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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 20202022

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 incorporation or organization)

(I.R.S. Employer Identification No.)

 

75017272 Wisconsin Avenue, Suite 1200E1300

Bethesda, Maryland

20814

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (301) 215-5500

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes   No 

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

 

Accelerated Filer

 

Non-accelerated Filer

 

Smaller Reporting Company

Emerging Growth Company

 

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 a check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404 (b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $1.0$2.1 billion as of the end of the Registrant’s second fiscal quarter (based on the closing price for the common stock on the New York Stock Exchange on June 30, 2020)2022). The Registrant has no non-voting common equity.

As of January 31, 2021,2023, there were 31,537,49133,050,608 total shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of Walker & Dunlop, Inc. with respect to its 20212023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 on or prior to April 30, 2021May 1, 2023 are incorporated by reference into Part III of this report.

Table of Contents

INDEX

 

    

 

    

Page

PART I

 

 

 

 

 

Item 1.

Business

 

4

Item 1A.

Risk Factors

 

1113

Item 1B.

Unresolved Staff Comments

 

1823

Item 2.

Properties

 

1823

Item 3.

Legal Proceedings

 

1923

Item 4.

Mine Safety Disclosures

 

1923

 

 

 

PART II

 

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

1923

Item 6.

Selected Financial Data[Reserved]

2125

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

2125

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

4652

Item 8.

Financial Statements and Supplementary Data

 

4854

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

4854

Item 9A.

Controls and Procedures

 

4854

Item 9B.

Other Information

 

4854

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

54

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers, and Corporate Governance

 

4854

Item 11.

Executive Compensation

 

4955

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

4955

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

4955

Item 14.

Principal Accountant Fees and Services

 

4955

 

 

 

PART IV

 

 

Item 15.

ExhibitsExhibit and Financial Statement Schedules

 

4955

Item 16.

Form 10-K Summary

5461

EX-21

EX-23

EX-31.1

EX-31.2

EX-32

EX-101.1

EX-101.2

EX-101.3

EX-101.4

EX-101.5

EX-101.6

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PART I

Forward-Looking Statements

Some of the statements in this Annual Report on Form 10-K of Walker & Dunlop, Inc. and subsidiaries (the “Company,” “Walker & Dunlop,” “we,” or “us”), may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.

The forward-looking statements contained in this Annual Report on Form 10-K reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions, and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. Statements regarding the following subjects, among others, may be forward looking:

the future of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac,” and together with Fannie Mae, the “GSEs”), including their existence, relationship to the U.S. federal government, origination capacities, and their impact on our business;
the general volatility and global economic disruption caused by the spread of the COVID-19 pandemic (“COVID-19 Crisis” or “Crisis”) and its expected impact on our business operations, financial results and cash flows and liquidity, including due to our principal and interest advance obligations on the Fannie Mae and Government National Mortgage Association (“Ginnie Mae”) loans we service;
changes to and trends in the interest rate environment and its impact on our business;
our growth strategy;
our projected financial condition, liquidity, and results of operations;
our ability to obtain and maintain warehouse and other loan-funding arrangements;
our ability to make future dividend payments or repurchase shares of our common stock;
availability of and our ability to attract and retain qualified personnel and our ability to develop and retain relationships with borrowers, key principals, and lenders;
degree and nature of our competition;
changes in governmental regulations, policies, and policies,programs, tax laws and rates, and similar matters and the impact of such regulations, policies, and actions;
our ability to comply with the laws, rules, and regulations applicable to us;us, including additional regulatory requirements for broker-dealer and other financial services firms;
trends in the commercial real estate finance market, commercial real estate values, the credit and capital markets, or the general economy, including demand for multifamily housing and rent growth; and
general volatility of the capital markets and the market price of our common stock.

While forward-looking statements reflect our good-faith projections, assumptions, and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see “Risk Factors.”

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Item 1. Business

General

We are one of thea leading commercial real estate (i) services, (ii) finance, and finance companies(iii) technology company in the United States, withStates. Through investments in people, brand, and technology, we have built a primary focus ondiversified suite of commercial real estate services to meet the needs of our customers. Our services include (i) multifamily lending, property sales, appraisal, valuation, and research, (ii) commercial real estate debt brokerage and property sales.advisory services, (iii) investment management, and (iv) affordable housing lending, tax credit syndication, development, and investment. We have beenleverage our technological resources and investments to (i) provide an enhanced experience for our customers, (ii) identify refinancing and other financial and investment opportunities for new and existing customers, and (iii) drive efficiencies in businessour internal processes. We believe our people, brand, and technology provide us with a competitive advantage, as evidenced by new loans to us representing 62% of refinancing volumes and 24% of total transaction volumes coming from new customers for more than 80 years;the year ended December 31, 2022.

We are one of the largest lenders to multifamily operators in the country. We originate, sell, and service a Fannie Mae Delegated Underwritingrange of multifamily and Servicing™ (“DUS”) lender since 1988, whenother commercial real estate financing products, including loans through the DUS program began; a lender withprograms of the Ginnie MaeGSEs, and the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (together with Ginnie Mae, “HUD”) since acquiring a HUD license in 2009; and a Freddie Mac Multifamily approved seller/servicer for Conventional Loans since 2009. We originate, sell, and service a range of multifamily and other commercial real estate financing products, provide multifamily property sales brokerage and appraisal services, and engage in commercial real estate investment management activities. Our clients are owners and developers of multifamily properties and other commercial real estate across the country, some of whom are the largest owners and developers in the industry. We originate and sell multifamily loans through the programs of Fannie Mae, Freddie Mac, and HUD (collectively, the “Agencies”). We retain servicing rights and asset management responsibilities on substantially all loans that we originate for the Agencies’ programs. We are approved as a Fannie Mae DUS lender nationally, an approved Freddie Mac Multifamily Optigo® Seller/Servicer (“Freddie Mac lender”) nationally for Conventional, Seniors Housing, Targeted Affordable Housing, and small balance loans, a HUD Multifamily Accelerated Processing (“MAP”) lender nationally, a HUD Section 232 LEAN (“LEAN”) lender nationally, and a Ginnie Mae issuer. We broker, and occasionally service, loans to commercial real estate operators for severalmany life insurance companies, commercial banks, and other institutional investors, in which cases we do not fund the loan but rather act as a loan broker.

We provide multifamily property sales brokerage and appraisal and valuation services and engage in commercial real estate investment management activities, including a focus on the affordable housing sector through low-income housing tax credit (“LIHTC”) syndication. We engage in the development and preservation of affordable housing projects through joint ventures with real estate developers and the management of funds focused on affordable housing. We provide housing market research and real estate-related investment banking and advisory services, which provide our clients and us with market insight into many areas of the housing market. Our clients are owners and developers of multifamily properties and other commercial real estate assets across the country. We also underwrite, service, and asset-manage interim loans.shorter-term loans on commercial real estate. Most of these interimshorter-term loans are closed through a joint venture. Those interimventure or through separate accounts managed by our investment management subsidiary, Walker & Dunlop Investment Partners, Inc. (“WDIP”). Some of these shorter-term loans notare closed by the joint venture are originated by us and heldretained on our balance sheet as loans heldthrough our Interim Loan Program (as defined below in Principal Lending and Investing). We are a leader in commercial real estate technology through development and acquisition of technology resources that (i) provide innovative solutions and a better experience for investment.our customers and (ii) allow us to drive efficiencies across our internal processes.

On February 28, 2022, we acquired GeoPhy B.V. (“GeoPhy”), a leading commercial real estate technology company based in the Netherlands. We plan to use GeoPhy’s data analytics and technology development capabilities to further enhance our technology investments and efficiencies, with a specific focus on accelerating the growth of our small-balance lending business and our appraisal and valuation platform, Apprise.  

Walker & Dunlop, Inc. is a holding company. We conduct the majority of our operations through Walker & Dunlop, LLC, our operating company.

Our Product and Service OfferingsSegments

Our

In the first quarter of 2022, as a result of the Company’s growth and recent acquisitions, our executive leadership team, which functions as our chief operating decision making body, began making decisions and assessing performance based on the following three reportable segments: (i) Capital Markets (“CM”), (ii) Servicing & Asset Management (“SAM”), and (iii) Corporate. The reportable segments are determined based on the product offerings includeor service provided and reflect the manner in which management is currently evaluating the Company’s financial information. The segments and related services are described in the following paragraphs.

Capital Markets

Capital Markets provides a range of multifamily and other commercial real estate financing products, including Agency Lending, Debt Brokerage, Principal Lending and Investing, and Property Sales. We offer a broadcomprehensive range of commercial real estate finance products to our customers, including first mortgage, second trust, supplemental, construction, mezzanine, preferred equity, small-balance,Agency lending, debt brokerage, property sales, appraisal and bridge/interim loans.valuation services, and real estate-related investment banking and advisory services, including housing market research. Our long-established relationships with the Agencies and institutional investors enable us to offer thisa broad range of loan products and services.services to our customers. We provide property sales services to owners and developers of multifamily properties and commercial real estate investment management servicesand multifamily property appraisals for various investors. Through a joint venture,Additionally, we also provide multifamily property appraisals. Eachearn subscription fees for our housing related research. The primary services within CM are described below.

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Table of our product offerings is designed to maximize our ability to meet client needs, source capital, and grow our commercial real estate finance business.Contents

Agency Lending

Agency Lending

Fannie MaeWe are one of 2324 approved lenders that participate in Fannie Mae’s DUS program for multifamily, manufactured housing communities, student housing, affordable housing, and certain seniors housing properties. Under the Fannie Mae DUS program, Fannie Mae has delegated to us responsibility for ensuring that the loans we originate under the program satisfy the underwriting and other eligibility requirements established by Fannie Mae. In exchange for this delegation of authority, we share risk for a portion of the losses that may result from a borrower's default. For loans originated pursuant to the Fannie Mae DUS program, we generally are required to share the risk of loss, with our maximum loss capped at 20% of the loan amount at origination, except for rare instances when we negotiate a cap that may be higher or lower for loans with unique attributes. For more information regarding our risk-sharing agreements with Fannie Mae, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Quality and Allowance for Risk-Sharing Obligations” below. Most of the Fannie Mae loans that we originate are sold in the form of a Fannie Mae-guaranteed security to third-party investors. Fannie Mae contracts us to service and asset-manage all loans that we originate under the Fannie Mae DUS program.

We are one of 21 lenders approved as a Freddie Mac lender, where we originate and sell to Freddie Mac multifamily, manufactured housing communities, student housing, affordable housing, seniors housing loans and small balance loans that satisfy Freddie Mac’s underwriting and other eligibility requirements. Under Freddie Mac’s programs, we submit our completed loan underwriting package to Freddie Mac and obtain its commitment to purchase the loan at a specified price after closing. Freddie Mac ultimately performs its own underwriting of loans that we sell to it. Freddie Mac may choose to hold, sell, or later securitize such loans. We very rarely have any risk-sharing arrangements on loans we sell to Freddie Mac under its program. Freddie Mac contracts us to service and asset-manage all loans that we originate under its program.

As an approved HUD MAP and HUD LEAN lender and Ginnie Mae issuer, we provide construction and permanent loans to developers and owners of multifamily housing, affordable housing, seniors housing, and healthcare facilities. We submit our completed loan underwriting

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package to HUD and obtain HUD's approval to originate the loan. We service and asset-manage all loans originated through HUD’s various programs.

HUD-insured loans are typically placed in single loan pools which back Ginnie Mae securities. Ginnie Mae is a United States government corporation in the United States Department of Housing and Urban Development. Ginnie Mae securities are backed by the full faith and credit of the United States, and we very rarely bear any risk of loss on Ginnie Mae securities. In the event of a default on a HUD-insured loan, HUD will reimburse approximately 99% of any losses of principal and interest on the loan, and Ginnie Mae will reimburse the remaining losses. We are obligated to continue to advance principal and interest payments and tax and insurance escrow amounts on Ginnie Mae securities until the Ginnie Mae securities are fully paid.

We may be obligated to repurchase loans that are originated for the Agencies’ programs if certain representations and warranties that we provide in connection with such originations are breached. We have never been required to repurchase a loan.

Debt Brokerage

 We serve as an intermediary in the placement of commercial real estate debt between institutional sources of capital, such as life insurance companies, investment banks, commercial banks, pension funds, and other institutional investors, and owners of all types of commercial real estate. A client seeking to finance or refinance a property will seek our assistance in developing different financing solutions and soliciting interest from various sources of capital. We often advise on capital structure, develop the financing package, facilitate negotiations between our client and institutional sources of capital, coordinate due diligence, and assist in closing the transaction. In these instances, we act as a loan broker and do not underwrite or originate the loan and do not retain any interest in the loan. For those brokered loans that we service, we collect ongoing servicing fees while those loans remain in our servicing portfolio. The servicing fees we typically earn on brokered loan transactions are substantially lower than the servicing fees we earn for servicing Agency loans. 

Over the past five years, the Company has invested approximately $129.8 million to acquire certain assets and assume certain liabilities of six debt brokerage companies. These acquisitions, along with our recruiting efforts, have expanded our network of brokers, broadened our geographical reach, and provided further diversification to our origination platform.

Principal Lending and Investing

Our “Interim Program” is composed of the loans held by the Interim Program JV and the Interim Loan Program, as described below. Through a joint venture with an affiliate of Blackstone Mortgage Trust, Inc., we offer short-term, senior secured debt financing products that provide floating-rate, interest-only loans for terms of generally up to three years to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing (the “Interim Program JV” or the “joint venture”). The joint venture funds its operations using a combination of equity contributions from its owners and third-party credit facilities. We hold a 15% ownership interest in the Interim Program JV and are responsible for sourcing, underwriting, servicing, and asset-managing the loans originated by the joint venture. The Interim Program JV assumes full risk of loss while the loans it originates are outstanding, while we assume risk commensurate with our 15% ownership interest.

Using a combination of our own capital and warehouse debt financing, we separately offer interim loans that do not meet the criteria of the Interim Program JV (the “Interim Loan Program”). We underwrite, service, and asset-manage all loans executed through the Interim Loan Program. We originate and hold these Interim Loan Program loans for investment, which are included on our balance sheet, and during the time that these loans are outstanding, we assume the full risk of loss. The ultimate goal of the Interim Loan Program is to provide permanent Agency financing on these transitional properties.

Under certain limited circumstances, we may make preferred equity investments in entities controlled by certain of our borrowers that will assist those borrowers to acquire and reposition properties. The terms of such investments are negotiated with each investment. We fund these preferred equity investments with our own capital and hold the investments until maturity, during which time we assume the full risk of loss. There were no preferred equity investments outstanding as of December 31, 2020.

During the second quarter of 2018, the Company acquired JCR Capital Investment Corporation and subsidiaries, now known as Walker & Dunlop Investment Partners, Inc. (“WDIP”), the operator of a private commercial real estate investment adviser focused on the management of debt, preferred equity, and mezzanine equity investments in middle-market commercial real estate funds. The acquisition of WDIP, a wholly owned subsidiary of the Company, is part of our strategy to grow and diversify our operations by growing our investment management platform. WDIP’s current assets under management (“AUM”) of $1.3 billion primarily consist of four sources: Fund III, Fund IV and Fund V (collectively, the “Funds”), and separate accounts managed for life insurance companies. AUM for the Funds consists of both unfunded

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commitments and funded investments, and AUM for the separate accounts consist entirely of funded investments. Unfunded commitments are highest during the fund raising and investment phases. WDIP receives management fees based on both unfunded commitments and funded investments. Additionally, with respect to the Funds, WDIP receives a percentage of the return above the fund return hurdle rate specified in the fund agreements. 

Property Sales

We offer property sales brokerage services to owners and developers of multifamily properties that are seeking to sell these properties through our wholly owned subsidiary Walker & Dunlop Investment Sales, LLC (“WDIS”). Through these property sales brokerage services, we seek to maximize proceeds and certainty of closure for our clients using our knowledge of the commercial real estate and capital markets and relying on our experienced transaction professionals. We receive a sales commission for brokering the sale of these multifamily assets on behalf of our clients. Our property sales services are offered in various regions throughout the United States.

Appraisal Services

During the second quarter of 2019, we formed a joint venture branded Apprise by Walker & Dunlop with an international technology services company to offer automated multifamily appraisal services (“Appraisal JV”). The Appraisal JV leverages technology and data science to dramatically improve the consistency, transparency, and speed of multifamily appraisals in the U.S. through the licensing of our partner’s technology and leveraging of our expertise in the commercial real estate industry. We own a 50% interest in the Appraisal JV and account for the interest as an equity-method investment. The operations of the Appraisal JV for the year ended December 31, 2020 and our investment in the Appraisal JV as of December 31, 2020 were immaterial.

Correspondent Network

In addition to our originators, at December 31, 2020, we had correspondent agreements with 23 independently owned loan originating companies across the country with which we have relationships for Agency loan originations. This network of correspondents helps us extend our geographic reach into new and/or smaller markets on a cost-effective basis. In addition to identifying potential borrowers and key principal(s) (the individual or individuals directing the activities of the borrowing entity), our correspondents assist us in evaluating loans, including pre-screening the borrowers, key principal(s), and properties for program eligibility, coordinating due diligence, and generally providing market intelligence. In exchange for providing these services, the correspondent earns an origination fee based on a percentage of the principal amount of the financing arranged and in some cases a fee paid out over time based on the servicing revenues earned over the life of the loan.

Underwriting and Risk Management

We use several techniques to manage our Fannie Mae risk-sharing exposure. These techniques include an underwriting and approval process that is independent of the loan originator; evaluating and modifying our underwriting criteria given the underlying multifamily housing market fundamentals; limiting our geographic, borrower, and key principal exposures; and using modified risk-sharing under the Fannie Mae DUS program. Similar techniques are used to manage our exposure to credit loss on loans originated under the Interim Program.

Our underwriting process begins with a review of suitability for our investors and a detailed review of the borrower, key principal(s), and the property. We review the borrower's financial statements for minimum net worth and liquidity requirements and obtain credit and criminal background checks. We also review the borrower's and key principal(s)’s operating track records, including evaluating the performance of other properties owned by the borrower and key principal(s). We also consider the borrower's and key principal(s)’s bankruptcy and foreclosure history. We believe that lending to borrowers and key principals with proven track records as operators mitigates our credit risk.

We review the fundamental value and credit profile of the underlying property, including an analysis of regional economic trends, appraisals of the property, site visits, and reviews of historical and prospective financials. Third-party vendors are engaged for appraisals, engineering reports, environmental reports, flood certification reports, zoning reports, and credit reports. We utilize a list of approved third-party vendors for these reports. Each report is reviewed by our underwriting team for accuracy, quality, and comprehensiveness. All third-party vendors are reviewed periodically for the quality of their work and are removed from our list of approved vendors if the quality or timeliness of the reports is below our standards. This is particularly true for engineering and environmental reports on which we rely to make decisions regarding ongoing replacement reserves and environmental matters.

Freddie Mac—We are one of 22 lenders approved as a Freddie Mac lender, where we originate and sell to Freddie Mac multifamily, manufactured housing communities, student housing, affordable housing, seniors housing loans and small balance loans that satisfy Freddie Mac’s underwriting and other eligibility requirements. Under Freddie Mac’s programs, including Freddie Mac Optigo®, we submit our completed loan underwriting package to Freddie Mac and obtain its commitment to purchase the loan at a specified price after closing. Freddie Mac ultimately performs its own underwriting of loans that we sell to it. Freddie Mac may choose to hold, sell, or later securitize such loans. We very rarely have any risk-sharing arrangements on loans we sell to Freddie Mac under its program. Freddie Mac contracts us to service and asset-manage all loans that we originate under its program.

Fannie Mae’s counterparty risk policies require

HUD and Ginnie Mae—As an approved HUD MAP and HUD LEAN lender and Ginnie Mae issuer, we provide construction and permanent loans to developers and owners of multifamily housing, affordable housing, seniors housing, and healthcare facilities. We submit our completed loan underwriting package to HUD and obtain HUD's approval to originate the loan. We service and asset-manage all loans originated through HUD’s various programs.

HUD-insured loans are typically placed in single loan pools which back Ginnie Mae securities. Ginnie Mae is a full risk-sharing cap for individual loans. Our full risk-sharing is currently limited to loans up to $200 million, which equates to a maximum loss per loan of $40 million (such exposure would occurUnited States government corporation in the United States Department of Housing and Urban Development. Ginnie Mae securities are backed by the full faith and credit of the United States, and we very rarely bear any risk of loss on Ginnie Mae securities. In the event of a default on a HUD-insured loan, HUD will reimburse approximately 99% of any losses of principal and interest on the loan, and Ginnie Mae will reimburse the remaining losses. We are obligated to continue to advance principal and interest payments and tax and insurance escrow amounts on Ginnie Mae securities until the Ginnie Mae securities are fully paid.

Correspondent Network—In addition to our originators, as of December 31, 2022, we had correspondent agreements with 23 independently owned loan originating companies across the country with which we have relationships for Agency loan originations. This network of correspondents helps us extend our geographic reach into new and/or smaller markets on a cost-effective basis. In addition to identifying potential borrowers and key principals (the individual or individuals directing the activities of the borrowing entity), our correspondents assist us in evaluating loans, including pre-screening the borrowers, key principals, and properties for program eligibility,

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coordinating due diligence, and generally providing market intelligence. In exchange for providing these services, the correspondent earns an origination fee based on a percentage of the principal amount of the financing arranged and in some cases a fee paid out over time based on the servicing revenues earned over the life of the loan.

We may be obligated to repurchase loans that are originated for the underlyingAgencies’ programs if certain representations and warranties that we provide in connection with such originations are breached. We have never been required to repurchase a loan.

We recognize loan origination and debt brokerage fees, net and the fair value of expected net cash flows from servicing, net from our lending with the Agencies when we commit to both originate a loan with a borrower and sell that loan to an investor. The loan origination and debt brokerage fees, net and the fair value of expected net cash flows from servicing, net for these transactions reflect the fair value attributable to loan origination fees and premiums on the sale of loans, net of any co-broker fees, and the fair value of the expected net cash flows associated with servicing the loans, net of any guaranty obligations retained.

We generally fund our Agency loan products through warehouse facility financing and sell them to investors in accordance with the related loan sale commitment, which we obtain concurrent with rate lock. Proceeds from the sale of the loan are used to pay off the warehouse facility borrowing. The sale of the loan is typically completed within 60 days after the loan is closed. We earn net warehouse interest income from loans held for sale while they are outstanding equal to the difference between the note rate on the loan and the cost of borrowing of the warehouse facility.

Our loan commitments and loans held for sale are currently not exposed to unhedged interest rate risk during the loan commitment, closing, and delivery process. The sale or placement of each loan to an investor is negotiated at the same time we establish the coupon rate for the loan. We also seek to mitigate the risk of a loan not closing by collecting good faith deposits from the borrower. The deposit is returned to the borrower only once the loan is closed. Any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost. We are also protected contractually from an investor’s failure to purchase the loan. We have experienced an immaterial number of failed deliveries in our history and have incurred immaterial losses on such failed deliveries.

As part of our overall growth strategy, we are focused on significantly growing and investing in our small-balance multifamily lending platform, which involves a high volume of transactions with smaller loan balances. To further this strategy, during the first quarter of 2022, we acquired GeoPhy to support our small-balance lending platform with data analytics and to further advance our technology development capabilities in this area. NOTE 7 of the consolidated financial statements contains additional information related to the GeoPhy acquisition

Debt Brokerage

Our mortgage bankers who focus on debt brokerage are engaged by borrowers to work with life insurance companies, banks, and a  variety of other institutional lenders to find the most appropriate debt and/or equity solution for the borrowers’ needs. These financing solutions are then funded directly by the lender, and we receive an origination fee from our customer for our services.

Property Sales

We offer property sales brokerage services to owners and developers of multifamily properties that are seeking to sell these properties through our subsidiary Walker & Dunlop Investment Sales, LLC (“WDIS”). Through these property sales brokerage services, we seek to maximize proceeds and certainty of closure for our clients using our knowledge of the commercial real estate and capital markets and relying on our experienced transaction professionals. We receive a sales commission for brokering the sale of these multifamily assets on behalf of our clients, and we often are able to provide financing to the purchaser of the properties through our Agency or debt brokerage teams. Our property sales services are offered across the United States. We have increased the number of property sales brokers and the geographical reach of our investment sales platform over the past several years through hiring and acquisitions and intend to continue this expansion in support of our growth strategy. To further support our growth strategy, we acquired an investment sales brokerage company during the third quarter of 2022, which expands our investment sales service offerings to include land sales.

Housing Market Research and Real Estate Investment Banking Services

We own a 75% interest in a subsidiary doing business as Zelman & Associates (“Zelman”), which we acquired in the third quarter of 2021. Zelman is a nationally recognized housing market research and investment banking firm that will enhance the information we provide to our clients and increase our access to high-quality market insight in many areas of the housing market, including construction trends, demographics, housing demand and mortgage finance. Zelman generates revenues through the sale of its housing market research data and

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collateralrelated publications to banks, investment banks and other financial institutions, and through its offering of real estate-related investment banking and advisory services.

Appraisal and Valuation Services

We offer multifamily appraisal and valuation services though our subsidiary, Apprise by Walker & Dunlop (“Apprise”). Apprise leverages technology and data science to dramatically improve the consistency, transparency, and speed of multifamily property appraisals in the U.S. through our proprietary technology and expertise in the commercial real estate industry. Apprise provides appraisal services to a client list that includes many national commercial real estate lenders. Apprise also provides quarterly and annual valuation services to some of the largest institutional commercial real estate investors in the country. Prior to the GeoPhy acquisition, we and GeoPhy each owned a 50% interest in Apprise, and we accounted for the interest as an equity-method investment. Subsequent to the GeoPhy acquisition, Apprise is determineda wholly-owned subsidiary of Walker & Dunlop.

Servicing & Asset Management

Servicing & Asset Management focuses on servicing and asset-managing the portfolio of loans we originate and sell to be completely without valuethe Agencies, brokering to certain life insurance companies, originating loans through our principal lending and investing activities, and managing third-party capital invested in tax credit equity funds focused on the affordable housing sector and other commercial real estate. We earn servicing fees for overseeing the loans in our servicing portfolio and asset management fees for the capital invested in our funds. Additionally, we earn revenue through net interest income on the loans and the warehouse interest expense for loans held for investment. The primary services within SAM are described below.

Loan Servicing

We retain servicing rights and asset management responsibilities on substantially all of our Agency loan products that we originate and sell and generate cash revenues from the fees we receive for servicing the loans, from placement fees on escrow deposits held on behalf of borrowers, and from other ancillary fees relating to servicing the loans. Servicing fees, which are based on servicing fee rates set at the time an investor agrees to purchase the loan and on the unpaid principal balance of loss). For loans in excess of $200 million, we receive modified risk-sharing. We also may request modified risk-sharing at the time of origination on loans below $200 million, which reduces our potential risk-sharing losses from the levels described above if we do not believe that weloan, are being fully compensatedgenerally paid monthly for the risksduration of the transactions. The full risk-sharing limit in prior years was less than $200 million. Accordingly,loan. In addition to servicing substantially all of our Agency loan products, we also service our loans originated in those prior years were subject to risk-sharing at much lower levels. We also monitor geographic and borrower concentrations inthrough the portfolio as a way to further manage our credit risk.

Servicing and Asset Management

We service nearly all loans we originate for the Agencies and our Interim Program and some of the loans we broker for institutional investors, primarily life insurance companies. We may also occasionally leverage the scale of our servicing operation by acquiring the rights to service and asset-manage loans originated by others through direct portfolio acquisitions or entity acquisitions. We are an approved servicer for Fannie Mae, Freddie Mac, and HUD loans.loans and service loans for many different life insurance companies. We are currently a rated primary servicer with Fitch Ratings. Our servicing function includes loan servicing and asset management activities, performing or overseeing the following activities:

carrying out all cashiering functions relating to the loan, including providing monthly billing statements to the borrower and collecting and applying payments on the loan;
administering reserve and escrow funds for repairs, tenant improvements, taxes, and insurance;
obtaining and analyzing financial statements of the borrower and performing periodic property inspections;
preparing and providing periodic reports and remittances to the GSEs, investors, master servicers, or other designated persons;
administering lien filings; and
performing other tasks and obligations that are delegated to us.

Life insurance companies, whose loans we may service, may perform some or all of the activities identified in the list above. We outsource some of our servicing activities to a subservicer.third parties.

Our Fannie Mae, Freddie Mac, and HUD servicing arrangements generally provide for prepayment protection in the event of a voluntary prepayment. For loans serviced outside of Fannie Mae and Freddie Mac, we typically do not have similar prepayment protections. For most loans we service under the Fannie Mae DUS program, during periods of payment delinquency and default and while the loan is in forbearance, we are currently required to advance the principal and interest payments and tax and insurance escrow amountsguarantee fees for four months. We are reimbursedmonths should a borrower cease making payments under the terms of their loan, including while that loan is in forbearance. After advancing for four months, we may request reimbursement by Fannie Mae for the principal and interest advances, and Fannie Mae will reimburse us for these advances within 60 days of the request. Under the Ginnie Mae program, we are obligated to advance the principal and interest payments and guarantee fees until the HUD loan is brought current, fully paid or assigned to HUD. We are eligible to assign a loan to HUD once it is in

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default for 30 days. If the loan is not brought current, or the loan otherwise defaults, we are not reimbursed for our advances until such time as we assign the loan to HUD or work out a payment modification for the borrower. For loans in default, we may repurchase those loans out of the Ginnie Mae security, at which time our advance requirements cease, and we may then modify and resell the loan or assign the loan back to HUD and be reimbursed for our advances. We are not obligated to make advances on the loans we service under the Freddie Mac Optigo® program and our bank and life insurance company servicing agreements.

Under the HUD program, we are obligated to advance tax and insurance escrow amounts and principal and interest payments on the Ginnie Mae securities until the Ginnie Mae security is fully paid. In the event of a default on a HUD-insured loan, we can elect to assign the loan to HUD and file a mortgage insurance claim. HUD will reimburse approximately 99% of any losses of principal and interest on the loan, and Ginnie Mae will reimburse substantially all of the remaining losses. In cases where we elect to not assign the loan to HUD, we attempt to mitigate losses to HUD by assisting the borrower to obtain a modification to the loan that will improve the borrower’s likelihood of future performance.

As discussed above in Capital Markets – Agency Lending, we have risk-sharing obligations on substantially all loans we originate under the Fannie Mae DUS program. When a Fannie Mae DUS loan is subject to full risk-sharing, we absorb losses on the first 5% of the unpaid principal balance of a loan at the time of loss settlement, and above 5% we share a percentage of the loss with Fannie Mae, with our maximum loss capped at 20% of the original unpaid principal balance of the loan (subject to doubling or tripling if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to Fannie Mae). Our full risk-sharing is currently limited to loans up to $300 million, which equates to a maximum loss per loan of $60 million (such exposure would occur in the event that the underlying collateral is determined to be completely without value at the time of loss). For loans in excess of $300 million, we receive modified risk-sharing. We also may request modified risk-sharing at the time of origination on loans below $300 million, which reduces our potential risk-sharing losses from the levels described above, if we do not believe that we are being fully compensated for the risks of the transaction. The full risk-sharing limit prior to June 30, 2021 was less than $300 million. Accordingly, loans originated prior to then may have been subject to modified risk-sharing at much lower levels.

Our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we would receive from Fannie Mae for loans with no risk-sharing obligations. We receive a lower servicing fee for modified risk-sharing than for full risk-sharing. For brokered loans we also service, we collect ongoing servicing fees while those loans remain in our servicing portfolio. The servicing fees we typically earn on brokered loan transactions are substantially lower than the servicing fees we earn on Agency loans.

Principal Lending and Investing

Our principal lending and investing operation is composed of the loans held by the Interim Program JV and the Interim Loan Program, as described below (collectively the “Interim Program”). Through a joint venture with an affiliate of Blackstone Mortgage Trust, Inc., we offer short-term senior secured debt financing products that provide floating-rate, interest-only loans for terms of generally up to three years to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing (the “Interim Program JV” or the “joint venture”). The joint venture funds its operations using a combination of equity contributions from its owners and third-party credit facilities. We hold a 15% ownership interest in the Interim Program JV and are responsible for sourcing, underwriting, servicing, and asset-managing the loans originated by the joint venture. The Interim Program JV assumes full risk of loss while the loans it originates are outstanding, while we assume risk commensurate with our 15% ownership interest.

Using a combination of our own capital and warehouse debt financing, we offer interim loans that do not meet the criteria of the Interim Program JV (the “Interim Loan Program”). We underwrite, service, and asset-manage all loans executed through the Interim Loan Program. We originate and hold these Interim Loan Program loans for investment, which are included on our balance sheet, and during the time that these loans are outstanding, we assume the full risk of loss. The ultimate goal of the Interim Loan Program is to provide permanent Agency financing on these transitional properties.

Affordable Housing and Other Commercial Real Estate-related Investment Management Services

Affordable Housing—We provide affordable housing investment management services through our subsidiary, Alliant Capital, Ltd. and its affiliates (“Alliant”). Alliant is one of the largest tax credit syndicators and affordable housing developers in the U.S. and provides alternative investment management services focused on the affordable housing sector through LIHTC syndication, development of affordable housing projects through joint ventures, and affordable housing preservation fund management. Our affordable housing investment management team works with our developer clients to identify properties that will generate LIHTCs and meet our affordable investors’ needs, and forms limited partnership funds (“LIHTC funds”) with third-party investors that invest in the limited partnership interests in these properties. Alliant serves as the general partner of these LIHTC funds, and it receives fees, such as asset management fees, and a portion of refinance and disposition

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proceeds as compensation for its work as the general partner of the fund. Additionally, Alliant earns a syndication fee from the LIHTC funds for the identification, organization, and acquisition of affordable housing projects that generate LIHTCs.

We invest, as the managing or non-managing member of joint ventures, with developers of affordable housing projects that generate LIHTCs. These joint ventures earn developer fees and sale/refinance proceeds from the properties they develop, and we receive the portion of the economic benefits commensurate with Alliant’s ownership percentage in the joint ventures. Additionally, Alliant also invests with third-party investors (either in a fund or joint-venture structure) with the goal of preserving affordability on multifamily properties coming out of the LIHTC 15-year compliance period or on which market forces are unlikely to keep the properties affordable. Through these preservation funds, Alliant may receive acquisition and asset management fees and will receive a portion of the capital appreciation upon sale through a promote structure.

We advance funds to our joint venture developer partners for generally short durations in connection with our LIHTC operations. The funds are used to fund the joint venture partner in preparing properties for development and ultimately to be sold or syndicated into a LIHTC fund. To manage our risk of loss on these advances, we evaluate the underlying property fundamentals, the expected cash flows and economics of the LIHTC syndication, and the developer’s track record. Additionally, we continually monitor progress on development deals and take appropriate actions as needed to mitigate our risk of loss. The Company, or its predecessor, has never incurred a material loss associated with these advances.

We also advance funds to third-party developers with whom we have long-standing relationships for durations of generally less than a year. We evaluate these advances on a deal-by-deal basis by reviewing similar factors that we do for our advances to our joint venture partners. Additionally, these advances often involve the acquisition of land or property, for which we usually receive a security interest in the form of a mortgage or lien along with guarantees from the developer. Lastly, we require a letter of intent giving us the exclusive right to invest in the LIHTC investment.

Other Commercial Real Estate—Through our subsidiary, Walker & Dunlop Investment Partners (“WDIP”), we function as the operator of a private commercial real estate investment adviser focused on the management of debt, preferred equity, and other equity investments in middle-market commercial real estate funds. WDIP’s current assets under management (“AUM”) of $1.4 billion primarily consist of four sources: Fund III, Fund IV, Fund V, and Fund VI (collectively, the “Funds”), and separate accounts managed primarily for life insurance companies. AUM for the Funds and for the separate accounts consists of both unfunded commitments and funded investments. Unfunded commitments are highest during the fundraising and investment phases. WDIP receives management fees based on both unfunded commitments and funded investments. Additionally, with respect to the Funds, WDIP receives a percentage of the return above the fund return hurdle rate specified in the fund agreements.

Corporate

The Corporate segment consists primarily of our treasury operations and other corporate-level activities. Our treasury operations include monitoring and managing our liquidity and funding requirements, including our corporate debt. The major other corporate-level functions include our equity-method investments, accounting, information technology, legal, human resources, marketing, internal audit, and various other corporate groups.

Our Growth Strategy

In 2016,2020, the Company implemented a strategy to reach at least $1$2 billion of total annual revenues by the end of 20202025 by accomplishing the following milestones: (i) at least $30$60 billion of annual debt financing volume, (ii) at least $5 billion of annual small balance multifamily debt financing volume, (iii) annual property sales volume of at least $8$25 billion, (iii)(iv) an unpaid principal balance of at least $100$160 billion in our servicing portfolio, and (iv)(v) at least $8$10 billion of assets under management. In 2020,We also established several environmental, social, and governance targets we achieved the annual revenue goal, with total revenues of $1.1 billion for the year endedaim to achieve by December 31, 2020. We also achieved two of the milestones with $35.0 billion of debt financing volume for the year ended December 31, 2020 and a servicing portfolio of $107.2 billion as of December 31, 2020. Our property sales volume was $6.1 billion for the year ended December 31, 2020, a record for us, but short of the goal as investment sales activity was significantly impacted by the COVID-19 Crisis. Our assets under management were $1.8 billion as of December 31, 2020, as this part of our business was the least developed when we implemented our strategy and our entry with the acquisition of WDIP did not occur until 2018.2025.

We believeThe following table summarizes our successprogress towards these 2025 milestones.

Milestone (in thousands)

2022

2025 Milestone

Revenues

$

1,258,753

$

2,000,000

Debt financing volume

43,605,984

60,000,000

Small balance lending volume

745,686

5,000,000

Property sales volume

19,732,654

25,000,000

Servicing portfolio

123,133,855

160,000,000

Assets under management

16,748,449

10,000,000

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To reach these milestones in achieving our 2020 goal of $1 billion in revenues positions us to continue growing and diversifying our business by leveraging our people, brand and technology. In2025, we will focus on the fourth quarter of 2020, we set new long-term goals to accomplish by the end of 2025 that include:following areas:  

Grow Debt Financing Volume to $65 billion annually, including $5 billion of annual small balance multifamily lending, with a servicing portfolio of $160 billion by continuing to hire and acquire the best mortgage bankers in the industry, leveraging our brand to continue growing our client base, and leveraging proprietary technology to be more insightful and relevant to our clients. We continue to increase our market share in the multifamily financing market, with 8.8%an 8.3% share in 2020. At December 31, 2020,2022. The acquisition of GeoPhy in 2022 has allowed us to begin development of a small balance lending application to enhance our client’s experience and reduce inefficiencies in the underwriting, closing, and servicing processes and enables us to further leverage technology to effectively target potential clients to achieve our goal of $5 billion of annual small-balance multifamily lending. During 2022, we had 159maintained the number of bankers and brokers in 34 offices focused on debt financing transactions across the United States up from 153 at the

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beginningto stand ready to capture additional market share as macroeconomic conditions begin to stabilize. The integration of 2020. This expansion was driven by organic growth, recruitment of talented origination professionals, and the acquisition of commercial mortgage banking businesses. Continued growth of ourAlliant creates several synergies for debt financing teamvolumes, which include access to Alliant’s clients and relationships in the affordable housing space, which we expect will increase our coverage of the overall commercial real estate market and help achieve our $65 billion financing volume and $160 billion servicing portfolio goals by 2025.lead to additional opportunities to provide affordable debt financing.
Grow Property Sales Volume to $25 billion annually by leveraging the strengths of our current team, growing volumes within our current markets and continuing to build out our brand and footprint nationally by hiring brokers in new geographic markets and brokers who specialize in different multifamily product types. At December 31, 2020, we had 46We added 18 property sales brokers in 18 offices2022, and as of December 31, 2022, had 79 property sales brokers in various regions throughout the United States. We added nineFor the twelve months ended September 30, 2022, our team achieved the goal of greater than $25 billion of property sales; however, the market disruptions experienced since Labor Day 2022 resulted in far fewer sales transactions in the fourth quarter of 2022. Our 2022 sales volume increased slightly despite difficult macroeconomic conditions. During 2022, we acquired a property sales brokersbrokerage company specializing in 2020land sales, and increasedrecruited a team that specializes in affordable housing, which allowed us to expand our 2020product offerings and enter into new investment sales volume by 14% as compared to 2019.markets. Continued growth of our property sales team will provide greater exposure to multifamily clients and markets across the country and help achieve our $25 billion property sales goal by 2025, while also increasing our opportunities to finance the properties for which we broker a sale.
Establish Investment Banking Capabilities with a goal to reach $10 billion in assets under management by building on our existing capabilities and developing new capabilities to meet more of our client’s needs. We havewill continue to seek to grow our AUM, including in other areas of commercial real estate, as we are routinely been asked by our clients to help them in providing market insights, raising more complex capital solutions, and undertaking platform valuations. Our market-leading position in debt financing and ourthe national reach inof our property sales platform gives us access to substantial amounts of local and macro environmental data. We believe access to this insightful data, along with our relationships with various organizations in the capital markets and developments in our technology platforms will help meet these client needs. Additionally, we will continue to scale our assets under managementAUM through WDIP. With overmore than 200 bankers and brokers on our platform and access to a significant and diverse amount of financing deal flows,flow, we also will focus on raising equitythird-party capital to grow WDIP’s business to meet the diverse capital needs of our clients.
Remain a leader in Environmental, Social, and Governance (“ESG”) efforts by increasing the percentage of women and minorities within the ranks of our top earners and senior management, remaining carbon neutral while reducing our carbon emissions intensity, and donating 1% of our annual income from operations to charitable organizations. Details and results of our ongoing ESG efforts are provided in our annual ESG report on our website. See more discussions about our human capital strategy in the “Human Capital Resources” section below.

Competition

We compete in the commercial real estate services industry. We face significant competition across our business, including, but not limited to, commercial real estate services subsidiaries of large national commercial banks, privately-held and public commercial real estate service providers, CMBS conduits, public and private real estate investment trusts, private equity, investment funds, and insurance companies, some of which are also investors in loans we originate. Our competitors include, but are not limited to, Wells Fargo, N.A.; CBRE Group, Inc.; Jones Lang LaSalle Incorporated; Marcus & Millichap, Inc.; Eastdil Secured; PNC Real Estate; Northmarq Capital, LLC; Newmark Realty Capital; and Berkadia Commercial Mortgage, LLC. Many of these competitors enjoy advantages over us, including greater name recognition, financial resources, well-established investment management platforms, and access to lower-cost capital. The commercial real estate services subsidiaries of the large national commercial banks may have an advantage over us in originating commercial loans if borrowers already have other lending or deposit relationships with the bank. Through our subsidiary, Alliant, we are the sixth largest LIHTC syndicator in the country. Competitors in this fragmented but highly competitive industry include but are not limited to:  Boston Financial Investment Management, L.P., Raymond James & Associates, Inc., Enterprise Community Partners, Inc., The Richman Group Affordable Housing Corporation, National Equity Fund, Inc., and PNC Real Estate.

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We compete on the basis of quality of service, the ability to provide useful insights to our borrowers, speed of execution, relationships, loan structure, terms, pricing, and breadth of product offerings. Our ability to provide useful insights to borrowers includes our knowledge of local and national real estate market conditions, our loan product expertise, our analysis and management of credit risk and leveraging data and technology to bring ideas to our clients. Our competitors seek to compete aggressively on these factors. Our success depends on our ability to offer attractive loan products, provide superior service, demonstrate industry depth, maintain and capitalize on relationships with investors, borrowers, and key loan correspondents, and remain competitive in pricing. In addition, future changes in laws, regulations, and Agency program requirements, increased investment from foreign entities, and consolidation in the commercial real estate finance market could lead to the entry of more competitors.

Regulatory Requirements

Our business is subject to laws and regulations in a number of jurisdictions. The level of regulation and supervision to which we are subject varies from jurisdiction to jurisdiction and is based on the type of business activities involved. The regulatory requirements that apply to our activities are subject to change from time to time and may become more restrictive, making our compliance with applicable requirements more difficult or expensive or otherwise restricting our ability to conduct our business in the manner that it is now conducted. Additionally, as

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we expand into new operations, we likely will face new regulatory requirements applicable to such operations. ChangesFor example, our expansion into LIHTC syndication and broker-dealer activities in 2021, as a result of the Alliant and Zelman acquisitions, has subjected us to new regulatory requirements. While such regulatory requirements may not result in fines and penalties, changes in applicable regulatory requirements, including changes in their enforcement, could materially and adversely affect us.

Federal and State Regulation of Commercial Real Estate Lending Activities

Our multifamily and commercial real estate lending, property sales, servicing, asset management, and appraisal activities are subject, in certain instances, to supervision and regulation by federal and state governmental authorities in the United States. In addition, these activities may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things, regulate lending activities, regulate conduct with borrowers, establish maximum interest rates, finance charges, and other charges and require disclosures to borrowers. Although most states do not regulate commercial finance, certain states impose limitations on interest rates, as well as other charges on certain collection practices and creditor remedies. Some states also require licensing of lenders, loan and property brokers, loan servicers and real estate appraisers as well as adequate disclosure of certain contract terms. We also are required to comply with certain provisions of, among other statutes and regulations, the USA PATRIOT Act, regulations promulgated by the Office of Foreign Asset Control, the Employee Retirement Income Security Act of 1974, as amended, which we refer to as “ERISA,” and federal and state securities laws and regulations.

Requirements of the Agencies

To maintain our status as an approved lender for Fannie Mae and Freddie Mac and as a HUD-approved mortgagee and issuer of Ginnie Mae securities, we are required to meet and maintain various eligibility criteria established by the Agencies, such as minimum net worth, operational liquidity and collateral requirements, and compliance with reporting requirements. We also are required to originate our loans and perform our loan servicing functions in accordance with the applicable program requirements and guidelines established by the Agencies. If we fail to comply with the requirements of any of these programs, the Agencies may terminate or withdraw our approval. In addition, the Agencies have the authority under their guidelines to terminate a lender's authority to sell loans to them and service their loans. The loss of one or more of these approvals would have a material adverse impact on us and could result in further disqualification with other counterparties, and we may be required to obtain additional state lender or mortgage banker licensing to originate loans if that status is revoked.

Investment Advisers Act

Under the Investment Advisers Act of 1940, WDIP is required to be registered as an investment adviser with the SECSecurities and Exchange Commission (“SEC”) and follow the various rules and regulations applicable to investment advisers. These rules and regulations cover, among other areas, communications with investors, marketing materials provided to potential investors, disclosure and calculation of fees, calculation and reporting of performance information, maintenance of books and records, and custody. Investment advisers are also subject to periodic inspection and examination by the SEC and filing requirements on Form ADV and Form PF. Should WDIP not meet any of the requirements of the Investment Advisers Act, it could face, among other things, fines, penalties, legal proceedings, an order to cease and desist, or revocation of its registration.

Requirements of Registered Broker-Dealers

Under the Exchange Act and as a member of the Financial Industry Regulatory Authority (“FINRA”), Zelman is required to follow the various rules and regulations applicable to broker-dealers. These rules and regulations cover, among other things, sales practices, fee

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arrangements, disclosures to clients, capital adequacy, use and safekeeping of clients’ funds and securities, recordkeeping and reporting and the qualification and conduct of officers, employees and independent contractors. Broker-dealers are subject to periodic inspection and examination by the SEC and FINRA. Should Zelman not meet any of the requirements, Zelman may receive a deficiency letter identifying potential compliance issues that must be addressed and may face enforcement actions if any violations or compliance issues are not resolved.

Human Capital Resources

AtAs of December 31, 2020,2022, we had a total of 9881,451 employees, a 20%an 11% increase from the prior year, including 20527 new bankers and brokers. This growth was primarily due to the expansion of our business, and our recruiting efforts, and the GeoPhy acquisition in 2020.2022. None of our employees isare represented by a union or subject to a collective bargaining agreement, and we have never experienced a work stoppage. We have not furloughed any employees as a result of the COVID-19 pandemic and currently do not have any plans to furlough any employees as a result of the pandemic.

Our human capital strategy is to create a valued culture that allows us to attract and retain the very best talent in our industry, provideindustry. We take a people-first approach to culture, providing competitive pay and benefits, andworking to ensuredeliver an experience that ensures all of our employees are welcome everywhere in our Company.provided with opportunities for support, growth, and advancement throughout their tenure. We believe the core values that make up “The Walker Way” represent the inclusive culture thatwho we strive to create:are: an employee base that is driven, caring, collaborative, insightful, and tenacious. We are committedstrive to buildingbuild a great place to work for all employees and to be a leader in diversity, equity, and inclusion.inclusion (“DE&I”). In 2022, we were recognized in Fortune Magazine’s Great Place to Work’s® Best Workplaces in Financial Services & Insurance for the seventh time, with 94% of our survey respondents having said: “Taking everything into account, I would say this is a great place to work.”  

Talent

We are committed to recruiting, developing and retaining a diverse workforce. All employees take part in our rigorous goal setting, performance review, and 360 feedback program each year. We monitor and evaluate various talent metrics and report to management monthly on hiring, turnover, promotions, and attritionDE&I metrics. Our voluntary retention rate was 93%, andThe following table summarizes our average tenure was 4.9 years forkey human capital metrics over the year ended December 31, 2020. As of December 31, 2020, our workforce consists of 36% female and 64% male employees, and women represented 25% of management positions (defined as Assistant Vice President and above). Ethnic diversity represented 20% of our workforce and 11% of management positions.last two years:

As of December 31, 

Human Capital Metric:

2022

    

2021

Overall

Voluntary annualized turnover rate

11%

12%

Average tenure (years)

3.8

3.6

Diversity

Percent of women employees

36%

36%

Percent of women employees in management positions (1)

28%

27%

Percent of employees from underrepresented racial/ethnic groups

22%

23%

Percent of employees from underrepresented racial/ethnic groups in management positions (1)

13%

14%

(1)Defined as Assistant Vice President and above.

Through the Company’s Council for Diversity & Inclusion, we offer employee resource groups, including diversity, women’s, veterans and working parents. We are purposeful in our drive to promote an inclusive workplace, where our employees are engaged and can develop

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within the Company. As mentioned in the “Our Growth Strategy” section above, we have set ambitious quantitative 2025 goals related to DE&I and tied a portion of our Executive Officer’s short-term annual incentive compensation to drive advances toward our longer-term DE&I vision. Additionally, all employees have community standard and diversity, equity, and inclusion.inclusion goals. In 2022, we began implementing the DE&I action plan resulting from COQUAL and Management Leadership for Tomorrow’s (“MLT”) Black Equity at Work audits we conducted in 2021. We developed a Hispanic Equity action plan as part of MLT's inaugural Hispanic Equity at Work Certification. MLT approved our Hispanic Equity at Work plan and awarded us a Bronze Certification for our progress toward the Black Equity at Work plan we adopted in 2021. Both are milestones on the journey to make comprehensive progress through rigorous, sustained action, ongoing data-driven improvement, and accountability. Additionally, we are included in the Bloomberg Gender Equality Index (“GEI”) for the second time, the level and quality of our disclosures surrounding gender equality earned us inclusion again for 2023. Through our diversity, equity, and inclusion program we sponsor employee resource groups (“ERGs”) including, but not limited to the following:  Black, Latino/a, LGBTQIA+, AAPI, Military/Veterans, and Caregivers. Our ERGs provide our employees with community, fostering education, awareness, support, and advocacy.

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Health and Safety

We are committed to the health, safety, and wellness of our employees. We offer various programs to support the wellbeingwell-being of our employees, including flexible working arrangements, a caregiver support program, and a robust wellness program that includes subsidies of up to $150 per month paid to employees for qualifying wellness activities, promoting both physical and mental health. In response to the pandemic, we implemented precautionary policies and significant operational changes to protect and supportMore than half of our employees including remote working,participate in this program. In 2022, we increased our focus on mental health through numerous employee-focused campaigns and additional time offtraining for our entire human resources function. All of our offices are open, and we support two days per week work-from-home, with the ability to supportexercise more flexibility. We believe this keeps the family,focus on both our culture and a COVID-19 assistance grant program for employees in need. As statecommitment to meeting employees’ personal and local jurisdictions began lifting COVID restrictions, we implemented new policieshealth needs front and procedures to allow our employees to return to the office on a voluntary basis starting in the second quarter of 2020, including requiring the completion of daily health screenings and the use of personal protective equipment. As of December 31, 2020, substantially all our employees have been able, and continue, to work remotely.center.

Employee BenefitsTotal Rewards

To attract and retain the very best talent in the industry, we are committed to providing a total compensation and benefits package that is highly competitive. We offer competitive wages, healthcarehealth and insurance benefits, paid time off, various leave programs, a service awards program ranging from $2,000 to $25,000 for three to 40 years of service, a 401(k) Company match, wellness benefits, and health savings plans. We benchmark our total rewards programs at least annually and regularly conduct pay equity analyses. We also offer paid time off for employees to volunteer in ourtheir communities, in addition to Company-sponsored volunteer events, and provide monetary donations to the charity of an employee’s choice as well as a matching fund program where we match employees’ eligible charitable contributions and/or time spent volunteering up to a specified amount.$1,000. In addition, we support the development and advancement of our employees and provide reimbursements for certain professional certifications and higher education.

WeIn recognition of the role our employees play as stewards of the “Walker Way,” we have historically granted broad-based restricted stock awards to our employees. Our most-recent restricted stock award was granted inIn December 2020, on the 10-year anniversary of our initial public offering, we granted restricted stock to our non-production staff,employees, excluding senior management. The grant vests ratably over a three-year period, with the next three years.final vesting occurring in December 2023.

Together with our employees, we continue our journey to be a great place to work. We are consistently evaluating our programs and policies to uphold and support our culture, our values and our people.

Available Information

We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”).SEC. These filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov.

Our principal Internet website can be found at http://www.walkerdunlop.com. The content within or accessible through our website is not part of this Annual Report on Form 10-K. We make available free of charge, on or through our website, access to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such material is electronically filed, or furnished, to the SEC.

Our website also includes a corporate governance section which contains our Corporate Governance Guidelines (which includes our Director Responsibilities and Qualifications), Code of Business Conduct and Ethics, Code of Ethics for Principal Executive Officer and Senior Financial Officers, Board of Directors’ Committee Charters for the Audit, Compensation, and Nominating and Corporate Governance Committees, Complaint Procedures for Accounting and Auditing Matters, and the method by which interested parties may contact our Ethics Hotline.

In the event of any changes to these charters, codes, or guidelines, changed copies will also be made available on our website. If we waive or amend any provision of our code of ethics, we will promptly disclose such waiver or amendment as required by SEC or New York Stock Exchange (“NYSE”) rules. We intend to promptly post any waiver or amendment of our Code of Ethics for Principal Executive Officer and Senior Financial Officers to our website.

You may request a copy of any of the above documents, at no cost to you, by writing or telephoning us at: Walker & Dunlop, Inc., 75017272 Wisconsin Avenue, Suite 1200E,1300, Bethesda, Maryland 20814, Attention: Investor Relations, telephone (301) 215-5500. We will not send exhibits to these reports, unless the exhibits are specifically requested, and you pay a modest fee for duplication and delivery.

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Item 1A. Risk Factors

Investing in our common stock involves risks. You should carefully consider the following risk factors, together with all the other information contained in this Annual Report on Form 10-K, before making an investment decision to purchase our common stock. The

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realization of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations, and the market price and liquidity of our common stock, which could cause you to lose all or a significant part of your investment in our common stock. Some statements in this Annual Report, including statements in the following risk factors, constitute forward-looking statements. See “Forward-Looking Statements” for more information.

Risks Relating to Our Business

The loss of, changes in, or disruptions to our relationships with the Agencies and institutional investors would adversely affect our ability to originate commercial real estate loans, which would materially and adversely affect us.

Currently, we originate a majorityall of our loans held for sale through the Agencies’ programs. We are approved as a Fannie Mae DUS® lender nationwide, a Fannie Mae Multifamily Small Loan lender, a Freddie Mac Optigo® lender nationally for Conventional, Seniors Housing, Targeted Affordable Housing and Small Balance Loans, a HUD MAP lender nationwide, a HUD LEAN lender nationally, and a Ginnie Mae issuer. Our status as an approved lender affords us a number of advantages and may be terminated by the applicable Agency at any time. The loss of such status would, or changes in our relationships could, prevent us from being able to originate commercial real estate loans for sale through the particular Agency, which would materially and adversely affect us. It could also result in a loss of similar approvals from the other Agencies. Additionally, federal budgetary policies also impact our ability to originate loans, particularly if they have a negative impact on the ability of the Agencies to do business with us. Changes in fiscal, monetary, and budgetary policies and the operating status of the U.S. government are beyond our control, are difficult to predict, and could materially and adversely affect us. During periods of limited or no U.S. government operations, our ability to originate HUD loans may be severely constrained. The impact that limited or dormant government operations may have on our HUD lending depends on the duration of such impacted operations.

We also broker loans on behalf of certain life insurance companies, investment banks, commercial banks, pension funds, CMBS conduits, and other institutional investors that directly underwrite and provide funding for the loans at closing. In cases where we do not fund the loan, we act as a loan broker. If these investors discontinue their relationship with us and replacement investors cannot be found on a timely basis, we could be adversely affected.

A change to the conservatorship of Fannie Mae and Freddie Mac and related actions, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. federal government or the existence of Fannie Mae and Freddie Mac, could materially and adversely affect our business.

Currently, we originate a majority of our loans for sale through the GSEs’ programs. Additionally, a substantial majority of our servicing portfolio represents loans we service through the GSEs’ programs. Changes in the business charters, structure, or existence of one or both of the GSEs could eliminate or substantially reduce the number of loans we originate with the GSEs, which in turn would lead to a reduction in fees related to such loans. These effects would likely cause us to realize significantly lower revenues from our loan originations and servicing fees, and ultimately would have a material adverse impact on our business and financial results.

In September 2008, the GSEs’ regulator, the Federal Housing Finance Agency (the “FHFA”), placed each GSE into conservatorship. The conservatorship is a statutory process designed to preserve and conserve the GSEs’ assets and property and put them in a sound and solvent condition. The conservatorships have no specified termination dates and there continues to be significant uncertainty regarding the future of the GSEs, including how long they will continue to exist in their current forms, the extent of their roles in the housing markets and whether or in what form they may exist following conservatorship.

As the primary regulator and the conservator of the GSEs, the FHFA has taken a number of steps during conservatorship to manage the GSEs’ multifamily business activities. Since 2013, the FHFA has established limits on the volume of new multifamily loans that may be purchased annually by the GSEs (“caps”). In November 2020,2022, the FHFA updated the GSE’sGSEs’ loan origination caps to $70.0$75.0 billion for the four-quarter period beginning with the first quarter 2021 through the fourth quarter of 2021.January 1, 2023 and ending December 31, 2023. The new caps apply to all multifamily business with no exclusions. The FHFA also directed that at least 50.0% of the GSEs’ multifamily business be mission-driven, affordable housing. We cannot predict whether FHFA will implement further regulatory and other policy changes that will modify the GSEs’ multifamily businesses.

Congress has considered various housing finance reform bills since the GSEs went into conservatorship in 2008.  Several of the bills have called for the winding down or receivership of the GSEs. We expect Congress to continue considering housing finance reform in the future, including conducting hearings and considering legislation that could alter the housing finance system. We cannot predict the prospects

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for the enactment, timing or content of legislative proposals regarding the future status of the GSEs. Additionally, we cannot predict whether the Biden Administration will propose or implement reforms that modify or otherwise impact the GSEs’ multifamily business.

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We are subject to risk of loss in connection with defaults on loans, including loans sold under the Fannie Mae DUS program, and could experience significant servicing advance obligations in connection with Fannie Mae and HUD loans we originate, that could materially and adversely affect our results of operations and liquidity.

As a loan servicer, we maintain the primary contact with the borrower throughout the life of the loan and are responsible, pursuant to our servicing agreements with the Agencies and institutional investors, for asset management. We are also responsible, together with the applicable Agency or institutional investor, for taking actions to mitigate losses. Our asset management process may be unsuccessful in identifying loans that are in danger of underperforming or defaulting or in taking appropriate action once those loans are identified. While we can recommend a loss mitigation strategy for the Agencies, decisions regarding loss mitigation are within the control of the Agencies. Previous turmoil in the real estate, credit and capital markets have made this process even more difficult and unpredictable. When loans become delinquent, we may incur additional expenses in servicing and asset managing the loan and are typically required to advance principal and interest payments and tax and insurance escrow amounts. In response to the COVID-19 Crisis, the Agencies implemented new forbearance programs that allow borrowers to forbear payments up to 180 days and repay the forborne payments over a 12- or 24-month period. These forbearance programs may require us to advance up to four months of the deferred payments on Fannie Mae loans that we service. We do not have advance obligations with respect to our Freddie Mac or life insurance servicing agreements. Declining rent collections and a borrower’s inability to make all required payments once the forbearance period is over could lead to an increase in delinquencies and losses beyond what we have experienced.

All of these items discussed above could have a negative impact on our cash flows. Because of the foregoing, a rise in delinquencies could have a material adverse effect on us. Under the Fannie Mae DUS program, we originate and service multifamily loans for Fannie Mae without having to obtain Fannie Mae's prior approval for certain loans, as long as the loans meet the underwriting guidelines set forth by Fannie Mae. In return for the delegated authority to make loans and the commitment to purchase loans by Fannie Mae, we must maintain minimum collateral and generally are required to share risk of loss on loans sold through Fannie Mae. Under the full risk-sharing formula, we are required to absorb the first 5% of any losses on the unpaid principal balance of a loan at the time of loss settlement, and above 5% we are required to share the loss with Fannie Mae, with our maximum loss generally capped at 20% of the original unpaid principal balance of a loan, except for rare instances when we negotiate a cap at 30% for loans with unique attributes.loan. In addition, Fannie Mae can double or triple our risk-sharing obligations if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to Fannie Mae. Fannie Mae also requires us to maintain collateral, which may include pledged securities, for our risk-sharing obligations. As of December 31, 2020,2022, we had pledged securities of $137.2$157.3 million as collateral against future losses related to $44.5$54.2 billion of loans outstanding that are subject to risk-sharing obligations, as more fully described under “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” which we refer to as our “at-risk balance.” Fannie Mae collateral requirements may change in the future. As of December 31, 2020,2022, our allowance for risk-sharing as a percentage of the at-risk balance was 0.17%0.08%, or $75.3$44.1 million, and reflects our current estimate of our future expected payouts under our risk-sharing obligations. Over the past 10 years, we have settled $22.0 million of risk-sharing losses, or 1.2 basis points of the average at-risk balance. We cannot ensure that our estimate of the allowance for risk-sharing obligations will be sufficient to cover future actual write offs. Other factors may also affect a borrower's decision to default on a loan, such as property, cash flow, occupancy, maintenance needs, and other financing obligations. As of December 31, 2020,2022, there were two loans with an aggregate unpaid principal balance of $48.5$37.0 million and an aggregate collateral-based reserve of $4.4 million that had defaulted and been foreclosed on by Fannie Mae and are awaiting ultimate disposition. If loan defaults increase, actual risk-sharing obligation payments under the Fannie Mae DUS program may increase, and such defaults and payments could have a material adverse effect on our results of operations and liquidity. In addition, any failure to pay our share of losses under the Fannie Mae DUS program could result in the revocation of our license from Fannie Mae and the exercise of various remedies available to Fannie Mae under the Fannie Mae DUS program.

A reduction in the prices paid for our loans and services or an increase in loan or security interest rates required by investors could materially and adversely affect our results of operations and liquidity.operations.

Our results of operations and liquidity could be materially and adversely affected if the Agencies or institutional investors lower the price they are willing to pay to us for our loans or services or adversely change the material terms of their loan purchases or service arrangements with us. Multiple factors determine the price we receive for our loans. With respect to Fannie Mae-related originations, our loans are generally sold as Fannie Mae-insured securities to third-party investors. With respect to HUD relatedHUD-related originations, our loans are generally sold as Ginnie Mae securities to third-party investors. In both cases, the price paid to us reflects, in part, the competitive market bidding process for these securities.

We sell loans directly to Freddie Mac. Freddie Mac may choose to hold, sell or later securitize such loans. We believe terms set by Freddie Mac are influenced by similar market factors as those that impact the price of Fannie Mae–insured or Ginnie Mae securities, although the pricing process differs. With respect to loans that are placed with institutional investors, the origination fees that we receive from borrowers are determined through negotiations, competition, and other market conditions.

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Loan servicing fees are based, in part, on the risk-sharing obligations associated with the loan and the market pricing of credit risk. The credit risk premium offered by Fannie Mae for new loans can change periodically but remains fixed once we enter into a commitment to sell the loan. Over the past several years, Fannie Mae loan servicing fees have generally been higher than for other products principally due to the market pricing of credit risk. There can be no assurance that such fees will continue to remain at such levels or that such levels will be sufficient if delinquencies occur.

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Servicing fees for loans placed with institutional investors are negotiated with each institutional investor pursuant to agreements that we have with them. These fees for new loans vary over time and may be materially and adversely affected by a number of factors, including competitors that may be willing to provide similar services at lower rates.

A significant portion of our revenue is derived from loan servicing fees, and declines in or terminations of servicing engagements or breaches of servicing agreements including from nonperformance by third parties that we engage for back-office loan servicing functions, could have a material adverse effect on us.

