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Graphic

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

OR

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.

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

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.

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

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.

4

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.

5

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

6

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.

7

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