| (2) | Based on historical experience and classificationthe underlying expected cash flows from the underlying investment, the maximum exposure of loss is not representative of the Company’s interests in nonconsolidated VIEs included inactual loss, if any, that the Condensed Consolidated Balance Sheets:Company may incur. | | | | | | | Nonconsolidated VIEs (in thousands) | | September 30, 2022 | | December 31, 2021 | Assets | | | | | | | Committed investments in tax credit equity | | $ | 214,430 | | $ | 177,322 | Other assets: Equity-method investments | | | 58,126 | | | 74,997 | Total interests in nonconsolidated VIEs | | $ | 272,556 | | $ | 252,319 | | | | | | | | Liabilities | | | | | | | Commitments to fund investments in tax credit equity | | $ | 198,073 | | $ | 162,747 | Total commitments to fund nonconsolidated VIEs | | $ | 198,073 | | $ | 162,747 | | | | | | | | Maximum exposure to losses(1)(2) | | $ | 272,556 | | $ | 252,319 | | | | | | | |
(1) | 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. |
(2) | 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. |
Item 2.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 Quarterly Report on Form 10-Q (“Form 10-Q”). 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” in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021
Item 2.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 Quarterly Report on Form 10-Q (“Form 10-Q”). 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” below and in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). Forward-Looking Statements Some of the statements in this Quarterly Report on Form 10-Q of Walker & Dunlop, Inc. and subsidiaries (the “Company,” “Walker & Dunlop,” “we,”, “us”, “us,” or “our”), 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 Form 10-Q 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; |
| ● | changes to and trends in the interest rate environment and its impact on our business; |
| ● | 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 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, including additional regulatory requirements for broker-dealer and other financial services firms; |
| ● | our ability to successfully integrate Alliant’s and GeoPhy’s (each as defined below) employees and operations; |
| ● | 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; |
| ● | general volatility of the capital markets and the market price of our common stock; and |
| ● | other risks and uncertainties associated with our business described in our 20212022 Form 10-K and our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission. |
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.” Business Overview We are a leading commercial real estate (i) services, (ii) finance, and (iii) technology company in the United States. Through investments in people, brand, and technology, we have built a diversified 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 advisory services, (iii) investment management, and (iv) affordable housing lending, tax credit syndication, development, and investment. We leverage 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 our internal processes. We believe our people, brand, and technology provide us with a competitive advantage, as evidenced by 65% of refinancing volumes coming from new loans to us representing 67% of refinancing volumes and 25%21% of total transaction volumes coming from new customers for the nine months ended September 30, 2022.2023. We are one of the largest lendersservice providers to multifamily operators in the country. We originate, sell, and service a range of multifamily and other commercial real estate financing products, including loans through the programs of the GSEs, and the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (together with Ginnie Mae, “HUD”) (collectively, the “Agencies”). We retain servicing rights and asset management responsibilities on substantially all loans that we originate for the Agencies’ programs. We broker, and occasionally service, loans to commercial real estate operators for many 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 providesprovide 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, some of whom are the largest owners and developers in the industry. We also underwrite, service, and asset-manage shorter termshorter-term loans on commercial real estate. Most of these shorter-term interim loans are closed through a joint venture or through separate accounts managed by our investment management subsidiary, Walker & Dunlop Investment Partners, Inc. (“WDIP”). Some of these interim loans are closed and retained by us through our Interim Program JV or Interim Loan Program (as defined below in Principal Lending and Investing). 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 drive efficiencies across our internal processes. On February 28, 2022, weWe acquired GeoPhy B.V. (“GeoPhy”), a leading commercial real estate technology company based in the Netherlands.Netherlands, in the first quarter of 2022. We plan to useare using GeoPhy’s data analytics and technology development capabilities to accelerate the growth of our small-balance lending platform and our technology-enabled appraisal and valuation platform, Apprise.Apprise, by providing data analytics and other technology capabilities.
Walker & Dunlop, Inc. is a holding company. We conduct the majority of our operations through Walker & Dunlop, LLC, our operating company. Segments In the first quarter of 2022, as a result of the Company’s growth and recent acquisitions, ourOur executive leadership team, which functions as our chief operating decision making body, began makingmakes decisions and assessingassesses performance based on the following three operatingreportable segments: (i) Capital Markets (“CM”), (ii) Servicing & Asset Management (“SAM”), and (iii) Corporate. The operatingreportable 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. The CM and SAM segments and related services are described in the following paragraphs.
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.
Capital Markets Capital Markets 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.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 a broad range of loan products and services to our customers. We provide property sales services to owners and developers of multifamily properties and commercial real estate and multifamily property appraisals for various investors. Additionally, we earn subscription fees for our housing related research. The primary services within CM are described below. AgencyPrincipal Lending and Investing
). We are one of the leading lenders with the Agencies, where we originatea leader in commercial real estate technology, developing and sell multifamily, manufactured housing communities, student housing, affordable housing, seniors housing,acquiring technology resources that (i) provide innovative solutions and small-balance multifamily loans. For additional information ona better experience for our Agency Lending services, refercustomers and (ii) allow us to Item 1. Business indrive efficiencies across our 2021 Form 10-K.internal processes. 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, 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. In support of this product, we acquired a small technology company during the second quarter of 2021, that had a technology platform that streamlines and accelerates the quoting, processing, and underwriting of small-balance, multifamily loans. Additionally, the technology platform provides the borrower with a web-based, user-friendly interface, enhancing the borrower’s experience during the origination process. To further this strategy, we acquired GeoPhy during the first quarter of 2022,B.V. (“GeoPhy”), a leading commercial real estate technology company based in the Netherlands, in the first quarter of 2022. We are using GeoPhy’s data analytics and technology development capabilities to supportaccelerate the growth of our small-balance lending platform withand our technology-enabled appraisal and valuation platform, Apprise, by providing data analytics and to further advanceother technology capabilities.
Walker & Dunlop, Inc. is a holding company. We conduct the majority of our technology development capabilities in this area.operations through Walker & Dunlop, LLC, our operating company. Debt BrokerageSegments
Our mortgage bankers who focusexecutive leadership team, which functions as our chief operating decision making body, makes decisions and assesses 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 or 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 comprehensive range of commercial real estate finance products to our customers, including Agency lending, debt brokerage, are engaged by borrowersproperty sales, appraisal and 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 work withoffer a varietybroad range of institutional lendersloan products and banksservices to find the most appropriate loan instrument for the borrowers’ needs. These loans are then funded directly by the lender,our customers. We provide property sales services to owners and we receive an origination fee for placing the loan.developers of multifamily properties and 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.
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 leveraging our expertise in the commercial real estate industry. 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 a wholly-owned subsidiary of Walker & Dunlop. Apprise provides appraisal services to a client list that includes several 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.
Servicing & Asset Management
Servicing & Asset Management focuses on (i) servicing and asset-managing the portfolio of loans we originate and sell to the Agencies, we service for certain life insurance companies, and we originate through our principal lending and investing activities, (ii) managing third-party capital invested in tax credit equity funds focused on the affordable housing sector and other commercial real estate, and (iii) real estate-related investment banking and advisory services, including housing market research. We earn servicing fees for overseeing the loans in our servicing portfolio and asset management fees for the capital invested in our funds.various investors. Additionally, we earn subscription fees for our housing related research, and we earn revenue through net interest income on the loans and the warehouse interest expense for loans held for investment.research. The primary services within SAMCM 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 the interest income 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 the loan, are generally paid monthly for the duration of the loan. Our Fannie Mae and Freddie Mac servicing arrangements generally provide for prepayment protection 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. For most loans we service under the Fannie Mae DUS program, we are required to advance the principal and interest payments and guarantee fees for 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, 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 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.
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). 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 drive efficiencies across our internal processes. We acquired GeoPhy B.V. (“GeoPhy”), a leading commercial real estate technology company based in the Netherlands, in the first quarter of 2022. We are using GeoPhy’s data analytics and technology development capabilities to accelerate the growth of our small-balance lending platform and our technology-enabled appraisal and valuation platform, Apprise, by providing data analytics and other technology capabilities. Walker & Dunlop, Inc. is a holding company. We conduct the majority of our operations through Walker & Dunlop, LLC, our operating company. Segments Our executive leadership team, which functions as our chief operating decision making body, makes decisions and assesses 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 or 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 comprehensive range of commercial real estate finance products to our customers, including Agency lending, debt brokerage, property sales, appraisal and 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 a broad range of loan products and services to our customers. We provide property sales services to owners and developers of multifamily properties and commercial real estate and multifamily property appraisals for various investors. Additionally, we earn subscription fees for our housing related research. The primary services within CM are described below. Agency Lending We are one of the leading lenders with the Agencies, where we originate and sell multifamily, manufactured housing communities, student housing, affordable housing, seniors housing, and small-balance multifamily loans. For additional information on our Agency Lending services, refer to Item 1. Business in our 2022 Form 10-K. 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, 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. On occasion, our cost of borrowing can exceed the note rate on the loan, resulting in a net interest expense. 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. In support of this strategy, we acquired GeoPhy as noted above. Debt Brokerage Our mortgage bankers who focus on debt brokerage are engaged by borrowers to work with a variety of institutional lenders and banks 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 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. 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”). 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 related publications to banks, investment banks and other financial institutions. Zelman is also a leading independent investment bank providing comprehensive M&A advisory services and capital markets solutions to our clients within the housing and commercial real estate sectors. As part of our growth strategy, we have increased the number of investment bankers to broaden our reach and expertise within the residential housing, building products, multifamily and commercial real estate sectors. 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 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 a wholly-owned subsidiary of Walker & Dunlop. We have increased the number of valuation specialists and the geographical reach of our appraisal platform over the past several years through hiring and recruiting in support of our long-term growth strategy. Servicing & Asset Management Servicing & Asset Management focuses on servicing and asset-managing the portfolio of loans we originate and sell to the Agencies, broker to certain life insurance companies, and originate 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 the 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 the loan, are generally paid monthly for the duration of the loan. Our Fannie Mae and Freddie Mac servicing arrangements generally provide for prepayment protection 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. For most loans we service under the Fannie Mae Delegated Underwriting and Servicing (“DUS”) program, we are required to advance the principal and interest payments and guarantee fees for 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, 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 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. 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. Investment Management and Principal Lending and Investing Our principal lendingInvestment Management—Through our subsidiary, Walker & Dunlop Investment Partners (“WDIP”), we function as the operator of a private commercial real estate investment advisor focused on the management of debt, preferred equity, and investing operation is composedmezzanine equity investments in middle-market commercial real estate funds. WDIP’s current regulatory assets under management (“AUM”) of $1.4 billion primarily consist of six sources: Fund III, Fund IV, Fund V, Fund VI, and Fund VII (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 loans held byreturn above the Interim Program JV andfund return hurdle rate specified in the Interim Loan Program as described below (collectively the “Interim Program”). fund agreements.
Through a joint venture with an affiliate of Blackstone Mortgage Trust, Inc., we offerWDIP also offers 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. Principal Lending and Investing—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. We believe third-party capital solutions, in the form of direct real estate investment or commingled funds, are a long-term growth opportunity for our servicing and asset management businesses, and we have steadily reduced our reliance on our own capital and warehouse debt financing to fund interim loans in order to focus on raising third-party capital solutions to meet market demand and pursue our asset management growth strategy. Affordable Housing and Other Commercial Real Estate-related Investment ManagementEstate Services We provide affordable housing investment management and real estate services through our subsidiary, Walker & Dunlop Affordable Equity (“WDAE”), formerly known as Alliant Capital, Ltd. and its affiliates (“Alliant”). AlliantWDAE 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. AlliantWDAE 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 proceeds as compensation for its work as the general partner of the fund. Additionally, AlliantWDAE 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 operating cash and sale / sale/refinance proceeds from the properties they develop, and we receive the portion of the economic benefits commensurate with its investment in the joint ventures. Additionally, AlliantWDAE 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 WDAE may receive acquisition and asset management fees and will receive a portion of the operating cash and capital appreciation upon sale through a promote structure. ThroughCorporate
The Corporate segment consists primarily of 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 mezzanine equity investments in middle-market commercial real estate funds. WDIP’s current assets under management (“AUM”) of $1.4 billion primarily consist of five 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.
Housing Market Research and Real Estate Investment Banking Services
We own a 75% interest in a subsidiary doing business as Zelman & Associates (“Zelman”). 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, mortgage finance, and real estate technology and services. Zelman generates revenues through the sale of its housing market research data and related publications to banks, investment bankstreasury operations and other financial institutions,corporate-level activities. Our treasury operations include monitoring and through its offering of real estate-related investment bankingmanaging our liquidity and advisory services.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.