We expect that loan servicing fees will continue to constitute a significant portion of our revenues for the foreseeable future. Nearly all of these fees are derived from loans that we originate and sell through the Agencies’ programs or place with institutional investors. A decline in the number or value of loans that we originate for these investors or terminations of our servicing engagements will decrease these fees. HUD has the right to terminate our current servicing engagements for cause. In addition to termination for cause, Fannie Mae and Freddie Mac may terminate our servicing engagements without cause by paying a termination fee. Our institutional investors typically may terminate our servicing engagements at any time with or without cause, without paying a termination fee. We are also subject to losses that may arise from servicing errors, such as a failure to maintain insurance, pay taxes, or provide notices. In addition, we have contracted with a third-party to perform certain routine back-office aspects of loan servicing. If we or this third party fails to perform, or we breach or the third-party causes us to breach our servicing obligations to the Agencies or institutional investors, our servicing engagements may be terminated. Declines or terminations of servicing engagements or breaches of such obligations could materially and adversely affect us.

If one or morea significant number of our loan warehouse facilities, on which we are highly dependent, are terminated or reduced, we may be unable to find replacement financing on favorable terms, or at all, which would have a material adverse effect on us.

We require a significant amount of short-term funding capacity forto finance Agency loans we originate. As of December 31, 2020,2022, we had $3.6$3.9 billion of committed and uncommitted loan funding available through five commercial banks and $1.5 billion of uncommitted funding available through Fannie Mae’s As Soon As Pooled (“ASAP”) program. Additionally, consistent with industry practice, allof our existing Agency Warehouse Facilities are short-term, requiringloan warehouse facilities have terms of one year, and therefore require annual renewal. If anya significant number of our committed facilities are reduced, terminated, or are not renewed or our uncommitted facilities are not honored, we may be unable to find replacement financing on favorable terms, or at all, and we might not be able to originate loans, which would have a material adverse effect on us. Additionally, as our business continues to expand, we may need additional warehouse funding capacity for loans we originate. There can be no assurance that, in the future, we will be able to obtain additional warehouse funding capacity on favorable terms, on a timely basis, or at all.

If we fail to meet or satisfy any of the financial or other covenants included in our warehouse facilities, we would be in default under one or more of these facilities and our lenders could elect to declare all amounts outstanding under the facilities to be immediately due and payable, enforce their interests against loans pledged under such facilities andand/or restrict our ability to make additional borrowings. These facilities also contain cross-default provisions, such that if a default occurs under any of our debt agreements, generally the lenders under our other debt agreements could also declare a default. These restrictions (and restrictions included in our long-term debt agreement) may interfere with our ability to obtain financing or to engage in other business activities, which could materially and adversely affect us. There can be no assurance that we will maintain compliance with all financial and other covenants included in our loan warehouse facilities in the future.

We may be required to repurchase loans or indemnify loan purchasers if there is a breach of a representation or warranty made by us in connection with the sale of loans through the programs of the Agencies, which could have a material adverse effect on us.

We must make certain representations and warranties concerning each loan originated by us for the Agencies’ programs. The representations and warranties relate to our practices in the origination and servicing of the loans and the accuracy of the information being provided by us. For example, we are generally required to provide, among others, the following among other, representations and warranties: we are authorized to do business and to sell or assign the loan; the loan conforms to the requirements of the Agencies and certain laws and regulations; the underlying mortgage represents a valid lien on the property and there are no other liens on the property; the loan documents are valid and enforceable; taxes, assessments, insurance premiums, rents and similar other payments have been paid or escrowed; the property is insured, conforms to zoning laws and remains intact; and we do not know of any issues regarding the loan that are reasonably expected to cause the loan to be delinquent or unacceptable for investment or adversely affect its value. We are permitted to satisfy certain of these representations and warranties by furnishing a title insurance policy.

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In the event of a breach of any representation or warranty concerning a loan, investors could, among other things, require us to repurchase the full amount of the loan and seek indemnification for losses from us, or, for Fannie Mae DUS loans, increase the level of risk-sharing on the loan. Our obligation to repurchase the loan is independent of our risk-sharing obligations. The Agencies could require us to repurchase the loan if representations and warranties are breached, even if the loan is not in default. Because the accuracy of many such representations and warranties generally is based on our actions or on third-party reports, such as title reports and environmental reports, we may not receive similar representations and warranties from other parties that would serve as a claim against them. Even if we receive representations and warranties from third parties and have a claim against them, in the event of a breach, our ability to recover on any such claim may be limited. Our ability to recover against a borrower that breaches its representations and warranties to us may be similarly limited. Our ability to recover on a claim against any party would also be dependent, in part, upon the financial condition and liquidity of such party. There can be no assurance that we,

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our employees or third parties will not make mistakes that would subject us to repurchase or indemnification obligations. Any significant repurchase or indemnification obligations imposed on us could have a material adverse effect on us.

We have made various investments in interim loans and preferred equity investments, both of whichthat are funded with corporate capital. These investments may involve a greater risk of loss than our traditional real estate lending activities.

We use corporate capital to make investments in (i) loans under the Interim Loan Program, (ii) joint ventures and other equity method investments, (iii) loans to our LIHTC joint venture partners and (iv) investments in LIHTC tax credit equity. Below we discuss the risks associated with these investments.

(i)Interim Loan Program

Under the Interim Loan Program, we offer short-term, floating-rate loans to borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing. Such a borrower often has identified a transitional asset that has been under-managed and/or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the interim loan, and we bear the risk that we may not recover some or all of the loan balance. In addition, borrowers usually use the proceeds of a long-term mortgage loan to repay an interim loan. We may therefore be dependent on a borrower’s ability to obtain permanent financing to repay our interim loan, which could depend on market conditions and other factors. Further, interim loans may be relatively less liquid than loans against stabilized properties due to their short life, their potential unsuitability for securitization, any unstabilized nature of the underlying real estate and the difficulty of recovery in the event of a borrower’s default. This lack of liquidity may significantly impede our ability to respond to adverse changes in the performance of loans in the Interim Program and may adversely affect the fair value of such loans and the proceeds from their disposition. Carrying loans for longer periods of time on our balance sheet exposes us to greater risks of loss than we currently face for loans that are pre-sold or placed with investors, including, without limitation, 100% exposure for defaults and impairment charges, which may adversely affect our profitability. At December 31, 2020, we held loans

(ii)Joint ventures and other equity method investments

We make investments in various joint ventures, including with an outstanding principal balanceselect developers of $366.3 million underLIHTC properties and as part of the Interim Loan Program. One loanProgram JV. We are also an investor in various venture capital funds with a specific focus on identifying and investing in property technology and financial technology companies with a predominant focus on the portfolio, totaling $14.7 million,housing and commercial real estate sectors. We bear the risk that these investments will not be able to generate sufficient cash flows for us to fully recover our capital contributions. These investments are included in Other assets on the Consolidated Balance Sheets.

(iii)Loans to our LIHTC joint venture partners

To provide capital support the partners in our LIHTC joint ventures, who are the developers of LIHTC properties, we provide loans to these partners. The funds from these loans are used to prepare a property for development and ultimately to be syndicated into a LIHTC fund. These loans are generally short-term and repaid with proceeds from construction loans or permanent loans from third-party sources or proceeds from the sale to LIHTC funds. We face risk that these loans to our joint venture partners may not be repaid if loans from third parties cannot be obtained or the property is currentlynot sold to a LIHTC fund.

(iv)Investments in LIHTC tax credit equity

We acquire interests in default.tax credit property partnerships for sale to LIHTC investment funds and, at any point in time, the aggregate amount of funds advanced can be material. Recovery of these investments is subject to our ability to attract investors to new investment funds.

We have contractual obligations that will require significant uses of capital. Our ability to fund these uses of capital is dependent on both our results of operations and our ability to access capital markets. A decline in the results of our operations, an inability to access capital markets, or an increase in the cost of capital may materially affect our operations.

As discussed in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” we have made preferred equitycommitments to fund (i) equity-method investments, (ii) investments in entities owning real estateaffordable housing partnerships to be syndicated into LIHTC investment funds, and (iii) earnout payments from acquisitions, and we also must satisfy collateral requirements for our Fannie Mae DUS risk-sharing obligations and the operational liquidity requirements of Fannie Mae, Freddie Mac, HUD, Ginnie Mae, and our warehouse facility lenders.To fund these cash flow obligations, we typically use cash generated from our operations and, when necessary, from funds raised in the past. Such investments are subordinatecapital markets. A significant decline in our operational performance, an inability to debt financing and are not secured by real property. If the issueraccess capital markets for funding, or a sharp rise in our cost of the preferred equity defaults oncapital could adversely affect our investment, in most instances we would only be ableability to proceed against the entity that issued the equity in accordance with the termsmeet these future obligations.

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Table of the investment, and not any real property owned by the entity. As a result, we may not recover some or all of our invested capital, which could result in losses to the Company. As of December 31, 2020, we had no preferred equity investments.Contents

We are dependent upon the success of the multifamily real estate sector and conditions that negatively impact the multifamily sector may reduce demand for our products and services and materially and adversely affect us.

We provide commercial real estate financial products and services primarily to developers and owners of multifamily properties. Accordingly, the success of our business is closely tied to the overall success of the multifamily real estate market. Various changes in real estate conditions may impact the multifamily sector. Any negative trends in such real estate conditions may reduce demand for our products and services and, as a result, adversely affect our results of operations. These conditions include:

an oversupply of, or a reduction in demand for, multifamily housing;
a change in policy or circumstances that may result in a significant number of current and/or potential residents of multifamily properties deciding to purchase homes instead of renting;
rent control, rent forbearance, or stabilization laws, or other laws regulating multifamily housing, which could affect the profitability or values of multifamily developments;
the inability of residents and tenants to pay rent;
changes in the tax code related to investment real estate;
increased competition in the multifamily sector based on considerations such as the attractiveness, location, rental rates, amenities, and safety record of various properties; and
increased operating costs, including increased real property taxes, maintenance, insurance, and utilities costs.

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Moreover, other factors may adversely affect the multifamily sector, including general business, economic and market conditions, fluctuations in the real estate and debt capital markets, changes in government fiscal and monetary policies, regulations and other laws, rules and regulations governing real estate, zoning or taxes, changes in interest rate levels, the potential liability under environmental and other laws, and other unforeseen events. Any or all of these factors could negatively impact the multifamily sector and, as a result, reduce the demand for our products and services. Any such reduction could materially and adversely affect us.

The loss of our key management could result in a material adverse effect on our business and results of operations.

Our future success depends to a significant extent on the continued services of our senior management, particularly William Walker, our Chairman and Chief Executive Officer. The loss of the services of any of these individuals could have a material adverse effect on our business and results of operations. We maintain a robust succession planning process for all of our senior management and regularly update our Board on such developments. In addition, we maintain “key person” life insurance only on Mr. Walker, and the insurance proceeds from such insurance may be insufficient to cover the cost associated with recruiting a new Chief Executive Officer.

Our growth strategy relies upon our ability to hire and retain qualified bankers and brokers, and if we are unable to do so, our growth could be limited.

We depend on our bankers and brokers to generate clients by, among other things, developing relationships with commercial property owners, real estate agents and brokers, developers and others, which we believe leads to repeat and referral business. Accordingly, we must be able to attract, motivate and retain skilled bankers and brokers. The market for talent is highly competitive and may lead to increased costs to hire and retain them. We cannot guarantee that we will be able to attract or retain qualified bankers and brokers. If we cannot attract, motivate or retain a sufficient number of skilled bankers and brokers, or if our hiring and retention costs increase significantly, we could be materially and adversely affected.

We intend to drive a significant portion of our future growth through additional strategic acquisitions or investments in new ventures and new lines of business.  If we do not successfully identify, complete and integrate such acquisitions or start-ups,investments, our growth may be limited. Additionally, continued growth and integration inexpansion of our business may place significant demands on our administrative, operational, and financial resources, and the acquired businesses or new ventures may not perform as we expect them to or become profitable.

We intend to pursue continued growth by acquiring or starting complementary businesses, but we cannot guarantee such efforts will be successful or profitable. We do not know whether the favorable conditions that have enabled our past growth through acquisitions and strategic investments will continue. The identification of suitable acquisition candidates and new ventures can be difficult, time consuming and costly, and we may not be able to successfully complete identified acquisitions or investments in new ventures on favorable terms, or at all. Furthermore, even if we successfully complete an acquisition or an investment, we may not be able to successfully integrate newly acquired businesses or new investments into our operations, and the process of integration could be expensive and time consuming and may strain our resources.

In addition, if our growth continues, it could increase our expenses and place additional demands on our management, personnel, information systems, and other resources. Sustaining our growth could require us to commit additional management, operational and financial resources to maintain appropriate operational and financial systems to adequately support expansion. Acquisitions or new investments also typically involve significant costs related to integrating information technology, accounting, reporting, and management services and rationalizing personnel levels and may require significant time to obtain new or updated regulatory approvals from the Agencies and other federal and state authorities. Acquisitions orNegative impacts of acquisitions of new ventures that could diverthave a material and adverse effect on us include diversion of management's attention from the regular operations of our business and result in the potential loss of our key personnel, inability to hire and we may notretain qualified bankers and brokers, and inability to achieve the anticipated benefits of the acquisitions or new investments, any of which could materially and adversely affect us.investments. There can be no assurance that we will be able to manage any growth effectively and any failure to do so could adversely affect our ability to generate revenue and control our expenses, which could materially and adversely affect us. In addition, future acquisitions or new investments could result in significantly dilutive issuances of equity securities or the incurrence of substantial debt, contingent liabilities, or expenses or other charges, which could also materially and adversely affect us.

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Our future success depends, in part, on our ability to expand or modify our business in response to changing client demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses or investments in new ventures rather than through internal growth.

The COVID-19 CrisisThere is a risk of unfavorable changes to, or elimination of governmental programs that could negatively impactlimit the product offerings of our businessaffordable housing investment management services.

As discussed above under Part I, Item 1. Business “Our Business—Affordable Housing and Other Commercial Real Estate-related Investment Management Services,” our affordable housing investment management service derives revenue from the syndication of partnership interests in properties eligible for low-income housing tax credits, or LIHTCs. Although the LIHTC programs are a permanent part of the Tax Code and have historically enjoyed broad political support, Congress could repeal or modify the LIHTC provisions at any time or modify the tax laws so that the value of LIHTC benefits is reduced. If the LIHTC provisions are repealed or adversely modified, the results of operations.operations of our Affordable Housing Investment Management Services would be materially adversely affected.

Our role as a sponsor of investment funds and co-developer of affordable properties exposes us to risks of loss.

In connection with the sponsorship of investment funds, we act as a fiduciary to the investors in our investment funds and could be liable in connection with our actions as a fiduciary. We could also be liable to investors in investment funds and third parties as a result of serving as general partner or special limited partner in various investment funds.

As a co-developer of affordable housing properties, we are exposed to development risks associated with the construction and lease-up of affordable housing properties. A failed project could result in financial and liquidity exposure to us for the completion of the project or the disposition of the project at a loss.

Although

Noncompliance with various legal requirements by the COVID-19 Crisis hasaffordable housing partnerships could impair our investors’ right to LIHTCs and have a negative impact on our business.

The ability of investors in tax credit equity funds we sponsor to benefit from LIHTCs requires that the partnerships in which those funds invest operate affordable housing projects in compliance with a number of requirements in the Tax Code and the regulations thereunder. The loss of tax benefits could result under applicable laws if, among other things, the property is not significantly impacted our operations and financial resultsoccupied by a minimum percentage of residents whose income falls below specified levels, the level of rent charged to certain residents exceeds certain limits, or the fund's investment in the property is terminated through the last nine months of 2020, we face uncertainty concerning the future impacts the COVID-19 Crisis may have on the economy and our business that are dependent on future developments that increase uncertainty. The impactsa sale or foreclosure of the COVID-19 Crisis continueproperty under certain circumstances. Failure to evolve, and any preventative or protective actions that we or our customers may take due to the COVID-19 Crisis maycomply continuously with these requirements throughout a 15-year compliance period could result in a period of disruption, including to our operations and

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financial results and could potentially impact our customers, third-party sources of capital to fund our loans or loans that we broker to third parties, and other third parties with whom we transact. Additionally, the impacts from the COVID-19 Crisis may constrain or reduce our liquidity or result in future credit losses. The effectsloss of the COVID-19 Crisis also mayright to those LIHTCs, including recapture of credits that were already taken. While we have the effectno direct liability for such foregone credits, our prospective business and reputation could be negatively impacted by significant and repeated recapture of heightening our other risk factors disclosed in this Annual Report on Form 10-K.credits.

Risks Relating to Regulatory Matters

If we fail to comply with the numerous government regulations and program requirements of the Agencies, we may lose our approved lender status with these entities and fail to gain additional approvals or licenses for our business. We are also subject to changes in laws, regulations and existing Agency program requirements, including potential increases in reserve and risk retention requirements that could increase our costs and affect the way we conduct our business, which could materially and adversely affect us.

Our operations are subject to regulation by federal, state, and local government authorities, various laws and judicial and administrative decisions, and regulations and policies of the Agencies. These laws, regulations, rules, and policies impose, among other things, minimum net worth, operational liquidity and collateral requirements. Fannie Mae requires us to maintain operational liquidity based on a formula that considers the balance of the loan and the level of credit loss exposure (level of risk-sharing). Fannie Mae requires us to maintain collateral, which may include pledged securities, for our risk-sharing obligations. The amount of collateral required under the Fannie Mae DUS program is calculated at the loan level and is based on the balance of the loan, the level of risk-sharing, the seasoning of the loan, and our rating.

Regulatory authorities also require us to submit financial reports and to maintain a quality control plan for the underwriting, origination and servicing of loans. Numerous laws and regulations also impose qualification and licensing obligations on us and impose requirements and restrictions affecting, among other things: our loan originations; maximum interest rates, finance charges and other fees that we may charge; disclosures to consumers; the terms of secured transactions; debt collection; personnel qualifications; and other trade practices. We also are subject to inspection by the Agencies and regulatory authorities. Our failure to comply with these requirements could lead to, among other

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things, the loss of a license as an approved Agency lender, the inability to gain additional approvals or licenses, the termination of contractual rights without compensation, demands for indemnification or loan repurchases, class action lawsuits and administrative enforcement actions.

RegulatoryAs a registered broker-dealer, one of our subsidiaries is subject to extensive regulation that exposes us to a variety of risks associated with the securities industry.

Broker-dealer and legal requirementsother financial services firms are subject to change. For example,extensive regulatory requirements under federal and state laws and regulations and self-regulatory organization (“SRO”) rules. One of our subsidiary entities, Zelman Partners, LLC (“Zelman Partners”) is registered with the SEC as a broker-dealer under the Exchange Act and in 2013, Fannie Mae increasedthe states in which Zelman Partners conducts securities business and is a member of FINRA and other SROs. Zelman Partners is subject to regulation, examination and disciplinary action by the SEC, FINRA and state securities regulators, as well as other governmental authorities and SROs with which Zelman Partners is registered or licensed or of which Zelman Partners is a member.

The regulations applicable to broker-dealers depend in part on the nature of the business conducted by the broker-dealer, and generally cover all aspects of the securities business, including, among other things, sales practices, fee arrangements, disclosures to clients, capital adequacy, use and safekeeping of clients’ funds and securities, recordkeeping and reporting and the qualification and conduct of officers, employees and independent contractors. As part of this regulatory scheme, broker-dealers are subject to regular and special examinations by the SEC and FINRA intended to determine their compliance with securities laws, regulations and rules. Following an examination’s conclusion, a broker-dealer may receive a deficiency letter identifying potential compliance or supervisory weaknesses or rule violations which the firm must address. Any such proceeding against Zelman Partners, or any of its collateral requirementsassociated persons, could harm our reputation, cause us to lose clients or fail to gain new clients and have a material adverse effect on loans classified by Fannie Maeour business.

Our ability to comply with applicable laws, rules and regulations will be largely dependent on our establishment and maintenance of compliance, supervision, recordkeeping and reporting and audit systems and procedures, as Tier II from 60 basis pointswell as our ability to 75 basis points.attract and retain qualified compliance, audit and risk management personnel. While we have adopted policies and procedures we believe are reasonably designed to comply with applicable laws, rules and regulations, these systems and procedures may not be fully effective, and there can be no assurance that regulators or third parties will not raise material issues with respect to our past or future compliance with applicable regulations.

If we fail to comply with laws, regulations and market standards regarding the privacy, use, and security of customer information, or if we are the target of a successful cyber-attack, we may be subject to legal and regulatory actions and our reputation would be harmed.

We receive, maintain, and store non-public personal information of our loan applicants.customers. The technology and other controls and processes designed to secure our customer information and to prevent, detect, and remedy any unauthorized access to that information were designed to obtain reasonable, not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. We, and our service providers, are not aware of any data breaches, successful hacker attacks, unauthorized accessregularly subject to and misuse, expect to continue to experience cyberattacks that are increasingly sophisticated, that are often designed to evade detection, and/or significant computer viruses affectingthat seek to damage or disrupt our networks that may have occurred in the past; however, our controls may not have detected, and may in the future fail to prevent or detect, unauthorized access to our borrower information. In addition, we are exposed to the risks of denial-of-service (“DOS”) attacks and damage to or destructionnetwork, as well as those of our network orservice providers, and other information systems. A successful DOS attackCertain of these cyberattacks have resulted in unauthorized access by third parties to information that we receive, maintain and store in the course of our business. Although these cyberattacks have not resulted in material financial impacts or damagedisruptions to our systemsbusiness, given the accelerating scope, sophistication, and frequency of cyberattacks, there can be no assurance that the incidents we have experienced or any future incident will not materially impact our security, operations and financial results. Future cyberattacks, or the perception thereof, could result in a delay in the processingloss of our business, ordata, operational disruptions, and even lost business.business and goodwill. Additionally, we could incur significant costs associated with the recovery from a DOS attackcyber-attack, and these costs may exceed, or damagethe events to which they relate, may be excluded from, coverage under, our systems.cyber insurance.

If borrowercustomer information is inappropriately accessed and used by a third party or an employee for illegal purposes, such as identity theft, we may be responsible tofor any losses the affected applicant or borrower for any losses he or she may have incurred as a result of misappropriation. In such an instance, we may be liable to a governmental authority for fines or penalties associated with a lapse in the integrity and security of our customers' information. Additionally, if we are the target of a successful cyber-attack,cyberattack, we may experience reputational harm that could impact our standing with our borrowers and adversely impact our financial results.

We regularly update our existing information technology systems and install new technologies when deemed necessary and regularly provide employee awareness training around phishing, malware, and other cyber risks and physical security to address the risk of cyber-attacks and other security breaches. However, such preventative measures may not be sufficient to prevent future cyber-attackscyberattacks or a breach of customer information. Additionally, most of our employees have workedwork remotely since March of 2020 and will continue to do so for the foreseeable future. While we have designed our controls and processes to operate in a remote working environment, there is a heightened risk such controls and processes may not detect or prevent unauthorized access to our information systems.

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In addition, we need to comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the United States, Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (“GDPR”), which became effective on May 25, 2018, and the State of California adopted the California Consumer Privacy Act of 2018 (“CCPA”). Both the GDPR and the CCPA impose additional obligations on companies regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under the GDPR) and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks.

Risks Related to Our Organization and Structure

Certain provisions of Maryland law could inhibit changes in control.

Certain provisions of the Maryland General Corporation Law (the “MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock.

We will beare subject to the “business combination”  provisions of the MGCL that, subject to limitations, prohibit certain business combinations (including a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities) between us and an “interested stockholder”  (defined generally as any person who beneficially owns 10% or more of our then outstanding voting power of our capital stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting power of our then outstanding capital stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder. After the five-year prohibition, any business combination between usstockholder, and an interestedthereafter impose fair price or supermajority stockholder generally must be recommended by our board of directors and approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding shares of our voting capital stock; and (ii) two-thirds of the votes entitled to be cast by holders of voting capital stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if our common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.on these combinations. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a board of directors prior to the time that the interested stockholder becomes an interested stockholder.

The “control share”  provisions of the MGCL provide that holders of “control shares” of a Maryland corporationthe Company (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy) entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct and indirect acquisition of ownership or control of issued and outstanding "control shares"“control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our personnel who are also our directors.

Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to adopt certain mechanisms, some of which (for example, a classified board) we do not yet have. These provisions may have the effect of limiting or precluding a third party from making an acquisition proposal for us or of delaying, deferring or preventing a transaction or a change in control of our companythe Company under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then current market price. Our charter contains a provision whereby we elect at such time as we become eligible to do so, to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of directors.

Our authorized but unissued shares of common and preferred stock may prevent a change in control of the Company.

Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of common or preferred stock with preferences, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our common stock or that could delay, defer, or prevent a transaction or a change in control of our companythe Company that might involve a premium price for shares of our common stock or otherwise be in the best interests of our stockholders.

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit our stockholders’ recourse in the event actions are taken that are not in our stockholders’ best interests.

Under Maryland law generally, a director is required to perform his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the Company and with the care that an ordinarily prudent person in a like position would use under similar

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circumstances. Under Maryland law, directors are presumed to have acted with this standard of care. In addition, our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:

actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

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Our charter and bylaws obligate us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. In addition, we are obligated to advance the defense costs incurred by our directors and officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist absent the current provisions in our charter and bylaws or that might exist with companies domiciled in jurisdictions other than Maryland.bylaws.

Our charter contains limitations on our stockholders’ ability to remove our directors, which could make it difficult for our stockholders to effect changes to our management.

Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of two-thirds of the votes entitled to be cast in the election of directors. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may delay, defer, or prevent a change in control of our companythe Company that is in the best interests of our stockholders.

We are a holding company with minimal direct operations and rely largely on funds received from our subsidiaries for our cash requirements.

We are a holding company and conduct the majority of our operations through Walker & Dunlop, LLC, our operating company. We do not have, apart from our ownership of this operating company and certain other subsidiaries, any significant independent operations. As a result, we rely on distributions from our operating company to pay any dividends we might declare on shares of our common stock. We also rely largely on distributions from this operating company to meet any of our cash requirements, including our tax liability on taxable income allocated to us and debt payments.

In addition, because we are a holding company, any claims from common stockholders are structurally subordinated to all existing and future liabilities (whether or not for borrowed money) and any preferred equity of our operating company. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating company will be able to satisfy the claims of our common stockholders only after all of our and our operating company's liabilities and any preferred equity have been paid in full.

Risks Related to Our Financial Statements

Our financial statements are based in part on assumptions and estimates which, if wrong, could result in unexpected cash and non-cash losses in the future, and our financial statements depend on our internal control over financial reporting.

Pursuant to generally accepted accounting principles in the United States of America (“GAAP”), we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves and the fair value of MSRs, among other items. We make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management judgment. These and other assets and liabilities may have no direct observable price levels, making their valuation particularly subjective as they are based on significant estimation and judgment. Several of our accounting policies are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If assumptions or estimates underlying our financial statements are incorrect, losses may be greater than those expectations.

Our existing goodwill could become impaired, which may require us to take significant non-cash charges.

Under current accounting guidelines, we evaluate our goodwill at each of our reporting units for potential impairment annually or more frequently if circumstances indicate impairment may have occurred. In addition to the annual impairment evaluation, we evaluate at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred. Any impairment of goodwill as a result of such analysis would result in a non-cash charge against earnings, which charge could materially adversely affect our reported results of operations, stockholders’ equity, and our stock price.

* * *

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Any factor described in this filing or in any of our other SEC filings could by itself, or together with other factors, adversely affect our financial results and condition. Refer to our quarterly reports on Form 10-Q filed with the SEC in 20212023 for material changes to the above discussion of risk factors.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal headquarters are located in Bethesda, Maryland. At the end of 2020, we signed a 15-year lease for our new principal headquarters office in Bethesda, Maryland that is scheduled to begin in 2022. We believe there is adequate alternative office space available at acceptable rental rates to meet our needs, although adverse movements in rental rates in some markets may negatively affect our results of operations and cash flows when we execute new leases.

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Item 3. Legal Proceedings.

In the ordinary course of business, we may be party to various claims and litigation, none of which we believe is material. We cannot predict the outcome of any pending litigation and may be subject to consequences that could include fines, penalties, and other costs, and our reputation and business may be impacted. Our management believes that any liability that could be imposed on us in connection with the disposition of any pending lawsuits would not have a material adverse effect on our business, results of operations, liquidity, or financial condition.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Our common stock trades on the NYSE under the symbol “WD.” In connection with our initial public offering, our common stock began trading on the NYSE on December 15, 2010. As of the close of business on January 31, 2021,2023, there were 2524 stockholders of record. We believe that the number of beneficial holders is much greater.

Dividend Policy

During 2020,2022, our Board of Directors declared, and we paid, four quarterly dividends totaling $1.44$2.40 per share. In February 2021,2023, our Board of Directors declared a dividend for the first quarter of 20212023 of $0.50$0.63 per share, a 39%5% increase over the dividend declared for the fourth quarter of 2020.2022. We expect to make regular quarterly dividend payments for the foreseeable future.

Our current and projected dividends provide a return to shareholdersstockholders while retaining sufficient capital to continue investing in the growth of our business. Our Term Loan (defined in Item 7 below) contains direct restrictions on the amount of dividends we may pay, and our warehouse debt facilities and agreements with the Agencies contain minimum equity, liquidity, and other capital requirements that indirectly restrict the amount of dividends we may pay. While the dividend level remains a decision of our Board of Directors, it is subject to these direct and indirect restrictions, and will continue to be evaluated in the context of future business performance. We currently believe that we can support future comparable quarterly dividend payments, barring significant unforeseen events.

Stock Performance Graph

The following chart graphs our performance in the form of a cumulative five-year total return to holders of our common stock since December 31, 20152017 in comparison to the Standard and Poor’s (“S&P”) 500 and the S&P 600 Small Cap Financials Index for that same five-year period. We believe that the S&P 600 Small Cap Financials Index is an appropriate index to compare us with other companies in our industry and that it is a widely recognized and used index for which components and total return information are readily accessible to our security holders to assist in their understanding of our performance relative to other companies in our industry.

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The comparison below assumes $100 was invested on December 31, 20152017 in our common stock and in each of the indices shown and assumes that all dividends were reinvested. Our stock price performance shown in the following graph is not indicative of future performance or relative performance in comparison to the indices.

Graphic

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Graphic

Issuer Purchases of Equity Securities

Under the 2020 Equity Incentive Plan, subject to the Company’s approval, grantees have the option of electing to satisfy minimum tax withholding obligations at the time of vesting or exercise by allowing the Company to withhold and purchase the shares of stock otherwise issuable to the grantee. For the quarter and year ended December 31, 2020,2022, we purchased 1219 thousand shares and 278348 thousand shares, respectively, to satisfy grantee tax withholding obligations on share-vesting events. We announced a share repurchase program in the first quarter of 2020. 2022. The repurchase program authorized by our Board of Directors permits us to repurchase up to $50.0$75.0 million of shares of our common stock over a 12-month period endedending February 10, 2021. 12, 2023. We purchased 459109 thousand shares under this program andshare repurchase program. The Company had $23.9$63.9 million of authorized share repurchase capacity remaining as of December 31, 2020.2022. In February 2023, our Board of Directors authorized the repurchase of up to $75.0 million of shares of our common stock over a 12-month period beginning on February 23, 2023.

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The following table provides information regarding common stock repurchases for the quarter and year ended December 31, 2020:2022:

Total Number of

Approximate 

Total Number of

Approximate 

 Shares Purchased as

Dollar Value

 Shares Purchased as

Dollar Value

Total Number

Average 

Part of Publicly

 of Shares that May

Total Number

Average 

Part of Publicly

 of Shares that May

    

of Shares

    

Price Paid

    

Announced Plans

    

 Yet Be Purchased Under

    

of Shares

    

Price Paid

    

Announced Plans

    

 Yet Be Purchased Under

Period

Purchased

 per Share 

or Programs

the Plans or Programs

Purchased

 per Share 

or Programs

the Plans or Programs

1st Quarter

380,098

$

70.33

160,712

195,431

$

138.28

2nd Quarter

10,897

$

37.09

119,303

$

103.09

109,052

3rd Quarter

290,550

$

52.94

254,414

13,899

$

103.31

October 1-31, 2020

46,873

$

53.10

43,871

$

November 1-30, 2020

December 1-31, 2020

8,971

84.70

October 1-31, 2022

3,093

$

83.73

$

63,901,743

November 1-30, 2022

51

90.04

63,901,743

December 1-31, 2022

16,249

80.89

63,901,743

4th Quarter

 

55,844

$

58.18

43,871

$

23,943

 

19,393

$

81.36

$

63,901,743

Total

 

737,389

458,997

 

348,026

109,052

Securities Authorized for Issuance Under Equity Compensation Plans

For information regarding securities authorized for issuance under our employee stock-basedshare-based compensation plans, see Part III, Item 12.

Item 6. Selected Financial Data.[Reserved]

Part II, Item 6 is no longer required as the Company has adopted certain provisions within the amendments to Regulation S-K that eliminate Item 301.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the historical financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those expressed or contemplated in those forward-looking statements as a result of certain factors, including those set forth under the headings “Forward-Looking Statements” and “Risk Factors” elsewhere in this Annual Report on Form 10-K.

Business

Walker & Dunlop, Inc. is a holding company, and we conduct the majority of our operations through Walker & Dunlop, LLC, our primary operating company.

We are one of the leading commercial real estate services and finance companies in the United States, with a primary focus on multifamily lending and property sales, commercial real estate debt brokerage, and property sales.affordable housing investment management. We originate, sell, and service a range of multifamily and other commercial real estate financing products to owners and developers of commercial real estate across the country, provide multifamily property sales brokerage and appraisal services in various regions throughout the United States, and engage in commercial real estate and affordable housing investment management activities. We are a leader in commercial real estate technology, developing and acquiring technology resources that (i) provide innovative solutions and a better experience for our customers and (ii) allow us to reach a broader customer base.

We originate and sell multifamily loans through the programs of Fannie Mae, Freddie Mac, Ginnie Mae, and HUD, with which we have licenses and long-established relationships. We retain servicing rights and asset management responsibilities on nearly all loans that we originate for the Agencies’ programs. We are approved as a Fannie Mae DUS lender nationally, a Freddie Mac Optigo lender nationally for Conventional, Seniors Housing, Targeted Affordable Housing and Small Balance Loans, a HUD MAP lender nationally, a HUD LEAN lender nationally, and a Ginnie Mae issuer. We broker and service loans for severalmany life insurance companies, commercial banks, and other institutional investors, in which cases we do not fund the loan but rather act as a loan broker. Fannie Mae recently announced that we ranked as its largest DUS lender in 2022, by loan deliveries, for the fourth consecutive year, and Freddie Mac recently announced that we ranked as its 3rd largest Freddie Mac lender in 2022, by loan deliveries. Our market share with Fannie Mae and Freddie Mac grew to 12.7% on a combined basis, by loan deliveries, elevating us to the largest lender with the GSEs for the first time in our Company’s history. Additionally, we were the 2nd largest overall lender for HUD in 2022 based on initial endorsements.

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We fund loans for the Agencies’ programs, generally through warehouse facility financings, and sell them to investors in accordance with the related loan sale commitment, which we obtain at rate lock. Proceeds from the sale of the loan are used to pay off the warehouse facility. The sale of the loan is typically completed within 60 days after the loan is closed, and we retain the right to service substantially all of these loans. In cases where we do not fund the loan, we act as a loan broker and service some of the loans. Our mortgage bankers who focus on loan brokerage are engaged by borrowers to work with a variety of institutional lenders to find the most appropriate loan. These loans are then funded directly by the institutional lender, and for those brokered loans we service, we collect ongoing servicing fees while those loans

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remain in our servicing portfolio. The servicing fees we typically earn on brokered loan transactions are substantially lower than the servicing fees we earn for servicingon Agency loans.

We recognize revenue when we make simultaneous commitments to originate a loan to a borrower and sell that loan to an investor. The revenues earned reflect the fair value attributable to loan origination fees, premiums on the sale of loans, net of any co-broker fees, and the fair value of the expected net cash flows associated with servicing the loans, net of any guaranty obligations retained. We also recognize revenue when we receive the origination fee from a brokered loan transaction. Other transaction-related sources of revenue include (i) net warehouse interest income we earn while the loan is held for sale, (ii) net warehouse interest income from loans held for investment while they are outstanding, (iii) sales commissions for brokering the sale of multifamily properties, and (iv) syndication and transaction-based asset management fees from our investment management activities.

We retain servicing rights on substantially all the loans we originate and sell and generate revenues from the fees we receive for servicing the loans, from the interest income on escrow deposits held on behalf of borrowers, and from other ancillary fees. Servicing fees set at the time an investor agrees to purchase the loan are generally paid monthly for the duration of the loan and are based on the unpaid principal balance of the loan. Our Fannie Mae and Freddie Mac servicing arrangements generally provide for prepayment to us in the event of a voluntary prepayment. For loans serviced outside of Fannie Mae and Freddie Mac, we typically do not have similar prepayment protections.

We are currently not exposed to unhedged interest rate risk during the loan commitment, closing, and delivery process. The sale or placement of each loan to an investor is negotiated concurrently with establishing the coupon rate for the loan. We also seek to mitigate the risk of a loan not closing. We have agreements in place with the Agencies that specify the cost of a failed loan delivery in the event we fail to deliver the loan to the investor. To protect us against such fees, we require a deposit from the borrower at rate lock that is typically more than the potential fee. The deposit is returned to the borrower only once the loan is closed. Any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost. We are also protected contractually from an investor’s failure to purchase the loan. We have experienced a de minimis number of failed deliveries in our history and have incurred immaterial losses on such failed deliveries.

We have risk-sharing obligations on substantially all loans we originate under the Fannie Mae DUS program. When a Fannie Mae DUS loan is subject to full risk-sharing, we absorb losses on the first 5% of the unpaid principal balance of a loan at the time of loss settlement, and above 5% we share a percentage of the loss with Fannie Mae, with our maximum loss capped at 20% of the original unpaid principal balance of the loan (subject to doubling or tripling if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to Fannie Mae), except for rare instances when we negotiate a cap at 30% for loans with unique attributes. We have had only one loan loss with a 30% cap in our history.. Our full risk-sharing is currently limited to loans up to $200$300 million, which equates to a maximum loss per loan of $40$60 million (such exposure would occur in the event that the underlying collateral is determined to be completely without value at the time of loss). For loans in excess of $200$300 million, we receive modified risk-sharing. We also may request modified risk-sharing at the time of origination on loans below $200$300 million, which reduces our potential risk-sharing losses from the levels described above if we do not believe that we are being fully compensated for the risks of the transactions. The full risk-sharing limit in prior years was less than $200$300 million. Accordingly, loans originated in those prior years were subject to risk-sharing at much lower levels. Our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we receive from Fannie Mae for loans with no risk-sharing obligations.

Our Interim Program offers floating-rate, interest-only loans for terms of generally up to three years to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing. We underwrite, asset-manage, and service all loans executed through the Interim Program. The ultimate goal of the Interim Program is to provide permanent Agency financing on these transitional properties. The Interim Program has two distinct executions: the Interim Program JV and the Interim Loan Program.

The Interim Program JV assumes full risk of loss while the loans it originates are outstanding. We hold a 15% ownership interest in the Interim Program JV and are responsible for sourcing, underwriting, servicing, and asset-managing the loans originated by the joint venture. The joint venture funds its operations using a combination of equity contributions from its owners and third-party credit facilities.

We originate and hold the Interim Loan Program loans for investment, which are included on our balance sheet. During the time that these loans are outstanding, we assume the full risk of loss. As of December 31, 2020,2022, we had 18nine loans held for investment under the Interim Loan Program with an aggregate outstanding unpaid principal balance of $366.3$206.8 million. One loan with a balance of $14.7 million is currently in default.

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During the year ended December 31, 2020, $86.22022, $86.3 million of the $276.0$339.1 million of interim loan originations were executed through the joint venture, with the remainder originated through our Interim Loan Program. During the year ended December 31, 2019, $436.12021, $860.0 million of the $757.2 million$1.4 billion of interim loan originations were executed through the joint venture. As of December 31, 20202022 and 2019,2021, we asset-managed $484.8$892.8 million and $670.5$848.2 million, respectively, of interim loans on behalf of the Interim Program JV.

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During the third quarter of 2018, we transferred a $70.1 million portfolio of participating interests in loans held for investment to a third party and accounted for the transfer as a secured borrowing. The balance of the portfolio is presented as loans held for investment with an offsetting amount for the secured borrowing included as account payable as of December 31, 2020. We do not have credit risk related to the transferred loans.

Through WDIS, we offer property sales brokerage services to owners and developers of multifamily properties that are seeking to sell these properties. Through these property sales brokerage services, we seek to maximize proceeds and certainty of closure for our clients using our knowledge of the commercial real estate and capital markets and relying on our experienced transaction professionals. Our property sales services are offered in various regions throughout the United States. We have added several property sales brokerage teams over the past few years and continue to seek to add other property sales brokers, with the goal of expanding these servicescontinuing to cover all majorexpand the depth and number of regions throughout the United States.covered by our brokerage services.

During the second quarterWDIP, a wholly owned subsidiary of 2018, the Company, acquiredis part of our strategy to grow and diversify the Company by growing our investment management platform. WDIP is a registered investment adviser and general partner of private commercial real estate investment funds focused on the management of debt, preferred equity, and mezzanine equity investments inthrough private middle-market commercial real estate funds and separately managed accounts. The acquisition of WDIP, a wholly owned subsidiary of the Company, is part of our strategy to grow and diversify the company by growing our investment management platform. WDIP’s current assets under management (“AUM”)AUM of $1.3$1.4 billion primarily consist of assets held in three managed funds:four sources: Fund III, Fund IV, Fund V, and Fund V,VI (collectively, the “Funds”), and separate accounts managed for life insurance companies. AUM for Fund IIIthe Funds and Fund IV consistfor the separate accounts consists of both unfunded commitments and funded investments, AUM for Fund V consists of unfunded commitments, and AUM for the separate accounts consist entirely of funded investments. Unfunded commitments are highest during the fund raising and investment phases. AUM disclosed in this Annual Report on Form 10-K may differ from regulatory assets under management disclosed on WDIP’s Form ADV.

WDIP typically receives management fees based on limited partner capital commitments, unfunded investment commitments, and funded investments. Additionally, with respect to Fund III, Fund IV, Fund V and Fund V,VI, WDIP receives a percentage of the profits above the fund expenses and preferred return specified in the fund offering agreements.

Through Alliant, we are the 6th largest tax credit syndicator in the U.S., and an affordable housing developer. Alliant is part of our strategy to grow our investment management platform and to strengthen our position in the affordable housing space. Alliant manages $14.5 billion of affordable AUM and has an established tax syndication and affordable housing development platform from which we earn investment management, syndication, and other LIHTC related fees.

As of December 31, 2020,2022, our servicing portfolio was $107.2$123.1 billion, up 15%6% from December 31, 2019, making it2021, which was the 8th largest commercial/multifamily primary and master servicing portfolio in the nation according to the Mortgage Bankers’ Association’s (“MBA”) 20202022 year-end survey (the “Survey”). Our servicing portfolio includes $48.8$59.2 billion of loans serviced for Fannie Mae and $37.1$37.8 billion for Freddie Mac, making us the 1st and 4th largest primary cashier servicer of Fannie Mae and Freddie Mac multifamily loans in the nation, respectively, according to the Survey. Also included in our servicing portfolio is $9.6$9.9 billion of multifamily HUD loans, the 34rdth largest HUD primary and master servicing portfolio in the nation according to the Survey.

The average number of our mortgage bankers increaseddecreased from 150163 during 20192021 to 161 during 20202022 due to organic growth, recruitingvoluntary turnover and acquisition, contributing to an increase of 32%a slowing in hiring initiatives in line with the slowdown in our loan origination volume,debt financing volumes due to the macroeconomic conditions, from a total of $26.6$48.9 billion during 20192021 to a total of $35.0$43.7 billion during 2020. Fannie Mae recently announced that we ranked as its largest DUS lender in 2020, by loan deliveries, and Freddie Mac recently announced that we ranked as its 4th largest Freddie Mac lender in 2020, by loan deliveries. Additionally, we were the 5th largest multifamily lender for HUD in 2020 based on MAP initial endorsements.2022.

Basis of Presentation

The accompanying consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries, and all intercompany transactions have been eliminated.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates based on certain judgments and assumptions that are inherently uncertain and affect reported amounts. The estimates and assumptions are based on historical experience and other factors management believes to be reasonable. Actual results may differ from those estimates and assumptions and the use of different judgments and assumptions may have a material impact on our results. We believe theThe following critical accounting estimates represent the areas where moreinvolve significant judgments and estimatesestimation uncertainty that may have or are used in the preparationreasonably likely to have a material impact on our financial condition or results of our consolidated financial statements.operations. Additional information about our critical accounting estimates and other significant accounting policies are discussed in NOTE 2 of the consolidated financial statements.

Mortgage Servicing Rights (“MSRs”). MSRs are recorded at fair value at loan sale or upon purchase. The fair value of MSRs acquired through a stand-alone servicing portfolio purchase (“PMSR”) is equal to the purchase price paid.sale. The fair value at loan sale (“OMSR”MSR”) is based on estimates of expected net cash flows associated with the servicing rights and takes into consideration an estimate of loan prepayment. Initially,

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the fair value amount is included as a component of the derivative asset fair value at the loan commitment date. The estimated net

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cash flows from servicing, which includes assumptions for discount rate, escrow earnings, prepayment speed, and servicing costs, are discounted at a rate that reflects the credit and liquidity risk of the OMSRMSR over the estimated life of the underlying loan. The discount rates used throughout the periods presented for all OMSRsMSRs were between 8-14% during 2022 and 2021 and 10-15% during 2020 and varied based on the loan type. The life of the underlying loan is estimated giving consideration to the prepayment provisions in the loan and assumptions about loan behaviors around those provisions. Our model for OMSRsMSRs assumes no prepayment whileprior to the expiration of the prepayment provisions have not expired and full prepayment of the loan at or near the point wherewhen the prepayment provisions have expired. The estimated net cash flows also include cash flows related to the future earnings on the escrow accounts associated with servicing the loans that are based on an escrow earnings rate assumption. We include a servicing cost assumption to account for our expected costs to service a loan. The servicing cost assumption has had a de minimus impact on the estimate historically. We record an individual OMSRMSR asset (or liability) for each loan at loan sale. For PMSRs, we record and amortize a portfolio-level MSR asset based on the estimated remaining life of the portfolio using the prepayment characteristics of the portfolio.

The assumptions used to estimate the fair value of capitalized OMSRsMSRs are developed internally and are periodically compared to assumptions used by other market participants. Due to the relatively few transactions in the multifamily MSR market and the lack of significant changes in assumptions by market participants, we have experienced littlelimited volatility in the assumptions we used during the periods presented,historically, including the most-significant assumption that most significantly impacts the estimate: the discount rate. We do not expect to see significant volatility in the assumptions for the foreseeable future. We actively monitor the assumptions used and make adjustments to those assumptions when market conditions change, or other factors indicate such adjustments are warranted. For example, duringOver the year ended December 31, 2020,past two years, we have adjusted the escrow earnings rate assumption twice based onseveral times to reflect the current and expected future earnings rate projected for the life of the MSR. Additionally, we adjusted the discount rate at the beginning of 2021 to mirror changes we sawobserved from other market participants. We engage a third party to assist in determining an estimated fair value of our existing and outstanding MSRs on at least a semi-annual basis. Changes in our discount rate assumptions may materially impact the fair value of the MSRs (NOTE 3 of the consolidated financial statements details the portfolio-level impact of a change in the discount rate).

For PMSRs, a constant rate of prepayments and defaults is included in the determination of the portfolio’s estimated life (and thus included as a component of the portfolio’s amortization). Accordingly, prepayments and defaults of individual loans do not change the level of amortization expense recorded for the portfolio unless the pattern of actual prepayments and defaults varies significantly from the estimated pattern. When such a significant difference in the pattern of estimated and actual prepayments and defaults occurs, we prospectively adjust the estimated life of the portfolio (and thus future amortization) to approximate the actual pattern observed. We made adjustments to the estimated life of two of our PMSRs during 2020 as the actual experience of prepayments differed materially from the estimated prepayments.

Allowance for Risk-Sharing Obligations. This reserve liability (referred to as “allowance”) for risk-sharing obligations relates to our Fannie Mae at-risk servicing portfolio and is presented as a separate liability on our balance sheets. We record an estimate of the loss reserve for the current expected credit losses (“CECL”) for all loans in our Fannie Mae at-risk servicing portfolio using the weighted-average remaining maturity method (“WARM”). WARM uses an average annual loss rate that contains loss content over multiple vintages and loan terms and is used as a foundation for estimating the CECL reserve. The average annual loss rate is applied to the estimated unpaid principal balance over the contractual term, adjusted for estimated prepayments and amortization to arrive at the CECL reserve for the entire current portfolio as described further below. We currently use one year for our reasonable and supportable forecast period (“forecast period”) as we believe forecasts beyond one year are inherently less reliable. During the forecast period we apply an adjusted loss factor associated withbased on economic and unemployment forecasts from a similarmarket survey and a blended loss rate from historical period.periods that we believe reflect the forecast from the survey. We revert to the historical loss rate over a one-year period on a straight-line basis.Over the past couple of years, the loss rate used in the forecast period has been updated to reflect our expectations of the economic conditions over the coming year in relation to the historical period. For example, in the second quarter of 2022, we updated the loss rate used in the forecast period from three basis points to 2.2 basis points and made multiple revisions after the onset of the pandemic in 2020. Changes in the loss rate used in the forecast period have significantly impacted the estimate in the past.

One of the key components of a WARM calculation is the runoff rate, which is the expected rate at which loans in the current portfolio will amortize and prepay in the future.future based on our historical prepayment and amortization experience. We group loans by similar origination dates (vintage) and contractual maturity terms for purposes of calculating the runoff rate. We originate loans under the DUS program with various terms generally ranging from several years to 15 years; each of these various loan terms has a different runoff rate. The runoff rates applied to each vintage and contractual maturity term is determined using historical data; however, changes in prepayment and amortization behavior may significantly impact the estimate.We have not experienced significant changes in the runoff rate since we implemented CECL in 2020.

The weighted-average annual loss rate is calculated using a 10-year look-back period, utilizing the average portfolio balance and settled losses for each year. A 10-year period is used as we believe that this period of time includes sufficiently different economic conditions to generate a reasonable estimate of expected results in the future, given the relatively long-term nature of the current portfolio.

As the weighted-average annual loss rate utilizes a rolling 10-year look-back period, the loss rate used in the estimate will change as loss data from earlier periods in the look-back period continue to fall off and as new loss data are added. For example, in the first quarter of 2022, loss data from earlier periods in the look-back period fell off and were replaced with more recent loss data, resulting in the weighted-average annual loss rate changing from 1.8 basis points to 1.2 basis points. Changes in our expectations and forecasts have materially impacted, and in the future may materially impact, the estimate. At the adoption of the CECL standardBased on January 1, 2020, projections for the multifamily market and macroeconomic environment were for continued strong performance, and in response, theour historical loss rate applied was one basis point as this represented thedata, our historical loss rate consistent withwill decrease again in 2023, which may result in lower CECL reserves. In 2022, we had our first loss settlement in six years.

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NOTE 4 of the conditionsconsolidated financial statements outlines adjustments made in the loss rates used to account for the expected to prevail over the forecast period. Beginning in March 2020, conditions changed significantly due to the COVID-19 Crisis causing global economic contraction, higher unemployment rates, and a recession to ensue. In response to the change in economic conditions we revised the forecast-period loss rate as of December 31, 2020 upward to six basis points to reflecta given period and the significant economic uncertainty that continues to linger due torelated impact on the COVID-19 Crisis.estimate.

We evaluate our risk-sharing loans on a quarterly basis to determine whether there are loans that are probable of default. Specifically, we assess a loan’s qualitative and quantitative risk factors, such as payment status, property financial performance, local real estate market

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conditions, loan-to-value ratio, debt-service-coverage ratio, and property condition. When a loan is determined to be probable of default based on these factors, we remove the loan from the WARM calculation and individually assess the loan for potential credit loss. This assessment requires certain judgments and assumptions to be made regarding the property values and other factors, that may differ significantly from actual results. Loss settlement with Fannie Mae has historically concluded within 18 to 36 months after foreclosure. Historically, the initial specificcollateral-based reserves have not varied significantly from the final settlement. Given the unprecedented nature of the impacts of the Crisis on the domestic economy and commercial real estate in particular, we are uncertain whether such trends will continue in the future.

We activityactively monitor the judgments and assumptions used in our Allowance for Risk-Sharing Obligation estimate and make adjustments to those assumptions when market conditions change, or when other factors indicate such adjustments are warranted. We believe the level of Allowance for Risk-Sharing Obligation is appropriate based on our expectations of future market conditions; however, changes in one or more of the judgments or assumptions used above could have a significant impact on the estimate.

Contingent Consideration Liabilities. The Company typically includes an earnout as part of the consideration paid for acquisitions to align the long-term interests of the acquiree with the Company. These earnouts contain milestones for achievement, which typically are revenue, revenue-like, or productivity measurements. If the milestone is achieved, the acquiree is paid the additional consideration. Upon acquisition, the Company is required to estimate the fair value of the earnout and include that fair value measurement as a component of the total consideration paid in the calculation of goodwill. The fair value of the earnout is recorded as a contingent consideration liability and included within Other liabilities in the Consolidated Balance Sheet and adjusted to the estimated fair value at the end of each reporting period.

The determination of the fair value of contingent consideration liabilities requires significant management judgment and unobservable inputs to (i) determine forecasts and scenarios of future revenues, net cash flows and certain other performance metrics, (ii) assign a probability of achievement for the forecasts and scenarios, and (iii) select a discount rate. A Monte Carlo simulation analysis is used to determine many iterations of potential fair values. The average of these iterations is then used to determine the estimated fair value. We typically obtain the assistance of third-party valuation specialists to assist with the fair value estimation. The probability of the earnout achievement is based on management’s estimate of the expected future performance and other financial metrics of each of the acquired entities, which are subject to significant uncertainty. Changes to the aforementioned inputs impact the estimate; for example, in the fourth quarter of 2022, we recorded a net $13.5 million reduction to the fair value of our contingent consideration liabilities based primarily on revised management forecasts of the financial performance of the entities over the remaining earnout period.

The aggregate fair value of our contingent consideration liabilities as of December 31, 2022 was $200.3 million. This fair value represents management’s best estimate of the discounted cash payments that will be made in the future for all of our contingent consideration arrangements. The maximum remaining undiscounted earnout payments as of December 31, 2022 was $319 million. Over the past two years, we have made two large acquisitions that included significant amounts of contingent consideration to maximize alignment of the key principals and management teams. The earnouts completed prior to 2021 involved businesses that operated in our core debt financing business and involved substantially smaller amounts of contingent consideration as compared to the two aforementioned acquisitions.

Goodwill. As of December 31, 2022 and December 31, 2021, we reported goodwill of $959.7 million and $698.6 million, respectively. Goodwill represents the excess of cost over the identifiable net assets of businesses acquired. Goodwill is assigned to the reporting unit to which the acquisition relates. Goodwill is recognized as an asset and is reviewed for impairment annually on October 1. Between the annual evaluation time, we will perform an evaluation of recoverability, when events and circumstances indicate that it is more-likely-than not that the fair value of a reporting unit is below its carrying value. Impairment testing requires an assessment of qualitative factors to determine if there are indicators of potential impairment, followed by, if necessary, an assessment of quantitative factors. These factors include, but are not limited to, whether there has been a significant or adverse change in the business climate that could affect the value of an asset and/or significant or adverse changes in cash flow projections or earnings forecasts. These assessments require management to make judgments, assumptions, and estimates about projected cash flows, discount rates and other factors. As of December 31, 2022, we continue to believe the goodwill at each of our reporting units is not impaired.

Overview of Current Business Environment

At the onsetThe market’s transition from a historically low interest rate environment to a rising interest rate environment disrupted certain sectors of the COVID-19 Crisis, we saw dramaticlending market, with the most acute impacts felt initially in the consumer lending sector (e.g., residential mortgages, auto lending, and consumer credit). Although the commercial real estate debt and property sales markets began the year strong, volatility in long-term interest

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rates disrupted certain segments of the commercial real estate lending environment during the second half of 2022, particularly during the fourth quarter. Despite this volatility, our total transaction volumes only decreased 7% from 2021, with the largest decreases in our debt brokerage (13%) and HUD originations (52%). The decrease in total transaction volumes was partially offset by an increase in our GSE lending (5%) and multifamily property sales (2%).

Beginning in May 2022, the Federal Reserve’s stance on inflation became more aggressive with seven consecutive increases in unemployment. The Federal Reserve and the U.S. Congress (“Congress”) responded with unprecedented levels of economic and monetary stimulus, most notably, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act included considerable capital investments and government programs meant to support households, businesses, and the U.S. economy during the recession created by the COVID-19 Crisis.

Specifically, as it relates to our business, nearly $600 billion of aid was allocated to programs, including supplemental unemployment payments, that provided funds necessary to enable many renters to continue meeting monthly obligations. At the end of 2020, Congress enacted the Consolidated Appropriations Act (“CAA”), which included extensions to many of the provisions originally enacted by the CARES Act. The CAA included an extension of the enhanced unemployment benefits and $25 billion in emergency assistance to renters. The CARES Act and the CAA have provided substantial relief and stimulus to the economy, and our business continues to perform well, but there is no guarantee that this will continue as the level of unemployment remains high, and the economy remains in a recession. As a result of the continued high level of unemployment, Congress is currently working on passing a third stimulus package in 2021.

In March 2020, the Federal Reserve brought the Federal Funds Rate totaling 4.25%, which brought the rate to a target range of 0%4.50% to 0.25% in an emergency cut in response to the pending COVID-19 outbreak.4.75% as of January 2023. The Federal Reserve indicated in its January 2021 meetingcontinues to signal that it intends to keep rates at these low levels foranticipates additional increases in the foreseeable futuretarget range and will continue the reduction of its holdings in order to support an economic recovery. This action by the Federal Reserve, along with the Federal Reserve’s commitment to buy Treasury securities and Agency mortgage-backed securities (“Agency MBS”) until the inflation rate returns to the Federal Reserve’s long-term target. Both of these actions by the Federal Reserve have resulted in amounts necessarya significant increase in medium to support smooth functioning of markets, has enabled Agency securities to continue trading uninterrupted with little to no change in the credit spreads that drive pricing of Agency mortgage-backed securities and has contributed to very low long-term mortgage interest rates, which form the basis forof most of our lending. The low rate environment contributed

As the Federal Reserve continues to combat inflation by increasing interest rates, we expect commercial real estate debt and property sales transaction activity to slow down from peaks earlier in the year 2022. Certain products were impacted more than others, with debt brokerage executions in non-multifamily assets classes being impacted the most, as banks and life insurance companies continued to pull back and potentially increase capital reserves in ourthe short-term. However, we anticipate Agency lending volumes during 2020.

Finally,to remain steady going into 2023 as the Agencies have separately respondedprovide liquidity in countercyclical markets. When the broader capital markets tighten, the Agencies historically step in to provide liquidity to the COVID-19 Crisis by halting the eviction of tenants living in assetsmultifamily borrowing community as they have financed. This has directly influenced borrowers’ ability to manage tenants that are either unable to pay, or elect not to pay, their monthly obligations. In response, numerous multifamily owner-operators are working closely with affected renters to provide economic assistance during this time of need, up todid throughout 2020 and including rent forbearance for those experiencing a financial hardship. The Agencies responded further to the COVID-19 Crisis by offering loan forbearance to borrowers for up to 180 days, provided a borrower is able to show a property is experiencing a financial hardship as a direct result of the COVID-19 Crisis. Under the loan forbearance plan, borrowers will repay the forborne payments over a 12- to 24-month period without penalties. The creation of these two programs may have a direct impact on our borrowers’ ability to make monthly debt service payments, and in turn, may impact the Company’s obligation to advance funds to bondholders under our servicing agreements with Fannie Mae and HUD. We do not have advance obligations with respect to our Freddie Mac or life insurance servicing agreements. To date, very few of our multifamily borrowers have requested loan forbearance, requiring low levels of advances. Our outstanding advances were immaterial under our Fannie Mae and HUD servicing agreements at December 31, 2020. Declining rent collections and a borrower’s inability to make all required payments once the forbearance period is over could lead to an increase in delinquencies and losses beyond what we have experienced since the great financial crisis of 2007-2010, although we are not experiencing this to date. The prolonged nature of the Crisis could result in the number of forbearance requests increasing given the current high levels of domestic unemployment.

The most immediate impact of the Crisis was felt by our multifamily property sales operations, which saw significant declines beginning in March 2020 because of the COVID-19 Crisis after a strong start to the year. Multifamily property sales volumes rebounded strongly in the second half of 20202021, and as one of the largest providers of capital to the multifamily sector, we are well positioned. As interest rates increased rapidly over the last several months, and liquidity in the capital markets tightened, we have experienced declines in credit spreads to offset a portion of the interest rate increases. Although our lending activity with the Agencies is expected to remain stable going into 2023, the servicing fees on new loans and associated profitability of those executions is expected to remain at relatively lower than historical levels, consistent with the second half of 2022. We are a market-leading originator with the Agencies, and we believe our market leadership positions us well to continue gaining market share and remain a significant lender with the Agencies for the foreseeable future.

Despite significant market volatility caused by geopolitical risks, high inflation rate, rapidly rising interest rates, multifamily property fundamentals remain healthy. According to RealPage, a provider of commercial real estate data and analytics, vacancies have risen from their March 2022 lows to 5.0% as of December 2022 and are expected to increase in the coming months; however, national vacancy rates still remain below historical averages. Additionally, rent collections remain strong at pre-pandemic levels and increased year-over-year, despite inflationary pressures and high rent growth over the past two years. Also, the national unemployment rate continues to fall, reaching a pre-pandemic low of 3.5% as of December 2022. We believe the unemployment rate is an important determinant of future multifamily property performance.

The FHFA establishes loan origination caps for both Fannie Mae and Freddie Mac each year. In November 2022, the FHFA established Fannie Mae’s and Freddie Mac’s 2023 loan origination caps at $75 billion each for all multifamily business, a 4% decrease from the lows2022 caps. During 2022, Fannie Mae and Freddie Mac had multifamily origination volumes of $69.2 billion and $72.8 billion, respectively, down 0.3% and up 3.7%, respectively, from 2021. The decline in the GSEs’ origination volumes was primarily driven by the volatile and uncertain macroeconomic conditions in 2022. The decrease to the GSEs’ lending caps in 2023 is not expected to have a material impact on the competitiveness of either Fannie Mae or Freddie Mac, as they continue to have sufficient capital to meet market demand.

Our multifamily property sales volumes grew slightly during the year as we had strong volumes during the first half of 2022 as (i) the multifamily acquisitions market was very active during the first half of the year, and (ii) we expanded the number of property sales brokers and the geographical reach of our property sales platform. The strong volumes in the first half were offset by slowdowns in volumes during the second quarterhalf of 2020, as capital began returning2022, due to the market. Long-term,macroeconomic conditions discussed above. Long term, we believe the market fundamentals remainwill continue to be positive for multifamily property sales. Over the last several years, and in the months leading up to the COVID-19 Crisis, household formation and a dearth of supply of entry-level single-family homes led to strong demand for rental housing in mostmany geographic areas. Consequently, the fundamentals of the multifamily property sales market were strong enteringprior to the COVID-19 Crisis,pandemic, and, when coupledcombined with the

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financial protections put in place by Congresshigh occupancy and the Agencies,retention rates and rising real-estate prices, it is our expectation that market demand for multifamily property sales will continue to recoverremain strong as multifamily properties will remainthis asset class remains an attractive investment option.

Our non-multifamily focused mortgage brokerage operations have also been impacted by the COVID-19 Crisis. The Crisis had an immediate negative impact on the supply of capital to commercial real estate, most noticeably for hospitality, office, and retail assets. Our debt brokerage platform delivered record financinghad lower volumes priorin 2022 compared to the onset of the Crisis2021 due to a substantial decrease in the U.S. As a result of the Crisis, we saw a decline in brokered financing transactionstransaction volume in the second quarter as transactions were put on hold or cancelled altogether. Duringhalf of the fourth quarteryear because of 2020, we saw capital sources come back into the market, helping to drivevolatile interest rate environment that in turn drove a year-over-year increase in our annual debt brokerage volume compared to 2019. We expect non-multifamily debt financing volumes to continue to recover aspullback of liquidity from banks, and life insurance companies, and securitization markets. As the interest rate environment begins to stabilize, we expect liquidity to slowly return to their pre-Crisis origination volumes.the market.

Our Agency multifamily debt financing operations remain very active. The Agencies are countercyclical sources of capital to the multifamily industry and have continued to lend during the COVID-19 Crisis, just as they did during the great financial crisis of 2007-2010. We are a market-leading originator with the Agencies, and the Agencies remain the most significant providers of capital to the multifamily market. Consequently, we continue to see significant activity inAs noted above, our multifamily lending operations, and we continue to see lending opportunities consistent with pre-Crisis levels. We believe our market leadership positions us to be a significant lender with the Agencies for the foreseeable future.

