Walker & Dunlop Reports Third Quarter 2024 Financial Results

Walker & Dunlop, Inc. (NYSE: WD) (the “Company,” or “Walker & Dunlop”) reported quarterly total transaction volume of $11.6 billion, up 36% from the third quarter of 2023, which drove total revenues of $292.3 million, up 9% year over year. Net income for the third quarter of 2024 was up 34% year over year to $28.8 million, while diluted earnings per share of $0.85 was up 33%. Adjusted EBITDA increased 7% to $78.9 million, reflecting the growth in transaction volumes year over year. Adjusted core EPS, which removes primarily non-cash revenues and expenses, was up 7% year over year to $1.19. The Company’s Board of Directors declared a dividend of $0.65 per share for the fourth quarter 2024.

“The commercial real estate market continues to improve, supported by strong fundamentals that are attracting capital to the market and driving an increase in acquisition and financing activity,” commented Walker & Dunlop Chairman and CEO Willy Walker. “As a result, nearly all of our key financial results improved in the third quarter, including a 33% year-over-year increase in diluted earnings per share to $0.85 driven by $11.6 billion of total transaction volume, up 36% year over year and 37% sequentially from Q2’24.”

“We carried the market’s momentum into the fourth quarter, and while rate movements and the presidential election have been headwinds, it is our belief that we are at the beginning of the next commercial real estate cycle where profits will be harvested, loans will be refinanced, and capital will be deployed – all generating demand for Walker & Dunlop’s capital and services,” continued Walker. “Our scaled servicing and asset management business will continue to generate strong recurring cash revenues as our Capital Markets business recovers and grows in the next cycle. Our continued investments in the people of Walker & Dunlop, our brand, and our technology position us extremely well to grow our financial results on the top and bottom line over the next several years.”

DISCUSSION OF QUARTERLY RESULTS:

• As interest rates stabilized during the third quarter of 2024, capital flows increased causing a surge in multifamily property sales this quarter. Consequently, our property sales volume increased dramatically to $3.6 billion, a 44% increase over the third quarter of 2023.
• The acceleration of multifamily property sales activity caused an increased need for debt financing, as many sales transactions rely on debt financing. Fannie Mae and Freddie Mac are the largest providers of capital to the multifamily sector, and we are the largest Fannie Mae lender and third largest Freddie Mac lender. Consequently, our lending volumes with the GSE’s grew to a combined $3.5 billion during the third quarter of 2024, an increase of 26% over the same quarter last year.
• The year-over-year increase in HUD financing volume solidified Walker & Dunlop as the 2^nd largest HUD lender for their fiscal year ended September 30, 2024, up from 5^th in 2023.
• The 28% increase in brokered volume was primarily the result of an expanding supply of capital from life insurance companies, banks, CMBS and other private capital providers, highlighted by a $1.2 billion refinancing of a marquee mixed-use property in the current quarter.

DISCUSSION OF QUARTERLY RESULTS:

• Our servicing portfolio continues to expand as a result of additional Agency debt financing volumes over the past 12 months, partially offset by principal paydowns and loan payoffs.
• During the third quarter of 2024, we added $1.3 billion of net loans to our servicing portfolio, and over the past 12 months, we added $5.1 billion of net loans to our servicing portfolio, almost all of which were Agency loans.
• $11.4 billion of Agency loans in our servicing portfolio are scheduled to mature over the next two years. These loans, with a lower weighted-average servicing fee of 22.6 basis points, represent only 10% of the total Agency loans in our portfolio.
• The mortgage servicing rights (“MSRs”) associated with our servicing portfolio had a fair value of $1.4 billion as of both September 30, 2024 and 2023.
• Assets under management as of September 30, 2024 consisted of $15.8 billion of low-income housing tax credit (“LIHTC”) funds, $1.5 billion of debt funds, and $1.0 billion of equity funds managed by Walker & Dunlop Investment Partners, Inc. The 5% increase in assets under management was due to increases in all three categories.

