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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 September 30, 2021

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)

 

 

7501 Wisconsin Avenue, Suite 1200E

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 October 28, 2021, there were 32,038,216 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

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

Item 4.

Controls and Procedures

54

PART II

OTHER INFORMATION

54

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3.

Defaults Upon Senior Securities

56

Item 4.

Mine Safety Disclosures

56

Item 5.

Other Information

56

Item 6.

Exhibits

57

Signatures

58

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

September 30, 2021

December 31, 2020

Assets

 

Cash and cash equivalents

$

318,188

$

321,097

Restricted cash

 

34,875

 

19,432

Pledged securities, at fair value

 

148,774

 

137,236

Loans held for sale, at fair value

 

2,711,900

 

2,449,198

Loans held for investment, net

 

233,685

 

360,402

Mortgage servicing rights

 

929,825

 

862,813

Goodwill and other intangible assets

 

341,703

 

250,838

Derivative assets

 

85,486

 

49,786

Receivables, net

 

106,228

 

65,735

Other assets

 

206,198

 

134,438

Total assets

$

5,116,862

$

4,650,975

Liabilities

Warehouse notes payable

$

2,848,579

$

2,517,156

Note payable

 

289,763

 

291,593

Allowance for risk-sharing obligations

 

61,607

 

75,313

Guaranty obligation, net

 

49,060

 

52,306

Derivative liabilities

 

13,263

 

5,066

Other liabilities

470,654

513,319

Total liabilities

$

3,732,926

$

3,454,753

Stockholders' Equity

Preferred stock (authorized 50,000; none issued)

$

$

Common stock ($0.01 par value; authorized 200,000 shares; issued and outstanding 31,194 shares at September 30, 2021 and 30,678 shares at December 31, 2020)

 

312

 

307

Additional paid-in capital ("APIC")

 

271,562

 

241,004

Accumulated other comprehensive income ("AOCI")

2,737

1,968

Retained earnings

 

1,090,506

 

952,943

Total stockholders’ equity

$

1,365,117

$

1,196,222

Noncontrolling interests

 

18,819

 

Total equity

$

1,383,936

$

1,196,222

Commitments and contingencies (NOTES 2 and 9)

 

 

Total liabilities and equity

$

5,116,862

$

4,650,975

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 nine months ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

 

Revenues

Loan origination and debt brokerage fees, net

$

123,242

$

83,825

$

306,593

$

238,105

Fair value of expected net cash flows from servicing, net

89,482

78,065

209,266

236,434

Servicing fees

 

70,628

 

60,265

 

205,658

 

172,561

Property sales broker fees

33,677

6,756

65,173

19,928

Net warehouse interest income

 

5,583

 

7,558

 

14,768

 

22,454

Escrow earnings and other interest income

 

2,032

 

2,275

 

5,972

 

15,689

Other revenues

 

21,646

 

8,272

 

44,559

 

28,827

Total revenues

$

346,290

$

247,016

$

851,989

$

733,998

Expenses

Personnel

$

170,181

$

114,548

$

407,817

$

310,993

Amortization and depreciation

53,498

41,919

148,879

123,998

Provision (benefit) for credit losses

 

1,266

 

3,483

 

(14,380)

 

32,029

Interest expense on corporate debt

 

1,766

 

1,786

 

5,291

 

6,724

Other operating expenses

 

24,836

 

16,165

 

62,171

 

47,324

Total expenses

$

251,547

$

177,901

$

609,778

$

521,068

Income from operations

$

94,743

$

69,115

$

242,211

$

212,930

Income tax expense

 

22,953

 

15,925

 

56,311

 

50,076

Net income before noncontrolling interests

$

71,790

$

53,190

$

185,900

$

162,854

Less: net income (loss) from noncontrolling interests

 

69

 

 

69

 

(224)

Walker & Dunlop net income

$

71,721

$

53,190

$

185,831

$

163,078

Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes

159

1,219

769

731

Walker & Dunlop comprehensive income

$

71,880

$

54,409

$

186,600

$

163,809

Basic earnings per share (NOTE 10)

$

2.23

$

1.69

$

5.80

$

5.21

Diluted earnings per share (NOTE 10)

$

2.21

$

1.66

$

5.73

$

5.11

Basic weighted-average shares outstanding

 

31,064

 

30,560

 

30,969

 

30,379

Diluted weighted-average shares outstanding

 

31,459

 

31,074

31,367

 

30,995

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 nine months ended September 30, 2021

Common Stock

Retained

Noncontrolling

Total Stockholders'

  

Shares

  

Amount

  

APIC

  

AOCI

  

Earnings

  

Interests

  

