UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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As of April 28, 2022, there were
Walker & Dunlop, Inc.
Form 10-Q
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
March 31, 2022 | December 31, 2021 | ||||||
Assets |
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Cash and cash equivalents | $ | | $ | | |||
Restricted cash |
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Pledged securities, at fair value |
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Loans held for sale, at fair value |
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Loans held for investment, net |
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Mortgage servicing rights |
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Goodwill | | | |||||
Other intangible assets |
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Derivative assets |
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Receivables, net |
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Committed investments in tax credit equity | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
Liabilities | |||||||
Warehouse notes payable | $ | | $ | | |||
Notes payable |
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Allowance for risk-sharing obligations |
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Derivative liabilities |
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Commitments to fund investments in tax credit equity | | | |||||
Other liabilities | | | |||||
Total liabilities | $ | | $ | | |||
Stockholders' Equity | |||||||
Preferred stock (authorized | $ | $ | |||||
Common stock ($ |
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Additional paid-in capital ("APIC") |
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Accumulated other comprehensive income ("AOCI") | | | |||||
Retained earnings |
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Total stockholders’ equity | $ | | $ | | |||
Noncontrolling interests |
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Total equity | $ | | $ | | |||
Commitments and contingencies (NOTES 2 and 9) |
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Total liabilities and equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share data)
(Unaudited)
For the three months ended | |||||||
March 31, | |||||||
| 2022 |
| 2021 |
| |||
Revenues | |||||||
Loan origination and debt brokerage fees, net | $ | | $ | | |||
Fair value of expected net cash flows from servicing, net | | | |||||
Servicing fees |
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Property sales broker fees | | | |||||
Net warehouse interest income |
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Escrow earnings and other interest income |
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Other revenues |
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Total revenues | $ | | $ | | |||
Expenses | |||||||
Personnel | $ | | $ | | |||
Amortization and depreciation | | | |||||
Provision (benefit) for credit losses |
| ( |
| ( | |||
Interest expense on corporate debt |
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| | |||
Other operating expenses |
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| | |||
Total expenses | $ | | $ | | |||
Income from operations | $ | | $ | | |||
Income tax expense |
| |
| | |||
Net income before noncontrolling interests | $ | | $ | | |||
Less: net income (loss) from noncontrolling interests |
| ( |
| — | |||
Walker & Dunlop net income | $ | | $ | | |||
Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes | ( | ( | |||||
Walker & Dunlop comprehensive income | $ | | $ | | |||
Basic earnings per share (NOTE 10) | $ | | $ | | |||
Diluted earnings per share (NOTE 10) | $ | | $ | | |||
Basic weighted-average shares outstanding |
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Diluted weighted-average shares outstanding | |
| |
See accompanying notes to condensed consolidated financial statements.
4
Walker & Dunlop, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(In thousands, except per share data)
(Unaudited)
For the three months ended March 31, 2022 | |||||||||||||||||||||
Stockholders' Equity | |||||||||||||||||||||
Common Stock | Retained | Noncontrolling | Total Stockholders' | ||||||||||||||||||
| Shares |
| Amount |
| APIC |
| AOCI |
| Earnings |
| Interests |
| Equity |
| |||||||
Balance at December 31, 2021 | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Walker & Dunlop net income | — | — | — | — | | — | | ||||||||||||||
Net income (loss) from noncontrolling interests | — | — | — | — | — | ( | ( | ||||||||||||||
Other comprehensive income (loss), net of tax | — | — | — | ( | — | — | ( | ||||||||||||||
Stock-based compensation - equity classified | — | — | | — | — | — | | ||||||||||||||
Issuance of common stock in connection with equity compensation plans | | | | — | — | — | | ||||||||||||||
Repurchase and retirement of common stock | ( | ( | ( | — | — | — | ( | ||||||||||||||
Noncontrolling interests added due to new consolidations | — | — | ( | — | — | | | ||||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | — | ( | ||||||||||||||
Balance at March 31, 2022 | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
For the three months ended March 31, 2021 | ||||||||||||||||||
Stockholders' Equity | ||||||||||||||||||
