UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

For the quarterly period ended March 31, 20172018

OR

For the transition period fromto

Commission file number:001-33280

HFF, Inc.

(Exact name of registrant as specified in its charter)

(214)265-0880

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒☑

Number of shares of Class A common stock, par value $0.01 per share, of the registrant outstanding as of April 28, 201730, 2018 was 38,572,72539,110,155 shares.

HFF, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

March 31, 2017

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The forward-looking statements which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under the caption “Risk Factors” in our Annual Report on Form10-K and this Quarterly Report on Form10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.otherwise, except as required by securities laws.

SPECIAL NOTE REGARDING THE REGISTRANT

In connection with our initial public offering in February 2007, we effected a reorganization of our business into a holding company holding the partnership interests in Holliday Fenoglio Fowler, L.P. and HFF Securities L.P. (together, the “Operating Partnerships”), held through the wholly owned subsidiary HFF Partnership Holdings, LLC, a Delaware limited liability company, and all of the outstanding shares of Holliday GP Corp. (“Holliday GP”), the sole general partner of each of the Operating Partnerships. The transactions that occurred in connection with the initial public offering and reorganization are referred to as the “Reorganization Transactions.”

Unless the context otherwise requires, references to (1) “HFF Holdings” refer solely to HFF Holdings LLC, a Delaware limited liability company that was previously the holding company for our consolidated subsidiaries, and not to any of its subsidiaries, (2) “HFF LP” refer to Holliday Fenoglio Fowler, L.P., a Texas limited partnership, (3) “HFF Securities” refer to HFF Securities L.P., a Delaware limited partnership and registered broker-dealer, (4) “Holliday GP” refer to Holliday GP Corp., a Delaware corporation and the general partner of HFF LP and HFF Securities, (5) “HoldCo LLC” refer to HFF Partnership Holdings LLC, a Delaware limited liability company and a wholly-owned subsidiary of HFF, Inc., (6) “Holdings Sub” refer to HFF LP Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of HFF Holdings, (7) “HFF Real Estate” refer to HFF Real Estate Limited, a company incorporated in England and Wales and (8) “HFF Securities Limited” refer to HFF Securities Limited, a company incorporated in England and Wales (collectively, with HFF Real Estate, the “UK Subsidiaries” and, with HFF Securities, the “Securities Subsidiaries”). Except where specifically noted, references in this Quarterly Report onForm 10-Q to “the Company,” “we” or “us” mean HFF, Inc., a Delaware corporation and its consolidated subsidiaries after giving effect to the Reorganization Transactions.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HFF, Inc.

Consolidated Balance Sheets

(Dollars in Thousands)

(Current period unaudited)thousands, except share data)

See accompanying notes to the consolidated financial statements.

HFF, Inc.

Consolidated Statements of Comprehensive Income

(Dollars in Thousands, except per share data)

(Unaudited)

See accompanying notes to the consolidated financial statements.

HFF, Inc.

Consolidated Statements of Stockholders’ Equity

(Dollars in Thousands, except share data)

(Unaudited)

See accompanying notes to the consolidated financial statements.

HFF, Inc.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

See accompanying notes to the consolidated financial statements.

HFF, Inc.

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

Organization

HFF, Inc., a Delaware corporation (the “Company”), through its Operating Partnerships,wholly-owned subsidiaries, Holliday Fenoglio Fowler, L.P., a Texas limited partnership (“HFF LP”), HFF Securities L.P., a Delaware limited partnership and registered broker-dealer (“HFF Securities” and together with HFF LP, the “Operating Partnerships”), HFF Real Estate Limited a company incorporated in England and Wales and HFF Securities Limited, a company incorporated in England and Wales (collectively, with HFF Real Estate Limited, the “UK Subsidiaries”),United Kingdom, is a commercial real estate financial intermediary providing commercial real estate and capital markets services including debt placement, investment sales,advisory, equity placements, investment banking and advisory services, loan sales and loan sale advisory services, commercial loan servicing, and capital markets advice and maintains offices in 2325 cities in the United States and effective January 17, 2017, one office in London, United Kingdom. The Company’s operations are impacted by the availability of equity and/orand debt as well as credit and liquidity in the domestic and global capital markets especially in the commercial real estate sector. Significant disruptions or changes in domestic and global capital market flows, as well as credit and liquidity issues in the global and domestic capital markets, regardless of their duration, could adversely affect the supply and/orand demand for capital from investors for commercial real estate investments which could have a significant impact on all of the Company’s capital market services revenues.

