Walker & Dunlop, Inc. [WD] Filings

10-Q 1 wd-20240630x10q.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, 2024


☐	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)(Zip Code)(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 29, 2024, there were 33,748,696 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	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 4.	Controls and Procedures	64

PART II	OTHER INFORMATION	64

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	65

Item 4.	Mine Safety Disclosures	65

Item 5.	Other Information	65

Item 6.	Exhibits	66

	Signatures	68

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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, 2024	December 31, 2023
Assets
Cash and cash equivalents	$	208,095	$	328,698
Restricted cash		35,460		21,422
Pledged securities, at fair value		197,936		184,081
Loans held for sale, at fair value		814,883		594,998
Mortgage servicing rights		850,831		907,415
Goodwill		901,710		901,710
Other intangible assets		174,467		181,975
Receivables, net		272,827		233,563
Committed investments in tax credit equity		151,674		154,028
Other assets		567,515		544,457
Total assets	$	4,175,398	$	4,052,347

Liabilities
Warehouse notes payable	$	810,114	$	596,178
Notes payable		770,707		773,358
Allowance for risk-sharing obligations		30,477		31,601
Commitments to fund investments in tax credit equity		134,493		140,259
Other liabilities		695,813		764,822
Total liabilities	$	2,441,604	$	2,306,218

Stockholders' Equity
Preferred stock (authorized 50,000 shares; none issued)	$	—	$	—
Common stock ($0.01 par value; authorized 200,000 shares; issued and outstanding 33,137 shares as of June 30, 2024 and 32,874 shares as of December 31, 2023)		331		329
Additional paid-in capital ("APIC")		407,426		425,488
Accumulated other comprehensive income (loss) ("AOCI")		415		(479)
Retained earnings		1,288,728		1,298,412
Total stockholders’ equity	$	1,696,900	$	1,723,750
Noncontrolling interests		36,894		22,379
Total equity	$	1,733,794	$	1,746,129
Commitments and contingencies (NOTES 2 and 9)		—		—
Total liabilities and equity	$	4,175,398	$	4,052,347

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,
	2024		2023		2024		2023
Revenues
Loan origination and debt brokerage fees, net	$	65,334	$	64,968	$	109,074	$	112,052
Fair value of expected net cash flows from servicing, net		33,349		42,058		54,247		72,071
Servicing fees		80,418		77,061		160,461		152,827
Property sales broker fees		11,265		10,345		20,086		21,969
Investment management fees		14,822		16,309		28,342		31,482
Net warehouse interest income (expense)		(1,584)		(1,526)		(2,700)		(1,525)
Placement fees and other interest income		41,040		35,386		80,442		66,310
Other revenues		26,032		28,014		48,783		56,175
Total revenues	$	270,676	$	272,615	$	498,735	$	511,361

Expenses
Personnel	$	133,067	$	133,305	$	244,530	$	251,918
Amortization and depreciation		56,043		56,292		111,934		113,258
Provision (benefit) for credit losses		2,936		(734)		3,460		(11,509)
Interest expense on corporate debt		17,874		17,010		35,533		32,284
Other operating expenses		32,559		30,730		61,402		54,793
Total expenses	$	242,479	$	236,603	$	456,859	$	440,744
Income from operations	$	28,197	$	36,012	$	41,876	$	70,617
Income tax expense		7,902		10,491		10,766		17,626
Net income before noncontrolling interests	$	20,295	$	25,521	$	31,110	$	52,991
Less: net income (loss) from noncontrolling interests		(2,368)		(2,114)		(3,419)		(1,309)
Walker & Dunlop net income	$	22,663	$	27,635	$	34,529	$	54,300
Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes		907		156		894		103
Walker & Dunlop comprehensive income	$	23,570	$	27,791	$	35,423	$	54,403

Basic earnings per share (NOTE 10)	$	0.67	$	0.82	$	1.02	$	1.62
Diluted earnings per share (NOTE 10)	$	0.67	$	0.82	$	1.02	$	1.61

Basic weighted-average shares outstanding		33,121		32,695		33,050		32,612
Diluted weighted-average shares outstanding		33,154		32,851		33,101		32,834