The FHFA establishes loan origination caps for both Fannie Mae and Freddie Mac each year. In September 2020, FHFA established Fannie Mae’s and Freddie Mac’s 2021 loan origination caps at $70 billion each for all multifamily business. The new caps apply to all multifamily business with no exclusions. In 2020, Fannie Mae and Freddie Mac had multifamily origination volumes of $76.1 billion and $83.1 billion, respectively, up 8.4% and 6.1% from 2019, respectively. In 2020, we saw strong lending activity from our GSE operations and increased our market share with the GSEs to 12.3% from 10.2% in 2019.

Our debt financing operations with HUD grewdeclined during 2020, with2022. HUD loans accountingloan volumes accounted for 6% of our2.6% total debt financing volumes the year ended December 31, 2020,in 2022 compared to 3% for the year ended December 31, 2019.4.8% in 2021. The increasedecline in HUD debt financing volumes as a percentage of our total debt financing volumes was partially a result ofdriven by lower aggregate HUD lending volumes industry-wide, as the government shutdown duringincreasing interest-rate environment discussed above more acutely impacted the first half of 2019 and partially a result of HUD originations being countercyclical sources of capital, similar to the GSEs.

We expect strength in our Agency operations to continueproduct given the pull back by other capital sources. An additional positive factor influencing multifamily financing volumes is the historically low interest rate environment, which is incentivizing borrowers to refinance their properties in spitelonger lead times associated with HUD executions.  

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Table of the current challenges. We continue to seek to add resources and scale to our Agency lending platform.Contents

Our originations with the Agencies are our most profitable executions as they provide significant non-cash gains from MSRs that turn into significant cash revenue streams from future servicing fees. During the year ended December 31, 2022, servicing fees were up 8% compared to the year ended December 31, 2021, due to the $7.4 billion increase in the servicing portfolio unpaid principal balance (“UPB”). A decline in our Agency originations would negatively impact our financial results, as our non-cash revenues would decrease disproportionately with debt financing volume and future servicing fee revenue would be constrained or decline.

We entered into the Interim Program JV to both increase the overall capital available to transitional multifamily properties and to dramatically expand our capacity to originate Interim Program loans. The demand for transitional lending has brought increased competition from lenders, specifically banks, mortgage real estate investment trusts, and life insurance companies. As it did with other typesFor the year ended December 31, 2022, we originated $86.3 million of lending, the COVID-19 Crisis has resulted in a pullback of capital sources for interim lending opportunities. In response to the Crisis, we paused originations on new Interim Program JV loans, compared to $860.0 million of originations in 2021. The volatile macroeconomic conditions led us to reduce our lending activity on transitional assets. We expect our lending volumes for several months and recommenced in the third quarter of 2020. We continuetransitional assets to maintain a cautious outlook on new originations but have seen an increase in our loan origination pipeline and expect to originate additional interim loans in the near term.remain low until economic conditions normalize. Except for one loan that defaulted in early 2019, the loans in our portfolio and in the Interim Program JV continue to perform as agreed, butagreed.

Our subsidiary, Alliant, which provides alternative investment management services focused on the affordable housing sector through LIHTC syndication, joint venture development, and community preservation fund management remains the 6th largest LIHTC syndicator despite the economic challenges mentioned above. We continue to approach the affordable housing space with a combined LIHTC syndication and affordable housing service offering that we could see higher levelsbelieve will generate significant financing, property sales, and syndication opportunities. Additionally, as part of default or requests for forbearance as the impactsFHFA’s 2023 loan origination caps of $150 billion announced in November 2022, at least 50% of the Crisis linger.GSEs’ multifamily business is required to be targeted towards affordable housing. We expect these initiatives will create additional growth opportunities for both Alliant and our debt financing and property sales teams focused on affordable housing.

Factors That May Impact Our Operating Results

We believe that our results are affected by a number of factors, including the items discussed below.

Performance of Multifamily and Other Commercial Real Estate Related Markets.  Our business is dependent on the general demand for, and value of, commercial real estate and related services, particularly multifamily, which are sensitive to long-term mortgage interest rates and other macroeconomic conditions and the continued existence of the GSEs. Demand for multifamily and other commercial real estate generally increases during stronger economic environments, resulting in increased property values, transaction volumes, and loan origination volumes. During weaker economic environments, multifamily and other commercial real estate may experience higher property vacancies, lower demand and reduced values. These conditions can result in lower property

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transaction volumes and loan originations, as well as an increased level of servicer advances and losses from our Fannie Mae DUS risk-sharing obligations and our interim lending program.

The Level of Losses from Fannie Mae Risk-Sharing Obligations.  Under the Fannie Mae DUS program, we share risk of loss on most loans we sell to Fannie Mae. In the majority of cases, we absorb the first 5% of any losses on the loan’s unpaid principal balance at the time of loss settlement, and above 5% we share a percentage of the loss with Fannie Mae, with our maximum loss generally capped at 20% of the loan’s unpaid principal balance on the origination date, except for rare instances when we negotiate a cap at 30% for loans with unique attributes. We have had only one such default with a 30% cap.date. As a result, a rise in defaults could have a material adverse effect on us.

The Price of Loans in the Secondary Market.  Our profitability is determined in part by the price we are paid for the loans we originate. A component of our origination related revenues is the premium we recognize on the sale of a loan. Stronger investor demand typically results in larger premiums while weaker demand results in little to no premium.

Market for Servicing Commercial Real Estate Loans.  Servicing fee rates for new loans are set at the time we enter into a loan sale commitment based on origination fees, competition, prepayment rates, and any risk-sharing obligations we undertake. Changes in servicing fee rates impact the value of our MSRs and future servicing revenues, which could impact our profit margins and operating results immediately and over time.

The Percentage of Adjustable Rate Loans Originated and the Overall Loan Origination Mix.  The adjustable rate mortgage loans (“ARMs”) we originate typically have less stringent prepayment protection features than fixed rate mortgage loans (“FRMs”), resulting in a shorter expected life for ARMs than FRMs. The shorter expected life for ARMs results in smaller MSRs recorded than for FRMs. Absent an increase in originations, an increase in the proportion of our loans originated that are ARMs could adversely impact the gains from mortgage banking activities we record. Additionally, the loan product mix we originate can significantly impact our overall earnings.operating results. For example, an increase in loan origination volume for our two highest-margin products, Fannie Mae and HUD loans, without a change in total loan origination volume would increase our overall profitability, while a decrease in the loan origination volume of these two products without a change in total loan origination volume would decrease our overall profitability, all else equal.
The Affordable Housing Market. The profitability of our LIHTC operations is impacted by the demand for and the financial performance of the affordable housing market and the continued existence of income tax credits for these properties. For example,

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we earn syndication fees based on new funds we are able to syndicate for investors and asset management fees based on performance of the underlying LIHTC properties and dispositions of these properties. Strong demand for LIHTC properties typically results in opportunities for syndication of LIHTC funds and high prices for dispositions.

Revenues

Loan Origination and Debt Brokerage Fees, net. Revenue related to the loanLoan origination fee revenue is recognized when we record a derivative asset upon the simultaneous commitments to originate a loan with a borrower and sell to an investor or when a loan that we broker closes with the institutional lender. The commitment asset related to the loan origination fee is recognized at fair value, which reflects the fair value of the contractual loan origination related fees and any sale premiums, net of co-broker fees. Also included in revenues from loan origination activities are changes to the fair value of loan commitments, forward sale commitments, and loans held for sale that occur during their respective holding periods. Upon sale of the loans, no gains or losses are recognized as suchthese loans are recorded at fair value during their holding periods.

Brokered loans tend to have lower origination fees because they often require less time to execute, there is more competition for brokerage assignments, and because the borrower will also have to pay an origination fee to the institutional lender.

Premiums received on the sale of a loan result when a loan is sold to an investor for more than its face value. There are various reasons investors may pay a premium when purchasing a loan. For example, the fixed rate on the loan may be higher than the rate of return required by an investor or the characteristics of a particular loan may be desirable to an investor. We do not receive premiums on brokered loans.

Fair Value of Expected Net Cash Flows from Servicing, net. Revenue related to expected net cash flows from servicing is recognized at the loan commitment date, similar to the loan origination fees, as described above. The derivative asset is recognized at fair value, which reflects the estimated fair value of the expected net cash flows associated with the servicing of the loan, reduced by the estimated fair value of any guaranty obligations to be assumed. OMSRsMSRs and guaranty obligations are recognized as assets and liabilities, respectively, upon the sale of the loans.

OMSRsMSRs are recorded at fair value upon loan sale. The fair value is based on estimates of expected net cash flows associated with the servicing rights. The estimated net cash flows are discounted at a rate that reflects the credit and liquidity risk of the MSR over the estimated life of the loan.

The “Critical Accounting Policies and Estimates” section above and NOTE 2 of the consolidated financial statements providesprovide additional details of the accounting for these revenues.

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Servicing Fees.  We service nearly all loans we originate and some loans we broker. We earn servicing fees for performing certain loan servicing functions such as processing loan, tax, and insurance payments and managing escrow balances. Servicing generally also includes asset management functions, such as monitoring the physical condition of the property, analyzing the financial condition and liquidity of the borrower, and performing loss mitigation activities as directed by the Agencies.

Our servicing fees on loans we originate provide a stable revenue stream. They are based on contractual terms, are earned over the life of the loan, and are generally not subject to significant prepayment risk. Our Fannie Mae and Freddie Mac servicing agreements provide for prepayment fees in the event of a voluntary prepayment. Accordingly, we currently do not hedge our servicing portfolio for prepayment risk. Any prepayment fees received are included in Other revenues.

HUD has the right to terminate our current servicing engagements for cause. In addition to termination for cause, Fannie Mae and Freddie Mac may terminate our servicing engagements without cause by paying a termination fee. Our institutionalInstitutional investors typically may terminate our servicing engagements for brokered loans at any time with or without cause, without paying a termination fee.

Property sales broker fees. We earn property broker sales fee revenue when our investment sales team completes the sale of a multifamily investment property or land real estate. The amount of the property sales brokers fees we earn is based upon a percentage of the final sale price of the investment sold.

Investment management fees. We manage invested capital from third-party investors through an investment fund structure. The capital placed into the investment fund is utilized to make investments in multifamily investment opportunities, primarily as equity in market-rate or LIHTC generating multifamily properties. We earn an investment management or asset management fee based on a contractual percentage of the invested capital. For market-rate investments, we earn and collect the investment management fees through the returns of the investment funds. For LIHTC investments, we collect the asset management fees (“AMF”) through the combination of current payments and asset dispositions. NOTE 2 of the consolidated financial statements provides additional details of the accounting for AMF revenues.

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Net Warehouse Interest Income, Loans Held for Sale.Income—We earn net interest income on loans funded through borrowings from our warehouse facilities from the time the loan is closed until the loan is sold pursuant to the loan purchase agreement. Each borrowing on a warehouse line relates to a specific loan for which we have already secured a loan sale commitment with an investor. Related interest expense from the warehouse loan funding is netted in our financial statements against interest income. Net warehouse interest income related to loans held for sale varies based onnet of warehouse interest expense. Warehouse interest income is the period of time between the loan closing and the sale of the loan to the investor, the size of the average balance of theinterest earned from loans held for sale and the net interest spread between the loan coupon rate and the cost of warehouse financing. Loans may remain in the warehouse facility for up to 60 days, but the average time in the warehouse facility is approximately 30 days. As a short-term cash management tool, we may also use excess corporate cash to fund Agency loans on our balance sheet rather than borrowing against a warehouse line. Loans that we broker for institutional investors and other investors are funded directly by them; therefore, there is no warehouse interest income or expense associated with brokered loan transactions. Additionally, the amortization of deferred debt issuance costs related to our Agency warehouse lines is included in net warehouse interest income, loans held for sale.

Net Warehouse Interest Income, Loans Held for Investment. Similar toinvestment. Generally, a substantial portion of our loans is financed with matched borrowings under one of our warehouse facilities. The remaining portion of loans not funded with matched borrowings is financed with our own cash. Occasionally, we also fully fund a small number of loans held for sale we earn netor loans held for investment with our 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 during the period they are outstanding. We earn interest income on theafter a loan which is funded partially by an investment of our cashclosed and through one of our interim warehouse credit facilities. The loans originated for investment are typically interest-only, variable-rate loans with terms up to three years. The warehouse credit facilities are variable rate. The interest rate reset datebefore a loan is typically the same for the loans and the credit facility. Related interest expense from the warehouse loan funding is netted in our financial statements against interest income. Net warehouse interest income related to loans held for investment varies based on the period of time the loans are outstanding, the size of the average balance of the loans held for investment, and the net interest spread between the loan coupon rate and the cost of warehouse financing. The net spread has historically not varied much. Additionally, the amortization of deferred fees and costs and the amortization of deferred debt issuance costs related to our interim warehouse lines are included in net warehouse interest income, loans held for investment. Net warehouse interest income from loans held for investment will decrease in the coming years if most, or all, of the loans originated through the Interim Program are held by the Interim Program JV.repaid.

Escrow Earnings and Other Interest Income.  We earn fee income on property-level escrow deposits in our servicing portfolio, generally based on a fixed or variable placement fee negotiated with the financial institutions that hold the escrow deposits. Escrow earnings reflect interest incomethe placement fees net of interest paid to the borrower, if required, which generally equals a money market rate.required. Also included with escrow earnings and other interest income are interest earnings from our cash and cash equivalents and interest income earned on our pledged securities.

Other Revenues.  Other revenues are comprised of fees for processing loan assumptions, prepayment fee income, application fees, property sales broker fees, appraisal revenues, income from equity-method investments, asset management fees, certain revenues from LIHTC operations, and other miscellaneous revenues related to our operations.

Costs and Expenses

Personnel.  Personnel expense includes the cost of employee compensation and benefits, which include fixed and discretionary amounts tied to company and individual performance, commissions, severance expense, signing and retention bonuses, and share-based compensation.

Amortization and Depreciation.  Amortization and depreciation is principally comprised of amortization of our MSRs, net of amortization of our guaranty obligations. The MSRs are amortized using the interest method over the period that servicing income is expected to be received. We amortize the guaranty obligations evenly over their expected lives. When the loan underlying an OMSRMSR prepays, we write off the remaining unamortized balance, net of any related guaranty obligation, and record the write off to Amortization and depreciation. Similarly, when the loan underlying an OMSRMSR defaults, we write the OMSRMSR off to Amortization and depreciation.  We depreciate property, plant, and equipment ratably over their estimated useful lives.

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Amortization and depreciation also includes the amortization of intangible assets, principally related to the amortization, of the mortgage pipelineasset management fee contracts, research subscription contracts, intellectual property, and other intangible assets recognized in connection with acquisitions. We recognize amortization related to the mortgage pipeline intangible asset when a loan included in the mortgage pipeline intangible asset is rate locked or is no longer probable of rate locking. Also included in amortization and depreciation for the years ended December 31, 2020, 2019 and 2018 is the amortization of intangible assets associated with our acquisition of WDIP. These intangible assets consisted primarily of asset management contracts, which had an estimated life at acquisition of five years. For the years presented in the Consolidated Statements of Income, the amortization of intangible assets relates primarily to intangible assets associated with our acquisition of WDIPacquisitions in 2018.2021 and 2022.

Provision (Benefit) for Credit Losses.  The provision (benefit) for credit losses consists of two components: the provision associated with our risk-sharing loans and the provision associated with our loans held for investment. The provision (benefit) for credit losses associated with risk-sharing loans is estimated on a collective basis when a loan is sold to Fannie Mae and is based on our current expected credit losses on the current portfolio from loan sale to maturity. The provision (benefit) for credit losses associated with our loans held for investment is estimated similar to our risk-sharing loans at origination and is based on our current expected credit losses. For both our risk-sharing loans and loans held for investment, when a loan is probable of default, the loan is taken out of the collective evaluation and individually evaluated for credit losses. Our estimates of property fair value are based on appraisals, broker opinions of value, or net operating income and market capitalization rates, whichever we believe is the best estimate of the net disposition value.

The “Critical Accounting Policies and Estimates” section above and NOTE 2 of the consolidated financial statements provides additional details of the accounting for this expense.

Interest Expense on Corporate Debt.  Interest expense on corporate debt includes interest expense incurred and amortization of debt discount and deferred debt issuance costs related to our term loan facility.

Other Operating Expenses.  Other operating expenses include sub-servicing costs, facilities costs, travel and entertainment costs, marketing costs, professional fees, license fees, dueslosses on debt extinguishment, accretion and subscriptions,revaluation of contingent consideration liabilities, corporate insurance premiums, and other administrative expenses.

Income Tax Expense.  The Company is a C-corporation subject to both federal, state, and stateinternational corporate tax. Our estimated combined statutory federal, state, and stateinternational tax rate was 25.2%26.1%, 25.0%25.7%, and 25.1%25.2% for the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, respectively. Except for the effects of 2017the Tax Cuts and Jobs Act of 2017 (“Tax Reform”), our combined statutory tax rate has historically not varied significantly as the only material difference in the calculation of the combined statutory tax rate from year to year is the apportionment of our taxable income amongst the various states where we are subject to taxation since we do not haveour foreign operations. For example, from the period since we went public in 2010 through 2017,operations are (i) immaterial and (ii) taxed

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at a rate similar to our combined statutoryblended federal and state tax rate varied by only 0.7%, with a low of 38.2% and a high of 38.9%.rate. Absent additional significant legislative changes to statutory tax rates (particularly the federal tax rate), we expect minimallow deviation from the 20202022 combined statutory tax rate for future years. However, we do expect some variability in the effective tax rate going forward due to excess tax benefits recognized and limitations on the deductibility of certain book expenses as a result of Tax Reform, primarily related to executive compensation.

Excess tax benefits recognized in 20202022, 2021, and 20192020 reduced income tax expense by $7.3$6.1 million, $8.6 million, and $4.6$7.3 million, respectively. The increasechanges in the excess tax benefits from 2019over the past three years is largely due to 2020 largely reflects the increasechanges in the number of shares vested and the stock price at which the shares vested.

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Consolidated Results of Operations

FollowingThe following is a discussion of the comparison of our results of operations for the years ended December 31, 20202022 and 2019.2021. The financial results are not necessarily indicative of future results. Our annual results have fluctuated in the past and are expected to fluctuate in the future, reflecting the interest-rate environment, the volume of transactions, business acquisitions, regulatory actions, and general economic conditions. Discussions of our results of operations and comparisons between 20192021 and 20182020 can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019.2021.

SUPPLEMENTAL OPERATING DATA

For the year ended December 31, 

(in thousands; except per share data)

2020

    

2019

    

Transaction Volume:

Components of Debt Financing Volume

Fannie Mae

$

12,803,046

$

8,045,499

Freddie Mac

 

8,588,748

 

6,380,210

Ginnie Mae - HUD

 

2,212,538

 

848,359

Brokered(1)

 

10,969,615

 

10,363,953

Principal Lending and Investing(2)

 

380,360

 

935,941

Total Debt Financing Volume

$

34,954,307

$

26,573,962

Property Sales Volume

6,129,739

5,393,102

Total Transaction Volume

$

41,084,046

$

31,967,064

Key Performance Metrics:

Operating margin

30

%  

28

%  

Return on equity

23

%  

18

%  

Walker & Dunlop net income

$

246,177

$

173,373

Adjusted EBITDA(3)

$

215,849

$

247,907

Diluted EPS

$

7.69

$

5.45

Key Expense Metrics (as a percentage of total revenues):

Personnel expenses

43

%  

42

%  

Other operating expenses

6

%  

8

%  

Key Revenue Metrics (as a percentage of debt financing volume):

Origination related fees(4)

1.04

%  

1.00

%  

Gains attributable to MSRs(5)

1.04

%  

0.71

%  

Gains attributable to MSRs, as a percentage of Agency debt financing volume(6)

1.52

%  

1.18

%  

CONSOLIDATED

(in thousands; except per share data)

As of December 31, 

Managed Portfolio:

    

2020

    

2019

Components of Servicing Portfolio

Fannie Mae

$

48,818,185

$

40,049,095

Freddie Mac

 

37,072,587

 

32,583,842

Ginnie Mae - HUD

 

9,606,506

 

9,972,989

Brokered (7)

 

11,419,372

 

10,151,120

Principal Lending and Investing (8)

 

295,322

 

468,123

Total Servicing Portfolio

$

107,211,972

$

93,225,169

Assets under management (9)

1,816,421

1,958,078

Total Managed Portfolio

$

109,028,393

$

95,183,247

Key Servicing Portfolio Metrics (end of period):

Weighted-average servicing fee rate (basis points)

24.0

23.2

Weighted-average remaining servicing portfolio term (years)

9.4

9.6

For the year ended December 31, 

(dollars in thousands; except per share data)

2022

    

2021

    

Transaction Volume:

Total Debt Financing Volume

$

43,605,984

$

48,911,120

Property Sales Volume

 

19,732,654

 

19,254,697

Total Transaction Volume

$

63,338,638

$

68,165,817

Key Performance Metrics:

Operating margin

21

%  

28

%  

Return on equity

13

21

Walker & Dunlop net income

$

213,820

$

265,762

Adjusted EBITDA(1)

325,095

309,278

Diluted EPS

6.36

8.15

Key Expense Metrics (as a percentage of total revenues):

Personnel expenses

48

%  

48

%  

Other operating expenses

10

8

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SUPPLEMENTAL OPERATING DATA (Continued)

The following tables present WDIP’s AUM as of December 31, 2020 and 2019:

As of December 31, 2020

Unfunded

Funded

Components of WDIP assets under management (in thousands)

    

Commitments

    

Investments

    

Total

  

Fund III

$

37,781

128,919

$

166,700

Fund IV

149,979

123,161

273,140

Fund V

232,544

18,384

250,928

Separate accounts

567,492

567,492

Total assets under management

$

420,304

$

837,956

$

1,258,260

As of December 31, 2019

Unfunded

Funded

Components of WDIP assets under management (in thousands)

    

Commitments

    

Investments

    

Total

Fund III

$

95,171

94,222

$

189,393

Fund IVs

174,483

129,178

303,661

Fund V

193,980

193,980

Separate accounts

530,044

530,044

Total assets under management

$

463,634

$

753,444

$

1,217,078

As of December 31, 

Managed Portfolio:

2022

    

2021

Total Servicing Portfolio

$

123,133,855

$

115,700,564

Assets under management

16,748,449

16,437,865

Total Managed Portfolio

$

139,882,304

$

132,138,429

(1)Brokered transactions for life insurance companies, commercial banks, and other capital sources.
(2)For the year ended December 31, 2020, includes $86.2 million from the Interim Program JV, $189.8 million from the Interim Loan Program, and $104.4 million from WDIP separate accounts. For the year ended December 31, 2019, includes $436.1 million from the Interim Program JV, $321.1 million from the Interim Loan Program, and $178.7 million from WDIP separate accounts.
(3)This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section below titled “Non-GAAP Financial Measures.Measure.
(4)Excludes the income and debt financing volume from Principal Lending and Investing.
(5)The fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained. Excludes the income and debt financing volume from Principal Lending and Investing.
(6)The fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained, as a percentage of Agency volume.
(7)Brokered loans serviced primarily for life insurance companies.
(8)Consists of interim loans not managed for the Interim Program JV.
(9)As of December 31, 2020, includes $484.8 million of Interim Program JV managed loans, $73.3 million of loans serviced directly for the Interim Program JV partner, and WDIP assets under management of $1.3 billion. As of December 31, 2019, includes $670.5 million of Interim Program JV managed loans, $70.5 million of loans serviced directly for the Interim Program JV partner, and WDIP assets under management of $1.2 billion.

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Year Ended December 31, 20202022 Compared to Year Ended December 31, 20192021

The following table presents a period-to-period comparison of our financial results for the years ended December 31, 20202022 and 2019.2021.

FINANCIAL RESULTS –2020–2022 COMPARED TO 20192021

December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2020

    

2019

    

Change

    

Change

 

  

Revenues

Loan origination and debt brokerage fees, net

$

359,061

$

258,471

$

100,590

39

%  

Fair value of expected net cash flows from servicing, net

358,000

180,766

177,234

98

Servicing fees

 

235,801

 

214,550

 

21,251

10

Net warehouse interest income, loans held for sale

17,936

1,917

16,019

836

Net warehouse interest income, loans held for investment

11,390

23,782

(12,392)

(52)

Escrow earnings and other interest income

 

18,255

 

56,835

 

(38,580)

(68)

Property sales broker fees

38,108

30,917

7,191

23

Other revenues

 

45,156

 

49,981

 

(4,825)

(10)

Total revenues

$

1,083,707

$

817,219

$

266,488

33

Expenses

Personnel

$

468,819

$

346,168

$

122,651

35

%  

Amortization and depreciation

169,011

152,472

16,539

11

Provision for credit losses

 

37,479

 

7,273

 

30,206

415

Interest expense on corporate debt

 

8,550

 

14,359

 

(5,809)

(40)

Other operating expenses

 

69,582

 

66,596

 

2,986

4

Total expenses

$

753,441

$

586,868

$

166,573

28

Income from operations

$

330,266

$

230,351

$

99,915

43

Income tax expense

 

84,313

 

57,121

 

27,192

48

Net income before noncontrolling interests

$

245,953

$

173,230

$

72,723

42

Less: net loss from noncontrolling interests

 

(224)

 

(143)

 

(81)

 

57

Walker & Dunlop net income

$

246,177

$

173,373

$

72,804

42

CONSOLIDATED

For the year ended

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2022

    

2021

    

Change

    

Change

 

  

Revenues

Loan origination and debt brokerage fees, net

$

348,007

$

446,014

$

(98,007)

(22)

%  

Fair value of expected net cash flows from servicing, net

191,760

287,145

(95,385)

(33)

Servicing fees

 

300,191

 

278,466

 

21,725

8

Property sales broker fees

120,582

119,981

601

1

Investment management fees

71,931

25,637

46,294

181

Net warehouse interest income

 

15,777

 

22,108

 

(6,331)

(29)

Escrow earnings and other interest income

 

52,830

 

8,150

 

44,680

548

Other revenues

 

157,675

 

71,677

 

85,998

120

Total revenues

$

1,258,753

$

1,259,178

$

(425)

-

Expenses

Personnel

$

607,366

$

603,487

$

3,879

1

%  

Amortization and depreciation

235,031

210,284

24,747

12

Provision (benefit) for credit losses

 

(11,978)

 

(13,287)

 

1,309

(10)

Interest expense on corporate debt

 

34,233

 

7,981

 

26,252

329

Other operating expenses

 

129,136

 

98,655

 

30,481

31

Total expenses

$

993,788

$

907,120

$

86,668

10

Income from operations

$

264,965

$

352,058

$

(87,093)

(25)

Income tax expense

 

56,034

 

86,428

 

(30,394)

(35)

Net income before noncontrolling interests

$

208,931

$

265,630

$

(56,699)

(21)

Less: net income (loss) from noncontrolling interests

 

(4,889)

 

(132)

 

(4,757)

 

3,604

Walker & Dunlop net income

$

213,820

$

265,762

$

(51,942)

(20)

Overview

The increase in revenues was mainly driven byRevenues decreased slightly as increases in (i) origination fees (as defined in note 1 to the table below) due to a substantial increase in debt financing volume, (ii) MSR Income (as defined in note 2 to the table below) due primarily to the substantial increase in debt financing volume and a significant increase in the MSR rate (as defined below), (iii) servicing fees, due toinvestment management fees, escrow earnings and other interest income, and other revenues, were offset by decreases in loan origination and debt brokerage fees, net (“origination fees”) and the fair value of expected net cash flows from servicing, net (“MSR income”). Servicing fees increased largely from an increase in the average servicing portfolio (iv) net warehouse interest income from loans held for saleoutstanding. Investment management fees increased due to a higher average balance and a substantial increasethe addition of investment management fees from our LIHTC operations acquired in the net spreads, and (v) property sales broker fees driven by growth in our property sales volumes. Partially offsetting the increases in the revenue sources discussed above were decreases in (i) net warehouse interest income from loans held for investment due to a smaller average balance and lower net spread and (ii) escrowfourth quarter of 2021. Escrow earnings and other interest income increased largely as a result of higher escrow earnings rates due to significant declinesrising interest rates. Other revenues increased primarily as a result of a one-time gain from the revaluation of our previously held equity-method investment in Apprise (“Apprise revaluation gain”) in connection with the GeoPhy acquisition, and increases in (i) other revenues from our LIHTC operations, (ii) research subscription fees, and (iii) gains from equity-method investments, partially offset by a decline in prepayment fees. Origination fees and MSR income decreased primarily as a result of a decline in the earnings rate.rate from our debt financing volumes due to market volatility and rising interest rates over the second half of the year and a decrease in Agency debt financing volume.

The increase in expenses was principally driven bydue to increases in (i) personnel expenses as a result of increasesall expense categories, primarily in commissions due to the increase in origination fees, bonus expense due to the Company’s record financial results, and salaries and benefits from an increase in average headcount, (ii) amortization and depreciation, interest expense on corporate debt, and other operating expenses. Amortization and depreciation expense increased primarily due to an increase in the average MSR balance and (iii) provision for credit lossesan increase in intangible asset amortization resulting from acquisitions in 2021 and 2022. Interest expense on corporate debt increased due to the adoptionincrease in the size of CECL. During the priordebt outstanding, including the assumption of Alliant’s note payable in the fourth quarter of 2021, and the rising interest rate environment in 2022. Other operating expenses increased largely as a result of (i) the overall growth of the Company’s operations over the past year including expenses from acquired subsidiaries and (ii) an increase in travel and entertainment costs compared to 2021 when our allowancestravel and entertainment expenses were depressed due to the on-going effects of the pandemic. These substantial increases were partially offset by a benefit for credit losses were calculated based on an incurred loss methodology, while CECL requires allowancesthe revaluation of contingent consideration liabilities.

Income Tax Expense. The decrease in income tax expense relates to be calculated based on an expected lifetime credit loss methodology. Partially offsetting these increases was a decrease in interest expense on our corporate debt due to lower short-term interest rates on our long-term debt.

income from operations and the tax impacts of the

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Revenues$39.6 million Apprise revaluation gain. The gain is an unrealized, non-taxable gain. Accordingly, no income tax expense was recorded for this gain. Based on our blended statutory rate, the benefit to our income tax expense was $10.3 million.

The following table provides additional information that helps explain changes in origination fees and mortgage servicing rights over the past two years:

Debt Financing Volume by Product Type

For the year ended December 31,

2020

2019

Fannie Mae

37

%

30

%

Freddie Mac

25

24

Ginnie Mae - HUD

6

3

Brokered

31

39

Interim Loans

1

4

For the year ended December 31,

Dollar

Percentage

(dollars in thousands)

2020

2019

Change

Change

Origination Fees (1)

$

359,061

$

258,471

$

100,590

39

%

MSR Income (2)

$

358,000

$

180,766

$

177,234

98

Origination Fee Rate (3) (basis points)

104

100

4

4

MSR Rate (4) (basis points)

104

71

33

46

Agency MSR Rate (5) (basis points)

152

118

34

29

(1)Loan origination and debt brokerage fees, net.
(2)The fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained.
(3)Origination fees as a percentage of debt financing volume, excluding the income and debt financing volume from principal lending and investing.
(4)MSR Income as a percentage of debt financing volume, excluding the income and debt financing volume from principal lending and investing.
(5)MSR Income as a percentage of Agency debt financing volume.

Loan origination and debt brokerage fees, net and fair value of the expected net cash flows associated with the servicing of the loan, net of any guaranty obligations retained.  The increases in origination fees and MSR Income were related to (i) a 32% increase in debt financing volume year over year and (ii) a more favorable transaction mix, leading to an increase in the origination fee and MSR rates. During 2020, 68% of our total mortgage banking volume related to Agency loans compared to 57% during 2019, leading to increases in the origination fee and MSR rates. Additionally, the weighted-average servicing fee on Fannie Mae debt financing volume increased 31% year over year, contributing to the increases in MSR Income, the MSR Rate, and the Agency MSR Rate.

See the “Overview of Current Business Environment” section above for a detailedA discussion of the factors driving the changes in debt financing volumes.

Servicing Fees.  The increase was primarily attributable to an increase in the average servicing portfolio from 2019 to 2020 as shown below due primarily to significantly higher new loan originations in 2020 than in 2019 and only a slight increase in payoffs year over year. Partially offsetting the increase in servicing fees was a decrease in the servicing portfolio’s weighted average servicing fee as shownfinancial results for our segments is included further below.The lower weighted-average servicing fee was related to a trend in lower fees we saw in the second half of 2019. This trend continued into the first half of 2020; however, we saw an upward trend in the servicing portfolio’s weighted-average servicing fee in the second half of 2020 as seen in the supplemental operating data table above. The increase in the second half of 2020 was due to the substantial increase in our Fannie Mae servicing portfolio in the second half of the year.

Servicing Fees Details

For the year ended December 31,

Dollar

Percentage

(dollars in thousands)

2020

2019

Change

Change

Average Servicing Portfolio

$

99,699,637

$

89,633,210

$

10,066,427

11

%

Average Servicing Fee (basis points)

23.4

23.7

(0.3)

(1)

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Net Warehouse Interest Income, Loans Held for Sale (“LHFS”).  The increase was the result of significant increases in the average balance outstanding and in the net spread between the rate on the originated loans and the interest costs associated with the warehouse facility as shown below. The increase in the average balance was related to the overall increase in our Agency debt financing volume year over year. The increase in the net spread was the result of a slower decrease in the rate we earn from our loans held for sale compared to the interest we pay on our borrowings.

Net Warehouse Interest Income Details - LHFS

For the year ended December 31,

Dollar

Percentage

(dollars in thousands)

2020

2019

Change

Change

Average LHFS Outstanding Balance

$

1,908,381

$

1,108,945

$

799,436

72

%

LHFS Net Spread (basis points)

94

17

77

453

Net Warehouse Interest Income, Loans Held for Investment (“LHFI”).  The decrease was due to a decline in the average balance of loans held for investment outstanding from 2019 to 2020 and the net spread between the rate on the originated loans and the interest costs associated with the warehouse facility. The decrease in the average balance was due to substantially lower loan originations in 2020 than 2019. In 2019, we had a larger balance of loans fully funded with corporate cash resulting in a higher net spread, including a large loan that was fully paid off in the first quarter of 2020.

Net Warehouse Interest Income Details - LHFI

For the year ended December 31,

Dollar

Percentage

(dollars in thousands)

2020

2019

Change

Change

Average LHFI Outstanding Balance

$

348,947

$

402,112

$

(53,165)

(13)

%

LHFI Net Spread (basis points)

326

591

(265)

(45)

Escrow Earnings and Other Interest Income. The decrease was primarily due to substantial decreases in short-term interest rates from 2019 to 2020 upon which our escrow earnings are based, slightly offset by an increase in the average balance of escrow accounts. The increase in the average balance was due to an increase in the average servicing portfolio. The decrease in the average earnings rate was due to substantial decreases in short-term interest rates, upon which our earnings rates are based, over the past year as discussed above in the “Overview of Current Business Environment” section.  

Property Sales Broker Fees. The increase in 2020 was the result of an increase in property sales volume due to growth in the average number of property sales brokers over the past year and an overall healthy property sales market in the second half of 2020 as more fully discussed above in the “Overview of Current Business Environment” section.

Other Revenues. The decrease was primarily related to a $4.8 million decrease in prepayment fees as the prepayments of GSE loans declined year over year.  

Expenses

Personnel.  The increase was primarily the result of an (i) increase in commission costs of $60.8 million due to the increases in origination fees and property sales broker fees detailed above, (ii) increase in subjective bonus expense by $31.3 million due to a 15% increase in average headcount year over year and as a result of our record financial performance, and (iii) increase in salaries and benefits due to the increase in average headcount to support our growth.

Amortization and Depreciation.  The increase was attributable to loan origination activity and the resulting growth in the average MSR balance outstanding from 2019 to 2020. During the year ended December 31, 2020, we added $144.0 million of MSRs, net of amortization and write offs due to prepayment.

Provision for Credit Losses.  The increase was primarily attributable to the adoption of CECL in 2020 and the increase in expected losses in the at-risk servicing portfolio as a result of the COVID-19 crisis and the growth in the portfolio. As of December 31, 2020, the CECL reserve was $67.0 million compared to $34.7 million as of the date of the adoption of CECL on January 1, 2020, leading to a substantial increase in the provision for credit losses year over year. The significant increase in our provision for credit losses expense and related CECL reserve during 2020 was principally related to the forecasted economic impacts of the COVID-19 Crisis. As a result of the COVID-19 Crisis, the loss rate for the forecast period increased from one basis point as of January 1, 2020 to six basis points as of December 31, 2020.

Interest Expense on Corporate Debt.  The decrease was driven primarily by the aforementioned decrease in short-term interest rates upon which our corporate debt is based in 2020 compared to 2019. Additionally, in December 2019, we re-priced our corporate debt, reducing the spread by 25 basis points. The effects of this re-pricing were fully reflected in our results in 2020.  

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Table of Contents

Income Tax Expense.  The increase in income tax expense is related to the 43% increase in income from operations and an increase in our effective tax rate from 24.8% in 2019 to 25.5% in 2020. The increase in the effective tax rate related primarily to an increase in executive compensation not deductible for tax purposes from $11.4 million in 2019 to $21.1 million in 2020.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP, we use adjusted EBITDA, a non-GAAP financial measure. The presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. When analyzing our operating performance, readers should use adjusted EBITDA in addition to, and not as an alternative for, net income. Adjusted EBITDA represents net income before income taxes, interest expense on our term loan facility, and amortization and depreciation, adjusted for provision for credit losses net of write-offs, stock-basedshare-based incentive compensation charges, and the fair value of expected net cash flows from servicing, net. Because not all companies use identical calculations, our presentation of adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, adjusted EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not reflect certain cash requirements such as tax and debt service payments. The amounts shown for adjusted EBITDA may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges that are used to determine compliance with financial covenants.

We use adjusted EBITDA to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. We believe that this non-GAAP measure, when read in conjunction with our GAAP financials, provides useful information to investors by offering:

the ability to make more meaningful period-to-period comparisons of our ongoing operating results;
the ability to better identify trends in our underlying business and perform related trend analyses; and
a better understanding of how management plans and measures our underlying business.

We believe that adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that adjusted EBITDA should only be used to evaluate our results of operations in conjunction with net income.

Adjusted EBITDA is reconciled to net income as follows:

ADJUSTED FINANCIAL METRIC RECONCILIATION TO GAAP

CONSOLIDATED

For the year ended

For the year ended December 31, 

December 31, 

(in thousands)

    

2020

    

2019

    

    

2022

    

2021

    

Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA

Walker & Dunlop Net Income

$

246,177

$

173,373

$

213,820

$

265,762

Income tax expense

84,313

57,121

 

56,034

 

86,428

Interest expense on corporate debt

8,550

14,359

 

34,233

 

7,981

Amortization and depreciation

169,011

152,472

 

235,031

 

210,284

Provision for credit losses

37,479

7,273

Provision (benefit) for credit losses

 

(11,978)

 

(13,287)

Net write-offs

 

(4,631)

 

Stock compensation expense

28,319

24,075

Share-based compensation expense

 

33,987

 

36,582

Gain from revaluation of previously held equity-method investment

(39,641)

Write-off of unamortized issuance costs from corporate debt retirement

2,673

Fair value of expected net cash flows from servicing, net

(358,000)

(180,766)

 

(191,760)

 

(287,145)

Adjusted EBITDA

$

215,849

$

247,907

$

325,095

$

309,278

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Year Ended December 31, 20202022 Compared to Year Ended December 31, 20192021

The following table presents a period-to-period comparison of the components of our adjusted EBITDA for the yearyears ended December 31, 20202022 and 2019:2021:

ADJUSTED EBITDA – 2020–2022 COMPARED TO 20192021

For the year ended 

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

2020

    

2019

    

Change

    

Change

 

Origination fees

$

359,061

$

258,471

$

100,590

39

%  

Servicing fees

 

235,801

 

214,550

 

21,251

10

Net warehouse interest income

 

29,326

 

25,699

 

3,627

14

Escrow earnings and other interest income

 

18,255

 

56,835

 

(38,580)

(68)

Other revenues

 

83,488

 

81,041

 

2,447

3

Personnel

 

(440,500)

 

(322,093)

 

(118,407)

37

Net write-offs

 

 

 

N/A

Other operating expenses

 

(69,582)

 

(66,596)

 

(2,986)

4

Adjusted EBITDA

$

215,849

$

247,907

$

(32,058)

(13)

CONSOLIDATED

For the year ended 

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

2022

    

2021

    

Change

    

Change

 

Loan origination and debt brokerage fees, net

$

348,007

$

446,014

$

(98,007)

(22)

%  

Servicing fees

 

300,191

 

278,466

 

21,725

8

Property sales broker fees

120,582

119,981

601

1

Investment management fees

71,931

25,637

46,294

181

Net warehouse interest income

 

15,777

 

22,108

 

(6,331)

(29)

Escrow earnings and other interest income

 

52,830

 

8,150

 

44,680

548

Other revenues

 

122,923

 

71,809

 

51,114

71

Personnel

 

(573,379)

 

(566,905)

 

(6,474)

1

Net write-offs

 

(4,631)

 

 

(4,631)

N/A

Other operating expenses

 

(129,136)

 

(95,982)

 

(33,154)

35

Adjusted EBITDA

$

325,095

$

309,278

$

15,817

5

The increasedecrease in origination fees was primarily related to an increasedecreases in both the earnings rate on our debt financing volumes and the overall debt financing volumes year over year. Servicing fees increased due to an increase in the average servicing portfolio period over period as a resultportfolio. Investment management fees increased due to the addition of investment management fees from our LIHTC operations acquired in the substantial debt financing volume and relatively few payoffs. The increase in netfourth quarter of 2021. Net warehouse interest income was related to increased net interest income from LHFSdecreased primarily due to increasesdecreases in the net spreads and average balance outstanding and the net spread earned on that balance, partially offset by a decrease in net warehouse interest income from LHFI due to a lower average balance outstanding and a lower net spread earned on that balance.balances. Escrow earnings and other interest income decreasedincreased primarily as a result of a decline in the averagehigher escrow earnings rate. rate due to rising interest rates. Other revenues increased primarily due to growth in property sales brokeras a result of increases in: (i) other revenues from our LIHTC operations, (ii) research subscription fees (iii) gains from equity-method investments, partially offset by a declinedecreases in prepayment fees.

The increase in personnel expense was primarily due to increased commissions expense resulting from the increases in origination fees and property sales broker fees, subjective bonus related to the rise in headcount and our record financial performance year over year and salaries and benefits expense due to a rise in headcount.

The increase in personnel expense was primarily due to increased salaries and benefits expense due to an increase in average headcount, partially offset by a decrease in commission costs due to lower debt financing volumes and a decrease in accruals for other performance-based compensation due to the Company’s performance. Net write-offs increased due to a loss settlement that occurred in the fourth quarter of 2022 with no comparable activity in 2021. Other operating expenses increased largely as a result of (i) the overall growth of the Company over the past year including expenses from acquired subsidiaries and (ii) an increase in travel and entertainment costs compared to 2021 when our travel and entertainment expenses were depressed due to the on-going effects of the pandemic. The increase in Other operating expenses was partially offset by a benefit for the revaluation of contingent consideration liabilities.

Financial Condition

Cash Flows from Operating Activities

Our cash flows from operations are generated from loan sales, servicing fees, escrow earnings, net warehouse interest income, property sales broker fees, investment management fees, research subscription fees, investment banking advisory fees, and other income, net of loan origination and operating costs. Our cash flows from operations are impacted by the fees generated by our loan originations and property sales, the timing of loan closings, assets under management, escrow account balances, the average balance of loans held for investment, and the period of time loans are held for sale in the warehouse loan facility prior to delivery to the investor.

Cash Flows from Investing Activities

We usually lease facilities and equipment for our operations. Our cash flows from investing activities also include the funding and repayment of loans held for investment, contributions to and distributions from joint ventures, purchases of equity-method investments, and the purchase of available-for-sale (“AFS”) securities pledged to Fannie Mae. We opportunistically invest cash for acquisitions and MSR portfolio purchases.

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Table of Contents

Cash Flows from Financing Activities

We use our warehouse loan facilities and, when necessary, our corporate cash to fund loan closings.closings, both for loans held for sale and loans held for investments. We also use warehouse facilities to assist in funding investments in tax credit equity before transferring them to a tax credit fund. We believe that our current warehouse loan facilities are adequate to meet our increasing loan origination and tax credit equity syndication needs. Historically, we have used a combination of long-term debt and cash flows from operations to fund large acquisitions, repurchase shares, pay cash dividends, make long-term debt principal payments, and fundrepay short-term borrowings on a portionregular basis. We issue stock primarily in connection with exercise of loans heldstock options (cash inflow) and for investment. acquisitions (non-cash transactions).We also use warehouse loan facilities and corporate cash to fund COVID-19 forbearance advances.

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Table of Contents

YearsYear Ended December 31, 20202022 Compared to YearsYear Ended December 31, 20192021

The following table presents a period-to-period comparison of the significant components of cash flows for the year ended December 31, 20202022 and 2019.2021.

SIGNIFICANT COMPONENTS OF CASH FLOWS – 20202022 COMPARED TO 20192021

For the year ended December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2020

    

2019

    

Change

    

Change

 

Net cash provided by (used in) operating activities

$

(1,411,370)

$

427,561

$

(1,838,931)

(430)

%  

Net cash provided by (used in) investing activities

 

115,179

 

(79,705)

 

194,884

(245)

Net cash provided by (used in) financing activities

 

1,517,627

 

(331,638)

 

1,849,265

(558)

Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period ("Total cash")

358,002

136,566

221,436

162

Cash flows from (used in) operating activities

Net receipt (use) of cash for loan origination activity

$

(1,611,627)

$

260,961

$

(1,872,588)

(718)

%  

Net cash provided by (used in) operating activities, excluding loan origination activity

200,257

166,600

33,657

20

Cash flows from (used in) investing activities

Distributions from (investments in) joint ventures, net

(8,462)

(15,944)

7,482

(47)

Acquisitions, net of cash received

(46,784)

(7,180)

(39,604)

552

Originations of loans held for investment

(199,153)

(362,924)

163,771

(45)

Total principal collected on loans held for investment

 

379,491

 

319,832

 

59,659

19

Net payoff of (investment in) loans held for investment

$

180,338

$

(43,092)

$

223,430

(518)

%  

Cash flows from (used in) financing activities

Borrowings (repayments) of warehouse notes payable, net

$

1,718,470

$

(367,864)

$

2,086,334

(567)

%  

Borrowings of interim warehouse notes payable

 

60,770

 

179,765

 

(118,995)

(66)

Repayments of interim warehouse notes payable

 

(167,960)

 

(67,871)

 

(100,089)

147

Repurchase of common stock

(45,774)

(30,676)

(15,098)

49

Proceeds from issuance of common stock

14,021

5,511

8,510

154

Purchase of noncontrolling interests

(10,400)

(10,400)

N/A

Cash dividends paid

(45,350)

(37,272)

(8,078)

22

CONSOLIDATED

For the year ended December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2022

    

2021

    

Change

    

Change

 

Net cash provided by (used in) operating activities

$

1,582,704

$

870,455

$

712,249

82

%  

Net cash provided by (used in) investing activities

 

(133,777)

 

(377,551)

 

243,774

(65)

Net cash provided by (used in) financing activities

 

(1,583,824)

 

(457,726)

 

(1,126,098)

246

Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period ("Total cash")

258,283

393,180

(134,897)

(34)

Cash flows from (used in) operating activities

Net receipt (use) of cash for loan origination activity

$

1,372,681

$

620,774

$

751,907

121

%  

Net cash provided by (used in) operating activities, excluding loan origination activity

210,023

249,681

(39,658)

(16)

Cash flows from (used in) investing activities

Purchases of pledged AFS securities

$

(60,802)

$

(31,750)

$

(29,052)

92

%  

Proceeds from the prepayment/sale of pledged AFS securities

14,040

45,301

(31,261)

(69)

Purchase of equity-method investments

(26,099)

(33,446)

7,347

(22)

Acquisitions, net of cash received

(114,163)

(420,555)

306,392

(73)

Capital expenditures

(21,995)

(9,208)

(12,787)

139

Net payoff of (investment in) loans held for investment

67,709

91,760

(24,051)

(26)

Net distributions from (investments in) joint ventures

7,533

(19,653)

27,186

138

Cash flows from (used in) financing activities

Borrowings (repayments) of warehouse notes payable, net

$

(1,370,705)

$

(635,912)

$

(734,793)

116

%  

Borrowings of interim warehouse notes payable

 

36,459

 

266,575

 

(230,116)

(86)

Repayments of interim warehouse notes payable

 

(63,858)

 

(227,999)

 

164,141

(72)

Borrowings (repayments) of notes payable

(36,629)

303,727

(340,356)

(112)

Payment of contingent consideration

(21,191)

(21,191)

N/A

Repurchase of common stock

(42,369)

(18,872)

(23,497)

125

Borrowings (repayments) of secured borrowings

(73,312)

73,312

(100)

Cash dividends paid

(80,145)

(64,453)

(15,692)

24

The increase in the Total cash balance from December 31, 2019 to December 31, 2020 is largely the result of net cash provided by operating activities, excluding loan origination activity. Net income accounted for a significant portion of the increase, partially offset by significant non-cash elements of that net income. We also benefitted from a significant inflow of cash from payoffs of loans held for investment, net of originations and net repayments of interim warehouse notes payable.

Changeschange in cash flows from operating activities werewas driven primarily by loans originated and sold. Such loans are held for short periods of time, generally less than 60 days, and impact cash flows presented as of a point in time. The increase in cash flows usedreceived in operatingloan origination activities is primarily attributable to the $1.9sales of loans held for sale outpacing originations by $1.4 billion increase in the funding of loan originations, net of loan sales2022 compared to third parties from 2019 to 2020.$620.8 million in 2021. Excluding cash used for the origination and sale of loans, cash flows provided by operations was $200.3were $210.0 million during 2020 compared to $166.6in 2022, down from $249.7 million during 2019. Significant elementsin 2021. The decrease is primarily the result of this change includea (i) increased$56.7 million decrease in net income of $72.7before noncontrolling interest, (ii) a $39.6 million (ii) increasedincrease in a non-cash expenses such as amortization and depreciation, stock compensation, deferred tax expense, and provisionadjustment for credit losses of $76.1 million,the Apprise revaluation gain in 2022 with no comparable activity in 2021, and (iii) an increase$58.5 million decrease in adjustments for other liabilities of $68.8 million,operating activities, partially offset by a $177.2$120.1 million increasechange in gainsnon-cash adjustments for MSRs and amortization and depreciation. The significant decrease in Total cash over the past year is largely attributable to the fair value of future servicing rights, net of guaranty obligation,acquisition activity coupled with a non-cash source of revenue.decrease in cash provided by operating activities, excluding loan origination activity.

The change fromdecrease in cash used in investing activities in 20192022 from 2021 was due to (i) a decrease in cash providedused in acquisitions in 2022 compared

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to 2021, (ii) a decrease in the purchase of equity-method investments as capital calls for capital commitments decreased year over year, and (iii) a change from net investments in joint ventures to net distributions from joint ventures, partially offset by investing activities(i) an increase in 2020 is primarily attributablethe net purchase of pledged AFS securities, as we reinvested prepayments from the prior year, (ii) an increase in capital expenditures due to increasesthe build out of our new corporate headquarters, and (iii) a decrease in the net payoff of loans held for investment. Cash used in acquisitions decreased, as in 2021, we had four acquisitions, including the Alliant acquisition, the largest acquisition in Company history, compared to two acquisitions, including GeoPhy, and a large payment for working capital adjustments for the Alliant acquisition in 2022. Our distributions from joint ventures outpaced our investments as our joint ventures originated fewer loans in 2022. Net payoff of loans held for investment decreased, as there were fewer payoffs and originations in 2022 than in 2021.

The increase in cash used in financing activities was attributable to (i) an increase in net warehouse repayments, (ii) a change to net repayments from net borrowings of interim warehouse notes payable, (iii) a change from net borrowings to net repayments of notes payable, (iv) an increase in the payment of contingent consideration as the Company made payments in 2022 for certain acquired entities in prior years, (v) an increase in repurchases of common stock, and (vi) an increase in dividends paid, partially offset by a decrease in investmentsrepayments of secured borrowings. The increase in joint ventures, partially offset bythe net repayments of warehouse notes payable was due to the aforementioned increase in cash received for loan origination activity. The change to net cash repayments from net borrowings of interim warehouse notes payable was primarily due to an increase in net repayments of interim loans as we had fewer originations in 2022. The change from net borrowings to net repayments of notes payable was due to the refinancing and increase of our Term Loan in December 2021 with no comparable activity in 2022 and due to the required quarterly paydowns of a note payable at our subsidiary, Alliant. The increase in cash paid for acquisitions. Therepurchases of common stock was related to significant vesting events in our various share-based compensation plans and the $11.1 million repurchase of common stock through our 2022 stock repurchase program compared to no repurchases under the 2021 stock repurchase program. Cash dividends paid increased largely as a result of the increase in our dividend to $0.60 per share in 2022 compared to $0.50 per share in 2021

Segment Results

The Company is managed based on our three reportable segments: (i) Capital Markets, (ii) Servicing & Asset Management, and (iii) Corporate. The segment results below are intended to present each of the reportable segments on a stand-alone basis.

Capital Markets

Our Capital Markets segment provides a comprehensive range of commercial real estate finance products to our customers, including Agency lending, debt brokerage, property sales, and appraisal and valuation services. The Company’s long-established relationships with the Agencies and institutional investors enable our Capital Markets segment to offer a broad range of loan products and services to the Company’s customers, including first mortgage, second trust, supplemental, construction, mezzanine, preferred equity, and small-balance loans. This segment also provides property sales services to owners and developers of multifamily properties and commercial real estate and multifamily property appraisals for various investors. The Capital Markets segment also provides real estate-related investment banking and advisory services, including housing market research.

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SUPPLEMENTAL OPERATING DATA

CAPITAL MARKETS

For the year ended December 31, 

(in thousands; except per share data)

2022

    

2021

    

Transaction Volume:

Components of Debt Financing Volume

Fannie Mae

$

9,950,152

$

9,301,865

Freddie Mac

 

6,320,201

 

6,154,828

Ginnie Mae ̶ HUD

 

1,118,014

 

2,340,699

Brokered(1)

 

25,878,519

 

29,670,226

Total Debt Financing Volume

$

43,266,886

$

47,467,618

Property sales volume

19,732,654

19,254,697

Total Transaction Volume

$

62,999,540

$

66,722,315

Key Performance Metrics:

Net income

$

156,078

$

262,194

Adjusted EBITDA(2)

36,201

84,626

Operating margin

28

%

39

%

Key Revenue Metrics (as a percentage of debt financing volume):

Origination fees

0.80

%  

0.93

%  

MSR income

0.44

0.60

MSR income, as a percentage of Agency debt financing volume

1.10

1.61

(1)Brokered transactions for life insurance companies, commercial banks, and other capital sources.
(2)This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section below titled “Non-GAAP Financial Measure”.

FINANCIAL RESULTS –2022 COMPARED TO 2021

CAPITAL MARKETS

For the year ended

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2022

    

2021

    

Change

    

Change

 

Revenues

Loan origination and debt brokerage fees, net

$

345,779

$

440,044

$

(94,265)

(21)

%  

Fair value of expected net cash flows from servicing, net

191,760

287,145

(95,385)

(33)

Property sales broker fees

120,582

119,981

601

1

Net warehouse interest income, loans held for sale

 

9,667

 

14,396

 

(4,729)

(33)

Other revenues

 

41,046

 

20,458

 

20,588

101

Total revenues

$

708,834

$

882,024

$

(173,190)

(20)

Expenses

Personnel

$

485,958

$

500,052

$

(14,094)

(3)

%  

Amortization and depreciation

 

3,084

 

2,877

 

207

7

Interest expense on corporate debt

8,647

5,078

3,569

70

Other operating expenses

 

11,817

 

26,420

 

(14,603)

(55)

Total expenses

$

509,506

$

534,427

$

(24,921)

(5)

Income from operations

$

199,328

$

347,597

$

(148,269)

(43)

Income tax expense

 

42,153

 

85,333

 

(43,180)

(51)

Net income before noncontrolling interests

$

157,175

$

262,264

$

(105,089)

(40)

Less: net income (loss) from noncontrolling interests

 

1,097

 

70

 

1,027

 

1,467

Net income

$

156,078

$

262,194

$

(106,116)

(40)

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Revenues

Loan origination and debt brokerage fees, net payoffsand Fair value of expected net cash flows from servicing, net. The following tables provide additional information that helps explain changes in origination fees and MSR income period over period:

For the year ended December 31,

Debt Financing Volume by Product Type

2022

2021

Fannie Mae

23

%

20

%

Freddie Mac

15

13

Ginnie Mae - HUD

3

5

Brokered

59

62

For the year ended December 31,

Percentage

Mortgage Banking Details (basis points)

2022

2021

Change

Change

Origination Fee Rate (1)

80

93

(13)

(14)

Agency MSR Rate (2)

110

161

(51)

(32)

(1)Origination fees as a percentage of total debt financing volume.
(2)MSR Income as a percentage of Agency debt financing volume.

The decrease in origination fees was the result of a 13-basis-point decrease in our origination fee rate and a 9% decrease in overall debt financing volume. The decline in the origination fee rate was driven by a combination of a decline in in our HUD debt financing volumes and a decline in the margins we earn on our debt financing products, particularly with our Fannie Mae volume. Our Fannie Mae volume in 2022 included a $1.9 billion portfolio of loans heldthat had a relatively lower origination fee rate that is typical for investmenttransactions of that size. We had no such portfolio transactions in 2021.

The decrease in MSR income was attributable to the 32% decrease in our Agency MSR Rate, coupled with a substantial decrease in our HUD debt financing volumes. The weighted-average servicing fees on new Fannie Mae debt financing volume declined 38% due to tightening of servicing fees due to large interest rate increases during 2022. Our Fannie Mae and HUD products are our most profitable products.

See the “Overview of Current Business Environment” section above for a detailed discussion of the factors driving the changes in debt financing volumes.

Net Warehouse Interest Income, Loans Held for Sale. The decrease was the result of decreases in the average balance outstanding and in the net spread between the rate on the originated loans and the interest costs associated with the warehouse facility as shown below. The decrease in the average balance was related to the overall decrease in our debt financing volume year over year, particularly our HUD originations. The decrease in the net spreads shown below was a result of the rapidly rising interest rate environment.

For the year ended December 31,

Percentage

Net Warehouse Interest Income Details - LHFS (dollars in thousands)

2022

2021

Change

Change

Average LHFS Outstanding Balance

$

1,326,690

$

1,634,999

$

(308,309)

(19)

%

LHFS Net Spread (basis points)

73

88

(15)

(17)

Other Revenues. The increase was due to an increase in payoff activityour research subscription revenues and significantly lower origination activityappraisal revenues, partially offset by a decrease in 2020 as we paused the originations of loans held for investment for several monthsmiscellaneous revenues. Research subscription fees increased $13.1 million year over year primarily due to the COVID-19 Crisis. Cash used for investmentsacquisition of Zelman early in joint ventures decreased primarilythe third quarter of 2021. 2022 included a full year of revenue from research services compared to less than half a year in 2021. Appraisal revenues increased due to decreases in investments in our Interim Program JV due to a reductionthe consolidation of Apprise in the numberfirst quarter of loans originated2022, resulting in $8.3 million of appraisal revenue recognized during 2022. The appraisal revenue was accounted for as income from equity method investments prior to the COVID-19 Crisisconsolidation of Apprise.

Expenses

Personnel. The decrease was primarily the result of a $51.7 million decrease in debt financing commission costs as a result of the decrease in debt financing activity and repayments of several loans held by the joint venture,related origination fees, partially offset by additional investmentsa $26.3 million increase in our Appraisal JV. Cash paid for acquisitions increased by $39.6salaries and benefits and an $8.9 million as we increased the sizeincrease in other compensation costs. These increases in salaries and number of companies acquired in 2020 comparedbenefits and other compensation costs were due to 2019.higher

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average headcount resulting from (a) acquisitions and hiring initiatives and (b) the GeoPhy acquisition and corresponding consolidation of Apprise.

Interest expense on corporate debt. The changeincrease was primarily driven by an increase in cashthe interest rate on our corporate debt as the lockout on the cap of our floating interest rate expired.

Other Operating Expenses. The decrease stemmed from an $18.0 million benefit for the revaluation of contingent consideration liabilities allocated to the Capital Markets segment, partially offset by increases in travel and entertainment costs of $5.8 million as our bankers and brokers attended more in person meetings compared to 2021 when the effects of the pandemic were still depressing business travel.

Income Tax Expense. Income tax expense is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s income from operations, except for significant, one-time tax activities, which are allocated entirely to the segment impacted by the tax activity.

Non-GAAP Financial Measure

A reconciliation of adjusted EBITDA for our Capital Markets segment is presented below. Our segment level adjusted EBITDA represents the segment portion of consolidated adjusted EBITDA. A detailed description and reconciliation of consolidated adjusted EBITDA is provided above in our Consolidated Results of Operations—Non-GAAP Financial Measure. CM adjusted EBITDA is reconciled to net income as follows:

ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP

CAPITAL MARKETS

For the year ended

December 31, 

(in thousands)

    

2022

    

2021

Reconciliation of Net Income to Adjusted EBITDA

Net Income

$

156,078

$

262,194

Income tax expense

 

42,153

 

85,333

Interest expense on corporate debt

8,647

5,078

Amortization and depreciation

3,084

2,877

Share-based compensation expense

17,999

16,289

MSR Income

 

(191,760)

 

(287,145)

Adjusted EBITDA

$

36,201

$

84,626

The following tables present period-to-period comparisons of the components of CM adjusted EBITDA for the years ended December 31, 2022 and 2021.

ADJUSTED EBITDA – 2022 COMPARED TO 2021

CAPITAL MARKETS

For the year ended 

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

2022

    

2021

    

Change

    

Change

 

Origination fees

$

345,779

$

440,044

$

(94,265)

(21)

%  

Property sales broker fees

120,582

119,981

601

1

Net warehouse interest income, loans held for sale

 

9,667

 

14,396

 

(4,729)

(33)

Other revenues

 

39,949

 

20,388

 

19,561

96

Personnel

 

(467,959)

 

(483,763)

 

15,804

(3)

Other operating expenses

 

(11,817)

 

(26,420)

 

14,603

(55)

Adjusted EBITDA

$

36,201

$

84,626

$

(48,425)

(57)

Loan origination and debt brokerage fees, net decreased due to a decrease in our origination fee rate and a decrease in our overall debt financing volume. Net warehouse interest income decreased due to decreases in the net spread and average outstanding balance. The decrease in personnel expense was primarily due to decreased commission costs due to the decrease in origination fees, partially offset by growth in salaries and benefits costs resulting from an increase in the average headcount from acquisitions and hiring initiatives. Other operating expenses

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decreased primarily due to a contingent consideration revaluation gain in 2022, partially offset by growth in the segment’s operations and increases in travel and entertainment costs as our bankers and brokers attended more in person meetings in 2022.

Servicing & Asset Management

The Servicing & Asset Management segment’s activities include: (i) servicing and asset-managing the portfolio of loans the Company (a) originates and sells to the Agencies, (b) brokers to certain life insurance companies, and (c) originates through its principal lending and investing activities, and (ii) managing third-party capital invested in tax credit equity funds focused on the affordable housing sector and other commercial real estate.

SUPPLEMENTAL OPERATING DATA

SERVICING & ASSET MANAGEMENT

(in thousands; except per share data)

As of December 31, 

Managed Portfolio:

    

2022

    

2021

Components of Servicing Portfolio

Fannie Mae

$

59,226,168

$

53,401,457

Freddie Mac

 

37,819,256

 

37,138,836

Ginnie Mae - HUD

 

9,868,453

 

9,889,289

Brokered (1)

 

16,013,143

 

15,035,439

Principal Lending and Investing (2)

 

206,835

 

235,543

Total Servicing Portfolio

$

123,133,855

$

115,700,564

Assets under management

16,748,449

16,437,865

Total Managed Portfolio

$

139,882,304

$

132,138,429

For the year ended

December 31, 

Key Volume and Performance Metrics:

2022

2021

Principal Lending and Investing debt financing volume(3)

$

339,098

$

1,443,502

Net income

139,691

105,142

Adjusted EBITDA(4)

410,429

333,292

Operating margin

33

%

37

%

As of December 31, 

Key Servicing Portfolio Metrics:

2022

    

2021

Custodial escrow account balance (in billions)

$

2.7

$

3.7

Weighted-average servicing fee rate (basis points)

24.5

24.9

Weighted-average remaining servicing portfolio term (years)

8.8

9.2

As of December 31, 

Components of assets under management (in thousands)

2022

2021

LIHTC

$

14,499,642

$

14,266,339

Investment funds

1,355,999

1,323,330

Interim Program JV Managed Loans(5)

892,808

848,196

Total assets under management

$

16,748,449

$

16,437,865

(1)Brokered loans serviced primarily for life insurance companies.
(2)Consists of interim loans not managed for the Interim Program JV.
(3)For the year ended December 31, 2022, comprised solely of WDIP separate account originations. For the year ended December 31, 2022, includes $86.3 million from the Interim Program JV, $117.1 million from the Interim Loan Program and $135.7 million from WDIP separate accounts. For the year ended December 31, 2021, includes $860.0 million from the Interim Program JV, $537.1 million from the Interim Loan Program, and $46.4 million from WDIP separate accounts. 
(4)This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section below titled “Non-GAAP Financial Measure”.
(5)Comprised only of Interim Program JV managed loans.  