Initial Public Offering and Reorganization

The Company was formed in November 2006 in connection with a proposedcompleted its initial public offering of its(“IPO”) and the Company’s Class A common stock. On November 9, 2006, the Company filed a registration statement on FormS-1 with the United States Securities and Exchange Commission (the “SEC”) relating to a proposed underwritten initial public offering of 14,300,000 shares of Class A common stock of the Company (the “Offering”). On January 30, 2007, the SEC declared the registration statement on FormS-1 effective and the Company priced 14,300,000 shares for the initial public offering at a price of $18.00 per share. On January 31, 2007, the Company’s common stockCommon Stock began trading on the New York Stock Exchange under the symbol “HF.”“HF” in the first quarter of 2007. The proceeds of the initial public offering, including the exercise of the underwriter’s option to purchase additional shares, were used to purchase from HFF Holdings LLC, a Delaware limited liability company (“HFF Holdings”), all of the shares of Holliday GP Corp. (“Holliday GP”) and purchase from HFF Holdings partnership units of the Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday GP). HFF Holdings used a portion of its proceeds to repay all outstanding indebtedness under HFF LP’s credit agreement. Accordingly, the Company did not retain any of the proceeds from the initial public offering.

In addition to cash received for its sale of all of the shares of Holliday GP and approximately 44.7%45% of partnership units of each of the Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday GP), HFF Holdings also received, through the issuance of one share of the Company’sHFF, Inc.’s Class B common stock to HFF Holdings, an exchange right that permitted, subject to certain restrictions, HFF Holdings to exchange interests in the Operating Partnerships for shares of (i) the Company’s Class A common stock (the “Exchange Right”) and (ii) rights under a tax receivable agreement between the Company and HFF Holdings. Since all of the partnership units had been exchanged as of August 31, 2012, the Class B common stock was transferred to the CompanyHoldings (the “TRA”). See Notes 15 and retired on August 31, 2012 in accordance with the Company’s certificate of incorporation. See Note 1216 for further discussion of the tax receivable agreement.

As a result of the reorganization in connection with the IPO, the Company became a holding company through a series of transactions pursuant to a sale and purchase agreement. Pursuant toAs a result of the OfferingIPO and reorganization, the Company’s sole assets were partnership interests in Operating Partnerships (that are held through its wholly-owned subsidiary HoldCoHFF Partnership Holdings, LLC, partnership interests of HFF LP and HFF Securitiesa Delaware limited liability company (“Partnership Holdings”)) and all of the shares of Holliday GP.GP, the sole general partner of each of the Operating Partnerships. The transactions that occurred in connection with the IPO and reorganization are referred to as the “Reorganization Transactions.”

The Reorganization Transactions were treated, for financial reporting purposes, as a reorganization of entities under common control. As of August 31, 2012, HFF Holdings had utilized its Exchange Right to exchange all of its remaining interests in the Operating Partnerships and therefore the Company, through its wholly-owned subsidiaries, became and continues to be the sole equity holder of the Operating Partnerships.

Basis of Presentation

The accompanying consolidated financial statements of the Company as of March 31, 2017 and December 31, 2016 and for the three month periods ended March 31, 2017 and March 31, 2016, include the accounts of HFF LP, HFF Securities, HFF Real Estate Limited and HFF Securities Limited, as well as the Company’s additional wholly-owned subsidiaries, Holliday GP and Partnership Holdings and effective January 17, 2017, HFF Securities Limited and HFF Real Estate Limited.Holdings. All significant intercompany accounts and transactions have been eliminated. As the sole stockholder of Holliday GP (the sole general partner of the Operating Partnerships),

HFF, Inc. operates and controls all of the business and affairs of the Operating Partnerships. As the indirect sole stockholder of the UK Subsidiaries, HFF, Inc. also operates and controls all of the business and affairs of the UK Subsidiaries. The Company consolidates the financial results of the Operating Partnerships.

