130,471,524

128,959,434

126,646,181

124,575,919

123,133,855

Assets under management (10)

17,321,452

17,334,877

16,903,055

16,654,566

16,748,449

Total Managed Portfolio

147,792,976

146,294,311

143,549,236

141,230,485

139,882,304

Key Servicing Portfolio Metrics (end of period):

Custodial escrow deposit balance (in billions)

2.7

2.8

2.2

2.7

Weighted-average servicing fee rate (basis points)

24.1

24.2

24.3

24.5

Weighted-average remaining servicing portfolio term (years)

8.2

8.4

8.6

8.7

8.8

(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)

This is a non-GAAP financial measure. For more information on adjusted core EPS, refer to the section above titled “Non-GAAP Financial Measures.”

(5)

Origination fees as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing.

(6)

MSR income as a percentage of debt financing volume. Excludes the income and debt financing volume from Principal Lending and Investing.

(7)

MSR income as a percentage of Agency debt financing volume.

(8)

Brokered loans serviced primarily for life insurance companies.

(9)

Consists of interim loans not managed for our interim loan joint venture.

(10)

Walker & Dunlop Affordable Equity, formerly known as “Alliant” assets under management, commercial real estate loans and funds managed by WDIP, and interim loans serviced for our interim loan joint venture.

KEY CREDIT METRICS

Unaudited

December 31,

September 30,

June 30,

March 31,

December 31,

(dollars in thousands)

2023

2022

Risk-sharing servicing portfolio:

Fannie Mae Full Risk

54,583,555

53,549,966

52,383,701

50,713,349

50,046,219

Fannie Mae Modified Risk

9,115,551

9,295,368

8,947,292

9,170,127

9,172,626

Freddie Mac Modified Risk

23,415

23,515

23,615

Total risk-sharing servicing portfolio

63,722,521

62,868,749

61,354,508

59,906,991

59,242,460

Non-risk-sharing servicing portfolio:

Fannie Mae No Risk

—

5,519

25,561

6,968

7,323

Freddie Mac No Risk

39,307,130

38,632,721

38,263,685

38,161,283

37,795,641

GNMA - HUD No Risk

10,460,884

10,320,520

10,246,632

10,027,781

9,868,453

Brokered

16,940,850

17,091,925

16,684,115

16,285,391

16,013,143

Total non-risk-sharing servicing portfolio

66,708,864

66,050,685

65,219,993

64,481,423

63,684,560

Total loans serviced for others

130,431,385

128,919,434

126,574,501

124,388,414

122,927,020

Interim loans (full risk) servicing portfolio

40,139

40,000

71,680

187,505

206,835

Total servicing portfolio unpaid principal balance

130,471,524

128,959,434

126,646,181

124,575,919

123,133,855

Interim Loan Joint Venture Managed Loans (1)

710,041

736,320

895,491

894,829

892,808

At-risk servicing portfolio (2)

58,801,055

57,857,659

56,430,098

54,898,461

54,232,979

Maximum exposure to at-risk portfolio (3)

11,949,041

11,750,068

11,346,580

11,132,473

10,993,596

Defaulted loans(4)

27,214

—

36,983

Defaulted loans as a percentage of the at-risk portfolio

0.05

0.00

0.07

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

0.05

0.06

0.08

Allowance for risk-sharing as a percentage of maximum exposure

0.26

0.29

0.30

0.40

(1)

This balance consists entirely of 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 had 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)

(4)

ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP

Unaudited

Quarterly Trends

Years ended

December 31,

(in thousands)

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Q4 2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

31,599

21,458

27,635

26,665

41,492

107,357

213,820

Income tax expense

10,331

7,069

10,491

7,135

9,539

35,026

56,034

Interest expense on corporate debt

18,598

17,594

17,010

15,274

12,110

68,476

34,233

Amortization and depreciation

56,015

57,479

56,292

56,966

57,930

226,752

235,031

Provision (benefit) for credit losses

636

421

(734

)

(10,775

)

1,142

(10,452

)

(11,978

)

Net write-offs (1)

—

(2,008

)

(6,033

)

—

(4,631

)

(8,041

)

(4,631

)

Stock-based compensation expense

5,374

7,427

7,898

7,143

6,833

27,842

33,987

MSR income

(34,471

)

(35,375

)

(42,058

)

(30,013

)

(31,790

)

(141,917

)

(191,760

)

Gain from revaluation of previously held equity-method investment

—

(39,641

)

Write-off of unamortized premium from corporate debt repayment

—

(4,420

)

—

(4,420

)

—

Goodwill impairment, net of contingent consideration liability fair value adjustments

(500

)

—

(500

)

—

Adjusted EBITDA

87,582

74,065

70,501

67,975

92,625

300,123

325,095

(1)

The net write-off in Q2 2023 was related to the write off of the collateral-based reserves related to a loan held for investment.

ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP BY SEGMENT

Unaudited

Capital Markets

Three months ended December 31,

(in thousands)

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

17,519

30,475

Income tax expense

6,362

(1,070

)

Interest expense on corporate debt

4,909

3,159

Amortization and depreciation

1,138

893

Stock-based compensation expense

3,435

4,744

MSR income

(34,471

)

(31,790

)

Goodwill impairment, net of contingent consideration liability fair value adjustments(1)

(500

)

—

Adjusted EBITDA

(1,608

)

6,411

Servicing & Asset Management

Three months ended December 31,

(in thousands)

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

34,071

51,059

Income tax expense

11,269

3,209

Interest expense on corporate debt

11,104

8,233

Amortization and depreciation

53,043

55,014

Provision (benefit) for credit losses

636

1,142

Net write-offs

—

(4,631

)

Stock-based compensation expense

420

515

Adjusted EBITDA

110,543

114,541

Corporate

Three months ended December 31,

(in thousands)

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income (Loss)

(19,991

)

(40,042

)

Income tax expense (benefit)

(7,300

)

7,400

Interest expense on corporate debt

2,585

718

Amortization and depreciation

1,834

2,023

Stock-based compensation expense

1,519

1,574

Adjusted EBITDA

(21,353

)

(28,327

)

(1)

For the three months ended December 31, 2023, includes goodwill impairment of $48.0 million and contingent consideration liability fair value adjustments of $48.5 million. For the three months ended ended December 31, 2022, there was no goodwill impairment.

ADJUSTED CORE EPS RECONCILIATION

Unaudited

Quarterly Trends

Years ended

December 31,

(in thousands)

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Q4 2022

2023

2022

Reconciliation of Walker & Dunlop Net Income to Adjusted Core Net Income

Walker & Dunlop Net Income

31,599

21,458

27,635

26,665

41,492

107,357

213,820

Provision (benefit) for credit losses

636

421

(734

)

(10,775

)

1,142

(10,452

)

(11,978

)

Net write-offs(1)

—

(2,008

)

(6,033

)

—

(4,631

)

(8,041

)

(4,631

)

Amortization and depreciation

56,015

57,479

56,292

56,966

57,930

226,752

235,031

MSR income

(34,471

)

(35,375

)

(42,058

)

(30,013

)

(31,790

)

(141,917

)

(191,760

)

Goodwill impairment

48,000

14,000

—

62,000

—

Contingent consideration accretion and fair value adjustments

(47,637

)

(13,426

)

176

177

(12,637

)

(60,710

)

(8,870

)

Gain from revaluation of previously held equity-method investment

—

(39,641

)

Income tax expense adjustment(2)(3)

(5,916

)

(5,285

)

(2,227

)

(3,372

)

(4,279

)

(17,141

)

(3,763

)

Adjusted Core Net Income

48,226

37,264

33,051

39,648

47,227

157,848

188,208

Reconciliation of Diluted EPS to Adjusted core EPS

Walker & Dunlop Net Income

31,599

21,458

27,635

26,665

41,492

107,357

213,820

Diluted weighted-average shares outstanding

32,941

32,895

32,851

32,816

32,675

32,875

32,687

Diluted EPS

0.93

0.64

0.82

0.79

1.24

3.18

6.36

Adjusted Core Net Income

48,226

37,264

33,051

39,648

47,227

157,848

188,208

Diluted weighted-average shares outstanding

32,941

32,895

32,851

32,816

32,675

32,875

32,687

Adjusted Core EPS

1.42

1.11

0.98

1.17

1.41

4.68

5.60

(1)

The net write-off in Q2 2023 was related to the write off of the collateral-based reserves related to a loan held for investment.

(2)

Income tax impact of the above adjustments to adjusted core net income. Uses quarterly or annual effective tax rate as disclosed in the Consolidated Statements of Income and Comprehensive Income in this “press release.”

(3)

Income tax expense adjustment for Q3 2022 included an adjustment for a one-time tax benefit of $6.3 million related to the corporate restructuring and repatriation of intellectual property acquired from an acquired subsidiary.

Category: Earnings

View source version on businesswire.com: https://www.businesswire.com/news/home/20240215066607/en/

Investors: Kelsey Duffey Senior Vice President, Investor Relations Phone 301.202.3207 investorrelations@walkeranddunlop.com

Media: Carol McNerney Chief Marketing Officer Phone 301.215.5515 info@walkeranddunlop.com

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