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Table of Contents

FINANCIAL RESULTS – 2022 COMPARED TO 2021

SERVICNG & ASSET MANAGEMENT

For the year ended

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2022

    

2021

    

Change

    

Change

 

Revenues

Loan origination and debt brokerage fees, net

$

2,228

$

5,970

$

(3,742)

(63)

%  

Servicing fees

300,191

278,466

21,725

8

Investment management fees

71,931

25,637

46,294

181

Net warehouse interest income, loans held for investment

 

6,110

 

7,712

 

(1,602)

(21)

Escrow earnings and other interest income

 

51,010

 

7,776

 

43,234

556

Other revenues

 

75,960

 

52,916

 

23,044

44

Total revenues

$

507,430

$

378,477

$

128,953

34

Expenses

Personnel

$

69,970

$

36,412

$

33,558

92

%  

Amortization and depreciation

 

225,515

 

203,118

 

22,397

11

Provision (benefit) for credit losses

(11,978)

(13,287)

1,309

(10)

Interest expense on corporate debt

23,621

1,749

21,872

1,251

Other operating expenses

 

30,738

 

11,401

 

19,337

170

Total expenses

$

337,866

$

239,393

$

98,473

41

Income from operations

$

169,564

$

139,084

$

30,480

22

Income tax expense

 

35,859

 

34,144

 

1,715

5

Income before noncontrolling interests

$

133,705

$

104,940

$

28,765

27

Less: net income (loss) from noncontrolling interests

 

(5,986)

 

(202)

 

(5,784)

 

2,863

Net income

$

139,691

$

105,142

$

34,549

33

Revenues

Loan origination and debt brokerage fees, net. The decrease was due to a 77% decrease in our principal lending and investing debt financing activitiesvolumes. Debt financing volume for this segment includes loans made on transitional multifamily properties on our balance sheet or through the Interim Program JV. Due to the challenging macroeconomic conditions, we scaled back our lending on transitional assets in 2022.

Servicing Fees. The increase was primarily attributable to an increase in the changeaverage servicing portfolio period over period as shown below, primarily due to a $5.8 billion net increase in Fannie Mae serviced loans and a $977.7 million net warehouse borrowingsincrease in brokered loans serviced over the past year, coupled with the increase in the servicing portfolio’s average servicing fee rate as shown below. The increase in the average servicing fee rate is the result of the relatively large volume of Fannie Mae debt financing volume over the past year, resulting in Fannie Mae loans composing a higher percentage of the overall portfolio. Fannie Mae loans have the highest servicing fees of all our products.

For the year ended December 31,

Percentage

Servicing Fees Details (dollars in thousands)

2022

2021

Change

Change

Average Servicing Portfolio

$

118,887,131

$

111,577,130

$

7,310,001

7

%

Average Servicing Fee (basis points)

24.8

24.5

0.3

1

Investment Management Fees. The increase was primarily driven by the addition of investment management fees from our LIHTC operations due to our acquisition of Alliant late in the fourth quarter of 2021, which added an incremental $47.4 million of investment management fees from 2021.

Escrow earnings and other interest income.  The increase was driven primarily by an increase in our escrow earnings of $37.7 million, coupled with an increase in interest income from pledged securities, cash balances, and other investments. The earnings rate on escrow balances and other interest-earning assets increased significantly as a result of rising interest rates over the past year, partially offset by a reduction in the average balance of escrows outstanding.

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Table of Contents

Other Revenues. The increase was primarily due to a $35.9 million increase in other revenues from our LIHTC operations, partially offset by a $13.7 million decrease in prepayment fees. The increase in other revenues from LIHTC operations was driven by our subsidiary Alliant, which was acquired in the fourth quarter of 2021. The decrease in prepayment fees was due to a substantial decrease in the volume of loans that prepaid year over year due to the higher interest rate environment and the amount of prepayment fees earned on that volume.

Expenses

Personnel. The increase was primarily the result of increases in salaries and benefits of $24.0 million and bonus accruals by $8.7 million. Salaries and benefits and bonus accruals increased during the year ended December 31, 2022 primarily due to growth in headcount as a result of the Alliant acquisition that occurred late in the fourth quarter of 2021, partially offset by a decrease in the accrual rate due to the Company’s performance in 2022.

Amortization and Depreciation. The increase was primarily attributed to loan origination activity and the resulting growth in the average MSR balance and due to an increase in intangible asset amortization. Over the past 12 months, we have added $110.3 million of MSRs, net of disposals. Due to the Alliant acquisition in December 2021, we added $170.8 million in intangible assets to SAM, resulting in an increase in amortization expense of $12.4 million for the year ended December 31, 2022.

Interest expense on corporate debt.The increase was primarily driven by (i) an increase in the portion of corporate debt related to SAM, (ii) the assumption of a securitized debt instrument late in the fourth quarter of 2021 in connection with the Alliant acquisition, and (iii) an increase in the interest rate on our corporate debt as the lockout on the cap of our floating rate expired. The increase in corporate debt related to SAM was due to the $300.0 million of additional debt incurred to acquire Alliant. The increase in the interest rate was driven by rapidly rising interest rates during 2022.

Other Operating Expenses. The increase primarily stemmed from relatively small increases in various expense types. For the year ended December 31, 2022, the increase was primarily due to a $16.7 million increase in other operating costs and a $2.3 million increase in professional fees. The increases in other operating costs and professional fees were primarily due to additional operating expenses at Alliant, which was acquired late in the fourth quarter of 2021, and a $4.5 million expense for the revaluation of contingent consideration liabilities in the fourth quarter of 2022 due to the performance of Alliant.

Income Tax Expense. Income tax expense is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s income from operations, except for significant, one-time tax activities, which are allocated entirely to the segment impacted by the tax activity.

Non-GAAP Financial Measure

A reconciliation of adjusted EBITDA for our Servicing & Asset Management segment is presented below. Our segment level adjusted EBITDA represents the segment portion of consolidated adjusted EBITDA. A detailed description and reconciliation of consolidated adjusted EBITDA is provided above in our Consolidated Results of Operations—Non-GAAP Financial Measure. SAM adjusted EBITDA is reconciled to net income as follows:

ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP

SERVICING & ASSET MANAGEMENT

For the year ended

December 31, 

(in thousands)

    

2022

    

2021

Reconciliation of Net Income to Adjusted EBITDA

Net Income

$

139,691

$

105,142

Income tax expense

 

35,859

 

34,144

Interest expense on corporate debt

23,621

1,749

Amortization and depreciation

 

225,515

 

203,118

Provision (benefit) for credit losses

(11,978)

(13,287)

Net write-offs

(4,631)

Share-based compensation expense

 

2,352

 

2,426

Adjusted EBITDA

$

410,429

$

333,292

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The following tables present period-to-period comparisons of the components of SAM adjusted EBITDA for the years ended December 31, 2022 and 2021.

ADJUSTED EBITDA – 2022 COMPARED TO 2021

SERVICING & ASSET MANAGEMENT

For the year ended 

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

2022

    

2021

    

Change

    

Change

 

Loan origination and debt brokerage fees, net

$

2,228

$

5,970

$

(3,742)

(63)

%  

Servicing fees

 

300,191

 

278,466

 

21,725

8

Investment management fees

71,931

25,637

46,294

181

Net warehouse interest income, loans held for investment

 

6,110

 

7,712

 

(1,602)

(21)

Escrow earnings and other interest income

 

51,010

 

7,776

 

43,234

556

Other revenues

 

81,946

 

53,118

 

28,828

54

Personnel

 

(67,618)

 

(33,986)

 

(33,632)

99

Net write-offs

 

(4,631)

 

 

(4,631)

N/A

Other operating expenses

 

(30,738)

 

(11,401)

 

(19,337)

170

Adjusted EBITDA

$

410,429

$

333,292

$

77,137

23

Origination fees decreased primarily due to a decrease in our principal lending and investing origination volume. Servicing fees increased due to growth in the average servicing portfolio period over period as a result of loan originations and an increase in the proceedsaverage servicing fee rate. Investment management fees increased due to the addition of our LIHTC operations from issuanceour acquisition in the fourth quarter of common stock,2021. Escrow earnings and other interest income increased primarily due to the rise in the escrow earnings rate. Other revenues increased primarily due to the addition of other revenues from our LIHTC operations, partially offset by increasesa decrease in net repayments of interim warehouse notes payable, repurchases of common stock, cash dividends, and purchase of noncontrolling interests.

The change in net borrowings of warehouse notes payable during 2020 wasprepayment fees. Net write-offs increased due to a substantialloss settlement that occurred in the fourth quarter of 2022 with no comparable activity in 2021. Personnel and other operating expenses increased due to growth in headcount and operations from the aforementioned acquisition. Additionally, other operating expenses increased due to a contingent consideration revaluation expense in 2022.

Corporate

The Corporate segment consists primarily of the Company’s treasury operations and other corporate-level activities. Our treasury activities include monitoring and managing liquidity and funding requirements, including corporate debt. Other corporate-level activities include equity-method investments, accounting, information technology, legal, human resources, marketing, internal audit, and various other corporate groups (“support functions”). We do not allocate costs from these support functions to its other segments in presenting segment operating results. We do allocate interest expense and income tax expense. Corporate debt and the related interest expense are allocated first based on specific acquisitions where debt was directly used to fund the acquisition, such as the acquisition of Alliant, and then based on the remaining segment assets. Income tax expense is allocated proportionally based on income from operations at each segment, except for significant, one-time tax activities, which are allocated entirely to the segment impacted by the tax activity.

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FINANCIAL RESULTS – 2022 COMPARED TO 2021

CORPORATE

For the year ended

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

    

2022

    

2021

    

Change

    

Change

 

Revenues

Other interest income

$

1,820

$

374

$

1,446

387

%  

Other revenues

 

40,669

 

(1,697)

 

42,366

(2,497)

Total revenues

$

42,489

$

(1,323)

$

43,812

(3,312)

Expenses

Personnel

$

51,438

$

67,023

$

(15,585)

(23)

%  

Amortization and depreciation

 

6,432

 

4,289

 

2,143

50

Interest expense on corporate debt

 

1,965

 

1,154

 

811

70

Other operating expenses

 

86,581

 

60,834

 

25,747

42

Total expenses

$

146,416

$

133,300

$

13,116

10

Income from operations

$

(103,927)

$

(134,623)

$

30,696

(23)

Income tax expense (benefit)

 

(21,978)

 

(33,049)

 

11,071

(33)

Net income

$

(81,949)

$

(101,574)

$

19,625

(19)

Adjusted EBITDA

$

(121,535)

$

(108,640)

$

(12,895)

12

%

Revenues

Other Revenues. The increase was primarily due to the $39.6 million Apprise revaluation gain, which was recognized in the first quarter of 2022. As part of our acquisition of GeoPhy, we acquired its 50% interest in Apprise. The revaluation of our existing 50% ownership interest with a carrying value of $18.9 million to a fair value of $58.5 million resulted in a $39.6 million gain. The remaining increase was primarily due to a $6.1 million increase in income from our other equity-method investments, mostly related to the unpaid principal balancefirst quarter of LHFS funded by Agency Warehouse Facilities (as defined below) compared to 2019, with2022. Partially offsetting the unpaid principal balance of LHFS funded by Agency Warehouse Facilities increasing $1.9 billion year over year (as seen above in cash used for loan origination activity). Additionally, as of December 31, 2019, we funded $109.0 million of the LHFS with our own cash, resulting in lower repayments of warehouse notes payable in 2020 than in 2019.

The change from net borrowings of interim warehouse notes payable in 2019 to net repayments in 2020 was principally due to interim loan origination and repayment activity year over year in our Interim Loan Program. During 2019, we originated several loans that were fully funded with corporate cash and had multiple payoffs of loans. During 2020, we had significantly lower originations and increased payoff activity, leading to a change from net borrowings to net repayments year over year. The cash used in repurchase of common stock increased primarily as a result of an increase in Other revenues was a $2.7 million decrease in investment income from the number of shares repurchased during 2020 compared to 2019. Company’s deferred compensation plan.  

Expenses

Personnel. The increase in cash dividends paiddecrease was primarily the result of (i) a $16.1 million decrease to the accrual for subjective bonuses, (ii) a $4.2 million decrease in stock compensation expense related to the Company’s performance share plan, and (iii) a $2.7 million decrease in compensation expense related to the Company’s deferred compensation plan, partially offset by a $6.8 million increase in salaries and benefits due to an increase in the average headcount. The decreases related to (i) and (ii) were due to the Company’s performance in 2022. The majority of the decrease came from a reduction in senior management compensation due to the Company’s performance in 2022.

Other Operating Expenses. For the year ended December 31, 2022, the increase was primarily driven by: (i) a $16.4 million increase in office expenses related to the growth of the Company and acquired offices, (ii) a $6.3 million increase in professional fees largely related to our increasingacquisitions, (iii) a $2.2 million increase in travel and entertainment costs attributable to the dividends paid per sharegrowth of the Company and depressed travel and entertainment costs in 2021 due to the pandemic, and (iv) a $2.1 million increase in marketing costs related to the diversification of the Company, especially in support of acquired businesses and new business initiatives.

Income Tax Expense. Income tax expense is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s income from operations, except for significant, one-time tax activities, which are allocated entirely to the segment impacted by 20% year over year. the tax activity.

Non-GAAP Financial Measure

A reconciliation of adjusted EBITDA for our Corporate segment is presented below. Our segment level adjusted EBITDA represents the segment portion of consolidated adjusted EBITDA. A detailed description and reconciliation of consolidated adjusted EBITDA is provided above in our Consolidated Results of Operations—Non-GAAP Financial Measure. Corporate adjusted EBITDA is reconciled to net income as follows:

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ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP

CORPORATE

For the year ended

December 31, 

(in thousands)

    

2022

    

2021

Reconciliation of Net Income to Adjusted EBITDA

Net Income

$

(81,949)

$

(101,574)

Income tax expense (benefit)

 

(21,978)

 

(33,049)

Interest expense on corporate debt

 

1,965

 

1,154

Amortization and depreciation

 

6,432

 

4,289

Share-based compensation expense

 

13,636

 

17,867

Gain from revaluation of previously held equity-method investment

(39,641)

Write-off of unamortized issuance costs from corporate debt retirement

2,673

Adjusted EBITDA

$

(121,535)

$

(108,640)

The following tables present period-to-period comparisons of the components of Corporate adjusted EBITDA for the years ended December 31, 2022 and 2021.

ADJUSTED EBITDA – 2022 COMPARED TO 2021

CORPORATE

For the year ended 

 

December 31, 

Dollar

Percentage

 

(dollars in thousands)

2022

    

2021

    

Change

    

Change

 

Other interest income

 

1,820

 

374

 

1,446

387

%  

Other revenues

 

1,028

 

(1,697)

 

2,725

(161)

Personnel

 

(37,802)

 

(49,156)

 

11,354

(23)

Other operating expenses

 

(86,581)

 

(58,161)

 

(28,420)

49

Adjusted EBITDA

$

(121,535)

$

(108,640)

$

(12,895)

12

The increase in cash usedother revenue was primarily due to an increase in income from our other equity-method investments, partially offset by a decrease in investment income from the Company’s deferred compensation plan. The decrease in personnel expense was primarily due to the decreases in accruals for purchase of noncontrolling interests wassubjective bonuses, stock compensation expense related to the Company’s performance share plan, and expenses related to the Company’s deferred compensation plan, partially offset by increased salaries and benefits resulting from an increase in average headcount. Other operating expenses increased as a result of the overall growth of the Company over the past year and from increased office costs from our purchase of noncontrolling interests from the members of WDIS during 2020, a unique transaction.acquisitions.

Liquidity and Capital Resources

Uses of Liquidity, Cash and Cash Equivalents

Our significant recurring cash flow requirements consist of liquidity to (i) fund loans held for sale; (ii) fund loans held for investment under the Interim Loan Program; (iii) pay cash dividends; (iv) fund our portion of the equity necessary for the operations of the Interim Program JV, our appraisal JV, and other equity-method investments; (v) fund investments in properties to be syndicated to LIHTC investment funds that we will asset-manage; (vi) make payments related to earnouts from acquisitions, (vii) meet working capital needs to support our day-to-day operations, including debt service payments, joint venture development partnership contributions, servicing advances and payments for salaries, commissions, and income taxes;taxes, and (vi)(viii) meet working capital to satisfy collateral requirements for our Fannie Mae DUS risk-sharing obligations and to meet the operational liquidity requirements of Fannie Mae, Freddie Mac, HUD, Ginnie Mae, and our warehouse facility lenders.  

Fannie Mae has established benchmark standards for capital adequacy and reserves the right to terminate our servicing authority for all or some of the portfolio if, at any time, it determines that our financial condition is not adequate to support our obligations under the DUS agreement. We are required to maintain acceptable net worth as defined in the standards, and we satisfied the requirements as of December 31, 2020.2022. The net worth requirement is derived primarily from unpaid balances on Fannie Mae loans and the level of risk-sharing. As of December 31, 2020,2022, the net worth requirement was $228.0$285.6 million, and our net worth was $991.1$692.8 million, as measured at our wholly owned operating subsidiary, Walker & Dunlop, LLC. As of December 31, 2020,2022, we were required to maintain at least $45.2$56.9 million of liquid

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assets to meet our operational liquidity requirements for Fannie Mae, Freddie Mac, HUD, Ginnie Mae and our warehouse facility lenders. As of December 31, 2020,2022, we had operational liquidity of $370.0$170.8 million, as measured at our wholly owned operating subsidiary, Walker & Dunlop, LLC.

We paid a cash dividend of $0.30$0.60 per share each quarter of 2019 and increased our2022, which is 20% higher than the quarterly dividend by 20% to $0.36 per sharepaid in each quarter of 2020. In2021. On February 2021,20, 2023, the Company’s Board of Directors declared a dividend of $0.50$0.63 per share for the first quarter of 2021, and increase of 39%.2023. The dividend will be paid on March 11, 202123, 2023 to all holders of record of our restricted and unrestricted common stock as of February 22, 2021. We expect to continue to make regular quarterly dividend payments for the foreseeable future.  March 8, 2023.

Over the past three years, we have returned $201.7$227.1 million to investors in the form ofthrough the repurchase of 1.8 million568 thousand shares of our common stock under share repurchase programs for a cost of $87.5$37.2 million and cash dividend payments of $114.2$189.9 million. Additionally, we have invested $139.3$648.3 million in acquisitions.acquisitions, $300.0 million of which was financed by an increase in our Term Loan (as defined below). On occasion, we may use cash to fully fund some loans held for investment or loans held for sale instead of using our warehouse line.lines. As of December 31, 2020,2022, we used corporate cash todid not fully fund loans held for investment with an unpaid principal balance of $232.1 million.any such loans. We continually seek opportunities to complete additional acquisitions if we believe the economics are favorable.

In February 2020,2022, our Board of Directors approved a stock repurchase program that permitted the repurchase of up to $50.0 million of shares of our common stock over a 12-month period beginning on February 11, 2020. In 2020, we repurchased 459 thousand shares for an aggregate cost of $26.1 million. In February 2021, our Board approved a new stock repurchase program that permits the repurchase of up to $75$75.0 million of shares of our common stock over a 12-month period beginning February 12, 2021.13, 2022. Through December 31, 2022 we repurchased 109 thousand shares under the 2022 stock repurchase program and had $63.9 million of remaining capacity under that program. In February 2023, our Board of Directors approved a stock repurchase program that permits the repurchase of up to $75.0 million shares of our common stock over a 12-month period beginning February 23, 2023.

We have contractual obligations to make future cash payments on lease agreements on our various offices of $23.9$79.6 million as of December 31, 2020.2022. NOTE 14 in the consolidated financial statements contains additional details related to future lease payments. We have contractual obligations to repay short-term and long-term debt. The total principal balance for such debt is $2.8$1.2 billion as of December 31, 2020. Most2022, of

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this balance which $538.1 million will be repaid with the proceeds from the sale of loans held for sale and the repayments of loans held for investment. NOTE 6 in the consolidated financial statements contains additional details related to these future debt payments. The expected interest associated with these debt payments is $11.7 million in 2021, $7.6 million in 2022, $6.2$52.0 million in 2023, $6.1$40.2 million in 2024, and $6.0$37.9 million in 2025.2025, $37.5 million in 2026, and $37.1 million in 2027. The interest for long-term debt is based on a variable rate. Such interest is calculated based on the effective interest rate as of December 31, 2020.2022. The amounts above do not include any payments related to the Alliant note payable since it was repaid in January 2023.

Historically, our cash flows from operations and warehouse facilities have been sufficient to enable us to meet our short-term liquidity needs and other funding requirements. We believe that cash flows from operations will continue to be sufficient for us to meet our current obligations for the foreseeable future, including any additional servicing advance obligations that may be required under our Fannie Mae and HUD loan servicing agreements due to the impacts of the COVID-19 Crisis.future.

Restricted Cash and Pledged Securities

Restricted cash consists primarily of good faith deposits held on behalf of borrowers between the time we enter into a loan commitment with the borrower and the investor purchases the loan.loan and cash held in collection accounts to be used to fund the repayment of the Alliant note payable. We are generally required to share the risk of any losses associated with loans sold under the Fannie Mae DUS program, our only off-balance sheet arrangement. We are required to secure this obligation by assigning collateral to Fannie Mae. We meet this obligation by assigning pledged securities to Fannie Mae. The amount of collateral required by Fannie Mae is a formulaic calculation at the loan level and considers the balance of the loan, the risk level of the loan, the age of the loan, and the level of risk-sharing. Fannie Mae requires collateral for Tier 2 loans of 75 basis points, which is funded over a 48-month period that begins upon delivery of the loan to Fannie Mae. Collateral held in the form of money market funds holding U.S. Treasuries is discounted 5%, and Agency MBS are discounted 4% for purposes of calculating compliance with the collateral requirements. As of December 31, 2020,2022, we held substantially all of our restricted liquidity in Agency MBS in the aggregate amount of $119.9$142.6 million. Additionally, the majority of the loans for which we have risk-sharing are Tier 2 loans. We fund any growth in our Fannie Mae required operational liquidity and collateral requirements from our working capital.

We are in compliance with the December 31, 20202022 collateral requirements as outlined above. As of December 31, 2020,2022, reserve requirements for the December 31, 20202022 DUS loan portfolio will require us to fund $65.0$79.6 million in additional restricted liquidity over the next 48 months, assuming no further principal paydowns, prepayments, or defaults within our at-risk portfolio. Fannie Mae has assessed the DUS Capital Standards in the past and may make changes to these standards in the future. We generate sufficient cash flows from our operations to meet these capital standards and do not expect any future changes to have a material impact on our future operations; however, any future changes to collateral requirements may adversely impact our available cash.

Under the provisions of the DUS agreement, we must also maintain a certain level of liquid assets referred to as the operational and unrestricted portions of the required reserves each year. We satisfied these requirements as of December 31, 2020.2022.

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Sources of Liquidity: Warehouse Facilities and Notes Payable

The following table provides information related to ourWarehouse Facilities

We utilize a combination of warehouse facilities as of December 31, 2020.

December 31, 2020

(dollars in thousands)

    

Committed

    

Uncommitted

Total Facility

Outstanding

    

Facility(1)

Amount

Amount

Capacity

Balance

Interest rate(2)

Agency Warehouse Facility #1

$

425,000

$

$

425,000

$

83,336

 

30-day LIBOR plus 1.40%

Agency Warehouse Facility #2

 

700,000

 

300,000

 

1,000,000

 

460,388

30-day LIBOR plus 1.40%

Agency Warehouse Facility #3

 

600,000

 

265,000

 

865,000

 

410,546

 

30-day LIBOR plus 1.15%

Agency Warehouse Facility #4

 

350,000

 

 

350,000

 

181,996

 

30-day LIBOR plus 1.40%

Agency Warehouse Facility #5

1,000,000

1,000,000

522,507

30-day LIBOR plus 1.45%

Total National Bank Agency Warehouse Facilities

$

2,075,000

$

1,565,000

$

3,640,000

$

1,658,773

Fannie Mae repurchase agreement, uncommitted line and open maturity

1,500,000

1,500,000

725,085

Total Agency Warehouse Facilities

$

2,075,000

$

3,065,000

$

5,140,000

$

2,383,858

Interim Warehouse Facility #1

$

135,000

$

$

135,000

$

71,572

 

30-day LIBOR plus 1.90%

Interim Warehouse Facility #2

100,000

100,000

34,000

30-day LIBOR plus 1.65%

Interim Warehouse Facility #3

75,000

75,000

150,000

8,861

30-day LIBOR plus 1.75% to 3.25%

Interim Warehouse Facility #4

19,810

19,810

19,810

30-day LIBOR plus 3.00%

Total National Bank Interim Warehouse Facilities

329,810

75,000

404,810

134,243

Total warehouse facilities

$

2,404,810

$

3,140,000

$

5,544,810

$

2,518,101

(1)Agency Warehouse Facilities, including the Fannie Mae repurchase agreement are used to fund loans held for sale, while Interim Warehouse Facilities are used to fund loans held for investment.
(2)Interest rate presented does not include the effect of interest rate floors.

and notes payable to provide funding for our operations. We utilize warehouse facilities to fund our Agency Warehouse Facilities

As of December 31, 2020, we had five warehouse lines of credit in the aggregate amount of $3.6 billion with certain national banksLending, Interim Loan Program, and a $1.5 billion uncommitted facility with Fannie Mae (collectively, the “Agency Warehouse Facilities”) that we use to fund substantially allsmall portion of our loan originations. Five of these facilities are revolving commitments we expect to renew annually (consistent with industry practice), and the Fannie Mae facility is provided on an uncommitted basis without a specific maturity date.LIHTC operations. Our ability to originate Agency mortgage loans depends upon our ability to secure and maintain these types of short-term financing on acceptable terms.

During the first quarter of 2020, an Agency warehouse line with a $350.0 million aggregate committed and uncommitted borrowing capacity expired according to its terms. We believe that the five remaining committed and uncommitted credit facilities from national banks, the uncommitted credit facility from Fannie Mae, and our corporate cash provide us with sufficient borrowing capacity to conduct our Agency lending operations.

Agency Warehouse Facility #1:

We have a warehousing credit and security agreement with a national bank for a $425.0 million committed warehouse line that is scheduled to mature on October 25, 2021. The agreement provides us with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans. Advances are made at 100% of the loan balance and borrowings under this line bear interest at the 30-day London Interbank Offered Rate (“LIBOR”) plus 140 basis points. The agreement contains certain affirmative and negative covenants that are binding on the Company’s operating subsidiary, Walker & Dunlop, LLC (which are in some cases subject to exceptions), including, but not limited to, restrictions on its ability to assume, guarantee, or become contingently liable for the obligation of another person, to undertake certain fundamental changes such as reorganizations, mergers, amendments to the Company’s certificate of formation or operating agreement, liquidations, dissolutions or dispositions or acquisitions of assets or businesses, to cease to be directly or indirectly wholly owned by the Company, to pay any subordinated debt in advance of its stated maturity or to take any action that would cause Walker & Dunlop, LLC to lose all or any part of its status as an eligible lender, seller, servicer or issuer or any license or approval required for it to engage in the business of originating, acquiring, or servicing mortgage loans. 

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In addition, the agreement requires compliance with certain financial covenants, which are measured for the Company and its subsidiaries on a consolidated basis, as follows: 

tangible net worth of the Company of not less than (i) $200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date;
compliance with the applicable net worth and liquidity requirements of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and HUD;
liquid assets of the Company of not less than $15.0 million;
maintenance of aggregate unpaid principal amount of all mortgage loans comprising the Company’s consolidated servicing portfolio of not less than $20.0 billion or all Fannie Mae DUS mortgage loans comprising the Company’s consolidated servicing portfolio of not less than $10.0 billion, exclusive in both cases of mortgage loans which are 60 or more days past due or are otherwise in default or have been transferred to Fannie Mae for resolution;
aggregate unpaid principal amount of Fannie Mae DUS mortgage loans within the Company’s consolidated servicing portfolio which are 60 or more days past due or otherwise in default not to exceed 3.5% of the aggregate unpaid principal balance of all Fannie Mae DUS mortgage loans within the Company’s consolidated servicing portfolio; and
maximum indebtedness (excluding warehouse lines) to tangible net worth of 2.25 to 1.00 (the “leverage ratio”).

The agreement contains customary events of default, which are in some cases subject to certain exceptions, thresholds, notice requirements, and grace periods. During the second quarter of 2020, we executed a modification agreement to the warehouse agreement that created a $100.0 million sublimit within the overall committed capacity to fund COVID-19 forbearance advances under the Fannie Mae DUS program. Borrowings under the agreement are collateralized by Fannie Mae’s commitment to repay the advances and are funded at 90% of the principal and interest advanced and bear interest at 30-day LIBOR plus 175 basis points with an interest-rate floor of 25 basis points. We had no borrowings related to the COVID-19 forbearances as of December 31, 2020. During the fourth quarter of 2020, we executed the fifth amendment to the warehouse and security agreement that extended the maturity date to October 25, 2021 and increased the committed borrowing capacity to $425.0 million. Additionally, the amendment increased the borrowing rate to 30-day LIBOR plus 140 basis points from 30-day LIBOR plus 115 basis points and did not include an extension of the $200.0 million uncommitted borrowing capacity as we allowed the uncommitted capacity to expire. No other material modifications were made to the agreement in 2020.

Agency Warehouse Facility #2:

We have a warehousing credit and security agreement with a national bank for a $700.0 million committed warehouse line that is scheduled to mature on September 7, 2021. The committed warehouse facility provides the Company with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans. Advances are made at 100% of the loan balance, and borrowings under this line bear interest at 30-day LIBOR plus 140 basis points. In addition to the committed borrowing capacity, the agreement provides $300.0 million of uncommitted borrowing capacity that bears interest at the same rate as the committed facility. During the third quarter of 2020, we executed the sixth amendment to the warehouse agreement that extended the maturity date thereunder until September 7, 2021, increased the committed borrowing capacity to $700.0 million. Additionally, the amendment increased the borrowing rate to 30-day LIBOR plus 140 basis points from 30-day LIBOR plus 115 basis points. No other material modifications were made to the agreement during 2020.

The negative and financial covenants of the amended and restated warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above, with the exception of the leverage ratio covenant, which is not included in the warehouse agreement for Agency Warehouse Facility #2.

Agency Warehouse Facility #3:

We have a $600.0 million committed warehouse credit and security agreement with a national bank that is scheduled to mature on April 30, 2021. The committed warehouse facility provides us with the ability to fund Fannie Mae, Freddie Mac, HUD and FHA loans. Advances are made at 100% of the loan balance, and the borrowings under the warehouse agreement bear interest at a rate of 30-day LIBOR plus 115 basis points. During the second quarter of 2020, we executed the 11th amendment to the warehouse agreement related to this facility that extended the maturity date to April 30, 2021 for the committed borrowing capacity and added $265.0 million in uncommitted borrowing capacity that bears interest at the same rate and has the same maturity date as the committed facility. The amendment also added a 30-day LIBOR floor of 50 basis points. During the third quarter of 2020, we executed the 12th amendment to the warehouse agreement that increased the committed borrowing capacity to $600.0 million. No other material modifications were made to the agreement during 2020.

The negative and financial covenants of the warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above.

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Agency Warehouse Facility #4:

We have a $350.0 million committed warehouse credit and security agreement with a national bank that is scheduled to mature on October 7, 2021. The warehouse facility provides us with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans and has a sublimit of $75.0 million to fund defaulted HUD and FHA loans. Advances are made at 100% of the loan balance, and the borrowings under the warehouse agreement bear interest at a rate of 30-day LIBOR plus 140 basis points. During the fourth quarter of 2020, we executed the third amendment to the warehouse agreement that extends the maturity date of the warehouse agreement to October 7, 2021, increased the borrowing capacity of the defaulted FHA sublimit to $75.0 million, increased the borrowing rate to 30-day LIBOR plus 140 basis points from 30-day LIBOR plus 115 basis points, and added a 30-day LIBOR floor of 25 basis points. No other material modifications were made to the agreement during 2020.

The negative and financial covenants of the warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above, with the exception of the leverage ratio covenant, which is not included in the warehouse agreement for Agency Warehouse Facility #4.

Agency Warehouse Facility #5:

We have a master repurchase agreement with a national bank for a $1.0 billion uncommitted advance credit facility that is scheduled to mature on August 23, 2021. The facility provides us with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans. Advances are made at 100% of the loan balance, and the borrowings under the repurchase agreement bear interest at a rate of 30-day LIBOR plus 145 basis points. During the third quarter of 2020, we executed the first amendment to the agreement that increased the uncommitted borrowing capacity to $1.0 billion and increased the borrowing rate to 30-day LIBOR plus 145 basis points from 30-day LIBOR plus 115 basis points and added a financial covenant related to debt service coverage ratio, as defined, that is similar to the Company’s other warehouse lines. No other material modifications have been made to the agreement during 2020.

The negative and financial covenants of the repurchase agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above, with the exception of a four-quarter rolling EBITDA, as defined, to total debt service ratio of 2.75 to 1.00 that is applicable to Agency Warehouse Facility #5.

Uncommitted Agency Warehouse Facility:

We have a $1.5 billion uncommitted facility with Fannie Mae under its ASAP funding program. After approval of certain loan documents, Fannie Mae will fund loans after closing and the advances are used to repay the primary warehouse line. Fannie Mae will advance 99% of the loan balance. There is no expiration date for this facility. The uncommitted facility has no specific negative or financial covenants.

Interim Warehouse Facilities

To assist in funding loans held for investment under the Interim Loan Program, we have four warehouse facilities with certain national banks in the aggregate amount of $404.8 million as of December 31, 2020 (“Interim Warehouse Facilities”). Consistent with industry practice, three of these facilities are revolving commitments we expect to renew annually or bi-annually, and one is a commitment that matures according to the maturity date of the underlying loan it finances. Our ability to originate loans held for investment depends upon our ability to secure and maintain these types of short-term financingsfinancing agreements on acceptable terms.  For a detailed description of the terms of each warehouse agreement including the affirmative and negative covenants, refer to “Warehouse Facilities” in NOTE 6 of the consolidated financial statements.

Interim Warehouse Facility #1:Notes Payable

We have a $135.0 million committed warehouse line agreement that is scheduled to mature on April 30, 2021. The facility provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company and bear interest at 30-day LIBOR plus 190 basis points.Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. During the second quarter of 2020, we executed the 11th amendment to the credit and security agreement related to this facility that extended the maturity date to April 30, 2021 and added a 30-day LIBOR floor of 50 basis points. No other material modifications were made to the agreement during 2020.

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The facility agreement requires the Company’s compliance with the same financial covenants as Agency Warehouse Facility #1, described above, and also includes the following additional financial covenant: minimum rolling four-quarter EBITDA, as defined, to total debt service ratio of 2.00 to 1.00 that is applicable to Interim Warehouse Facility #1.

Interim Warehouse Facility #2:

We have a $100.0 million committed warehouse line agreement that is scheduled to mature on December 13, 2021.  The agreement provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company. All borrowings originally bear interest at 30-day LIBOR plus 165 basis points. The lender retains a first priority security interest in all mortgages funded by such advances on a cross-collateralized basis. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. No material modifications were made to the agreement during 2020.

The credit agreement requires the borrower and the Company to abide by the same financial covenants as Agency Warehouse Facility #1, described above, with the exception of the leverage ratio covenant, which is not included in the warehouse agreement for Interim Warehouse Facility #2. Additionally, Interim Warehouse Facility #2 has the following additional financial covenants:

rolling four-quarter EBITDA, as defined, of not less than $35.0 million; and
debt service coverage ratio, as defined, of not less than 2.75 to 1.00.

Interim Warehouse Facility #3:

We have a $75.0 million repurchase agreement with a national bank that is scheduled to mature on December 20, 2021. The agreement provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company. The borrowings under the agreement bear interest at a rate of 30-day LIBOR plus 175 to 325 basis points (“the spread”). The spread varies according to the type of asset the borrowing finances. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. We allowed the repurchase agreement to mature on May 18, 2020. During the fourth quarter of 2020, we executed the fifth amendment to the repurchase agreement which renewed the facility with the previous $75 million committed and $75 million uncommitted borrowing capacity with a maturity date of December 20, 2021. Additionally, the amendment updated the spread to 30-day LIBOR plus 175 to 325 basis points from 30-day LIBOR plus 190 to 250 basis points depending on the type of asset. No other material modifications were made to the agreement during 2020.

The Repurchase Agreement requires the borrower and the Company to abide by the following financial covenants:

tangible net worth of the Company of not less than (i) $200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date;
liquid assets of the Company of not less than $15.0 million;
leverage ratio, as defined, of not more than 3.0 to 1.0; and
debt service coverage ratio, as defined, of not less than 2.75 to 1.00.

Interim Warehouse Facility #4:

During the first quarter of 2020, we executed a loan and security agreement to establish Interim Warehouse Facility #4. The $19.8 million committed warehouse loan and security agreement with a national bank funds one specific loan. The agreement provides for a maturity date to coincide with the maturity date for the underlying loan. Borrowings under the facility are full recourse and bear interest at 30-day LIBOR plus 300 basis points, with a floor of 450 basis points. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. The committed warehouse loan and security agreement has only two financial covenants, both of which are similar to the other Interim Warehouse Facilities. We may request additional capacity under the agreement to fund specific loans. No material modifications were made to the agreement during 2020.

The facility agreement has only two financial covenants:

tangible net worth of the Company of not less than (i) $200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date; and

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liquid assets of the Company of not less than $15.0 million;

During the second quarter of 2020, we allowed an interim warehouse facility with no outstanding borrowings to expire according to its terms. We believe that the four remaining committed and uncommitted interim credit facilities from national banks and our corporate cash provide us with sufficient borrowing capacity to conduct our Interim Loan Program lending operations.

The warehouse agreements above contain cross-default provisions, such that if a default occurs under any of our warehouse agreements, generally the lenders under our other warehouse agreements could also declare a default. As of December 31, 2020, we were in compliance with all of our warehouse line covenants.

We believe that the combination of our capital and warehouse facilities is adequate to meet our loan origination needs.

Debt Obligations

On November 7, 2018, we entered into a senior secured credit agreement (the “Credit Agreement”) that amended and restated our prior credit agreement and providedprovides for a $300.0$600 million term loan (the “Term Loan”). The that bears interest at Adjusted Term Loan was issued atSOFR (“SOFR”) plus 225 basis points with a 0.5% discount,floor of 50 basis points and has a stated maturity date of November 7, 2025, and bears interest at 30-day LIBOR plus 200 basis points.December 16, 2028 (or, if earlier, the date of acceleration of the Term Loan pursuant to the term of the Credit Agreement). At any time, we may also elect to request one or more incremental term loan commitments not to exceed $150.0the lesser of $230 million and 100% of trailing four-quarter Consolidated Adjusted EBITDA, provided that the total indebtedness would not cause the leverage ratio (as defined in the Credit Agreement) to exceed 2.003.00 to 1.00.

We are obligated to repay the aggregate outstanding principal amount of the term loan in consecutive quarterly installments equal to $0.7 million on the last business day of each of March, June, September, and December. The term loan also requires certain other prepayments in certain circumstances pursuant to the terms of the Term Loan Agreement. The final principal installment of the term loan is required to be paid in full on November 7, 2025 (or, if earlier, the date of acceleration of the term loan pursuant to the terms of the Term Loan Agreement) and will be in an amount equal to the aggregate outstanding principal of the term loan on such date (together with all accrued interest thereon). During the second quarter of 2020, we executed the second amendment to the Credit Agreement to amend the definition of Permitted Subsidiary Collateral to include principal and interest forbearance advances funded by the sublimit created under Agency Warehouse Facility #1. No other material modifications were made to the agreement in 2020.

Our obligations under the Credit Agreement are guaranteed by Walker & Dunlop Multifamily, Inc., Walker & Dunlop, LLC, Walker & Dunlop Capital, LLC, and W&D BE, Inc., each of which is a direct or indirect wholly owned subsidiary of the Company (together with the Company, the “Loan Parties”), pursuant to the Amended and Restated Guarantee and Collateral Agreement entered into on November 7, 2018 among the Loan Parties and Wells Fargo Bank, National Association, as administrative agent (the “Guarantee and Collateral Agreement”). Subject to certain exceptions and qualifications contained in the Credit Agreement, the Company is required to cause any newly created or acquired subsidiary, unless such subsidiary has been designated as an Excluded Subsidiary (as defined in the Credit Agreement) by the Company in accordance with the terms of the Credit Agreement, to guarantee the obligations of the Company under the Credit Agreement and become a party to the Guarantee and Collateral Agreement. The Company may designate a newly created or acquired subsidiary as an Excluded Subsidiary, so long as certain conditions and requirements provided for in the Credit Agreement are met.

The Credit Agreement contains certain affirmative and negative covenants that are binding on the Loan Parties, including, but not limited to, restrictions (subject to specified exceptions and qualifications) on the ability of the Loan Parties to incur indebtedness, to create liens on their property, to make investments, to merge, consolidate or enter into any similar combination, or enter into any asset disposition of all or substantially all assets, or liquidate, wind-up or dissolve, to make asset dispositions, to declare or pay dividends or make related distributions, to enter into certain transactions with affiliates, to enter into any negative pledges or other restrictive agreements, to engage in any business other than the business of the Loan Parties as of the date of the Credit Agreement and business activities reasonably related or ancillary thereto, to amend certain material contracts, or to enter into any sale leaseback arrangements. The Credit Agreement contains only one financial covenant, which requires the Company not to permit its asset coverage ratio (as defined in the Credit Agreement) to be less than 1.50 to 1.00.

The Credit Agreement contains customary events of default (which are, in some cases, subject to certain exceptions, thresholds, notice requirements and grace periods), including, but not limited to, non-payment of principal or interest or other amounts, misrepresentations, failure to perform or observe covenants, cross-defaults with certain other indebtedness or material agreements, certain change in control events, voluntary or involuntary bankruptcy proceedings, failure of the Credit Agreements or other loan documents to be valid and binding, certain ERISA events and judgments.

As of December 31, 2020,2022, the outstanding principal balance of the note payableTerm Loan was $294.8 million.

$594.0 million, and the effective interest rate was 6.55%. The note payable and the warehouse facilities are senior obligations of the Company. AsWe were in compliance with all covenants related to the Credit Agreement.

For a detailed description of the terms of the Credit Agreement, refer to “Notes Payable – Term Loan Note Payable” in NOTE 6 of the consolidated financial statements. There have been no changes to the Credit Agreement in 2022.

We have a note payable through our wholly-owned subsidiary Alliant, which had an outstanding balance of $114.5 million as of December 31, 2020,2022 and bore interest at a fixed rate of 4.75%. The note had a stated maturity of January 15, 2035 and required quarterly payments of principal, interest, and other required priority items shortly after the beginning of each quarter.

On January 12, 2023, we were in complianceentered into a lender joinder agreement and amendment to the Credit Agreement that provided for an incremental term loan (“Incremental Term Loan”) with a principal amount of $200.0 million, and modified the ratio thresholds related to mandatory prepayments, and allow for incurrence of additional types of indebtedness. The Incremental Term Loan was issued at a 2.0% discount and contains similar repayment terms as the Term Loan. We used approximately $115.9 million of the proceeds to fully pay off the Alliant note payable, accrued interest, and other related fees.

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with all covenants related to the Term Loan Agreement.

Credit Quality and Allowance for Risk-Sharing Obligations

The following table sets forth certain information useful in evaluating our credit performance.

 

As of December 31, 

 

December 31, 

(dollars in thousands)

    

2020

    

2019

    

    

2022

    

2021

    

Key Credit Metrics

Risk-sharing servicing portfolio:

Fannie Mae Full Risk

$

39,835,534

$

33,063,130

$

50,046,219

$

45,581,476

Fannie Mae Modified Risk

 

8,948,472

 

6,939,349

 

9,172,626

 

7,807,853

Freddie Mac Modified Risk

 

37,018

 

52,817

 

23,615

 

33,195

Total risk-sharing servicing portfolio

$

48,821,024

$

40,055,296

$

59,242,460

$

53,422,524

Non-risk-sharing servicing portfolio:

Fannie Mae No Risk

$

34,180

$

46,616

$

7,323

$

12,127

Freddie Mac No Risk

 

37,035,568

 

32,531,025

 

37,795,641

 

37,105,641

GNMA - HUD No Risk

 

9,606,506

 

9,972,989

 

9,868,453

 

9,889,289

Brokered

 

11,419,372

 

10,151,120

 

16,013,143

 

15,035,438

Total non-risk-sharing servicing portfolio

$

58,095,626

$

52,701,750

$

63,684,560

$

62,042,495

Total loans serviced for others

$

106,916,650

$

92,757,046

$

122,927,020

$

115,465,019

Interim loans (full risk) servicing portfolio

 

295,322

 

468,123

 

206,835

 

235,543

Total servicing portfolio unpaid principal balance

$

107,211,972

$

93,225,169

$

123,133,855

$

115,700,562

Interim Program JV Managed Loans (1)

558,161

741,000

892,808

848,196

At risk servicing portfolio (2)

$

44,483,676

$

36,699,969

$

54,232,979

$

49,573,263

Maximum exposure to at risk portfolio (3)

 

9,032,083

 

7,488,985

 

10,993,596

 

10,056,584

Defaulted loans

 

48,481

 

48,481

 

36,983

 

78,659

Specifically identified at risk loan balances associated with allowance for risk-sharing obligations

48,481

48,481

Defaulted loans as a percentage of the at risk portfolio

0.11

%  

0.13

%  

Allowance for risk-sharing as a percentage of the at risk portfolio

0.17

0.03

Defaulted loans as a percentage of the at-risk portfolio

0.07

%  

0.16

%  

Allowance for risk-sharing as a percentage of the at-risk portfolio

0.08

0.13

Allowance for risk-sharing as a percentage of maximum exposure

0.83

0.15

0.40

0.62

(1)As of December 31, 2020 and 2019, thisThis balance consists of $73.3 million and $70.5 million, respectively, of loans serviced directly for the Interim Program JV partner and $484.8 million and $670.5 million, respectively,entirely of Interim Program JV managed loans. We indirectly share in a portion of the risk of loss associated with Interim Program JV managed loans through our 15% equity ownership in the Interim Program JV. We have no exposure to risk of loss for the loans serviced directly for the Interim Program JV partner. The balance of this line is included as a component of assets under management in the Supplemental Operating Data table above.
(2)At-risk servicing portfolio is defined as the balance of Fannie Mae DUS loans subject to the risk-sharing formula described below, as well as a small number of Freddie Mac loans on which we share in the risk of loss. Use of the at-risk portfolio provides for comparability of the full risk-sharing and modified risk-sharing loans because the provision and allowance for risk-sharing obligations are based on the at-risk balances of the associated loans. Accordingly, we have presented the key statistics as a percentage of the at riskat-risk portfolio.

For example, a $15 million loan with 50% risk-sharing has the same potential risk exposure as a $7.5 million loan with full DUS risk sharing. Accordingly, if the $15 million loan with 50% risk-sharing were to default, we would view the overall loss as a percentage of the at-risk balance, or $7.5 million, to ensure comparability between all risk-sharing obligations. To date, substantially all of the risk-sharing obligations that we have settled have been from full risk-sharing loans.

(3)Represents the maximum loss we would incur under our risk-sharing obligations if all of the loans we service, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement. The maximum exposure is not representative of the actual loss we would incur.

Fannie Mae DUS risk-sharing obligations are based on a tiered formula and represent substantially all of our risk-sharing activities. The risk-sharing tiers and the amount of the risk-sharing obligations we absorb under full risk-sharing are provided below. Except as described in the following paragraph, the maximum amount of risk-sharing obligations we absorb at the time of default is generally 20% of the origination unpaid principal balance (“UPB”) of the loan.

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Risk-Sharing Losses

    

Percentage Absorbed by Us

First 5% of UPB at the time of loss settlement

100%

Next 20% of UPB at the time of loss settlement

25%

Losses above 25% of UPB at the time of loss settlement

10%

Maximum loss

 

20% of origination UPB

Fannie Mae can double or triple our risk-sharing obligation if the loan does not meet specific underwriting criteria or if a loan defaults within 12 months of its sale to Fannie Mae. We may request modified risk-sharing at the time of origination, which reduces our potential risk-sharing obligation from the levels described above.

We use several techniques to manage our risk exposure under the Fannie Mae DUS risk-sharing program. These techniques include maintaining a strong underwriting and approval process, evaluating and modifying our underwriting criteria given the underlying multifamily housing market fundamentals, limiting our geographic market and borrower exposures, and electing the modified risk-sharing option under the Fannie Mae DUS program.

The “Business” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains a discussion of the risk-sharing caps we have with Fannie Mae.

We regularly monitor the credit quality of all loans for which we have a risk-sharing obligation. Loans with indicators of underperforming credit are placed on a watch list, assigned a numerical risk rating based on our assessment of the relative credit weakness, and subjected to additional evaluation or loss mitigation. Indicators of underperforming credit include poor financial performance, poor physical condition, poor management, and delinquency. A specific reserve is recorded when it is probable that a risk-sharing loan will foreclose or has foreclosed, and a reserve for estimated credit losses and a guaranty obligation are recorded for all other risk-sharing loans.

The calculated CECL reserve for ourthe Company’s $54.0 billion at-risk Fannie Mae servicing portfolio as of December 31, 2020, which excludes specific reserves,2022 was $67.0$39.7 million compared to $34.7$52.3 million as of the date of adoption of the CECL accounting standard on January 1, 2020.December 31, 2021. The significant increasedecrease in the CECL reserve iswas principally related to a reduction in our historical loss factor and the forecasted impacts offorecast-period loss rate used for the COVID-19 Crisis.year ended December 31, 2022.

As of December 31, 2020 and 2019, our allowance for risk-sharing obligations was $75.3 million and $11.5 million, respectively, or 17 basis points and three basis points of the at risk balance, respectively. The allowance for risk-sharing obligations as of December 31, 2020 was substantially comprised of the aforementioned CECL reserve. At December 31, 2019, the allowance was based primarily on the specific reserves related to2022, two defaulted loans, and a general reserve calculated using the accounting standards in place prior to the adoption of CECL.

As of December 31, 2020, and 2019, twoat-risk loans with an aggregate UPB of $48.5$37.0 million in our at-risk portfolio were in default. The specific reserves on thesedefault compared to three loans were $8.3 million and $6.9with an aggregate UPB of $78.7 million as of December 31, 20202021. The collateral-based reserve on defaulted loans was $4.4 million and 2019,$10.3 million as of December 31, 2022 and December 31, 2021, respectively. ForWe had a benefit for risk-sharing obligations of $13.9 million and $12.7 million for the years ended December 31, 20202022 and 2019, our provisions for risk-sharing obligations were $33.7 million and $6.4 million,2021, respectively.

For the ten-year period from January 1, 20102013 through December 31, 2020,2022, we recognized net write-offs of risk-sharing obligations of $24.1$22.0 million, or an average of less than two basis points annually of the average at risk Fannie Mae portfolio balance.

We have never been required to repurchase a loan.

New/Recent Accounting Pronouncements

NOTE 2 in the consolidated financial statements in Item 15 of Part IV in this Annual Report on Form 10-K contains a description of the accounting pronouncements that the Financial Accounting Standards Board has issued and that have the potential to impact us but have not yet been adopted by us. There were no other accounting pronouncements issued during 20202022 that have the potential to impact our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

For loans held for sale to Fannie Mae, Freddie Mac, and HUD, we are not currently exposed to unhedged interest rate risk during the loan commitment, closing, and delivery processes. The sale or placement of each loan to an investor is negotiated prior to closing on the loan with the borrower, and the sale or placement is typically effectuated within 60 days of closing. The coupon rate for the loan is set at the same time we establish the interest rate with the investor.

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Some of our assets and liabilities are subject to changes in interest rates. Earnings from escrows are generally based on LIBOR. 30-day LIBORtrack the effective Federal Funds Rate (“EFFR”). The EFFR was 433 basis points and seven basis points as of December 31, 20202022 and 2019 was 14 basis points and 176 basis points,2021, respectively.   The following table shows the impact on our annual escrow earnings due to a 100-basis point increase and decrease in 30-day LIBOREFFR based on our escrow balances

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outstanding at each period end. A portion of these changes in earnings as a result of a 100-basis point increase in the 30-day LIBOREFFR would be delayed several months due to the negotiated nature of some of our escrow arrangements.

(in thousands)

As of December 31, 

Change in annual escrow earnings due to:

    

2020

    

2019

    

100 basis point increase in 30-day LIBOR

$

31,009

$

26,316

100 basis point decrease in 30-day LIBOR(1)

 

(4,402)

 

(26,316)

As of December 31, 

Change in annual escrow earnings due to: (in thousands)

    

2022

    

2021

    

100 basis point increase in EFFR

$

26,933

$

37,249

100 basis point decrease in EFFR (1)

 

(26,933)

 

(3,662)

The borrowing cost of our warehouse facilities used to fund loans held for sale, and loans held for investment, and investments in tax credit equity is based on LIBOR. LIBOR or SOFR. The base SOFR was 430 basis points as of December 31, 2022. 30-day LIBOR as of December 31, 2021 was 10 basis points. The interest income on our loans held for investment is based on LIBOR.LIBOR or SOFR. The LIBOR or SOFR reset date for loans held for investment is the same date as the LIBOR or SOFR reset date for the corresponding warehouse facility. The following table shows the impact on our annual net warehouse interest income due to a 100-basis point increase and decrease in 30-day LIBOR or SOFR, based on our warehouse borrowings outstanding at each period end. The changes shown below do not reflect an increase or decrease in the interest rate earned on our loans held for sale.

(in thousands)

As of December 31, 

Change in annual net warehouse interest income due to:

    

2020

    

2019

100 basis point increase in 30-day LIBOR

$

(20,967)

$

(12,685)

100 basis point decrease in 30-day LIBOR (1)

 

1,525

 

12,685

As of December 31, 

Change in annual net warehouse interest income due to: (in thousands)

    

2022

    

2021

100 basis point increase in SOFR or 30-day LIBOR

$

(3,986)

$

(16,062)

100 basis point decrease in SOFR or 30-day LIBOR (2)

 

3,986

 

573

AllOur Term Loan bears interest at SOFR plus 225 basis points with a SOFR floor of our corporate debt is based on 30-day LIBOR. 50 basis points as of December 31, 2022. The following table shows the impact on our annual earnings due to a 100-basis point increase and decrease in 30-day LIBORSOFR as of December 31, 2022 and 2021, based on our notecurrent and previous notes payable balance outstanding at each period end. The Alliant note payable is fixed-rate debt; therefore, there is no impact to our earnings related to this debt when interest rates change.

(in thousands)

As of December 31, 

Change in annual income from operations due to:

    

2020

    

2019

100 basis point increase in 30-day LIBOR

$

(2,948)

$

(2,978)

100 basis point decrease in 30-day LIBOR (1)

 

422

 

2,263

As of December 31, 

Change in annual income from operations due to: (in thousands)

    

2022

    

2021

100 basis point increase in SOFR or 30-day LIBOR

$

(5,940)

$

(3,300)

100 basis point decrease in SOFR or 30-day LIBOR (2)

 

5,940

 

(1)The decrease as of December 31, 20202021 is limited to EFFR in cases where the 100 basis point decrease resulted in a negative effective interest rate.
(2)The decrease as of December 31, 2021 is limited to 30-day LIBOR or SOFR as of December 31, 20202021, as it wasthey were less than 100 basis points.points, or the interest rate floor, if applicable.

Market Value Risk

The fair value of our MSRs is subject to market-value risk. A 100-basis point increase or decrease in the weighted average discount rate would decrease or increase, respectively, the fair value of our MSRs by approximately $34.6$43.4 million as of December 31, 2020,2022 compared to $28.5$38.4 million as of December 31, 2019.2021. Our Fannie Mae and Freddie Mac servicing engagements provide for prepayment fees in the event of a voluntary prepayment prior to the expiration of the prepayment protection period. Our servicing contracts with institutional investors and HUD do not require them to provide us with prepayment fees. As of December 31, 2020, 88%2022, 90% of the servicing fees are protected from the risk of prepayment through prepayment provisions compared to 86%89% as of December 31, 2019;2021; given this significant level of prepayment protection, we do not hedge our servicing portfolio for prepayment risk.

London Interbank Offered Rate (“LIBOR”) Transition

On July 27, 2017,In the first quarter of 2021, the United Kingdom’s Financial Conduct Authority, the regulator for the administration of LIBOR, announced specific dates for its intention to stop compelling banks to contributepublishing LIBOR data after December 31, 2021. Inrates, including the U.S., the Federal Reserve Board and the Federal Reserve Bank of New York established the Alternative Reference Rates Committee (“ARRC”) to recommend alternative interest rates. ARRC proposed the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative rate30-day LIBOR (our primary reference rate) which is scheduled for U.S. financial instruments that are currently indexed to LIBOR. We have exposure to LIBOR mostly related to loans held on our balance sheet, debt (including both warehouse facilities and long-term debt), and earnings from escrows. In addition, we service floating rate loans in our servicing portfolio, most of which are indexed to LIBOR. Beginning in 2020, the GSEs began to issue SOFR-based products.June 30, 2023. It is expected that legacy LIBOR-based loans will transition to SOFR atSecured Overnight Financing Rate (“SOFR”) on or before June 30, 2023. With respect to the end of 2021. The timing of the transitionloans we underwrite and any SOFR adjustment factor will be determined by the GSEs. Weservice, we have been working closely with the GSEs on this matter through our participation on subcommittees and advisory councils. We are updatingcontinue to monitor our borrowers through this transition as information becomes available. We are updating loan agreementsLIBOR exposure, review legal contracts and sending out notices to borrowers to includeassess fallback language related to theimpacts, engage with our clients and other stakeholders, and monitor developments associated with LIBOR transition.alternatives. We have also updated our debt agreements with warehouse facility providers and our long-term debt holders to include fallback language governing the transition. We continuetransition and have already transitioned our Term Loan and all but one of our warehouse facilities to monitor our LIBOR exposure, review legal contracts and assessSOFR.      

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fallback language impacts, engage with our client and other stakeholders, and monitor development associated with LIBOR alternatives.  

Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements of Walker & Dunlop, Inc. and subsidiaries and the notes related to the foregoing financial statements, together with the independent registered public accounting firm’s report thereon, listed in Item 15, are filed as part of this Annual Report on Form 10-K and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.

Based on that evaluation, the principal executive officer and principal financial officer concluded that the design and operation of these disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020.2022. Our internal control over financial reporting as of December 31, 20202022 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their audit report which is included herein.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 20202022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.We have integrated and continue to enhance the accounting processes and internal control over financial reporting for Alliant and its affiliates into our internal control over financial reporting environment.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

PART III

Item 10. Directors, Executive Officers, and Corporate Governance

The information required by this item regarding directors, executive officers, corporate governance and our code of ethics is hereby incorporated by reference to the material appearing in the Proxy Statement for the Annual Meeting of Stockholders to be held in 20212023 (the “Proxy Statement”) under the captions “BOARD OF DIRECTORS AND CORPORATE GOVERNANCE” and “EXECUTIVE OFFICERS – Executive Officer Biographies.” The information required by this item regarding compliance with Section 16(a) of the Securities Exchange Act

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of 1934, as amended, is hereby incorporated by reference, if applicable, to the material appearing in the Proxy Statement under the caption “VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT — Delinquent Section 16(a) Reports.” The information required by this Item 10 with respect to the availability of our code of ethics is provided in this Annual Report on Form 10-K. See “Available Information.”

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Item 11. Executive Compensation.

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “COMPENSATION DISCUSSION AND ANALYSIS,” “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS,” “COMPENSATION DISCUSSION AND ANALYSIS – Compensation Committee Report” and “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS – Compensation Committee Interlocks and Insider Participation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information regarding security ownership of certain beneficial owners and management and securities authorized for issuance under our employee stock-basedshare-based compensation plans required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS – Equity Compensation Plan Information.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 13 is hereby incorporated by reference to material appearing in the Proxy Statement under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” and “BOARD OF DIRECTORS AND CORPORATE GOVERNANCE – Corporate Governance Information – Director Independence.”

Item 14. Principal Accountant Fees and Services

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption “AUDIT RELATED“AUDIT-RELATED MATTERS.”

