Walker & Dunlop, Inc. [WD] Filings

10-Q 1 wd-20220630x10q.htm 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35000

Walker & Dunlop, Inc.

(Exact name of registrant as specified in its charter)

Maryland		80-0629925
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

7272 Wisconsin Avenue, Suite 1300

Bethesda, Maryland 20814

(301) 215-5500

(Address of principal executive offices and registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	WD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒

Smaller Reporting Company ☐

Accelerated Filer ☐

Emerging Growth Company ☐

Non-accelerated Filer ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 28, 2022, there were 33,030,266 total shares of common stock outstanding.

Table of Contents

Walker & Dunlop, Inc.
Form 10-Q
INDEX


		Page

PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65

Item 4.	Controls and Procedures	67

PART II	OTHER INFORMATION	67

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults Upon Senior Securities	68

Item 4.	Mine Safety Disclosures	68

Item 5.	Other Information	68

Item 6.	Exhibits	69

	Signatures	70

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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)


		June 30, 2022	December 31, 2021
Assets
Cash and cash equivalents	$	151,252	$	305,635
Restricted cash		34,361		42,812
Pledged securities, at fair value		149,560		148,996
Loans held for sale, at fair value		931,516		1,811,586
Loans held for investment, net		247,243		269,125
Mortgage servicing rights		978,745		953,845
Goodwill		937,881		698,635
Other intangible assets		207,024		183,904
Derivative assets		59,810		37,364
Receivables, net		236,786		212,019
Committed investments in tax credit equity		187,393		177,322
Other assets		413,201		364,746
Total assets	$	4,534,772	$	5,205,989

Liabilities
Warehouse notes payable	$	1,125,677	$	1,941,572
Notes payable		719,210		740,174
Allowance for risk-sharing obligations		48,475		62,636
Derivative liabilities		17,176		6,403
Commitments to fund investments in tax credit equity		173,740		162,747
Other liabilities		784,719		714,250
Total liabilities	$	2,868,997	$	3,627,782

Stockholders' Equity
Preferred stock (authorized 50,000 shares; none issued)	$	—	$	—
Common stock ($0.01 par value; authorized 200,000 shares; issued and outstanding 32,322 shares at June 30, 2022 and 32,049 shares at December 31, 2021)		323		320
Additional paid-in capital ("APIC")		403,668		393,022
Accumulated other comprehensive income ("AOCI")		(222)		2,558
Retained earnings		1,229,712		1,154,252
Total stockholders’ equity	$	1,633,481	$	1,550,152
Noncontrolling interests		32,294		28,055
Total equity	$	1,665,775	$	1,578,207
Commitments and contingencies (NOTES 2 and 9)		—		—
Total liabilities and equity	$	4,534,772	$	5,205,989

See accompanying notes to condensed consolidated financial statements.

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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				For the six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues
Loan origination and debt brokerage fees, net	$	102,605	$	107,472	$	184,915		183,351
Fair value of expected net cash flows from servicing, net		51,949		61,849		104,679		119,784
Servicing fees		74,260		69,052		146,941		135,030
Property sales broker fees		46,386		22,454		69,784		31,496
Investment management fees		10,282		3,815		22,930		6,551
Net warehouse interest income		5,268		4,630		10,041		9,185
Escrow earnings and other interest income		6,751		1,823		8,554		3,940
Other revenues		43,347		10,316		112,448		16,362
Total revenues	$	340,848	$	281,411	$	660,292	$	505,699

Expenses
Personnel	$	168,368	$	141,421	$	312,549		237,636
Amortization and depreciation		61,103		48,510		117,255		95,381
Provision (benefit) for credit losses		(4,840)		(4,326)		(14,338)		(15,646)
Interest expense on corporate debt		6,412		1,760		12,817		3,525
Other operating expenses		36,195		19,748		68,409		37,335
Total expenses	$	267,238	$	207,113	$	496,692	$	358,231
Income from operations	$	73,610	$	74,298	$	163,600	$	147,468
Income tax expense		19,503		18,240		38,963		33,358
Net income before noncontrolling interests	$	54,107	$	56,058	$	124,637	$	114,110
Less: net income (loss) from noncontrolling interests		(179)		—		(858)		—
Walker & Dunlop net income	$	54,286	$	56,058	$	125,495	$	114,110
Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes		(1,810)		768		(2,780)		610
Walker & Dunlop comprehensive income	$	52,476	$	56,826	$	122,715	$	114,720