Basis of Presentation The accompanying condensed 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 Estimates Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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. The following critical accounting estimates involve significant estimation uncertainty that may have or are reasonably likely to have a material impact on our financial condition or results of operations. Additional information about our critical accounting estimates and other significant accounting policies are discussed in NOTE 2 of the consolidated financial statements in our 20212022 Form 10-K. Mortgage Servicing Rights (“MSRs”).MSRs are recorded at fair value at loan sale or upon purchase.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, the fair value amount is included as a component of the derivative asset fair value at the loan commitment date. The estimated net cash flows from servicing, which includes assumptions for discount rate, escrow earnings,placement fees, 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% 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 prior to the expiration of the prepayment provisions and full prepayment of the loan at or near the point when the prepayment provisions have expired. The estimated net cash flows also include cash flows related to the future earningsplacement fees on the escrowdeposit 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 not had a materialde minimis impact on the estimate.estimate historically. We record an individual OMSRMSR asset (or liability) for each loan at loan sale. The fair value of MSRs acquired through a stand-alone servicing portfolio purchase (“PMSR”) is equal to the purchase price paid. 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 limited volatility in the material assumptions historically, including the significant assumption that most significantly impacts the estimate –estimate: the discount rate. We do not expect to see significant volatility in the material 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. DuringOver the first quarterpast two years, we have adjusted the placement fee assumption related to escrow deposits several times to reflect the current and expected future earnings rate projected for the life of 2021,the MSR. Additionally, we reducedadjusted the discount rate and escrow earnings rate assumptions for our OMSRs. Duringat the third quarterbeginning of 2022, we increased the escrow earnings rate assumptions2021 to reflect currentmirror changes observed from market participant assumptions.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 condensed 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 at purchase (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 have made adjustments to the estimated life of our PMSRs in the past when 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 based on loss rateseconomic and unemployment forecasts from a market survey and a blended loss rate from historical periodperiods that we believe is similar.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 secondfirst quarter of 2022,2023, we updated the loss rate used in the forecast period from three2.1 basis points to 2.22.3 basis points. ChangesThis change resulted in our forecast-period loss rate increasing from 1.8 times to 3.8 times the historical loss rate factor to reflect our current expectations of the evolving and uncertain macroeconomic conditions facing the multifamily sector. We made multiple revisions to the loss rate used in the forecast period in the past, most notably related to the COVID-19 pandemic, and those changes in the loss rates have significantly impacted the estimate in the past.estimate. 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 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 are 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 rolling 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 2022,2023, loss data from earlier periods in the look-back period with significantly higher losses fell off and were replaced with more recent loss data with significantly lower losses, resulting in the weighted-average annual loss rate changing from 1.81.2 basis points to 1.20.6 basis points. Changes in our expectations and forecasts have materially impacted, and in the future may materially impact, the estimate. We have notIn 2022, we had aour first loss settlement in nearly six years. We settled another immaterial loss in July 2023. NOTE 4 of the consolidated financial statements outlines adjustments made in the loss rates used to account for the expected economic conditions as of a given period and the related impact on the estimate. We evaluate our risk-sharing loans on a quarterly basis to determine whether there are loans that are probable of default.foreclosure. Specifically, we assess a loan’s qualitative and quantitative risk factors, such as payment status, property financial performance, local real estate market conditions, loan-to-value ratio, debt-service-coverage ratio, and property condition. When a loan is determined to be probable of defaultforeclosure 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, thatwhich may differ significantly from actual results. Loss settlement with Fannie Mae has historically concluded within 18 to 36 months after foreclosure. Historically, the initial collateral-based reserves have not varied significantly from the final settlement. We actively monitor the judgments and assumptions used in our Allowance for Risk-Sharing ObligationsObligation 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 ObligationsObligation 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 is included within Other liabilities in the Consolidated Balance Sheet and adjusted to the estimated fair value at the end of each reporting period. within Other liabilities in the Condensed Consolidated Balance Sheets. We are also required to continue to record the contingent consideration at fair value at 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 earn-outearnout 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. During the third quarter of 2023, we recorded a reduction of $14.0 million to the fair value of our contingent consideration liabilities based on revised management forecasts, scenarios, and other valuation inputs. Over the past year, we have made two large acquisitions that included significant portions of contingent consideration. The aggregate fair value of our contingent consideration liabilities as of September 30, 20222023 was $221.0$161.2 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 September 30, 20222023 was $325.0$292.9 million. Historically, allOver the past two years, we have made two large acquisitions that included significant amounts of contingent consideration to maximize alignment of the contingent consideration arrangements have paid out at the maximum achievable amount. We are uncertain whether this trend will continue in the future. Additionally, thekey principals and management teams. The earnouts completed prior to 2021 have 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.
GoodwillGoodwill. . As of September 30, 20222023 and December 31, 2021,2022, we reported goodwill of $948.2$949.7 million and $698.6$959.7 million, respectively. Goodwill represents the excess of cost over the identifiable net assets of businesses acquired. Goodwill is assigned to the segmentreporting unit to which the acquisition relates. Goodwill is recognized as an asset and is reviewed for impairment annually in the fourth quarter.as of October 1. Between the annual evaluation time,impairment analyses, 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 judgements,judgments, assumptions, and estimates about projected cash flows, discount rates and other factors.
We recorded goodwill impairment during the third quarter of 2023 in conjunction with the aforementioned reassessment of contingent consideration liabilities. The fair value adjustment reduced the contingent consideration liability associated with our 2022 acquisition of GeoPhy, and we recorded a corresponding and offsetting impairment to the goodwill associated with the acquisition since a substantial portion of the goodwill originally recorded was directly related to the contingent consideration liability. We attributed this goodwill impairment to one of the two reporting units to which the GeoPhy operations and goodwill are assigned, both of which are components of the Capital Markets segment. The period over which the contingent consideration can be earned (approximately two more years) is much shorter than the period of time considered in a fair value assessment of a reporting unit, and we believe the macroeconomic and commercial real estate market conditions that led to the fair value adjustment related to the continent consideration liability are short term in nature. As of September 30, 2022,2023, we continue to believe the remaining goodwill at each of our goodwillother reporting units is not impaired. However, if the volatile macroeconomic and commercial real estate market conditions continue, the fair value of our contingent consideration liabilities may decline further in the coming quarters, resulting in a corresponding and offsetting goodwill impairment similar to the one we recorded during the three months ended September 30, 2023, as discussed above. Overview of Current Business Environment The fundamentalsHigher and volatile interest rates continue to disrupt many sectors of the capital markets, causing significant volatility and uncertainty, including: (a) disruption in the commercial real estate market began the year strong, particularly multifamily, which is the vast majority of our transaction volumes. Despite significant marketlending and transactions environment, (b) volatility caused by the high inflation rate and resulting rising interest rates, multifamily property fundamentals remain healthy. According to RealPage, a providerin pricing of commercial real estate dataassets, (c) challenges in the banking sector which are significantly constraining the supply of capital, and analytics, vacancies have risen(d) uncertainty amongst owners, operators, and developers of commercial real estate assets. Due to the disruption and uncertainties, our total transaction volumes decreased 54% from their Marchthe first nine months of 2022, lows to 4.4% aswith the largest decreases in our debt brokerage (59%) and multifamily property sales (64%) executions. The decrease in total transaction volumes also included a decrease in our GSE lending (34%) and HUD originations (61%).
To combat the high rate of September 30, 2022; however, national vacancy rates still remain below their historical averages. Additionally, rent collections remain strong at pre-pandemic levels, despite inflationary pressures and high rent growthinflation over the past two years. Macroeconomic conditions impacting multifamily markets remained stable in the third quarter of 2022, with the national unemployment rate falling to pre-pandemic lows of 3.5% as of September 2022. The high rate of inflation during the year resulted inyears the Federal Reserve increasingincreased its target Federal Funds Rate by 3.00% from5.25% since December 2021, with a target range of 3.00%5.25% to 3.25%5.50% as of September 30, 2022. The2023. Following the September 2023 meeting, the Federal Reserve continuessignaled a slower pace of increases, but that rates would need to signal that it anticipates additional increases in the target range and will continue the reduction of its holdings in Treasury securities and Agency mortgage-backed securities (“Agency MBS”) until theremain higher for longer to bring inflation rate returns todown toward the Federal Reserve’s long-term target. BothThe actions of these actions by the Federal Reserve have resulted in an increase in medium to long-term mortgage interest rates, which form the basis of most of our lending.
The market’s transition from a historically low interest rate environment to a rising interest rate environment disrupted certain sectors of the lending market, with the most acute impact felt initially in the consumer lending sector (e.g., residential mortgages, auto lending, and consumer credit). Although volatility in long-term interest rates also disrupted certain segments of the commercial real estate lending environment at times during 2022, the commercial real estate debt and property sales markets remained active. As a result, our total transaction volumes increased 27% over the first three quarters of 2021, with the largest increases in multifamily property sales (65%), debt brokerage (27%), and Fannie Mae (33%) volumes. The product we offer that was most significantly impacted by rising interest rates was our HUD product, which declined 49% when compared to the first three quarters of 2021.
Over the last ninety days, the Federal Reserve’s stance on inflation has become more aggressive with fourth consecutive 0.75% increasesbasis of most of our lending. The increase in the Federal Funds Rate. Rate has increased our placement fee revenue on escrow deposits and cash and cash equivalents but also increased our borrowing costs for both our warehouse lines and corporate debt.
As the Federal Reserve continues to combat inflation by increasingthrough higher interest rates and with the turmoil in the banking sector from earlier in the year, we expect commercial real estate debt and property sales transaction activity to slow downbe depressed in 2023 from peaks earlierthe levels we achieved in the year. As with the first three quarters2022. Certain of 2022, we expect certainour products to beare impacted more than others, with property sales volumes and debt brokerage executions in non-multifamily assetsasset classes being impacted the most during the first nine months of the year, as banks and life insurance companies continue to pull backother third-party capital sources reduced their lending activities significantly and potentially increaseincreased capital reservesreserves. We also saw a significant slowdown in lending activity from the GSEs in the lastfirst quarter, as overall demand for new loans was down sharply as the market adjusted to the macroeconomic environment early in the year. However, as the market adjusted, the GSEs saw a 68% and 81% increase in their lending activity in the second and third quarters of 2023, respectively, compared to the first quarter of 2022. However, we anticipate Agency2023. We expect the GSEs’ lending volumesterms to remain steady incompetitive and supply much needed countercyclical capital to the fourth quarter asmultifamily sector for the Agencies provide liquidity in countercyclical markets. rest of 2023. When the broader capital markets tighten, the AgenciesGSEs historically step inincrease their lending activity to provide liquidity to the multifamily borrowing community as they did throughout 2020 and the second half of last year, and as one of2021. As the largest providers of capitalGSE multifamily lender by volume in 2022, we remain well positioned to originate loans for the multifamily sector, we are well positioned.GSEs. 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 withincreases on the Agencies is expected to remain strongtotal cost of borrowing. This has resulted in the fourth quarter of 2022, thelower average servicing fees on our new loans and associated profitability of those executions is expected to remain consistent with third quarter levels. We are a market-leading originator withGSE lending over the Agencies,past year, and we believe our market leadership positions us well to continue gaining market share and remain a significant lender withdo not anticipate that changing in the Agencies for the foreseeable future.near term.
The Federal Housing Finance Agency (“FHFA”) establishes loan origination caps for both Fannie Mae and Freddie Mac each year. In October 2021,November 2022, the FHFA established Fannie Mae’s and Freddie Mac’s 20222023 loan origination caps at $78$75 billion each for all multifamily business.business, a 4% decrease from the 2022 caps, but an increase over actual 2022 lending volumes for both Agencies. During the three months ended September 30, 2022,2023, Fannie Mae and Freddie Mac had multifamily origination volumes of $15.9$16.5 billion, up 3.8%, and $14.7$13.3 billion, respectively, down 2.5% and 16.9%9.5%, respectively, from the same period in 2021.2022, respectively. During the nine months ended September 30, 2022,2023, Fannie Mae and Freddie Mac had multifamily origination volumes of $50.6$41.7 billion and $44.3$32.4 billion, respectively, up 3.9%down 17.6% and down 1.1%26.9%, from the first nine months of 2021,ended September 30, 2022, respectively, leaving a combined $61.1$75.9 billion of available lending capacity for the remainder of the year.2023. A decline in our GSE originations negatively impacts our financial results, as our non-cash MSR revenues decrease disproportionately with debt financing volume and future servicing revenue would be constrained or decline. As partDespite the higher interest rate environment and declines in commercial real estate lending and property sales, macroeconomic conditions impacting multifamily property fundamentals remained healthy in the third quarter of FHFA’s2023, with the national unemployment rate remaining low at 3.8% as of September 2023. According to RealPage, a provider of commercial real estate data and analytics, vacancies have risen from their historical low of 2.4% in February 2022 loan origination caps,and stabilized at least 50%5.6% as of September 2023. The recent historically low vacancy rates were largely considered to be unsustainable from a long-term perspective, and the current vacancy rate represents a return to normal that matches the pre-pandemic decade-long average. Despite the increase in vacancies and an increase in supply of multifamily units, national rent growth remains flat indicating continued healthy demand for multifamily units.
Our multifamily property sales volumes decreased 64% in the first nine months of 2023. We continue to compete for market share in the multifamily property sales sector, as customers increasingly look to experienced brokers to maximize value in this uncertain environment. Long term, we believe the market fundamentals will continue to be positive for multifamily properties, and we are beginning to see an increase in assets brought to market as we enter the second half of the GSEs’year. Over the last several years, household formation and a dearth of supply of entry-level single-family homes led to strong demand for rental housing in many geographical areas. Consequently, the fundamentals of the multifamily business is requiredassets were strong prior to be targeted towards affordable housing. Additionally,the pandemic, and, when combined with high occupancy and elevated real-estate prices, we expect that market demand for multifamily assets in 2021 the FHFA raisedlong-term will return as this asset class remains an attractive investment option. Our debt brokerage platform had lower volumes the GSEs’ combined LIHTC investment capfirst nine months of 2023 compared to $1.7 billion, up 70%same period in 2022 due to the volatile interest rate environment and constrained supply of capital from banks, securitization markets, and other specialty finance lenders. As the previous cap of $1.0 billion. We intendinterest rate environment and banking sector begin to leverage our affordable debt financing and our newly acquired LIHTC syndication platformsstabilize, we expect to create additional growth opportunities for our debt financing, property sales, and LIHTC syndication platforms.see capital slowly return to the market. As noted above, our debt financing operations with HUD declined during the first three quarters ofcompared to 2022. HUD loan volumes accounted for 1.4% and 2.0% of our total debt financing volumes for the three and nine months ended September 30, 2023, respectively, compared to 2.8% and 2.6% of our total debt financing volumes for the three and nine months ended September 30, 2022, respectively, compared to 4.1% and 6.0% for the three and nine months ended September 30, 2021, respectively. The decline in HUD debt financing volumes as a percentage of our total debt financing volumes was driven by lower aggregate HUD lending volumes industry-wide, as the increasingongoing high interest-rate environment discussed above more acutely impacted the HUD product given the longer lead times associated with HUD executions. 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 three and nine months ended September 30, 2022, servicing fee revenues were up 7.6% and 8.4%, respectively, compared to the same periods in 2021, due to the growth in our Agency servicing portfolio over the last year. 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.
Our multifamily property sales volumes grew significantly in 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 geographical reach of our property sales platform. Beginning in the third quarter of 2022, the multifamily acquisitions market began to slow down due to the aforementioned market volatility driven by significant increases in interest rates. Long term, we believe the market fundamentals will continue to be positive for multifamily property sales. Over the last several years, and throughout the pandemic, household formation and a dearth of supply of entry-level single-family homes led to strong demand for rental housing in most geographic areas. Consequently, the fundamentals of the multifamily property sales market were strong prior to the pandemic, and, when combined with historically low vacancies, steadying rental rates, and healthy rent collections, it is our expectation that market demand for multifamily property sales will remain steady as this asset class remains an attractive investment option.
Our debt brokerage platform continued its growth from 2021, with brokered volume increasing during the year. The increase in volume in 2022 reflects the continued demand from private capital providers, with activity focused not only on multifamily but also on other commercial real estate assets such as office, retail, and hospitality. Although lending activity in the non-multifamily asset classes is expected to slow in the short-term, we expect non-multifamily debt financing volumes to continue to remain attractive in the long-term.
