Walker & Dunlop post declining revenue of $85.3M for 2Q
Overall slowdown in mortgage originations pull back sales, profits
Walker & Dunlop (WD) posted total revenues for the second quarter 2014 of $85.3 million, a 6% decrease from $90.7 million for the second quarter 2013.
GAAP net income and adjusted net income for the second quarter 2014 were both $12.9 million, or $0.40 per diluted share, compared to GAAP net income of $14.5 million, or $0.42 per diluted share and adjusted net income of $15.3 million, or $0.44 per diluted share for the second quarter 2013.
"$2.4 billion in loan originations producing $85.3 million in revenue is fantastic performance given the commercial loan refinancing market is down 23% from 2013 and the GSEs' origination volumes year-to-date are down 48%," commented Willy Walker, Walker & Dunlop's Chairman and CEO. "Walker & Dunlop's market share with Fannie Mae reached an all-time high of 18% in Q2. With the GSEs back as the dominant providers of capital to the multifamily market, the continued expansion in our other business lines, and the anticipated 73% growth in refinancing volumes between 2014 and 2015, we are very well positioned for future growth.
"Originations with Fannie Mae and Freddie Mac increased 12%, accounting for 65% of our loan originations this quarter. This growth was offset by HUD, which has become a less competitive financing solution at a time when capital is abundant, dropping to only 7% of originations,” he said. “Originations by our Capital Markets team grew 7% from the second quarter 2013, which included 71% growth in loan placements to Fannie, Freddie, and HUD confirming the strategy we outlined when we launched the expansion of our Capital Markets team. We increased our average loan size by 22% over the second quarter of 2013, and while competition for deals over $20 million has intensified, leading to slight servicing fee compression, we are very excited to be winning larger and more noteworthy deals.
“Our CMBS venture is up and running with a strong pipeline and our first securitization is scheduled for the third quarter. Our on-balance-sheet lending grew 74% over the second quarter 2013. We are effectively selling Walker & Dunlop's scale and position as one of the largest GSE lenders in the country; given the GSEs' strong performance since the 2014 FHFA scorecard was released in early May, we are very pleased with our current pipeline and outlook for the next several years," Walker said.
"Our servicing portfolio finished the quarter at $39.8 billion, and continues to show its value to our financial performance as adjusted EBITDA grew to $20.9 million, up 50% over Q2 2013. Focused cost control helped drive adjusted operating margin up to 25% from 19% in the previous quarter. Overall we look forward to the remainder of 2014 with enthusiasm as we build on the momentum gained during the second quarter," concluded Walker.
Loan originations were $2.4 billion for the second quarter 2014 compared to $2.6 billion for the second quarter 2013, a 7% decrease. Loan originations with Fannie Mae and Freddie Mac increased 12% and totaled 65% of loan originations for the second quarter 2014 compared to 54% of loan originations for the second quarter 2013. HUD volumes decreased 62% from the second quarter 2013 and represented 7% of total loan originations for the second quarter 2014 compared to 16% for the second quarter 2013. Brokered loan originations decreased 16% over the second quarter 2013 and represented 25% of the quarter's volume compared to 28% for the second quarter 2013. Interim loan originations of $65.8 million increased 74% from the second quarter 2013 and represented 3% of total loan originations during the second quarter 2014 compared to 1% in the second quarter 2013.
Total revenues were $85.3 million for the second quarter 2014 compared to $90.7 million for the second quarter 2013, a 6% decrease. The decrease was driven by a 17% decline in mortgage banking gains, partially offset by a more than 700% increase in net interest income from loans made on our balance sheet, a 56% increase in other revenues and a 7% increase in servicing fees. Servicing fees increased to $24.0 million and were 28% of total revenues in the second quarter 2014. The increase in other revenues was due to a $1.4 million increase in prepayment fees over the second quarter 2013.
Gains from mortgage banking activities for the second quarter 2014 were $52.2 million compared to $63.1 million for the second quarter 2013, a 17% decrease.
Loan origination fees were $29.5 million for the second quarter 2014 compared to $34.6 million for the second quarter 2013, a 15% decrease. This decrease was due to the 7% decline in loan originations, particularly the 62% reduction in HUD loan originations, one of our more profitable products.
Gains attributable to mortgage servicing rights were $22.8 million for the second quarter 2014 compared to $28.5 million for the second quarter 2013, a 20% decrease. Credit spreads have tightened to near historic lows in recent months across the commercial real estate finance industry.
“As a result, we have experienced a reduction in the weighted average servicing fees earned on Fannie Mae originations, a portion of which represents our compensation for our risk-sharing obligation. The reduction in the servicing compensation has been most notable in larger deals (over $20 million), where we experience the most competition from banks, life insurance companies and CMBS. For the second quarter 2014, 58% of origination volumes were over $20 million compared to only 46% for the second quarter 2013,” Walker said.