Notes to Consolidated Financial Statements - (Continued)

Recent Accounting Pronouncements

In December 2016, the Financial Accounting Standards Board (“FASB”) issued Update2016-19 – “Technical Corrections and Improvements,” which covers a wide range of Topics in the Accounting Standards Codification (“ASC”). The amendments in this Update represent changes to clarify, correct errors, or make minor improvements to the ASC, making it easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments generally fall into one of the following categories: amendments related to differences between original guidance and the ASC, guidance clarification and reference corrections, simplification, or minor improvements. Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update.

In March 2016, the FASB issued changes to the accounting for equity compensation. This update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update also permits an entity to make an election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. This update was effective for the Company beginning in fiscal year 2017 and the Company made an election to change its accounting for forfeitures from the previously-required estimation method to recognizing forfeitures when they occur. The Company recognized $0.6 million as a reduction in retained earnings on January 1, 2017 as a result of eliminating the estimated forfeiture rate on unvested restricted stock units.

In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers,” which is requiredCustomers” and subsequently issued a series of amendments to be adopted by the Company in fiscal year 2018. This ASUnew revenue standard (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in FASB ASC Topic 605,Revenue “Revenue Recognition,,” and most industry-specific guidance. The standardTopic 606 implements a five-step model for determining when and how revenue is recognized.recognized along with expanded disclosure requirements. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The new standardTopic 606 also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method).

We are continuingThe Company adopted the reviewrequirements of our contracts with customers to identify potential differences that could result from applying the new guidance. Asstandard on January 1, 2018, using the modified retrospective approach. Under this method, we could elect to apply the cumulative effect method to either all contracts as of the date of initial application or only to contracts that are not complete our overall assessment, we are also identifying any needed changesas of that date. We elected to our accounting policiesapply the modified retrospective method to contracts that were not complete as of the date of initial application. Comparative information has not been adjusted and practices, business processes, systems and controlscontinues to supportbe reported under the newprior revenue recognition and disclosure requirements. Based on our evaluationaccounting guidance. The Company recorded a $1.3 million cumulative effect adjustment to date, we do not expectretained earnings related to the adoption of this accounting guidancethe new standard. As a result of the adoption of Topic 606, the Company now estimates the variable consideration associated with equity capital raising fees and recognizes the revenue once the constraint on revenue is lifted, which generally occurs once capital is committed. For additional information regarding the adoption of Topic 606, refer to have a significant impact on our consolidatedNote 2 within the notes to the financial statements.

In February 2016, the FASB issued new guidance on the accounting for leases. This new guidance will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The new lease accounting requirements are effective for the Company’s 2019 fiscal year with a modified retrospective transition approach required, with early adoption permitted. The Company is currently evaluating the population of its leases to determine the impact of the new guidanceadoption on its consolidated financial statements.

In JanuaryMay 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other2017-09, “Stock Compensation (Topic 350)718): SimplifyingScope of Modification Accounting”. ASU 2017-09 clarifies when changes to the Testterms or conditions of a share-based payment award must be accounted for Goodwill Impairment.” This ASU eliminates Step 2 from the goodwill impairment test. This ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This ASUas modifications. The guidance is effective for fiscal years beginning after December 15, 2019,annual periods, and interim periods within those years,annual periods, beginning after December 15, 2017 with early adoption permitted. We are evaluating the effect thatThe adoption of ASU 2017-04 will have on our goodwill assessment process, but do not believe the adoption ofASU 2017-04 will have a material2017-09 had no impact on ourthe Company’s consolidated financial statements and related disclosures.statements.

2. Summary of Significant Accounting Policies

These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form10-Q and Rule10-01 of RegulationS-X and should be read in conjunction with the Company’s Annual Report on Form10-K for the year ended December 31, 2016.2017. Accordingly, significant accounting policies and disclosures normally provided have been omitted as such items are disclosed therein. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Therefore, actual results could differ from those estimates. Furthermore, operating results for the three months ended March 31, 20172018 are not necessarily indicative of the results expected for the year ending December 31, 2017.2018.