We entered into the Interim Program JV to expand our capacity to originate Interim Program loans beyond the use of our own balance sheet. The demandDemand for transitional lending has broughtwas strong over the last several years and drove increased competition from lenders, specifically banks, private debt funds, mortgage real estate investment trusts, and life insurance companies. Since the Federal Reserve began increasing interest rates, the supply of capital to transitional lending decreased substantially due to constraints in lending from banks, as well as tightening credit standards for transitional assets. For the nine months ended September 30, 2022,2023, we originated $86.3 million ofdid not originate any Interim Program JV loans, compared to $665.9$86.3 million of originations for the same period last year, dueyear. Given the volatile macroeconomic conditions discussed above, we continue to the aforementioned competitive pressures and the impactapproach our lending activity on transitional assets cautiously. We expect our lending volumes for transitional assets to remain low until economic conditions normalize. As of rising interest rates on interim lending opportunities. Except for one loan that defaulted in early 2019,September 30, 2023, all the loans in our portfolio and in the Interim Program JV continue to perform according to their terms. We provide alternative investment management services focused on the affordable housing sector through LIHTC syndication, joint venture development, and community preservation fund management through our subsidiary, WDAE. We remain the 6th largest LIHTC syndicator despite the volatile and uncertain economic conditions mentioned above. We continue to approach the affordable housing space with a combined LIHTC syndication and affordable housing service offering that we believe will generate significant long-term financing, property sales, and syndication opportunities. Additionally, as agreed. part of FHFA’s 2023 loan origination caps of $150 billion announced in November 2022, at least 50% of the GSEs’ multifamily business is required to be targeted towards affordable housing. We expect these initiatives will create additional growth opportunities for both WDAE and our debt financing and property sales teams focused on affordable housing, as evidenced by the $461 million of equity syndicated by WDAE for the nine months ended September 30, 2023, putting them on pace for their strongest year of syndicated equity ever. Consolidated Results of Operations The following is a discussion of our consolidated results of operations for the three and nine months ended September 30, 20222023 and 2021.2022. The financial results are not necessarily indicative of future results. Our quarterly 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, industry trends, and general economic conditions. The table below provides supplemental data regarding our financial performance. SUPPLEMENTAL OPERATING DATA CONSOLIDATED | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | For the three months ended | | For the nine months ended | | | | September 30, | | September 30, | | | September 30, | | September 30, | | (dollars in thousands; except per share data) | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | Transaction Volume: | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of Debt Financing Volume | | | | | | | | | | | | | | | Total Debt Financing Volume | | $ | 11,925,593 | | $ | 13,260,768 | | $ | 35,711,568 | | $ | 31,096,071 | | | $ | 6,047,394 | | $ | 11,925,593 | | $ | 17,781,027 | | $ | 35,711,568 | | Property Sales Volume | | | 4,993,615 | | | 5,230,093 | | | 16,417,367 | | | 9,967,385 | | | | 2,508,073 | | | 4,993,615 | | | 5,907,138 | | | 16,417,367 | | Total Transaction Volume | | $ | 16,919,208 | | $ | 18,490,861 | | $ | 52,128,935 | | $ | 41,063,456 | | | $ | 8,555,467 | | $ | 16,919,208 | | $ | 23,688,165 | | $ | 52,128,935 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Key Performance Metrics: | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating margin | | | 17 | % | | 27 | % | | 22 | % | | 28 | % | | | 10 | % | | 17 | % | | 13 | % | | 22 | % | Return on equity | | | 11 | | | 22 | | | 14 | | | 20 | | | | 5 | | | 11 | | | 6 | | | 14 | | Walker & Dunlop net income | | $ | 46,833 | | $ | 71,721 | | $ | 172,328 | | $ | 185,831 | | | $ | 21,458 | | $ | 46,833 | | $ | 75,758 | | $ | 172,328 | | Adjusted EBITDA(1) | | | 74,990 | | | 72,430 | | | 232,470 | | | 199,611 | | | | 74,065 | | | 74,990 | | | 212,541 | | | 232,470 | | Diluted EPS | | | 1.40 | | | 2.21 | | | 5.13 | | | 5.73 | | | | 0.64 | | | 1.40 | | | 2.25 | | | 5.13 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Key Expense Metrics (as a percentage of total revenues): | | | | | | | | | | | | | | | | | | | | | | | | | | | Personnel expenses | | | 50 | % | | 49 | % | | 48 | % | | 48 | % | | | 51 | % | | 50 | % | | 50 | % | | 48 | % | Other operating expenses | | | 11 | | | 7 | | | 10 | | | 7 | | | | 11 | | | 11 | | | 11 | | | 10 | |
| | | | | | | | | | | | | | | As of September 30, | | As of September 30, | Managed Portfolio: | | 2022 | | 2021 | | 2023 | | 2022 | Total Servicing Portfolio | | $ | 120,778,424 | | $ | 113,920,374 | | $ | 128,959,434 | | $ | 120,778,424 | Assets under management | | | 17,017,355 | | | 2,309,332 | | | 17,334,877 | | | 17,017,355 | Total Managed Portfolio | | $ | 137,795,779 | | $ | 116,229,706 | | $ | 146,294,311 | | $ | 137,795,779 |
| (1) | This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section below titled “Non-GAAP Financial Measure.” | |
The following tables present period-to-period comparisons of our financial results for the three and nine months ended September 30, 20222023 and 2021.2022. FINANCIAL RESULTS – THREE MONTHS CONSOLIDATED | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | | | | For the three months ended | | | | | | | | | September 30, | | Dollar | | Percentage | | | | September 30, | | Dollar | | Percentage | | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | | | 2023 | | 2022 | | Change | | Change | | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | Loan origination and debt brokerage fees, net | | $ | 90,858 | | $ | 123,242 | | $ | (32,384) | | (26) | % | | | $ | 56,149 | | $ | 90,858 | | $ | (34,709) | | (38) | % | | Fair value of expected net cash flows from servicing, net | | | 55,291 | | | 89,482 | | | (34,191) | | (38) | | | | | 35,375 | | | 55,291 | | | (19,916) | | (36) | | | Servicing fees | | | 75,975 | | | 70,628 | | | 5,347 | | 8 | | | | | 79,200 | | | 75,975 | | | 3,225 | | 4 | | | Property sales broker fees | | | 30,308 | | | 33,677 | | | (3,369) | | (10) | | | | | 16,862 | | | 30,308 | | | (13,446) | | (44) | | | Investment management fees | | | 16,301 | | | 2,564 | | | 13,737 | | 536 | | | | | 13,362 | | | 16,301 | | | (2,939) | | (18) | | | Net warehouse interest income | | | 3,980 | | | 5,583 | | | (1,603) | | (29) | | | | Escrow earnings and other interest income | | | 18,129 | | | 2,032 | | | 16,097 | | 792 | | | | Net warehouse interest income (expense) | | | | (2,031) | | | 3,980 | | | (6,011) | | (151) | | | Placement fees and other interest income | | | | 43,000 | | | 18,129 | | | 24,871 | | 137 | | | Other revenues | | | 24,769 | | | 19,082 | | | 5,687 | | 30 | | | | | 26,826 | | | 24,769 | | | 2,057 | | 8 | | | Total revenues | | $ | 315,611 | | $ | 346,290 | | $ | (30,679) | | (9) | | | | $ | 268,743 | | $ | 315,611 | | $ | (46,868) | | (15) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | Personnel | | $ | 157,059 | | $ | 170,181 | | $ | (13,122) | | (8) | % | | | $ | 136,507 | | $ | 157,059 | | $ | (20,552) | | (13) | % | | Amortization and depreciation | | | 59,846 | | | 53,498 | | | 6,348 | | 12 | | | | | 57,479 | | | 59,846 | | | (2,367) | | (4) | | | Provision (benefit) for credit losses | | | 1,218 | | | 1,266 | | | (48) | | (4) | | | | | 421 | | | 1,218 | | | (797) | | (65) | | | Interest expense on corporate debt | | | 9,306 | | | 1,766 | | | 7,540 | | 427 | | | | | 17,594 | | | 9,306 | | | 8,288 | | 89 | | | Other operating expenses | | | 33,991 | | | 24,836 | | | 9,155 | | 37 | | | | | 28,529 | | | 33,991 | | | (5,462) | | (16) | | | Total expenses | | $ | 261,420 | | $ | 251,547 | | $ | 9,873 | | 4 | | | | $ | 240,530 | | $ | 261,420 | | $ | (20,890) | | (8) | | | Income from operations | | $ | 54,191 | | $ | 94,743 | | $ | (40,552) | | (43) | | | | $ | 28,213 | | $ | 54,191 | | $ | (25,978) | | (48) | | | Income tax expense | | | 7,532 | | | 22,953 | | | (15,421) | | (67) | | | | | 7,069 | | | 7,532 | | | (463) | | (6) | | | Net income before noncontrolling interests | | $ | 46,659 | | $ | 71,790 | | $ | (25,131) | | (35) | | | | $ | 21,144 | | $ | 46,659 | | $ | (25,515) | | (55) | | | Less: net income (loss) from noncontrolling interests | | | (174) | | | 69 | | | (243) | | (352) | | | | | (314) | | | (174) | | | (140) | | 80 | | | Walker & Dunlop net income | | $ | 46,833 | | $ | 71,721 | | $ | (24,888) | | (35) | | | | $ | 21,458 | | $ | 46,833 | | $ | (25,375) | | (54) | | |
FINANCIAL RESULTS – NINE MONTHS CONSOLIDATED | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | | For the nine months ended | | | | | | | | | September 30, | | Dollar | | Percentage | | | | September 30, | | Dollar | | Percentage | | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | | | 2023 | | 2022 | | Change | | Change | | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | Loan origination and debt brokerage fees, net | | $ | 275,773 | | $ | 306,593 | | $ | (30,820) | | (10) | % | | | $ | 168,201 | | $ | 275,773 | | $ | (107,572) | | (39) | % | | Fair value of expected net cash flows from servicing, net | | | 159,970 | | | 209,266 | | | (49,296) | | (24) | | | | | 107,446 | | | 159,970 | | | (52,524) | | (33) | | | Servicing fees | | | 222,916 | | | 205,658 | | | 17,258 | | 8 | | | | | 232,027 | | | 222,916 | | | 9,111 | | 4 | | | Property sales broker fees | | | 100,092 | | | 65,173 | | | 34,919 | | 54 | | | | | 38,831 | | | 100,092 | | | (61,261) | | (61) | | | Investment management fees | | | 47,345 | | | 9,115 | | | 38,230 | | 419 | | | | | 44,844 | | | 47,345 | | | (2,501) | | (5) | | | Net warehouse interest income | | | 14,021 | | | 14,768 | | | (747) | | (5) | | | | Escrow earnings and other interest income | | | 26,683 | | | 5,972 | | | 20,711 | | 347 | | | | Net warehouse interest income (expense) | | | | (3,556) | | | 14,021 | | | (17,577) | | (125) | | | Placement fees and other interest income | | | | 109,310 | | | 26,683 | | | 82,627 | | 310 | | | Other revenues | | | 129,103 | | | 35,444 | | | 93,659 | | 264 | | | | | 83,001 | | | 129,103 | | | (46,102) | | (36) | | | Total revenues | | $ | 975,903 | | $ | 851,989 | | $ | 123,914 | | 15 | | | | $ | 780,104 | | $ | 975,903 | | $ | (195,799) | | (20) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | Personnel | | $ | 469,608 | | $ | 407,817 | | $ | 61,791 | | 15 | % | | | $ | 388,425 | | $ | 469,608 | | $ | (81,183) | | (17) | % | | Amortization and depreciation | | | 177,101 | | | 148,879 | | | 28,222 | | 19 | | | | | 170,737 | | | 177,101 | | | (6,364) | | (4) | | | Provision (benefit) for credit losses | | | (13,120) | | | (14,380) | | | 1,260 | | (9) | | | | | (11,088) | | | (13,120) | | | 2,032 | | (15) | | | Interest expense on corporate debt | | | 22,123 | | | 5,291 | | | 16,832 | | 318 | | | | | 49,878 | | | 22,123 | | | 27,755 | | 125 | | | Other operating expenses | | | 102,400 | | | 62,171 | | | 40,229 | | 65 | | | | | 83,322 | | | 102,400 | | | (19,078) | | (19) | | | Total expenses | | $ | 758,112 | | $ | 609,778 | | $ | 148,334 | | 24 | | | | $ | 681,274 | | $ | 758,112 | | $ | (76,838) | | (10) | | | Income from operations | | $ | 217,791 | | $ | 242,211 | | $ | (24,420) | | (10) | | | | $ | 98,830 | | $ | 217,791 | | $ | (118,961) | | (55) | | | Income tax expense | | | 46,495 | | | 56,311 | | | (9,816) | | (17) | | | | | 24,695 | | | 46,495 | | | (21,800) | | (47) | | | Net income before noncontrolling interests | | $ | 171,296 | | $ | 185,900 | | $ | (14,604) | | (8) | | | | $ | 74,135 | | $ | 171,296 | | $ | (97,161) | | (57) | | | Less: net income (loss) from noncontrolling interests | | | (1,032) | | | 69 | | | (1,101) | | (1,596) | | | | | (1,623) | | | (1,032) | | | (591) | | 57 | | | Walker & Dunlop net income | | $ | 172,328 | | $ | 185,831 | | $ | (13,503) | | (7) | | | | $ | 75,758 | | $ | 172,328 | | $ | (96,570) | | (56) | | |
Overview Three months ended September 30, 20222023 compared to three months ended September 30, 20212022 The decrease in revenues was primarily driven by decreases in loan origination and debt brokerage fees, net (“origination fees”), the fair value of expected net cash flows from servicing, net (“MSR income”), property sales broker fees, investment management fees, and property broker sales fees,net warehouse interest income (expense), partially offset by increases in servicing fees, investment managementplacement fees escrow earnings and other interest income, and other revenues. Origination fees and MSR income decreased largely as a result of a 10%49% decline in overall debt financing volume and a decline in the origination related fee rate and MSR income rate, respectively, as market volatility and rising interest rates resulted in tighter spreads on loans.volume. Property sales broker sales fees decreased primarily due to a 50% decline in property sales volume. Investment management fees decreased primarily as a result of a decline in LIHTC investment management fees. Net warehouse interest income (expense) decreased from a net revenue position in 2022 to a net expense position in 2023 due to short-term rates remaining higher than long-term rates (“inverted yield curve”) during the third quarter of 2023. Servicing fees increased largely from an increase in the average servicing portfolio outstanding. Investment managementPlacement fees increased due to the addition of investment management fees from our LIHTC operations acquired in the fourth quarter of 2021. Escrow earnings and other interest income increased primarily as a result of a higher placement fee rate due to rising short-term interest rates. Other revenues increased largely as a result of a higher escrow earnings rate due to rising interest rates. Other revenues increased primarily due to the addition of other revenues related to our LIHTC operations, partially offset by a decreasean increase in prepayment fees.assumption fee income. The increasedecrease in expenses was due to increasesdecreases in personnel costs, amortization and depreciation, interest expense on corporate debt, and other operating expenses, partially offset by an increase in interest expense on corporate debt. Personnel costs decreased largely due to decreases in commission costs as a decrease in personnel costs.result of our lower transaction volumes. Amortization and depreciation expense increaseddecreased primarily due to an increasea decline in write-offs of MSRs due to lower prepayments in the average MSR balanceservicing portfolio. Other operating expenses decreased as a direct result of our cost-reduction initiatives across a variety of general and an increase in intangible asset amortization resulting from acquisitions over the past year.administrative cost categories. Interest expense on corporate debt increased primarily due to the increaseincreases in the size of the debt outstanding, an increase in SOFR to which our Term Debt is indexed, and the assumption of Alliant’s note payable in the fourth quarter of 2021. Other operating expenses increased largely as a result of (i) the overall growthinterest rate as our corporate debt’s floating rate is tied to short-term interest rates, (ii) the outstanding principal balance of corporate debt, and (iii) the Company overprincipal balance of our corporate debt subject to floating interest rates, as we replaced the past year, including expenses from acquiredfixed-rate debt at one of our 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 decrease in personnel expenses was primarily a result of decreases in commission costs due to the decrease in debt financing and propertywith floating-rate debt. sales volumes and other variable costs due to the Company’s performance, partially offset by an increase in salaries and benefits costs primarily driven by an increase in the average headcount.