Common Stock | Retained | Total Stockholders' | ||||||||||||||||
| Shares |
| Amount |
| APIC |
| AOCI |
| Earnings |
| Equity | |||||||
Balance at December 31, 2020 | | $ | | $ | | $ | | $ | | $ | | |||||||
Walker & Dunlop net income | — | — | — | — | | | ||||||||||||
Other comprehensive income (loss), net of tax | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation - equity classified | — | — | | — | — | | ||||||||||||
Issuance of common stock in connection with equity compensation plans | | | | — | — | | ||||||||||||
Repurchase and retirement of common stock | ( | ( | ( | — | — | ( | ||||||||||||
Cash dividends paid ($ | — | — | — | — | ( | ( | ||||||||||||
Balance at March 31, 2021 | | $ | | $ | | $ | | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
5
Walker & Dunlop, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the three months ended March 31, |
| ||||||
| 2022 |
| 2021 |
| |||
Cash flows from operating activities | |||||||
Net income before noncontrolling interests | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Gains attributable to the fair value of future servicing rights, net of guaranty obligation |
| ( |
| ( | |||
Change in the fair value of premiums and origination fees |
| |
| | |||
Amortization and depreciation |
| |
| | |||
Provision (benefit) for credit losses |
| ( |
| ( | |||
Gain from revaluation of previously held equity-method investment | ( | — | |||||
Originations of loans held for sale | ( | ( | |||||
Proceeds from transfers of loans held for sale | | | |||||
Other operating activities, net | ( | ( | |||||
Net cash provided by (used in) operating activities | $ | | $ | | |||
Cash flows from investing activities | |||||||
Capital expenditures | $ | ( | $ | ( | |||
Purchases of equity-method investments | ( | ( | |||||
Purchases of pledged available-for-sale ("AFS") securities | ( | ( | |||||
Proceeds from prepayment and sale of pledged AFS securities | | | |||||
Investments in joint ventures | ( | ( | |||||
Distributions from joint ventures | | | |||||
Acquisitions, net of cash received | ( | ( | |||||
Originations of loans held for investment |
| ( |
| ( | |||
Principal collected on loans held for investment |
| |
| | |||
Net cash provided by (used in) investing activities | $ | ( | $ | | |||
Cash flows from financing activities | |||||||
Borrowings (repayments) of warehouse notes payable, net | $ | ( | $ | ( | |||
Borrowings of interim warehouse notes payable |
| — |
| | |||
Repayments of interim warehouse notes payable |
| ( |
| ( | |||
Repayments of notes payable |
| ( |
| ( | |||
Proceeds from issuance of common stock |
| |
| | |||
Repurchase of common stock |
| ( |
| ( | |||
Cash dividends paid | ( | ( | |||||
Payment of contingent consideration | ( | — | |||||
Debt issuance costs |
| ( |
| ( | |||
Net cash provided by (used in) financing activities | $ | ( | $ | ( | |||
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents (NOTE 2) | $ | ( | $ | ( | |||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period |
| |
| | |||
Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | | $ | | |||
Supplemental Disclosure of Cash Flow Information: | |||||||
Cash paid to third parties for interest | $ | | $ | | |||
Cash paid for income taxes | | — |
See accompanying notes to condensed consolidated financial statements.
6
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION
These financial statements represent the condensed consolidated financial position and results of operations of Walker & Dunlop, Inc. and its subsidiaries. Unless the context otherwise requires, references to “we,” “us,” “our,” “Walker & Dunlop” and the “Company” mean the Walker & Dunlop consolidated companies. The statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they may not include certain financial statement disclosures and other information required for annual financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the Company in the interim periods presented have been included. Results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or thereafter.
Walker & Dunlop, Inc. is a holding company and conducts the majority of its operations through Walker & Dunlop, LLC, the operating company. Walker & Dunlop is one of the leading commercial real estate services and finance companies in the United States. The Company originates, sells, and services a range of commercial real estate debt and equity financing products, provides multifamily property sales brokerage and valuation services, engages in commercial real estate investment management activities with a particular focus on the affordable housing sector through low-income housing tax credit (“LIHTC”) syndication, provides housing market research, and delivers real estate-related investment banking and advisory services.
Through its agency lending products, the Company originates and sells loans pursuant to the programs of the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac” and, together with Fannie Mae, the “GSEs”), the Government National Mortgage Association (“Ginnie Mae”), and the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (together with Ginnie Mae, “HUD”). Through its debt brokerage products, the Company brokers, and in some cases services, loans for various life insurance companies, commercial banks, commercial mortgage-backed securities issuers, and other institutional investors.
