Walker & Dunlop(WD) - 2025 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter of 2025 Financial Statements This section presents Walker & Dunlop's unaudited condensed consolidated financial statements for Q1 2025, highlighting a significant net income decrease to $2.8 million Condensed Consolidated Balance Sheets As of March 31, 2025, total assets increased to $4.51 billion, liabilities rose to $2.77 billion, and equity slightly decreased to $1.74 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $180,971 | $279,270 | | Loans held for sale, at fair value | $946,372 | $780,749 | | Mortgage servicing rights | $825,761 | $852,399 | | Total assets | $4,511,878 | $4,381,993 | | Warehouse notes payable | $931,002 | $781,706 | | Notes payable | $825,556 | $768,044 | | Total liabilities | $2,767,789 | $2,622,130 | | Total equity | $1,744,089 | $1,759,863 | Condensed Consolidated Statements of Income and Comprehensive Income For Q1 2025, total revenues increased 4% to $237.4 million, but expenses rose 8% to $232.1 million, leading to a 77% drop in net income to $2.8 million Q1 2025 vs Q1 2024 Income Statement (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $237,367 | $228,059 | | Total expenses | $232,123 | $214,380 | | Income from operations | $5,244 | $13,679 | | Walker & Dunlop net income | $2,754 | $11,866 | | Diluted earnings per share | $0.08 | $0.35 | - Key revenue drivers for the quarter included a 6% increase in Loan origination fees to $46.4 million, a 33% increase in Fair value of expected net cash flows from servicing to $27.8 million, and a 53% increase in Property sales broker fees to $13.5 million[13] - Personnel expense, the largest cost component, increased by 9% to $121.4 million The provision for credit losses saw a substantial increase to $3.7 million from $0.5 million in the prior year[13] Condensed Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities was $281.1 million, a significant reversal, while financing activities provided $222.0 million from new debt issuance Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(281,108) | $38,397 | | Net cash provided by (used in) investing activities | $(39,382) | $(25,050) | | Net cash provided by (used in) financing activities | $222,026 | $(124,153) | | Net decrease in cash | $(98,464) | $(110,806) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, MSRs, debt structure, and fair value measurements, highlighting $400 million Senior Notes issuance and a new stock repurchase program - The company is a leading commercial real estate services and finance company, originating, selling, and servicing debt and equity financing products, with a focus on Agency lending (Fannie Mae, Freddie Mac, HUD)[21][22] - The provision for credit losses for Q1 2025 was $3.7 million, primarily driven by the provision for risk-sharing obligations, compared to a total provision of $0.5 million in Q1 2024[26] - The fair value of Mortgage Servicing Rights (MSRs) was $1.4 billion as of March 31, 2025 A 100 basis point increase in the discount rate would decrease the fair value by $42.1 million[38] - In March 2025, the company issued $400.0 million of 6.625% senior unsecured notes due 2033 and used $328.5 million of the proceeds to pay down its existing Term Loan The company also entered into an interest rate swap to convert the new notes' fixed rate to a floating SOFR-based rate[55] - In February 2025, the Board approved a new stock repurchase program for up to $75.0 million No shares were repurchased under this program in Q1 2025 A quarterly dividend of $0.67 per share was paid[105][106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 performance, noting a 10% increase in transaction volume to $7.0 billion, but a 77% net income decline due to higher expenses Q1 2025 Key Performance Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Transaction Volume | $7,035,932 thousand | $6,394,459 thousand | | Walker & Dunlop net income | $2,754 thousand | $11,866 thousand | | Adjusted EBITDA | $64,966 thousand | $74,136 thousand | | Diluted EPS | $0.08 | $0.35 | - The business environment in Q1 2025 was shaped by volatile interest rates and new administration tariff policies, which created market turmoil However, the GSEs increased their lending caps for 2025, providing more capacity for the multifamily market[166][170] - The increase in total revenues was driven by higher loan origination fees, MSR income, and property sales fees, but was offset by declines in investment management and placement fees[182] - The increase in total expenses was primarily due to higher personnel expense (from commissions and severance), a larger provision for credit losses, and a $4.2 million write-off of debt issuance costs from the Term Loan paydown[183][188] Quantitative and Qualitative Disclosures About Market Risk The company faces market risk from interest rate changes impacting revenue, expenses, and MSR fair value, with 90% of the servicing portfolio having prepayment protections Annualized Interest Rate Sensitivity Analysis (as of March 31, 2025, in millions) | Sensitivity Scenario | Impact on Placement Fee Revenue | Impact on Net Warehouse Interest Income | Impact on Income from Operations (Corporate Debt) | | :--- | :--- | :--- | :--- | | 100 bps Rate Increase | +$24.3 | -$8.2 | -$8.5 | | 100 bps Rate Decrease | -$24.3 | +$8.2 | +$8.5 | - The fair value of MSRs is subject to market value risk As of March 31, 2025, a 100 basis point increase in the discount rate would decrease MSR fair value by approximately $42.1 million[283] - As of March 31, 2025, 90% of the loans in the servicing portfolio have prepayment protections, mitigating prepayment risk Consequently, the company does not hedge this risk[284] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[286] - No material changes were made to the internal control over financial reporting during the quarter ended March 31, 2025[287] PART II OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and other disclosures Legal Proceedings The company is involved in ordinary course legal proceedings, none expected to materially affect its financial condition or operations - The company states that it is not party to any material litigation and does not expect pending legal matters to have a material adverse effect on its financial condition[289] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes have occurred from the risk factors disclosed in the 2024 Form 10-K[290] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company purchased 97,069 shares at $88.51 for employee tax withholding, separate from its $75.0 million stock repurchase program Issuer Purchases of Equity Securities for Q1 2025 (in dollars) | Period | Total Shares Purchased | Average Price Paid per Share | Remaining Repurchase Capacity | | :--- | :--- | :--- | :--- | | Jan 1-31, 2025 | 20,132 | $95.83 | $75,000,000 | | Feb 1-29, 2025 | 58,024 | $86.41 | $75,000,000 | | Mar 1-31, 2025 | 18,913 | $87.17 | $75,000,000 | | Q1 Total | 97,069 | $88.51 | $75,000,000 | - The company had $75.0 million of authorized share repurchase capacity remaining under its 2025 Stock Repurchase Program as of March 31, 2025[291] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading agreement during the first quarter of 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the first quarter of 2025[295] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications, various agreements, and XBRL data files