Income Tax Expense. The decrease in income tax expense primarily relates to a 48% decrease in income from operations, andlargely offset by a one-time $10.2 million tax benefit during the three months ended September 30, 2022 totaling $6.3 million resulting from (i) the dissolution during the third quarter of 2022 of the Apprisea joint venture that we acquired full ownership of earlier in the year (“Apprise dissolution”). Partially offsetting this benefit was (i) an increase in the estimated annual effective tax rate due to an increase in nondeductible executive compensation,2022 and (ii) a $1.8 million decrease in realizable excess tax benefits, and (iii) a one-time internationalintellectual property (“IP”) transfer tax of $3.9 million related to the IP intangible assets we acquired as part of the 2022 GeoPhy acquisition. There was no comparable one-time tax benefit during the three months ended September 30, 2023. Nine months ended September 30, 20222023 compared to nine months ended September 30, 20212022 The increasedecrease in revenues was primarily driven by increasesdecreases in servicingorigination fees, MSR income, property sales broker fees, investment management fees, escrow earnings and othernet warehouse interest income (expense), and other revenues, partially offset by decreasesincreases in originationservicing fees and placement fees and other interest income. Origination fees and MSR income.income decreased largely as a result of a 50% decline in overall debt financing volume. Property sales broker fees decreased primarily due to a 64% decline in property sales volume. Net warehouse interest income (expense) decreased from a net revenue position in 2022 to a net expense position in 2023 due to the inverted yield curve throughout 2023. Other revenues decreased primarily due to a $39.6 million one-time gain from the revaluation of our previously held equity-method investment in Apprise in the first quarter of 2022, with no comparable activity in 2023, combined with a decline in prepayment fees. Servicing fees increased largely from an increase in the average servicing portfolio outstanding. The increase in property sales brokerPlacement fees was primarily a result of a substantial increase in property sales volume. Investment management fees increased due to the addition of investment management fees from our LIHTC operations acquired in the fourth quarter of 2021. Escrow earnings and other interest income increased largely as a result of higher escrow earnings rates due to rising interest rates. Other revenues increased primarily as a result of increases in: (i) a one-time gain from the revaluationhigher placement fee rate due to rising short-term interest rates. The decrease in expenses was due to decreases in personnel costs, amortization and depreciation, and other operating expenses, partially offset by an increase in interest expense on corporate debt. Personnel costs decreased, largely due to decreases in commission costs as a result of our previously held equity-method investmentlower transaction volumes. Amortization and depreciation decreased, largely due to a decline in Apprise (“Apprise revaluation gain”), (ii) prepayment fees, (iii) other revenues from our LIHTC operations, (iv) research subscription fees, and (v) gains from equity-method investments. Origination fees and MSR incomewrite-offs of MSRs due to lower prepayments in the servicing portfolio. Other operating expenses decreased primarily as a result of the write off of unamortized debt premium as we paid off a decline in the earnings rate fromnote payable at one of our debt financing volumes due to market volatilitysubsidiaries, and rising interest rates over the past several months, partially offset by an increase in Agency debt financing volume. The increase in expenses was due to increases in all expense categories. The increase in personnel expenses was primarilyother decreases as a result of increases in commission costs due to the increase in property sales brokers fees and salaries and benefits costs driven by an increase in the average headcount. Amortization and depreciation expense increased primarily due to an increase in the average MSR balance and an increase in intangible asset amortization resulting from acquisitions in 2021 and 2022.our cost-reduction initiatives. Interest expense on corporate debt largely increased due to the increaseincreases in the size of the debt outstanding, including the assumption of Alliant’s note payable in the fourth quarter of 2021. Other operating expenses increased largely as a result of (i) the overall growthinterest rate as our corporate debt’s floating rate is tied to short-term interest rates, (ii) the outstanding principal balance of corporate debt, and (iii) the Company overprincipal balance of our corporate debt subject to floating interest rates, as we replaced the past year including expenses from acquiredfixed-rate debt at one of our 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. with a floating-rate debt.
Income Tax Expense. The decrease in income tax expense primarily relates to a 55% decrease in income from operations, andpartially offset by a one-time $10.2 million tax benefit resulting from the Apprise dissolution. Partially offsetting this benefit was (i) an increase in the estimated annual effective tax rate due to an increase in nondeductible executive compensation, (ii) a $1.8$3.3 million decrease in realizable excess tax benefits and (iii) athe one-time expense of $3.9 million related to the IP transfer. We do not expect our annual estimated effective tax rate to differ significantly from the 27.0% rate estimated for the three and nine months ended September 30, 2022. Accordingly, we expect an estimated annual effective tax rate of between approximately 26.5% and 27.5% for the remainder of the year. The effective tax rate decreased year over year from 23.2% in 2021 to 21.3%benefit recognized in 2022 due to the factors notedand not 2023 as more fully described above.
A discussion of the financial results for our segments is included further below. Non-GAAP Financial Measure 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 and Alliant’s note payable,corporate debt, and amortization and depreciation, adjusted for provision (benefit) for credit losses, net of write-offs, stock-based incentive compensation charges, the fair value of expected net cash flows from servicing, net, the write off of the unamortized balance of premium associated with the repayment of a portion of our corporate debt, goodwill impairment, and the gain from revaluation of a previously held equity-method investment. The goodwill impairment that is incorporated into the calculation of Adjusted EBITDA includes goodwill impairment resulting from our annual goodwill impairment test and the quarterly evaluations of recoverability. Goodwill impairment that results from a downward fair value adjustment to contingent consideration liabilities is not included as an adjustment to GAAP net income to arrive at Adjusted EBITDA, since the goodwill impairment is offset by the downward fair value adjustment to the contingent consideration liability, resulting in no net impact to GAAP net income. 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 on both a consolidated and segment basis. Adjusted EBITDA is reconciled to net income as follows: ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP CONSOLIDATED | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | For the three months ended | | For the nine months ended | | | | September 30, | | September 30, | | | September 30, | | September 30, | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA | Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA | | | | | | | | | | | Reconciliation of Walker & Dunlop Net Income to Adjusted EBITDA | | | | | | | | | | | Walker & Dunlop Net Income | | $ | 46,833 | | $ | 71,721 | | $ | 172,328 | | $ | 185,831 | | | $ | 21,458 | | $ | 46,833 | | $ | 75,758 | | $ | 172,328 | | Income tax expense | | | 7,532 | | | 22,953 | | | 46,495 | | | 56,311 | | | | 7,069 | | | 7,532 | | | 24,695 | | | 46,495 | | Interest expense on corporate debt | | | 9,306 | | | 1,766 | | | 22,123 | | | 5,291 | | | | 17,594 | | | 9,306 | | | 49,878 | | | 22,123 | | Amortization and depreciation | | | 59,846 | | | 53,498 | | | 177,101 | | | 148,879 | | | | 57,479 | | | 59,846 | | | 170,737 | | | 177,101 | | Provision (benefit) for credit losses | | | 1,218 | | | 1,266 | | | (13,120) | | | (14,380) | | | | 421 | | | 1,218 | | | (11,088) | | | (13,120) | | Net write-offs | | | — | | | — | | | — | | | — | | | | (2,008) | | | — | | | (8,041) | | | — | | Share-based compensation expense | | | 5,546 | | | 10,708 | | | 27,154 | | | 26,945 | | | | 7,427 | | | 5,546 | | | 22,468 | | | 27,154 | | Gain from revaluation of previously held equity-method investment | | | — | | | — | | | (39,641) | | | — | | | | — | | | — | | | — | | | (39,641) | | Write off of unamortized premium from corporate debt repayment | | | | — | | | — | | | (4,420) | | | — | | Fair value of expected net cash flows from servicing, net | | | (55,291) | | | (89,482) | | | (159,970) | | | (209,266) | | | | (35,375) | | | (55,291) | | | (107,446) | | | (159,970) | | Adjusted EBITDA | | $ | 74,990 | | $ | 72,430 | | $ | 232,470 | | $ | 199,611 | | | $ | 74,065 | | $ | 74,990 | | $ | 212,541 | | $ | 232,470 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The net write-off for the nine months ended September 30, 2023 includes the write off of collateral-based reserves related to a loan held for investment. | |
The following tables present period-to-period comparisons of the components of adjusted EBITDA for the three and nine months ended September 30, 20222023 and 2021.2022. ADJUSTED EBITDA – THREE MONTHS CONSOLIDATED | | | | | | | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 90,858 | | $ | 123,242 | | $ | (32,384) | | (26) | % | Servicing fees | | 75,975 | | | 70,628 | | | 5,347 | | 8 | | Property sales broker fees | | 30,308 | | | 33,677 | | | (3,369) | | (10) | | Investment management fees | | 16,301 | | | 2,564 | | | 13,737 | | 536 | | Net warehouse interest income | | 3,980 | | | 5,583 | | | (1,603) | | (29) | | Escrow earnings and other interest income | | 18,129 | | | 2,032 | | | 16,097 | | 792 | | Other revenues | | 24,943 | | | 19,013 | | | 5,930 | | 31 | | Personnel | | (151,513) | | | (159,473) | | | 7,960 | | (5) | | Net write-offs | | — | | | — | | | — | | N/A | | Other operating expenses | | (33,991) | | | (24,836) | | | (9,155) | | 37 | | Adjusted EBITDA | $ | 74,990 | | $ | 72,430 | | $ | 2,560 | | 4 | |
| | | | | | | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2023 | | 2022 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 56,149 | | $ | 90,858 | | $ | (34,709) | | (38) | % | Servicing fees | | 79,200 | | | 75,975 | | | 3,225 | | 4 | | Property sales broker fees | | 16,862 | | | 30,308 | | | (13,446) | | (44) | | Investment management fees | | 13,362 | | | 16,301 | | | (2,939) | | (18) | | Net warehouse interest income (expense) | | (2,031) | | | 3,980 | | | (6,011) | | (151) | | Placement fees and other interest income | | 43,000 | | | 18,129 | | | 24,871 | | 137 | | Other revenues | | 27,140 | | | 24,943 | | | 2,197 | | 9 | | Personnel | | (129,080) | | | (151,513) | | | 22,433 | | (15) | | Net write-offs | | (2,008) | | | — | | | (2,008) | | N/A | | Other operating expenses | | (28,529) | | | (33,991) | | | 5,462 | | (16) | | Adjusted EBITDA | $ | 74,065 | | $ | 74,990 | | $ | (925) | | (1) | |
ADJUSTED EBITDA – NINE MONTHS CONSOLIDATED | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 275,773 | | $ | 306,593 | | $ | (30,820) | | (10) | % | $ | 168,201 | | $ | 275,773 | | $ | (107,572) | | (39) | % | Servicing fees | | 222,916 | | | 205,658 | | | 17,258 | | 8 | | | 232,027 | | | 222,916 | | | 9,111 | | 4 | | Property sales broker fees | | 100,092 | | | 65,173 | | | 34,919 | | 54 | | | 38,831 | | | 100,092 | | | (61,261) | | (61) | | Investment management fees | | 47,345 | | | 9,115 | | | 38,230 | | 419 | | | 44,844 | | | 47,345 | | | (2,501) | | (5) | | Net warehouse interest income | | 14,021 | | | 14,768 | | | (747) | | (5) | | | Escrow earnings and other interest income | | 26,683 | | | 5,972 | | | 20,711 | | 347 | | | Net warehouse interest income (expense) | | | (3,556) | | | 14,021 | | | (17,577) | | (125) | | Placement fees and other interest income | | | 109,310 | | | 26,683 | | | 82,627 | | 310 | | Other revenues | | 90,494 | | | 35,375 | | | 55,119 | | 156 | | | 84,624 | | | 90,494 | | | (5,870) | | (6) | | Personnel | | (442,454) | | | (380,872) | | | (61,582) | | 16 | | | (365,957) | | | (442,454) | | | 76,497 | | (17) | | Net write-offs | | — | | | — | | | — | | N/A | | | (8,041) | | | — | | | (8,041) | | N/A | | Other operating expenses | | (102,400) | | | (62,171) | | | (40,229) | | 65 | | | (87,742) | | | (102,400) | | | 14,658 | | (14) | | Adjusted EBITDA | $ | 232,470 | | $ | 199,611 | | $ | 32,859 | | 16 | | $ | 212,541 | | $ | 232,470 | | $ | (19,929) | | (9) | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The net write-off for the nine months ended September 30, 2023 includes the write off of collateral-based reserves related to a loan held for investment. | |
Three and nine months ended September 30, 20222023 compared to three and nine months ended September 30, 20212022
Origination fees decreased primarily due to a declinedeclines in the earnings rate from our debt financing volumes coupled with a slight decrease inoverall debt financing volumes. Servicing fees increased largely due to growth in the average servicing portfolio period over period. Property sales broker fees decreased principally due to declines in property sales volumes. Investment management fees decreased primarily as a result of a decline in the property sales volume. InvestmentLIHTC investment management fees increasedfees. Net warehouse interest income (expense) decreased from a net revenue position in 2022 to a net expense position in 2023 primarily due to the additioninverted yield curve throughout much of investment management2023. Placement fees from our LIHTC operations acquired in the fourth quarter of 2021. Escrow earnings and other interest income increased largely as a result of a higher escrow earnings rateplacement fee rates due to rising short-term interest rates. OtherFor the nine months ended September 30, 2023 only, other revenues increaseddecreased primarily due to the addition of other revenues from our LIHTC operations,declines in prepayment fees, partially offset by a decreaseincreases in prepayment fees.investment banking revenues and miscellaneous revenues. The decreasedecreases in personnel expenses waswere primarily a result ofdue to decreases in commission costs due to our lower transaction volumes. Net write-offs increased due to the decreasecharge off of an Interim Program loan that defaulted in debt financing and property sales volumes, partially offset by increases in salaries and benefits costs driven by an increase2019 that was settled in the average headcount.second quarter of 2023 and a loss settlement in our at-risk portfolio during the third quarter of 2023 with no comparable activity in 2022. Other operating expenses increaseddecreased largely as a result of (i) the overall growth of the Company over the past year including expenses from acquired subsidiaries and (ii) an increasedecreases 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. Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
Originationprofessional fees decreased as a result of a decline in the earnings rate from our debt financing volumes due to market volatility and rising interest rates and a decrease in overall debt financing volume. Servicing fees increased largely from an increase in the average servicing portfolio outstanding. The increase in property sales broker fees was a result of a substantial increase in property sales volume. Investment management fees increased due to the addition of investment management fees from our LIHTC operations acquired in the fourth quarter of 2021. Escrow earnings and other interest income increased largely as a result of a higher escrow earnings rate due to rising interest rates. Other revenues increased primarily as a result of increases in: (i) prepayment fees, (ii) other revenues from our LIHTC operations, and (iii) research subscription fees. The increase in personnel expenses was primarily a result of increases in commission costs due to the increase in property sales broker fees and salaries and benefits costs driven by an increase in the average headcount. 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.