Revenue Recognition.Substantially all of our revenues are derived from capital markets services. These capital markets services revenues are in the form of fees collected from our clients, usually negotiated on atransaction-by-transaction basis, which includes origination fees, investment advisory fees earned for brokering sales of commercial real estate, loan sales and loan servicing fees. We also earn interest on mortgage notes receivable during the period between the origination of the loan and the subsequent sale to Freddie Mac in connection with our participation in the Freddie Mac Program.

Total Revenues:

Capital markets services revenues. We earn our capital markets services revenue through the following activities and sources:

HFF, Inc.

Notes to Consolidated Financial Statements - (Continued)

Our contracts are generally negotiated on a transaction-by-transaction basis with a success-based fee awarded upon the satisfaction of the origination, sale, referral, placement or equity raise. Our agreements generally include such success-based fees for services that are performed over time under one performance obligation. The variable consideration associated with the successful outcome remains constrained until the completion of the transaction, generally at the closing of the applicable financing or funding of the transaction. Once the constraint is lifted, revenue is recognized as the Company’s fee agreements do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the transaction closes. The substantial majority of our transactions are completed within one year and we have utilized the practical expedients within Topic 606 related to financing components and costs of obtaining a contract due to the short-term nature of the contracts.

The revenues associated with loan servicing fees are accounted for in accordance with Topic 860,Transfers and Servicing, whereby we recognize loan servicing revenues at the time services are rendered, provided the loans are current and the debt service payments are made by the borrowers.

Interest on mortgage notes receivable. We recognize interest income on the accrual basis during the holding period based on the contract interest rate in the loan that is to be purchased by Freddie Mac in connection with our participation in the Freddie Mac Multifamily Approved Seller/Servicer for Conventional and Senior Housing Loans program (“Freddie Mac Program”), provided that the debt service is paid by the borrower.

Other. Certain of the Company’s fee agreements provide for reimbursement of transaction-related costs which the Company recognizes as other revenue. Reimbursements received from clients forout-of-pocket expenses are characterized as revenue in the comprehensive statement of income rather than as a reduction of expenses incurred. Because the Company is the primary obligor, has supplier discretion, and bears the credit risk for such expenses, the Company records reimbursement revenue for suchout-of-pocket expenses. Reimbursement revenue is recognized over time based upon the measure of progress to completion.

HFF, Inc.

Notes to Consolidated Financial Statements - (Continued)

Disaggregation of Revenue

The Company disaggregates its revenue from contracts with customers by its multiple platforms, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following table provides a reconciliation of the Company’s revenue recognized under Topic 606 to the Company’s consolidated revenues:

Firm and Office Profit Participation Plans and Executive Bonus Plan.The Company has a firm profit participation plan, office profit participation plans, and an executive bonus plan (the “Plans”) that each allow for incentive payments to be made, based on the achievement of various performance metrics, either in the form of cash or stock at the election of the Company’s board of directors. The expense associated with the Plans is included within personnel expenses in the consolidated statements of comprehensive income. The expense recorded for these Plans is estimated during the year based on actual results at each interim reporting date and an estimate of future results for the remainder of the year. Based on an accounting policy election and consistent with ASC 718, Compensation - Compensation—Stock Compensation, the expense associated with the estimated share-based component of the estimated incentive payout is recognized before the grant date of the share-based awards due to the fact that the terms of the Plans have been approved by the Company’s board of directors, the employees of the Company understand the requirements to earn the award, the number of shares is not determined before the grant date and, finally, if the performance metrics are not met during the performance year, the award is not earned and therefore forfeited. Prior to the grant date, the share-based component expense is recorded as incentive compensation expense within personnel expenses in the Company’s consolidated statements of comprehensive income. Following the award, if any, of the related incentive payout, the share-based component expense is reclassified as stock compensation costs within personnel expenses and the share-based component of the accrued incentive compensation is reclassified as additionalpaid-in-capital upon the granting of the awards on the Company’s consolidated balance sheets. The Plans allow for payment to be made in both cash and share-based awards. The cash portion of the awards will not be subject to time-based vesting conditions and will be expensed during the performance year. The share-based portion of the awards is subject to a three yearthree-year time-based vesting schedule beginning on the first anniversary of the grant (which is made in the first calendar quarter of the subsequent year). As a result, the total expense for the share-based portion of the awards is recorded over the period from the beginning of the performance year through the vesting date, or 50 months.

