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Walker & Dunlop Announces First Quarter 2016 Earnings

FIRST QUARTER 2016 HIGHLIGHTS

  • Net income of $15.5 million, or $0.50 per diluted share
  • Total transaction volume of $2.6 billion
  • Total revenues of $94.2 million
  • Adjusted EBITDA [1] of $32.4 million
  • Servicing portfolio of $51.0 billion at March 31, 2016

Walker & Dunlop, Inc. WD, +0.05% (the "Company") reported today first quarter 2016 net income of $15.5 million, or $0.50 per diluted share, a 27% decrease from first quarter 2015 net income of $21.3 million, or $0.66 per diluted share. Total revenues were $94.2 million for the first quarter 2016, a 16% decrease over the first quarter 2015. Adjusted EBITDA for the first quarter 2016 was $32.4 million compared to $35.4 million for the first quarter 2015, an 8% decrease.

"Our first quarter financial results demonstrate Walker & Dunlop's ability to generate strong earnings of $0.50 per share and near record adjusted EBITDA of $32.4 million despite volatility in the capital markets that caused commercial real estate investors to hit the pause button during the first few months of the year," commented Walker & Dunlop Chairman and CEO Willy Walker. "Multifamily property fundamentals remain strong, and Fannie Mae and Freddie Mac continue to be the dominant providers of capital to the sector. Walker & Dunlop is well positioned to benefit from the continued strength in the multifamily sector. And with the capital markets now stabilized and investor demand for properties and financing increasing, we have a strong second quarter pipeline and see great opportunity for continued growth in 2016 and beyond."

FIRST QUARTER 2016 OPERATING RESULTS

TOTAL REVENUES were $94.2 million for the first quarter 2016 compared to $112.1 million for the first quarter 2015, a 16% decrease. The decrease was the result of lower transaction volume, partially offset by higher gain on sale margins, a 55% increase in net warehouse interest income, and an 18% increase in servicing fees. Other revenues increased 6% due primarily to income from investment sales which we did not have in the first quarter 2015.

GAINS FROM MORTGAGE BANKING ACTIVITIES for the first quarter 2016 were $46.3 million compared to $72.7 million for the first quarter 2015, a 36% decrease. The decrease was driven by lower loan originations, partially offset by an increase in the gain on sale margin from 167 basis points to 188 basis points as weighted average servicing fees increased quarter over quarter. GAINS ATTRIBUTABLE TO MORTGAGE SERVICING RIGHTS ("MSRs") decreased only 24% from the first quarter 2015 to $23.9 million while loan originations decreased 43%. LOAN ORIGINATION FEES were $22.4 million for the first quarter 2016 compared to $41.4 million for the first quarter 2015, a 46% decrease.

SERVICING FEES were $31.6 million for the first quarter 2016 compared to $26.8 million for the first quarter 2015. The 18% increase was driven by the growth in the servicing portfolio, which increased from $46.1 billion at March 31, 2015 to $51.0 billion at March 31, 2016.

NET WAREHOUSE INTEREST INCOME, which includes net interest earned on loans held for sale and loans held for investment (the Company's on balance sheet interim loan portfolio), was $6.7 million for the first quarter 2016, a 55% increase from $4.4 million for the first quarter 2015. The increase in net warehouse interest income was a result of the larger average balance of loans held for sale during the quarter.

TOTAL EXPENSES were $70.1 million for the first quarter 2016 compared to $76.7 million for the first quarter 2015, a 9% decrease, which was primarily driven by a 15% decrease in personnel costs due to lower variable compensation costs. As a percentage of total revenues, personnel expense was 36% during the first quarter of 2016 and 2015.

PROVISION (BENEFIT) FOR CREDIT LOSSES was a net benefit of $0.4 million for the first quarter 2016 compared to a provision of $0.1 million for the first quarter 2015. The benefit was the result of a decline in the outstanding balance of loans held for investment and the general reserves associated with it, along with improved credit quality in the at risk portfolio.

OPERATING MARGIN was 26% for the first quarter 2016 down from 32% for the first quarter 2015. Lower operating margin is the result of lower transaction volume in the first quarter 2016.

ADJUSTED EBITDA was $32.4 million for the first quarter 2016 compared to $35.4 million for the first quarter 2015, a decrease of 8%. The decrease was driven by lower origination volume, partially offset by increases in servicing fees and net interest income and a decrease in variable compensation.

ANNUALIZED RETURN ON EQUITY was 13% for the first quarter 2016 down from 20% for the first quarter 2015, due to lower net income and higher average equity.

TOTAL TRANSACTION VOLUME for the first quarter 2016 was $2.6 billion, down 40% from $4.3 billion for the first quarter 2015. Total transaction volume includes loan origination and investment sales volumes. LOAN ORIGINATION VOLUME was down 43% from the first quarter 2015 to $2.5 billion. Brokered loan originations totaled $804.2 million, a 6% increase from the first quarter 2015. Loan originations with Fannie Mae were $763.2 million, a decrease of 44% from the first quarter 2015. Loan originations with Freddie Mac were $703.8 million, a 65% decrease from the first quarter 2015. HUD loan originations totaled $124.2 million, a 21% decrease from the first quarter 2015. CMBS originations were $63.3 million for the first quarter 2016, a 1% decrease from the first quarter 2015. There were no interim loan originations during the quarter compared to $8.4 million during the first quarter 2015. INVESTMENT SALES VOLUME was $157.0 million for the first quarter 2016. The Company entered the investment sales business during the second quarter 2015, so there was no comparable volume in the first quarter 2015.

STOCK REPURCHASE PROGRAM

On February 9, 2016, the Company's Board of Directors authorized the repurchase of up to $75.0 million of its outstanding common stock over a one year period. During the first quarter 2016 the Company repurchased 275 thousand shares for a total of $6.5 million.

SERVICING PORTFOLIO

The SERVICING PORTFOLIO totaled $51.0 billion at March 31, 2016, an increase of 11% from $46.1 billion at March 31, 2015. During the period, $4.9 billion in net loans were added to the servicing portfolio, the majority of which were Fannie Mae and Freddie Mac loans. The portfolio has a weighted average remaining term of 9.4 years and a 25 basis point WEIGHTED AVERAGE SERVICING FEE.

CREDIT QUALITY

The Company's AT RISK SERVICING PORTFOLIO, which is comprised of loans subject to a defined risk-sharing formula, was $20.1 billion at March 31, 2016 compared to $17.5 billion at March 31, 2015. There were no 60+ DAY DELINQUENCIES in the Company's at risk servicing portfolio at March 31, 2016 compared to $22.5 million at March 31, 2015.

There were no NET WRITE-OFFS for the first quarter 2016 or the first quarter 2015.

The on-balance sheet INTERIM LOAN PORTFOLIO, which is comprised of loans for which we have full risk of loss, was $191.8 million at March 31, 2016 compared to $233.7 million at March 31, 2015. All of our interim loans are current and performing at March 31, 2016.

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

Conference Call Information

The Company will host a conference call to discuss its quarterly results on Wednesday, May 4, 2016 at 8:30 a.m. Eastern time. Analysts and investors interested in participating are invited to call (877) 876-9177 from within the United States or (785) 424-1666 from outside the United States and are asked to reference the Conference ID: WDQ116. A simultaneous webcast of the call will be available on the Investor Relations section of the Walker & Dunlop website at http://www.walkerdunlop.com. Presentation materials, related to the conference call, will be...


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