cost-reduction initiatives.
Financial Condition Cash Flows from Operating Activities Our cash flows from operating activities are generated from loan sales, servicing fees, placement fees from escrow earnings,deposits, net warehouse interest income, property sales broker fees, investment management fees, research subscription fees, investment banking advisory fees, and other income, net of loan originations 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, 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.acquisitions. Cash Flows from Financing Activities We use our warehouse loan facilities and, when necessary, our corporate cash to fund loan closings, both for loans held for sale and loans held for investment. 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 needs. Historically, we have used a combination of long-term debt and cash on hand to fund large acquisitions. Additionally, we repurchase shares, pay cash dividends, make long-term debt principal payments, and repay short-term borrowings on a regular basis. We issue stock primarily forin connection with the exercise of stock options (cash inflow) and for acquisitions (non-cash transactions). Nine Months Ended September 30, 20222023 Compared to Nine Months Ended September 30, 20212022 The following table presents a period-to-period comparison of the significant components of cash flows for the nine months ended September 30, 20222023 and 2021.2022. SIGNIFICANT COMPONENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended September 30, | | Dollar | | Percentage | | | For the nine months ended September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | | 2023 | | 2022 | | Change | | Change | | Net cash provided by (used in) operating activities | | $ | (466,766) | | $ | (196,979) | | $ | (269,787) | | 137 | % | | $ | (332,412) | | $ | (466,766) | | $ | 134,354 | | (29) | % | Net cash provided by (used in) investing activities | | | (170,990) | | | 49,325 | | | (220,315) | | (447) | | | | 146,569 | | | (170,990) | | | 317,559 | | (186) | | Net cash provided by (used in) financing activities | | | 449,634 | | | 194,265 | | | 255,369 | | 131 | | | | 228,207 | | | 449,634 | | | (221,427) | | (49) | | Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period ("Total cash") | | | 205,058 | | | 404,613 | | | (199,555) | | (49) | | | | 300,647 | | | 205,058 | | | 95,589 | | 47 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from (used in) operating activities | | | | | | | | | | | | | | | | | | | | | | | | | Net receipt (use) of cash for loan origination activity | | $ | (594,506) | | $ | (301,921) | | $ | (292,585) | | 97 | % | | $ | (378,891) | | $ | (594,506) | | $ | 215,615 | | (36) | % | Net cash provided by (used in) operating activities, excluding loan origination activity | | | 127,740 | | | 104,942 | | | 22,798 | | 22 | | | | 46,479 | | | 127,740 | | | (81,261) | | (64) | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from (used in) investing activities | | | | | | | | | | | | | | | | | | | | | | | | | Purchases of pledged AFS securities | | $ | (51,302) | | $ | (7,250) | | $ | (44,052) | | 608 | % | | $ | — | | $ | (51,302) | | $ | 51,302 | | (100) | % | Proceeds from the prepayment/sale of pledged AFS securities | | | 9,261 | | | 28,781 | | | (19,520) | | (68) | | | Purchase of equity-method investments | | | (25,098) | | | (8,029) | | | (17,069) | | 213 | | | Purchases of equity-method investments | | | | (15,062) | | | (25,098) | | | 10,036 | | (40) | | Acquisitions, net of cash received | | | (114,163) | | | (62,208) | | | (51,955) | | 84 | | | | — | | | (114,163) | | | 114,163 | | (100) | | Capital expenditures | | | (19,302) | | | (5,507) | | | (13,795) | | 250 | | | | (13,880) | | | (19,302) | | | 5,422 | | (28) | | Net payoff of (investment in) loans held for investment | | | 22,728 | | | 127,591 | | | (104,863) | | (82) | | | | 160,801 | | | 22,728 | | | 138,073 | | 608 | | Net distributions from (investments in) joint ventures | | | 6,886 | | | (24,053) | | | 30,939 | | 129 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from (used in) financing activities | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings (repayments) of warehouse notes payable, net | | $ | 593,685 | | $ | 333,887 | | $ | 259,798 | | 78 | % | | $ | 387,109 | | $ | 593,685 | | $ | (206,576) | | (35) | % | Borrowings of interim warehouse notes payable | | | 36,459 | | | 154,661 | | | (118,202) | | (76) | | | | — | | | 36,459 | | | (36,459) | | (100) | | Repayments of interim warehouse notes payable | | | (26,000) | | | (157,277) | | | 131,277 | | (83) | | | | (119,835) | | | (26,000) | | | (93,835) | | 361 | | Repayments of notes payable | | | (29,487) | | | (2,234) | | | (27,253) | | 1,220 | | | | (120,046) | | | (29,487) | | | (90,559) | | 307 | | Borrowings of notes payable | | | | 196,000 | | | — | | | 196,000 | | N/A | | Payment of contingent consideration | | | (19,720) | | | — | | | (19,720) | | N/A | | | | (26,090) | | | (19,720) | | | (6,370) | | 32 | | Repurchase of common stock | | | (40,675) | | | (15,686) | | | (24,989) | | 159 | | | | (18,928) | | | (40,675) | | | 21,747 | | (53) | | Borrowings (repayments) of secured borrowings | | | — | | | (73,312) | | | 73,312 | | (100) | | | Cash dividends paid | | | (60,025) | | | (48,268) | | | (11,757) | | 24 | | |
The increasedecrease in net cash used in operating activities was 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.time due to the timing difference between the date of origination and date of delivery. The increasedecrease in cash flows used in loan origination activities is primarily attributable to a net increase in originations (net cash used) outpacing sales by $378.9 million in 2023 compared to $594.5 million in 20222022. The decline in the amount of originations in excess of sales was due to a decline in our total origination activity in 2023 compared to $301.9 million in 2021.2022. Excluding cash used for the origination and sale of loans, cash flows provided by operating activities were $46.5 million in 2023, down from $127.7 million in 2022, up from $104.9 million in 2021.2022. The increasedecrease is primarily the result of a $77.5$97.2 million changedecrease in net income before noncontrolling interests and a $70.0 million increase in cash used for other operating activities, net, partially offset by a $46.2 million net increase in non-cash adjustments for MSRs and amortization and depreciation partially offset by (i)and a $39.6 million increase in a non-cash adjustment for the Apprise revaluation gain in 2022 with no comparable activity in 2021 and (ii) a $14.6 million decrease in net income before noncontrolling interests. The significant decrease in Total cash over the past year is largely attributable to acquisition activity, partially offset by an increase in our long-term debt.2023. The change from net cash provided by investing activities in 2021 to net cash used in investing activities in 2022 to net cash provided by investing activities in 2023 was due to (i) an increase in cash used in acquisitions in 2022 compared to 2021, (ii) a decrease in the net payoff of loans held for investment, (iii) a decrease in the payoff of pledged AFS securities, which is unpredictable, (iv) an increase in capital expenditures due to the build out of our new corporate headquarters, (v) an increase in the purchase of equity-method investments as capital calls for capital commitments increased year over year, and (vi) an increase in the purchase of AFS securities, which iswas impacted by the elevated payoffs of pledged AFS securities partially offset byleading up to 2022 and no purchases in 2023 as the change from net investments in joint ventures to net distributions from joint ventures. For the nine months ended September 30, 2021, we had three acquisitions, two of whichmarket interest rates on pledged securities AFS were small, compared to the GeoPhy acquisition, which wasnot substantially largerhigher than the acquisitions in 2021, resulting in an increase inshort-term rate earned on uninvested cash used for acquisitions. We also made a large payment for working capital adjustments for the Alliant acquisition in 2022, with no comparable activity in 2021. Net payoff of loans held for investment decreased, as there were fewer payoffs and originations in 2022 than in 2021. Our purchases of AFS securities increased in 2022, as we reinvested the funds from the payoff of AFS securities that occurred late in 2021. The increase in cash provided by financing activities was attributable to (i) an increase in net warehouse borrowings and (ii) a decrease in repayments of secured borrowings, partially offset by (i) a change to net borrowings from net repayments of interim warehouse notes payable, (ii) an increase in repayments of notes payable, (iii) an increase in the payment of contingent consideration as the Company made payments in 2022 for outsized performances of certain acquired entities in 2021, (iv) an increase in repurchases of common stock, and (v) an increase in dividends paid. The increase in the net borrowings of warehouse notes payable was due to the aforementioned increase in cash used for loan origination activity. The change to net cash borrowings from net repayments of interim warehouse notes payable was primarily due to a reduction in repayments as we had fewer originations in 2022. The increase in repayments of notes payable was due to the quarterly paydowns of a note payable at our subsidiary, Alliant, with no comparable activity in 2021. The increase in cash paid for repurchases 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.