The Company also provides a variety of commercial real estate debt and equity solutions through its principal lending and investing products. Interim loans on multifamily properties are offered (i) through the Company and recorded on the Company’s balance sheet (the “Interim Loan Program”) and (ii) through a joint venture with an affiliate of Blackstone Mortgage Trust, Inc., in which the Company holds a
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The condensed consolidated financial statements include the accounts of Walker & Dunlop, Inc., its wholly owned subsidiaries, and its majority owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or the voting interest model. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it holds a variable interest in a VIE and has a controlling financial interest and therefore is considered the primary beneficiary, the Company consolidates the entity. In instances where the Company holds a variable interest in a VIE but is not the primary beneficiary, the Company uses the equity-method of accounting.
If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity. If the Company does not have a majority voting interest but has significant influence, it uses the equity method of accounting. In instances where the Company owns less than 100% of the equity interests of an entity but owns a majority of the voting interests or has control over an entity, the Company accounts for the portion of equity not attributable to Walker & Dunlop, Inc. as Noncontrolling interests on the Condensed Consolidated Balance Sheets and the portion of net income not attributable to Walker & Dunlop, Inc. as Net income (loss) from noncontrolling interests in the Condensed Consolidated Statements of Income.
7
Use of Estimates—The preparation of condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, including the allowance for risk-sharing obligations, capitalized mortgage servicing rights, asset management fee receivable related to LIHTC funds, derivative instruments, estimation of contingent consideration for business combinations, estimation of the fair value of the Apprise joint venture (as discussed in NOTE 7), and the disclosure of contingent assets and liabilities. Actual results may vary from these estimates.
Co-broker Fees—Co-broker fees, which are netted against Loan origination and debt brokerage fees, net in the Condensed Consolidated Statements of Income, were $
Loans Held for Investment, net—Loans held for investment are multifamily loans originated by the Company through the Interim Loan Program for properties that currently do not qualify for permanent GSE or HUD (collectively, the “Agencies”) financing. These loans have terms of up to
As of March 31, 2022, Loans held for investment, net consisted of
The Company assesses the credit quality of loans held for investment in the same manner as it does for the loans in the Fannie Mae at-risk portfolio and records an allowance for these loans as necessary. The allowance for loan losses is estimated collectively for loans with similar characteristics. The collective allowance is based on the same methodology that the Company uses to estimate its allowance for risk-sharing obligations under the Current Expected Credit Losses (“CECL”) standard for at-risk Fannie Mae Delegated Underwriting and Servicing (“DUS”) loans (with the exception of a reversion period) because the nature of the underlying collateral is the same, and the loans have similar characteristics, except they are significantly shorter in maturity. The reasonable and supportable forecast period used for the CECL allowance for loans held for investment is
The loss rate for the forecast period was
Provision (Benefit) for Credit Losses—The Company records the income statement impact of the changes in the allowance for loan losses and the allowance for risk-sharing obligations within Provision (benefit) for credit losses in the Condensed Consolidated Statements of Income. NOTE 4 contains additional discussion related to the allowance for risk-sharing obligations. Provision (benefit) for credit losses consisted of the following activity for the three months ended March 31, 2022 and 2021:
8
For the three months ended | |||||||
March 31, | |||||||
Components of Provision (Benefit) for Credit Losses (in thousands) |
| 2022 |
| 2021 |
| ||
Provision (benefit) for loan losses | $ | ( | $ | ( | |||
Provision (benefit) for risk-sharing obligations |
| ( |
| ( | |||
Provision (benefit) for credit losses | $ | ( | $ | ( | |||