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

(a)Financial Statements

Walker & Dunlop, Inc. and Subsidiaries Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income and Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(b)

Exhibits

2.1

Contribution Agreement, dated as of October 29, 2010, by and among Mallory Walker, Howard W. Smith, William M. Walker, Taylor Walker, Richard C. Warner, Donna Mighty, Michael Yavinsky, Edward B. Hermes, Deborah A. Wilson and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.1 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)

2.2

Contribution Agreement, dated as of October 29, 2010, by and between Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.2 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)

2.3

Amendment No. 1 to Contribution Agreement, dated as of December 13, 2010, by and between Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.3 to Amendment No. 6 to the Company's Registration Statement on Form S-1 (File No. 333-168535) filed on December 13, 2010)

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2.4

Purchase Agreement, dated June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, CW Financial Services LLC and CWCapital LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K/A filed on June 15, 2012)

2.5

Purchase Agreement, dated as of August 30, 2021, by and among Walker & Dunlop, Inc., WDAAC, LLC, Alliant Company, LLC, Alliant Capital, Ltd., Alliant Fund Asset Holdings, LLC, Alliant Asset Management Company, LLC, Alliant Strategic Investments II, LLC, ADC Communities, LLC, ADC Communities II, LLC, AFAH Finance, LLC, Alliant Fund Acquisitions, LLC, Vista Ridge 1, LLC, Alliant, Inc., Alliant ADC, Inc., Palm Drive Associates, LLC, and Shawn Horwitz (incorporated by reference to Exhibit 2.5 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021)

2.6††

Share Purchase Agreement dated February 4, 2022 by and among Walker & Dunlop, Inc., WD-GTE, LLC, GeoPhy B.V. (“GeoPhy”), the several persons and entities constituting the holders of all of GeoPhy’s issued and outstanding shares of capital stock, and Shareholder Representative Services LLC, as representative of the Shareholders (incorporated by reference to Exhibit 2.6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021)

3.1

Articles of Amendment and Restatement of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)

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3.2

Amended and Restated Bylaws of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 8, 2018)February 10, 2023)

4.1

Specimen Common Stock Certificate of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-168535) filed on September 30, 2010)

4.2

Registration Rights Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Mallory Walker, Taylor Walker, William M. Walker, Howard W. Smith, III, Richard C. Warner, Donna Mighty, Michael Yavinsky, Ted Hermes, Deborah A. Wilson and Column Guaranteed LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 27, 2010)

4.3

Stockholders Agreement, dated December 20, 2010, by and among William M. Walker, Mallory Walker, Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 27, 2010)

4.4

Piggy Back Registration Rights Agreement, dated June 7, 2012, by and among Column Guaranteed, LLC, William M. Walker, Mallory Walker, Howard W. Smith, III, Deborah A. Wilson, Richard C. Warner, CW Financial Services LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012)

4.5

Voting Agreement, dated as of June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, Mallory Walker, William M. Walker, Richard Warner, Deborah Wilson, Richard M. Lucas, Howard W. Smith, III and CW Financial Services LLC (incorporated by reference to Annex C of the Company’s proxy statement filed on July 26, 2012)

4.6

Voting Agreement, dated as of June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, Column Guaranteed, LLC and CW Financial Services LLC (incorporated by reference to Annex D of the Company’s proxy statement filed on July 26, 2012)

4.74.7*

Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019)

10.1

Formation Agreement, dated January 30, 2009, by and among Green Park Financial Limited Partnership, Walker & Dunlop, Inc., Column Guaranteed LLC and Walker & Dunlop, LLC (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-168535) filed on August 4, 2010)

10.2†

Employment Agreement, dated May 14, 2020, between Walker & Dunlop, Inc. and William M. Walker (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020)

10.3†

Employment Agreement, dated May 14, 2020, between Walker & Dunlop, Inc. and Howard W. Smith, III (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020)

10.4†

Amended and Restated Employment Agreement, dated May 14, 2020,4, 2022, by and between Walker & Dunlop, Inc. and Stephen P. Theobald (incorporated by reference to Exhibit 10.310.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020)2022)

10.5†

Employment Agreement, dated May 14, 2020, between Walker & Dunlop, Inc. and Richard M. Lucas (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020)

10.6†

Employment Agreement, dated May 14, 2020, between Walker & Dunlop, Inc. and Paula A. Pryor (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020)

10.7†

Amended and Restated Employment Agreement, dated May 4, 2022, by and between Walker & Dunlop, Inc. and Gregory A. Florkowski (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022)

10.8†

2010 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 30, 2012)

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10.8†10.9†

Management Deferred Stock Unit Purchase Plan, as amended (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015)

10.9†10.10†

Amendment to the Walker & Dunlop, Inc. Management Deferred Stock Unit Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 6, 2020)

10.10†10.11†

Management Deferred Stock Unit Purchase Matching Program, as amended (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015)

10.11†10.12†

Form of Restricted Common Stock Award Agreement (Employee) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012)

10.12†10.13†

Amendment to Restricted Stock Award Agreement (Employee) (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)

10.13†10.14†

Form of Restricted Common Stock Award Agreement (Director) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012)

10.14†10.15†

Amendment to Restricted Stock Award Agreement (Director) (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)

10.15†10.16†

Form of Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012)

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10.16†10.17†

Amendment to Non-Qualified Stock Option Agreement Under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019)

10.17†10.18†

Form of Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012)

10.18†10.19†

Form of Deferred Stock Unit Award Agreement (Matching Program) (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012)

10.19†10.20†

Form of Restricted Stock Unit Award Agreement (Matching Program) (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012)

10.20†10.21†

Form of Deferred Stock Unit Award Agreement (Purchase Plan, as amended) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)

10.21†10.22†

Form of Amendment to Deferred Stock Unit Award Agreement (Purchase Plan) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)

10.22†10.23†

Walker & Dunlop, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (File No. 333-204722) filed June 4, 2015)

10.23†10.24†

Amendment No. 1 to Walker & Dunlop, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016)

10.24†10.25†

Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019)

10.25†10.26†

Amendment to Non-Qualified Stock Option Agreement Under the 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019)

10.26†10.27†

10.27†10.28†

Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-8 (File No. 333-204722) filed June 4, 2015)

10.28†10.29†

Form of Restricted Stock Agreement (Directors) (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-8 (File No. 333-204722) filed June 4, 2015)

10.29†10.30†

Form of Restricted Stock Unit Agreement (Matching Program) (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-8 (File No. 333-204722) filed June 4, 2015)

10.30†10.31†

Form of Deferred Stock Unit Agreement (Matching Program) (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-8 (File No. 333-204722) filed June 4, 2015)

10.31†10.32†

Form of Non-Qualified Stock Option Transfer Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019)

10.32†10.33†

Management Deferred Stock Unit Purchase Plan, as amended and restated effective May 1, 2017 (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017)

10.33†10.34†

Management Deferred Stock Unit Purchase Matching Program, as amended and restated effective May 1, 2017 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017)

10.34†10.35†

Form of Deferred Stock Unit Award Agreement (Purchase Plan, as amended) (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017)

10.35†10.36†

Form of Deferred Stock Unit Award Agreement (Matching Program) (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017)

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10.36†10.37†

Form of Restricted Stock Unit Award Agreement (Matching Program) (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017)

10.37†

Non-Executive Director Compensation Rates (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017)

10.38†

Walker & Dunlop, Inc. Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016)

10.39†

Walker & Dunlop, Inc. Deferred Compensation Plan for Non-Employee Directors Election Form (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016)

10.40†

Walker & Dunlop, Inc. 2015 Equity Incentive Plan Restricted Stock Agreement (Directors) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016)

10.41†

Walker & Dunlop, Inc. 2020 Equity Incentive Plan (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A, filed on March 27, 2020)

10.42†

Form of Non-Qualified Stock Option Agreement under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.43†

Form of Performance Stock Unit Agreement under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

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10.44†

Form of Performance Stock Unit Agreement under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021)

10.45†

Form of Performance Stock Unit Agreement with Over-Performance Stock Units under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021)

10.46†

Form of Restricted Stock Agreement under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.4 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.45†10.47†

Form of Restricted Stock Agreement (Directors) under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.5 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.46†10.48†

Management Deferred Stock Unit Purchase Matching Program (incorporated by reference to Exhibit 99.6 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.47†10.49†

Form of Restricted Stock Unit Agreement (Management Deferred Stock Unit Purchase Matching Program) under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.7 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.48†10.50†

Form of Deferred Stock Unit Agreement (Management Deferred Stock Unit Purchase Matching Program) under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.8 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.49†10.51†

Form of Non-Qualified Stock Option Transfer Agreement under 2020 Equity Incentive Plan (incorporated by reference to Exhibit 99.9 to the Company’s Registration Statement on Form S-8 (File No. 333-238259) filed May 14, 2020)

10.50†10.52†

Indemnification Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and William M. Walker (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)

10.51†10.53†

Indemnification Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Howard W. Smith, III (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)

10.52†10.54†

Indemnification Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and John Rice (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)

10.53†10.55†

Indemnification Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Richard M. Lucas (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)

10.54†10.56†

Indemnification Agreement, dated May 4, 2022, by and among Walker & Dunlop, Inc. and Gregory A. Florkowski (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022)

10.57†

Indemnification Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Alan J. Bowers (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)

10.55†10.58†

Indemnification Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Dana L. Schmaltz (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)

10.56†10.59†

Indemnification Agreement, dated May 14, 2020, by and among Walker & Dunlop, Inc. and Paula A. Pryor (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-Q for the quarterly period ended June 30, 2020)

10.57†10.60†

Indemnification Agreement, dated March 3, 2013, between Walker & Dunlop, Inc. and Stephen P. Theobald (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 4, 2013)

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10.58†10.61†

Indemnification Agreement, dated November 2, 2012, by and among Walker & Dunlop, Inc. and Michael D. Malone (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012)

10.59†10.62†

Indemnification Agreement, dated February 28, 2017, by and among Walker & Dunlop, Inc. and Michael J. Warren (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017)

10.60†10.63†

Indemnification Agreement, dated March 6, 2019, by and between Walked & Dunlop, Inc. and Ellen D. Levy (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019)

10.61†10.64†

Indemnification Agreement, dated March 3, 2021, by and between Walked & Dunlop, Inc. and Donna C. Wells (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021)

10.65†

Performance Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013)

10.62†10.66†

Walker & Dunlop, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 20, 2019)

10.63†10.67

Form of Trust Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 20, 2019)

10.6410.68

Second Amended and Restated Warehousing Credit and Security Agreement, dated as of September 11, 2017, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 13, 2017)

10.6510.69

First Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of September 15, 2017, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 20, 2017)

10.6610.70

Second Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of September 10, 2018, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 13, 2018)

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10.6710.71

Third Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of May 20, 2019, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 23, 2019)

10.6810.72

Fourth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of September 6, 2019, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 11, 2019)

10.6910.73

Fifth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of April 23, 2020, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 29, 2020).

10.7010.74

Sixth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of August 21, 2020, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 26, 2020)

10.7110.75

Seventh Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of October 28, 2020, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 2, 2020)

10.7210.76

Eighth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of December 18, 2020, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 23, 2020)

10.7310.77

Ninth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of April 15, 2021, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2021)

10.78

Tenth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of June 8, 2021, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 11, 2021)

10.79

Eleventh Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of April 7, 2022, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 12, 2022)

10.80

Twelfth Amendment to Second Amended and Restated Warehousing Credit and Security Agreement, dated as of May 12, 2022, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 16, 2022)

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10.81

Second Amended and Restated Guaranty and Suretyship Agreement, dated as of September 11, 2017, by Walker & Dunlop, Inc. in favor of PNC Bank, National Association, as Lender (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 13, 2017)

10.7410.82

Master Repurchase Agreement, dated as of August 26, 2019, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and JPMorgan Chase Bank, N.A., as Buyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 27, 2020)

10.7510.83

Guaranty, dated as of August 26, 2019, by Walker & Dunlop, Inc. in favor of JPMorgan Chase Bank, N.A., as Buyer (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 27, 2020)

10.7610.84

Side Letter, dated as of August 26, 2019, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and JPMorgan Chase Bank, N.A., as Buyer (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 27, 2020)

10.7710.85

First Amendment to Master Repurchase Agreement, dated as of August 24, 2020, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and JPMorgan Chase Bank, N.A., as Buyer (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on August 27, 2020)

10.7810.86

First Amendment to Side Letter, dated as of August 24, 2020, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc. and JPMorgan Chase Bank, N.A., as Buyer (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on August 27, 2020)

10.7910.87

Amendment No. 2 to Master Repurchase Agreement, dated as of August 23, 2021, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc., and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 26, 2021)

10.88

Amendment No. 3 to Master Repurchase Agreement, dated as of September 30, 2021, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc., and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 5, 2021)

10.89

Amendment No. 4 to Master Repurchase Agreement, dated as of September 15, 2022, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc., and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 20, 2022)

10.90

Amendment No. 5 to Master Repurchase Agreement, dated as of December 29, 2022, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc., and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 4, 2023)

10.91

Amended and Restated Letter, dated as of September 30, 2021, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc., and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 5, 2021)

10.92

Amendment No. 1 to Amended and Restated Letter, dated as of September 15, 2022, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc., and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2022)

10.93

Closing Side Letter, dated as of September 4, 2012, by and among Walker & Dunlop, Inc., CW Financial Services LLC and CWCapital LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2012)

10.8010.94

Registration Rights Agreement, dated as of September 4, 2012, by and between Walker & Dunlop, Inc. and CW Financial Services LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 10, 2012)

10.8110.95

Closing Agreement, dated as of September 4, 2012, by and among Walker & Dunlop, Inc., CW Financial Services LLC and CWCapital LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 10, 2012)

10.8210.96

Transfer and Joinder Agreement, dated as of September 4, 2012, by and among Walker & Dunlop, Inc., CW Financial Services LLC and Galaxy Acquisition LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 10, 2012)

10.8310.97

Amended and Restated Credit Agreement, dated as of November 7, 2018,December 16, 2021, by and among Walker & Dunlop, Inc., as borrower, the lenders referred to therein, Wells FargoJPMorgan Chase Bank, National Association,N.A., as administrative agent, and Wells Fargo Securities, LLC and JPMorgan Chase Bank, N.A., as jointsole lead arrangersarranger and joint bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 13, 2018)

10.84

Amendment No. 1, dated of December 17, 2019, to Credit Agreement, dated as of November 7, 2018, among Walker & Dunlop, Inc., the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agentbookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2019)2021)

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10.8510.98

Amendment No. 2, dated as of June 5, 2020, to Credit Agreement, dated as of November 7, 2018, among Walker & Dunlop, Inc., the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 10, 2020)

10.86

Amended and Restated Guarantee and Collateral Agreement, dated as of November 7, 2018,December 16, 2021, by and among Walker & Dunlop, Inc., as borrower, certain subsidiaries of Walker & Dunlop, Inc., as subsidiary guarantors, and Wells FargoJPMorgan Chase Bank, National Association,N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 13, 2018)December 20, 2021)

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10.99

Lender Joinder Agreement and Amendment No. 1, dated as of January 12, 2023, to the Credit Agreement, dated as of December 16, 2021, by and among the Company, as borrower, JPMorgan Chase Bank, N.A., a national banking association, as administrative agent and an Incremental Term B Lender, the several banks and other financial institutions or entities from time to time party thereto, and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 18, 2023).

21*

List of Subsidiaries of Walker & Dunlop, Inc. as of December 31, 20202022

23*

Consent of KPMG LLP (Independent Registered Public Accounting Firm)

31.1*

Certification of Walker & Dunlop, Inc.'s Chief Executive Offer Pursuant to Rule 13a-14(a)

31.2*

Certification of Walker & Dunlop, Inc.'s Chief Financial Offer Pursuant to Rule 13a-14(a)

32**

Certification of Walker & Dunlop, Inc.'s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained an Exhibit 101)

†:Denotes a management contract or compensation plan, contract or arrangement.

††:

Schedules (or similar attachments) have been omitted from this exhibit pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules (or similar attachments) to the Securities and Exchange Commission upon request.

*:Filed herewith.

**:Furnished herewith. Information in this Annual Report on Form 10-K furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filingfiling.

.

Item 16. Form 10-K Summary

Not applicable.

5461

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Walker & Dunlop, Inc.

By:  

/s/ William M. Walker

William M. Walker

Chairman and Chief Executive Officer 

Date:

February 25, 202123, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

    

Title

    

Date

/s/ William M. Walker 

Chairman and Chief Executive

February 25, 202123, 2023

William M. Walker

Officer (Principal Executive Officer)

/s/ Howard W. Smith, III

President and Director

February 23, 2023

Howard W. Smith, III

/s/ Ellen D. Levy

Director

February 23, 2023

Ellen D. Levy

/s/ Michael D. Malone

Director

February 23, 2023

Michael D. Malone

/s/ John Rice

Director

February 23, 2023

John Rice

/s/ Dana L. Schmaltz

Director

February 23, 2023

Dana L. Schmaltz

/s/ Michael J. Warren

Director

February 23, 2023

Michael J. Warren

/s/ Alan J. Bowers Donna C. Wells

Director

February 25, 2021

Alan J. Bowers

February 23, 2023

Donna C. Wells

/s/ Ellen D. LevyGregory A. Florkowski

Director

February 25, 2021

Ellen D. LevyExecutive Vice President and Chief Financial

February 23, 2023

Gregory A. Florkowski

Officer (Principal Financial Officer and Principal Accounting Officer)

/s/ Michael D. Malone

Director

February 25, 2021

Michael D. Malone

/s/ John Rice

Director

February 25, 2021

John Rice

/s/ Dana L. Schmaltz

Director

February 25, 2021

Dana L. Schmaltz

/s/ Howard W. Smith, III

President and Director

February 25, 2021

Howard W. Smith, III

/s/ Michael J. Warren

Director

February 25, 2021

Michael J. Warren

/s/ Stephen P. Theobald

Executive Vice President and Chief Financial

February 25, 2021

Stephen P. Theobald

Officer (Principal Financial Officer and Principal Accounting Officer)

5562

Table of Contents

INDEX TO THE FINANCIAL STATEMENTS

CONTENTS

PAGE

Reports of Independent Registered Public Accounting Firm(PCAOB ID 185)

F-2

Consolidated Financial Statements of Walker & Dunlop, Inc. and Subsidiaries:

Consolidated Balance Sheets as of December 31, 20202022 and 20192021

F-5

Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2020, 2019,2022, 2021, and 20120208

F-6

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2020, 2019,2022, 2021, and 20120208

F-7

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019,2022, 2021, and 20120208

F-8 – F-8F-9

Notes to the Consolidated Financial Statements

F-10F-11

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors
Walker & Dunlop, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Walker & Dunlop, Inc. and subsidiaries (the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the three year period ended December 31, 2020,2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 202123, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Notes 2 and 4 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of estimated loss for its allowance for risk sharing obligations as of January 1, 2020 due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit MattersMatter

The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.

Initial Valuation of Mortgage Servicing Rights

As discussed in Notes 2 and 3 to the consolidated financial statements, the fair value of expected net cash flows from servicing, net presented on the consolidated statements of income and comprehensive income amounted to $358$192 million for the year ended December 31, 2020.2022. At the loan commitment date, the fair value of expected net cash flows from servicing (the initial fair value of servicing rights) is recognized as a derivative asset on the consolidated balance sheets and reclassified as capitalized mortgage servicing rights at the loan sale date. The measurement of the fair value of servicing rights requires certain assumptions, including the estimated life of the loan, discount rate, escrow earnings rate and servicing cost. The estimated net cash flows are discounted at a rate that reflects

F-2

Table of Contents

the credit and liquidity risk over the estimated life of the underlying loan (DCF method). The estimated life of the loan includes consideration of the prepayment provisions. The estimated earnings rate on escrow accounts associated with servicing the loan increases estimated future cash flows, and the estimated future cost to service the loan decreases estimated future cash flows.

F-2

Table of Contents

We identified the assessment of the initial fair value of servicing rights as a critical audit matter.  The assessment involved significant measurement and valuation uncertainty requiring complex auditor judgment.  It also required specialized skills and knowledge because of the level of judgment and limited publicly available transactional and market participant data. Our assessment encompassed the evaluation of the DCF method, and the significant assumptions used in estimating the net cash flows for determining the initial fair value of servicing rights, which included the discount rate and escrow earnings rate and servicing costs.rate.  

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the initial fair value of servicing rights, including controls over the: (1) governance and development of the DCF method, (2) identification and determination of the significant assumptions (discount rate and escrow earnings rate) used in estimating the net cash flows, and (3)(2) preparation and measurement of the fair value of servicing rights for each loan. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s DCF method for compliance with U.S. generally accepted accounting principles, and evaluating the significant assumptions (discount rate and escrow earnings rate, and servicing cost)rate). The evaluation of these assumptions included comparing them against ranges that were developed using industry market survey data for comparable entities and loans. We performed sensitivity analyses over the significant assumptions to assess their impact on the Company’s determination of the initial fair value of servicing rights.

Allowance for Risk-Sharing Obligations—Reasonable and Supportable Forecast Period Loss Factor

As discussed in Notes 2 and 4 to the consolidated financial statements, the Company’s allowance for risk-sharing obligations was $75.3 million at December 31, 2020. The Company estimates a liability for its risk-sharing obligations for the partial guarantee of the credit performance of loans under the Fannie Mae DUS program. The Company uses the weighted-average remaining maturity method (WARM) to estimate expected losses for the life of the risk-sharing obligations. In addition, the Company applies a loss factor estimated over a one-year reasonable and supportable economic forecast period (the forecast period), and then reverts, over one year, to a weighted average historical loss rate for the remaining estimated life of the loan. The Company’s loss factor estimated over the forecast period uses forecasts of unemployment rates, historically a highly correlated indicator for multifamily occupancy rates and property net operating income levels, to assess what macroeconomic and multifamily market conditions are expected to be like over the coming year.  

We identified the assessment of the loss factor estimated over the forecast period as a critical audit matter. The assessment involved specialized skills and knowledge because of the significant evaluation and measurement uncertainty and required complex and subjective auditor judgment. Specifically, the loss factor estimated over the forecast period is determined by comparing actual loss factors experienced during a selected historical period with unemployment levels and economic conditions similar to the conditions expected to persist during the forecast period. The loss factor is sensitive to estimated unemployment levels, such that changes in that assumption could cause variation in expected losses.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s methodology used in the development of the forecast period, including the determination of the loss factor estimated over that period.  We involved credit risk professionals with specialized skills and knowledge who assisted in evaluating (1) the Company’s methodology used to develop the forecast period for compliance with U.S. generally accepted accounting principles and (2) the determined loss factor, including comparing the Company’s evaluation of forecasted unemployment levels and economic conditions to publicly available economic forecast data.

/s/ KPMG LLP

We have served as the Company’s auditor since 2007.

McLean, Virginia
February 25, 202123, 2023

F-3

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Walker & Dunlop, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Walker & Dunlop, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20202022 and 2019,2021, the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020,2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 202123, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

 

/s/ KPMG LLP

McLean, Virginia

February 25, 202123, 2023

F-4

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except per share data)

    

December 31, 

 

December 31, 

2022

2021

 

Assets

2020

2019

 

 

Cash and cash equivalents

$

321,097

$

120,685

$

225,949

$

305,635

Restricted cash

 

19,432

 

8,677

 

17,676

 

42,812

Pledged securities, at fair value

 

137,236

 

121,767

 

157,282

 

148,996

Loans held for sale, at fair value

 

2,449,198

 

787,035

 

396,344

 

1,811,586

Loans held for investment, net

 

360,402

 

543,542

 

200,247

 

269,125

Mortgage servicing rights

 

862,813

 

718,799

 

975,226

 

953,845

Goodwill and other intangible assets

 

250,838

 

182,959

Derivative assets

 

49,786

 

15,568

Goodwill

959,712

698,635

Other intangible assets

 

198,643

 

183,904

Receivables, net

 

65,735

 

52,146

 

202,251

 

212,019

Committed investments in tax credit equity

254,154

177,322

Other assets

 

134,438

 

124,021

 

457,875

 

402,110

Total assets

$

4,650,975

$

2,675,199

$

4,045,359

$

5,205,989

Liabilities

Warehouse notes payable

$

2,517,156

$

906,128

$

543,447

$

1,941,572

Note payable

 

291,593

 

293,964

Guaranty obligation, net

 

52,306

 

54,695

Notes payable

 

704,103

 

740,174

Allowance for risk-sharing obligations

 

75,313

 

11,471

 

44,057

 

62,636

Deferred tax liabilities, net

185,658

146,811

243,485

225,240

Derivative liabilities

 

5,066

 

36

Performance deposits from borrowers

 

14,468

 

7,996

Commitments to fund investments in tax credit equity

239,281

162,747

Other liabilities

313,193

211,813

554,157

495,413

Total liabilities

$

3,454,753

$

1,632,914

$

2,328,530

$

3,627,782

Equity

Preferred stock (50,000 shares authorized; NaN issued)

$

$

Common stock ($0.01 par value; authorized 200,000 shares; issued and outstanding 30,678 shares at December 31, 2020 and 30,035 shares at December 31, 2019)

 

307

 

300

Stockholders' Equity

Preferred stock (authorized 50,000 shares; none issued)

$

$

Common stock ($0.01 par value; authorized 200,000 shares; issued and outstanding 32,396 shares at December 31, 2022 and 32,049 shares at December 31, 2021)

 

323

 

320

Additional paid-in capital ("APIC")

 

241,004

 

237,877

 

412,636

 

393,022

Accumulated other comprehensive income ("AOCI")

1,968

737

Accumulated other comprehensive income (loss) ("AOCI")

(1,568)

2,558

Retained earnings

 

952,943

 

796,775

 

1,278,035

 

1,154,252

Total stockholders’ equity

$

1,196,222

$

1,035,689

$

1,689,426

$

1,550,152

Noncontrolling interests

 

 

6,596

 

27,403

 

28,055

Total equity

$

1,196,222

$

1,042,285

$

1,716,829

$

1,578,207

Commitments and contingencies (NOTES 2 and 9)

 

 

 

 

Total liabilities and equity

$

4,650,975

$

2,675,199

$

4,045,359

$

5,205,989

See accompanying notes to consolidated financial statements.

F-5

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)

 

2020

    

2019

    

2018

 

Revenues

Loan origination and debt brokerage fees, net

$

359,061

$

258,471

$

234,681

Fair value of expected net cash flows from servicing, net

358,000

180,766

172,401

Servicing fees

 

235,801

 

214,550

 

200,230

Net warehouse interest income, loans held for sale

17,936

1,917

5,993

Net warehouse interest income, loans held for investment

11,390

23,782

8,038

Escrow earnings and other interest income

 

18,255

 

56,835

 

42,985

Other revenues

 

83,264

 

80,898

 

60,918

Total revenues

$

1,083,707

$

817,219

$

725,246

Expenses

Personnel

$

468,819

$

346,168

$

297,303

Amortization and depreciation

169,011

152,472

142,134

Provision for credit losses

 

37,479

 

7,273

 

808

Interest expense on corporate debt

 

8,550

 

14,359

 

10,130

Other operating expenses

 

69,582

 

66,596

 

62,021

Total expenses

$

753,441

$

586,868

$

512,396

Income from operations

$

330,266

$

230,351

$

212,850

Income tax expense

 

84,313

 

57,121

 

51,908

Net income before noncontrolling interests

$

245,953

$

173,230

$

160,942

Less: net loss from noncontrolling interests

 

(224)

 

(143)

 

(497)

Walker & Dunlop net income

$

246,177

$

173,373

$

161,439

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

1,231

812

(168)

Walker & Dunlop comprehensive income

$

247,408

$

174,185

$

161,271

Basic earnings per share (NOTE 11)

$

7.85

$

5.61

$

5.15

Diluted earnings per share (NOTE 11)

$

7.69

$

5.45

$

4.96

Basic weighted-average shares outstanding

 

30,444

 

29,913

 

30,202

Diluted weighted-average shares outstanding

 

31,083

 

30,815

 

31,384

For the year ended December 31,

 

2022

    

2021

    

2020

 

Revenues

Loan origination and debt brokerage fees, net

$

348,007

$

446,014

$

359,061

Fair value of expected net cash flows from servicing, net

191,760

287,145

358,000

Servicing fees

 

300,191

 

278,466

 

235,801

Property sales broker fees

120,582

119,981

38,108

Investment management fees

71,931

25,637

10,713

Net warehouse interest income

 

15,777

 

22,108

 

29,326

Escrow earnings and other interest income

 

52,830

 

8,150

 

18,255

Other revenues

 

157,675

 

71,677

 

34,443

Total revenues

$

1,258,753

$

1,259,178

$

1,083,707

Expenses

Personnel

$

607,366

$

603,487

$

468,819

Amortization and depreciation

235,031

210,284

169,011

Provision (benefit) for credit losses

 

(11,978)

 

(13,287)

 

37,479

Interest expense on corporate debt

 

34,233

 

7,981

 

8,550

Other operating expenses

 

129,136

 

98,655

 

69,582

Total expenses

$

993,788

$

907,120

$

753,441

Income from operations

$

264,965

$

352,058

$

330,266

Income tax expense

 

56,034

 

86,428

 

84,313

Net income before noncontrolling interests

$

208,931

$

265,630

$

245,953

Less: net income (loss) from noncontrolling interests

 

(4,889)

 

(132)

 

(224)

Walker & Dunlop net income

$

213,820

$

265,762

$

246,177

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

(4,126)

590

1,231

Walker & Dunlop comprehensive income

$

209,694

$

266,352

$

247,408

Basic earnings per share (NOTE 11)

$

6.43

$

8.27

$

7.85

Diluted earnings per share (NOTE 11)

$

6.36

$

8.15

$

7.69

Basic weighted-average shares outstanding

 

32,326

 

31,081

 

30,444

Diluted weighted-average shares outstanding

32,687

31,533

31,083

See accompanying notes to consolidated financial statements.

F-6

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(in thousands)

Stockholders' Equity

Common Stock

Retained

Noncontrolling

Total

  

Shares

  

Amount

  

APIC

  

AOCI

  

Earnings

  

Interests

  

Equity

 

Balance at December 31, 2017

30,016

$

300

$

229,080

$

93

$

579,943

$

5,565

$

814,981

Walker & Dunlop net income

161,439

161,439

Net loss from noncontrolling interests

(497)

(497)

Other comprehensive income (loss), net of tax

(168)

(168)

Stock-based compensation - equity classified

22,765

22,765

Issuance of common stock in connection with equity compensation plans

958

10

8,939

8,949

Repurchase and retirement of common stock (NOTE 11)

(1,477)

(15)

(25,632)

(43,185)

(68,832)

Cash dividends paid ($1.00 per common share)

(31,445)

(31,445)

Balance at December 31, 2018

29,497

$

295

$

235,152

$

(75)

$

666,752

$

5,068

$

907,192

Cumulative-effect adjustment for adoption of ASU 2016-02, net of tax

(1,002)

(1,002)

Walker & Dunlop net income

173,373

173,373

Net loss from noncontrolling interests

(143)

(143)

Contributions from noncontrolling interests

1,671

1,671

Other comprehensive income (loss), net of tax

812

812

Stock-based compensation - equity classified

22,819

22,819

Issuance of common stock in connection with equity compensation plans

1,118

11

5,500

5,511

Repurchase and retirement of common stock (NOTE 11)

(580)

(6)

(25,594)

(5,076)

(30,676)

Cash dividends paid ($1.20 per common share)

(37,272)

(37,272)

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

246,177

246,177

Net loss from noncontrolling interests

(224)

(224)

Contributions from noncontrolling interests

675

675

Purchase of noncontrolling interests

(24,090)

(7,047)

(31,137)

Other comprehensive income (loss), net of tax

1,231

1,231

Stock-based compensation - equity classified

27,090

27,090

Issuance of common stock in connection with equity compensation plans

1,414

14

24,913

24,927

Repurchase and retirement of common stock (NOTE 11)

(771)

(7)

(24,786)

(20,981)

(45,774)

Cash dividends paid ($1.44 per common share)

(45,350)

(45,350)

Balance at December 31, 2020

30,678

$

307

$

241,004

$

1,968

$

952,943

$

$

1,196,222

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 2016-02, net of tax

(23,678)

(23,678)

Walker & Dunlop net income

246,177

246,177

Net loss from noncontrolling interests

(224)

(224)

Contributions from noncontrolling interests

675

675

Purchase of noncontrolling interests

(24,090)

(7,047)

(31,137)

Other comprehensive income (loss), net of tax

1,231

1,231

Stock-based compensation - equity classified

27,090

27,090

Issuance of common stock in connection with equity compensation plans

1,414

14

24,913

24,927

Repurchase and retirement of common stock (NOTE 11)

(771)

(7)

(24,786)

(20,981)

(45,774)

Cash dividends paid ($1.44 per common share)

(45,350)

(45,350)

Balance at December 31, 2020

30,678

$

307

$

241,004

$

1,968

$

952,943

$

$

1,196,222

Walker & Dunlop net income

265,762

265,762

Net income (loss) from noncontrolling interests

(132)

(132)

Other comprehensive income (loss), net of tax

590

590

Stock-based compensation - equity classified

35,491

35,491

Issuance of common stock in connection with equity compensation plans

686

7

14,834

14,841

Issuance of common stock in connection with acquisitions

859

9

120,562

120,571

Repurchase and retirement of common stock (NOTE 11)

(174)

(3)

(18,869)

(18,872)

Noncontrolling interests from acquisition

28,187

28,187

Cash dividends paid ($2.00 per common share)

(64,453)

(64,453)

Balance at December 31, 2021

32,049

$

320

$

393,022

$

2,558

$

1,154,252

$

28,055

$

1,578,207

Walker & Dunlop net income

213,820

213,820

Net income (loss) from noncontrolling interests

(4,889)

(4,889)

Other comprehensive income (loss), net of tax

(4,126)

(4,126)

Stock-based compensation - equity classified

32,555

32,555

Issuance of common stock in connection with equity compensation plans

695

6

15,858

15,864

Repurchase and retirement of common stock (NOTE 11)

(348)

(3)

(32,474)

(9,892)

(42,369)

Distributions to noncontrolling interest holders

(2,535)

(2,535)

Cash dividends paid ($2.40 per common share)

(80,145)

(80,145)

Other activity (NOTE 11)

3,675

6,772

10,447

Balance at December 31, 2022

32,396

$

323

$

412,636

$

(1,568)

$

1,278,035

$

27,403

$

1,716,829

See accompanying notes to consolidated financial statements.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

For the year ended December 31, 

 

For the year ended December 31, 

 

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Cash flows from operating activities

Net income before noncontrolling interests

$

245,953

$

173,230

$

160,942

$

208,931

$

265,630

$

245,953

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

 

(358,000)

 

(180,766)

 

(172,401)

 

(191,760)

 

(287,145)

 

(358,000)

Change in the fair value of premiums and origination fees (NOTE 2)

 

(32,981)

 

6,041

 

(5,037)

 

14,160

 

19,450

 

(32,981)

Amortization and depreciation

 

169,011

 

152,472

 

142,134

 

235,031

 

210,284

 

169,011

Stock compensation-equity and liability classified

28,319

24,075

23,959

33,987

36,582

28,319

Provision for credit losses

 

37,479

 

7,273

 

808

Provision (benefit) for credit losses

 

(11,978)

 

(13,287)

 

37,479

Deferred tax expense

47,165

22,012

17,483

18,439

34,222

47,165

Amortization of deferred loan fees and costs

(1,723)

(6,587)

(1,742)

Amortization of debt issuance costs and debt discount

4,652

5,451

7,509

Origination fees received from loans held for investment

786

2,553

3,968

Fair value adjustments to contingent consideration liabilities

(13,512)

6,889

Cash paid to settle risk-sharing obligations

(4,631)

Gain from revaluation of previously held equity-method investment

(39,641)

Originations of loans held for sale

(17,952,129)

(17,810,768)

(22,828,602)

Proceeds from transfers of loans held for sale

(22,828,602)

(15,746,949)

(15,153,003)

19,324,810

18,431,542

21,216,975

Sales of loans to third parties

21,216,975

16,007,910

15,050,932

Cash paid for cloud computing implementation costs

(1,199)

(6,194)

Other operating activities, net

2,080

5,522

2,516

Changes in:

Receivables, net

(19,264)

(2,298)

(4,532)

44,842

(42,873)

(19,264)

Other assets

2,205

(20,924)

(6,861)

(69,552)

(26,613)

2,205

Other liabilities

71,382

2,601

(13,957)

(16,373)

41,020

77,854

Performance deposits from borrowers

6,472

(12,339)

13,874

Net cash provided by (used in) operating activities

$

(1,411,370)

$

427,561

$

64,076

$

1,582,704

$

870,455

$

(1,411,370)

Cash flows from investing activities

Capital expenditures

$

(2,983)

$

(4,711)

$

(4,722)

$

(21,995)

$

(9,208)

$

(2,983)

Purchases of equity-method investments

(1,682)

(923)

(26,099)

(33,446)

(1,682)

Proceeds from the sale of equity-method investments

4,993

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

(24,883)

(30,611)

(98,442)

(60,802)

(31,750)

(24,883)

Proceeds from prepayment of pledged AFS securities

19,635

22,756

Funding of preferred equity investments

(41,100)

Proceeds from the payoff of preferred equity investments

82,819

Distributions from (investments in) joint ventures, net

(8,462)

(15,944)

(4,137)

Proceeds from prepayment and sale of pledged AFS securities

14,040

45,301

19,635

Investments in joint ventures

(5,040)

(66,718)

(24,369)

Distributions from joint ventures

12,573

47,065

15,907

Acquisitions, net of cash received

(46,784)

(7,180)

(53,249)

(114,163)

(420,555)

(46,784)

Purchase of mortgage servicing rights

(1,814)

Originations of loans held for investment

 

(199,153)

 

(362,924)

 

(597,889)

 

(54,402)

 

(557,706)

 

(199,153)

Principal collected on loans held for investment

 

379,491

 

319,832

 

161,303

 

122,111

 

649,466

 

379,491

Net cash provided by (used in) investing activities

$

115,179

$

(79,705)

$

(552,238)

$

(133,777)

$

(377,551)

$

115,179

Cash flows from financing activities

Borrowings (repayments) of warehouse notes payable, net

$

1,718,470

$

(367,864)

$

139,298

$

(1,370,705)

$

(635,912)

$

1,718,470

Borrowings of interim warehouse notes payable

 

60,770

 

179,765

 

145,043

 

36,459

 

266,575

 

60,770

Repayments of interim warehouse notes payable

 

(167,960)

 

(67,871)

 

(61,050)

 

(63,858)

 

(227,999)

 

(167,960)

Repayments of note payable

 

(2,977)

 

(2,250)

 

(166,223)

Borrowings of note payable

298,500

Secured borrowings

2,766

70,052

Repayments of notes payable

 

(36,629)

 

(294,773)

 

(2,977)

Borrowings of notes payable

598,500

Repayment of secured borrowings

(73,312)

2,766

Proceeds from issuance of common stock

 

14,021

 

5,511

 

8,949

 

486

 

5,252

 

14,021

Repurchase of common stock

 

(45,774)

 

(30,676)

 

(68,832)

 

(42,369)

 

(18,872)

 

(45,774)

Purchase of noncontrolling interests

(10,400)

(10,400)

Cash dividends paid

(45,350)

(37,272)

(31,445)

(80,145)

(64,453)

(45,350)

Payment of contingent consideration

(1,641)

(6,450)

(5,150)

(21,191)

(1,641)

Distributions to noncontrolling interest

(2,535)

Debt issuance costs

 

(4,298)

 

(4,531)

 

(7,312)

 

(3,337)

 

(12,732)

 

(4,298)

Net cash provided by (used in) financing activities

$

1,517,627

$

(331,638)

$

321,830

$

(1,583,824)

$

(457,726)

$

1,517,627

Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents (NOTE 2)

$

221,436

$

16,218

$

(166,332)

$

(134,897)

$

35,178

$

221,436

Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period

 

136,566

 

120,348

 

286,680

Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period

$

358,002

$

136,566

$

120,348

F-8

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (CONTINUED)

(In thousands)

Supplemental Disclosure of Cash Flow Information:

Cash paid to third parties for interest

$

45,944

$

63,564

$

56,430

Cash paid for income taxes

29,708

39,908

45,728

Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period

 

393,180

 

358,002

 

136,566

Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period

$

258,283

$

393,180

$

358,002

Supplemental Disclosure of Cash Flow Information:

Cash paid to third parties for interest

$

76,661

$

37,947

$

45,944

Cash paid for income taxes

58,524

43,427

29,708

For the year ended December 31, 

2022

    

2021

    

2020

Supplemental Disclosure of Non-Cash Activity:

Issuance of common stock in connection with acquisitions

$

$

120,571

$

10,906

Issuance of common stock to settle compensation liabilities

6,551

9,589

4,949

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 11)

10,447

Net increase (decrease) in total assets due to consolidations of tax credit entities (NOTE 11)

13,700

Net increase (decrease) in total liabilities due to consolidations of tax credit entities (NOTE 11)

3,559

Forgiveness of receivables related to acquisitions (NOTE 7)

5,460

5,674

Additions of contingent consideration liabilities from acquisitions (NOTE 7)

117,955

93,304

27,645

See accompanying notes to consolidated financial statements

F-9

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 1—ORGANIZATION

These financial statements represent the 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.

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, and engages in commercial real estate and affordable housing investment management activities. Through its mortgage bankers and property sales brokers,activities with a particular focus on the Company offers its customers agency lending, debt brokerage, and principal lending and investing products and multifamily property sales services.affordable housing sector through low-income housing tax credit (“LIHTC”) syndication.

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, in which cases the Company does not fund the loan.investors.

The Company also provides a variety of commercial real estate debt and equity solutions through its principal lending and investing products, including interim loans and preferred equity on commercial real estate properties. 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 15% ownership interest (the “Interim Program JV”). Interim loans on all commercial real estate property types are also offered through separate accounts managed by the Company’s subsidiary, Walker & Dunlop Investment Partners (“WDIP”), formerly known as JCR Capital Investment Corporation. Preferred equity on commercial real estate properties are offered through funds managed by WDIP.

The Company brokers the sale of multifamily properties through its wholly owned subsidiary, Walker & Dunlop Investment Sales (“WDIS”). In some cases, the Company also provides the debt financing for the property sale.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The consolidated financial statements include the accounts of Walker & Dunlop, Inc., its wholly owned subsidiaries, and its majority owned subsidiaries. All intercompany balances and transactions have beenare 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 methodequity-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 balance sheetConsolidated Balance Sheets and the portion of net income not attributable to Walker & Dunlop, Inc. as Net income (loss) from noncontrolling interests in the income statement.Consolidated Statements of Income.

Subsequent Events—The Company has evaluated the effects of all events that have occurred subsequent to December 31, 2020.2022. The Company has made certain disclosures in the notes to the consolidated financial statements of events that have occurred subsequent to December 31, 2022. There have been no other material subsequent events that would require recognition in the consolidated financial statements.

Use of Estimates—The preparation of 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, and expenses,expenses; including guaranty obligations,the allowance for risk-sharing obligations, initial fair value of capitalized mortgage servicing rights, derivative instruments,initial and recurring fair value assessments of contingent consideration, and the disclosurefair value of contingent assets and liabilities. Actualthe Apprise joint venture (as discussed in NOTE 7), actual results may vary from these estimates.

COVID-19Mortgage Servicing RightsIn January 2020,When a loan is sold and the first cases of a novel strainCompany retains the right to service the loan, the derivative asset discussed below is reclassified and capitalized as an individual mortgage servicing right (“MSR”) at fair value. The initial capitalized amount is equal to the estimated fair value of the coronavirus known as Coronavirus Disease 2019 (“COVID-19”)expected net cash flows associated with servicing the loans, net of the expected cash flows associated with any guaranty obligations. The following describes the principal assumptions used in estimating the fair value of capitalized MSRs.

Discount Rate—Depending upon loan type, the discount rate used is management's best estimate of market discount rates. The rates used for loans sold were reported inbetween 8% and 14% for the U.S.,years ended December 31, 2022 and in March2021, between 10% and 15% for the year ended December 31, 2020, the World Health Organization recognized the virus as a global pandemic. In the months since,and varied based on loan type.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Estimated Life—The estimated life of the COVID-19 pandemic has causedMSRs is derived based upon the stated term of the prepayment protection provisions of the underlying loan and may be reduced by six to 12 months based upon the expiration or reduction of the prepayment provisions prior to the stated maturity date. The Company’s model for MSRs assumes no prepayment while the prepayment provisions have not expired and full prepayment of the loan at or near the point where the prepayment provisions have expired. The Company’s historical experience is that the prepayment provisions typically do not provide a significant globaldeterrent to a borrower’s paying off the loan within six to 12 months of the expiration of the prepayment provisions.

Escrow Earnings—The estimated earnings rate on escrow accounts associated with the servicing of the loans for the life of the MSR is added to the estimated future cash flows.

The assumptions used to estimate the fair value of capitalized MSRs at loan sale are based on internal models and are compared to assumptions used by other market participants periodically. When such comparisons indicate that these assumptions have changed significantly, the Company adjusts its assumptions accordingly. For example, during the year ended December 31, 2020, the Company adjusted the escrow earnings rate assumption twice based on changes observed from other market participants. Additionally, the Company made adjustments to the discount rates in 2021 and escrow earnings rate in 2021 and 2022 based on observations from other market participants and economic disruptionconditions.

Subsequent to the initial measurement date, MSRs are amortized using the interest method over the period that servicing income is expected to be received and presented as a resultcomponent of Amortization and depreciation in the Consolidated Statements of Income. The individual loan-level MSR is written off through a charge to Amortization and depreciation when a loan prepays, defaults, or is probable of default. The Company evaluates all MSRs for impairment quarterly. The predominant risk characteristic affecting the MSRs is prepayment risk, and we do not believe there is sufficient variation within the portfolio to warrant stratification. Therefore, we assess MSR impairment at the portfolio level. The Company engages a third party to assist in determining an estimated fair value of our existing and outstanding MSRs on at least a semi-annual basis.

Allowance for Risk-Sharing Obligations—Substantially all loans sold under the Fannie Mae DUS program contain partial or full risk-sharing guaranties that are based on the performance of the measures taken by countries and local municipalities to containloan serviced in the spreadat-risk servicing portfolio. The Company records an estimate of the virus (the “COVID-19 Crisis” orloss reserve for the “Crisis”current expected credit losses (“CECL”). In for all loans in our Fannie Mae at-risk servicing portfolio and presents this loss reserve as Allowance for risk-sharing obligations on the U.S.,Consolidated Balance Sheets.

Overall Current Expected Credit Losses Approach

The Company uses the only countryweighted-average remaining maturity method (“WARM”) for calculating its allowance for risk-sharing obligations, the Company’s liability for the off-balance-sheet credit exposure associated with the Fannie Mae at-risk DUS loans. WARM uses a weighted average annual charge-off rate (“historical loss rate”) that contains loss content over multiple vintages and loan terms and is used as a foundation for estimating the CECL reserve. The historical loss rate is applied to the unpaid principal balance (“UPB”) over the contractual term, adjusted for estimated prepayments and amortization to arrive at the CECL reserve for the entire current portfolio as described further below.

The Company maximizes the use of historical internal data because the Company has extensive historical data servicing Fannie Mae DUS loans from which to calculate historical loss rates and principal paydown by loan term type for its exposure to credit loss on its homogeneous portfolio of Fannie Mae DUS multifamily loans. Additionally, the Company believes its properties, loss history, and underwriting standards are not similar to public data such as loss histories for loans originated for collateralized mortgage-backed securities conduits.

Runoff Rate

One of the key inputs into a WARM calculation is the runoff rate, which is the expected rate at which loans in the current portfolio will prepay and amortize in the future. As the loans the Company originates have different original lives and run off over different periods, the Company groups loans by similar origination dates (vintage) and contractual maturity terms for purposes of calculating the runoff rate. The Company originates loans under the DUS program with various terms generally ranging from several years to 15 years; each of these various loan terms has a different runoff rate.

The Company uses its historical runoff rate for each of the different loan term pools as a proxy for the expected runoff rate. The Company believes that borrower behavior and macroeconomic conditions will not deviate significantly from historical performance over the

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

approximately ten-year period in which the Company operates, federal, statehas compiled the actual loss data. The ten-year period captures the various cycles of industry performance and local authorities have taken actionsprovides a period that is long enough to containcapture sufficient observations of runoff history. In addition, due to the spreadprepayment protection provisions for Fannie Mae DUS loans, the Company has not seen significant volatility in historical prepayment rates due to gradual changes in interest rates and would not expect this to change materially in future periods.

The historical annual runoff rate is calculated for each year of a loan’s life for each vintage in the portfolio and aggregated with the calculated runoff rate for each comparable year in every vintage. For example, the annual runoff rate for the first year of loans originated in 2010 is aggregated with the annual runoff rate for the first year of loans originated in 2011, 2012, and so on to calculate the average annual runoff rate for the first year of a loan. This average runoff calculation is performed for each year of a loan’s life for each of the virus while simultaneously providing substantial liquidityvarious loan terms to Americans, domestic businesses,create a matrix of historical average annual runoffs by year for the entire portfolio.

The Company segments its current portfolio of at-risk DUS loans outstanding by original loan term type and years remaining and then applies the financial marketsappropriate historical average runoff rates to calculate the expected remaining balance at the end of each reporting period in the future. For example, for a loan with an effortoriginal ten-year term and seven years remaining, the Company applies the historical average annual runoff rate for a ten-year loan for year four to mitigatearrive at the estimated remaining UPB one year from the current period, the historical average runoff rate for year five to arrive at the estimated remaining UPB two years from the current period, and so on up to the loan’s maturity date.

CECL Reserve Calculation

Once the Company has calculated the estimated outstanding UPB for each future year until maturity for each loan term type, the Company then applies the historical loss rate (as further described below) to each future year’s estimated UPB. The Company then aggregates the allowance calculated for each year within each loan term type and for all different maturity years to arrive at the CECL reserve for the portfolio.

The historical loss rate is calculated using a ten-year look-back period, utilizing the average portfolio balance and settled losses for each year. A ten-year period is used as the Company believes that this period of time includes sufficiently different economic conditions to generate a reasonable estimate of expected results in the future, given the relatively long-term nature of the current portfolio. This approach captures the adverse financial impact of the virus.years following the great financial crisis of 2007-2010 because multifamily commercial loans have a lag period from the time of initial distress indications through the timing of loss settlement. The same loss rate is utilized across each loan term type as the Company has not observed any historical or industry-published data to indicate there is any difference in the occurrence probability or loss severity for a loan based on its loan origination term.

Reasonable and Supportable Forecast Period

The COVID-19 CrisisCompany currently uses one year for its reasonable and supportable forecast period (the “forecast period”). The Company uses a forecast of unemployment rates, historically a highly correlated indicator for multifamily occupancy rates, and general economic forecasts from third parties to assess what macroeconomic and multifamily market conditions are expected to be like over the coming year. The Company then associates the forecasted conditions with a similar historical period over the past ten years, which could be one or several years, and uses the Company’s average loss rate for that historical period as a basis for the loss rate used for the forecast period. The Company reverts to the historical loss rate over a one-year period on a straight-line basis. For all remaining years until maturity, the Company uses the historical loss rate as described above to estimate losses. The average loss rate from a historical period used for the forecast period may be adjusted as necessary if the forecasted macroeconomic and industry conditions differ materially from the historical period.

Identification of Collateral-Based Reserves for Defaulted Loans

The Company monitors the performance of each risk-sharing loan for events or conditions which may signal a potential default. The Company’s process for identifying which risk-sharing loans may be probable of default consists of an assessment of several qualitative and quantitative factors, including payment status, property financial performance, local real estate market conditions, loan-to-value ratio, debt-service-coverage ratio (“DSCR”), property condition, and financial strength of the borrower or key principal(s). In instances where payment under the guaranty on a specific loan is determined to be probable (as the loan is probable of foreclosure or has hadforeclosed), the Company separately measures the expected loss through an immaterial impactassessment of the underlying fair value of the asset, disposition costs, and the risk-sharing percentage (the “collateral-based reserve”) through a charge to the provision for risk-sharing obligations, which is a component of Provision (benefit) for credit losses in the Consolidated Statements of Income. These loans are removed from the WARM calculation described above, and the associated loan-specific mortgage servicing right and guaranty obligation are written off. The expected loss on the risk-sharing obligation is dependent on the fair value of the underlying property as the loans are collateral dependent. Historically, initial recognition of a

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

collateral-based reserve occurs at or before a loan becomes 60 days delinquent.

The amount of the collateral-based reserve considers historical loss experience, adverse situations affecting individual loans, the estimated disposition value of the underlying collateral, and the level of risk sharing. The estimate of property fair value at initial recognition of the collateral-based reserve is based on appraisals, broker opinions of value, or net operating income and market capitalization rates, depending on the facts and circumstances associated with the loan and underlying collateral. The Company regularly monitors the collateral-based reserves on all applicable loans and updates loss estimates as current information is received. The settlement with Fannie Mae is based on the actual sales price of the property and selling and property preservation costs and considers the Fannie Mae loss-sharing requirements. The maximum amount of the loss the Company absorbs at the time of default is generally 20% of the origination UPB of the loan.

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 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 years ended December 31, 2022, 2021, and 2020:

Components of Provision (Benefit) for Credit Losses (in thousands)

 

2022

    

2021

    

2020

 

Provision (benefit) for loan losses

$

1,970

$

(610)

$

3,739

Provision (benefit) for risk-sharing obligations

 

(13,948)

 

(12,677)

 

33,740

Provision (benefit) for credit losses

$

(11,978)

$

(13,287)

$

37,479

Business Combinations—The Company accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The Company recognizes identifiable assets acquired (including intangible assets) and liabilities (both specific and contingent) assumed at their fair values at the acquisition date. Furthermore, acquisition-related costs, such as due diligence, legal and accounting fees, are not capitalized or applied in determining the fair value of the acquired assets. The excess of the purchase price over the fair value of the assets acquired and the liabilities assumed is recognized as goodwill. During the measurement period, the Company records adjustments to the assets acquired and liabilities assumed with corresponding adjustments to goodwill in the reporting period in which the adjustment is identified. These adjustments during the measurement period are recorded to goodwill only in circumstances where the adjustment is related to additional information obtained subsequent to the acquisition about facts and circumstances that existed at the time of the acquisition. After the measurement period, which could be up to one year after the transaction date, subsequent adjustments are recorded to the Company’s operations,Consolidated Statements of Income.

Goodwill—The Company evaluates goodwill for impairment annually. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred. The Company’s goodwill is allocated to four reporting units, each of which is a component of either the Capital Markets segment or the Servicing & Asset Management segment. The Company performs its impairment testing annually as of October 1 for each reporting unit for which goodwill has been allocated. The Company’s October 1, 2022 impairment test consisted of a qualitative assessment of each reporting unit as there were no indicators of a change in fair value; therefore, the Company concluded that the determination of the fair value of any reporting unit was unnecessary. As seen in NOTE 7, there was a reduction to the contingent consideration related to the Company’s Valuation Advisory reporting unit (included in the Company’s Capital Markets reportable segment). The Company concluded that this reduction in the contingent consideration was not an indicator that the fair value of the reporting unit was less than its carrying value because the change in the earnout was the result of the timing of the projected cash flows and theoperating results (“earnout metrics”). The contingent consideration is eligible to be earned over a four-year period. At acquisition, a high amount and availability of its liquidity. The Company has made adjustments to its estimate of expected credit losses under both the Fannie Mae Delegated Underwriting and ServicingTM (“DUS”) program and the loans originated and held by the Company as a result of the Crisis.earnout metrics was projected to be achieved over the four-year earn-out period. Due to the macroeconomic conditions present during 2022, the Company’s projections for the earnout metrics were reduced for the earnout period and increased for periods beyond the earnout period.

Transfers of Financial Assets—Transfers of financial assets are reported as sales when (i) the transferor surrenders control over those assets, (ii) the transferred financial assets have been legally isolated from the Company’s creditors, (iii) the transferred assets can be pledged or exchanged by the transferee, and (iv) consideration other than beneficial interests in the transferred assets is received in exchange. The transferor is considered to have surrendered control over transferred assets if, and only if, certain conditions are met. The Company determined that all loans sold during the periods presented met these specific conditions and accounted for all transfers of loans held for sale as completed sales, except as otherwise noted.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Derivative Assets and Liabilities—Loan commitments that meet the definition of a derivative are recorded at fair value on the Consolidated Balance Sheets upon the executions of the commitments to originate a loan with a borrower and to sell the loan to an investor, with a corresponding amount recognized as revenue on the Consolidated Statements of Income. The estimated fair value of loan commitments includes (i) the fair value of loan origination fees and premiums on the anticipated sale of the loan, net of co-broker fees (included in derivative assets, a component of Derivative assetsOther Assets, inon the Consolidated Balance Sheets and as a component of Loan origination and debt brokerage fees, net in the Consolidated Income Statements), (ii) the fair value of the expected net cash flows associated with the servicing of the loan, net of any estimated net future cash flows associated with the guarantee obligation (included in derivative assets, a component of Derivative assetsOther Assets, inon the Consolidated Balance Sheets and in Fair value of expected net cash flows from servicing, net in the Consolidated Income Statements), and (iii) the effects of interest rate movements between the trade date and balance sheet date. Loan commitments are generally derivative assets but can become derivative liabilities if the effects of the interest rate movement between the trade date and the balance sheet date are greater than the combination of (i) and (ii) above. Forward sale commitments that meet the definition of a derivative are recorded as either derivative assets or derivative liabilities depending on the effects of the interest rate movements between the trade date and the balance sheet date. Adjustments to the fair value are reflected as a component of income within Loan origination and debt brokerage fees, net in the Consolidated Statements of Income. The co-broker

Co-broker fees, which are netted against Loan origination and debt brokerage fees, net in the Consolidated Statements of Income, were $17.3 million, $21.0 million and $33.1 million for the years ended December 31, 2020, 2019,2022, 2021, and 2018 were $33.1 million, $20.6 million and $22.8 million,2020, respectively.

Mortgage Servicing RightsLoans Held for SaleWhenLoans held for sale represent originated loans that are generally transferred or sold within 60 days from the date that a mortgage loan is sold andfunded. The Company elects to measure all originated loans at fair value, unless the Company retainsdocuments at the right to servicetime the loan is originated that it will measure the aforementioned derivative asset is reclassified and capitalized as an individual originated mortgage servicing right (“OMSR”)specific loan at fair value. The initial capitalized amount is equal to the estimatedlower of cost or fair value of the expected net cash flows associated with servicing the loans, net of the expected net cash flows associated with any guaranty obligations. The following describes the principal assumptions used in estimating the fair value of capitalized OMSRs.

Discount Rate—Depending upon loan type, the discount rate used is management's best estimate of market discount rates. The rates used for loans sold were between 10% and 15% for each of the periods presented and varied based on loan type.

Estimated Life—The estimated life of the OMSRs is derived based upon the stated term of the prepayment protection provisions of the underlying loan and may be reduced by six to 12 months based upon the expiration or reduction of the prepayment provisions prior to the stated maturity date. The Company’s model for OMSRs assumes no prepayment while the prepayment provisions have not expired and full prepayment of the loan at or near the point where the prepayment provisions have expired. The Company’s historical experience is that the prepayment provisions typically do not provide a significant deterrent to a borrower’s paying off the loan within six to 12 months of the expiration of the prepayment provisions.

Escrow Earnings—The estimated earnings rate on escrow accounts associated with the servicing of the loans for the life of the OMSRloan. Electing to use fair value allows a better offset of the change in fair value of the loan and the change in fair value of the derivative instruments used as economic hedges. During the period prior to its sale, interest income on a loan held for sale is addedcalculated in accordance with the terms of the individual loan. There were no loans held for sale that were valued at the lower of cost or fair value or on a non-accrual status at December 31, 2022 and 2021.

Share-Based Payment—The Company recognizes compensation costs for all share-based payment awards made to employees and directors, including restricted stock and restricted stock units based on the grant date fair value. Restricted stock awards are granted without cost to the estimated future cash flows.Company’s officers, employees, and non-employee directors. The fair value of the award is calculated as the fair value of the Company’s common stock on the date of grant.

Servicing CostStock option awards were granted to executive officers in the past. The estimated future costCompany has not granted any stock option awards since 2017 and does not expect to service the loanissue stock options for the estimated lifeforeseeable future. A small number of vested but unexercised stock options is outstanding as of December 31, 2022.

Generally, the Company’s restricted stock awards for its officers and employees vest ratably over a three-year period based solely on continued employment. Restricted stock awards for non-employee directors fully vest after one year. Awards issued to the Company's production personnel sometimes vest over a period greater than three years.

The Company offers a performance share plan (“PSP”) principally for the Company’s executives and certain other members of senior management. The performance period for each PSP is three full calendar years beginning on January 1 of the OMSRgrant year. Participants in the PSP receive restricted stock units (“RSUs”) on the grant date for the PSP in an amount equal to achievement of all performance targets at a maximum level. If the performance targets are met at the end of the performance period and the participant remains employed by the Company, the participant fully vests in the RSUs, which immediately convert to unrestricted shares of common stock. If the performance targets are not met at the maximum level, the participant generally forfeits a portion of the RSUs. Generally, if the participant is subtracted fromno longer employed by the estimated futureCompany, the participant forfeits all of the RSUs. The performance targets for all the PSPs issued by the Company are based on meeting diluted earnings per share, return on equity, and total revenues goals. The Company records compensation expense for the PSP based on the grant-date fair value in an amount proportionate to the service time rendered by the participant and the expected achievement level of the goals.

Compensation expense for restricted shares is adjusted for actual forfeitures and is recognized on a straight-line basis, for each separately vesting portion of the award as if the award were in substance multiple awards, over the requisite service period of the award. Share-based compensation is recognized within the income statement as Personnel, the same expense line as the cash flows.compensation paid to the respective employees.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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 three years and are all interest-only, multifamily loans with similar risk characteristics and no geographic concentration. 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.

As of December 31, 2022, Loans held for investment, net consisted of nine loans with an aggregate $206.8 million of unpaid principal balance less $0.4 million of net unamortized deferred fees and costs and $6.2 million of allowance for loan losses. As of December 31, 2021, Loans held for investment, net consisted of 12 loans with an aggregate $274.5 million of unpaid principal balance less $1.2 million of net unamortized deferred fees and costs and $4.2 million of allowance for loan losses.

As of December, 31 2020, the Company had a portfolio of participating interest in loans held for investment accounted as a secured borrowing that was paid off in 2021, with the aggregate unpaid principal balance of the loans of $81.5 million presented as a component of Loans held for investment, net and the secured borrowing of $73.3 million presented within Other liabilities on the Consolidated Balance Sheets.

The assumptionsCompany 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 as described above 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 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 one year.

One loan held for investment with an unpaid principal balance of $14.7 million was delinquent and on non-accrual status as of December 31, 2022 and December 31, 2021. The Company had $5.9 million and $3.7 million in collateral-based reserves for this loan as of December 31, 2022 and December 31, 2021, respectively, and has not recorded any interest related to estimatethis loan since it went on non-accrual status. All other loans were current as of December 31, 2022 and 2021. The amortized cost basis of loans that were current as of December 31, 2022 and 2021 was $191.7 million and $258.6 million, respectively. As of December 31, 2022, $3.5 million, $162.3 million and $26.3 million of the loans that were current were originated in 2022, 2021, and 2019, respectively. No loans originated in 2020 were outstanding as of December 31, 2022. Prior to 2019, the Company had not experienced any delinquencies related to loans held for investment.

Statement of Cash Flows—The Company records the fair value of capitalized OMSRs atpremiums and origination fees as a component of the fair value of derivative assets on the loan commitment date and records the related income within Loan origination and debt brokerage fees, net within the Consolidated Statements of Income. The cash for the origination fee is received upon closing of the loan, and the cash for the premium is received upon loan sale, resulting in a timing mismatch of the recognition of income and the receipt of cash in a given period when the derivative or loan held for sale remains outstanding at period end.

The Company accounts for this mismatch by recording an adjustment called Change in the fair value of premiums and origination fees within the Consolidated Statements of Cash Flows. The amount of the adjustment reflects a reduction to cash provided by or used in operations for the amount of income recognized upon rate lock (i.e., non-cash income) for derivatives and loans held for sale outstanding at period end and an increase to cash provided by or used in operations for cash received upon loan origination or sale for derivatives and loans held for sale that were outstanding at prior period end. When income recognized upon rate lock is greater than cash received upon loan origination or sale, the adjustment is a negative amount. When income recognized upon rate lock is less than cash received upon loan origination or loan sale, the adjustment is a positive amount.

For presentation in the 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 of cash, cash

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

equivalents, restricted cash, and restricted cash equivalents as presented in the Consolidated Statements of Cash Flows to the related captions on the Consolidated Balance Sheets as of December 31, 2022, 2021, 2020, and 2019.

December 31,

(in thousands)

2022

    

2021

    

2020

    

2019

 

Cash and cash equivalents

$

225,949

$

305,635

$

321,097

$

120,685

Restricted cash

17,676

42,812

19,432

8,677

Pledged cash and cash equivalents (NOTE 9)

 

14,658

 

44,733

 

17,473

 

7,204

Total cash, cash equivalents, restricted cash, and restricted cash equivalents

$

258,283

$

393,180

$

358,002

$

136,566

Income Taxes—The Company files income tax returns in the applicable U.S. federal, state, and local jurisdictions and generally is subject to examination by the respective jurisdictions for three years from the filing of a tax return. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted.

Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on internal modelsconsideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and are compared to assumptions used by other market participants periodically. When such comparisons indicate that these assumptions have changed significantly,tax planning strategies.

The Company had an immaterial accrual for uncertain tax positions as of December 31, 2022 and 2021.

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. Occasionally, the Company adjustsalso fully funds a small number of loans held for sale or loans held for investment with its assumptions accordingly. For example, duringown 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 at the end of 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 year ended December 31, 2021. The interest income and expense on the secured borrowing, which offset each other and are included in Net warehouse interest income, were $1.7 million and $3.4 million for the years December 31, 2021 and December 31, 2020, respectively. Included in Net warehouse interest income for the years ended December 31, 2022 and 2021, and 2020 are the following components:

For the year ended December 31, 

Components of Net Warehouse Interest Income (in thousands)

 

2022

    

2021

    

2020

Warehouse interest income - loans held for sale

$

52,021

$

42,480

$

53,090

Warehouse interest expense - loans held for sale

 

(42,354)

 

(28,084)

 

(35,154)

Net warehouse interest income - loans held for sale

$

9,667

$

14,396

$

17,936

Warehouse interest income - loans held for investment

$

13,044

$

12,406

$

17,741

Warehouse interest expense - loans held for investment

 

(6,934)

 

(4,694)

 

(6,351)

Net warehouse interest income - loans held for investment

$

6,110

$

7,712

$

11,390

Pledged Securities—As collateral against its Fannie Mae risk-sharing obligations (NOTES 4 and 9), certain securities have been pledged to the benefit of Fannie Mae to secure the Company's risk-sharing obligations. Substantially all of the balance of Pledged securities, at fair value within the Consolidated Balance Sheets as of December 31, 2022 and 2021 was pledged against Fannie Mae risk-sharing obligations. The Company’s investments included within Pledged securities, at fair value consist primarily of money market funds and Agency debt securities. The investments in Agency debt securities consist of multifamily Agency mortgage-backed securities (“Agency MBS”) and are all

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

accounted for as available-for-sale (“AFS”) securities. The Company does not record an allowance for credit losses for its AFS securities, including those whose fair value is less than amortized cost, when the AFS securities are issued by the GSEs. The contractual cash flows of these AFS securities are guaranteed by the GSEs, which are government-sponsored enterprises under the conservatorship of the Federal Housing Finance Agency. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of these securities. The Company does not intend to sell any of the Agency MBS, nor does the Company adjustedbelieve that it is more likely than not that it would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity.

Contracts with Customers—A majority of the escrowCompany’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. Other than LIHTC asset management fees as described below, the Company’s contracts with customers generally 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 rate assumptions twiceprocess for the Company’s contracts with customers is generally not complicated and is generally completed in a short period of time.

The Company provides asset management services to investors in low-income housing tax credits (“LIHTC”) funds and earns an asset management fee (“AMF”). The AMF is generally a specified percentage of invested assets in the LIHTC fund. The LIHTC funds invest in low-income housing projects, typically for a period of 10-15 years to meet the qualifications for the tax credit benefit. Cash distributions are made from the low-income housing project to the LIHTC fund. These distributions are subject to significant uncertainty as to the amount and timing as they are dependent upon the availability of cash for distribution, operating performance, and liquidity of the low-income housing project investments. Due to this significant uncertainty, the Company considers the contractual AMF to be variable consideration, substantially all of which is constrained. The Company estimates the amount of consideration not subject to the constraint at each quarterly reporting period. The amount of AMF revenue recognized each period is based on changes observed from other market participants.

Subsequent toan assessment of the initial measurement date, OMSRs are amortized using the interest methodprojected cash collections expected over the period that servicing incomenext twelve months. This projection is expected to be receivedbased on historical distributions and presentedother considerations. The Company recognized asset management fees of $61.1 million for the year ended December 31, 2022. The asset management fees for the year ended December 31, 2021, were immaterial as a componentthe acquisition of Alliant occurred in December 2021. The AMF receivable was $43.0 million as of December 31, 2022 and $42.3 million as of December 31, 2021. The asset management fee receivable is included in AmortizationReceivables, net on the Consolidated Balance Sheets, and depreciationthe AMF revenue is included within Investment management fees in the Consolidated Statements of Income. The individual loan-level OMSR is written off through a charge to Amortization and depreciation when a loan prepays, defaults, or is probable of default. The Company evaluates all MSRs for impairment quarterly. The predominant risk characteristic affecting the OMSRs is prepayment risk, and we do not believe there is sufficient variation within the portfolio to warrant stratification. Therefore, we assess OMSR impairment at the portfolio level. The Company engages a third party to assist in determining an estimated fair value of our existing and outstanding MSRs on at least a semi-annual basis. The Company tests for impairment on purchased stand-alone servicing portfolios (“PMSRs”) separately from the Company’s OMSRs.  