due to the inverted yield curve, (ii) a decrease in purchases of equity-method investments, as we made fewer capital contributions in our LIHTC investments and other equity-method investments, (iii) a significant reduction in cash used for acquisitions in 2023 compared to 2022, as we had no acquisitions in 2023, (iv) a decrease in capital expenditures due to elevated capital expenditures in 2022 related to the build out of our new headquarters, and (v) an increase in net payoffs of loans held for investment in 2023 due to (a) contractual maturities and the refinancing of these transitional bridge loans to permanent debt structures and (b) no originations in 2023 as we have shifted away from the Interim Loan Program over the past year to invest in other endeavors. The decrease in cash provided by financing activities in 2023 was largely attributable to (i) a decrease in net warehouse borrowings due to the aforementioned decrease in loan origination activity, (ii) a decrease in borrowings of interim warehouse notes payable due to the aforementioned reduction in Interim Loan Program loan originations in 2023, (iii) an increase in repayments of interim warehouse notes payable due to the aforementioned maturities and refinancings mentioned above, (iv) an increase in repayments of notes payable, and (v) an increase in the payment of contingent consideration liabilities (“earnouts”), partially offset by (a) an increase in borrowings of notes payable and (b) a decrease in repurchases of common stock. The increase in earnout payments was due to a larger payment in 2023 compared to 2022 for one of our acquisitions. The increase in borrowings of notes payable was due to borrowings under our Incremental Term Loan (defined in Liquidity and Capital Resources below), a portion of which was used to repay notes payable at one of our subsidiaries, resulting in an increase in the repayments of notes payable. The decrease in repurchases of common stock was related to a decrease in the number and value of employee stock vesting events related to previously issued equity grants under our various share-based compensation plans due to both our financial performance and the substantially lower stock price at which these vesting events occurred. Segment Results The Company is managed based on our three operatingreportable segments: (i) Capital Markets, (ii) Servicing & Asset Management, and (iii) Corporate. The segment results below are intended to present each of the operatingreportable segments on a stand-alone basis. Capital Markets SUPPLEMENTAL OPERATING DATA CAPITAL MARKETS | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | | September 30, | | September 30, | | (in thousands; except per share data) | | 2022 | | 2021 | | 2022 | | 2021 | | Transaction Volume: | | | | | | | | | | | | | | Components of Debt Financing Volume | | | | | | | | | | | | | | Fannie Mae | | $ | 3,038,788 | | $ | 3,271,765 | | $ | 8,955,562 | | $ | 6,716,765 | | Freddie Mac | | | 1,885,492 | | | 2,591,906 | | | 4,014,375 | | | 4,607,945 | | Ginnie Mae ̶ HUD | | | 338,054 | | | 522,093 | | | 931,230 | | | 1,816,800 | | Brokered(1) | | | 6,601,244 | | | 6,402,862 | | | 21,502,815 | | | 16,985,932 | | Total Debt Financing Volume | | $ | 11,863,578 | | $ | 12,788,626 | | $ | 35,403,982 | | $ | 30,127,442 | | Property Sales Volume | | | 4,993,615 | | | 5,230,093 | | | 16,417,367 | | | 9,967,385 | | Total Transaction Volume | | $ | 16,857,193 | | $ | 18,018,719 | | $ | 51,821,349 | | $ | 40,094,827 | | | | | | | | | | | | | | | | Key Performance Metrics: | | | | | | | | | | | | | | Adjusted EBITDA(2) | | $ | 119 | | $ | 21,288 | | $ | 28,255 | | $ | 52,633 | | Operating Margin | | | 27 | % | | 42 | % | | 31 | % | | 42 | % | | | | | | | | | | | | | | | Key Revenue Metrics (as a percentage of debt financing volume): | | | | | | | | | | | Origination related fees(3) | | | 0.76 | % | | 0.95 | % | | 0.77 | % | | 1.00 | % | MSR income(4) | | | 0.47 | | | 0.70 | | | 0.45 | | | 0.69 | | MSR income, as a percentage of Agency debt financing volume(4) | | | 1.05 | | | 1.40 | | | 1.15 | | | 1.59 | |
| | | | | | | | | | | | | | | For the three months ended | | | | | | | | | September 30, | | Dollar | | Percentage | (in thousands; except per share data) | | 2023 | | 2022 | | Change | | Change | Transaction Volume: | | | | | | | | | | | | | Components of Debt Financing Volume | | | | | | | | | | | | | Fannie Mae | | $ | 1,739,332 | | $ | 3,038,788 | | $ | (1,299,456) | | (43) | % | Freddie Mac | | | 1,072,048 | | | 1,885,492 | | | (813,444) | | (43) | | Ginnie Mae ̶ HUD | | | 86,557 | | | 338,054 | | | (251,497) | | (74) | | Brokered(1) | | | 3,149,457 | | | 6,601,244 | | | (3,451,787) | | (52) | | Total Debt Financing Volume | | $ | 6,047,394 | | $ | 11,863,578 | | $ | (5,816,184) | | (49) | % | Property sales volume | | | 2,508,073 | | | 4,993,615 | | | (2,485,542) | | (50) | | Total Transaction Volume | | $ | 8,555,467 | | $ | 16,857,193 | | $ | (8,301,726) | | (49) | % | | | | | | | | | | | | | | Key Performance Metrics: | | | | | | | | | | | | | Net income | | $ | 7,050 | | $ | 36,463 | | | (29,413) | | (81) | | Adjusted EBITDA(2) | | | (15,704) | | | 1,302 | | | (17,006) | | (1,306) | | Operating margin | | | 8 | % | | 26 | % | | | | | | | | | | | | | | | | | | | Key Revenue Metrics (as a percentage of debt financing volume): | | | | | | | | | | Origination fees | | | 0.93 | % | | 0.76 | % | | | | | | MSR income | | | 0.58 | | | 0.47 | | | | | | | MSR income, as a percentage of Agency debt financing volume | | | 1.22 | | | 1.05 | | | | | | |
| | | | | | | | | | | | | | | For the nine months ended | | | | | | | September 30, | | Dollar | | Percentage | (in thousands; except per share data) | | 2023 | | 2022 | | Change | | Change | Transaction Volume: | | | | | | | | | | | | | Components of Debt Financing Volume | | | | | | | | | | | | | Fannie Mae | | $ | 5,328,992 | | $ | 8,955,562 | | $ | (3,626,570) | | (40) | % | Freddie Mac | | | 3,260,672 | | | 4,014,375 | | | (753,703) | | (19) | | Ginnie Mae ̶ HUD | | | 361,929 | | | 931,230 | | | (569,301) | | (61) | | Brokered(1) | | | 8,829,434 | | | 21,502,815 | | | (12,673,381) | | (59) | | Total Debt Financing Volume | | $ | 17,781,027 | | $ | 35,403,982 | | $ | (17,622,955) | | (50) | % | Property sales volume | | | 5,907,138 | | | 16,417,367 | | | (10,510,229) | | (64) | | Total Transaction Volume | | $ | 23,688,165 | | $ | 51,821,349 | | $ | (28,133,184) | | (54) | % | | | | | | | | | | | | | | Key Performance Metrics: | | | | | | | | | | | | | Net income | | $ | 23,661 | | $ | 129,824 | | | (106,163) | | (82) | % | Adjusted EBITDA(2) | | | (44,725) | | | 32,666 | | | (77,391) | | (237) | | Operating margin | | | 10 | % | | 30 | % | | | | | | | | | | | | | | | | | | | Key Revenue Metrics (as a percentage of debt financing volume): | | | | | | | | | | Origination fees | | | 0.94 | % | | 0.77 | % | | | | | | MSR income | | | 0.60 | | | 0.45 | | | | | | | MSR income, as a percentage of Agency debt financing volume | | | 1.20 | | | 1.15 | | | | | | |
| (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”.Measure.” |
| (3) | 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. |
| (4) | 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. |
FINANCIAL RESULTS – THREE MONTHS CAPITAL MARKETS | | | | | | | | | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2023 | | 2022 | | Change | | Change | | Revenues | | | | | | | | | | | | | Origination fees | | $ | 56,149 | | $ | 89,752 | | $ | (33,603) | | (37) | % | MSR Income | | | 35,375 | | | 55,291 | | | (19,916) | | (36) | | Property sales broker fees | | | 16,862 | | | 30,308 | | | (13,446) | | (44) | | Net warehouse interest income (expense), loans held for sale | | | (2,565) | | | 2,178 | | | (4,743) | | (218) | | Other revenues | | | 11,875 | | | 11,011 | | | 864 | | 8 | | Total revenues | | $ | 117,696 | | $ | 188,540 | | $ | (70,844) | | (38) | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | Personnel | | $ | 97,973 | | $ | 128,981 | | $ | (31,008) | | (24) | % | Amortization and depreciation | | | 1,137 | | | 1,052 | | | 85 | | 8 | | Interest expense on corporate debt | | | 4,874 | | | 2,430 | | | 2,444 | | 101 | | Other operating expenses | | | 4,193 | | | 6,869 | | | (2,676) | | (39) | | Total expenses | | $ | 108,177 | | $ | 139,332 | | $ | (31,155) | | (22) | | Income from operations | | $ | 9,519 | | $ | 49,208 | | $ | (39,689) | | (81) | | Income tax expense | | | 2,386 | | | 12,468 | | | (10,082) | | (81) | | Net income before noncontrolling interests | | $ | 7,133 | | $ | 36,740 | | $ | (29,607) | | (81) | | Less: net income (loss) from noncontrolling interests | | | 83 | | | 277 | | | (194) | | (70) | | Net income | | $ | 7,050 | | $ | 36,463 | | $ | (29,413) | | (81) | |
FINANCIAL RESULTS – THREE MONTHS CAPITAL MARKETS
| | | | | | | | | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | Revenues | | | | | | | | | | | | | Loan origination and debt brokerage fees, net | | $ | 89,752 | | $ | 121,133 | | $ | (31,381) | | (26) | % | Fair value of expected net cash flows from servicing, net | | | 55,291 | | | 89,482 | | | (34,191) | | (38) | | Property sales broker fees | | | 30,308 | | | 33,677 | | | (3,369) | | (10) | | Net warehouse interest income, loans held for sale | | | 2,178 | | | 3,723 | | | (1,545) | | (41) | | Other revenues | | | 5,845 | | | 3,026 | | | 2,819 | | 93 | | Total revenues | | $ | 183,374 | | $ | 251,041 | | $ | (67,667) | | (27) | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | Personnel | | $ | 125,980 | | $ | 139,890 | | $ | (13,910) | | (10) | % | Amortization and depreciation | | | 952 | | | 17 | | | 935 | | 5,500 | | Other operating expenses | | | 6,063 | | | 4,628 | | | 1,435 | | 31 | | Total expenses | | $ | 132,995 | | $ | 144,535 | | $ | (11,540) | | (8) | | Income from operations | | $ | 50,379 | | $ | 106,506 | | $ | (56,127) | | (53) | | Income tax expense | | | 12,751 | | | 25,660 | | | (12,909) | | (50) | | Net income | | $ | 37,628 | | $ | 80,846 | | $ | (43,218) | | (53) | |
FINANCIAL RESULTS – NINE MONTHS
CAPITAL MARKETS | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | | 2023 | | 2022 | | Change | | Change | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | Loan origination and debt brokerage fees, net | | $ | 273,660 | | $ | 302,011 | | $ | (28,351) | | (9) | % | | Fair value of expected net cash flows from servicing, net | | | 159,970 | | | 209,266 | | | (49,296) | | (24) | | | Origination fees | | | $ | 167,679 | | $ | 273,660 | | $ | (105,981) | | (39) | % | MSR Income | | | | 107,446 | | | 159,970 | | | (52,524) | | (33) | | Property sales broker fees | | | 100,092 | | | 65,173 | | | 34,919 | | 54 | | | | 38,831 | | | 100,092 | | | (61,261) | | (61) | | Net warehouse interest income, loans held for sale | | | 9,415 | | | 9,066 | | | 349 | | 4 | | | Net warehouse interest income (expense), loans held for sale | | | | (7,006) | | | 9,415 | | | (16,421) | | (174) | | Other revenues | | | 12,503 | | | 8,721 | | | 3,782 | | 43 | | | | 40,735 | | | 29,838 | | | 10,897 | | 37 | | Total revenues | | $ | 555,640 | | $ | 594,237 | | $ | (38,597) | | (6) | | | $ | 347,685 | | $ | 572,975 | | $ | (225,290) | | (39) | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | | | | | | | | Personnel | | $ | 363,619 | | $ | 332,519 | | $ | 31,100 | | 9 | % | | $ | 281,502 | | $ | 372,656 | | $ | (91,154) | | (24) | % | Amortization and depreciation | | | 1,762 | | | 556 | | | 1,206 | | 217 | | | | 3,412 | | | 2,191 | | | 1,221 | | 56 | | Interest expense on corporate debt | | | | 13,870 | | | 5,488 | | | 8,382 | | 153 | | Other operating expenses | | | 16,757 | | | 11,628 | | | 5,129 | | 44 | | | | 15,037 | | | 19,943 | | | (4,906) | | (25) | | Total expenses | | $ | 382,138 | | $ | 344,703 | | $ | 37,435 | | 11 | | | $ | 313,821 | | $ | 400,278 | | $ | (86,457) | | (22) | | Income from operations | | $ | 173,502 | | $ | 249,534 | | $ | (76,032) | | (30) | | | $ | 33,864 | | $ | 172,697 | | $ | (138,833) | | (80) | | Income tax expense | | | 42,074 | | | 58,014 | | | (15,940) | | (27) | | | | 8,462 | | | 41,878 | | | (33,416) | | (80) | | Net income before noncontrolling interests | | | $ | 25,402 | | $ | 130,819 | | $ | (105,417) | | (81) | | Less: net income (loss) from noncontrolling interests | | | | 1,741 | | | 995 | | | 746 | | 75 | | Net income | | $ | 131,428 | | $ | 191,520 | | $ | (60,092) | | (31) | | | $ | 23,661 | | $ | 129,824 | | $ | (106,163) | | (82) | |
Revenues Loan origination and debt brokerageOrigination fees net (“origination fees”) and Fair value of expected net cash flows from servicing, net (“MSR income”).income. The following tables provide additional information that helps explain changes in origination fees and MSR income period over period:
| | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | For the nine months ended | | | For the three months ended | | | For the nine months ended | | | | September 30, | | | September 30, | | | September 30, | | | September 30, | | Debt Financing Volume by Product Type | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | Fannie Mae | | 25 | % | | 26 | % | | 25 | % | | 22 | % | | 29 | % | | 25 | % | | 30 | % | | 25 | % | Freddie Mac | | 16 | | 20 | | 11 | | 15 | | | 18 | | | 16 | | | 18 | | | 11 | | Ginnie Mae ̶ HUD | | 3 | | 4 | | 3 | | 6 | | | 1 | | | 3 | | | 2 | | | 3 | | Brokered | | 56 | | 50 | | 61 | | 57 | | | 52 | | | 56 | | | 50 | | | 61 | |
| | | | | | | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | September 30, | | September 30, | | Mortgage Banking Details (basis points) | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | | Origination Fee Rate (1) | | 76 | | 95 | | 77 | | 100 | | | 93 | | 76 | | | 94 | | | 77 | | Basis Point Change | | (19) | | | | | (23) | | | | | 17 | | | | | | 17 | | | | | Percentage Change | | (20) | % | | | | (23) | % | | | | | 22 | % | | | | | 22 | % | | | | MSR Rate (2) | | 47 | | 70 | | 45 | | 69 | | | 58 | | 47 | | | 60 | | | 45 | | Basis Point Change | | (23) | | | | | | (24) | | | | | 11 | | | | | | 15 | | | | | Percentage Change | | (33) | % | | | | | (35) | % | | | | | 23 | % | | | | | 33 | % | | | | Agency MSR Rate (3) | | 105 | | 140 | | | 115 | | | 159 | | | 122 | | 105 | | | 120 | | | 115 | | Basis Point Change | | (35) | | | | | (44) | | | | | | 17 | | | | | 5 | | | | | Percentage Change | | (25) | % | | | | (28) | % | | | | | 16 | % | | | | | 4 | % | | | |
| (1) | Loan origination and debt brokerageOrigination fees net as a percentage of total mortgage bankingdebt financing volume. | |
| (2) | MSR Income as a percentage of total debt financing volume, excluding the income and debt financing volume from principal lending and investing. | |
| (3) | MSR Income as a percentage of Agency debt financing volume. | |
For the three and nine months ended September 30, 2023, the decreases in origination fees were primarily the result of a 49% and 50% decrease in debt financing volume, respectively, partially offset by a 17-basis-point increase in our origination fee rate for both the three and nine-month periods. The increases in the origination fee rate were driven by increases in GSE debt financing volume as a percentage of total debt financing volume as seen above. GSE debt financing volume has higher origination fees than brokered debt financing volume. Additionally, during the nine months ended September 30, 2022, our Fannie Mae debt financing volumes included a $1.9 billion Fannie Mae loan portfolio, for which we received a much lower origination fee than is typical for individual loans. For the three months ended September 30, 2022, the decrease in origination fees was the result of a 19-basis-point decrease in our origination fee rate and a 7.2% decrease in segment debt financing volume. The decline in the origination fee rate was driven by a combination of a decline in the Agency debt financing volumes, particularly in our HUD debt financing volumes, and a decline in the margins we earn on our debt financing products as spreads tightened due to large interest rate increases during the third quarter of 2022. For the nine months ended September 30, 2022, the decrease in origination fees was primarily due to a 23-basis-point decrease in our origination fee rate, partially offset by an increase in overall debt financing volumes. Our origination fee rate declined due to substantial declines in our HUD debt financing volumes and a reduction in our Fannie Mae origination fee margin. The decrease in our origination fee rate was partially offset by an increase in Fannie Mae and brokered origination fees as both debt financing product volumes increased substantially during the year.