DISCUSSION OF QUARTERLY RESULTS:

• Net income and diluted EPS increased 34% and 33%, respectively, in the third quarter of 2024 compared to the same period in 2023, primarily driven by higher origination fees and non-cash MSR income from increased Agency debt financing volume year over year. The increase in net income also drove the increase in return on equity to 7% for the third quarter of 2024.
• The 7% increase in adjusted EBITDA was largely due to higher origination fees, servicing fees, and property sale broker fees, partially offset by decreases in investment management fees, and other revenues and increases in variable personnel expenses tied to higher transaction activity, and other operating expenses.
• Adjusted core EPS, which excludes, among other items, the impacts of non-cash MSR income and amortization, the provision for credit losses, and acquisition-related costs, such as amortization of intangible assets, rose to $1.19 from $1.11 in the third quarter of 2024. The increase was largely due to the same factors causing the increase in adjusted EBITDA.
• The operating margin increase in the third quarter of 2024 was largely due to the growth in total transaction volume that drove a 33% increase to our income from operations.

DISCUSSION OF QUARTERLY 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. 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.
• As of September 30, 2024, seven at-risk loans were in default with an aggregate unpaid principal balance (“UPB”) of $59.6 million compared to none as of September 30, 2023. The collateral-based reserves on defaulted loans were $6.5 million and zero as of September 30, 2024 and September 30, 2023, respectively. The approximately 3,000 remaining loans in the at-risk servicing portfolio continue to exhibit strong credit quality, with low levels of delinquencies and strong operating performance of the underlying properties in the portfolio.
• During the first quarter of 2024, we repurchased a Fannie Mae loan for $13.5 million in cash. We have an immaterial reserve for credit losses related to this loan. In 2023, we received repurchase requests from Freddie Mac related to two loans with UPBs of $11.4 million and $34.8 million, respectively. In the first quarter of 2024, we entered into forbearance and indemnification agreements with Freddie Mac that, among other things, delayed the repurchases of these loans and transferred the risk of loss for both loans from Freddie Mac to Walker & Dunlop. The forbearance and indemnification agreement for one of the loans was extended during the third quarter of 2024, and both now expire in March 2025. As of September 30, 2024, the aggregate UPB of repurchased and indemnified loans totaled $61.8 million, and we have recorded collateral based reserves of $8.4 million for those loans.
• During the third quarter of 2024, we recorded a provision for credit losses of $3.0 million, primarily related to an increase in the estimated losses associated with the portfolio of repurchased and indemnified assets described in the previous bullet point.

THIRD QUARTER 2024
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 4% from the third quarter of 2023, primarily due to an increase in interest expense on borrowings to support our LIHTC operations, which is included as a component of interest expense on corporate debt.
• Income tax expense increased $1.8 million, or 25%, from the third quarter of 2023, primarily as a result of the 33% increase in income from operations, partially offset by a decrease in the effective tax rate from 25% to 24% year over year. The decrease in the effective tax rate was primarily due to a $1.1 million tax adjustment to our international tax accruals due to a lower than estimated amount of taxes in our 2022 return, which was recently filed timely.

CAPITAL MARKETS – DISCUSSION OF QUARTERLY RESULTS:

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

• Origination fees increased in the third quarter of 2024 primarily because of the increase in debt financing volume. MSR income increased primarily due to 32% growth in Agency financing volume that was partially offset by a decline in the Agency MSR rate, largely driven by a decrease in FNMA loans as a percentage of Agency debt financing volume during the quarter.
• Property sales broker fees increased year over year as a result of the 44% increase in property sales volumes, partially offset by a decrease in the fee margin.
• Personnel expense increased in the third quarter of 2024 primarily due to an increase in commission expenses related to higher origination fees and property sales broker fees, and an increase in subjective bonus expense tied to overall company performance.
• During the third quarter of 2024, the fair value adjustments made to contingent consideration liabilities were associated with a much smaller acquisition than those made in the prior year, leading to the change year over year. Additionally, the fair value adjustments made in the third quarter of 2024 did not trigger a goodwill impairment consideration event, while the adjustments in the third quarter of 2023 did, resulting in the decrease in goodwill impairment year over year.