The fair value of PMSRs is equal tofollowing table presents information about the purchase price paid. For PMSRs,Company’s contracts with customers for the Company records a portfolio-level MSR assetyears ended December 31, 2022, 2021, and determines the estimated life of the portfolio based on the prepayment characteristics of the portfolio. The Company subsequently amortizes such PMSRs and tests for impairment quarterly as discussed in more detail above.2020:

For PMSRs, a constant rate of prepayments and defaults is included in the determination of the portfolio’s estimated life (and thus included as a component of the portfolio’s amortization). Accordingly, prepayments and defaults of individual loans do not change the level of amortization expense recorded for the portfolio unless the pattern of actual prepayments and defaults varies significantly from the estimated pattern. When such a significant difference in the pattern of estimated and actual prepayments and defaults occurs, the Company prospectively adjusts the estimated life of the portfolio (and thus future amortization) to approximate the actual pattern observed. The Company made adjustments to the estimated life of 2 of its PMSRs during 2020 as the actual experience of prepayments differed materially from the estimated prepayments.

Description (in thousands)

 

2022

    

2021

    

2020

 

Statement of income line item

Certain loan origination fees

$

157,153

$

186,986

$

64,528

Loan origination and debt brokerage fees, net

Property sales broker fees

120,582

119,981

38,108

Property sales broker fees

Investment management fees

71,931

25,637

10,713

Investment management fees

Application fees, appraisal revenues, subscription revenues, other revenues from LIHTC operations, and other revenues

 

80,304

 

30,920

 

12,286

Other revenues

Total revenues derived from contracts with customers

$

429,970

$

363,524

$

125,635

Guaranty Obligation, net—When a loan is sold under the Fannie Mae DUS program, the Company undertakes an obligation to partially guarantee the performance of the loan. Upon loan sale, a liability for the fair value of the obligation undertaken in issuing the guaranty is recognized and presented as a component ofGuaranty obligation, net of accumulated amortization Other liabilities on the Consolidated Balance Sheets. The recognized guaranty obligation is the fair value of the Company’s obligation to stand ready to perform includingand credit risk over the term of the guaranty.

In determining the fair value of the guaranty obligation, the Company considers the risk profile of the collateral, historical loss experience, and various market indicators. Generally, the estimated fair value of the guaranty obligation is based on the present value of the cash flows expected to be paid under the guaranty over the estimated life of the loan discounted using a rate consistent with what is used for the calculation of the mortgage servicing right for each loan. The life of the guaranty obligation is the estimated period over which the Company believes it will be required to stand ready under the guaranty. Subsequent to the initial measurement date, the liability is amortized over the life of the guaranty period using the straight-line method as a component of and reduction to Amortization and depreciation in the Consolidated Statements of Income.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Cash and Cash Equivalents—The term cash and cash equivalents, as used in the accompanying consolidated financial statements, includes currency on hand, demand deposits with financial institutions, and short-term, highly liquid investments purchased with an original maturity of three months or less. The Company had no cash equivalents as of December 31, 2022 and 2021.

Restricted Cash—Restricted cash represents primarily good faith deposits from borrowers and cash held in a collection account to be used to fund the repayment of the Alliant note payable as described more fully in NOTE 6. The Company records a corresponding liability for the good faith deposits from borrowers within Other liabilities on the Consolidated Balance Sheets.

Receivables, Net—Receivables, net represents amounts currently due to the Company pursuant to contractual servicing agreements, investor good faith deposits held in escrow by others, notes receivable from the developers of affordable housing projects, asset management fees receivable, and other receivables. Substantially all of these receivables are expected to be collected within a short period of time and are with counterparties with high credit quality (such as the Agencies). Additionally, the Company has not experienced any credit losses related to these receivables. Consequently, the Company has not recorded an allowance for credit losses associated with its receivables as of December 31, 2022 and 2021.

Concentrations of Credit Risk—Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, loans held for sale, and derivative financial instruments.

The Company places the cash and temporary investments with high-credit-quality financial institutions and believes no significant credit risk exists. The counterparties to the loans held for sale and funding commitments are owners of residential multifamily properties located throughout the United States. Mortgage loans are generally transferred or sold within 60 days from the date that a mortgage loan is funded. There is no material residual counterparty risk with respect to the Company's funding commitments as each potential borrower must make a non-refundable good faith deposit when the funding commitment is executed. The counterparty to the forward sale is Fannie Mae, Freddie Mac, or a broker-dealer that has been determined to be a credit-worthy counterparty by us and our warehouse lenders. There is a risk that the purchase price agreed to by the investor will be reduced in the event of a late delivery. The risk for non-delivery of a loan primarily results from the risk that a borrower does not close on the funding commitment in a timely manner. This risk is generally mitigated by the non-refundable good faith deposit.

Leases—In the normal course of business, the Company executes lease arrangements for all of its office space. All such lease arrangements are accounted for as operating leases. The Company initially recognizes a lease liability for the obligation to make lease payments and a right-of-use (“ROU”) asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term. The ROU asset is measured at the lease liability amount, adjusted for lease prepayments, accrued rent, lease incentives received, and the lessee’s initial direct costs.

These operating leases do not provide an implicit discount rate; therefore, the Company uses the incremental borrowing rate of its note payable at lease commencement to calculate lease liabilities as the terms on this debt most closely resemble the terms on the Company’s largest leases. The Company’s lease agreements often include options to extend or terminate the lease. Single lease cost related to these lease agreements is recognized on the straight-line basis over the term of the lease, which includes options to extend when it is reasonably certain that such options will be exercised and the Company knows what the lease payments will be during the optional periods.

Litigation—In the ordinary course of business, the Company may be party to various claims and litigation, none of which the Company believes is material. The Company cannot predict the outcome of any pending litigation and may be subject to consequences that could include fines, penalties, and other costs, and the Company’s reputation and business may be impacted. The Company believes that any liability that could be imposed on the Company in connection with the disposition of any pending lawsuits would not have a material adverse effect on its business, results of operations, liquidity, or financial condition.

Recently AdoptedShare-Based Payment—The Company recognizes compensation costs for all share-based payment awards made to employees and Recently Announced Accounting Pronouncements—Indirectors, including restricted stock and restricted stock units based on the second quarter of 2016, Accounting Standards Update 2016-13 (“ASU 2016-13”), Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments was issued. ASU 2016-13 (the “Standard”) represents a significant changegrant date fair value. Restricted stock awards are granted without cost to the incurred loss model previously used to account for credit losses.Company’s officers, employees, and non-employee directors. The Standard requires an entity to estimate the credit losses expected over the lifefair value of the credit exposure upon initial recognitionaward is calculated as the fair value of that exposure.the Company’s common stock on the date of grant.

Stock option awards were granted to executive officers in the past. The expected credit losses consider historical information, current information,Company has not granted any stock option awards since 2017 and reasonabledoes not expect to issue stock options for the foreseeable future. A small number of vested but unexercised stock options is outstanding as of December 31, 2022.

Generally, the Company’s restricted stock awards for its officers and supportable forecasts, including estimates of prepayments. Exposures with similar risk characteristics are required to be grouped together when estimating expected credit losses. The initial estimate and subsequent changesemployees vest ratably over a three-year period based solely on continued employment. Restricted stock awards for non-employee directors fully vest after one year. Awards issued to the estimated credit losses are required to be reported in current earnings in the income statement and through an allowance on the balance sheet. ASU 2016-13 is applicable to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures. The Standard modified the way the Company estimates its allowance for risk-sharing obligations and its allowance for loan losses and the way it assesses impairment on its pledged AFS securities. ASU 2016-13 requires modified retrospective application to all outstanding, in-scope instruments, withCompany's production personnel sometimes vest over a cumulative-effect adjustment recorded to opening retained earnings as of the beginning of the period of adoption.greater than three years.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The Company adoptedoffers a performance share plan (“PSP”) principally for the Standard as requiredCompany’s executives and certain other members of senior management. The performance period for each PSP is three full calendar years beginning on January 1 2020. The Company recognized an increase of $31.6 millionthe grant year. Participants in Allowance for Risk-Sharing Obligations with a cumulative-effect adjustment, net of tax, recorded to opening retained earnings of $23.7 million and deferred tax assets of $7.9 million. The adjustment to the allowance for loan lossesPSP receive restricted stock units (“RSUs”) on the grant date for the Company’s loans held for investment was immaterial. There was no impactPSP in an amount equal to AFS securities becauseachievement of all performance targets at a maximum level. If the portfolio consists of agency-backed securities that inherently have an immaterial risk of loss.

Prior toperformance targets are met at the adoptionend of the Standard discussed above,performance period and the participant remains employed by the Company, recognized credit losses on risk-sharing loans and loans held for investment under the incurred loss model by identifying loans that may be probableparticipant fully vests in the RSUs, which immediately convert to unrestricted shares of loss based on an assessment of several qualitative and quantitative factors. Initial loss recognition historically occurredcommon stock. If the performance targets are not met at or before a loan became 60 days delinquent (“specific reserve”). In addition to the specific reserve,maximum level, the Company recorded an allowance for credit losses on risk-sharing loans on the Company’s watch list that were not probable of foreclosure, but probable of loss as the characteristics of these loans indicated that these loans are probable of losses even though the loss could not be attributed to a specific loan (“general reserve”). Lastly, for loans sold under Fannie Mae’s DUS program, the Company typically agreed to guaranteeparticipant generally forfeits a portion of the ultimate loss incurred should a borrower fail to perform (“Guarantee Obligation”). The Company recorded a Guaranty Obligation liability to account forRSUs. Generally, if the Company’s obligations related to the Fannie Mae DUS guarantee.

Whenparticipant is no longer employed by the Company, placed a risk-sharing loan on its watch list, it transferred the remaining unamortized balanceparticipant forfeits all of the guaranty obligation toRSUs. The performance targets for all the general reserves. If a risk-sharing loan was subsequently removed fromPSPs issued by the watch list due to improved financial performance, the Company transferred the unamortized balance of the guaranty obligation back to the guaranty obligation classification on the balance sheet and amortized the remaining unamortized balance evenly over the remaining estimated life. For each loan for which the Company had a risk-sharing obligation, it recorded one of the following liabilities associated with that loan as discussed above: guaranty obligation, general reserve, or specific reserve. Although the liability type may have changed over the life of the loan, at any particular point in time, only one such liability was associated with a loan for which the Company had a risk-sharing obligation.

For risk-sharing loans, the Company recorded a liability to Allowance for Risk-Sharing Obligations for the estimated risk-sharing loss through a charge to the provision for risk-sharing obligations, which is a component of Provision (benefit) for credit losses in the Consolidated Statements of Income for both the specific and general reserves. For the Guarantee Obligation, the Company recorded a liability to Guaranty Obligation, net on the Consolidated Balance Sheets and included the charge to the Consolidated Statements of Income as a reduction in Fair value of expected net cash flows from servicing, net. For loans held for investment, the Company recorded an allowance for loan losses and a charge to provision for loan losses, which is a component of Provision (benefit) for credit losses.

There were no other accounting pronouncements issued during 2020 that have the potential to impact the Company’s consolidated financial statements.

Allowance for Risk-Sharing Obligations—Substantially all loans sold under the Fannie Mae DUS program contain partial or full risk-sharing guaranties that are based on the performance of the loan serviced in the at-risk servicing portfolio. meeting diluted earnings per share, return on equity, and total revenues goals. The Company records compensation expense for the PSP based on the grant-date fair value in an estimateamount proportionate to the service time rendered by the participant and the expected achievement level of the loss reservegoals.

Compensation expense for restricted shares is adjusted for actual forfeitures and is recognized on a straight-line basis, for each separately vesting portion of the current expected credit losses (“CECL”) for all loansaward as if the award were in our Fannie Mae at-risk servicing portfolio and presents this loss reservesubstance multiple awards, over the requisite service period of the award. Share-based compensation is recognized within the income statement as Allowance for Risk-Sharing Obligations Personnelon, the Consolidated Balance Sheets.

Overall Current Expected Credit Losses Approach

The Company usessame expense line as the weighted-average remaining maturity method (“WARM”) for calculating its allowance for risk-sharing obligations, the Company’s liability for the off-balance-sheet credit exposure associated with the Fannie Mae at-risk DUS loans. WARM uses an average annual charge-off rate that contains loss content over multiple vintages and loan terms and is used as a foundation for estimating the CECL reserve. The average annual charge-off rate is appliedcash compensation paid to the unpaid principal balance (“UPB”) over the contractual term, adjusted for estimated prepayments and amortization to arrive at the CECL reserve for the entire current portfolio as described further below.

The Company maximizes the use of historical internal data because the Company has extensive historical data servicing Fannie Mae DUS loans from which to calculate historical loss rates and principal paydown by loan term type for its exposure to credit loss on its homogeneous portfolio of Fannie Mae DUS multifamily loans. Additionally, the Company believes its properties, loss history, and underwriting standards are not similar to public data such as loss histories for loans originated for collateralized mortgage-backed securities conduits.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Runoff Rate

One of the key inputs into a WARM calculation is the runoff rate, which is the expected rate at which loans in the current portfolio will prepay and amortize in the future. As the loans the Company originates have different original lives and run off over different periods, the Company groups loans by similar origination dates (vintage) and contractual maturity terms for purposes of calculating the runoff rate. The Company originates loans under the DUS program with various terms generally ranging from several years to 15 years; each of these various loan terms has a different runoff rate.

The Company uses its historical runoff rate for each of the different loan term pools as a proxy for the expected runoff rate. The Company believes that borrower behavior and macroeconomic conditions will not deviate significantly from historical performance over the approximately ten-year period in which the Company has compiled the actual loss data. The ten-year period captures the various cycles of industry performance and provides a period that is long enough to capture sufficient observations of runoff history. In addition, due to the prepayment protection provisions for Fannie Mae DUS loans, the Company has not seen significant volatility in historical prepayment rates due to changes in interest rates and would not expect this to change materially in future periods.

The historical annual runoff rate is calculated for each year of a loan’s life for each vintage in the portfolio and aggregated with the calculated runoff rate for each comparable year in every vintage. For example, the annual runoff rate for the first year of loans originated in 2010 is aggregated with the annual runoff rate for the first year of loans originated in 2011, 2012, and so on to calculate the average annual runoff rate for the first year of a loan. This average runoff calculation is performed for each year of a loan’s life for each of the various loan terms to create a matrix of historical average annual runoffs by year for the entire portfolio.

The Company segments its current portfolio of at-risk DUS loans outstanding by original loan term type and years remaining and then applies the appropriate historical average runoff rates to calculate the expected remaining balance at the end of each reporting period in the future. For example, for a loan with an original ten-year term and seven years remaining, the Company applies the historical average annual runoff rate for a ten-year loan for year four to arrive at the estimated remaining UPB one year from the current period, the historical average runoff rate for year five to arrive at the estimated remaining UPB two years from the current period, and so on up to the loan’s maturity date.

CECL Reserve Calculation

Once the Company has calculated the estimated outstanding UPB for each future year until maturity for each loan term type, the Company then applies the average annual charge-off rate (as further described below) to each future year’s estimated UPB. The Company then aggregates the allowance calculated for each year within each loan term type and for all different maturity years to arrive at the CECL reserve for the portfolio.

The weighted-average annual charge-off rate is calculated using a ten-year look-back period, utilizing the average portfolio balance and settled losses for each year. A ten-year period is used as the Company believes that this period of time includes sufficiently different economic conditions to generate a reasonable estimate of expected results in the future, given the relatively long-term nature of the current portfolio. This approach captures the adverse impact of the years following the great financial crisis of 2007-2010 because multifamily commercial loans have a lag period from the time of initial distress indications through the timing of loss settlement. The same loss rate is utilized across each loan term type as the Company has not observed any historical or industry-published data to indicate there is any difference in the occurrence probability or loss severity for a loan based on its loan origination term.

Reasonable and Supportable Forecast Period

The Company currently uses one year for its reasonable and supportable forecast period (the “forecast period”). The Company uses a forecast of unemployment rates, historically a highly correlated indicator for multifamily occupancy rates, to assess what macroeconomic and multifamily market conditions are expected to be like over the coming year. The Company then associates the forecasted conditions with a similar historical period over the past ten years, which could be one or several years, and uses the Company’s average loss rate for that historical period as a basis for the loss rate used for the forecast period. The Company reverts to a historical loss rate over a one-year period utilizing a method similar to straight-line basis. For all remaining years until maturity, the Company uses the weighted-average annual charge-off rate as described above to estimate losses. The average loss rate from a historical period used for the forecast period may be adjusted as necessary if the forecasted macroeconomic and industry conditions differ materially from the historical period.

respective employees.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Identification of Specific Reserves for Defaulted Loans

The Company monitors the performance of each risk-sharing loan for events or conditions which may signal a potential default. The Company’s process for identifying which risk-sharing loans may be probable of default consists of an assessment of several qualitative and quantitative factors, including payment status, property financial performance, local real estate market conditions, loan-to-value ratio, debt-service-coverage ratio (“DSCR”), property condition, and financial strength of the borrower or key principal(s). In instances where payment under the guaranty on a specific loan is determined to be probable (as the loan is probable of foreclosure or has foreclosed), the Company separately measures the expected loss through an assessment of the underlying fair value of the asset, disposition costs, and the risk-sharing percentage (the “specific reserve”) through a charge to the provision for risk-sharing obligations, which is a component of Provision (benefit) for credit losses in the Consolidated Statements of Income. These loans are removed from the WARM calculation described above, and the associated loan-specific mortgage servicing right and guaranty obligation are written off. The expected loss on the risk-sharing obligation is dependent on the fair value of the underlying property as the loans are collateral dependent. Historically, initial recognition of a specific reserve occurs at or before a loan becomes 60 days delinquent.

The amount of the specific reserve considers historical loss experience, adverse situations affecting individual loans, the estimated disposition value of the underlying collateral, and the level of risk sharing. The estimate of property fair value at initial recognition of the specific reserve is based on appraisals, broker opinions of value, or net operating income and market capitalization rates, depending on the facts and circumstances associated with the loan. The Company regularly monitors the specific reserves on all applicable loans and updates loss estimates as current information is received. The settlement with Fannie Mae is based on the actual sales price of the property and selling and property preservation costs and considers the Fannie Mae loss-sharing requirements. The maximum amount of the loss the Company absorbs at the time of default is generally 20% of the origination UPB of the loan.

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 three years and are all interest-only, multifamily loans with similar risk characteristics and no geographic concentration. 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.

As of December 31, 2020,2022, Loans held for investment, net consisted of 18nine loans with an aggregate $366.3$206.8 million of unpaid principal balance less $1.1$0.4 million of net unamortized deferred fees and costs and $4.8$6.2 million of allowance for loan losses. As of December 31, 2019,2021, Loans held for investment, net consisted of 2212 loans with an aggregate $546.6$274.5 million of unpaid principal balance less $2.0$1.2 million of net unamortized deferred fees and costs and $1.1$4.2 million of allowance for loan losseslosses.

During the third quarterAs of 2018,December, 31 2020, the Company transferredhad a portfolio of participating interestsinterest in loans held for investment to a third party that is scheduled to mature in the third quarter of 2021. The Company accounted for the transfer as a secured borrowing. Theborrowing that was paid off in 2021, with the aggregate unpaid principal balance of the loans of $81.5 million and $78.3 million is presented as a component of Loans held for investment, net in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively, and the secured borrowing of $73.3 million and $70.5 million is includedpresented within Other liabilities in on the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively. The Company does not have credit risk related to the $73.3 million of loans that were transferred.Sheets.

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 as described above 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 CECL reservesstandard for at-risk Fannie Mae DUSDelegated Underwriting and Servicing (“DUS”) loans as described above (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 one year.

The loss rate for the forecast period was 36 basis points and 9 basis points as of December 31, 2020 and January 1, 2020, respectively. The loss rate for the remaining period until maturity was 9 basis points as of both December 31, 2020 and January 1, 2020.

NaN One loan held for investment with an unpaid principal balance of $14.7$14.7 million was delinquent and on non-accrual status as of December 31, 2020.2022 and December 31, 2021. The Company had $5.9 million and $3.7 million and $0.6 million in specificcollateral-based reserves for this loan as of December 31, 20202022 and 2019,December 31, 2021, respectively, and has not recorded any interest related to this loan since it went on non-accrual status. All other loans were current as of December 31, 20202022 and 2019.2021. The amortized cost basis of loans that were current as of December 31, 20202022 and 2021 was $191.7 million and $258.6 million, respectively. As of December 31, 2022, $3.5 million, $162.3 million and $26.3 million of the loans that were current were originated in 2022, 2021, and 2019, was $350.5 millionrespectively. No loans originated in 2020 were outstanding as of December 31, 2022. Prior to 2019, the Company had not experienced any delinquencies related to loans held for investment.

Statement of Cash Flows—The Company records the fair value of premiums and $529.9 million,origination fees as a component of the fair value of derivative assets on the loan commitment date and records the related income within Loan origination and debt brokerage fees, net within the Consolidated Statements of Income. The cash for the origination fee is received upon closing of the loan, and the cash for the premium is received upon loan sale, resulting in a timing mismatch of the recognition of income and the receipt of cash in a given period when the derivative or loan held for sale remains outstanding at period end.

The Company accounts for this mismatch by recording an adjustment called Change in the fair value of premiums and origination fees within the Consolidated Statements of Cash Flows. The amount of the adjustment reflects a reduction to cash provided by or used in operations for the amount of income recognized upon rate lock (i.e., non-cash income) for derivatives and loans held for sale outstanding at period end and an increase to cash provided by or used in operations for cash received upon loan origination or sale for derivatives and loans held for sale that were outstanding at prior period end. When income recognized upon rate lock is greater than cash received upon loan origination or sale, the adjustment is a negative amount. When income recognized upon rate lock is less than cash received upon loan origination or loan sale, the adjustment is a positive amount.

For presentation in the 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 of cash, cash

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

respectively. Asequivalents, restricted cash, and restricted cash equivalents as presented in the Consolidated Statements of Cash Flows to the related captions on the Consolidated Balance Sheets as of December 31, 2022, 2021, 2020, $81.5 millionand 2019.

December 31,

(in thousands)

2022

    

2021

    

2020

    

2019

 

Cash and cash equivalents

$

225,949

$

305,635

$

321,097

$

120,685

Restricted cash

17,676

42,812

19,432

8,677

Pledged cash and cash equivalents (NOTE 9)

 

14,658

 

44,733

 

17,473

 

7,204

Total cash, cash equivalents, restricted cash, and restricted cash equivalents

$

258,283

$

393,180

$

358,002

$

136,566

Income Taxes—The Company files income tax returns in the applicable U.S. federal, state, and local jurisdictions and generally is subject to examination by the respective jurisdictions for three years from the filing of a tax return. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted.

Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and tax planning strategies.

The Company had an immaterial accrual for uncertain tax positions as of December 31, 2022 and 2021.

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. Occasionally, 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 at the end of 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 year ended December 31, 2021. The interest income and expense on the secured borrowing, which offset each other and are included in Net warehouse interest income, were $1.7 million and $3.4 million for the years December 31, 2021 and December 31, 2020, respectively. Included in Net warehouse interest income for the years ended December 31, 2022 and 2021, and 2020 are the following components:

For the year ended December 31, 

Components of Net Warehouse Interest Income (in thousands)

 

2022

    

2021

    

2020

Warehouse interest income - loans held for sale

$

52,021

$

42,480

$

53,090

Warehouse interest expense - loans held for sale

 

(42,354)

 

(28,084)

 

(35,154)

Net warehouse interest income - loans held for sale

$

9,667

$

14,396

$

17,936

Warehouse interest income - loans held for investment

$

13,044

$

12,406

$

17,741

Warehouse interest expense - loans held for investment

 

(6,934)

 

(4,694)

 

(6,351)

Net warehouse interest income - loans held for investment

$

6,110

$

7,712

$

11,390

Pledged Securities—As collateral against its Fannie Mae risk-sharing obligations (NOTES 4 and 9), certain securities have been pledged to the benefit of Fannie Mae to secure the Company's risk-sharing obligations. Substantially all of the balance of Pledged securities, at fair value within the Consolidated Balance Sheets as of December 31, 2022 and 2021 was pledged against Fannie Mae risk-sharing obligations. The Company’s investments included within Pledged securities, at fair value consist primarily of money market funds and Agency debt securities. The investments in Agency debt securities consist of multifamily Agency mortgage-backed securities (“Agency MBS”) and are all

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

accounted for as available-for-sale (“AFS”) securities. The Company does not record an allowance for credit losses for its AFS securities, including those whose fair value is less than amortized cost, when the AFS securities are issued by the GSEs. The contractual cash flows of these AFS securities are guaranteed by the GSEs, which are government-sponsored enterprises under the conservatorship of the Federal Housing Finance Agency. Accordingly, it is expected that were current were originated in 2018, while $152.3 million were originated in 2019, and $117.8 million were originated in 2020. Priorthe securities would not be settled at a price less than the amortized cost of these securities. The Company does not intend to 2019,sell any of the Agency MBS, nor does the Company hadbelieve that it is more likely than not experienced any delinquencies relatedthat it would be required to loans held for investment.sell these investments before recovery of their amortized cost basis, which may be at maturity.

Provision (Benefit)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. Other than LIHTC asset management fees as described below, the Company’s contracts with customers generally 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 Credit Losses—the Company’s contracts with customers is generally not complicated and is generally completed in a short period of time.

The Company recordsprovides asset management services to investors in low-income housing tax credits (“LIHTC”) funds and earns an asset management fee (“AMF”). The AMF is generally a specified percentage of invested assets in the income statement impactLIHTC fund. The LIHTC funds invest in low-income housing projects, typically for a period of 10-15 years to meet the qualifications for the tax credit benefit. Cash distributions are made from the low-income housing project to the LIHTC fund. These distributions are subject to significant uncertainty as to the amount and timing as they are dependent upon the availability of cash for distribution, operating performance, and liquidity of the changeslow-income housing project investments. Due to this significant uncertainty, the Company considers the contractual AMF to be variable consideration, substantially all of which is constrained. The Company estimates the amount of consideration not subject to the constraint at each quarterly reporting period. The amount of AMF revenue recognized each period is based on an assessment of the projected cash collections expected over the next twelve months. This projection is based on historical distributions and other considerations. The Company recognized asset management fees of $61.1 million for the year ended December 31, 2022. The asset management fees for the year ended December 31, 2021, were immaterial as the acquisition of Alliant occurred in December 2021. The AMF receivable was $43.0 million as of December 31, 2022 and $42.3 million as of December 31, 2021. The asset management fee receivable is included in Receivables, net on the allowance for loan lossesConsolidated Balance Sheets, and the allowance for risk-sharing obligationsAMF revenue is included within Provision (benefit) for credit lossesInvestment management fees in the Consolidated Statements of Income.NOTE 4 contains additional discussion related to

The following table presents information about the allowance for risk-sharing obligations. Provision (benefit) for credit losses consisted of the following activityCompany’s contracts with customers for the years ended December 31, 2020, 2019,2022, 2021, and 2018:2020:

Components of Provision for Credit Losses (in thousands)

 

2020

    

2019

    

2018

 

Provision for loan losses

$

3,739

$

875

$

128

Provision for risk-sharing obligations

 

33,740

 

6,398

 

680

Provision for credit losses

$

37,479

$

7,273

$

808

Description (in thousands)

 

2022

    

2021

    

2020

 

Statement of income line item

Certain loan origination fees

$

157,153

$

186,986

$

64,528

Loan origination and debt brokerage fees, net

Property sales broker fees

120,582

119,981

38,108

Property sales broker fees

Investment management fees

71,931

25,637

10,713

Investment management fees

Application fees, appraisal revenues, subscription revenues, other revenues from LIHTC operations, and other revenues

 

80,304

 

30,920

 

12,286

Other revenues

Total revenues derived from contracts with customers

$

429,970

$

363,524

$

125,635

Business CombinationsGuaranty Obligation, net——TheWhen a loan is sold under the Fannie Mae DUS program, the Company accounts for business combinations usingundertakes an obligation to partially guarantee the acquisition method of accounting, under which the purchase priceperformance of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The Company recognizes identifiable assets acquired and liabilities (both specific and contingent) assumed at their fair values at the acquisition date. Furthermore, acquisition-related costs, such as due diligence, legal and accounting fees, are not capitalized or applied in determiningloan. Upon loan sale, a liability for the fair value of the acquired assets.obligation undertaken in issuing the guaranty is recognized and presented as a component of Other liabilities on the Consolidated Balance Sheets. The excessrecognized guaranty obligation is the fair value of the purchase priceCompany’s obligation to stand ready to perform and credit risk over the assets acquired, identifiable intangible assets and liabilities assumedterm of the guaranty.

Generally, the estimated fair value of the guaranty obligation is recognized as goodwill. Duringbased on the measurementpresent value of the cash flows expected to be paid under the guaranty over the estimated life of the loan discounted using a rate consistent with what is used for the calculation of the mortgage servicing right for each loan. The life of the guaranty obligation is the estimated period over which the Company records adjustmentsbelieves it will be required to stand ready under the guaranty. Subsequent to the assets acquiredinitial measurement date, the liability is amortized over the life of the guaranty period using the straight-line method as a component of and liabilities assumed with corresponding adjustmentsreduction to goodwill Amortization and depreciation in the reporting period in which the adjustment is identified. After the measurement period, which could be up to one year after the transaction date, subsequent adjustments are recorded to the Company’s Consolidated Statements of Income.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

GoodwillCash and Cash Equivalents—The Company evaluates goodwill for impairment annually. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurredterm cash and cash equivalents, as used in the period subsequent to the annual impairment testing which indicate that it is more likely than notaccompanying consolidated financial statements, includes currency on hand, demand deposits with financial institutions, and short-term, highly liquid investments purchased with an impairment loss has occurred.original maturity of three months or less. The Company currently has only 1 reporting unit; therefore, all goodwill is allocated to that 1 reporting unit. The Company performs its impairment testing annuallyhad no cash equivalents as of October 1. For the 2020 assessment, the Company performed a qualitative assessment and also considered the comparison of the Company’s market capitalization to its net assets. Based on the 2020 qualitative assessment performed, the Company did not observe any events or circumstances indicating an impairment in goodwill. As of December 31, 2020, there have been no events subsequent to that analysis that are indicative of an impairment loss.2022 and 2021.

Loans HeldRestricted Cash—Restricted cash represents primarily good faith deposits from borrowers and cash held in a collection account to be used to fund the repayment of the Alliant note payable as described more fully in NOTE 6. The Company records a corresponding liability for Salethe good faith deposits from borrowers within Other liabilities on the Consolidated Balance Sheets.

Receivables, NetLoansReceivables, net represents amounts currently due to the Company pursuant to contractual servicing agreements, investor good faith deposits held in escrow by others, notes receivable from the developers of affordable housing projects, asset management fees receivable, and other receivables. Substantially all of these receivables are expected to be collected within a short period of time and are with counterparties with high credit quality (such as the Agencies). Additionally, the Company has not experienced any credit losses related to these receivables. Consequently, the Company has not recorded an allowance for credit losses associated with its receivables as of December 31, 2022 and 2021.

Concentrations of Credit Risk—Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, loans held for sale, represent originatedand derivative financial instruments.

The Company places the cash and temporary investments with high-credit-quality financial institutions and believes no significant credit risk exists. The counterparties to the loans thatheld for sale and funding commitments are owners of residential multifamily properties located throughout the United States. Mortgage loans are generally transferred or sold within 60 days from the date that a mortgage loan is funded. There is no material residual counterparty risk with respect to the Company's funding commitments as each potential borrower must make a non-refundable good faith deposit when the funding commitment is executed. The counterparty to the forward sale is Fannie Mae, Freddie Mac, or a broker-dealer that has been determined to be a credit-worthy counterparty by us and our warehouse lenders. There is a risk that the purchase price agreed to by the investor will be reduced in the event of a late delivery. The risk for non-delivery of a loan primarily results from the risk that a borrower does not close on the funding commitment in a timely manner. This risk is generally mitigated by the non-refundable good faith deposit.

Leases—In the normal course of business, the Company executes lease arrangements for all of its office space. All such lease arrangements are accounted for as operating leases. The Company electsinitially recognizes a lease liability for the obligation to measure all originated loans at fair value, unlessmake lease payments and a right-of-use (“ROU”) asset for the Company documentsright to use the underlying asset for the lease term. The lease liability is measured at the time the loan is originated that it will measure the specific loan at the lower of cost or fair value for the life of the loan. Electing to use fair value allows a better offset of the change in fairpresent value of the loanlease payments over the lease term. The ROU asset is measured at the lease liability amount, adjusted for lease prepayments, accrued rent, lease incentives received, and the change in fair valuelessee’s initial direct costs.

These operating leases do not provide an implicit discount rate; therefore, the Company uses the incremental borrowing rate of its note payable at lease commencement to calculate lease liabilities as the terms on this debt most closely resemble the terms on the Company’s largest leases. The Company’s lease agreements often include options to extend or terminate the lease. Single lease cost related to these lease agreements is recognized on the straight-line basis over the term of the derivative instruments used as economic hedges. Duringlease, which includes options to extend when it is reasonably certain that such options will be exercised and the period priorCompany knows what the lease payments will be during the optional periods.

Litigation—In the ordinary course of business, the Company may be party to its sale, interest incomevarious claims and litigation, none of which the Company believes is material. The Company cannot predict the outcome of any pending litigation and may be subject to consequences that could include fines, penalties, and other costs, and the Company’s reputation and business may be impacted. The Company believes that any liability that could be imposed on a loan held for sale is calculatedthe Company in accordanceconnection with the termsdisposition of the individual loan. There were 0 loans held for sale that were valued at the lowerany pending lawsuits would not have a material adverse effect on its business, results of costoperations, liquidity, or fair value or on a non-accrual status at December 31, 2020 and 2019.financial condition.

Share-Based Payment—The Company recognizes compensation costs for all share-based payment awards made to employees and directors, including restricted stock and restricted stock units and employee stock options based on the grant date fair value. Restricted stock awards are granted without cost to the Company’s officers, employees, and non-employee directors, for which thedirectors. The fair value of the award is calculated as the fair value of the Company’s common stock on the date of grant.

Stock option awards were granted to executive officers in the past, with an exercise price equal to the closing price of the Company’s common stock on the date of the grant, and were granted with a ten-year exercise period, vesting ratably over three years dependent solely on continued employment. To estimate the grant-date fair value of stock options, the Company used the Black-Scholes pricing model. The Black-Scholes model estimates the per share fair value of an option on its date of grant based on the following inputs: the option’s exercise price, the price of the underlying stock on the date of the grant, the estimated option life, the estimated dividend yield, a “risk-free” interest rate, and the expected volatility. For theoption awards, the Company used the simplified method to estimate the expected term of the options as the Company did not have sufficient historical exercise data to provide a reasonable basis for estimating the expected term.past. The Company used an estimated dividend yield of 0 as the Company’s stock options werehas not dividend eligible and at the time of grant there was no expectation that the Company would pay a dividend. For the “risk-free” rate, the Company used a U.S. Treasury Note due in a number of years equal to the option’s

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

expected term. For the option awards, the expected volatility was calculated based on the Company’s historical common stock volatility. The Company issues new shares from the pool of authorized but not yet issued shares when an employee exercises stock options. The Company did not grantgranted any stock option awards in 2018, 2019, or 2020since 2017 and does not expect to issue stock options for the foreseeable future. A small number of vested but unexercised stock options is outstanding as of December 31, 2022.

Generally, the Company’s restricted stock awards for its officers and employees vest ratably over a three-year period based solely on continued employment. Restricted stock awards for non-employee directors fully vest after one year. Some ofAwards issued to the Company’s restricted stock awardsCompany's production personnel sometimes vest over a period of up to eightgreater than three years.

The Company has offeredoffers a performance share plan (“PSP”) over the past several yearsprincipally for the Company’s executives and certain other members of senior management. The performance period for each PSP is three full calendar years beginning on January 1 of the grant year. Participants in the PSP receive restricted stock units (“RSUs”) on the grant date for the PSP in an amount equal to achievement of all performance targets at a maximum level. If the performance targets are met at the end of the performance period and the participant remains employed by the Company, the participant fully vests in the RSUs, which immediately convert to unrestricted shares of common stock. If the performance targets are not met at the maximum level, the participant generally forfeits a portion of the RSUs. IfGenerally, if the participant is no longer employed by the Company, the participant forfeits all of the RSUs. The performance targets for all the PSPs issued by the Company are based on meeting diluted earnings per share, return on equity, and total revenues goals. The Company records compensation expense for the PSP based on the grant-date fair value in an amount proportionate to the service time rendered by the participant and the expected achievement level of the goals.

Compensation expense for restricted shares is adjusted for actual forfeitures and is recognized on a straight-line basis, for each separately vesting portion of the award as if the award were in substance multiple awards, over the requisite service period of the award. Share-based compensation is recognized within the income statement as Personnel, the same expense line as the cash compensation paid to the respective employees.

F-14

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Net Warehouse Interest Income—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 three years and are all interest-only, multifamily loans with similar risk characteristics and no geographic concentration. The Company presents warehouse interest incomeloans are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs, and net of warehouseany allowance for loan losses.

As of December 31, 2022, Loans held for investment, net consisted of nine loans with an aggregate $206.8 million of unpaid principal balance less $0.4 million of net unamortized deferred fees and costs and $6.2 million of allowance for loan losses. As of December 31, 2021, Loans held for investment, net consisted of 12 loans with an aggregate $274.5 million of unpaid principal balance less $1.2 million of net unamortized deferred fees and costs and $4.2 million of allowance for loan losses.

As of December, 31 2020, the Company had a portfolio of participating interest expense. Warehouse interest income is the interest earned fromin loans held for sale andinvestment accounted as a secured borrowing that was paid off in 2021, with the aggregate unpaid principal balance of the loans of $81.5 million presented as a component of Loans held for investment. Generally, a substantial portioninvestment, net and the secured borrowing of $73.3 million presented within Other liabilities on 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. Consolidated Balance Sheets.

The Company also fully funds a small numberassesses the credit quality of loans held for sale orinvestment in the same manner as it does for the loans in the Fannie Mae at-risk portfolio as described above 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 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 with its own cash. Warehouse interest expense is incurred on borrowings used to fund loans solely while they areone year.

One loan held for sale orinvestment with an unpaid principal balance of $14.7 million was delinquent and on non-accrual status as of December 31, 2022 and December 31, 2021. The Company had $5.9 million and $3.7 million in collateral-based reserves for investment. Warehousethis loan as of December 31, 2022 and December 31, 2021, respectively, and has not recorded any interest incomerelated to this loan since it went on non-accrual status. All other loans were current as of December 31, 2022 and expense are earned or incurred on2021. The amortized cost basis of loans that were current as of December 31, 2022 and 2021 was $191.7 million and $258.6 million, respectively. As of December 31, 2022, $3.5 million, $162.3 million and $26.3 million of the loans that were current were originated in 2022, 2021, and 2019, respectively. No loans originated in 2020 were outstanding as of December 31, 2022. Prior to 2019, the Company had not experienced any delinquencies related to 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. Included in Net warehouse interest income for the years ended December 31, 2020, 2019, and 2018 are the following components:

For the year ended December 31, 

Components of Net Warehouse Interest Income (in thousands)

 

2020

    

2019

    

2018

Warehouse interest income - loans held for sale

$

53,090

$

48,211

$

55,609

Warehouse interest expense - loans held for sale

 

(35,154)

 

(46,294)

 

(49,616)

Net warehouse interest income - loans held for sale

$

17,936

$

1,917

$

5,993

Warehouse interest income - loans held for investment

$

17,741

$

32,059

$

11,197

Warehouse interest expense - loans held for investment

 

(6,351)

 

(8,277)

 

(3,159)

Warehouse interest income - secured borrowings

3,449

3,549

1,852

Warehouse interest expense - secured borrowings

(3,449)

(3,549)

(1,852)

Net warehouse interest income - loans held for investment

$

11,390

$

23,782

$

8,038

investment.

Statement of Cash Flows—The Company records the fair value of premiums and origination fees as a component of the fair value of derivative assets on the loan commitment date and records the related income within Loan origination and debt brokerage fees, net within the Consolidated Statements of Income. The cash for the origination fee is received upon closing of the loan, and the cash for the premium is received upon loan sale, resulting in a timing mismatch of the recognition of income and the receipt of cash in a given period when the derivative or loan held for sale remains outstanding at period end.

The Company accounts for this mismatch by recording an adjustment called Change in the fair value of premiums and origination fees within the Consolidated Statements of Cash Flows. The amount of the adjustment reflects a reduction to cash provided by or used in operations for the amount of income recognized upon rate lock (i.e., non-cash income) for derivatives and loans held for sale outstanding at period end

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

and an increase to cash provided by or used in operations for cash received upon loan origination or sale for derivatives and loans held for sale that were outstanding at prior period end. When income recognized upon rate lock is greater than cash received upon loan origination or sale, the adjustment is a negative amount. When income recognized upon rate lock is less than cash received upon loan origination or loan sale, the adjustment is a positive amount.

For presentation in the 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 of cash, cash

F-15

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

equivalents, restricted cash, and restricted cash equivalents as presented in the Consolidated Statements of Cash Flows to the related captions inon the Consolidated Balance Sheets as of December 31, 2022, 2021, 2020, 2019, 2018, and 2017.2019.

December 31,

December 31,

(in thousands)

2020

    

2019

    

2018

    

2017

 

2022

    

2021

    

2020

    

2019

 

Cash and cash equivalents

$

321,097

$

120,685

$

90,058

$

191,218

$

225,949

$

305,635

$

321,097

$

120,685

Restricted cash

19,432

8,677

20,821

6,677

17,676

42,812

19,432

8,677

Pledged cash and cash equivalents (NOTE 9)

 

17,473

 

7,204

 

9,469

 

88,785

 

14,658

 

44,733

 

17,473

 

7,204

Total cash, cash equivalents, restricted cash, and restricted cash equivalents

$

358,002

$

136,566

$

120,348

$

286,680

$

258,283

$

393,180

$

358,002

$

136,566

Income Taxes—The Company files income tax returns in the applicable U.S. federal, state, and local jurisdictions and generally is subject to examination by the respective jurisdictions for three years from the filing of a tax return. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted.

Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and tax planning strategies.

The Company had an immaterial accrual for uncertain tax positions as of December 31, 20202022 and 0 accrual2021.

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. Occasionally, 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 at the end of 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 year ended December 31, 2019.2021. The interest income and expense on the secured borrowing, which offset each other and are included in Net warehouse interest income, were $1.7 million and $3.4 million for the years December 31, 2021 and December 31, 2020, respectively. Included in Net warehouse interest income for the years ended December 31, 2022 and 2021, and 2020 are the following components:

For the year ended December 31, 

Components of Net Warehouse Interest Income (in thousands)

 

2022

    

2021

    

2020

Warehouse interest income - loans held for sale

$

52,021

$

42,480

$

53,090

Warehouse interest expense - loans held for sale

 

(42,354)

 

(28,084)

 

(35,154)

Net warehouse interest income - loans held for sale

$

9,667

$

14,396

$

17,936

Warehouse interest income - loans held for investment

$

13,044

$

12,406

$

17,741

Warehouse interest expense - loans held for investment

 

(6,934)

 

(4,694)

 

(6,351)

Net warehouse interest income - loans held for investment

$

6,110

$

7,712

$

11,390

Pledged Securities—As collateral against its Fannie Mae risk-sharing obligations (NOTES 4 and 9), certain securities have been pledged to the benefit of Fannie Mae to secure the Company's risk-sharing obligations. Substantially all of the balance of Pledged securities, at fair value within the Consolidated Balance Sheets as of December 31, 20202022 and 20192021 was pledged against Fannie Mae risk-sharing obligations. The Company’s investments included within Pledged securities, at fair value consist primarily of money market funds and Agency debt securities. The investments in Agency debt securities consist of multifamily Agency mortgage-backed securities (“Agency MBS”) and are all

F-16

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

accounted for as available-for-sale (“AFS”) securities. When the fair value of AFS Agency MBS are lower than the carrying value, the Company assesses whether an allowance for credit losses is necessary. The Company does not record an allowance for credit losses for its AFS securities, including those whose fair value is less than amortized cost, when the AFS securities are issued by the GSEs. The contractual cash flows of these AFS securities are guaranteed by the GSEs, which are government-sponsored enterprises under the conservatorship of the Federal Housing Finance Agency. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of these securities. The Company does not intend to sell any of the Agency MBS, nor does the Company believe that it is more likely than not that it would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity.

Contracts with Customers—A majority all 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. TheOther than LIHTC asset management fees as described below, the Company’s contracts with customers generally 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 the Company’s contracts with customers is generally not complicated and is generally completed in a short period of time.

The Company had 0 contractprovides asset management services to investors in low-income housing tax credits (“LIHTC”) funds and earns an asset management fee (“AMF”). The AMF is generally a specified percentage of invested assets or liabilitiesin the LIHTC fund. The LIHTC funds invest in low-income housing projects, typically for a period of 10-15 years to meet the qualifications for the tax credit benefit. Cash distributions are made from the low-income housing project to the LIHTC fund. These distributions are subject to significant uncertainty as to the amount and timing as they are dependent upon the availability of cash for distribution, operating performance, and liquidity of the low-income housing project investments. Due to this significant uncertainty, the Company considers the contractual AMF to be variable consideration, substantially all of which is constrained. The Company estimates the amount of consideration not subject to the constraint at each quarterly reporting period. The amount of AMF revenue recognized each period is based on an assessment of the projected cash collections expected over the next twelve months. This projection is based on historical distributions and other considerations. The Company recognized asset management fees of $61.1 million for the year ended December 31, 2022. The asset management fees for the year ended December 31, 2021, were immaterial as the acquisition of Alliant occurred in December 2021. The AMF receivable was $43.0 million as of December 31, 20202022 and 2019.$42.3 million as of December 31, 2021. The asset management fee receivable is included in Receivables, net on the Consolidated Balance Sheets, and the AMF revenue is included within Investment management fees in the Consolidated Statements of Income.

The following table presents information about the Company’s contracts with customers for the years ended December 31, 2022, 2021, and 2020:

Description (in thousands)

 

2022

    

2021

    

2020

 

Statement of income line item

Certain loan origination fees

$

157,153

$

186,986

$

64,528

Loan origination and debt brokerage fees, net

Property sales broker fees

120,582

119,981

38,108

Property sales broker fees

Investment management fees

71,931

25,637

10,713

Investment management fees

Application fees, appraisal revenues, subscription revenues, other revenues from LIHTC operations, and other revenues

 

80,304

 

30,920

 

12,286

Other revenues

Total revenues derived from contracts with customers

$

429,970

$

363,524

$

125,635

Guaranty Obligation, net—When a loan is sold under the Fannie Mae DUS program, the Company undertakes an obligation to partially guarantee the performance of the loan. Upon loan sale, a liability for the fair value of the obligation undertaken in issuing the guaranty is recognized and presented as a component of Other liabilities on the Consolidated Balance Sheets. The recognized guaranty obligation is the fair value of the Company’s obligation to stand ready to perform and credit risk over the term of the guaranty.

Generally, the estimated fair value of the guaranty obligation is based on the present value of the cash flows expected to be paid under the guaranty over the estimated life of the loan discounted using a rate consistent with what is used for the calculation of the mortgage servicing right for each loan. The life of the guaranty obligation is the estimated period over which the Company believes it will be required to stand ready under the guaranty. Subsequent to the initial measurement date, the liability is amortized over the life of the guaranty period using the straight-line method as a component of and reduction to Amortization and depreciation in the Consolidated Statements of Income.

F-18F-17

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table presents information about the Company’s contracts with customers for the years ended December 31, 2020, 2019, and 2018:

Description (in thousands)

 

2020

    

2019

    

2018

 

Statement of income line item

Certain loan origination fees

$

64,528

$

75,599

$

59,877

Loan origination and debt brokerage fees, net

Property sales broker fees, investment management fees, application fees, and other

 

61,107

 

51,885

 

35,837

Other revenues

Total revenues derived from contracts with customers

$

125,635

$

127,484

$

95,714

Cash and Cash Equivalents—The term cash and cash equivalents, as used in the accompanying consolidated financial statements, includes currency on hand, demand deposits with financial institutions, and short-term, highly liquid investments purchased with an original maturity of three months or less. The Company had 0no cash equivalents as of December 31, 20202022 and 2019.2021.

Restricted Cash—Restricted cash represents primarily good faith deposits from borrowers.borrowers and cash held in a collection account to be used to fund the repayment of the Alliant note payable as described more fully in NOTE 6. The Company records a corresponding liability for thesethe good faith deposits from borrowers within Performance deposits from borrowersOther liabilities inon the Consolidated Balance Sheets.

Receivables, Net—Receivables, net represents amounts currently due to the Company pursuant to contractual servicing agreements, investor good faith deposits held in escrow by others, general accountsnotes receivable from the developers of affordable housing projects, asset management fees receivable, and advances of principal and interest payments and tax and insurance escrow amounts if the borrower is delinquent in making loan payments, to the extent such amounts are determined to be reimbursable and recoverable.other receivables. Substantially all of ourthese receivables are expected to be collected within a short period of time and are with counterparties with high credit quality (such as the Agencies). Additionally, the Company has not experienced any credit losses related to these receivables. Consequently, the Company has not recorded an allowance for credit losses associated with its receivables as of December 31, 20202022 and 2019.2021.

Concentrations of Credit Risk—Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, loans held for sale, and derivative financial instruments.

The Company places the cash and temporary investments with high-credit-quality financial institutions and believes no significant credit risk exists. The counterparties to the loans held for sale and funding commitments are owners of residential multifamily properties located throughout the United States. Mortgage loans are generally transferred or sold within 60 days from the date that a mortgage loan is funded. There is no material residual counterparty risk with respect to the Company's funding commitments as each potential borrower must make a non-refundable good faith deposit when the funding commitment is executed. The counterparty to the forward sale is Fannie Mae, Freddie Mac, or a broker-dealer that has been determined to be a credit-worthy counterparty by us and our warehouse lenders. There is a risk that the purchase price agreed to by the investor will be reduced in the event of a late delivery. The risk for non-delivery of a loan primarily results from the risk that a borrower does not close on the funding commitment in a timely manner. This risk is generally mitigated by the non-refundable good faith deposit.

Leases—In the normal course of business, the Company enters intoexecutes lease arrangements for all of its office space. All such lease arrangements are accounted for as operating leases. The Company initially recognizes a lease liability for the obligation to make lease payments and a right-of-use (“ROU”) asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term. The ROU asset is measured at the lease liability amount, adjusted for lease prepayments, accrued rent, lease incentives received, and the lessee’s initial direct costs. Lease expense is generally recognized on a straight-line basis over the term of the lease.

These operating leases do not provide an implicit discount rate; therefore, the Company uses the incremental borrowing rate of its note payable at lease commencement to calculate lease liabilities as the terms on this debt most closely resemble the terms on the Company’s largest leases. The Company’s lease agreements often include options to extend or terminate the lease. Single lease cost related to these lease agreements is recognized on the straight-line basis over the term of the lease, which includes options to extend when it is reasonably certain that such options will be exercised and the Company knows what the lease payments will be during the optional periods.

Litigation—In the ordinary course of business, the Company may be party to various claims and litigation, none of which the Company believes is material. The Company cannot predict the outcome of any pending litigation and may be subject to consequences that could include fines, penalties, and other costs, and the Company’s reputation and business may be impacted. The Company believes that any liability that could be imposed on the Company in connection with the disposition of any pending lawsuits would not have a material adverse effect on its business, results of operations, liquidity, or financial condition.

Recently Adopted and Recently Announced Accounting Pronouncements—There were no recently announced but not yet effective accounting pronouncements issued that have the potential to impact the Company’s consolidated financial statements. The Company did not adopt any new accounting policies during 2022.

Reclassifications—The Company has made immaterial reclassifications to prior-year balances to conform to current-year presentation.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

business, results of operations, liquidity, or financial condition.

NOTE 3—MORTGAGE SERVICING RIGHTS

The fair value of MSRs atas of December 31, 20202022 and 2019December 31, 2021 was $1.1$1.4 billion and $910.5 million,$1.3 billion, respectively. The Company uses a discounted static cash flow valuation approach, and the key economic assumption is the discount rate. See the following sensitivities related to the discount rate:

The impact of a 100-basis point increase in the discount rate atas of December 31, 20202022 would be a decrease in the fair value of $34.6$43.4 million to the MSRs outstanding as of December 31, 2020.2022.

The impact of a 200-basis point increase in the discount rate atas of December 31, 20202022 would be a decrease in the fair value of $67.1$83.9 million to the MSRs outstanding as of December 31, 2020.2022.

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.

Activity related to capitalized MSRs (net of accumulated amortization) for the yearyears ended December 31, 20202022 and 20192021 follows:

For the year ended December 31, 

 

For the year ended December 31, 

 

Roll Forward of MSRs (in thousands)

    

2020

    

2019

 

    

2022

    

2021

 

Beginning balance

$

718,799

$

670,146

$

953,845

$

862,813

Additions, following the sale of loan

 

321,225

 

206,885

 

244,259

 

313,376

Amortization

 

(149,888)

 

(137,792)

 

(189,211)

 

(176,428)

Pre-payments and write-offs

 

(27,323)

 

(20,440)

 

(33,667)

 

(45,916)

Ending balance

$

862,813

$

718,799

$

975,226

$

953,845

The following table summarizes the gross value, accumulated amortization, and net carrying value of the Company’s MSRs as of December 31, 20202022 and 2019:2021:

Components of MSRs (in thousands)

December 31, 2020

December 31, 2019

December 31, 2022

December 31, 2021

Gross Value

$

1,394,901

$

1,201,542

Gross value

$

1,659,185

$

1,548,870

Accumulated amortization

 

(532,088)

 

(482,743)

 

(683,959)

 

(595,025)

Net carrying value

$

862,813

$

718,799

$

975,226

$

953,845

The expected amortization of MSRs held in the Consolidated Balance Sheet as of December 31, 20202022 is shown in the table below. Actual amortization may vary from these estimates.

  

Expected

  

Expected

(in thousands)

  Amortization  

  Amortization  

Year Ending December 31,

2021

$

155,181

2022

 

142,147

2023

 

127,808

$

188,499

2024

 

110,147

 

172,303

2025

 

91,425

 

149,355

2026

 

124,381

2027

 

106,077

Thereafter

236,105

234,611

Total

$

862,813

$

975,226

The Company recorded write-offs of OMSRsMSRs related to loans that were repaid prior to the expected maturity and loans that defaulted. These write-offs are included as a component of the MSR roll forward shown above and as a component of Amortization and depreciation in the Consolidated Statements of Income and relate to OMSRs only.Income. Prepayment fees totaling $26.5 million, $40.1 million, and $22.0 million $26.8 million,were earned for 2022, 2021, and $18.9 million were collected for 2020, 2019, and 2018, respectively, and are included as a component of Other revenues in the Consolidated Statements of Income. Escrow earnings totaling $14.9$43.3 million, $51.4$5.6 million, and $38.2$14.9 million were earned for the years ended December 31, 2022, 2021, and 2020, 2019,respectively, and are

F-20F-19

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

and 2018, respectively, and are included as a component of Escrow earnings and other interest income in the Consolidated Statements of Income. All other ancillary servicing fees were immaterial for the periods presented.

Management reviews the MSRs for temporary impairment quarterly by comparing the aggregate carrying value of the MSR portfolio to the aggregate estimated fair value of the portfolio. Additionally, MSRs related to Fannie Mae loans where the Company has risk-sharing obligations are assessed for permanent impairment on an asset-by-asset basis, considering factors such as debt service coverage ratio, property location, loan-to-value ratio, and property type. Except for defaulted or prepaid loans, no temporary or permanent impairment was recognized for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020.

As of December 31, 2020,2022, the weighted average remaining life of the aggregate MSR portfolio was 7.77.1 years.

NOTE 4—GUARANTY OBLIGATION AND ALLOWANCE FOR RISK-SHARING OBLIGATIONS AND GUARANTY OBLIGATION

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. Activity related toSubstantially all loans sold under the Fannie Mae DUS program contain modified or full-risk sharing guaranties that are based on the credit performance of the loan. The Company records an estimate of the contingent loss reserve for CECL for all loans in its Fannie Mae at-risk servicing portfolio and also records collateral-based reserves as necessary and presents this combined loss reserve as Allowance for risk-sharing obligations on the Consolidated Balance Sheets. Additionally, a guaranty obligation for the years ended December 31, 2020 and 2019 is presented inas a component of Other liabilities on the following table:

For the year ended December 31, 

 

Roll Forward of Guaranty Obligation (in thousands)

    

2020

    

2019

 

Beginning balance

$

54,695

$

46,870

Additions, following the sale of loan

 

5,755

 

17,939

Amortization

 

(9,612)

 

(9,663)

Other

1,468

(451)

Ending balance

$

52,306

$

54,695

Consolidated Balance Sheets.

Activity related to the allowance for risk-sharing obligations for the years ended December 31, 20202022 and 20192021 follows:

For the year ended December 31, 

 

For the year ended December 31, 

 

Roll Forward of Allowance for Risk-sharing Obligations (in thousands)

    

2020

    

2019

 

Roll Forward of Allowance for Risk-Sharing Obligations (in thousands)

    

2022

    

2021

 

Beginning balance

$

11,471

$

4,622

$

62,636

$

75,313

Adjustment related to adoption of CECL

31,570

Provision for risk-sharing obligations

 

33,740

 

6,398

Provision (benefit) for risk-sharing obligations

 

(13,948)

 

(12,677)

Write-offs

 

 

 

(4,631)

 

Other

(1,468)

451

Ending balance

$

75,313

$

11,471

$

44,057

$

62,636

On January 1, 2020, the Company recognized the CECL transition adjustment based on its assessment of the multifamily market and the macroeconomic environment at that time and concluded that the projections for the coming year were for continued strong performance similar to the performance over the past few years. The Company’s losses have been de minimis over the past few years. Considering that the Company’s historical loss rate consisted of both strong and weak multifamily and macroeconomic periods, the Company concluded it was appropriate to adjust the loss rate for the forecast period to below the weighted average historical loss rate. The loss rate applied for the forecast period in the WARM CECL calculation was 1 basis point, which approximated the average of the actual loss rate for the past two years as these conditions were expected to prevail over the course of the forecast period. The Company reverted to the actual historical loss rate of 2 basis points for all remaining years in the calculation and did not use a reversion period since the difference between the loss rate used for the forecast period and the actual historical loss rate was immaterial.

Conditions changed significantly beginning in March 2020 due to the Crisis across the world, which reversed macroeconomic conditions from sustained strength to global economic contraction, causing unemployment rates to rise sharply and a recession to ensue.

Although the Company has not experienced any defaults and minimal forbearance requests since the outset of the Crisis, the Company believes there is inherent uncertainty in the macroeconomic environment created by the spread of the Crisis across the world as of December 31, 2020. This uncertainty leads to elevated risk and near-term elevated unemployment levels and lower consumer incomes, which would lead to an adverse impact on multifamily occupancy rates and property cash flows, increasing the likelihood of delinquencies, loan defaults, and

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

risk-sharing losses.

The Company believes that the potential impacts due to the Crisis during the forecast period are expected to be generally consistent with the final year of the great financial crisis of 2007-2010 (the “last recession”). The loss rate resulting from the final year of the last recession totaled six basis points. Accordingly, the Company used a loss rate of 6 basis points for the forecast period and reverted over a one-year period to 2 basis points for the remaining expected life of the portfolio.

The calculated CECL reserve for the Company’s $42.8 billion at-risk Fannie Mae servicing portfolio as of December 31, 2020 was $67.0 million compared to $34.7 million as of the CECL adoption date on January 1, 2020. The significant increase in the CECL reserve was principally related to the forecasted impacts of the Crisis. The weighted-average remaining life of the at-risk Fannie Mae servicing portfolio as of December 31, 2020 was 7.7 years.

NaN loans that defaulted in 2019 had aggregate specific reserves of $8.3 million as of December 31, 2020 and $6.9 million as of December 31, 2019 as the risk-sharing losses have not been settled with Fannie Mae. The properties related to these 2 loans were both off-campus student living facilities in the same city. The Company does not have any additional at-risk loans related to student living facilities in this city.

As of December 31, 2020 and 2019, the maximum quantifiable contingent liability associated with the Company’s guarantees under the Fannie Mae DUS agreement was $9.0 billion and $7.5 billion, respectively. This maximum quantifiable contingent liability relates to the at-risk loans serviced for Fannie Mae at the specific point in time indicated. The maximum quantifiable contingent liability is not representative of the actual loss the Company would incur. The Company would be liable for this amount only if all of the loans it services for Fannie Mae, for which the Company retains some risk of loss, were to default and all of the collateral underlying these loans were determined to be without value at the time of settlement.

NOTE 5—SERVICING

The total unpaid principal balance of loans the Company was servicing for various institutional investors was $107.2 billion as of December 31, 2020 compared to $93.2 billion as of December 31, 2019.

As of December 31, 2020 and 2019, custodial escrow accounts relating to loans serviced by the Company totaled $3.1 billion and $2.6 billion, respectively. These amounts are not included in the Consolidated Balance Sheets as such amounts are not Company assets; however, the Company is entitled to earn interest income on these escrow balances, presented as Escrow earnings and other interest income in the Consolidated Statements of Income. Certain cash deposits at other financial institutions exceed the Federal Deposit Insurance Corporation insured limits. The Company places these deposits with financial institutions that meet the requirements of the Agencies and where it believes the risk of loss to be minimal.

For most loans the Company services under the Fannie Mae DUS program, the Company is required to advance the principal and interest payments and guarantee fees for up to four months should a borrower cease making payments under the terms of their loan, including while that loan is in forbearance. After advancing for four months, the Company requests reimbursement from Fannie Mae for the principal and interest advances, and Fannie Mae will reimburse the Company within 60 days of the request. As of December 31, 2020 and 2019, the Company had an immaterial balance of outstanding advances related to loans in our Fannie Mae portfolio.

For loans the Company services under the Ginnie Mae (“HUD”) program, the Company is obligated to advance the principal and interest payments and guarantee fees until the HUD loan is brought current, fully paid, or assigned to HUD. The Company is eligible to assign a loan to HUD once it is in default for 30 days. If the loan is not brought current, or the loan otherwise defaults, the Company is not reimbursed for its advances until such time as the Company assigns the loan to HUD or works out a payment modification for the borrower. For loans in default, the Company may repurchase those loans out of the Ginnie Mae security, at which time the Company’s advance requirements cease and the Company may then modify and resell the loan or assign the loan back to HUD, at which time the Company will be reimbursed for its advances. As of December 31, 2020 and 2019, the Company had an immaterial balance of outstanding advances for loans in its HUD portfolio.

The Company is not obligated to make advances on any of the other loans the Company services in its portfolio, including loans serviced under the Freddie Mac Optigo program.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020 and 2019, the Company had $9.3 million and $2.1 million of aggregate outstanding principal and interest and tax and escrow advances, respectively. These advances were included as a component of Receivables, net in the Consolidated Balance Sheets.

NOTE 6—DEBT

At December 31, 2020, to provide financing to borrowers under the Agencies’ programs, the Company has committed and uncommitted warehouse lines of credit in the amount of $3.6 billion with certain national banks and a $1.5 billion uncommitted facility with Fannie Mae (collectively, the “Agency Warehouse Facilities”). In support of these Agency Warehouse Facilities, the Company has pledged substantially all of its loans held for sale under the Company's approved programs. The Company’s ability to originate mortgage loans for sale depends upon its ability to secure and maintain these types of short-term financings on acceptable terms.

Additionally, at December 31, 2020, the Company has arranged for warehouse lines of credit in the amount of $0.4 billion with certain national banks to assist in funding loans held for investment under the Interim Loan Program (“Interim Warehouse Facilities”). The Company has pledged substantially all of its loans held for investment against these Interim Warehouse Facilities. The Company’s ability to originate loans held for investment depends upon its ability to secure and maintain these types of short-term financings on acceptable terms.

The maximum amount and outstanding borrowings under Warehouse notes payable at December 31, 2020 and 2019 are as follows:

December 31, 2020

 

(dollars in thousands)

    

Committed

    

Uncommitted

Total Facility

Outstanding

    

    

 

Facility(1)

Amount

Amount

Capacity

Balance

Interest rate(2)

 

Agency Warehouse Facility #1

$

425,000

$

$

425,000

$

83,336

 

30-day LIBOR plus 1.40%

Agency Warehouse Facility #2

 

700,000

 

300,000

 

1,000,000

 

460,388

30-day LIBOR plus 1.40%

Agency Warehouse Facility #3

 

600,000

 

265,000

 

865,000

 

410,546

 

30-day LIBOR plus 1.15%

Agency Warehouse Facility #4

350,000

350,000

181,996

30-day LIBOR plus 1.40%

Agency Warehouse Facility #5

1,000,000

1,000,000

522,507

30-day LIBOR plus 1.45%

Total National Bank Agency Warehouse Facilities

$

2,075,000

$

1,565,000

$

3,640,000

$

1,658,773

Fannie Mae repurchase agreement, uncommitted line and open maturity

 

 

1,500,000

 

1,500,000

 

725,085

 

��

Total Agency Warehouse Facilities

$

2,075,000

$

3,065,000

$

5,140,000

$

2,383,858

Interim Warehouse Facility #1

$

135,000

$

$

135,000

$

71,572

 

30-day LIBOR plus 1.90%

Interim Warehouse Facility #2

 

100,000

 

 

100,000

 

34,000

 

30-day LIBOR plus 1.65%

Interim Warehouse Facility #3

 

75,000

 

75,000

 

150,000

 

8,861

 

30-day LIBOR plus 1.75% to 3.25%

Interim Warehouse Facility #4

19,810

19,810

19,810

30-day LIBOR plus 3.00%

Total National Bank Interim Warehouse Facilities

$

329,810

$

75,000

$

404,810

$

134,243

Debt issuance costs

 

 

 

 

(945)

Total warehouse facilities

$

2,404,810

$

3,140,000

$

5,544,810

$

2,517,156

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

 

(dollars in thousands)

    

Committed

    

Uncommitted

Total Facility

Outstanding

    

    

 

Facility(1)

Amount

Amount

Capacity

Balance

Interest rate(2)

 

Agency Warehouse Facility #1

$

350,000

$

200,000

$

550,000

$

148,877

 

30-day LIBOR plus 1.15%

Agency Warehouse Facility #2

 

500,000

 

300,000

 

800,000

 

15,291

 

30-day LIBOR plus 1.15%

Agency Warehouse Facility #3

 

500,000

 

265,000

 

765,000

 

35,510

 

30-day LIBOR plus 1.15%

Agency Warehouse Facility #4

350,000

350,000

258,045

30-day LIBOR plus 1.15%

Agency Warehouse Facility #5

500,000

500,000

60,751

 

30-day LIBOR plus 1.15%

Agency Warehouse Facility #6

250,000

100,000

350,000

14,930

30-day LIBOR plus 1.15%

Total National Bank Agency Warehouse Facilities

$

1,950,000

$

1,365,000

$

3,315,000

$

533,404

Fannie Mae repurchase agreement, uncommitted line and open maturity

 

 

1,500,000

 

1,500,000

 

131,984

Total agency warehouse facilities

$

1,950,000

$

2,865,000

$

4,815,000

$

665,388

 

Interim Warehouse Facility #1

$

135,000

$

$

135,000

$

98,086

 

30-day LIBOR plus 1.90%

Interim Warehouse Facility #2

 

100,000

 

 

100,000

 

49,256

 

30-day LIBOR plus 1.65%

Interim Warehouse Facility #3

 

75,000

 

75,000

 

150,000

 

65,991

30-day LIBOR plus 1.90% to 2.50%

Interim Warehouse Facility #4

 

100,000

 

 

100,000

 

28,100

 

30-day LIBOR plus 1.75%

Total interim warehouse facilities

$

410,000

$

75,000

$

485,000

$

241,433

Debt issuance costs

 

 

 

 

(693)

Total warehouse facilities

$

2,360,000

$

2,940,000

$

5,300,000

$

906,128

The Company assesses several qualitative and quantitative factors impacting the current and expected unemployment rate, macroeconomic conditions and multifamily market to calculate the Company’s CECL allowance each quarter. The key inputs for the CECL allowance are the historic loss rate, the forecast-period loss rate, the reversion-period loss rate, and the UPB of the at-risk servicing portfolio. A summary of the key inputs of the CECL allowance as of the end of each of the quarters presented and the provision impact during each quarter for the years ended December 31, 2022, 2021, and 2020 follows.

2022

CECL Calculation Details and Provision Impact

Q1

Q2

Q3

Q4

Total

Forecast-period loss rate (in basis points)

3.0

2.2

2.2

2.1

N/A

Reversion-period loss rate (in basis points)

2.0

1.7

1.7

1.7

N/A

Historical loss rate (in basis points)

1.2

1.2

1.2

1.2

N/A

At-risk Fannie Mae servicing portfolio UPB (in billions)

$

49.7

$

51.2

$

52.1

$

54.0

N/A

CECL allowance (in millions)

$

42.5

$

37.7

$

38.9

$

39.7

N/A

Provision (benefit) for risk-sharing obligations (in millions)

$

(9.4)

$

(4.8)

$

1.2

$

(0.9)

$

(13.9)

2021

CECL Calculation Details and Provision Impact

Q1

Q2

Q3

Q4

Total

Forecast-period loss rate (in basis points)

4.0

3.0

3.0

3.0

N/A

Reversion-period loss rate (in basis points)

2.0

2.0

2.0

2.0

N/A

Historical loss rate (in basis points)

1.8

1.8

1.8

1.8

N/A

At-risk Fannie Mae servicing portfolio UPB (in billions)

$

45.4

$

45.9

$

47.0

$

48.0

N/A

CECL allowance (in millions)

$

57.0

$

52.8

$

54.0

$

52.3

N/A

Provision (benefit) for risk-sharing obligations (in millions)

$

(10.7)

$

(4.3)

$

1.3

$

1.0

$

(12.7)

2020

CECL Calculation Details and Provision Impact

Q1

Q2

Q3

Q4

Total

Forecast-period loss rate (in basis points)

7.0

7.0

7.0

6.0

N/A

Reversion-period loss rate (in basis points)

1.8

1.8

1.8

1.8

N/A

Historical loss rate (in basis points)

1.8

1.8

1.8

1.8

N/A

At-risk Fannie Mae servicing portfolio UPB (in billions)

$

37.2

$

39.9

$

41.0

$

42.8

N/A

CECL allowance (in millions)

$

57.3

$

62.3

$

63.6

$

67.0

N/A

Provision (benefit) for risk-sharing obligations (in millions)

$

22.5

$

5.1

$

1.3

$

4.8

$

33.7

The weighted-average remaining life of the at-risk Fannie Mae servicing portfolio as of December 31, 2022 was 7.2 years compared to 7.5 years as of December 31, 2021.

Two loans had aggregate collateral-based reserves of $4.4 million as of December 31, 2022 compared to three loans that had an aggregate collateral-based reserves of $10.3 million as of December 31, 2021.

Activity related to the guaranty obligation for the years ended December 31, 2022 and 2021 follows:

For the year ended December 31, 

 

Roll Forward of Guaranty Obligation (in thousands)

    

2022

    

2021

 

Beginning balance

$

47,378

$

52,306

Additions, following the sale of loan

 

6,532

 

5,607

Amortization and write-offs

 

(9,960)

 

(10,535)

Ending balance

$

43,950

$

47,378

As of December 31, 2022 and 2021, the maximum quantifiable contingent liability associated with the Company’s guarantees under the Fannie Mae DUS agreement was $11.0 billion and $10.1 billion, respectively. This maximum quantifiable contingent liability relates to the at-risk loans serviced for Fannie Mae at the specific point in time indicated. The maximum quantifiable contingent liability is not representative of the actual loss the Company would incur. The Company would be liable for this amount only if all of the loans it services for Fannie Mae, for which the Company retains some risk of loss, were to default and all of the collateral underlying these loans were determined to be without value at the time of settlement.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 5—SERVICING

The total unpaid principal balance of loans the Company was servicing for various institutional investors was $123.1 billion as of December 31, 2022 compared to $115.7 billion as of December 31, 2021

As of December 31, 2022 and 2021, custodial escrow accounts relating to loans serviced by the Company totaled $2.7 billion and $3.7 billion, respectively. These amounts are not included in the Consolidated Balance Sheets as such amounts are not Company assets; however, the Company is entitled to placement fees on these escrow balances, presented within Escrow earnings and other interest income in the Consolidated Statements of Income. Certain cash deposits at other financial institutions exceed the Federal Deposit Insurance Corporation insured limits. The Company places these deposits with financial institutions that meet the requirements of the Agencies and where it believes the risk of loss to be minimal.

NOTE 6—DEBT

Warehouse Facilities

As of December 31, 2022, to provide financing to borrowers under the Agencies’ programs, the Company had committed and uncommitted warehouse lines of credit in the amount of $3.9 billion with certain national banks and a $1.5 billion uncommitted facility with Fannie Mae (collectively, the “Agency Warehouse Facilities”). In support of these Agency Warehouse Facilities, the Company pledged substantially all of its loans held for sale under the Company's approved programs. The Company’s ability to originate mortgage loans for sale depends upon its ability to secure and maintain these types of short-term financings on acceptable terms.

Additionally, as of December 31, 2022, the Company had warehouse lines of credit in the amount of $0.5 billion with certain national banks to assist in funding loans held for investment under the Interim Loan Program (“Interim Warehouse Facilities”). The Company had pledged substantially all of its loans held for investment against these Interim Warehouse Facilities. The Company’s ability to originate loans held for investment depends upon market conditions, and its ability to secure and maintain these types of short-term financings on acceptable terms.

The interest rate for all our warehouse facilities is based on either an Adjusted Term Secured Overnight Financing Rate (“SOFR”) or London Interbank Offered Rate (“LIBOR”). The maximum amount and outstanding borrowings under Warehouse notes payable as of December 31, 2022 and 2021 follow:

December 31, 2022

 

(dollars in thousands)

    

Committed

    

Uncommitted

Total Facility

Outstanding

    

    

 

Facility

Amount

Amount

Capacity

Balance

Interest rate(1)

 

Agency Warehouse Facility #1

$

325,000

$

250,000

$

575,000

$

141,965

 

SOFR plus 1.30%

Agency Warehouse Facility #2

 

700,000

 

300,000

 

1,000,000

 

102,926

SOFR plus 1.30%

Agency Warehouse Facility #3

 

600,000

 

265,000

 

865,000

 

110,394

 

SOFR plus 1.35%

Agency Warehouse Facility #4

200,000

225,000

425,000

26,079

SOFR plus 1.30%

Agency Warehouse Facility #5

1,000,000

1,000,000

SOFR plus 1.45%

Total National Bank Agency Warehouse Facilities

$

1,825,000

$

2,040,000

$

3,865,000

$

381,364

Fannie Mae repurchase agreement, uncommitted line and open maturity

 

 

1,500,000

 

1,500,000

 

11,350

 

Total Agency Warehouse Facilities

$

1,825,000

$

3,540,000

$

5,365,000

$

392,714

Interim Warehouse Facility #1

$

135,000

$

$

135,000

$

 

SOFR plus 1.80%

Interim Warehouse Facility #2

 

100,000

 

 

100,000

 

 

SOFR plus 1.35% to 1.85%

Interim Warehouse Facility #3

 

200,000

 

 

200,000

 

127,009

 

30-day LIBOR plus 1.75% to 3.25%

Interim Warehouse Facility #4

19,810

19,810

18,410

SOFR plus 3.11%

Total National Bank Interim Warehouse Facilities

$

454,810

$

$

454,810

$

145,419

Tax Credit Equity Warehouse Facility

$

20,000

$

$

20,000

$

5,916

Daily SOFR plus 2.80%

Debt issuance costs

 

 

 

 

(603)

Total warehouse facilities

$

2,299,810

$

3,540,000

$

5,839,810

$

543,447

F-22

Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2021

 

(dollars in thousands)

    

Committed

    

Uncommitted

Total Facility

Outstanding

    

    

 

Facility

Amount

Amount

Capacity

Balance

Interest rate(1)

 

Agency Warehouse Facility #1

$

425,000

$

$

425,000

$

34,032

 

SOFR plus 1.30%

Agency Warehouse Facility #2

 

700,000

 

300,000

 

1,000,000

 

147,055

 

30-day LIBOR plus 1.30%

Agency Warehouse Facility #3

 

600,000

 

265,000

 

865,000

 

156,705

 

30-day LIBOR plus 1.30%

Agency Warehouse Facility #4

350,000

350,000

45,337

30-day LIBOR plus 1.30%

Agency Warehouse Facility #5

1,000,000

1,000,000

175,608

 

SOFR plus 1.45%

Agency Warehouse Facility #6

150,000

100,000

250,000

30-day LIBOR plus 1.40%

Agency Warehouse Facility #7

150,000

50,000

200,000

16,289

30-day LIBOR plus 1.30%

Total National Bank Agency Warehouse Facilities

$

2,375,000

$

1,715,000

$

4,090,000

$

575,026

Fannie Mae repurchase agreement, uncommitted line and open maturity

 

 

1,500,000

 

1,500,000

 

1,186,306

Total Agency Warehouse Facilities

$

2,375,000

$

3,215,000

$

5,590,000

$

1,761,332

 

Interim Warehouse Facility #1

$

135,000

$

$

135,000

$

 

30-day LIBOR plus 1.90%

Interim Warehouse Facility #2

 

100,000

 

 

100,000

 

 

30-day LIBOR plus 1.65% to 2.00%

Interim Warehouse Facility #3

 

200,000

 

 

200,000

 

153,009

30-day LIBOR plus 1.75% to 3.25%

Interim Warehouse Facility #4

 

19,810

 

19,810

 

19,810

 

30-day LIBOR plus 3.00%

Total National Bank Interim Warehouse Facilities

$

454,810

$

$

454,810

$

172,819

Tax Credit Equity Warehouse Facility

30,000

30,000

$

8,296

Daily LIBOR plus 3.00%

Debt issuance costs

 

 

 

 

(875)

Total warehouse facilities

$

2,829,810

$

3,215,000

$

6,074,810

$

1,941,572

(1)Agency Warehouse Facilities, including the Fannie Mae repurchase agreement are used to fund loans held for sale, while Interim Warehouse Facilities are used to fund loans held for investment.
(2)Interest rate presented does not include the effect of interest rate floors.

30-day LIBOR was 0.14% and 1.76% as of December 31, 2020 and 2019, respectively. Interest expense under the warehouse notes payable for the years ended December 31, 2020, 2019,2022, 2021, and 20182020 aggregated to $45.0$49.3 million, $58.1$34.5 million, and $54.6$45.0 million, respectively. Included in interest expense in 2020, 2019,2022, 2021, and 20182020 are the amortization of facility fees totaling $4.1$3.6 million, $4.9$3.8 million, and $5.0$4.1 million, respectively. The warehouse notes payable are subject to various financial covenants, and the Company was in compliance with all such covenants at December 31, 2020.2022.

Warehouse Facilities

Agency Warehouse Facilities

The following section provides a summary of the key terms related to each of the Agency Warehouse Facilities. During 2022, the first quarter of 2020, anCompany allowed two Agency warehouse line with a $350.0 million aggregate committed and uncommitted borrowing capacity expiredfacilities to mature according to itstheir terms. The Company believes that the 5five remaining committed and uncommitted credit facilities from national banks and the uncommitted credit facility from Fannie Mae provide the Company with sufficient borrowing capacity to conduct its Agency lending operations.

Agency Warehouse Facility #1:

The Company has a warehousing credit and security agreement with a national bank for a $425.0$325.0 million committed warehouse line that is scheduled to mature on October 25, 2021.August 30, 2023. The agreement provides the Company with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans. Advances are made at 100% of the loan balance and borrowings under this line bear interest at the 30-day London Interbank Offered Rate (“LIBOR”)SOFR plus 140130 basis points. The agreement contains certain affirmative and negative covenants that are binding on the Company’s operating subsidiary, Walker & Dunlop, LLC (which are in some cases subject to exceptions), including, but not limited to, restrictions on its ability to assume, guarantee, or become contingently liable for the obligation of another person, to undertake certain fundamental changes such as reorganizations, mergers, amendments to the Company’s certificate of formation or operating agreement, liquidations, dissolutions or dispositions or acquisitions of assets or businesses, to cease to be directly or indirectly wholly owned by the Company, to pay any subordinated debt in advance of its stated maturity or to take any action that would cause Walker & Dunlop, LLC to lose

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Notes to Consolidated Financial Statements

all or any part of its status as an eligible lender, seller, servicer or issuer or any license or approval required for it to engage in the business of originating, acquiring, or servicing mortgage loans. 

In addition, the agreement requires compliance with certain financial covenants, which are measured for the Company and its subsidiaries on a consolidated basis, as follows: 

tangible net worth of the Company of not less than (i) $200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date;
compliance with the applicable net worth and liquidity requirements of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and HUD;
liquid assets of the Company of not less than $15.0 million;
maintenance of aggregate unpaid principal amount of all mortgage loans comprising the Company’s consolidated servicing portfolio of not less than $20.0 billion or all Fannie Mae DUS mortgage loans comprising the Company’s consolidated servicing portfolio of not less than $10.0 billion, exclusive in both cases of mortgage loans which are 60 or more days past due or are otherwise in default or have been transferred to Fannie Mae for resolution;
aggregate unpaid principal amount of Fannie Mae DUS mortgage loans within the Company’s consolidated servicing portfolio which are 60 or more days past due or otherwise in default not to exceed 3.5% of the aggregate unpaid principal balance of all Fannie Mae DUS mortgage loans within the Company’s consolidated servicing portfolio; and
maximum indebtedness (excluding warehouse lines) to tangible net worth of 2.25 to 1.00 (the “leverage ratio”).

The agreement contains customary events of default, which are in some cases subject to certain exceptions, thresholds, notice requirements, and grace periods. During the second quarter of 2020,2022, the Company executed a modification agreementamendments to the warehouse agreement that created a $100.0 million sublimit within the overall committed capacity to fund COVID-19 forbearance advances under the Fannie Mae DUS program. Borrowings under the agreement are collateralized by Fannie Mae’s commitment to repay the advances and are funded at 90% of the principal and interest advanced and bear interest at 30-day LIBOR plus 175 basis points with an interest-rate floor of 25 basis points. The Company had 0 borrowings related to the COVID-19 forbearances as of December 31, 2020. During the fourth quarter of 2020, the Company executed the fifth amendment to the warehouse and security agreement that extended the maturity date to October 25, 2021 and increaseddecreased the committed borrowing capacity from $425.0 million to $425.0 million. Additionally,$325.0 million, at the amendment increased the borrowing rate to 30-day LIBOR plus 140 basis points from 30-day LIBOR plus 115 basis points and did not include an extensionCompany’s request, added $250.0 million of the $200.0 million uncommitted borrowing capacity, asupdated one of the Company allowedfinancial covenants, and extended the uncommitted capacitymaturity date.

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Notes to expire. No other material modifications were made to the agreement in 2020.Consolidated Financial Statements

Agency Warehouse Facility #2:

The Company has a warehousing credit and security agreement with a national bank for a $700.0 million committed warehouse line that is scheduled to mature on September 7, 2021.April 13, 2023. The committed warehouse facility provides the Company with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans. Advances are made at 100% of the loan balance, and borrowings under this line bear interest at 30-day LIBORSOFR plus 140130 basis points. In addition to the committed borrowing capacity, the agreement provides $300.0 million of uncommitted borrowing capacity that bears interest at the same rate as the committed facility. During the third quarter of 2020,2022, the Company executed the sixth amendmentamendments to the warehouse agreement that extended the maturity date thereunder until September 7, 2021, increasedand transitioned the committed borrowing capacity to $700.0 million. Additionally, the amendment increased the borrowinginterest rate to 30-day LIBOR plus 140 basis points from 30-day LIBOR plus 115130 basis points. No other material modifications were madepoints to the agreement during 2020.

The negative and financial covenants of the amended and restated warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above, with the exception of the leverage ratio covenant, which is not included in the warehouse agreement for Agency Warehouse Facility #2.SOFR plus 130 basis points.

Agency Warehouse Facility #3:

The Company has a $600.0 million committed warehouse credit and security agreement with a national bank that is scheduled to mature on April 30, 2021.May 15, 2023. The committed warehouse facility provides the Company with the ability to fund Fannie Mae, Freddie Mac, HUD and FHA loans. Advances are made at 100% of the loan balance, and the borrowings under the warehouse agreement bear interest at a rate of 30-day LIBORSOFR plus 115135 basis points. In addition to the committed borrowing capacity, the agreement provides $265.0 million of uncommitted borrowing capacity that bears interest at the same rate as the committed facility. During the second quarter of 2020,2022, the Company executed the 11th amendmentamendments to the warehouse agreement related to this facility that extended the maturity date, to April 30, 2021 fortransitioned the committed borrowing

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Notes to Consolidated Financial Statements

capacity and added $265.0 million in uncommitted borrowing capacity that bears interest at the same rate and has the same maturity date as the committed facility. The amendment also added afrom 30-day LIBOR plus 130 basis points to SOFR plus 135 basis points with an SOFR floor of 5015 basis points. During the third quarter of 2020, the Company executed the 12th amendment to the warehouse agreement that increased the committed borrowing capacity to $600.0 million. No other material modifications were made to the agreement during 2020.

The negativepoints, and financial covenantsupdated one of the warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above.financial covenants.

Agency Warehouse Facility #4:

The Company has a $350.0$200.0 million committed warehouse credit and security agreement with a national bank that is scheduled to mature on October 7, 2021.June 22, 2023. The committed warehouse facility provides the Company with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans and has a sublimit of $75.0 million to fund defaulted HUD and FHA loans. Advances are made at 100% of the loan balance, and the borrowings under the warehouse agreement bear interest at a rate of 30-day LIBORSOFR plus 140130 basis points. During the fourth quarter of 2020,2022, the Company executed the thirdan amendment to the warehouse agreement that extendsextended the maturity date, of the warehouse agreement to October 7, 2021, increased the total borrowing capacity ofto $425.0 million from $350.0 million, and transitioned the defaulted FHA sublimit to $75.0 million, increased the borrowinginterest rate to 30-day LIBOR plus 140 basis points from 30-day LIBOR plus 115130 basis points and added a 30-day LIBOR floor of 25to SOFR plus 130 basis points. No other material modifications were made to the agreement during 2020.

The negative and financial covenants of the warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above, with the exception of the leverage ratio covenant, which is not included in the warehouse agreement for Agency Warehouse Facility #4.

Agency Warehouse Facility #5:

The Company has a master repurchase agreement with a national bank for a $1.0 billion uncommitted advance credit facility that is scheduled to mature on August 23, 2021.September 14, 2023. The facility provides the Company with the ability to fund Fannie Mae, Freddie Mac, HUD, and FHA loans. Advances are made at 100% of the loan balance, and the borrowings under the repurchase agreement bear interest at a rate of 30-day LIBORSOFR plus 145 basis points. During the third quarter of 2020,2022, the Company executed amendments to extend the first amendment to the agreement that increased the uncommitted borrowing capacity to $1.0 billionmaturity and increased the borrowing rate to 30-day LIBOR plus 145 basis points from 30-day LIBOR plus 115 basis points and added a financial covenant related to debt service coverage ratio, as defined, that is similar to the Company’s other warehouse lines. No other material modifications were made to the agreement during 2020.

The negative and financial covenantsupdated one of the repurchase agreement conform to those of the warehouse agreement for Agency Warehouse Facility #1, described above, with the exception of a four-quarter rolling EBITDA, as defined, to total debt service ratio of 2.75 to 1.00 that is applicable to Agency Warehouse Facility #5.financial covenants.

Uncommitted Agency Warehouse Facility:

The Company has a $1.5 billion uncommitted facility with Fannie Mae under its ASAP funding program. After approval of certain loan documents, Fannie Mae will fund loans after closing, and the advances are used to repay the primary warehouse line. Fannie Mae will advance 99% of the loan balance. There is no expiration date for this facility. The uncommitted facility has no specific negative or financial covenants.

Interim Warehouse Facilities

The following section provides a summary of the key terms related to each of the Interim Warehouse Facilities.

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Notes to Consolidated Financial Statements

Interim Warehouse Facility #1:

The Company has a $135.0 million committed warehouse line agreement that is scheduled to mature on April 30, 2021.May 15, 2023. The facility provides the Company with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company and bear interest at 30-day LIBORSOFR plus 190180 basis points. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. During the second quarter of 2020,2022, the Company executed the 11th amendmentamendments to the credit and security agreement that extended the maturity date, to April 30, 2021 and added atransitioned the interest rate from 30-day LIBOR floorplus 190 basis points to SOFR plus 180 basis points, and updated one of 50 basis points. No other material modifications were madethe financial covenants.

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Notes to the agreement during 2020.Consolidated Financial Statements

The facility agreement requires the Company’s compliance with the same financial covenants as Agency Warehouse Facility #1, described above, and also includes the following additional financial covenant: minimum rolling four-quarter EBITDA, as defined, to total debt service ratio of 2.00 to 1.00 that is applicable to Interim Warehouse Facility #1.

Interim Warehouse Facility #2:

The Company has a $100.0 million committed warehouse line agreement that is scheduled to mature on December 13, 2021.2023. The agreement provides the Company with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company. All borrowings originally bear interest at 30-day LIBORSOFR plus 165135 to 185 basis points.points (“the spread”). The spread varies according to the type of asset the borrowing finances. The lender retains a first priority security interest in all mortgages funded by such advances on a cross-collateralized basis. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. No other material modifications were made to the agreement during 2020.

The credit agreement requires the borrower andDuring 2022, the Company executed an amendment that extended the maturity date to abide byand transitioned the same financial covenants as Agency Warehouse Facility #1, described above,interest rate from 30-day LIBOR plus 165 to 200 basis points to SOFR plus 135 to 185 basis points, with the exceptiona SOFR floor of the leverage ratio covenant, which is not included in the warehouse agreement for Interim Warehouse Facility #2. Additionally, Interim Warehouse Facility #2 has the following additional financial covenants:zero basis points.

rolling four-quarter EBITDA, as defined, of not less than $35.0 million and
debt service coverage ratio, as defined, of not less than 2.75 to 1.00.

Interim Warehouse Facility #3:

The Company has a $75.0$200.0 million repurchase agreement with a national bank that is scheduled to mature on December 20, 2021.September 29, 2023. The agreement provides the Company with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company. The borrowings under the agreement bear interest at a rate of 30-day LIBOR plus 175 to 325 basis points (“the spread”).points. The spread varies according to the type of asset the borrowing finances. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. The Company allowed the repurchase agreement to mature on May 18, 2020. During the fourth quarter of 2020,2022, the Company executed an amendment that extended the fifth amendment to the repurchase agreement which renewed the facility with the previous $75.0 million committed and $75.0 million uncommitted borrowing capacity with a maturity date of December 20, 2021. Additionally, the amendment updated the spread to 30-day LIBOR plus 175 to 325 basis points from 30-day LIBOR plus 190 to 250 basis points depending on the type of asset. No other material modifications were made to the agreement during 2020.date.

The repurchase agreement requires the borrower and the Company to abide by the following financial covenants:

tangible net worth of the Company of not less than (i) $200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date;
liquid assets of the Company of not less than $15.0 million;
leverage ratio, as defined, of not more than 3.0 to 1.0; and
debt service coverage ratio, as defined, of not less than 2.75 to 1.00.

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Notes to Consolidated Financial Statements

Interim Warehouse Facility #4:

During the first quarter of 2020, theThe Company executedhas a loan and security agreement to establish Interim Warehouse Facility #4. The $19.8 million committed warehouse loan and security agreement with a national bank that funds one specific loan. The agreement provides for a maturity date to coincide with the earlier of the maturity date for the underlying loan.loan or the stated maturity date of October 1, 2024. Borrowings under the facility are full recourse and bear interest at 30-day LIBORSOFR plus 300311 basis points, with a floor of 450150 basis points. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. The committed warehouse loanDuring 2022, the Company executed an amendment that extended the stated maturity date to October 1, 2024 and security agreement has only two financial covenants, bothtransitioned the interest rate from 30-day LIBOR plus 300 basis points to SOFR plus 311 basis points with an SOFR floor of which are similar to the other Interim Warehouse Facilities. We may request additional capacity under the agreement to fund specific loans. No material modifications were made to the agreement in 2020.150 basis points.

The facility agreement has only two financial covenants:

tangible net worth of the Company of not less than (i) $200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date; and
liquid assets of the Company of not less than $15.0 million;

During the second quarter of 2020, we allowed an interim warehouse facility that had a committed borrowing capacity of $100 million with 0 outstanding borrowings to expire according to its terms. We believeCompany believes that the four remaining committed and uncommitted interim credit facilities from national banks and ourits corporate cash provide usit with sufficient borrowing capacity to conduct ourits Interim Loan Program lending operations.

Both the Agency Warehouse Facilities and Interim Warehouse Facilities require compliance with certain financial covenants, which are measured for the Company and its subsidiaries on a consolidated basis, which include but are not limited to minimum tangible net worth requirements, minimum liquidity requirements, minimum servicing portfolio UPB requirements, debt service coverage ratios, and other customary financial covenants. The agreements contains customary events of default, which are in some cases subject to certain exceptions, thresholds, notice requirements, and grace periods. The warehouse agreements contain cross-default provisions, such that if a default occurs under any of the Company’s warehouse agreements, generally the lenders under the other warehouse agreements could also declare a default. As of December 31, 2020, theThe Company wasis in compliance with all of its Agency and Interim warehouse linefacility covenants.

Interest onTax Credit Equity Warehouse Facility:

The Company, through its wholly-owned subsidiary Alliant Capital, Ltd. (“Alliant”), has a warehouse line of credit with a national bank that is used to fund the Company’s Committed investments in tax credit equity before transferring them to a tax credit fund. The warehouse notesfacility is a revolving commitment that is expected to renew at maturity.

In October 2022, the Company, through Alliant, replaced the previous Tax Credit Equity Warehouse Facility with a new warehouse facility. The facility is scheduled to mature on October 5, 2025 and is guaranteed by the Company. The facility provides Alliant with up to $20.0 million in committed borrowing capacity to fund investments in affordable housing limited partnerships that also secure the borrowings. Borrowings under this facility bear interest at SOFR plus 280 basis points, with a SOFR floor of zero basis points. In conjunction with the

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Notes to Consolidated Financial Statements

guarantee, the agreement requires the Company comply with certain financial covenants, which are similar to those for the Agency and Interim Warehouse Facilities but have lower thresholds overall. The Company is in compliance with the covenants outlined above.

Notes payable and note payable are based on 30-day LIBOR. As

The following section provides a resultsummary of the expected transition from LIBOR,key terms related to each of the Company has updated its debt agreements to include fallback language to govern the transition from 30-day LIBOR to an alternative reference rate.  

Company’s notes payable.

Term Loan Note Payable

On November 7, 2018,December 16, 2021, the Company entered into a senior secured credit agreement (the “Credit Agreement”) that amended and restatedreplaced the Company’s prior credit agreement and provided for a $300.0$600.0 million term loan (the “Term Loan”). The Term Loanloan was issued at a 0.5%0.25% discount, has a stated maturity date of November 7, 2025,December 16, 2028 (or, if earlier, the date of acceleration of the Term Loan pursuant to the term of the Term Loan Agreement), and bears interest at 30-day LIBORSOFR plus 200225 basis points with a SOFR floor of 50 basis points. At any time, the Company may also elect to request 1one or more incremental term loan commitments not to exceed $150.0$230.0 million and 100% of trailing four-quarter Consolidated Adjusted EBITDA, provided that the total indebtedness would not cause the leverage ratio (as defined in the Credit Agreement) to exceed 2.003.00 to 1.00.

On January 12, 2023, the Company entered into a lender joinder agreement and amendment to the Credit Agreement that provided for an increment term loan (“Incremental Term Loan”) with a principal amount of $200.0 million, modified the ratio thresholds related to mandatory prepayments, and included a provision that allows additional types of indebtedness. The Incremental Term Loan was issued at a 2.0% discount and contains similar repayment terms as the Term Loan. The Company used $165.4approximately $115.9 million of the proceeds to pay off the Alliant note payable, accrued interest, and other fees. The Company is obligated to make principal payments on the Incremental Term Loan proceedsin consecutive quarterly installments equal to repay in full the prior term loan. In connection with the repayment0.25% of the prior term loan,aggregate original principal amount of the Company recognized a $2.1 million lossIncremental Term Loan on extinguishmentthe last business day of debt related to unamortized debt issuance costseach March, June, September, and unamortized debt discount, which is included in Other operating expenses in the Consolidated Statements of Income for the year ended December 31, 2018.that commences on June 30, 2023.

The Company is obligated to repaymake principal payments on the Term Loan in consecutive quarterly installments equal to 0.25% of the aggregate outstandingoriginal principal amount of the term loan in consecutive quarterly installments equal to $0.7 million on the last business day of each of March, June, September, and December.December that commenced on March 31, 2022. The term loan also requires certain other prepayments in certain circumstances pursuant to the terms of the Term Loan Agreement. The finalremaining unpaid principal installmentbalance of the term loanTerm Loan and Incremental Term Loan is required to be paid in full on November 7, 2025December 16, 2028 (or, if earlier, the date of acceleration of the term loan pursuant to the terms of the Term Loan Agreement) and will be in an amount equal to the aggregate outstanding principal of the term loanTerm Loan and Incremental Term Loan on such date (together with all accrued interest thereon). During the second quarter of 2020, we executed the second amendment to the Credit Agreement to amend the definition of Permitted Subsidiary Collateral to include principal and interest forbearance advances funded by the sublimit created under Agency Warehouse Facility #1. No other material modifications were made to the agreement in 2020.

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Notes to Consolidated Financial Statements

The obligations of the Company under the Credit Agreement are guaranteed by Walker & Dunlop Multifamily, Inc.;, Walker & Dunlop, LLC;LLC, Walker & Dunlop Capital, LLC; andLLC, W&D BE, Inc., and Walker & Dunlop Investment Sales, LLC, each of which is a direct or indirect wholly owned subsidiary of the Company (together with the Company, the “Loan Parties”), pursuant to the Amended and Restated Guarantee and Collateral Agreement entered into on November 7, 2018December 16, 2021 among the Loan Parties and Wells FargoJPMorgan Chase Bank, National Association,N.A., as administrative agent (the “Guarantee and Collateral Agreement”). Subject to certain exceptions and qualifications contained in the Credit Agreement, the Company is required to cause any newly created or acquired subsidiary, unless such subsidiary has been designated as an Excluded Subsidiary (as defined in the Credit Agreement) by the Company in accordance with the terms of the Credit Agreement, to guarantee the obligations of the Company under the Credit Agreement and become a party to the Guarantee and Collateral Agreement. The Company may designate a newly created or acquired subsidiary as an Excluded Subsidiary, so long as certain conditions and requirements provided for in the Credit Agreement are met.

The Credit Agreement contains certain affirmative and negative covenants that are binding on the Loan Parties, including, but not limited to, restrictions (subject to specified exceptions and qualifications) on the ability of the Loan Parties to incur indebtedness, to create liens on their property, to make investments, to merge, consolidate or enter into any similar combination, or enter into any asset disposition of all or substantially all assets, or liquidate, wind-up or dissolve, to make asset dispositions, to declare or pay dividends or make related distributions, to enter into certain transactions with affiliates, to enter into any negative pledges or other restrictive agreements, and to engage in any business other than the business of the Loan Parties as of the date of the Credit Agreement and business activities reasonably related or ancillary thereto, or to amend certain material contracts or to enter into any sale leaseback arrangements.contracts. The Credit Agreement contains only 1one financial covenant, which requires the Company not to permit itsmaintain a minimum asset coverage ratio (as defined in the Credit Agreement) to be less than 1.50 to 1.00., tested quarterly. 

The Credit Agreement contains customary events of default (which are, in some cases, subject to certain exceptions, thresholds, notice requirements and grace periods), including, but not limited to, non-payment of principal or interest or other amounts, misrepresentations, failure

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Notes to Consolidated Financial Statements

to perform or observe covenants, cross-defaults with certain other indebtedness or material agreements, certain change in control events, voluntary or involuntary bankruptcy proceedings, failure of the Credit Agreements or other loan documents to be valid and binding, certain ERISA events and judgments. As of December 31, 2020, theThe Company wasis in compliance with all covenants related to the Credit Agreement.

Alliant Note Payable

The Company had a note payable through its wholly-owned subsidiary, Alliant, which had an outstanding balance of $114.5 million as of December 31, 2022.  

On January 12, 2023, the Company repaid the Alliant note payable with proceeds from the Incremental Term loan as noted above.

The following table shows the components of the note payable as of December 31, 20202022 and 2019:2021:

(in thousands, unless otherwise specified)

December 31, 

Component

    

2020

    

2019

  

Interest rate and repayments

 

Unpaid principal balance

$

294,773

$

297,750

Interest rate varies - see above for further details;

Unamortized debt discount

(1,026)

(1,245)

Quarterly principal payments of $0.8 million

Unamortized debt issuance costs

(2,154)

(2,541)

Carrying balance

$

291,593

$

293,964

(in thousands, unless otherwise specified)

December 31, 

    

2022

    

2021

  

Interest rate and repayments

Term Loan Note Payable

Unpaid principal balance

$

594,000

$

600,000

Interest rate varies - see above for further details;

Unamortized debt discount

(1,270)

(1,491)

Quarterly principal payments of $1.5 million and $0.8 million, respectively

Unamortized debt issuance costs

(7,594)

(8,914)

Carrying balance

$

585,136

$

589,595

Alliant Note Payable

Unpaid principal balance

$

114,546

$

145,175

4.75% Fixed-rate

Fair value adjustment(1)

4,421

5,404

Carrying balance

$

118,967

$

150,579

Total Notes Payable Carrying Balance

$

704,103

$

740,174

(1)Fair value adjustment related to the acquisition of Alliant.

The scheduled maturities, as of December 31, 2020,2022, for the aggregate of the warehouse notes payable and the notenotes payable are shown below. The warehouse notes payable obligations are incurred in support of the related loans held for sale, and loans held for investment.investment, and investment in affordable housing limited partnerships. Amounts advanced under the warehouse notes payable for loans held for sale are included in the subsequent year as the amounts are usually drawn and repaid within 60 days. The amounts below related to the Term Loan note payable include only the quarterly and final principal payments required by the related credit agreement (i.e., the non-contingent payments) and do not include any principal payments that are contingent upon Company cash flow, as defined in the credit agreementCredit Agreement (i.e., the contingent payments). The amounts below do not include any payments related to the Alliant note payable since it was repaid in January 2023. The maturities below are in thousands.

Year Ending December 31,

    

Maturities

  

    

Maturities

  

2021

$

2,442,228

2022

81,828

2023

2,978

$

517,120

2024

2,978

38,930

2025

282,862

6,000

2026

6,000

2027

6,000

Thereafter

564,000

Total

$

2,812,874

$

1,138,050

All of the debt instruments, including the warehouse facilities, are senior obligations of the Company. All warehouse notes payable balances associated with loans held for sale and outstanding as of December 31, 20202022 were or are expected to be repaid in 2021.2023.

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Notes to Consolidated Financial Statements

Interest on the Company’s warehouse notes payable and notes payable are based on 30-day LIBOR, SOFR, or Daily SOFR. As a result of the expected transition from LIBOR, the Company has updated its debt agreements to include fallback language to govern the transition from 30-day LIBOR to an alternative reference rate.  

NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and Acquisition Activities

A summary of the Company’s goodwill as of and for the years ended December 31, 2022 and 2021 follows:

For the year ended December 31, 

Roll Forward of Goodwill (in thousands)

    

2022

    

2021

 

Beginning balance

$

698,635

$

248,958

Additions from acquisitions

 

222,670

 

449,677

Measurement-period adjustments

38,407

Impairment

 

 

Ending balance

$

959,712

$

698,635

The additions to goodwill from acquisitions during 2022 shown in the table above during the year ended December 31, 2022 relate to two acquisitions. On February 28, 2022, the Company acquired 100% of the equity interests of GeoPhy B.V. (“GeoPhy”), a Netherlands-based commercial real-estate technology company. As part of the acquisition, the Company also obtained GeoPhy’s 50% interest in the Company’s appraisal joint venture, Apprise. The Company now owns 100% of Apprise and consolidates its balances and its operating results post acquisition. Prior to the acquisition, the Company accounted for its investment in Apprise under the equity method. The fair value of the consideration was $202.6 million and consisted of $82.1 million of cash, $5.5 million of forgiveness of a receivable the Company had with the joint venture (non-cash activity not reflected in the Consolidated Statements of Cash Flows), and $115.0 million of contingent consideration.

GeoPhy’s data analytics and technology development capabilities are expected to accelerate the growth of the Company’s lending, brokerage, and appraisal operations, and allow the Company to meet its goal of $5 billion of annual small-balance lending volume and appraisal revenue of $75 million by 2025 as part of the Company’s overall growth targets. A significant portion of the value associated with the GeoPhy acquisition was related to the assembled workforce with its combined expertise in information technology, data science, and commercial real estate. The Company believes that the combination of GeoPhy’s personnel, appraisal technology platform, and the future development of technology to accelerate growth in the origination of small-balance commercial loans, along with Walker & Dunlop’s financial resources will (i) drive a significant increase in the identification and retention of borrowers in the small-balance segment of the multifamily market that will allow the Company to dramatically scale its small-balance lending volumes and (ii) continue to drive significant growth in appraisal revenues over the next several years. GeoPhy’s financial results since the acquisition and pro-forma information as if the acquisition occurred January 1, 2021 are immaterial.

The contingent consideration noted above is contingent on achieving certain Apprise revenue and productivity milestones and small-balance loan volume and revenue milestones over a four-year period. The maximum earnout included as part of the GeoPhy acquisition is $205.0 million. The Company estimated that $130.7 million, or 64% of the maximum earnout, was achievable based on management forecasts. The discounted balance of $115.0 million is 56% of the maximum earnout amount. The Company estimated the fair value of this contingent consideration using a Monte Carlo simulation. The weighted average cost of capital (“WACC”) used for the valuation of the contingent consideration was 17.0% for the Apprise portion of the earnout and 14.5% for the small-balance portion of the earnout. The WACC reflects the additional risk inherent in the Apprise performance estimates as it is still in the startup stage of its development. The estimated achievable earnout amount was discounted using a forward curve for a Company-specific subordinated debt rating.

The calculation of goodwill of $214.0 million included the fair value of the consideration transferred of $202.6 million and the acquisition-date fair value of the Company’s previously held equity-method investment in Apprise of $58.5 million. The book value of the Company’s equity-method investment in Apprise prior to the acquisition date was $18.9 million, resulting in a $39.6 million gain from remeasuring to fair value (“Apprise revaluation gain”). The gain is included as a component of Other revenues in the Consolidated Statements of Income. The Company used a discounted cash flow model to estimate the acquisition-date fair value of Apprise, with the discount rate and management’s forecast of future revenues and cash flows as the most-significant inputs for the estimate. The discount rate used was 17.0%, and a control premium was not included in the estimate.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The goodwill resulting from the GeoPhy acquisition was allocated to reporting units within the Company’s Capital Markets reportable segment. The other assets and liabilities primarily consisted of technology intangible assets of $31.0 million, deferred tax assets of $10.3 million, and deferred tax liabilities of $10.4 million. The technology intangible assets will be amortized over a 10-year period. Immaterial other liabilities were assumed.

The Company expects the portion of the goodwill associated with the contingent consideration to be tax deductible, with the tax-deductible amount of goodwill related to this contingent consideration to be determined once the cash payments to settle the contingent consideration are made. The financial results since the GeoPhy acquisition were immaterial. The revenues and earnings of Walker & Dunlop for the year ended December 31, 2022 as if the GeoPhy acquisition had occurred as of January 1, 2021 would not be materially different from the amounts presented in the Consolidated Statements of Income.

The second acquisition occurred during the third quarter of 2022 for consideration of $6.0 million of cash and $3.0 million of contingent consideration and resulted in $8.8 million of goodwill. The Company allocated the goodwill from this acquisition to a reporting unit of the Company’s Capital Markets reportable segment. The Company expects all of the goodwill from this acquisition to be tax deductible, with the tax-deductible amount of goodwill related to the contingent consideration to be determined once the cash payments to settle the contingent consideration are made. The financial results since the acquisition and pro-forma financial information as if the acquisition occurred on January 1, 2021 are immaterial.

The measurement-period adjustments above primarily relate to the GeoPhy acquisition and the Company’s acquisition of Alliant, an acquisition completed in December 2021, as more fully described in the Company’s 2021 Form 10-K. The Alliant measurement-period adjustments consist of $29.7 million additional purchase price consideration related to the settlement of working capital adjustments and immaterial other adjustments as a result of the Company obtaining additional information. During the third quarter of 2022, the Company settled working capital adjustments related to the GeoPhy acquisition, resulting in a $5.5 million reduction in purchase price consideration. The settlement of the cash owed to the Company from GeoPhy for working capital adjustments will be a reduction of the cash paid to settle the contingent consideration achieved in the future. The Company made other immaterial adjustments as a result of the Company obtaining additional information, including adjustments to the initial contingent consideration liability recognized. The Company has completed the purchase accounting for the Alliant and GeoPhy acquisitions as of December 31, 2022.

As discussed in NOTE 13 below, in the first quarter of 2022, the Company began disclosing three reportable segments. The following table shows goodwill by reportable segments as of December 31, 2022. As the Company did not have segment reporting as of December 31, 2021, all of the goodwill balance was allocated to the Company’s one reportable segment as of December 31, 2021.

As of

Goodwill by Reportable Segment (in thousands)

December 31, 2022

Capital Markets

$

520,191

Servicing & Asset Management

439,521

Corporate

Ending balance

$

959,712

Other Intangible Assets

The Company’s other intangibles assets consist primarily of acquired customer contracts and technology intellectual property intangibles. Activity related to other intangible assets for the year ended December 31, 2022 and 2021 follows:

For the year ended December 31, 

Roll Forward of Other Intangible Assets (in thousands)

    

2022

    

2021

Beginning balance

$

183,904

$

1,880

Additions from acquisitions

 

31,000

 

185,361

Amortization

 

(16,261)

 

(3,337)

Ending balance

$

198,643

$

183,904

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS

A summaryThe following table summarizes the gross value, accumulated amortization, and net carrying value of the Company’s goodwillother intangible assets as of and for the year ended December 31, 20202022 and 2019 follows:December 31, 2021:

For the year ended December 31, 

Roll Forward of Goodwill (in thousands)

    

2020

    

2019

 

Beginning balance

$

180,424

$

173,904

Additions from acquisitions

 

68,534

 

6,520

Impairment

 

0

 

0

Ending balance

$

248,958

$

180,424

Components of Other Intangible Assets (in thousands)

December 31, 2022

December 31, 2021

Gross value

$

220,682

$

189,682

Accumulated amortization

 

(22,039)

 

(5,778)

Net carrying value

$

198,643

$

183,904

The additions from acquisitions during 2020expected amortization of other intangible assets shown in the Consolidated Balance Sheet as of December 31, 2022 is shown in the table above relate to the purchases of certain assets and the assumption of certain liabilitiesbelow. Actual amortization may vary from 3 debt brokerage companies for aggregate consideration of $69.4 million, which consisted of $46.8 million of cash, $5.0 million of the Company’s stock, and $17.6 million of contingent consideration. The contingent consideration may be earned over either a four-year period or five-year period after the closing of each acquisition, provided certain revenue targets have been met.  these estimates.

The acquired businesses operate in the Columbus, Ohio and New York City metropolitan areas. These acquisitions expand the Company’s network of loan originators and geographical reach and provide further diversification to its loan origination platform. Substantially all of the value associated with the acquisitions was related to the assembled workforces and commercial lending platform, resulting in substantially all of the consideration being allocated to goodwill. The Company expects all goodwill to be tax deductible, with the tax-deductible amount of goodwill related to the contingent consideration to be determined once the cash payments to settle the contingent consideration are made. The other assets acquired and the liabilities assumed were immaterial. The operations of these 3 companies have since been merged into the Company’s existing operations. The goodwill resulting from the acquisitions is allocated to the Company’s single reporting unit.

  

Expected

(in thousands)

  Amortization  

Year Ending December 31, 

2023

$

17,263

2024

 

16,206

2025

 

16,206

2026

 

16,206

2027

 

16,206

Thereafter

116,556

Total

$

198,643

The Company has completed the accounting for all acquisitions completed in 2020. For all acquisitions completed in 2020, total revenues and income from operations since the acquisition and the pro-forma incremental revenues and earnings related to the acquired entities as if the acquisitions had occurred as of January 1, 2019 are immaterial.

As of December 31, 2020 and December 31, 2019,2022, the balanceweighted average remaining life of all the other intangible assets acquired from acquisitions totaled $1.9 million and $2.5 million, respectively. As of December 31, 2020, the weighted-average period over which the Company expects the intangible assets to be amortized is 4.0was 12.6 years.

A summary of the Company’s contingent consideration, which is included in Other liabilities, as of and for the years ended December 31, 20202022 and 20192021 follows:

For the year ended December 31, 

For the year ended December 31, 

Roll Forward of Contingent Consideration Liabilities (in thousands)

    

2020

    

2019

    

2022

    

2021

Beginning balance

$

5,752

$

11,630

$

125,808

$

28,829

Additions

27,645

117,955

93,304

Accretion

1,232

572

4,642

2,866

Fair value adjustments

(13,512)

6,889

Payments

(5,800)

(6,450)

(34,547)

(6,080)

Ending balance

$

28,829

$

5,752

$

200,346

$

125,808

The contingent consideration liabilities presented in the table above relatesrelate to (i) acquisitions of debt brokerage and investment sales brokerage companies completed in 2017 and 2020 andover the past several years, (ii) the purchase of noncontrolling interests. in 2020 that was fully earned as of December 31, 2021 and paid in 2022, (iii) the Alliant acquisition, and (iv) the GeoPhy acquisition. The contingent consideration for each of the acquisitions may be earned over various lengths of time after each acquisition, with a maximum earnout period of five years, provided certain revenue targets and other metrics have been met. The last of the 5 earn-out periods related to the acquisition-related contingent consideration ends in the secondthird quarter of 2025. During 2020, 2027. In each case, the Company purchased the remaining noncontrolling interest of WDIS. The purchase consideration included $10.0 million of contingent consideration to be earned and paid over a three-year period ending December 31, 2023, provided certain revenue targets have been met. The Company estimated the initial and December 31, 2022 fair valuevalues of the contingent consideration using a probability-based, discounted cash flow estimate forMonte Carlo simulation.

During 2022, the revenue targets (Level 3).

TheCompany made fair value adjustments on two of its contingent consideration included forliabilities using updated information, including the acquisitionsprobability of achievement and purchasediscount rate. The Company’s estimate of noncontrolling interests is non-cash and thus not reflectedthe fair values resulted in a decrease in the amountfair value of cashone of the Company’s contingent consideration paid onliabilities that was partially offset by an increase in the Consolidated Statementsfair value of Cash Flows.another of the Company’s contingent consideration liabilities.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The recognition of the contingent consideration liability for the two acquisitions in 2022 is non-cash, and thus not reflected in the amount of cash consideration paid on the Consolidated Statements of Cash Flows. In addition, $8.8 millionof the payments settling contingent consideration liabilities included in the table above for the year ended December 31, 2022 were from the issuance of the Company’s common stock, a non-cash transaction.

NOTE 8—FAIR VALUE MEASUREMENTS

The Company uses valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach to measure assets and liabilities that are measured at fair value. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1—Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2—Financial assets and liabilities whose values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3—Financial assets and liabilities whose values are based on inputs that are both unobservable and significant to the overall valuation.

The Company's MSRs are measured at fair value at inception, and thereafter on a nonrecurring basis. That is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value measurement when there is evidence of impairment and for disclosure purposes (NOTE 3). The Company's MSRs do not trade in an active, open market with readily observable prices. While sales of multifamily MSRs do occur on occasion, precise terms and conditions vary with each transaction and are not readily available. Accordingly, the estimated fair value of the Company’s MSRs was developed using discounted cash flow models that calculate the present value of estimated future net servicing income. The model considers contractually specified servicing fees, prepayment assumptions, estimated revenue from escrow accounts, delinquency rates, late charges, costs to service, and other economic factors. The Company periodically reassesses and adjusts, when necessary, the underlying inputs and assumptions used in the model to reflect observable market conditions and assumptions that a market participant would consider in valuing an MSR asset. MSRs are carried at the lower of amortized cost or fair value.assets.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Derivative Instruments—The derivative positions consist of interest rate lock commitments and forward sale agreements to the Agencies. The fair value of these instruments is estimated using a discounted cash flow model developed based on changes in the U.S. Treasury rate and other observable market data. The value was determined after considering the potential impact of collateralization, adjusted to reflect nonperformance risk of both the counterparty and the Company, and are classified within Level 3 of the valuation hierarchy.
Loans Held for Sale—All loans held for sale presented in the Consolidated Balance Sheets are reported at fair value. The Company determines the fair value of the loans held for sale using discounted cash flow models that incorporate quoted observable inputs from market participants such as changes in the U.S. Treasury rate. Therefore, the Company classifies these loans held for sale as Level 2.
Pledged Securities—Investments in money market funds are valued using quoted market prices from recent trades. Therefore, the Company classifies this portion of pledged securities as Level 1. The Company determines the fair value of its AFS investments in Agency debt securities using discounted cash flows that incorporate observable inputs from market participants and then compares the fair value to broker estimates of fair value. Consequently, the Company classifies this portion of pledged securities as Level 2.

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019, segregated by the level of the valuation inputs within the fair value hierarchy used to measure fair value:

    

Quoted Prices in

    

Significant

    

Significant

    

    

 

Active Markets

Other

Other

 

For Identical

Observable

Unobservable

 

Assets

Inputs

Inputs

Balance as of

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Period End

 

December 31, 2020

Assets

Loans held for sale

$

$

2,449,198

$

$

2,449,198

Pledged securities

 

17,473

 

119,763

 

 

137,236

Derivative assets

 

 

 

49,786

 

49,786

Total

$

17,473

$

2,568,961

$

49,786

$

2,636,220

Liabilities

Derivative liabilities

$

$

$

5,066

$

5,066

Total

$

$

$

5,066

$

5,066

December 31, 2019

Assets

Loans held for sale

$

$

787,035

$

$

787,035

Pledged securities

 

7,204

 

114,563

 

 

121,767

Derivative assets

 

 

 

15,568

 

15,568

Total

$

7,204

$

901,598

$

15,568

$

924,370

Liabilities

Derivative liabilities

$

$

$

36

$

36

Total

$

$

$

36

$

36

There were 0 transfers between any of the levels within the fair value hierarchy during the year ended December 31, 2020.

Derivative instruments (Level 3) are outstanding for short periods of time (generally less than 60 days). A roll forward of derivative instruments is presented below for the years ended December 31, 2020 and 2019:

Fair Value Measurements

Using Significant 

Unobservable Inputs:

Derivative Instruments

(in thousands)

    

December 31, 2020

 

Derivative assets and liabilities, net

    

    

Beginning balance December 31, 2019

$

15,532

Settlements

 

(687,874)

Realized gains recorded in earnings (1)

 

672,342

Unrealized gains recorded in earnings (1)

 

44,720

Ending balance December 31, 2020

$

44,720

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Fair Value Measurements

Using Significant 

Unobservable Inputs:

Derivative Instruments

(in thousands)

    

December 31, 2019

 

Derivative assets and liabilities, net

    

    

Beginning balance December 31, 2018

$

2,839

Settlements

 

(426,544)

Realized gains (losses) recorded in earnings (1)

 

423,705

Unrealized gains (losses) recorded in earnings (1)

 

15,532

Ending balance December 31, 2019

$

15,532

(1)Realized and unrealized gains from derivatives are recognized in Loan origination and debt brokerage fees, net and Fair value of expected net cash flows from servicing, net in the Consolidated Statements of Income.

The following table presents information about significant unobservable inputs used in the recurring measurement of the fair value of the Company’s Level 3 assets and liabilities as of December 31, 2020:

Quantitative Information about Level 3 Measurements

 

(in thousands)

    

Fair Value

    

Valuation Technique

    

Unobservable Input (1)

    

Input Value (1)

 

Derivative assets

$

49,786

 

Discounted cash flow

 

Counterparty credit risk

 

Derivative liabilities

$

5,066

 

Discounted cash flow

 

Counterparty credit risk

 

(1)Significant increases in this input may lead to significantly lower fair value measurements.

The carrying amounts and the fair values of the Company's financial instruments as of December 31, 2020 and December 31, 2019 are presented below:

December 31, 2020

December 31, 2019

 

   

Carrying

    

Fair

    

Carrying

    

Fair

 

(in thousands)

Amount

Value

Amount

Value

 

Financial assets:

Cash and cash equivalents

$

321,097

$

321,097

$

120,685

$

120,685

Restricted cash

 

19,432

 

19,432

 

8,677

 

8,677

Pledged securities

 

137,236

 

137,236

 

121,767

 

121,767

Loans held for sale

 

2,449,198

 

2,449,198

 

787,035

 

787,035

Loans held for investment, net

 

360,402

 

362,586

 

543,542

 

546,033

Derivative assets

 

49,786

 

49,786

 

15,568

 

15,568

Total financial assets

$

3,337,151

$

3,339,335

$

1,597,274

$

1,599,765

Financial liabilities:

Derivative liabilities

$

5,066

$

5,066

$

36

$

36

Secured borrowings

73,314

73,314

70,548

70,548

Warehouse notes payable

 

2,517,156

 

2,518,101

 

906,128

 

906,821

Note payable

 

291,593

 

294,773

 

293,964

 

297,750

Total financial liabilities

$

2,887,129

$

2,891,254

$

1,270,676

$

1,275,155

The following methods and assumptions were used for recurring fair value measurements as of December 31, 2020:

Cash and Cash Equivalents and Restricted Cash—The carrying amounts approximate fair value because of the short maturity of these instruments (Level 1).

Pledged Securities—Consist of cash, highly liquid investments in money market accounts invested in government securities, and investments in Agency debt securities. The investments of the money market funds typically have maturities of 90 days or less and are valued

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

using quoted market prices from recent trades. The fair value of the Agency debt securities incorporates the contractual cash flows of the security discounted at market-rate, risk-adjusted yields.

Loans Held For Sale—Consist of originated loans that are generally transferred or sold within 60 days from the date that a mortgage loan is funded and are valued using discounted cash flow models that incorporate observable prices from market participants.

Derivative InstrumentsConsistThe derivative positions consist of interest rate lock commitments and forward sale agreements. Theseagreements to the Agencies. The fair value of these instruments are valuedis estimated using a discounted cash flow modelsmodel developed based on changes in the U.S. Treasury rate and other observable market data. The value iswas determined after considering the potential impact of collateralization, adjusted to reflect nonperformance risk of both the counterparty and the Company.

Fair ValueCompany, and are classified within Level 3 of Derivative Instruments andthe valuation hierarchy.
Loans Held for SaleIn the normal course of business, the Company enters into contractual commitments to originate and sell multifamily mortgageAll loans at fixed prices with fixed expiration dates. The commitments become effective when the borrowers "lock-in" a specified interest rate within time frames established by the Company. All mortgagors are evaluatedheld for creditworthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the "lock-in" of rates by the borrower and the sale date of the loan to an investor.

To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company's enters into a sale commitment with the investor simultaneously with the rate lock commitment with the borrower. The sale contract with the investor locks in an interest rate and price for the sale of the loan. The terms of the contract with the investor and the rate lock with the borrower are matched in substantially all respects, with the objective of eliminating interest rate risk to the extent practical. Sale commitments with the investors have an expiration date that is longer than our related commitments to the borrower to allow, among other things, for the closing of the loan and processing of paperwork to deliver the loan into the sale commitment.

Both the rate lock commitments to borrowers and the forward sale contracts to buyers are undesignated derivatives and, accordingly, are marked to fair value through Loan origination and debt brokerage fees, net presented in the Consolidated Statements of Income.Balance Sheets are reported at fair value. The Company determines the fair value of the Company's rate lock commitments to borrowers and loans held for sale andusing discounted cash flow models that incorporate quoted observable inputs from market participants such as changes in the related input levels includes,U.S. Treasury rate. Therefore, the Company classifies these loans held for sale as applicable:

the estimated gain of the expected loan sale to the investor (Level 2);
the expected net cash flows associated with servicing the loan, net of any guaranty obligations retained (Level 2);
the effects of interest rate movements between the date of the rate lock and the balance sheet date (Level 2); and
the nonperformance risk of both the counterparty and the Company (Level 3; derivative instruments only).Level 2.

Pledged SecuritiesThe estimated gain considers the origination fees—Investments in money market funds are valued using quoted market prices from recent trades. Therefore, the Company expects to collect upon loan closing (derivative instruments only) and premiums theclassifies this portion of pledged securities as Level 1. The Company expects to receive upon sale of the loan (Level 2). The fair value of the expected net cash flows associated with servicing the loan is calculated pursuant to the valuation techniques applicable todetermines the fair value of future servicing, net at loan sale (Level 2).its AFS Agency MBS

To calculate the effects of interest rate movements, the Company uses applicable published U.S. Treasury prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount (Level 2).

The fair value of the Company's forward sales contracts to investors considers effects of interest rate movements between the trade date and the balance sheet date (Level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The fair value of the Company’s interest rate lock commitments and forward sales contracts is adjusted to reflect the risk that the agreement will not be fulfilled. The Company’s exposure to nonperformance in interest rate lock commitments and forward sale contracts is represented by the contractual amount of those instruments. Given the credit quality of our counterparties and the short duration of interest rate lock commitments and forward sale contracts, the risk of nonperformance by the Company’s counterparties has historically been minimal (Level 3).

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table presentsusing discounted cash flows that incorporate observable inputs from market participants and then compares the componentsfair value to broker estimates of fair value and other relevant information associated withvalue. Consequently, the Company’s derivative instruments and loans held for saleCompany classifies this portion of pledged securities as of December 31, 2020 and 2019.Level 2.

Fair Value Adjustment Components

Balance Sheet Location

 

    

    

    

    

    

    

    

Fair Value

 

Notional or

Estimated

Total

Adjustment

 

Principal

Gain

Interest Rate

Fair Value 

Derivative

Derivative

to Loans 

 

(in thousands)

Amount

on Sale

Movement

Adjustment

Assets

Liabilities

Held for Sale

 

December 31, 2020

Rate lock commitments

$

1,374,784

$

45,581

$

(1,697)

$

43,884

$

43,895

$

(11)

$

Forward sale contracts

 

3,760,953

 

 

836

 

836

 

5,891

(5,055)

 

Loans held for sale

 

2,386,169

 

62,167

 

861

 

63,028

 

 

 

63,028

Total

$

107,748

$

$

107,748

$

49,786

$

(5,066)

$

63,028

December 31, 2019

Rate lock commitments

$

511,114

$

12,199

$

(1,975)

$

10,224

$

10,247

$

(23)

$

Forward sale contracts

 

1,285,656

 

 

5,308

 

5,308

 

5,321

 

(13)

 

Loans held for sale

 

774,542

 

15,826

 

(3,333)

 

12,493

 

 

 

12,493

Total

$

28,025

$

$

28,025

$

15,568

$

(36)

$

12,493

NOTE 9—FANNIE MAE COMMITMENTS AND PLEDGED SECURITIES

Fannie Mae DUS Related CommitmentsContingent Consideration LiabilitiesCommitmentsContingent consideration liabilities from acquisitions are initially recognized at fair value at acquisition and subsequently remeasured using a Monte Carlo simulation that uses updated management forecasts and current valuation assumptions and discount rates. The Company determines the fair value of each contingent consideration liability based on a probability of achievement, which incorporates management estimates. As a result, the Company classifies these liabilities as Level 3.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021, segregated by the level of the valuation inputs within the fair value hierarchy used to measure fair value:

Balance as of

 

(in thousands)

Level 1

Level 2

Level 3

Period End

 

December 31, 2022

Assets

Loans held for sale

$

$

396,344

$

$

396,344

Pledged securities

 

14,658

 

142,624

 

 

157,282

Derivative assets

 

 

 

17,636

 

17,636

Total

$

14,658

$

538,968

$

17,636

$

571,262

Liabilities

Derivative liabilities

$

$

$

2,076

$

2,076

Contingent consideration liabilities

200,346

200,346

Total

$

$

$

202,422

$

202,422

December 31, 2021

Assets

Loans held for sale

$

$

1,811,586

$

$

1,811,586

Pledged securities

 

44,733

 

104,263

 

 

148,996

Derivative assets

 

 

 

37,364

 

37,364

Total

$

44,733

$

1,915,849

$

37,364

$

1,997,946

Liabilities

Derivative liabilities

$

$

$

6,403

$

6,403

Contingent consideration liabilities

125,808

125,808

Total

$

$

$

132,211

$

132,211

There were no transfers between any of the levels within the fair value hierarchy during the year ended December 31, 2022 and 2021.

Derivative instruments (Level 3) are outstanding for short periods of time (generally less than 60 days). A roll forward of derivative instruments is presented below for the years ended December 31, 2022 and 2021:

For the year ended December 31,

Derivative Assets and Liabilities, net (in thousands)

    

2022

    

2021

Beginning balance

$

30,961

$

44,720

Settlements

 

(555,168)

 

(746,918)

Realized gains recorded in earnings(1)

 

524,207

 

702,198

Unrealized gains (losses) recorded in earnings(1)

 

15,560

 

30,961

Ending balance

$

15,560

$

30,961

(1)Realized and unrealized gains from derivatives are recognized in Loan origination and subsequent sale debt brokerage fees, net and deliveryFair value of loans to Fannie Mae represent those mortgage loan transactions whereexpected net cash flows from servicing, net in the borrower has locked an interest rate and scheduled closingConsolidated Statements of Income.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table presents information about significant unobservable inputs used in the recurring measurement of the Company has entered into a mandatory delivery commitment to sell the loan to Fannie Mae. As discussed in NOTE 8, the Company accounts for these commitments as derivatives recorded at fair value.