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, 2024
		Stockholders' Equity
	Common Stock							Retained		Noncontrolling		Total
	Shares	Amount		APIC		AOCI		Earnings		Interests		Equity
Balance as of December 31, 2023	32,874	$	329	$	425,488	$	(479)	$	1,298,412	$	22,379	$	1,746,129
Walker & Dunlop net income	—		—		—		—		11,866		—		11,866
Net income (loss) from noncontrolling interests	—		—		—		—		—		(1,051)		(1,051)
Other comprehensive income (loss), net of tax	—		—		—		(13)		—		—		(13)
Stock-based compensation - equity classified	—		—		5,842		—		—		—		5,842
Issuance of common stock in connection with equity compensation plans	322		3		5,642		—		—		—		5,645
Repurchase and retirement of common stock	(101)		(1)		(9,788)		—		—		—		(9,789)
Distributions to noncontrolling interest holders	—		—		—		—		—		(500)		(500)
Cash dividends paid ($0.65 per common share)	—		—		—		—		(21,965)		—		(21,965)
Other activity	—		—		—		—		—		(256)		(256)
Balance as of March 31, 2024	33,095	$	331	$	427,184	$	(492)	$	1,288,313	$	20,572	$	1,735,908
Walker & Dunlop net income	—		—		—		—		22,663		—		22,663
Net income (loss) from noncontrolling interests	—		—		—		—		—		(2,368)		(2,368)
Other comprehensive income (loss), net of tax	—		—		—		907		—		—		907
Stock-based compensation - equity classified	—		—		6,608		—		—		—		6,608
Issuance of common stock in connection with equity compensation plans	50		—		169		—		—		—		169
Repurchase and retirement of common stock	(8)		—		(809)		—		—		—		(809)
Distributions to noncontrolling interest holders	—		—		—		—		—		(36)		(36)
Purchase of noncontrolling interests	—		—		(25,726)		—		—		18,726		(7,000)
Cash dividends paid ($0.65 per common share)	—		—		—		—		(22,248)		—		(22,248)
Balance as of June 30, 2024	33,137	$	331	$	407,426	$	415	$	1,288,728	$	36,894	$	1,733,794

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Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity (CONTINUED)

(In thousands, except per share data)

(Unaudited)


	For the three and six months ended June 30, 2023
		Stockholders' Equity
	Common Stock							Retained		Noncontrolling		Total
	Shares	Amount		APIC		AOCI		Earnings		Interests		Equity
Balance as of December 31, 2022	32,396	$	323	$	412,636	$	(1,568)	$	1,278,035	$	27,403	$	1,716,829
Walker & Dunlop net income	—		—		—		—		26,665		—		26,665
Net income (loss) from noncontrolling interests	—		—		—		—		—		805		805
Other comprehensive income (loss), net of tax	—		—		—		(53)		—		—		(53)
Stock-based compensation - equity classified	—		—		6,664		—		—		—		6,664
Issuance of common stock in connection with equity compensation plans	468		5		3,397		—		—		—		3,402
Repurchase and retirement of common stock	(185)		(1)		(17,394)		—		—		—		(17,395)
Distributions to noncontrolling interest holders	—		—		—		—		—		(600)		(600)
Cash dividends paid ($0.63 per common share)	—		—		—		—		(21,221)		—		(21,221)
Other activity	—		—		—		—		(2,360)		2,360		—
Balance as of March 31, 2023	32,679	$	327	$	405,303	$	(1,621)	$	1,281,119	$	29,968	$	1,715,096
Walker & Dunlop net income	—		—		—		—		27,635		—		27,635
Net income (loss) from noncontrolling interests	—		—		—		—		—		(2,114)		(2,114)
Other comprehensive income (loss), net of tax	—		—		—		156		—		—		156
Stock-based compensation - equity classified	—		—		7,541		—		—		—		7,541
Issuance of common stock in connection with equity compensation plans	33		—		—		—		—		—		—
Repurchase and retirement of common stock	(9)		—		(662)		—		—		—		(662)
Distributions to noncontrolling interest holders	—		—		—		—		—		(1,735)		(1,735)
Cash dividends paid ($0.63 per common share)	—		—		—		—		(21,180)		—		(21,180)
Other activity	—		—		—		—		(240)		—		(240)
Balance as of June 30, 2023	32,703	$	327	$	412,182	$	(1,465)	$	1,287,334	$	26,119	$	1,724,497

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,
	2024		2023
Cash flows from operating activities
Net income before noncontrolling interests	$	31,110	$	52,991
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		(54,247)		(72,071)
Change in the fair value of premiums and origination fees		2,947		1,812
Amortization and depreciation		111,934		113,258
Provision (benefit) for credit losses		3,460		(11,509)
Originations of loans held for sale		(3,192,112)		(5,406,027)
Proceeds from transfers of loans held for sale		2,959,268		4,504,278
Other operating activities, net		(61,809)		(63,763)
Net cash provided by (used in) operating activities	$	(199,449)	$	(881,031)

Cash flows from investing activities
Capital expenditures	$	(7,056)	$	(9,501)
Purchases of equity-method investments		(11,537)		(15,231)
Purchases of pledged available-for-sale ("AFS") securities		(20,900)		—
Proceeds from prepayment and sale of pledged AFS securities		3,577		4,807
Repurchase of Agency loans		(13,469)		—
Principal collected on loans held for investment		16,580		129,260
Other investing activities, net		3,194		1,281
Net cash provided by (used in) investing activities	$	(29,611)	$	110,616

Cash flows from financing activities
Borrowings (repayments) of warehouse notes payable, net	$	222,197	$	902,144
Repayments of interim warehouse notes payable		(13,884)		(91,586)
Repayments of notes payable		(4,006)		(118,046)
Borrowings of notes payable		—		196,000
Repurchase of common stock		(10,598)		(18,057)
Purchase of noncontrolling interests		(4,000)		—
Cash dividends paid		(44,213)		(42,401)
Payment of contingent consideration		(25,873)		(25,690)
Other financing activities, net		(476)		(6,340)
Net cash provided by (used in) financing activities	$	119,147	$	796,024

Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents (NOTE 2)	$	(109,913)	$	25,609
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period		391,403		258,283
Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	281,490	$	283,892

Supplemental Disclosure of Cash Flow Information:
Cash paid to third parties for interest	$	43,668	$	52,147
Cash paid for income taxes		17,105		20,807

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 “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, 2023 (“2023 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 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.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsequent Events—The Company has evaluated the effects of all events that have occurred subsequent to June 30, 2024 and before the date of this filing. The Company has made certain disclosures in the notes to the condensed consolidated financial statements of events that have occurred subsequent to June 30, 2024. There have been no other material subsequent events that would require recognition in the condensed consolidated financial statements.

Use of Estimates—The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, including the allowance for risk-sharing obligations, initial and recurring fair value assessments of capitalized mortgage servicing rights, the initial fair value assessment of goodwill, the periodic assessment of impairment of goodwill, initial fair value estimate of other intangible assets, and the initial and recurring fair value assessments of contingent consideration liabilities. Actual results may vary from these estimates.

Provision (Benefit) for Credit Losses—The Company records the income statement impact of the changes in the allowance for loan losses, the allowance for risk-sharing obligations, and other credit losses 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. The Company has credit risk exclusively on loans secured by multifamily real estate, with no exposure to any other sector of commercial real estate, including office, retail, industrial and hospitality.


	For the three months ended				For the six months ended
	June 30,				June 30,
Components of Provision (Benefit) for Credit Losses (in thousands)	2024		2023		2024		2023
Provision (benefit) for loan losses	$	(17)	$	(57)	$	(16)	$	138
Provision (benefit) for risk-sharing obligations		353		(677)		(1,124)		(11,647)
Provision (benefit) for other credit losses		2,600		—		4,600		—
Provision (benefit) for credit losses	$	2,936	$	(734)	$	3,460	$	(11,509)

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Agency Loan Repurchases—The Company is obligated to repurchase loans that are originated for the GSEs or HUD (collectively, the “Agencies”) programs if certain representations and warranties that it provides in connection with the sale of the loans through these programs are or may have been breached. When the Company repurchases a loan from the Agencies, the loan is included as a component of Other Assets on the Condensed Consolidated Balance Sheets and any related credit loss is included within Provision (benefit) for credit losses in the Condensed Consolidated Statements of Income.

Fannie Mae—During the first quarter of 2024, the Company repurchased a $17.9 million Fannie Mae loan, which consisted of a $4.4 million advance previously made to Fannie Mae in 2023 and a $13.5 million cash payment during the three months ended March 31, 2024. As of June 30, 2024, the Company had an immaterial allowance for credit loss related to this loan, as the Company expects to liquidate the underlying collateral for approximately the Company’s cost basis in the loan.

Freddie Mac—The Company received repurchase requests from Freddie Mac related to two loans with unpaid principal balances (“UPB”) of $11.4 million and $34.8 million. In March 2024, the Company entered into a forbearance and indemnification agreement with Freddie Mac that among other things delayed the repurchase of these loans for six and 12 months, respectively, and transferred the risk of loss for both loans from Freddie Mac to the Company. The fair value of the indemnification related to the $11.4 million loan is de minimis due to the excess of fair value of the underlying collateral compared to the carrying value of the loan. With respect to the $34.8 million loan, as of June 30, 2024, the Company’s best estimate of the fair value of the indemnification was $4.6 million, which is included within Other liabilities on the Condensed Consolidated Balance Sheets, with a corresponding amount included in Provision (benefit) for credit losses in the Condensed Consolidated Statements of Income for the six months ended June 30, 2024.

Loans Held for Investment (“LHFI”), net—LHFI consist predominately of multifamily interim loans originated by the Company for properties that currently do not qualify for permanent Agency financing (“Interim Loan Program” or “ILP”). These loans have terms of up to three years and are all adjustable-rate, interest-only, multifamily loans with similar risk characteristics and no geographic concentration. The Company also has an immaterial amount of LHFI associated with repurchased loans as discussed above. The loans are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs, and net of any allowance for loan losses. LHFI are included as a component of Other assets in the Condensed Consolidated Financial Statements.

As of June 30, 2024 and December 31, 2023, the balance of the Interim Loan Program portfolio consisted of a small number of loans with a balance of $25.9 million and $40.1 million, respectively, including an immaterial amount of net unamortized deferred fees and costs and allowance for loan losses. There were no ILP loans delinquent and in non-accrual status as of both June 30, 2024 and December 31, 2023. The amortized cost basis of loans that were current was $25.9 million and $40.1 million as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024, all ILP loans were originated in 2019.

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 June 30, 2024 and 2023, and December 31, 2023 and 2022.

June 30,

December 31,

(in thousands)

2024