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 $5.1 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 weighted-average servicing fee year over year.
• Investment management fees decreased primarily due to a decline in the accrual for investment management fees from our LIHTC funds resulting from lower anticipated revenues for the year.
• Other revenues primarily decreased as a result of lower syndication and other revenues related to a 78% decline in gross equity raised year over year, as the closing of one of our LIHTC funds was delayed in the third quarter of 2024.
• Personnel expense increased primarily due to increased salaries and benefits resulting from an 8% increase in average segment headcount year over year combined with an increase in variable compensation costs.
• The provision for credit losses in 2024 was primarily attributable to the $3.0 million increase in the fair value of the forbearance and indemnification agreements with Freddie Mac, as noted above in our Key Credit Metrics, with no comparable activity in the prior year.
• Other operating expenses increased primarily as a result of costs associated with operating properties controlled through loan repurchase or indemnification, with no comparable activity in the prior year.

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.

• Other revenues, which primarily consist of gains and losses on equity-method investments, shifted from a loss in the third quarter of 2023 to a gain in the third quarter of 2024.
• The decrease in personnel expense was primarily driven by a decrease in subjective bonus expenses tied to company performance, principally for our executive officers. This decrease was partially offset by an increase in salaries and benefits from a 2% higher average segment headcount year over year.

YEAR-TO-DATE 2024
CONSOLIDATED OPERATING RESULTS

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 $3.9 million, or 8%, from 2023, primarily as a result of an increase in interest rates on our term loan year over year, as our term loan carries a floating interest rate. Additionally, interest expense on borrowings to support our LIHTC operations, which is also included as a component of interest expense on corporate debt, increased year over year as the amount of borrowings increased.
• Income tax expense decreased $5.1 million, or 21%, from 2023, primarily as a result of the 20% decrease in income from operations and the aforementioned decrease in international tax accruals.

DISCUSSION OF YEAR-TO-DATE RESULTS:

• The 12% increase in total transaction volume was primarily driven by the 27% increase in brokered debt financing volume and 7% increase in property sales financing volume, partially offset by a 17% decline in Fannie Mae debt financing volume.
• The 16% decrease in Walker & Dunlop net income was primarily as a result of a 20% decrease in income from operations driven by: (i) a 9% decline in non-cash MSR income from lower Fannie Mae debt financing volume, (ii) a 16% decrease in other revenues, (iii) a net provision for credit losses in 2024 compared to a net benefit in 2023, and (iv) a 12% increase in other operating expenses. These factors driving income from operations down were partially offset by a (i) 9% increase in origination fees due to the increase in debt financing volume, partially offset by a decrease in Agency debt financing volume as a percentage of overall debt financing volume; (ii) 5% growth in servicing fees, and (iii) a 13% increase in placement fees and other interest income primarily due to elevated earnings rates on deposits tied to short-term interest rates.
• The decrease in other revenues was primarily attributable to (i) a decrease in investment banking revenues year over year, as we closed the largest investment banking transaction in our history in 2023 with no similar transaction in the current year, (ii) a decline in syndication and other revenues related to a decline in gross equity raised year over year as the closing of one of our LIHTC funds was delayed in the third quarter of 2024, and (iii) the write-off of debt premium related to the payoff of fixed-rate debt in 2023 with no comparable activity in 2024.
• The provision for credit losses in 2024 was primarily related to a $7.6 million provision for other credit losses related to repurchased and indemnified loans discussed above in our Key Credit Metrics, with no comparable activity in 2023. The net benefit for credit losses in 2023 related primarily an annual update of our historical loss rate.
• The increase in other operating expenses was primarily related to increases in expenses associated with multi-year software and data contracts that are used throughout our business, and miscellaneous expenses, including the costs associated with operating properties noted above.
• Adjusted EBITDA increased 10% primarily due to increased origination fees, servicing fees, and placement fees and other interest income and a decrease in net write-offs, partially offset by decreases in investment management fees and other revenues and increases in personnel and other operating expenses.
• Diluted EPS decreased 17% year over year, compared to an 11% increase in our adjusted core EPS year over year. The main drivers of the difference between diluted EPS and adjusted core EPS relate to a decrease in non-cash MSR income and an increase to non-cash provision for credit loss expenses, which are removed from adjusted core EPS. Diluted EPS incorporates the impact of those items, while adjusted core EPS excludes those items and reflects the year-over-year growth of our recurring revenue streams. Additionally, net write-offs, a cash-related reduction for adjusted core EPS decreased, resulting in increased adjusted core EPS. This cash-related reduction for adjusted core EPS is not included in diluted EPS.
• Operating margin decreased primarily due to changes in our non-cash activity, including: (i) a decline of MSR income due to lower Fannie Mae debt financing volume, (ii) a change from a large benefit for credit losses in 2023 to a provision for credit losses in 2024, and (iii) other changes as noted above describing the decrease in income from operations.