For the three months ended September 30, 2022,2023, the decrease in MSR income was attributable to the 25% decrease in our Agency MSR Rate, coupled with a 45% decrease in Agency debt financing volumes. Ourvolume, partially offset by a 17-basis point increase in the Agency MSR Rate decreased primarily due to a 27% decrease in the weighted-average servicing fee on our Fannie Mae loans. Our Agency debt financing volumes, particularly our Freddie Mac and HUD volumes, declined due to the current interest rate environment. Our Fannie Mae and HUD products are our most profitable products.
seen above. For the nine months ended September 30, 2022,2023, the decrease in MSR income was dueattributable to a 28% decline36% decrease in Agency debt financing volume, partially offset by a five-basis point increase in the Agency MSR Rate partially offset by a 33% increaseseen above. The increases in the Agency MSR Rate were primarily the result of increases in Fannie Mae debt financing volume. The decrease in Agency MSR rate was driven by (i) a significant decline in HUD debt financing volumevolumes as a percentage of segmenttotal debt financing volume and (ii)volumes. Additionally, we had a 38% decrease$1.9 billion Fannie Mae portfolio that closed in the second quarter of 2022, which had a very low servicing fee rate that is typical of such a portfolio. There was no comparable portfolio in 2023. Our Fannie Mae products have higher weighted-average servicing fee on(“WASF”) than our Fannie Mae volume.other products. See the “Overview of Current Business Environment” section above for a detailed discussion of the factors driving the changeschange in debt financing volumes. Property sales broker fees. For the three and nine months ended September 30, 2022, 2023, the decreasedecreases in property sales broker fees waswere driven principally by a 4.5% decreasethe 50% and 64% decreases, respectively, in the property sales volumes yearperiod over year, combined with a decrease in the property sales broker fee margin. For the nine months ended September 30, 2022, the increase in property sales broker fees was driven by the 64.7% increase in the property sales volumes year over year, partially offset by a decline in the property sales broker fee margin.period.
See the “Overview of Current Business Environment” section above for a detailed discussion of the factors driving the changeschange in property sales volume. Net warehouse interest income (expense). For both the three and nine months ended September 30, 2023, the decreases in net warehouse interest income from a net revenue position in 2022 to a net expense position in 2023 were primarily attributable to an inverted yield curve during much of 2023. Short-term interest rates, upon which we incur interest expense, were higher than the long-term mortgage rates, upon which we earn interest income, during 2023. Partially reducing the negative impact of the inverted yield curve and resulting negative net spreads shown below were the lower average balances of loans held for sale outstanding in 2023 compared to 2022, which were driven by reductions in the number of days loans were held before delivery and lower debt financing volumes. | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | September 30, | | September 30, | Net Warehouse Interest Income (Expense) Details (dollars in thousands) | 2023 | | 2022 | | 2023 | | 2022 | Average LHFS Outstanding Balance | $ | 764,615 | | $ | 1,325,419 | | $ | 669,878 | | $ | 1,338,784 | Dollar Change | $ | (560,804) | | | | | $ | (668,906) | | | | Percentage Change | | (42) | % | | | | | (50) | % | | | LHFS Net Spread (basis points) | | (134) | | | 66 | | | (139) | | | 94 | Basis Point Change | | (200) | | | | | | (233) | | | | Percentage Change | | (303) | % | | | | | (248) | % | | |
Other revenues. For the nine months ended September 30, 2023, the increase was due to a $6.9 million increase in investment banking revenues and smaller increases in various other revenues categories. The increase in investment banking revenues was primarily due to the closing of the largest investment banking advisory transaction in Company history. Expenses Personnel. For the three months ended September 30, 2022, the2023, the decrease was primarily the result of (i) a $19.8$25.2 million decrease in commission costs due to lower origination fees and property sales broker fees and (ii)noted above, combined with a $2.9$6.1 million decrease in the accrual for subjective bonuses, partially offset by (i) a $6.5 million increase in salaries and benefits and (ii) a $2.5 million increase other compensation costs, bothbonuses due to higher averagelower headcount resulting from (a) acquisitions and hiring initiatives and (b)our financial performance. Our lower headcount was due to a workforce reduction undertaken in the GeoPhy acquisition and corresponding consolidationsecond quarter of Apprise.2023. For the nine months ended September 30, 2022, the increase2023, the decrease was primarily the result of (i) a $21.4an $89.4 million increasedecrease in property sales commission costs due to higherlower origination fees and property sales broker fees, (ii) an $18.0 million increase in salariesfees. Interest expense on corporate debt. Interest expense on corporate debt is determined at a consolidated corporate level and benefits, and (iii) a $9.0 million increase in other compensation costs.allocated to each segment proportionally based on each segment’s use of that corporate debt. The increases in (ii) and (iii)discussion of our consolidated results above were duehas additional information related to higher average headcount resulting from (a) acquisitions and hiring initiatives and (b) the GeoPhy acquisition and corresponding consolidation of Apprise. Partially offsetting the increase in personnelinterest expense was a $13.7 million decrease in debt financing commission costs as a result of the decrease in origination fees, coupled with a $5.4 million decrease in the accrual for subjective bonuses.on corporate debt. Other Operating Expenses.operating expenses. For the three and nine months ended September 30, 2022,2023, the increasedecreases were primarily stemmed from increasesa result of cost-reduction initiatives across a variety of cost categories, with the most prominent decreases in professional fees and travel and entertainment costs of $5.2 million associated with the growth of the Company and increased travel costs as our bankers and brokers attended more in person meetings compared to 2021, partially offset by a slight decrease in other expenses.costs. 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 CM segment is presented below. Our segment levelsegment-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 three months ended | | For the nine months ended | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | September 30, | | September 30, | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | Reconciliation of Net Income to Adjusted EBITDA | Reconciliation of Net Income to Adjusted EBITDA | | | | | | | | | | Reconciliation of Net Income to Adjusted EBITDA | | | | | | | | | | Net Income | | $ | 37,628 | | $ | 80,846 | | $ | 131,428 | | $ | 191,520 | | $ | 7,050 | | $ | 36,463 | | $ | 23,661 | | $ | 129,824 | Income tax expense | | | 12,751 | | | 25,660 | | | 42,074 | | | 58,014 | | | 2,386 | | | 12,468 | | | 8,462 | | | 41,878 | Interest expense on corporate debt | | | | 4,874 | | | 2,430 | | | 13,870 | | | 5,488 | Amortization and depreciation | | | 952 | | | 17 | | | 1,762 | | | 556 | | | 1,137 | | | 1,052 | | | 3,412 | | | 2,191 | Share-based compensation expense | | | 4,079 | | | 4,247 | | | 12,961 | | | 11,809 | | | 4,224 | | | 4,180 | | | 13,316 | | | 13,255 | Fair value of expected net cash flows from servicing, net | | | (55,291) | | | (89,482) | | | (159,970) | | | (209,266) | | MSR Income | | | | (35,375) | | | (55,291) | | | (107,446) | | | (159,970) | Adjusted EBITDA | | $ | 119 | | $ | 21,288 | | $ | 28,255 | | $ | 52,633 | | $ | (15,704) | | $ | 1,302 | | $ | (44,725) | | $ | 32,666 |
The following tables present period-to-period comparisons of the components of CM adjusted EBITDA for the three and nine months ended September 30, 20222023 and 2021.2022. ADJUSTED EBITDA – THREE MONTHS CAPITAL MARKETS | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 89,752 | | $ | 121,133 | | $ | (31,381) | | (26) | % | | Origination fees | | $ | 56,149 | | $ | 89,752 | | $ | (33,603) | | (37) | % | Property sales broker fees | | 30,308 | | | 33,677 | | | (3,369) | | (10) | | | 16,862 | | | 30,308 | | | (13,446) | | (44) | | Net warehouse interest income, loans held for sale | | 2,178 | | | 3,723 | | | (1,545) | | (41) | | | Net warehouse interest income (expense), loans held for sale | | | (2,565) | | | 2,178 | | | (4,743) | | (218) | | Other revenues | | 5,845 | | | 3,026 | | | 2,819 | | 93 | | | 11,792 | | | 10,734 | | | 1,058 | | 10 | | Personnel | | (121,901) | | | (135,643) | | | 13,742 | | (10) | | | (93,749) | | | (124,801) | | | 31,052 | | (25) | | Other operating expenses | | (6,063) | | | (4,628) | | | (1,435) | | 31 | | | (4,193) | | | (6,869) | | | 2,676 | | (39) | | Adjusted EBITDA | $ | 119 | | $ | 21,288 | | $ | (21,169) | | (99) | | $ | (15,704) | | $ | 1,302 | | $ | (17,006) | | (1,306) | |
ADJUSTED EBITDA – NINE MONTHS CAPITAL MARKETS | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 273,660 | | $ | 302,011 | | $ | (28,351) | | (9) | % | | Origination fees | | $ | 167,679 | | $ | 273,660 | | $ | (105,981) | | (39) | % | Property sales broker fees | | 100,092 | | | 65,173 | | | 34,919 | | 54 | | | 38,831 | | | 100,092 | | | (61,261) | | (61) | | Net warehouse interest income, loans held for sale | | 9,415 | | | 9,066 | | | 349 | | 4 | | | Net warehouse interest income (expense), loans held for sale | | | (7,006) | | | 9,415 | | | (16,421) | | (174) | | Other revenues | | 12,503 | | | 8,721 | | | 3,782 | | 43 | | | 38,994 | | | 28,843 | | | 10,151 | | 35 | | Personnel | | (350,658) | | | (320,710) | | | (29,948) | | 9 | | | (268,186) | | | (359,401) | | | 91,215 | | (25) | | Other operating expenses | | (16,757) | | | (11,628) | | | (5,129) | | 44 | | | (15,037) | | | (19,943) | | | 4,906 | | (25) | | Adjusted EBITDA | $ | 28,255 | | $ | 52,633 | | $ | (24,378) | | (46) | | $ | (44,725) | | $ | 32,666 | | $ | (77,391) | | (237) | |
Three months ended September 30, 20222023 compared to three months ended September 30, 20212022 Loan origination and debt brokerageOrigination fees net decreased due to a decrease in our overall debt financing volume, partially offset by an increase in our origination fee rate and a decrease in our Agency debt financing volume.rate. Property sales broker fees decreased as a result of the decline in property sales volumes, combined with a decrease involumes. Net warehouse interest income (expense) decreased largely due to the property sales broker fee margin.inverted yield curve. The decrease in personnel expense was primarily due to decreased commission costs due to the decrease in origination fees and property sales broker fees, partially offset by growth in salaries and benefits costs resulting from an increase in the average headcount from acquisitions and hiring initiatives.fees. Other operating expenses increased primarily due to increases in travel and entertainment costsdecreased largely as a result of our bankers and brokers attended more in person meetings in 2022.cost-reduction initiatives.
Nine months ended September 30, 20222023 compared to nine months ended September 30, 20212022 Loan origination and debt brokerageOrigination fees net decreased due to a decrease in our origination fee rate,overall debt financing volume, partially offset by an increase in segment debt financing volumes.our origination fee rate. Property sales broker fees increaseddecreased as a result of the significant increasesdecline in property sales volumes, partially offset by avolumes. Net warehouse interest income (expense) decreased primarily due to the inverted yield curve. Other revenues increased largely due to increased investment banking revenues. The decrease in the property sales broker fee margin. The increase in personnel expense was primarily due to increased (i) property salesdecreased commission costs and (ii) salaries and benefits costs resulting from an increase in average headcount from acquisitions and hiring initiatives, partially offset by a decrease in debt financing commission costs as a result ofdue to the decrease in origination fees. Other operating expenses increaseddecreased primarily as a result of the increased travel and entertainment costs.our cost-reduction initiatives.