Basic earnings per share (NOTE 10)	$	1.63	$	1.75	$	3.77	$	3.57
Diluted earnings per share (NOTE 10)	$	1.61	$	1.73	$	3.73	$	3.52

Basic weighted-average shares outstanding		32,388		31,019		32,304		30,922
Diluted weighted-average shares outstanding		32,694		31,370		32,657		31,322

See accompanying notes to condensed consolidated financial statements.

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Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(In thousands, except per share data)

(Unaudited)


	For the three and six months ended June 30, 2022
		Stockholders' Equity
	Common Stock							Retained		Noncontrolling		Total
	Shares	Amount		APIC		AOCI		Earnings		Interests		Equity
Balance at December 31, 2021	32,049	$	320	$	393,022	$	2,558	$	1,154,252	$	28,055	$	1,578,207
Walker & Dunlop net income	—		—		—		—		71,209		—		71,209
Net income (loss) from noncontrolling interests	—		—		—		—		—		(679)		(679)
Other comprehensive income (loss), net of tax	—		—		—		(970)		—		—		(970)
Stock-based compensation - equity classified	—		—		10,812		—		—		—		10,812
Issuance of common stock in connection with equity compensation plans	544		5		15,526		—		—		—		15,531
Repurchase and retirement of common stock	(195)		(1)		(27,048)		—		—		—		(27,049)
Cash dividends paid ($0.60 per common share)	—		—		—		—		(20,077)		—		(20,077)
Other activity (NOTE 10)	—		—		(5,303)		—		—		15,490		10,187
Balance at March 31, 2022	32,398	$	324	$	387,009	$	1,588	$	1,205,384	$	42,866	$	1,637,171
Walker & Dunlop net income	—		—		—		—		54,286		—		54,286
Net income (loss) from noncontrolling interests	—		—		—		—		—		(179)		(179)
Other comprehensive income (loss), net of tax	—		—		—		(1,810)		—		—		(1,810)
Stock-based compensation - equity classified	—		—		9,980		—		—		—		9,980
Issuance of common stock in connection with equity compensation plans	43		—		110		—		—		—		110
Repurchase and retirement of common stock	(119)		(1)		(2,409)		—		(9,892)		—		(12,302)
Distributions to noncontrolling interest holders	—		—		—		—		—		(1,675)		(1,675)
Cash dividends paid ($0.60 per common share)	—		—		—		—		(20,066)		—		(20,066)
Other activity (NOTE 10)	—		—		8,978		—		—		(8,718)		260
Balance at June 30, 2022	32,322	$	323	$	403,668	$	(222)	$	1,229,712	$	32,294	$	1,665,775


	For the three and six months ended June 30, 2021
		Stockholders' Equity
	Common Stock							Retained		Total
	Shares	Amount		APIC		AOCI		Earnings		Equity
Balance at December 31, 2020	30,678	$	307	$	241,004	$	1,968	$	952,943	$	1,196,222
Walker & Dunlop net income	—		—		—		—		58,052		58,052
Other comprehensive income (loss), net of tax	—		—		—		(158)		—		(158)
Stock-based compensation - equity classified	—		—		7,836		—		—		7,836
Issuance of common stock in connection with equity compensation plans	430		4		12,602		—		—		12,606
Repurchase and retirement of common stock	(131)		(1)		(13,373)		—		—		(13,374)
Cash dividends paid ($0.50 per common share)	—		—		—		—		(16,052)		(16,052)
Balance at March 31, 2021	30,977	$	310	$	248,069	$	1,810	$	994,943	$	1,245,132
Walker & Dunlop net income	—		—		—		—		56,058		56,058
Other comprehensive income (loss), net of tax	—		—		—		768		—		768
Stock-based compensation - equity classified	—		—		7,892		—		—		7,892
Issuance of common stock in connection with equity compensation plans	64		1		530		—		—		531
Repurchase and retirement of common stock	(7)		(1)		(815)		—		—		(816)
Cash dividends paid ($0.50 per common share)	—		—		—		—		(16,070)		(16,070)
Balance at June 30, 2021	31,034	$	310	$	255,676	$	2,578	$	1,034,931	$	1,293,495