Net Warehouse Interest Income—The Company presents warehouse interest income net of warehouse interest expense. Warehouse interest income is the interest earned from loans held for sale and loans held for investment. Generally, a substantial portion of the Company’s loans is financed with matched borrowings under one of its warehouse facilities. The remaining portion of loans not funded with matched borrowings is financed with the Company’s own cash. The Company also fully funds a small number of loans held for sale or loans held for investment with its own cash. Warehouse interest expense is incurred on borrowings used to fund loans solely while they are held for sale or for investment. Warehouse interest income and expense are earned or incurred on loans held for sale after a loan is closed and before a loan is sold. Warehouse interest income and expense are earned or incurred on loans held for investment after a loan is closed and before a loan is repaid. The Company had a portfolio of participating interests in loans held for investment that was accounted for as a secured borrowing and paid off in the second quarter of 2021. The Company recognized Net warehouse interest income on the unpaid principal balance of the loans and secured borrowing for the three months ended March 31, 2021. Included in Net warehouse interest income for the three months ended March 31, 2022 and 2021 are the following components:
For the three months ended | |||||||
March 31, | |||||||
Components of Net Warehouse Interest Income (in thousands) |
| 2022 |
| 2021 |
| ||
Warehouse interest income - loans held for sale | $ | | $ | | |||
Warehouse interest expense - loans held for sale |
| ( |
| ( | |||
Net warehouse interest income - loans held for sale | $ | | $ | | |||
Warehouse interest income - loans held for investment | $ | | $ | | |||
Warehouse interest expense - loans held for investment |
| ( |
| ( | |||
Warehouse interest income - secured borrowings | — | | |||||
Warehouse interest expense - secured borrowings | — | ( | |||||
Net warehouse interest income - loans held for investment | $ | | $ | | |||
Total net warehouse interest income | $ | | $ | | |||
Statement of Cash Flows—For presentation in the Condensed Consolidated Statements of Cash Flows, the Company considers pledged cash and cash equivalents (as detailed in NOTE 9) to be restricted cash and restricted cash equivalents. The following table presents a reconciliation of the total cash, cash equivalents, restricted cash, and restricted cash equivalents as presented in the Condensed Consolidated Statements of Cash Flows to the related captions in the Condensed Consolidated Balance Sheets as of March 31, 2022 and 2021 and December 31, 2021 and 2020.
March 31, | December 31, | |||||||||||
(in thousands) | 2022 |
| 2021 |
| 2021 |
| 2020 |
| ||||
Cash and cash equivalents | $ | | $ | | $ | | $ | | ||||
Restricted cash | | | | | ||||||||
Pledged cash and cash equivalents (NOTE 9) |
| |
| |
| |
| | ||||
Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | | $ | | $ | | $ | |
Income Taxes—The Company records the realizable excess tax benefits from stock-based compensation as a reduction to income tax expense. The realizable excess tax benefits were $
9
Contracts with Customers—A majority of the Company’s revenues are derived from the following sources, all of which are excluded from the accounting provisions applicable to contracts with customers: (i) financial instruments, (ii) transfers and servicing, (iii) derivative transactions, and (iv) investments in debt securities/equity-method investments. The remaining portion of revenues is derived from contracts with customers. Substantially all of the Company’s contracts with customers do not require significant judgment or material estimates that affect the determination of the transaction price (including the assessment of variable consideration), the allocation of the transaction price to performance obligations, and the determination of the timing of the satisfaction of performance obligations. Additionally, the earnings process for substantially all of the Company’s contracts with customers is not complicated and is generally completed in a short period of time. The following table presents information about the Company’s contracts with customers for the three months ended March 31, 2022 and 2021:
For the three months ended | ||||||||
March 31, | ||||||||
Description (in thousands) |
| 2022 |
| 2021 |
| Statement of income line item | ||
Certain loan origination fees | $ | | $ | | Loan origination and debt brokerage fees, net | |||
Property sales broker fees | | | Property sales broker fees | |||||
Investment management fees, application fees, subscription revenues, other revenues from LIHTC operations, and other |
| |
| | Other revenues | |||
Total revenues derived from contracts with customers | $ | | $ | | ||||
Recently Adopted and Recently Announced Accounting Pronouncements—There have been no material changes to the accounting policies discussed in NOTE 2 of the Company’s 2021 Form 10-K. There are no recently announced but not yet effective accounting pronouncements that are expected to have a material impact to the Company as of March 31, 2022.
NOTE 3—MORTGAGE SERVICING RIGHTS
The fair value of the mortgage servicing rights (“MSRs”) was $
The impact of a
The impact of a
These sensitivities are hypothetical and should be used with caution. These estimates do not include interplay among assumptions and are estimated as a portfolio rather than individual assets.