3. Stock Compensation

The stock compensation cost that has been charged against income for the three months ended March 31, 2018 and 2017 was $5.8 million and $3.9 million, respectively, which is recorded in personnel expenses in the consolidated statements of comprehensive income. The stock compensation cost that has been charged against income for the three months ended March 31, 2016 was $2.8 million. At March 31, 2017,2018, there was approximately $45.8$56.9 million of unrecognized compensation cost related tonon-vested restricted stock units with a weighted average remaining contractual term of 2.82.5 years. As of March 31, 2017,2018, there were 2,305,4082,378,774 restricted stock units outstanding, of which 2,106,3722,160,072 have continued vesting requirements.

During the three monththree-month period ended March 31, 2017,2018, no options were granted, vested, exercised or forfeited.

During the three monththree-month period ended March 31, 2017, 821,1662018, 812,872 new restricted stock units were granted, 596,908830,202 restricted stock units vested of which 591,818822,207 were converted to Class A common stock, and 4,8321,439 restricted stock units were forfeited.

The fair value of vested restricted stock units was $5.5$10.9 million at March 31, 2017.2018.

HFF, Inc.

Notes to Consolidated Financial Statements - (Continued)

4. Property and Equipment

Property and equipment consist of the following (dollars in thousands):following:

At March 31, 20172018 and December 31, 2016,2017, the Company has recorded, within furniture and equipment, office equipment under capital leases of $1.8$1.6 million and $1.9$1.7 million, respectively, including accumulated amortization of $1.3 million and $1.2$1.3 million, respectively, which is included within depreciation and amortization expense in the accompanying consolidated statements of comprehensive income. See Note 7 for discussion of the related capital lease obligations.

5. Business Combinations, Goodwill and Intangible Assets

The Company’s intangible assets consist primarily of mortgage servicing rights and customer contracts and relationships. The customer contracts and relationships intangibles were part of the assets acquired in two business acquisitions that the Company completed inDuring the first quarter of 2017.2017, the Company completed two acquisitions for approximately $6.2 million, net of cash acquired. The acquisitions, which were not significant, were accounted for as business combinations usingacquired businesses are based in New York and the acquisition methodUnited Kingdom and provide capital advisory and investment banking services to the commercial real estate market. The fair value of accounting, which established a new basis of accounting for allconsideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed at fair value. The purchase price allocation was based on preliminarytheir estimated fair values at the acquisition date, with the remaining unallocated amount recognized as goodwill. This goodwill, of which, approximately $1.8 million is deductible for tax purposes, represents the expected synergies and the Company’s ability to control the assembled workforces of the assets acquired businesses.

The Company’s goodwill as of March 31, 2018 and liabilities assumed atDecember 31, 2017 are summarized as follows (in thousands):

The Company performs goodwill impairment tests annually during the datefourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the acquisitions. The purchase price allocation will be finalized within twelvecarrying amount. No goodwill impairment test was required for the three months from the acquisitions’ closing date.ended March 31, 2018.

The Company’s intangible assets are summarized as follows (dollars in thousands):follows:

The Company’s intangible assets consist of mortgage servicing rights,non-competition agreements and customer relationships. Thenon-competition agreements and customer relationships intangible assets relate to the acquisitions completed during the first quarter of 2017 and were assigned a five- andone-year useful life, respectively.

HFF, Inc.

Notes to Consolidated Financial Statements - (Continued)

As of March 31, 20172018 and December 31, 2016,2017, the Company serviced $60.7$72.0 billion and $58.0$69.8 billion, respectively, of commercial loans. The Company earned $8.4 million and $6.7 million in servicing fees and interest on float and escrow balances for the three month period endingthree-month periods ended March 31, 2017. The Company earned $5.5 million in servicing fees2018 and interest on float and escrow balances for the three month period ending March 31, 2016.2017, respectively. These revenues are recorded aswithin capital markets services revenues in the consolidated statements of comprehensive income.