YEAR-TO-DATE 2024
FINANCIAL RESULTS BY SEGMENT

CAPITAL MARKETS – DISCUSSION OF YEAR-TO-DATE RESULTS:

• The increase in origination fees was largely driven by a 13% increase in debt financing volume year over year, partially offset by a slight decline in our origination fee rate due to the shift in the mix of our debt financing volume towards brokered debt financing volume.
• The decreases in our MSR income and Agency MSR rate were primarily attributable to a decline in Fannie Mae debt financing volume in 2024. Fannie Mae volume as a percentage of total debt financing volume decreased from 30% to 22% year over year. Fannie Mae loans produce higher MSR income compared to our other product types, due to their higher weighted average servicing fees.
• The decrease in other revenues was primarily related to the closing of the largest investment banking deal in the Company’s history, a $7.5 million transaction, which closed in the first quarter of 2023, with no comparable transaction in 2024.
• Personnel expense decreased year over year primarily as a result of a 7% lower average segment headcount, partially offset by increased commission costs related to higher origination fees in 2024.
• During 2024, the fair value adjustments made to contingent consideration liabilities were associated with a much smaller acquisition than those made in the prior year, leading to the change year over year. Additionally, the fair value adjustments made in 2024 did not trigger a goodwill impairment consideration event, while the adjustments in 2023 did, resulting in the decrease in goodwill impairment year over year.

SERVICING & ASSET MANAGEMENT – DISCUSSION OF YEAR-TO-DATE RESULTS:

• The $5.1 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 weighted average servicing fee.
• Investment management fees decreased primarily due to a decline in the accrual for investment management fees from our LIHTC funds due to lower anticipated revenues for the year.
• Placement fees and other interest income increased largely as a result of higher placement fees earned on deposits due to higher short-term interest rates. Additionally, the average escrow balance increased in 2024.
• The decrease in other revenues was primarily related to a decline in syndication and other revenues related to a decline in gross equity raised year over year as the closing of one of our LIHTC funds was delayed in the third quarter of 2024.
• Personnel expense increased primarily due to increased salaries and benefits due to a 5% increase in average segment headcount year over year.
• The provision for credit losses in 2024 was primarily related to a $7.6 million provision for credit losses related to repurchased and indemnified loans, as noted in our Key Credit Metrics, with no comparable activity in 2023. The benefit for credit losses in 2023 related primarily to the update of our historical loss rate.

CORPORATE – DISCUSSION OF YEAR-TO-DATE RESULTS:

• Total revenues increased as a result of higher interest income earned on our corporate and fund cash balances and an increase in income from equity-method investments.
• The increase in other operating expenses was primarily the result of increased travel and entertainment, software, and miscellaneous expenses year over year.

CAPITAL SOURCES AND USES

On November 6, 2024, the Company’s Board of Directors declared a dividend of $0.65 per share for the fourth quarter of 2024. The dividend will be paid on December 6, 2024, to all holders of record of the Company’s restricted and unrestricted common stock as of November 22, 2024.

In May 2024, the Company entered into a second amendment to the existing credit agreement that, among other things, decreased the interest rate of the incremental $200 million borrowing by 0.75% per annum, to Term SOFR plus 2.25% per annum, and combined the incremental term loan with the initial term loan to create a single fungible $800 million senior secured term loan.

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 (the “2024 Share Repurchase Program”). We have not repurchased any shares of common stock under the 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.

CONFERENCE CALL INFORMATION

Listeners can access the Company’s quarterly conference call for more information regarding our financial results 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.

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 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 compensation expense, 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, 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.