See accompanying notes to condensed consolidated financial statements.

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Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	For the six months ended June 30,
	2022		2021
Cash flows from operating activities
Net income before noncontrolling interests	$	124,637	$	114,110
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		(104,679)		(119,784)
Change in the fair value of premiums and origination fees		7,852		9,047
Amortization and depreciation		117,255		95,381
Provision (benefit) for credit losses		(14,338)		(15,646)
Gain from revaluation of previously held equity-method investment		(39,641)		—
Originations of loans held for sale		(8,805,659)		(7,293,128)
Proceeds from transfers of loans held for sale		9,637,859		8,024,903
Other operating activities, net		(69,417)		(55,541)
Net cash provided by (used in) operating activities	$	853,869	$	759,342

Cash flows from investing activities
Capital expenditures	$	(11,902)	$	(3,800)
Purchases of equity-method investments		(12,029)		(3,248)
Purchases of pledged available-for-sale ("AFS") securities		(46,395)		(2,000)
Proceeds from prepayment and sale of pledged AFS securities		6,101		22,092
Investments in joint ventures		(5,040)		(38,805)
Distributions from joint ventures		11,359		22,113
Acquisitions, net of cash received		(78,465)		(10,507)
Originations of loans held for investment		(49,057)		(116,087)
Principal collected on loans held for investment		71,500		205,653
Net cash provided by (used in) investing activities	$	(113,928)	$	75,411

Cash flows from financing activities
Borrowings (repayments) of warehouse notes payable, net	$	(826,454)	$	(744,281)
Borrowings of interim warehouse notes payable		36,459		84,766
Repayments of interim warehouse notes payable		(26,000)		(34,174)
Repayments of notes payable		(21,244)		(1,490)
Repayment of secured borrowings		—		(73,312)
Proceeds from issuance of common stock		263		13,137
Repurchase of common stock		(39,380)		(14,190)
Cash dividends paid		(40,143)		(32,122)
Payment of contingent consideration		(17,612)		—
Distributions to noncontrolling interest		(1,675)		—
Debt issuance costs		(1,573)		(1,333)
Net cash provided by (used in) financing activities	$	(937,359)	$	(802,999)

Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents (NOTE 2)	$	(197,418)	$	31,754
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period		393,180		358,002
Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	195,762	$	389,756

Supplemental Disclosure of Cash Flow Information:
Cash paid to third parties for interest	$	28,023	$	16,708
Cash paid for income taxes		45,300		26,723

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Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (CONTINUED)

(In thousands)

(Unaudited)


	For the six months ended June 30,
	2022		2021
Supplemental Disclosure of Non-Cash Activity:
Issuance of common stock to settle compensation liabilities	$	6,551	$	9,589
Issuance of common stock to settle contingent consideration liabilities (NOTE 7)		8,750		—
Net increase (decrease) in total equity due to consolidations of tax credit entities (NOTE 10)		10,447		—
Net increase (decrease) in total assets due to consolidations of tax credit entities (NOTE 10)		13,700		—
Net increase (decrease) in total liabilities due to consolidations of tax credit entities (NOTE 10)		3,559		—
Forgiveness of a receivable the Company had with an acquired joint venture (NOTE 7)		5,460		—
Additions of contingent consideration liabilities from acquisitions (NOTE 7)		117,000		7,504
Increase in Goodwill (NOTE 7)		29,695		—

See accompanying notes to condensed consolidated financial statements.

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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 and six months ended June 30, 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 com