The total commercial loan servicing portfolio includes loans for which there are no corresponding mortgage servicing rights recorded on the balance sheet, as these servicing rights were assumed prior to the Company’s adoption of ASC 860,Transfers and Servicing (“ASC 860”) on January 1, 2007 and involved no initial consideration paid by the Company. As of March 31, 20172018 and December 31, 20162017 the Company has recorded mortgage servicing rights of $40.2$61.4 million and $36.6$58.5 million on $59.4$71.1 billion and $56.5$68.8 billion, respectively, of the total loans serviced.

The Company stratifies its servicing portfolio based on the type of loan, including life company loans, commercial mortgage backed securities (“CMBS”), Freddie Mac and limited-service life company loans.

Changes in the carrying value of mortgage servicing rights for the three monththree-month periods ended March 31, 20172018 and 2016,2017, were as follows (dollars in thousands):

Category		12/31/17				Capitalized				Amortized				3/31/18
Freddie Mac		$	40,468			$	6,284			$	(2,621	)		$	44,131
CMBS			13,514				297				(903	)			12,908
Life company			3,833				548				(665	)			3,716
Life company – limited			668				90				(106	)			652
Total		$	58,483			$	7,219			$	(4,295	)		$	61,407
Category		12/31/16				Capitalized				Amortized				3/31/17
Freddie Mac		$	16,234			$	4,927			$	(967	)		$	20,194
CMBS			16,247				311				(1,048	)			15,510
Life company			3,567				889				(563	)			3,893
Life company – limited			566				107				(87	)			586
Total		$	36,614			$	6,234			$	(2,665	)		$	40,183

Amounts capitalized represent mortgage servicing rights retained upon the sale of originated loans to Federal Home Loan Mortgage Corporation (“Freddie Mac”) and mortgage servicing rights acquired without the exchange of initial consideration. The Company recorded mortgage servicing rights retained upon the sale of originated loans to Freddie Mac of $6.3 million and $4.9 million and $2.4 million on $1.4$1.3 billion and $0.9$1.4 billion of loans, respectively, during the three monththree-month periods endingended March 31, 20172018 and 2016,2017, respectively. The Company recorded mortgage servicing rights acquired without the exchange of initial consideration on the CMBS and Life company tranches of $0.9 million and $1.3 million and $1.4 million on $3.5$2.9 billion and $3.3$3.5 billion of loans, respectively, during the three monththree-month periods endingended March 31, 2018 and 2017, and 2016, respectively. During the three months ending March 31, 2016, the Company sold the cashiering portion of certain Freddie Mac mortgage servicing rights. While the Company transferred the risks and rewards of ownership of the cashiering portion of the mortgage servicing rights, the Company continues to perform limited servicing activities on these securitized loans. Therefore, the remaining servicing rights were transferred to the CMBS servicing tranche. The net result of these transactions was the Company recording a gain in the three months ending March 31, 2016 of $0.5 million, within interest and other income, net in the consolidated statements of income. During the three months ending March 31, 2017, the Company did not sell any of the servicing rights on Freddie Mac loans. The Company also received securitization compensation in relation to the sale of the cashiering portionsecuritization of certain Freddie Mac mortgage servicing rights in the three months endingthree-month periods ended March 31, 2018 and 2017 and 2016 of $1.5$4.9 million and $1.2$1.5 million, respectively. The securitization compensation is recorded within interest and other income, net in the consolidated statements of comprehensive income.

Amortization expense related to intangible assets was $2.7$4.4 million and $1.9$2.7 million during the three monththree-month periods ended March 31, 20172018 and 2016,2017, respectively and is recorded in depreciation and amortization in the consolidated statements of comprehensive income.

HFF, Inc.

Notes to Consolidated Financial Statements - (Continued)

Estimated amortization expense for the nextremainder of 2018 and the following five years is as follows (dollars in thousands):

The weighted-average life of the mortgage servicing rights intangible asset was 6.66.8 years at March 31, 2017.2018.

6. Fair Value Measurement

ASC Topic 820,Fair Value Measurement (“ASC 820”) establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into the following three levels: Level 1 inputs which are quoted market prices in active markets for identical assets or liabilities; Level 2 inputs which are observable market-based inputs or unobservable inputs corroborated by market data for the asset or liability; and Level 3 inputs which are unobservable inputs based on our own assumptions that are not corroborated by market data. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

In May 2011, the FASB issued an accounting pronouncement which amends the fair value measurement and disclosure requirements to achieve common disclosure requirements between GAAP and International Financial Reporting Standards. The accounting pronouncement requires certain disclosures about transfers between Level 1 and Level 2 of the fair value hierarchy, sensitivity of fair value measurements categorized within Level 3 of the fair value hierarchy, and categorization by level of items that are reported at cost but are required to be disclosed at fair value. The adoption of this pronouncement had no impact on the Company’s consolidated financial statements.