The Company is generally required to share the risk of any losses associated with loans sold under the Fannie Mae DUS program. The Company is required to secure these obligations by assigning restricted cash balances and securities to Fannie Mae, which are classified as Pledged securities, at fair value of the Company’s Level 3 assets and liabilities as of December 31, 2022:

Quantitative Information about Level 3 Fair Value Measurements

(in thousands)

    

Fair Value

    

Valuation Technique

    

Unobservable Input (1)

    

Input Range (1)

 

Weighted Average (3)

Derivative assets

$

17,636

 

Discounted cash flow

 

Counterparty credit risk

 

Derivative liabilities

$

2,076

 

Discounted cash flow

 

Counterparty credit risk

 

Contingent consideration liabilities

$

200,346

Monte Carlo Simulation(2)

Probability of earn-out achievement

64% - 100%

77%

(1)Significant changes in this input may lead to significant changes in the fair value measurements.
(2)Valuation techniques used include probability-weighted achievement analysis and Monte Carlo simulation.
(3)Contingent consideration weighted based on maximum gross earnout amount.

The carrying amounts and the fair values of the Company's financial instruments as of December 31, 2022 and December 31, 2021 are presented below:

December 31, 2022

December 31, 2021

 

    

Carrying

    

Fair

    

Carrying

    

Fair

 

(in thousands)

Amount

Value

Amount

Value

 

Financial Assets:

Cash and cash equivalents

$

225,949

$

225,949

$

305,635

$

305,635

Restricted cash

 

17,676

 

17,676

 

42,812

 

42,812

Pledged securities

 

157,282

 

157,282

 

148,996

 

148,996

Loans held for sale

 

396,344

 

396,344

 

1,811,586

 

1,811,586

Loans held for investment, net

 

200,247

 

200,900

 

269,125

 

270,826

Derivative assets(1)

 

17,636

 

17,636

 

37,364

 

37,364

Total financial assets

$

1,015,134

$

1,015,787

$

2,615,518

$

2,617,219

Financial Liabilities:

Derivative liabilities(2)

$

2,076

$

2,076

$

6,403

$

6,403

Contingent consideration liabilities(2)

200,346

200,346

125,808

125,808

Warehouse notes payable

 

543,447

 

544,050

 

1,941,572

 

1,942,448

Notes payable

 

704,103

 

708,546

 

740,174

 

745,175

Total financial liabilities

$

1,449,972

$

1,455,018

$

2,813,957

$

2,819,834

(1)Included as a component of Other Assets on the Consolidated Balance Sheets. The amount
(2)Included as a component of collateral required by Fannie Mae is a formulaic calculationOther Liabilities on the Consolidated Balance Sheets.

The following methods and assumptions were used for recurring fair value measurements as of December 31, 2022 and 2021:

Cash and Cash Equivalents and Restricted Cash—The carrying amounts approximate fair value because of the short maturity of these instruments (Level 1).

Pledged Securities—Consist of cash, highly liquid investments in money market accounts invested in government securities, and investments in Agency debt securities. The investments of the money market funds typically have maturities of 90 days or less and are valued using quoted market prices from recent trades. The fair value of the Agency debt securities incorporates the contractual cash flows of the security discounted at market-rate, risk-adjusted yields.

Loans Held for Sale—Consist of originated loans that are generally transferred or sold within 60 days from the date that a mortgage loan is funded and are valued using discounted cash flow models that incorporate observable prices from market participants.

Contingent Consideration Liability—Consists of the estimated fair values of expected future earnout payments related to acquisitions completed in 2021 and 2022. The earn-out liabilities are valued using a probability-weighted achievement analysis or Monte Carlo simulation

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

analysis. The fair value of the contingent consideration liabilities incorporates unobservable inputs, such as the probability of earnout achievement, to determine the expected earn-out cash flows. The probability of the earn-out achievement is based on management’s estimate of the expected future performance and other financial metrics of each of the acquired entities, which are subject to significant uncertainty.

Derivative Instruments—Consist of interest rate lock commitments and forward sale agreements. These instruments are valued using discounted cash flow models developed based on changes in the U.S. Treasury rate and other observable market data. The value is determined after considering the potential impact of collateralization, adjusted to reflect nonperformance risk of both the counterparty and the Company.

Fair Value of Derivative Instruments and Loans Held for Sale—In the normal course of business, the Company enters into contractual commitments to originate and sell multifamily mortgage loans at fixed prices with fixed expiration dates. The commitments become effective when the borrowers "lock-in" a specified interest rate within time frames established by the Company. All mortgagors are evaluated for creditworthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the "lock-in" of rates by the borrower and the sale date of the loan to an investor.

To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into a sale commitment with the investor simultaneously with the rate lock commitment with the borrower. The sale contract with the investor locks in an interest rate and price for the sale of the loan. The terms of the contract with the investor and the rate lock with the borrower are matched in substantially all respects, with the objective of eliminating interest rate risk to the extent practical. Sale commitments with the investors have an expiration date that is longer than our related commitments to the borrower to allow, among other things, for the closing of the loan and processing of paperwork to deliver the loan into the sale commitment.

Both the rate lock commitments to borrowers and the forward sale contracts to buyers are undesignated derivatives and, accordingly, are marked to fair value through Loan origination and debt brokerage fees, net in the Consolidated Statements of Income. The fair value of the Company's rate lock commitments to borrowers and loans held for sale and the related input levels includes, as applicable:

the estimated gain of the expected loan sale to the investor (Level 2);
the expected net cash flows associated with servicing the loan, levelnet of any guaranty obligations retained (Level 2);
the effects of interest rate movements between the date of the rate lock and considers the balance sheet date (Level 2); and
the nonperformance risk of both the loan, the risk level of the loan, the age of the loan, and the level of risk-sharing. Fannie Mae requires restricted liquidity for Tier 2 loans of 75 basis points, which is funded over a 48-month period that begins upon delivery of the loan to Fannie Mae. Pledged securities held in the form of money market funds holding U.S. Treasuries are discounted 5%, and Agency MBS are discounted 4% for purposes of calculating compliance with the restricted liquidity requirements. As seen below, the Company held substantially all of its pledged securities in Agency MBS as of December 31, 2020. The majority of the loans for which the Company has risk sharing are Tier 2 loans.

The Company is in compliance with the December 31, 2020 collateral requirements as outlined above. As of December 31, 2020, reserve requirements for the December 31, 2020 DUS loan portfolio will require the Company to fund $65.0 million in additional restricted liquidity over the next 48-months, assuming no further principal paydowns, prepayments, or defaults within the at-risk portfolio. Fannie Mae has in the past reassessed the DUS Capital Standards and may make changes to these standards in the future. The Company generates sufficient cash flow from its operations to meet these capital standards and does not expect any future changes to have a material impact on its future operations; however, any future increases to collateral requirements may adversely impact the Company’s available cash.

Fannie Mae has established benchmark standards for capital adequacy and reserves the right to terminate the Company's servicing authority for all or some of the portfolio if at any time it determines that the Company's financial condition is not adequate to support its obligations under the DUS agreement. The Company is required to maintain acceptable net worth as defined in the agreement,counterparty and the Company satisfied the requirements as of December 31, 2020. The net worth requirement is derived primarily from unpaid balances on Fannie Mae loans and the level of risk sharing. At December 31, 2020, the net worth requirement was $228.0 million, and the Company's net worth was $991.1 million, as measured at our wholly owned operating subsidiary, Walker & Dunlop, LLC. As of December 31, 2020, the Company was required to maintain at least $45.2 million of liquid assets to meet operational liquidity requirements for Fannie Mae, Freddie Mac, HUD, and(Level 3; derivative instruments only).

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Ginnie Mae. The Company had operational liquidity of $370.0 million, as measured at our wholly owned operating subsidiary, Walker & Dunlop, LLC.

Pledged SecuritiesPledged securities, at fair value consisted of the following balances as of December 31, 2020, 2019, 2018, and 2017:

December 31,

Pledged Securities (in thousands)

2020

    

2019

    

2018

    

2017

 

Restricted cash

$

4,954

$

2,150

$

3,029

$

2,201

Money market funds

12,519

5,054

6,440

86,584

Total pledged cash and cash equivalents

$

17,473

$

7,204

$

9,469

$

88,785

Agency MBS

 

119,763

 

114,563

 

106,862

 

9,074

Total pledged securities, at fair value

$

137,236

$

121,767

$

116,331

$

97,859

The information in the preceding table is presented to reconcile beginning and ending cash, cash equivalents, restricted cash, and restricted cash equivalents in the Consolidated Statements of Cash Flows as more fully discussed in NOTE 2.

The following table provides additional information related to the AFS Agency MBS as of December 31, 2020 and 2019:

Fair Value and Amortized Cost of Agency MBS (in thousands)

December 31, 2020

    

December 31, 2019

    

Fair value

$

119,763

$

114,563

Amortized cost

117,136

113,580

Total gains for securities with net gains in AOCI

2,669

1,145

Total losses for securities with net losses in AOCI

 

(42)

 

(162)

Fair value of securities with unrealized losses

 

12,267

 

66,526

NaN of the pledged securities has been in a continuous unrealized loss position for more than 12-months.

The following table provides contractual maturity information related to Agency MBS. The money market funds invest in short-term Federal Government and Agency debt securities and have no stated maturity date.

December 31, 2020

Detail of Agency MBS Maturities (in thousands)

Fair Value

    

Amortized Cost

    

Within one year

$

$

After one year through five years

9,477

9,474

After five years through ten years

82,278

81,469

After ten years

 

28,008

26,193

Total

$

119,763

$

117,136

NOTE 10—SHARE-BASED PAYMENT

During 2020, the Company registered 2 million shares under the 2020 Equity Incentive Plan, which constitutes an amendment to and restatement of the 2015 Equity Incentive Plan. As a result of the registration, there are 10.5 million shares of stock authorized for issuance under the 2020 Equity Incentive Plan (and predecessor plans) to directors, officers, and employees. At December 31, 2020, 2.2 million shares remain available for grant under the 2020 Equity Incentive Plan.

Under the 2020 Equity Incentive Plan (and predecessor plans), the Company granted stock options to executive officers in the past and restricted shares to executive officers, employees, and non-employee directors during 2020, 2019, and 2018, all without cost to the grantee. For each of the three years ended December 31, 2020, 2019, and 2018, the Company also granted 0.3 million RSUs to the executive officers and certain other employees in connection with PSPs (“performance awards”). The Company granted the RSUs at the maximum performance thresholds for each metric each year. As of December 31, 2020, the RSUs issued in connection with the 2020, 2019, and 2018 PSPs are unvested and outstanding.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The performance period for the 2017 PSP concluded on December 31, 2019. The 3 performance goals related to the 2017 PSP were met at varying levels. Accordingly, 0.2 million shares related to the 2017 PSP vested in the first quarter of 2020. As of December 31, 2020, the Company concluded that the 3 performance targets related to the 2019 PSP and 2020 PSP were probable of achievement at varying levels and 2 performance targets related to the 2018 PSP were probable of achievement at various levels. As of December 31, 2019, the Company concluded that the 3 performance targets related to the 2017 PSP and 2019 PSP were probable of achievement at varying levels and 1 performance target related to the 2018 PSP was probable of achievement at the target level.

The following table summarizes stock compensation expense for the years ended December 31, 2020, 2019, and 2018:

For the year ended December 31,

Components of stock compensation expense (in thousands)

    

2020

    

2019

    

2018

Restricted shares

$

18,924

$

17,818

$

14,741

Stock options

71

625

1,124

PSP "RSUs"

9,324

5,632

8,094

Total stock compensation expense

$

28,319

$

24,075

$

23,959

Excess tax benefit recognized

$

7,273

$

4,632

$

6,848

The amounts attributable to restricted shares in the table above include both equity-classified awards granted in restricted shares and liability-classified awards to be granted in restricted shares. The excess tax benefits recognized above reduced income tax expense.

The following table summarizes restricted share activity for the year ended December 31, 2020:

Weighted-

Average

Grant-date

Restricted Shares Activity

    

Shares

    

Fair Value

 

Nonvested at January 1, 2020

1,085,376

$

48.39

Granted

548,045

74.75

Vested

(459,409)

44.62

Forfeited

(51,398)

56.81

Nonvested at December 31, 2020

1,122,614

$

62.41

The fair value of restricted share awards granted during 2020 was estimated using the closing price on the date of grant. The weighted average grant date fair values of restricted shares granted in 2019 and 2018 were $48.39 per share and $52.25 per share, respectively. The fair values of the restricted shares that vested during the years ended December 31, 2020, 2019, and 2018 were $30.4 million, $30.5 million, and $29.6

The estimated gain considers the origination fees the Company expects to collect upon loan closing (derivative instruments only) and premiums the Company expects to receive upon sale of the loan (Level 2). The fair value of the expected net cash flows associated with servicing the loan is calculated pursuant to the valuation techniques applicable to the fair value of future servicing, net at loan sale (Level 2).

To calculate the effects of interest rate movements, the Company uses applicable published U.S. Treasury prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount (Level 2).

The fair value of the Company's forward sales contracts to investors considers effects of interest rate movements between the trade date and the balance sheet date (Level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The fair value of the Company’s interest rate lock commitments and forward sales contracts is adjusted to reflect the risk that the agreement will not be fulfilled. The Company’s exposure to nonperformance in interest rate lock commitments and forward sale contracts is represented by the contractual amount of those instruments. Given the credit quality of our counterparties and the short duration of interest rate lock commitments and forward sale contracts, the risk of nonperformance by the Company’s counterparties has historically been minimal (Level 3).

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table presents the components of fair value and other relevant information associated with the Company’s derivative instruments and loans held for sale as of December 31, 2022 and 2021.

Fair Value Adjustment Components

Balance Sheet Location

 

    

    

    

    

    

    

    

Fair Value

 

Notional or

Estimated

Total

Adjustment

 

Principal

Gain

Interest Rate

Fair Value 

Derivative

Derivative

to Loans 

 

(in thousands)

Amount

on Sale

Movement

Adjustment

Assets

Liabilities

Held for Sale

 

December 31, 2022

Rate lock commitments

$

376,870

$

12,349

$

(4,495)

$

7,854

$

7,854

$

$

Forward sale contracts

 

769,585

 

 

7,706

 

7,706

 

9,782

(2,076)

 

Loans held for sale

 

392,715

 

6,840

 

(3,211)

 

3,629

 

 

 

3,629

Total

$

19,189

$

$

19,189

$

17,636

$

(2,076)

$

3,629

December 31, 2021

Rate lock commitments

$

1,115,829

$

29,837

$

(4,604)

$

25,233

$

26,526

$

(1,293)

$

Forward sale contracts

 

2,881,224

 

 

5,728

 

5,728

 

10,838

 

(5,110)

 

Loans held for sale

 

1,765,395

 

47,315

 

(1,124)

 

46,191

 

 

 

46,191

Total

$

77,152

$

$

77,152

$

37,364

$

(6,403)

$

46,191

NOTE 9—FANNIE MAE COMMITMENTS AND PLEDGED SECURITIES

Fannie Mae DUS Related Commitments—Commitments for the origination and subsequent sale and delivery of loans to Fannie Mae represent those mortgage loan transactions where the borrower has locked an interest rate and scheduled closing and the Company has entered into a mandatory delivery commitment to sell the loan to Fannie Mae. As discussed in NOTE 8, the Company accounts for these commitments as derivatives recorded at fair value.

The Company is generally required to share the risk of any losses associated with loans sold under the Fannie Mae DUS program. The Company is required to secure these obligations by assigning restricted cash balances and securities to Fannie Mae, which are classified as Pledged securities, at fair value on the Consolidated Balance Sheets. The amount of collateral required by Fannie Mae is a formulaic calculation at the loan level and considers the balance of the loan, the risk level of the loan, the age of the loan, and the level of risk-sharing. Fannie Mae requires restricted liquidity for Tier 2 loans of 75 basis points, which is funded over a 48-month period that begins upon delivery of the loan to Fannie Mae. Pledged securities held in the form of money market funds holding U.S. Treasuries are discounted 5%, and Agency MBS are discounted 4% for purposes of calculating compliance with the restricted liquidity requirements. As seen below, the Company held substantially all of its pledged securities in Agency MBS as of December 31, 2022. The majority of the loans for which the Company has risk sharing are Tier 2 loans.

The Company is in compliance with the December 31, 2022 collateral requirements as outlined above. As of December 31, 2022, reserve requirements for the December 31, 2022 DUS loan portfolio will require the Company to fund $79.6 million in additional restricted liquidity over the next 48-months, assuming no further principal paydowns, prepayments, or defaults within the at-risk portfolio. Fannie Mae has in the past reassessed the DUS Capital Standards and may make changes to these standards in the future. The Company generates sufficient cash flow from its operations to meet these capital standards and does not expect any future changes to have a material impact on its future operations; however, any future increases to collateral requirements may adversely impact the Company’s available cash.

Fannie Mae has established benchmark standards for capital adequacy and reserves the right to terminate the Company's servicing authority for all or some of the portfolio if at any time it determines that the Company's financial condition is not adequate to support its obligations under the DUS agreement. The Company is required to maintain acceptable net worth as defined in the agreement, and the Company satisfied the requirements as of December 31, 2022. The net worth requirement is derived primarily from unpaid balances on Fannie Mae loans and the level of risk sharing. As of December 31, 2022, the net worth requirement was $285.6 million, and the Company's net worth was $692.8 million, as measured at our wholly owned operating subsidiary, Walker & Dunlop, LLC. As of December 31, 2022, the Company was required to maintain at least $56.9 million of liquid assets to meet operational liquidity requirements for Fannie Mae, Freddie Mac, HUD, and Ginnie

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Mae. The Company had operational liquidity of $170.8 million, as measured at our wholly owned operating subsidiary, Walker & Dunlop, LLC.

Pledged SecuritiesPledged securities, at fair value consisted of the following balances as of December 31, 2022, 2021, 2020, and 2019:

December 31,

Pledged Securities (in thousands)

2022

    

2021

    

2020

    

2019

 

Restricted cash

$

5,788

$

3,779

$

4,954

$

2,150

Money market funds

8,870

40,954

12,519

5,054

Total pledged cash and cash equivalents

$

14,658

$

44,733

$

17,473

$

7,204

Agency MBS

 

142,624

 

104,263

 

119,763

 

114,563

Total pledged securities, at fair value

$

157,282

$

148,996

$

137,236

$

121,767

The information in the preceding table is presented to reconcile beginning and ending cash, cash equivalents, restricted cash, and restricted cash equivalents in the Consolidated Statements of Cash Flows as more fully discussed in NOTE 2.

The following table provides additional information related to the AFS Agency MBS as of December 31, 2022 and 2021:

Fair Value and Amortized Cost of Agency MBS (in thousands)

December 31, 2022

    

December 31, 2021

    

Fair value

$

142,624

$

104,263

Amortized cost

144,801

100,847

Total gains for securities with net gains in AOCI

797

3,636

Total losses for securities with net losses in AOCI

 

(2,974)

 

(220)

Fair value of securities with unrealized losses

 

118,565

 

4,757

Three of the pledged securities with a fair value of $3.3 million, an amortized cost of $4.3 million, and a net unrealized loss of $1.0 million have been in a continuous unrealized loss position for more than 12-months. All three securities that have been in a continuous loss position are Agency debt securities that carry a guarantee of the contractual payments. The Company concluded that an allowance for credit losses will not be recognized, as the Company does not intend to sell the securities, and as they carry the guarantee of payment from the Agencies.

The following table provides contractual maturity information related to Agency MBS. The money market funds invest in short-term Federal Government and Agency debt securities and have no stated maturity date.

December 31, 2022

Detail of Agency MBS Maturities (in thousands)

Fair Value

    

Amortized Cost

    

Within one year

$

$

After one year through five years

15,445

15,500

After five years through ten years

104,509

105,515

After ten years

 

22,670

23,786

Total

$

142,624

$

144,801

NOTE 10—SHARE-BASED PAYMENT

As of December 31, 2022, there were 10.5 million shares of stock authorized for issuance to directors, officers, and employees under the 2020 Equity Incentive Plan (and predecessor plans). As of December 31, 2022, 1.3 million shares remain available for grant under the 2020 Equity Incentive Plan.

Under the 2020 Equity Incentive Plan (and predecessor plans), the Company granted stock options to executive officers in the past and restricted shares to executive officers, employees, and non-employee directors during 2022, 2021, and 2020, all without cost to the grantee. For the year ended December 31, 2022, the Company granted 0.2 million RSUs to the executive officers and certain other employees connection with PSPs (“performance awards”). For each of the years ended 2021 and 2020, the Company granted 0.3 million RSUs to the executive officers

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

and certain other employees connection with PSPs (“performance awards”). The Company granted the RSUs at the maximum performance thresholds for each metric each year. As of December 31, 2022, the RSUs issued in connection with the 2022, 2021, and 2020 PSPs are unvested and outstanding.

The performance period for the 2019 PSP concluded on December 31, 2021. The three performance goals related to the 2019 PSP were met at varying levels. Accordingly, 0.2 million shares related to the 2019 PSP vested in the first quarter of 2022. As of December 31, 2022, the Company concluded that the three performance targets related to the 2020 PSP, 2021 PSP, and 2022 PSP were probable of achievement at varying levels.

The following table summarizes stock compensation expense for the years ended December 31, 2022, 2021, and 2020:

For the year ended December 31,

Components of stock compensation expense (in thousands)

    

2022

    

2021

    

2020

Restricted shares

$

29,650

$

25,520

$

18,924

Stock options

71

PSP "RSUs"

4,337

11,062

9,324

Total stock compensation expense

$

33,987

$

36,582

$

28,319

Excess tax benefit recognized

$

6,106

$

8,620

$

7,273

The amounts attributable to restricted shares in the table above include both equity-classified awards granted in restricted shares and liability-classified awards to be granted in restricted shares. The excess tax benefits recognized above reduced income tax expense.

The following table summarizes restricted share activity for the year ended December 31, 2022:

Weighted-

Average

Grant-date

Restricted Shares Activity

    

Shares

    

Fair Value

 

Nonvested at January 1, 2022

1,122,693

$

77.70

Granted

263,852

110.98

Vested

(402,937)

70.20

Forfeited

(26,440)

88.39

Nonvested at December 31, 2022

957,168

$

89.69

The fair value of restricted share awards granted during 2022 was estimated using the closing price on the date of grant. The weighted average grant date fair values of restricted shares granted in 2021 and 2020 were $101.48 per share and $74.75 per share, respectively. The fair values of the restricted shares that vested during the years ended December 31, 2022, 2021, and 2020 were $49.8 million, $44.6 million, and $30.4 million, respectively.

As of December 31, 2022, the total unrecognized compensation cost for outstanding restricted shares was $47.9 million. As of December 31, 2022, the weighted-average period over which this unrecognized compensation cost will be recognized is 3.4 years.

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Notes to Consolidated Financial Statements

The following table summarizes activity related to performance awards for the year ended December 31, 2022:

Weighted-

Average

Grant-date

Restricted Share Units Activity

    

Share Units

    

Fair Value

 

Nonvested at January 1, 2022

778,546

$

67.66

Granted

233,052

130.26

Vested

(210,022)

139.75

Forfeited

(107,917)

94.10

Cancelled

(878)

67.13

Nonvested at December 31, 2022

692,781

$

89.67

The fair value of performance awards granted during 2022 was estimated using the closing price on the date of grant. The weighted average grant date fair values of performance awards granted in 2021 and 2020 were $101.04 per share and $50.26 per share, respectively. The fair value of the performance awards that vested during the years ended December 31, 2022, 2021 and 2020 was $29.4 million and $5.6 million, and $17.5 million, respectively.

As of December 31, 2022, the total unrecognized compensation cost for outstanding performance awards was $2.8 million. As of December 31, 2022, the weighted-average period over which this unrecognized compensation cost will be recognized is 1.2 years. The unrecognized compensation cost is based on the achievement levels that are probable as of December 31, 2022.

The following table summarizes stock options activity for the year ended December 31, 2022:

Weighted-

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Exercise

Contract Life

Value

Stock Options Activity

    

Options

    

Price

    

(Years)

    

(in thousands)

 

Outstanding at January 1, 2022

234,006

$

22.25

Exercised

(16,181)

20.86

Outstanding at December 31, 2022

217,825

$

22.35

$

Exercisable at December 31, 2022

217,825

$

22.35

2.7

$

12,227

The total intrinsic value of the stock options exercised during the years ended December 31, 2022, 2021, and 2020 was $1.1 million, $17.5 million, and $21.6 million, respectively. We received no cash from the exercise of options for each of the years ended December 31, 2022, 2021, and 2020.

NOTE 11—EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY

Earnings per share (“EPS”) is calculated under the two-class method. The two-class method allocates all earnings (distributed and undistributed) to each class of common stock and participating securities based on their respective rights to receive dividends. The Company grants share-based awards to various employees and nonemployee directors under the 2020 Equity Incentive Plan that entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities.

The following table presents the calculation of basic and diluted EPS for the years ended December 31, 2022, 2021, and 2020 under the two-class method. Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the treasury-stock method.

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Notes to Consolidated Financial Statements

For the years ended December 31,

 

EPS Calculations (in thousands, except per share amounts)

2022

2021

2020

 

Calculation of basic EPS

Walker & Dunlop net income

$

213,820

$

265,762

$

246,177

Less: dividends and undistributed earnings allocated to participating securities

 

6,100

 

8,837

 

7,337

Net income applicable to common stockholders

$

207,720

$

256,925

$

238,840

Weighted-average basic shares outstanding

32,326

31,081

30,444

Basic EPS

$

6.43

$

8.27

$

7.85

Calculation of diluted EPS

Net income applicable to common stockholders

$

207,720

$

256,925

$

238,840

Add: reallocation of dividends and undistributed earnings based on assumed conversion

41

93

120

Net income allocated to common stockholders

$

207,761

$

257,018

$

238,960

Weighted-average basic shares outstanding

32,326

31,081

30,444

Add: weighted-average diluted non-participating securities

361

452

639

Weighted-average diluted shares outstanding

32,687

31,533

31,083

Diluted EPS

$

6.36

$

8.15

$

7.69

The assumed proceeds used for calculating the dilutive impact of restricted stock awards under the treasury method includes the unrecognized compensation costs associated with the awards. For the year ended December 31, 2022, 201 thousand average restricted shares were excluded from the computation of diluted EPS under the treasury-stock method. An immaterial number of average outstanding options to purchase common stock and average restricted shares were excluded from the computation of diluted earnings per share under the treasury method for the years ended December 31, 2021, and 2020 because the effect would have been anti-dilutive (the exercise price of the options or the grant date market price of the restricted shares was greater than the average market price of the Company’s shares during the periods presented).

Under the 2020 Equity Incentive Plan (and predecessor plans), subject to the Company’s approval, grantees have the option of electing to satisfy tax withholding obligations at the time of vesting or exercise by allowing the Company to withhold and purchase the shares of stock otherwise issuable to the grantee. For the years ended December 31, 2022, 2021, and 2020, the Company repurchased and retired 149 thousand, 150 thousand, and 179 thousand restricted shares at a weighted average market price of $125.28, $109.57, and $66.38, upon grantee vesting, respectively. For the years ended December 31, 2022 and 2021, the Company repurchased and retired 90 thousand and 24 thousand restricted share units at a weighted average market price of $139.75 and $100.36, respectively.

As of December 31, 2020, the total unrecognized compensation cost for outstanding restricted shares was $43.5 million. As of December 31, 2020, the weighted-average period over which this unrecognized compensation cost will be recognized is 2.8 years.

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Notes to Consolidated Financial Statements

The following table summarizes activity related to performance awards for the year ended December 31, 2020:

Weighted-

Average

Grant-date

Restricted Share Units Activity

    

Share Units

    

Fair Value

 

Nonvested at January 1, 2020

890,049

$

47.87

Granted

269,779

50.26

Vested

(222,273)

41.79

Forfeited

(137,434)

44.22

Cancelled

(29,628)

67.13

Nonvested at December 31, 2020

770,493

$

50.37

The fair value of performance awards granted during 2020 was estimated using the closing price on the date of grant. The weighted average grant date fair values of performance awards granted in 2019 and 2018 were $52.84 per share and $49.72 per share, respectively. The fair value of the performance awards that vested during the years ended December 31, 2020 and 2019 was $17.5 million and $26.6 million, respectively. There were 0 performance awards that vested during the year ended December 31, 2018.

As of December 31, 2020, the total unrecognized compensation cost for outstanding performance awards was $13.7 million. As of December 31, 2020, the weighted-average period over which this unrecognized compensation cost will be recognized is 1.9 years. The unrecognized compensation cost is based on the achievement levels that are probable as of December 31, 2020.

The following table summarizes stock options activity for the year ended December 31, 2020:

Weighted-

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Exercise

Contract Life

Value

Stock Options Activity

    

Options

    

Price

    

(Years)

    

(in thousands)

 

Outstanding at January 1, 2020

983,082

$

19.72

Granted

Exercised

(521,742)

17.26

Forfeited

Expired

Outstanding at December 31, 2020

461,340

$

22.51

4.4

$

32,069

Exercisable at December 31, 2020

461,340

$

22.51

4.4

$

32,069

The total intrinsic value of the stock options exercised during the years ended December 31, 2020, 2019, and 2018 was $21.6 million, $2.7 million, and $13.5 million, respectively. We received 0 cash from the exercise of options for each of the years ended December 31, 2020, 2019, and 2018.

NOTE 11—EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY

Earnings per share (“EPS”) is calculated under the two-class method. The two-class method allocates all earnings (distributed and undistributed) to each class of common stock and participating securities based on their respective rights to receive dividends. The Company grants share-based awards to various employees and nonemployee directors under the 2020 Equity Incentive Plan that entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities.

The following table presents the calculation of basic and diluted EPS for the years ended December 31, 2020, 2019, and 2018 under the two-class method. Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the treasury-stock method.

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Notes to Consolidated Financial Statements

For the years ended December 31,

 

EPS Calculations (in thousands, except per share amounts)

2020

2019

2018

 

Calculation of basic EPS

Walker & Dunlop net income

$

246,177

$

173,373

$

161,439

Less: dividends and undistributed earnings allocated to participating securities

 

7,337

 

5,649

��

5,790

Net income applicable to common stockholders

$

238,840

$

167,724

$

155,649

Weighted-average basic shares outstanding

30,444

29,913

30,202

Basic EPS

$

7.85

$

5.61

$

5.15

Calculation of diluted EPS

Net income applicable to common stockholders

$

238,840

$

167,724

$

155,649

Add: reallocation of dividends and undistributed earnings based on assumed conversion

120

126

170

Net income allocated to common stockholders

$

238,960

$

167,850

$

155,819

Weighted-average basic shares outstanding

30,444

29,913

30,202

Add: weighted-average diluted non-participating securities

639

902

1,182

Weighted-average diluted shares outstanding

31,083

30,815

31,384

Diluted EPS

$

7.69

$

5.45

$

4.96

The assumed proceeds used for calculating the dilutive impact of restricted stock awards under the treasury method includes the unrecognized compensation costs associated with the awards. An immaterial number of average outstanding options to purchase common stock and average restricted shares were excluded from the computation of diluted earnings per share under the treasury method for the years ended December 31, 2020, 2019, and 2018 because the effect would have been anti-dilutive (the exercise price of the options or the grant date market price of the restricted shares was greater than the average market price of the Company’s shares during the periods presented).

Under the 2020 Equity Incentive Plan (and predecessor plans), subject to the Company’s approval, grantees have the option of electing to satisfy tax withholding obligations at the time of vesting or exercise by allowing the Company to withhold and purchase the shares of stock otherwise issuable to the grantee. For the years ended December 31, 2020, 2019, and 2018, the Company repurchased and retired 179 thousand, 200 thousand, and 200 thousand restricted shares at a weighted average market price of $66.38, $54.02, and $51.86, upon grantee vesting, respectively. For the years ended December 31, 2020 and 2019, the Company repurchased and retired 99 thousand and 200 thousand restricted share units at a weighted average market price of $78.79 and $54.49, respectively. The Company did 0t repurchase any restricted share units during the year ended December 31, 2018.

Stock Repurchase Programs

In February 2021,2023, the Company’s Board of Directors approved a new stock repurchase program that permits the repurchase of up to $75.0 million of the Company’s common stock over a 12-month period beginning on February 12, 2021.23, 2023.

In February 2020,2022, the Company’s Board of Directors authorized the Company to repurchase up to $50.0$75.0 million of its common stock over a 12-month period beginning on February 11, 2020. 13, 2022. In 2022, the Company repurchased 109 thousand shares of its common stock under the 2022 share repurchase program at a weighted-average price of $101.77 per share and immediately retired the shares, reducing stockholders’ equity by $11.1 million.  The Company had $63.9 million of authorized share repurchase capacity remaining under the 2022 share repurchase program as of December 31, 2022.

In 2021, the Company did not repurchase any shares of its common stock under the share repurchase program.

In 2020, the Company repurchased 459 thousand shares of its common stock under thea share repurchase program at a weighted average price of $56.77 per share and immediately retired the shares, reducing stockholders’ equity by $26.1 million. The Company had $23.9 million of authorized share repurchase capacity remaining under the 2020 share repurchase program as of December 31, 2020.

In 2019, the Company repurchased 135 thousand shares of its common stock under a share repurchase program at a weighted average price of $48.52 per share and immediately retired the shares, reducing stockholders’ equity by $6.6 million.

In 2018, the Company repurchased 1.2 million shares of its common stock under a share repurchase program at a weighted average price of $45.64 per share and immediately retired the shares, reducing stockholders’ equity by $57.0 million.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Dividends

In February 2021,2023, our Board of Directors declared a dividend of $0.50$0.63 per share for the first quarter of 2021.2023. The dividend will be paid on March 11, 202123, 2023 to all holders of record of our restricted and unrestricted common stock as of February 22, 2021.March 8, 2023.

The Term Loan contains direct restrictions to the amount of dividends the Company may pay, and the warehouse debt facilities and agreements with the Agencies contain minimum equity, liquidity, and other capital requirements that indirectly restrict the amount of dividends the Company may pay. The Company does not believe that these restrictions currently limit the amount of dividends the Company can pay for the foreseeable future.

Other Equity-Related Transactions

As disclosedThe following non-cash transactions did not impact the amount of cash paid on the Consolidated Statements of Cash Flows. During 2022, the operating agreement of three of the Company’s tax-credit-related joint ventures changed. The Company reconsidered its consolidation conclusion based on these changes and concluded that the joint ventures should be consolidated, resulting in NOTE 7,a $3.7 million increase in APIC and $6.8 million of noncontrolling interests consolidated as shown on the Consolidated Statements of Changes in Equity for the year ended December 31, 2022. The consolidation also resulted in a $35.0 million increase in Receivables, net, a $21.3 million reduction in Other assets, and a $3.6 million increase in Other liabilities.

The Company did not issue any Company stock in connection with acquisitions during 2022.

The Company issued $5.0$120.6 million of Company stock in connection with acquisitions in 2020,2021, a non-cash transaction. Additionally, in 2021, $9.6 million of stock was issued to employees for which we had an accrued liability prior to the issuance of the award. Upon issuance, the accrued liability was reclassed to APIC, a non-cash transaction.

In 2020, the Company purchased the noncontrolling interests held by the 2 membertwo members of WDIS for an aggregate consideration of $32.0 million, which consisted of $10.4 million in cash, a $5.7 million reduction in receivables (a non-cash transaction), $5.9 million in Company stock (a non-cash transaction), and $10.0 million of contingent consideration (a non-cash transaction). The $32.0 million aggregatedaggregate purchase price resulted in reductions to APIC of $24.1 million for the excess of the purchase price over the noncontrolling interest balance.

As a result of the transactions, the Company recorded Net income (loss) from noncontrolling interests only for the first quarter of 2020 on the Consolidated Statements of Income.

During 2019, Additionally, the Company made an advance to 1issued $5.0 million of the noncontrolling interest holdersCompany stock in the amount of $1.7 million to allow the noncontrolling interest holder to make a required contribution to WDIS. As this wasconnection with acquisitions in 2020, a non-cash transaction, the amounts are not presented in the Consolidated Statements of Cash Flows.transaction.

NOTE 12—INCOME TAXES

Income Tax Expense

The Company calculates its provision for federal, state, and stateinternational income taxes based on current tax law. The Company began incurring income taxes in the Netherlands in 2022 in connection with the Company’s acquisition of GeoPhy. The reported tax provision differs from the amounts currently receivable or payable because some income and expense items are recognized in different time periods for financial reporting purposes than for income tax purposes. The following is a summary of income tax expense for the years ended December 31, 2020, 2019, and 2018:

For the year ended December 31, 

Components of Income Tax Expense (in thousands)

    

2020

    

2019

    

2018

 

Current

Federal

$

26,854

$

28,150

$

26,850

State

10,294

6,959

7,575

Total current expense

$

37,148

$

35,109

$

34,425

Deferred

Federal

$

37,354

$

17,484

$

13,964

State

9,811

4,528

3,519

Total deferred expense

$

47,165

$

22,012

$

17,483

Total income tax expense

$

84,313

$

57,121

$

51,908

Excess tax benefits recognized for the years ended December 31, 2020, 2019, and 2018 reduced income tax expense by $7.3 million, $4.6 million, and $6.8 million, respectively. In the reconciliation of income tax expense presented below, the reduction of income tax expense from excess tax benefits recognized is included as a component of the “Other” line item.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Inreporting purposes than for income tax purposes. The following is a summary of income tax expense for the years ended December 2017, the Tax Cuts31, 2022, 2021, and Jobs Act (“Tax Reform”) was enacted. Tax Reform changed the rules related to the deductibility of executive compensation under2020:

For the year ended December 31, 

Components of Income Tax Expense (in thousands)

    

2022

    

2021

    

2020

 

Current

Federal

$

23,014

$

40,025

$

26,854

State

11,065

12,181

10,294

International

3,516

Total current expense

$

37,595

$

52,206

$

37,148

Deferred

Federal

$

19,114

$

26,630

$

37,354

State

3,775

7,592

9,811

International

(4,450)

Total deferred expense

$

18,439

$

34,222

$

47,165

Total income tax expense

$

56,034

$

86,428

$

84,313

Under the provisions of Section 162(m) of the Internal Revenue Code, the deductibility of executive compensation is limited to $1 million per year for each named executive officer (“162(m)”NEO”). Tax Reform also contains provisions for determining whether compensation agreements executed prior to Tax Reform follow the 162(m) guidance prior or subsequent to Tax Reform. During 2018, the Treasury Department issued initial guidance for determining, among other things, whether a compensation agreement in place prior to Tax Reform follows the 162(m) guidance prior or subsequent to Tax Reform. Based on the information available as of December 31, 2020, 20192022, 2021, and 2018,2020, the Company believed that it may beis more likely than not thesea significant portion of NEO stock-based compensation agreementsbook expense will followexceed the guidance subsequent to Tax Reform,$1 million limitation in future years when the shares vest, resulting in no tax deductibility for the book expense associated with these compensation agreements. Accordingly, asagreements and no deferred tax assets. Additionally, for each of December 31, 2018,the years presented above, significant portions of NEO compensation were above the $1 million limitation, resulting in no tax deductibility for amounts above the $1 million limitation.

As discussed in NOTE 7, the Company recorded a 100% valuation allowance onrecognized the associated deferred tax assets,Apprise revaluation gain in connection with its acquisition of GeoPhy. The gain is an unrealized, non-taxable gain, resulting in a $2.8 million chargethe reduction to deferredincome tax expense forby the year ended December 31, 2018, which increasedamount shown in the effective tax rate by 1.3%. During the year ended December 31, 2020 and 2019, performance awards for executives for which the Company had previously recorded a valuation allowance vested, resulting in a decrease in table below.

deferred tax assets and the reversal of the corresponding valuation allowance of $1.0 and $1.8 million, respectively.

The following table presents a reconciliation of the statutory federal tax expense to the income tax expense in the accompanying Consolidated Statements of Income:

For the year ended December 31, 

For the year ended December 31, 

(in thousands)

    

2020

    

2019

    

2018

    

2022

    

2021

    

2020

Statutory federal expense

$

69,356

$

48,374

$

44,699

$

56,350

$

73,932

$

69,356

Statutory state income tax expense, net of federal tax benefit

13,828

9,281

8,744

13,567

16,409

13,828

Excess tax benefits, net of federal tax impact

(6,106)

(8,620)

(7,273)

Tax benefit of Apprise revaluation gain

(10,329)

Other

1,129

(534)

(1,535)

2,552

4,707

8,402

Income tax expense

$

84,313

$

57,121

$

51,908

$

56,034

$

86,428

$

84,313

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Deferred Tax Assets/Liabilities

The tax effects of temporary differences between reported earnings and taxable earnings consisted of the following:

As of December 31, 

As of December 31, 

Components of Deferred Tax Liabilities, Net (in thousands)

    

2020

    

2019

 

    

2022

    

2021

 

Deferred Tax Assets

Compensation related

$

8,760

$

8,227

$

(333)

$

5,811

Credit losses

 

20,163

 

3,133

 

12,425

 

16,748

Valuation allowance

(1,049)

Total deferred tax assets

$

28,923

$

10,311

$

12,092

$

22,559

Deferred Tax Liabilities

Mark-to-market of derivatives and loans held for sale

$

(22,367)

$

(5,396)

$

(3,583)

$

(16,874)

Mortgage servicing rights related

(180,129)

(139,115)

(218,767)

(208,718)

Acquisition related (1)

(9,594)

(7,292)

(24,673)

(12,977)

Depreciation

(2,267)

(1,812)

(6,261)

(2,317)

Other

(224)

(3,507)

(2,293)

(6,913)

Total deferred tax liabilities

$

(214,581)

$

(157,122)

$

(255,577)

$

(247,799)

Deferred tax liabilities, net

$

(185,658)

$

(146,811)

$

(243,485)

$

(225,240)

(1)Acquisition-related deferred tax liabilities consist of book-to-tax differences associated with basis step ups related to the amortization of goodwill recorded from acquisitions and book-to-tax differences in intangible asset amortization.

The Company believes it is more likely than not that it will generate sufficient taxable income in future periods to realize the deferred tax assets. During the year ended December 31, 2020,2022, the Company recognized an immaterial amount of deferred tax assets that are not included as a component of deferred tax expense. During the year ended December 31, 2021, the Company recognized deferred tax assets of $9.0$5.4 million in conjunction with the adoptionacquisition of CECLsolar income tax credits and the purchase of noncontrolling interests,other activity, which are not included as a component of deferred tax expense.

Tax Uncertainties

The Company periodically assesses its liabilities and contingencies for all periods open to examination by tax authorities based on the

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

latest available information. Where the Company believes it is more likely than not that a tax position will not be sustained, management records its best estimate of the resulting tax liability, including interest and penalties, in the consolidated financial statements. As of December 31, 2020,2022, based on all known facts and circumstances and current tax law, management believes that there are no material tax positions for which it is reasonably possible that the unrecognized tax benefits will materially increase or decrease over the next 12 months, producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial condition, or cash flows.

NOTE 13—SEGMENTS

Reportable Segments

In the first quarter of 2022, as a result of the Company’s growth and recent acquisitions, the Company’s executive leadership team, which functions as the Company’s chief operating decision making body, began making decisions and assessing performance based on the following three reportable segments. The reportable segments are determined based on the product or service provided and reflect the manner in which management is currently evaluating the Company’s financial information.  

(i)Capital Markets (“CM”)—CM provides a comprehensive range of commercial real estate finance products to our customers, including Agency lending, debt brokerage, property sales, and appraisal and valuation services. The Company’s long-established relationships with the Agencies and institutional investors enable CM to offer a broad range of loan products and services to the Company’s customers, including first mortgage, second trust, supplemental, construction, mezzanine, preferred equity, and small-balance loans. CM provides property sales services to owners and developers of multifamily properties and commercial real estate and multifamily property appraisals for various investors. CM also provides real estate-related investment banking and advisory services, including housing market research.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As part of Agency lending, CM temporarily funds the loans it originates (loans held for sale) before selling them to the Agencies and earns net interest income on the spread between the interest income on the loans and the warehouse interest expense. For Agency loans, CM recognizes the fair value of expected net cash flows from servicing, which represents the right to receive future servicing fees. CM also earns fees for origination of loans for both Agency lending and debt brokerage, fees for property sales and appraisals, and subscription revenue for its housing market research. Direct internal, including compensation, and external costs that are specific to CM are included within the results of this reportable segment.

(ii)Servicing & Asset Management (“SAM”)—SAM’s activities include: (i) servicing and asset-managing the portfolio of loans the Company (a) originates and sells to the Agencies, (b) brokers to certain life insurance companies, and (c) originates through its principal lending and investing activities, and (ii) managing third-party capital invested in tax credit equity funds focused on the affordable housing sector and other commercial real estate.

SAM earns revenue through (i) fees for servicing the loans in the Company’s servicing portfolio, (ii) asset management fees for managing third-party capital invested in funds, primarily LIHTC tax credit funds, and (iii) net interest income on the spread between the interest income on the loans and the warehouse interest expense for loans held for investment. Direct internal, including compensation, and external costs that are specific to SAM are included within the results of this reportable segment.

(iii)Corporate—The Corporate segment consists primarily of the Company’s treasury operations and other corporate-level activities. The Company’s treasury activities include monitoring and managing liquidity and funding requirements, including corporate debt. Other corporate-level activities include equity-method investments, accounting, information technology, legal, human resources, marketing, internal audit, and various other corporate groups (“support functions”). The Company does not allocate costs from these support functions to the CM or SAM segments in presenting segment operating results. The Company does allocate interest expense and income tax expense. Corporate debt and the related interest expense are allocated first based on specific acquisitions where debt was directly used to fund the acquisition, such as the acquisition of Alliant, and then based on the remaining segment assets. Income tax expense is allocated proportionally based on income from operations at each segment, except for significant one-time tax activities, which are allocated entirely to the segment impacted by the tax activity.

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Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following tables provide a summary and reconciliation of each segment’s results for the year ended December 31, 2022, 2021 and 2020.

As of and for the year ended December 31, 2022

Segment Results and Total Assets

Servicing &

(in thousands)

Capital

Asset

Markets

Management

Corporate

Consolidated

Revenues

Loan origination and debt brokerage fees, net

$

345,779

$

2,228

$

$

348,007

Fair value of expected net cash flows from servicing, net

191,760

191,760

Servicing fees

300,191

300,191

Property sales broker fees

120,582

120,582

Investment management fees

71,931

71,931

Net warehouse interest income

9,667

6,110

15,777

Escrow earnings and other interest income

51,010

1,820

52,830

Other revenues

41,046

75,960

40,669

157,675

Total revenues

$

708,834

$

507,430

$

42,489

$

1,258,753

Expenses

Personnel

$

485,958

$

69,970

$

51,438

$

607,366

Amortization and depreciation

3,084

225,515

6,432

235,031

Provision (benefit) for credit losses

 

 

(11,978)

 

 

(11,978)

Interest expense on corporate debt

 

8,647

 

23,621

 

1,965

 

34,233

Other operating expenses

 

11,817

 

30,738

 

86,581

 

129,136

Total expenses

$

509,506

$

337,866

$

146,416

$

993,788

Income from operations

$

199,328

$

169,564

$

(103,927)

$

264,965

Income tax expense (benefit)

 

42,153

35,859

(21,978)

 

56,034

Net income before noncontrolling interests

$

157,175

$

133,705

$

(81,949)

$

208,931

Less: net income (loss) from noncontrolling interests

 

1,097

(5,986)

 

(4,889)

Walker & Dunlop net income

$

156,078

$

139,691

$

(81,949)

$

213,820

Total assets

$

1,051,437

$

2,539,013

$

454,909

$

4,045,359

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Table of Contents

NOTE 13—SEGMENTSWalker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of and for the year ended December 31, 2021

Segment Results and Total Assets

Servicing &

(in thousands)

Capital

Asset

Markets

Management

Corporate

Consolidated

Revenues

Loan origination and debt brokerage fees, net

$

440,044

$

5,970

$

$

446,014

Fair value of expected net cash flows from servicing, net

287,145

287,145

Servicing fees

278,466

278,466

Property sales broker fees

119,981

119,981

Investment management fees

25,637

25,637

Net warehouse interest income

14,396

7,712

22,108

Escrow earnings and other interest income

7,776

374

8,150

Other revenues

20,458

52,916

(1,697)

71,677

Total revenues

$

882,024

$

378,477

$

(1,323)

$

1,259,178

Expenses

Personnel

$

500,052

$

36,412

$

67,023

$

603,487

Amortization and depreciation

2,877

203,118

4,289

210,284

Provision (benefit) for credit losses

 

 

(13,287)

 

 

(13,287)

Interest expense on corporate debt

 

5,078

1,749

1,154

 

7,981

Other operating expenses

 

26,420

11,401

60,834

 

98,655

Total expenses

$

534,427

$

239,393

$

133,300

$

907,120

Income from operations

$

347,597

$

139,084

$

(134,623)

$

352,058

Income tax expense (benefit)

 

85,333

34,144

(33,049)

 

86,428

Net income before noncontrolling interests

$

262,264

$

104,940

$

(101,574)

$

265,630

Less: net income (loss) from noncontrolling interests

 

70

 

(202)

 

 

(132)

Walker & Dunlop net income

$

262,194

$

105,142

$

(101,574)

$

265,762

Total assets

$

2,263,907

$

2,430,137

$

511,945

$

5,205,989

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of and for the year ended December 31, 2020

Segment Results and Total Assets

Servicing &

(in thousands)

Capital

Asset

Markets

Management

Corporate

Consolidated

Revenues

Loan origination and debt brokerage fees, net

$

357,106

$

1,955

$

$

359,061

Fair value of expected net cash flows from servicing, net

358,000

358,000

Servicing fees

235,801

235,801

Property sales broker fees

38,108

38,108

Investment management fees

10,713

10,713

Net warehouse interest income

17,936

11,390

29,326

Escrow earnings and other interest income

16,948

1,307

18,255

Other revenues

9,335

26,553

(1,445)

34,443

Total revenues

$

780,485

$

303,360

$

(138)

$

1,083,707

Expenses

Personnel

$

367,668

$

29,469

$

71,682

$

468,819

Amortization and depreciation

70

164,884

4,057

169,011

Provision (benefit) for credit losses

 

 

37,479

 

 

37,479

Interest expense on corporate debt

 

5,773

1,465

1,312

 

8,550

Other operating expenses

 

11,988

9,700

47,894

 

69,582

Total expenses

$

385,499

$

242,997

$

124,945

$

753,441

Income from operations

$

394,986

$

60,363

$

(125,083)

$

330,266

Income tax expense (benefit)

 

100,835

15,410

(31,932)

 

84,313

Net income before noncontrolling interests

$

294,151

$

44,953

$

(93,151)

$

245,953

Less: net income (loss) from noncontrolling interests

 

 

(224)

 

 

(224)

Walker & Dunlop net income

$

294,151

$

45,177

$

(93,151)

$

246,177

Total assets

$

2,782,535

$

1,431,481

$

436,959

$

4,650,975

Concentrations

The Company is one of the leading commercial real estate services and finance companies in the United States, with a primary focus on multifamily lending. The Company originates a range of multifamily and other commercial real estate loans that are sold to the Agencies or placed with institutional investors. The Company also services nearly all of the loans it sells to the Agencies and some of the loans that it places with institutional investors. Substantially allThe majority of the Company’s operations involve the delivery and servicing of loan products for its customers.customers through its Capital Markets and Servicing & Asset Management makes operating decisions and assesses performance based on an ongoing review of these integrated operations, which constitute the Company's only operating segment for financial reporting purposes.reportable segments, respectively.

The Company evaluates the performance of its business and allocates resources based on a single-segment concept. As of December 31, 20202022 and 2019,2021, no one borrower/key principal accounted for more than 3% and 4%2%, respectively, of our total risk-sharing loan portfolio.

An analysis of the product concentrations and geographic dispersion that impact the Company’s servicing revenue is shown in the following tables. This information is based on the distribution of the loans serviced for others. The principal balance of the loans serviced for others, by product, as of December 31, 2020, 2019,2022, 2021, and 20182020 follows:

As of December 31, 

Components of Loan Servicing Portfolio (in thousands)

    

2020

    

2019

    

2018

 

Fannie Mae

$

48,818,185

$

40,049,095

$

35,983,178

Freddie Mac

37,072,587

32,583,842

30,350,724

Ginnie Mae-HUD

9,606,506

9,972,989

9,944,222

Life insurance companies and other

11,714,694

10,619,243

9,411,138

Total

$

107,211,972

$

93,225,169

$

85,689,262

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 

Customers of Loan Servicing Portfolio (in thousands)

    

2022

    

2021

    

2020

 

Fannie Mae

$

59,226,168

$

53,401,457

$

48,818,185

Freddie Mac

37,819,256

37,138,836

37,072,587

Ginnie Mae-HUD

9,868,453

9,889,289

9,606,506

Other

16,219,978

15,270,982

11,714,694

Total

$

123,133,855

$

115,700,564

$

107,211,972

The percentage of unpaid principal balance of the loans serviced for others as of December 31, 2020, 2019,2022, 2021, and 20182020 by geographical area is shown in the following table. No other state accounted for more than 5% of the unpaid principal balance and related servicing revenues in any of the years presented. The Company does not have any servicing operations outside of the United States.

Percent of Total UPB as of December 31, 

Percent of Total UPB as of December 31, 

Loan Servicing Portfolio Concentration by State

    

2020

    

2019

    

2018

    

    

2022

    

2021

2020

California

16.2

%

16.2

%

16.3

%

16.1

%

16.1

%

16.2

%

Texas

11.7

8.6

8.8

Florida

10.4

9.4

9.0

10.5

10.0

10.4

Texas

8.8

9.3

9.7

Georgia

5.9

5.8

6.1

5.8

5.9

5.9

All other states

58.7

59.3

58.9

55.9

59.4

58.7

Total

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 14—LEASES

Right-of-use (“ROU”) assets and lease liabilities associated with the Company’s operating leases are recorded as Other assets and Other liabilities, respectively, in the Consolidated Balance Sheet. As of December 31, 2020,2022, our leases have terms varying in duration, with the longest term ending in 2027. 2036.

The following table presents information about the Company’s lease arrangements:  

For year ended December 31,

For year ended December 31,

Operating Lease Arrangements (dollars in thousands)

2020

2019

2022

2021

2020

Operating Leases

Right-of-use assets

$

17,405

$

22,307

$

60,830

$

24,825

$

17,405

Lease Liabilities

22,579

28,156

79,623

29,523

22,579

Weighted-average remaining lease term

3.2 years

3.7 years

10.2 years

4.0 years

3.2 years

Weighted-average discount rate

4.6%

4.7%

2.9%

3.3%

4.6%

Operating Lease Expenses

Single lease costs (1)

$

8,856

$

7,593

$

16,371

$

9,435

$

8,856

Cash paid for amounts included in the measurement of lease liabilities

8,833

8,218

10,093

9,617

8,833

Right-of-use assets obtained in exchange for new lease obligations

1,488

3,013

54,557

13,215

1,488

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(1)Rent expense was $8.1 million for the year ended December 31, 2018.

Maturities of lease liabilities as of December 31, 20202022 are presented below (in thousands):

Year Ending December 31,

2021

$

8,662

2022

7,975

2023

6,390

$

11,652

2024

606

9,864

2025

8,224

2026

8,229

Thereafter

279

55,249

Total lease payments

$

23,912

$

93,218

Less imputed interest

(1,333)

(13,595)

Total

$

22,579

$

79,623

NOTE 15—15 – OTHER ASSETS AND LIABILITIES

The following table is a summary of the major components of other assets as of December 31, 2022 and 2021.

As of December 31,

Components of Other Assets (in thousands)

    

2022

    

2021

Equity-method investments

$

198,848

$

164,864

Derivative assets

17,636

37,364

Right of use asset

60,830

24,825

Property and equipment, net

33,928

72,744

Prepaid expenses

98,587

85,767

All other

48,046

16,546

Total

$

457,875

$

402,110

The following table is a summary of the major components of other liabilities as of December 31, 2022 and 2021.

As of December 31,

Components of Other Liabilities (in thousands)

    

2022

    

2021

Contingent consideration liabilities

$

200,346

$

125,808

Derivative liabilities

2,076

6,403

Lease liability

79,623

29,523

Guaranty obligation, net

43,950

47,378

Accrued expenses

115,878

160,717

All other

112,284

125,584

Total

$

554,157

$

495,413

NOTE 16—OTHER REVENUES AND OTHER OPERATING EXPENSES

The following table is a summary of the major components of other operating expenses for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020.

For the year ended December 31, 

Components of Other Operating Expenses (in thousands)

    

2020

    

2019

    

2018

 

Professional fees

$

18,345

$

20,896

$

16,365

Travel and entertainment

4,685

10,759

10,003

Rent (1)

10,486

9,136

8,107

Marketing and preferred broker

9,139

8,534

7,951

Office expenses

17,360

9,972

8,028

All other

9,567

7,299

11,567

Total

$

69,582

$

66,596

$

62,021

For the year ended December 31, 

Components of Other Revenues (in thousands)

    

2022

    

2021

    

2020

Prepayment fees

$

26,451

$

40,138

$

22,031

Assumption and application fees

9,073

10,811

8,766

Housing market research subscription revenue (1)

21,852

8,744

Syndication and other LIHTC revenue (2)

36,757

6,706

Apprise revaluation gain (3)

39,641

All other

23,901

5,278

3,646

Total

$

157,675

$

71,677

$

34,443

(1) Housing market research subscription revenue generated from Zelman which was acquired in July 2021.  

(2) Syndication and other LIHTC revenue generated from Alliant which was acquired in December 2021.

(3) One-time non-cash remeasurement gain of Apprise in 2022 from the GeoPhy acquisition (as discussed in NOTE 7).

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table is a summary of the major components of other operating expenses for the years ended December 31, 2022, 2021, and 2020.

For the year ended December 31, 

Components of Other Operating Expenses (in thousands)

    

2022

    

2021

    

2020

 

Professional fees

$

35,428

$

26,920

$

18,345

Travel and entertainment

15,742

7,203

4,685

Rent (1)

18,832

11,262

10,486

Marketing and preferred broker

14,840

12,526

9,139

Office and software expenses

24,145

15,056

17,360

All other

20,149

25,688

9,567

Total

$

129,136

$

98,655

$

69,582

(1)Includes single lease cost and other related expenses (common-area maintenance and other miscellaneous charges).

NOTE 17—VARIABLE INTEREST ENTITIES

The Company, through its subsidiary Alliant, provides alternative investment management services through the syndication of tax credit funds and development of affordable housing projects. To facilitate the syndication and development of affordable housing projects, the Company is involved with the acquisition and/or formation of limited partnerships and joint ventures with investors, property developers, and property managers that are VIEs. The Company’s continuing involvement in the VIEs usually includes either serving as the manager of the VIE or as a majority investor in the VIE with a property developer or manager serving as the manager of the VIE.

When the Company determines that it is the primary beneficiary of a material VIE, the Company consolidates the VIE. The primary beneficiary of a VIE is determined as the entity that has both (1) the power to direct the activities of the VIE that most significantly impact its economic performance and (2) exposure to losses or benefits that could potentially be significant to the VIE. When the Company determines that it is not the primary beneficiary, the Company recognizes its investment in the VIE through the equity-method of accounting. The Company regularly assesses the primary beneficiary of the VIE as its involvement and ownership may change over time.

Syndication of Tax Credit Funds

The Company’s affordable housing syndication services subsidiary forms limited partnership funds (“the funds”) that are VIEs and hold investments in affordable housing projects. The Company identifies and enters into a commitment to invest equity in the limited partnership interests in affordable housing VIEs that own and operate affordable housing properties. The limited partnership interest exposes the Company to economic losses or benefits of the VIE but does not give it the power to direct the activities that most significantly impact the VIE’s economic performance. In such cases, the Company determined it is not the primary beneficiary and recognizes the VIE as an investment and a liability for the unfunded committed capital to the VIE. The Company’s exposure is limited to its contributed capital and remaining unfunded committed capital. The investments are included as Committed investments in tax credit equity and the unfunded committed capital are included as Commitments to fund investments in tax credit equity in the Consolidated Balance Sheets until they are transferred to the credit fund as described below. The investments and unfunded committed capital are presented in the table below.

As part of the syndication of the tax credit fund, the Company transfers its limited partnership interest in affordable housing partnerships to the funds, where the Company serves as the general partner and manager and holds an insignificant ownership percentage of the funds. As the manager of the funds, the Company has the power to direct the activities that most significantly impact the economic performance of the funds; however, it does not have exposure to the economic losses or benefits significant to the VIE. Accordingly, the Company is not the primary beneficiary of the fund and does not consolidate the VIE. The Company records its general partnership interest as an equity-method investment included in Other assets in the Consolidated Balance Sheets.

The Company may purchase an investor’s partnership interest. In these circumstances, the Company assesses whether its new ownership percentage could potentially be significant to the VIE. When the Company determines the new ownership percentage is significant, it consolidates the fund as the Company is the primary beneficiary. As of both December 31, 2022 and 2021, the assets and liabilities of the consolidated funds were immaterial.  

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Joint Development of Affordable Housing Projects

The Company enters joint ventures with affordable property developers and/or investors to develop affordable housing projects. The joint ventures’ objectives are to: (1) develop the affordable housing project for syndication into a tax credit fund or (2) develop the affordable housing project for capital appreciation. When the Company develops affordable housing projects to ultimately syndicate the property into a tax credit fund, the Company invests in the joint venture but does not have management rights. The Company has significant exposure to the economic losses or benefits but does not have the power to direct the activities that most significantly impact the VIE’s economic performance; consequently, the Company determined that it is not the primary beneficiary in the VIE and recognizes an equity-method investment in the VIE included in Other assets in the Consolidated Balance Sheets.During 2022, the operating agreements of three of the Company’s joint ventures were amended, resulting in the Company gaining the power to direct the activities that most significantly impact the economic performance of the joint ventures; previously, the Company only held rights to receive the significant economic benefits of the joint ventures. The Company reassessed its consolidation conclusions and determined that it was the primary beneficiary, and as a result, consolidated the joint ventures as of March 31, 2022.

When the Company develops affordable housing projects for capital appreciation, the Company actively manages the joint venture and generally has an insignificant ownership percentage compared to third-party investors. The Company has the power to direct the activities that most significantly impact the VIE’s economic performance but does not have exposure to the economic losses or benefits that could be significant to the VIE; therefore, the Company determined it is not the primary beneficiary of the VIE and recognizes an equity-method investment included in Other assets in the Consolidated Balance Sheets. In certain circumstances, the Company may hold a significant ownership percentage and have exposure to significant economic losses or benefits of the VIE. When this occurs, the Company determines it has both the power to direct the activities that most significantly impact the VIE’s economic performance and the exposure to the economic losses or benefits that could be significant to the VIE.

The table below presents the assets and liabilities of the Company’s consolidated joint development VIEs included in the Consolidated Balance Sheets:

Consolidated VIEs (in thousands)

    

December 31, 2022

    

December 31, 2021

Assets:

Cash and cash equivalents

$

201

$

Restricted cash

1,532

Receivables, net

33,593

Other Assets

49,768

54,880

Total assets of consolidated VIEs

$

85,094

$

54,880

Liabilities:

Other liabilities

$

39,148

$

36,480

Total liabilities of consolidated VIEs

$

39,148

$

36,480

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Table of Contents

Walker & Dunlop, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The table below presents the carrying value and classification of the Company’s interests in nonconsolidated VIEs included in the Consolidated Balance Sheets:

Nonconsolidated VIEs (in thousands)

December 31, 2022

    

December 31, 2021

Assets

Committed investments in tax credit equity

$

254,154

$

177,322

Other assets: Equity-method investments

57,981

74,997

Total interests in nonconsolidated VIEs

$

312,135

$

252,319

Liabilities

Commitments to fund investments in tax credit equity

$

239,281

$

162,747

Total commitments to fund nonconsolidated VIEs

$

239,281

$

162,747

Maximum exposure to losses(1)(2)

$

312,135

$

252,319

(1)2020 and 2019 includes single lease cost and other related expenses (common-area maintenance and other miscellaneous charges). 2018 includes rent expense and other related expenses (common-area maintenance and other miscellaneous charges).  Prior to the Alliant acquisition in the fourth quarter of 2021, the Company did not have an interest in any VIEs.
(2)Maximum exposure determined as Total interests in nonconsolidated VIEs. The maximum exposure for the Company’s investments in tax credit equity is limited to the carrying value of its investment, as there are no funding obligations or other commitments related to the nonconsolidated VIEs other than the amounts presented in the table above.
(3)Based on historical experience and the underlying expected cash flows from the underlying investment, the maximum exposure of loss is not representative of the actual loss, if any, that the Company may incur.

NOTE 18—RELATED PARTY TRANSACTION

The Company, through its Alliant subsidiaries, has related party loans with its affordable housing project partners, which include property developers and managers. To facilitate the development of affordable housing projects prior to syndication into a tax credit fund, the Company extends pre-development and working capital loans to its partners in affordable housing project partnerships. The outstanding balance of these loans was $69.8 million and $36.6 million as of December 31, 2022 and 2021, respectively, and the related interest income was immaterial for both the years ended December 31, 2022 and 2021. The balance of these receivables is included as Receivables, net in the Consolidated Balance Sheets.

F-43F-51