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

Walker & Dunlop net income

71,721

71,721

Net income (loss) from noncontrolling interests

69

69

Other comprehensive income (loss), net of tax

159

159

Stock-based compensation - equity classified

10,426

10,426

Issuance of common stock in connection with equity compensation plans

124

2

1,706

1,708

Issuance of common stock in connection with acquisitions

50

1

5,249

5,250

Repurchase and retirement of common stock

(14)

(1)

(1,495)

(1,496)

Noncontrolling interests from acquisitions

18,750

18,750

Cash dividends paid ($0.50 per common share)

(16,146)

(16,146)

Balance at September 30, 2021

31,194

$

312

$

271,562

$

2,737

$

1,090,506

$

18,819

$

1,383,936

5

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(In thousands, except per share data)

(Unaudited)

For the three and nine months ended September 30, 2020

Stockholders' Equity

Common Stock

Retained

Noncontrolling

Total

  

Shares

  

Amount

  

APIC

  

AOCI

  

Earnings

  

Interests

  

Equity

Balance at December 31, 2019

30,035

$

300

$

237,877

$

737

$

796,775

$

6,596

$

1,042,285

Cumulative-effect adjustment for adoption of ASU 2016-13, net of tax

(23,678)

(23,678)

Walker & Dunlop net income

47,829

47,829

Net loss from noncontrolling interests

(224)

(224)

Contributions from noncontrolling interests

675

675

Other comprehensive income (loss), net of tax

(1,918)

(1,918)

Stock-based compensation - equity classified

5,061

5,061

Issuance of common stock in connection with equity compensation plans

675

7

11,362

11,369

Repurchase and retirement of common stock

(380)

(4)

(18,293)

(8,440)

(26,737)

Cash dividends paid ($0.36 per common share)

(11,347)

(11,347)

Balance at March 31, 2020

30,330

$

303

$

236,007

$

(1,181)

$

801,139

$

7,047

$

1,043,315

Walker & Dunlop net income

62,059

62,059

Purchase of noncontrolling interests

(3,295)

(7,047)

(10,342)

Other comprehensive income (loss), net of tax

1,430

1,430

Stock-based compensation - equity classified

5,592

5,592

Issuance of common stock in connection with equity compensation plans

50

1

195

196

Repurchase and retirement of common stock

(11)

(405)

(405)

Cash dividends paid ($0.36 per common share)

(11,294)

(11,294)

Balance at June 30, 2020

30,369

$

304

$

238,094

$

249

$

851,904

$

$

1,090,551

Walker & Dunlop net income

53,190

53,190

Purchase of noncontrolling interests

(21,635)

(21,635)

Other comprehensive income (loss), net of tax

1,219

1,219

Stock-based compensation - equity classified

6,598

6,598

Issuance of common stock in connection with equity compensation plans and purchase of noncontrolling interests

574

5

11,923

11,928

Repurchase and retirement of common stock

(324)

(3)

(4,678)

(10,702)

(15,383)

Cash dividends paid ($0.36 per common share)

(11,343)

(11,343)

Balance at September 30, 2020

30,619

$

306

$

230,302

$

1,468

$

883,049

$

$

1,115,125

See accompanying notes to condensed consolidated financial statements.

6

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

For the nine months ended September 30, 

 

    

2021

    

2020

 

Cash flows from operating activities

Net income before noncontrolling interests

$

185,900

$

162,854

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

 

(209,266)

 

(236,434)

Change in the fair value of premiums and origination fees

 

6,909

 

(24,393)

Amortization and depreciation

 

148,879

 

123,998

Provision (benefit) for credit losses

 

(14,380)

 

32,029

Originations of loans held for sale

(12,761,432)

(15,923,846)

Proceeds from transfers of loans held for sale

12,459,511

13,517,432

Other operating activities, net

(13,100)

51,492

Net cash provided by (used in) operating activities

$

(196,979)

$

(2,296,868)

Cash flows from investing activities

Capital expenditures

$

(5,507)

$

(2,050)

Purchases of equity-method investments

(8,029)

(974)

Purchases of pledged available-for-sale ("AFS") securities

(7,250)

(14,130)

Proceeds from prepayment and sale of pledged AFS securities

28,781

15,531

Investments in joint ventures

(58,065)

(16,215)

Distributions from joint ventures

34,012

12,677

Acquisitions, net of cash received

(62,208)

(46,784)

Originations of loans held for investment

 

(269,737)

 

(36,950)

Principal collected on loans held for investment

 

397,328

 

236,519

Net cash provided by (used in) investing activities

$

49,325

$

147,624

Cash flows from financing activities

Borrowings (repayments) of warehouse notes payable, net

$