In the normal course of business, the Company enters into contractual commitments to originate (purchase) 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. 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 Freddie Mac simultaneously with the rate lock commitment with the borrower. The terms of the contract with Freddie Mac and the rate lock with the borrower are matched in substantially all respects to eliminate interest rate risk. Both the rate lock commitments to borrowers and the forward sale contracts to Freddie Mac are undesignated derivatives with level 2 inputs and, accordingly, are marked to fair value through earnings. The impact on our financial position and earnings resulting from loan commitments is not significant. The Company elected the fair value option for all mortgage notes receivable originated after January 1, 2016 to eliminate the impact of the variability in interest rate movements on the value of the mortgage notes receivable.

The following tables set forth the Company’s financial assets that were accounted for at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 20172018 and December 31, 20162017 (in thousands):

Recurring fair value measurements

HFF, Inc.

Notes to Consolidated Financial Statements - (Continued)

The valuation of mortgage notes receivable is calculated based on already locked in interest rates. These assets are classified as Level 2 in the fair value hierarchy as all inputs are reasonably observable.

The following table sets forth the Company’s financial assets that were accounted for at fair value on a nonrecurring basis by level within the fair value hierarchy as of March 31, 2018 and December 31, 2017 (in thousands):

Nonrecurring fair value measurements:

In accordance with GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. These assets may include mortgage servicing rights. The mortgage servicing rights are recorded at fair value upon initial recording and were notre-measured remeasured at fair value during the first quarter of 20172018 because the Company continues to utilize the amortization method under ASC 860 and the fair value of the mortgage servicing rights exceeds the carrying value at March 31, 2017.2018.

The following table sets forth the Company’s financial assets that were accounted for at fair value on a nonrecurring basis by level within the fair value hierarchy as of March 31, 2017 and December 31, 2016 (in thousands):

Nonrecurring fair value measurements:

Mortgage servicing rights do not trade in an active, open market with readily-available observable prices. Since there is no ready market value for the mortgage servicing rights, such as quoted market prices or prices based on sales or purchases of similar assets, the Company determines the fair value of the mortgage servicing rights by estimating the present value of future cash flows associated with the servicing of the loans. Management makes certain assumptions and judgments in estimating the fair value of servicing rights, including the benefits of servicing (contractual servicing fees and interest on escrow and float balances), the cost of servicing, prepayment rates (including risk of default), an inflation rate, the expected life of the cash flows and the discount rate. The significant assumptions utilized to value servicing rights as of March 31, 20172018 and December 31, 20162017 are as follows:

The above assumptions are subject to change based on management’s judgments and estimates of future changes in the risks related to future cash flows and interest rates. Changes in these factors would cause a corresponding increase or decrease in the prepayment rates and discount rates used in the Company’s valuation model.

FASB ASC Topic 825,

HFF, Inc.

Notes to Consolidated Financial Instruments also requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets. Statements - (Continued)

Our financial instruments excluding those included in the preceding fair value tables above, are as follows:

Cash and Cash Equivalents: These balancesalso include cash and cash equivalents, restricted cash and warehouse lines of credit. The cash and cash equivalents and restricted cash balances include accounts with maturities of less than three months. Themonths and therefore, the carrying amount approximates fair value due to the short-term maturities of these instruments; theseinstruments. The cash and cash equivalents and restricted cash accounts are consideredclassified as Level 1 within the fair values.

Warehousevalue hierarchy. The warehouse line of credit: Due to the is a short-term nature andfacility with variable interest rates of this instrument,and therefore, fair value approximates carrying value; these are consideredvalue. The warehouse line of credit is classified as Level 2 within the fair values.value hierarchy.

7. Capital Lease Obligations

Capital lease obligations consist of the following at March 31, 2017 and December 31, 2016 (dollars in thousands):following: