Walker & Dunlop, Inc. (NYSE: WD) reported fourth quarter 2019 total revenues of $217.2 million, a quarterly record and an increase of 1% over the fourth quarter of 2018. Net income for the fourth quarter of 2019 was $42.9 million, or $1.34 per diluted share, down 6% and 5% from the fourth quarter of last year, respectively. Adjusted EBITDA of $64.1 million was up 7% over last year's fourth quarter. Fourth quarter total transaction volume grew 5% from the prior-year quarter to $9.8 billion, a quarterly record, with debt financing volume down 6% and property sales volume up 96%. The Company's Board of Directors voted to increase the quarterly dividend by 20% to $0.36 per share.
Willy Walker, Chairman and CEO commented, "During 2019 we generated record total transaction volume of $32 billion and delivered fantastic financial results while investing heavily in new banking and brokerage talent as well as innovative technology solutions that will set the foundation for future growth. We generated diluted earnings per share of $5.45, up 10% from 2018, and adjusted EBITDA of $248 million, up 13% from the previous year."
Mr. Walker continued, "During the year, we successfully recruited 26 bankers and brokers to Walker & Dunlop, expanding our salesforce by 16%. This growth allowed us to build upon our leadership position in the multifamily financing market, finishing the year as the #1 Fannie Mae DUS lender and the #3 Freddie Mac Optigo lender. As we look to 2020 and beyond, we will carry on recruiting the very best bankers and brokers in the industry to expand our client base and core revenues, while also continuing to invest in new businesses such as asset management and appraisals to expand our service offering and relevance to our clients."
FULL-YEAR 2019 OPERATING RESULTS
Total transaction volume for the year ended December 31, 2019 was $32.0 billion, a 14% increase from 2018.
Total revenues for the year ended December 31, 2019 were $817.2 million compared to $725.2 million last year, a 13% increase. The change in total revenues was largely driven by (i) a 10% increase in loan origination fees and a 5% increase in gains attributable to MSRs, both from a 5% increase in debt financing volume, (ii) a 7% increase in servicing fees related to growth in our servicing portfolio, (iii) a 32% increase in escrow earnings and other interest income resulting from an increase in the average balance of escrow accounts and a higher average escrow earnings rate during the first nine months of 2019, (iv) a 196% increase in net warehouse interest income from loans held for investment as a result of a corresponding increase in the average balance of loans held for investment, (v) 79% growth in property sales broker fees, due to a nearly doubling of property sales volume year over year, and (vi) a 14% increase in other revenues due to increases in asset management fees, income from our interim loan JV, and prepayment fees.
Total expenses for the year ended December 31, 2019 and 2018 were $586.9 million and $512.4 million, respectively. The 15% increase in total expenses was due to increases in all expense types. Personnel expense increased 16% year over year primarily due to increases in (i) salaries and benefits expenses resulting from a rise in average headcount due to the continued growth of our business, (ii) commissions expense resulting from growth in total transaction volume, and (iii) bonus expense resulting from improved company financial performance year over year and higher average headcount. Amortization and depreciation costs increased 7% due to an increase in the average balance of MSRs outstanding and an increase in write offs due to prepayments year over year. Provision for credit losses increased year over year as we experienced three defaults during 2019 on loans for which we have credit risk: two loans in our at risk servicing portfolio totaling $48.5 million and a $14.7 million loan in our interim lending portfolio. The credit quality in the remainder of our at risk servicing and interim loan portfolios remains strong, as seen in the credit quality statistics shown in the Key Credit Metrics section above. Interest expense on corporate debt increased 42% as the average balance of our long-term debt increased following the refinance and upsize of the debt in the fourth quarter of 2018, partially offset by a decrease in the spread and underlying base rate. Other operating expenses increased 7% largely due to increases in office costs due to the increase in average headcount year over year and other professional expenses related to recruiting new bankers and brokers, partially offset by the aforementioned decreases in loss on extinguishment and contingent consideration expense year over year as these expenses were unique to 2018.
Operating margin for the year ended December 31, 2019 decreased slightly from 29% in 2018 to 28%.
Net income for the year ended December 31, 2019 was $173.4 million compared to net income of $161.4 million in 2018, a 7% increase. The increase in net income was the result of an 8% increase in income from operations, as total revenues increased more than total expenses, partially offset by a slight increase in the effective tax rate from 24% during 2018 to 25% for 2019.
For the year ended December 31, 2019 and 2018, adjusted EBITDA was $247.9 million and $220.1 million, respectively. The 13% year-over-year increase was driven by growth in nearly all areas of revenues, partially offset by increases in personnel expense and other operating expenses.
For the year ended December 31, 2019 and 2018, return on equity was 18% and 19%, respectively. The decrease is due to a 15% year-over-year increase in stockholders' equity, partially offset by the 7% increase in net income.
DIVIDENDS AND SHARE REPURCHASES
On February 4, 2020, our Board of Directors declared a quarterly dividend of $0.36 per share, a 20% increase from the quarterly dividends declared in 2019. The dividend will be paid March 9, 2020 to all holders of record of our restricted and unrestricted common stock and restricted stock units as of February 21, 2020.
During the fourth quarter of 2019, we did not repurchase any shares. During the year ended December 31, 2019, we repurchased 135 thousand shares of our common stock at a weighted average price of $48.52 per share for a total cost of $6.6 million. As of December 31, 2019, we had $45.8 million of share repurchase capacity remaining under our 2019 share repurchase program.
On February 4, 2020, the Company's Board of Directors authorized the repurchase of up to $50 million of the Company's outstanding common stock over the coming one-year period.
Purchases made pursuant to the 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" and "Adjusted Financial Metric Reconciliation to GAAP."
2 Includes debt financing volumes from our interim loan platform, our interim loan joint venture, and JCR separate accounts.
3 Excludes the income and debt financing volume from Principal Lending and Investing.
4 The fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained, as a percentage of Agency volume.
5 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.
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.
About Walker & Dunlop
Walker & Dunlop (NYSE: WD), headquartered in Bethesda, Maryland, is one of the largest commercial real estate finance companies in the United States. The Company provides a comprehensive range of capital solutions for all commercial real estate asset classes, as well as investment sales brokerage services to owners of multifamily properties. Walker & Dunlop is included on the S&P SmallCap 600 Index and was ranked as one of FORTUNE Magazine's Fastest Growing Companies in 2014, 2017, and 2018. Walker & Dunlop's 800+ professionals in 39 offices across the nation have an unyielding commitment to client satisfaction.
