Walker & Dunlop Net Income Drops as Legacy Loan Costs Rise
The commercial real estate finance company reported net income of $3.0 million for the second quarter.
Walker & Dunlop (WD), a commercial real estate finance company, reported a 91% year-over-year decline in net income to $3.0 million for the second quarter.
The result marked a sharp reversal from the first quarter, when net income rose 476% year-over-year to $15.9 million. The downturn occurred despite a modest increase in total transaction volume, which rose 3% year-over-year to $14.4 billion, up from $13.7 billion in the prior quarter.
Total revenues for the second quarter decreased 4% year-over-year to $306.7 million. This followed a period of growth in the first quarter, where revenues had increased 27% year-over-year to $301.3 million. Adjusted core EPS grew 3% year-over-year to $1.19, a deceleration from the 20% increase to $1.02 reported in the first quarter.
Operating and credit-related expenses tied to legacy indemnified and repurchased loans rose to $23.2 million in the second quarter, up from $10 million in the first quarter. Defaulted loans as a percentage of the at-risk portfolio also increased to 0.28%, compared to 0.24% in the first quarter and 0.17% in the second quarter of 2024.
Growth in lending activity provided a counterweight to the legacy loan costs. Debt financing volume increased 44% year-to-date to $24.3 billion, driven by 43% growth in HUD originations and 17% growth in brokered lending during the second quarter. The company also increased its GSE market share by 350 basis points year-to-date to 14.7%, up from 11.2% in 2024.
The servicing portfolio grew 6% year-over-year to $145.8 billion as of June 30, 2024, though the figure declined sequentially from $146.4 billion in the first quarter. Net warehouse interest income improved to a gain of $369 thousand, compared to a gain of $25 thousand in the first quarter and a loss of $909 thousand in the fourth quarter of 2023.
Walker & Dunlop reduced its total repurchased loan exposure by $39.4 million since the end of the second quarter to $153.8 million, maintaining $41.7 million in reserves. The company ceased share repurchases in the second quarter after spending $13.3 million to buy back 283 thousand shares in the first quarter.