10
Activity related to MSRs for the three months ended March 31, 2022 and 2021 follows:
For the three months ended |
| ||||||
March 31, |
| ||||||
Roll Forward of MSRs (in thousands) |
| 2022 |
| 2021 |
| ||
Beginning balance | $ | | $ | | |||
Additions, following the sale of loan |
| |
| | |||
Amortization |
| ( |
| ( | |||
Pre-payments and write-offs |
| ( |
| ( | |||
Ending balance | $ | | $ | |
The following table summarizes the gross value, accumulated amortization, and net carrying value of the Company’s MSRs as of March 31, 2022 and December 31, 2021:
Components of MSRs (in thousands) | March 31, 2022 | December 31, 2021 | ||||
Gross value | $ | | $ | | ||
Accumulated amortization |
| ( |
| ( | ||
Net carrying value | $ | | $ | |
The expected amortization of MSRs shown in the Condensed Consolidated Balance Sheet as of March 31, 2022 is shown in the table below. Actual amortization may vary from these estimates.
| Expected | ||
(in thousands) | Amortization | ||
Nine Months Ending December 31, | |||
2022 | $ | | |
Year Ending December 31, | |||
2023 | $ | | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
Thereafter | | ||
Total | $ | |
NOTE 4—GUARANTY OBLIGATION AND ALLOWANCE FOR RISK-SHARING OBLIGATIONS
When a loan is sold under the Fannie Mae DUS program, the Company typically agrees to guarantee a portion of the ultimate loss incurred on the loan should the borrower fail to perform. The compensation for this risk is a component of the servicing fee on the loan. The guaranty is in force while the loan is outstanding. The Company does not provide a guaranty for any other loan product it sells or brokers. The guaranty obligation is presented as a component of Other liabilities on the Condensed Consolidated Balance Sheets. Activity related to the guaranty obligation for the three months ended March 31, 2022 and 2021 is presented in the following table:
For the three months ended |
| ||||||
March 31, |
| ||||||
Roll Forward of Guaranty Obligation (in thousands) |
| 2022 |
| 2021 |
| ||
Beginning balance | $ | | $ | | |||
Additions, following the sale of loan |
| |
| | |||
Amortization and write-offs |
| ( |
| ( | |||
Ending balance | $ | | $ | |
11
Substantially all loans sold under the Fannie Mae DUS program contain partial or full risk-sharing guaranties that are based on the credit performance of the loan. The Company records an estimate of the loss reserve for CECL for all loans in its Fannie Mae at-risk servicing portfolio and presents this loss reserve as Allowance for risk-sharing obligations on the Condensed Consolidated Balance Sheets.
Activity related to the allowance for risk-sharing obligations for the three months ended March 31, 2022 and 2021 follows:
For the three months ended |
| ||||||
March 31, |
| ||||||
Roll Forward of Allowance for Risk-Sharing Obligations (in thousands) |
| 2022 |
| 2021 |
| ||
Beginning balance | $ | | $ | | |||
Provision (benefit) for risk-sharing obligations |
| ( |
| ( | |||
Write-offs |
| — |
| — | |||
Ending balance | $ | | $ | |
During the first quarter of 2022, the Company updated its historical loss rate factor calculation to the current
The calculated CECL reserve for the Company’s $
As of March 31, 2022 and 2021, the maximum quantifiable contingent liability associated with the Company’s guaranties for the at-risk loans serviced under the Fannie Mae DUS agreement was $
NOTE 5—SERVICING
The total unpaid principal balance of loans the Company was servicing for various institutional investors was $
As of March 31, 2022 and December 31, 2021, custodial escrow accounts relating to loans serviced by the Company totaled $
12
NOTE 6—WAREHOUSE NOTES PAYABLE
As of March 31, 2022, to provide financing to borrowers under the Agencies’ programs, the Company has committed and uncommitted warehouse lines of credit in the amount of $
Additionally, as of March 31, 2022, the Company has arranged for warehouse lines of credit in the amount of $
The maximum amount and outstanding borrowings under Warehouse notes payable at March 31, 2022 follow:
March 31, 2022 |
| ||||||||||||||
(dollars in thousands) |
| Committed |
| Uncommitted | Total Facility | Outstanding |
|
|
| ||||||
Facility(1) | Amount | Amount | Capacity | Balance | Interest rate(2) |
| |||||||||
Agency Warehouse Facility #1 | $ | | $ | — | $ | | $ | |
| Adjusted Term SOFR plus | |||||
Agency Warehouse Facility #2 |
| |
| |
| |
| | 30-day LIBOR plus | ||||||
Agency Warehouse Facility #3 |
| |
| |
| |
| |
| 30-day LIBOR plus | |||||
Agency Warehouse Facility #4 | | — | | | 30-day LIBOR plus | ||||||||||
Agency Warehouse Facility #5 | — | | | | Adjusted Term SOFR plus | ||||||||||
Agency Warehouse Facility #6 | | | | | 30-day LIBOR plus | ||||||||||
Total National Bank Agency Warehouse Facilities | $ | |