Servicing & Asset Management SUPPLEMENTAL OPERATING DATA SERVICING & ASSET MANAGEMENT | | | | | | | (dollars in thousands) | | As of September 30, | Managed Portfolio: | | 2022 | | 2021 | Components of Servicing Portfolio | | | | | | | Fannie Mae | | $ | 58,426,446 | | $ | 52,317,953 | Freddie Mac | | | 37,241,471 | | | 38,039,014 | Ginnie Mae - HUD | | | 9,634,111 | | | 9,894,893 | Brokered (1) | | | 15,224,581 | | | 13,429,801 | Principal Lending and Investing (2) | | | 251,815 | | | 238,713 | Total Servicing Portfolio | | $ | 120,778,424 | | $ | 113,920,374 | Assets under management | | | 17,017,355 | | | 2,309,332 | Total Managed Portfolio | | $ | 137,795,779 | | $ | 116,229,706 |
| | | | | | | | | | | | | | | | | For the three months ended | | | For the nine months ended | | | | September 30, | | | September 30, | | Key Volume and Performance Metrics: | | 2022 | | 2021 | | | 2022 | | 2021 | | Principal Lending and Investing Origination Volume(3) | | $ | 62,015 | | $ | 472,142 | | | $ | 307,586 | | $ | 968,629 | | Adjusted EBITDA(4) | | | 107,517 | | | 82,810 | | | | 300,352 | | | 225,933 | | Operating Margin | | | 36 | % | | 30 | % | | | 37 | % | | 36 | % |
| | | | | | | | | | | | | (dollars in thousands) | | As of September 30, | | Dollar | | Percentage | Managed Portfolio: | | 2023 | | 2022 | | Change | | Change | Components of Servicing Portfolio | | | | | | | | | | | | | Fannie Mae | | $ | 62,850,853 | | $ | 58,426,446 | | $ | 4,424,407 | | 8 | % | Freddie Mac | | | 38,656,136 | | | 37,241,471 | | | 1,414,665 | | 4 | | Ginnie Mae - HUD | | | 10,320,520 | | | 9,634,111 | | | 686,409 | | 7 | | Brokered (1) | | | 17,091,925 | | | 15,224,581 | | | 1,867,344 | | 12 | | Principal Lending and Investing (2) | | | 40,000 | | | 251,815 | | | (211,815) | | (84) | | Total Servicing Portfolio | | $ | 128,959,434 | | $ | 120,778,424 | | $ | 8,181,010 | | 7 | % | Assets under management | | | 17,334,877 | | | 17,017,355 | | | 317,522 | | 2 | | Total Managed Portfolio | | $ | 146,294,311 | | $ | 137,795,779 | | $ | 8,498,532 | | 6 | % |
| | | | | | | | | As of September 30, | Key Servicing Portfolio Metrics: | | 2022 | | 2021 | Custodial escrow account balance (in billions) | | $ | 3.1 | | $ | 3.0 | Weighted-average servicing fee rate (basis points) | | | 24.7 | | | 24.6 | Weighted-average remaining servicing portfolio term (years) | | | 8.9 | | | 9.2 |
| | | | | | | | | | | | | | | For the three months ended | | | | | | | | | September 30, | | Dollar | | Percentage | Key Volume and Performance Metrics: | | 2023 | | 2022 | | Change | | Change | Equity syndication volume(3) | | $ | 54,119 | | $ | 43,880 | | $ | 10,239 | | 23 | % | Principal Lending and Investing debt financing volume(4) | | | — | | | 62,015 | | | (62,015) | | (100) | | Net income | | | 45,427 | | | 30,923 | | | 14,504 | | 47 | | Adjusted EBITDA(5) | | | 124,849 | | | 106,281 | | | 18,568 | | 17 | | Operating margin | | | 41 | % | | 31 | % | | | | | |
| | | | | | | | | | As of September 30, | Components of assets under management (in thousands) | | 2022 | | 2021 | Alliant(5) | | $ | 14,692,962 | | $ | — | WDIP | | | 1,424,356 | | | 1,390,814 | Interim Program JV Managed Loans(6) | | | 900,037 | | | 918,518 | Total assets under management | | $ | 17,017,355 | | $ | 2,309,332 | | | | | | | |
| | | | | | | | | | | | | | | | For the nine months ended | | | | | | | | | September 30, | Dollar | | Percentage | Key Volume and Performance Metrics: | | 2023 | | 2022 | | Change | | Change | Equity syndication volume(3) | | $ | 461,212 | | $ | 405,170 | | $ | 56,042 | | 14 | % | Principal Lending and Investing debt financing volume(4) | | | — | | | 307,586 | | | (307,586) | | (100) | | Net income | | | 132,243 | | | 92,363 | | | 39,880 | | 43 | | Adjusted EBITDA(5) | | | 346,283 | | | 295,888 | | | 50,395 | | 17 | | Operating margin | | | 41 | % | | 33 | % | | | | | |
| | | | | | | | | As of September 30, | Key Servicing Portfolio Metrics: | | 2023 | | 2022 | Custodial escrow deposit balance (in billions) | | $ | 2.8 | | $ | 3.1 | Weighted-average servicing fee rate (basis points) | | | 24.2 | | | 24.7 | Weighted-average remaining servicing portfolio term (years) | | | 8.4 | | | 8.9 |
| | | | | | | | | | As of September 30, | Components of assets under management (in thousands) | | 2023 | | 2022 | LIHTC | | $ | 15,248,530 | | $ | 14,692,962 | Investment funds | | | 1,350,027 | | | 1,424,356 | Interim Program JV Managed Loans | | | 736,320 | | | 900,037 | Total assets under management | | $ | 17,334,877 | | $ | 17,017,355 |
| (1) | Brokered loans serviced primarily for life insurance companies. | |
| (2) | Consists of interim loans not managed for the Interim Program JV. | |
| (3) | Amount of equity called and syndicated into LIHTC funds. | |
| (4) | For the three months ended September 30, 2022, comprised solely of WDIP separate account originations.originations. For the nine months ended September 30, 2022, includes $86.3 million from the Interim Program JV, $113.6 million from the Interim Loan Program, and $107.7 million from WDIP separate accounts. For the three months ended September 30, 2021, includes $314.9 million from the Interim Program JV and $157.2 million from the Interim Loan Program. For the nine months ended September 30, 2021, includes $665.9 million from the Interim Program JV, $286.7 million from the Interim Loan Program and $16.0 million from WDIP separate accounts. | |
(4) | (5) | This is a non-GAAP financial measure. For more information on adjusted EBITDA, refer to the section below titled “Non-GAAP Financial Measure”. |
(5) | Alliant assets under management were acquired in December 2021. |
(6) | As of September 30, 2022 and 2021, only comprised of Interim Program JV managed loans. |
FINANCIAL RESULTS – THREE MONTHS SERVICING & ASSET MANAGEMENT | | | | | | | | | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2023 | | 2022 | | Change | | Change | | Revenues | | | | | | | | | | | | | Origination fees | | $ | — | | $ | 1,106 | | $ | (1,106) | | (100) | % | Servicing fees | | | 79,200 | | | 75,975 | | | 3,225 | | 4 | | Investment management fees | | | 13,362 | | | 16,301 | | | (2,939) | | (18) | | Net warehouse interest income (expense), loans held for investment | | | 534 | | | 1,802 | | | (1,268) | | (70) | | Placement fees and other interest income | | | 39,475 | | | 17,760 | | | 21,715 | | 122 | | Other revenues | | | 15,569 | | | 16,378 | | | (809) | | (5) | | Total revenues | | $ | 148,140 | | $ | 129,322 | | $ | 18,818 | | 15 | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | Personnel | | $ | 17,139 | | $ | 18,728 | | $ | (1,589) | | (8) | % | Amortization and depreciation | | | 54,375 | | | 57,139 | | | (2,764) | | (5) | | Provision (benefit) for credit losses | | | 421 | | | 1,218 | | | (797) | | (65) | | Interest expense on corporate debt | | | 11,096 | | | 6,324 | | | 4,772 | | 75 | | Other operating expenses | | | 5,039 | | | 5,237 | | | (198) | | (4) | | Total expenses | | $ | 88,070 | | $ | 88,646 | | $ | (576) | | (1) | | Income from operations | | $ | 60,070 | | $ | 40,676 | | $ | 19,394 | | 48 | | Income tax expense | | | 15,040 | | | 10,204 | | | 4,836 | | 47 | | Income before noncontrolling interests | | $ | 45,030 | | $ | 30,472 | | $ | 14,558 | | 48 | | Less: net income (loss) from noncontrolling interests | | | (397) | | | (451) | | | 54 | | (12) | | Net income | | $ | 45,427 | | $ | 30,923 | | $ | 14,504 | | 47 | | | | | | | | | | | | | | |
FINANCIAL RESULTS – THREE MONTHS SERVICING & ASSET MANAGEMENT
| | | | | | | | | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | Revenues | | | | | | | | | | | | | Loan origination and debt brokerage fees, net | | $ | 1,106 | | $ | 2,109 | | $ | (1,003) | | (48) | % | Servicing fees | | | 75,975 | | | 70,628 | | | 5,347 | | 8 | | Investment management fees | | | 16,301 | | | 2,564 | | | 13,737 | | 536 | | Net warehouse interest income, loans held for investment | | | 1,802 | | | 1,860 | | | (58) | | (3) | | Escrow earnings and other interest income | | | 17,760 | | | 1,945 | | | 15,815 | | 813 | | Other revenues | | | 21,544 | | | 16,724 | | | 4,820 | | 29 | | Total revenues | | $ | 134,488 | | $ | 95,830 | | $ | 38,658 | | 40 | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | Personnel | | $ | 21,676 | | $ | 10,446 | | $ | 11,230 | | 108 | % | Amortization and depreciation | | | 57,239 | | | 52,388 | | | 4,851 | | 9 | | Provision (benefit) for credit losses | | | 1,218 | | | 1,266 | | | (48) | | (4) | | Other operating expenses | | | 6,043 | | | 3,199 | | | 2,844 | | 89 | | Total expenses | | $ | 86,176 | | $ | 67,299 | | $ | 18,877 | | 28 | | Income from operations | | $ | 48,312 | | $ | 28,531 | | $ | 19,781 | | 69 | | Income tax expense | | | 12,110 | | | 7,040 | | | 5,070 | | 72 | | Income before noncontrolling interests | | $ | 36,202 | | $ | 21,491 | | $ | 14,711 | | 68 | | Less: net income (loss) from noncontrolling interests | | | (174) | | | 69 | | | (243) | | (352) | | Net income | | $ | 36,376 | | $ | 21,422 | | $ | 14,954 | | 70 | | | | | | | | | | | | | | |
FINANCIAL RESULTS – NINE MONTHS
SERVICING & ASSET MANAGEMENT | | | | | | | | | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | Revenues | | | | | | | | | | | | | Loan origination and debt brokerage fees, net | | $ | 2,113 | | $ | 4,582 | | $ | (2,469) | | (54) | % | Servicing fees | | | 222,916 | | | 205,658 | | | 17,258 | | 8 | | Investment management fees | | | 47,345 | | | 9,115 | | | 38,230 | | 419 | | Net warehouse interest income, loans held for investment | | | 4,606 | | | 5,702 | | | (1,096) | | (19) | | Escrow earnings and other interest income | | | 26,166 | | | 5,712 | | | 20,454 | | 358 | | Other revenues | | | 74,959 | | | 28,381 | | | 46,578 | | 164 | | Total revenues | | $ | 378,105 | | $ | 259,150 | | $ | 118,955 | | 46 | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | Personnel | | $ | 62,195 | | $ | 27,004 | | $ | 35,191 | | 130 | % | Amortization and depreciation | | | 170,930 | | | 145,161 | | | 25,769 | | 18 | | Provision (benefit) for credit losses | | | (13,120) | | | (14,380) | | | 1,260 | | (9) | | Other operating expenses | | | 18,721 | | | 8,056 | | | 10,665 | | 132 | | Total expenses | | $ | 238,726 | | $ | 165,841 | | $ | 72,885 | | 44 | | Income from operations | | $ | 139,379 | | $ | 93,309 | | $ | 46,070 | | 49 | | Income tax expense | | | 33,799 | | | 21,693 | | | 12,106 | | 56 | | Income before noncontrolling interests | | $ | 105,580 | | $ | 71,616 | | $ | 33,964 | | 47 | | Less: net income (loss) from noncontrolling interests | | | (1,032) | | | 69 | | | (1,101) | | (1,596) | | Net income | | $ | 106,612 | | $ | 71,547 | | $ | 35,065 | | 49 | |
| | | | | | | | | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2023 | | 2022 | | Change | | Change | | Revenues | | | | | | | | | | | | | Origination fees | | $ | 522 | | $ | 2,113 | | $ | (1,591) | | (75) | % | Servicing fees | | | 232,027 | | | 222,916 | | | 9,111 | | 4 | | Investment management fees | | | 44,844 | | | 47,345 | | | (2,501) | | (5) | | Net warehouse interest income (expense), loans held for investment | | | 3,450 | | | 4,606 | | | (1,156) | | (25) | | Placement fees and other interest income | | | 100,636 | | | 26,166 | | | 74,470 | | 285 | | Other revenues | | | 42,697 | | | 57,624 | | | (14,927) | | (26) | | Total revenues | | $ | 424,176 | | $ | 360,770 | | $ | 63,406 | | 18 | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | Personnel | | $ | 53,669 | | $ | 53,211 | | $ | 458 | | 1 | % | Amortization and depreciation | | | 161,935 | | | 170,501 | | | (8,566) | | (5) | | Provision (benefit) for credit losses | | | (11,088) | | | (13,120) | | | 2,032 | | (15) | | Interest expense on corporate debt | | | 31,385 | | | 15,388 | | | 15,997 | | 104 | | Other operating expenses | | | 16,465 | | | 15,535 | | | 930 | | 6 | | Total expenses | | $ | 252,366 | | $ | 241,515 | | $ | 10,851 | | 4 | | Income from operations | | $ | 171,810 | | $ | 119,255 | | $ | 52,555 | | 44 | | Income tax expense | | | 42,931 | | | 28,919 | | | 14,012 | | 48 | | Income before noncontrolling interests | | $ | 128,879 | | $ | 90,336 | | $ | 38,543 | | 43 | | Less: net income (loss) from noncontrolling interests | | | (3,364) | | | (2,027) | | | (1,337) | | 66 | | Net income | | $ | 132,243 | | $ | 92,363 | | $ | 39,880 | | 43 | |
Table of Contents
Revenues Servicing Fees. For the three and nine months ended September 30, 2022,2023, the increase wasincreases were primarily attributable to an increaseincreases in the average servicing portfolio period over period as shown below, primarily due to a $6.1 billion net increaseslightly offset by declines in Fannie Mae serviced loans and a $1.8 billion net increase in brokered loans serviced over the past year, coupled with increases in the servicing portfolio’s average servicing fee rates as shown below.rates. The increases in the average servicing portfolio were driven by the $4.4 billion increase in Fannie Mae and the $1.4 billion increase in Freddie Mac loans serviced. The decreases in the average servicing fee rates arewere the result of decreases in the large volume ofWASF on our new Fannie Mae debt financing volume over the past year resulting in Fannie Mae loans composing a higher percentage ofas the overall portfolio. Fannie Mae loans have the highest servicing fees of all our products. | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | Servicing Fees Details (dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | Average Servicing Portfolio | $ | 119,551,659 | | $ | 112,308,470 | | $ | 117,798,975 | | $ | 110,516,000 | | Dollar Change | $ | 7,243,189 | | | | | $ | 7,282,975 | | | | | Percentage Change | | 6 | % | | | | | 7 | % | | | | Average Servicing Fee (basis points) | | 24.8 | | | 24.6 | | | 24.9 | | | 24.4 | | Basis Point Change | | 0.2 | | | | | | 0.5 | | | | | Percentage Change | | 1 | % | | | | | 2 | % | | | |
Investment Management Fees. For the three and nine months ended September 30, 2022, the increases were primarily driven by the addition of investment management fees from our LIHTC operations that were acquired latevolatility in the fourth quarter of 2021, which added $13.9 millioninterest rate environment compressed the spread on our debt financing volume and $40.8 millionreduced the servicing fee rates on loans originated in additional2023. The WASF on new debt financing volume was lower than the loans paid off in the portfolio over the past year.
| | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | Servicing Fees Details (dollars in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | Average Servicing Portfolio | $ | 127,971,088 | | $ | 119,551,659 | | $ | 125,741,670 | | $ | 117,798,975 | | Dollar Change | $ | 8,419,429 | | | | | $ | 7,942,695 | | | | | Percentage Change | | 7 | % | | | | | 7 | % | | | | Average Servicing Fee (basis points) | | 24.2 | | | 24.8 | | | 24.3 | | | 24.9 | | Basis Point Change | | (0.6) | | | | | | (0.6) | | | | | Percentage Change | | (2) | % | | | | | (2) | % | | | |
Placement fees respectively. Escrow earnings and other interest income. For the three and nine months ended September 30, 2022,2023, the increases were driven primarily by increases in our placement fees on escrow earningsdeposits of $12.9$21.5 million and $15.9$70.4 million, respectively, coupled with increases in interest income from our investments.pledged securities investments of $1.3 million and $4.3 million, respectively. The earningsplacement fee rates on escrow earnings and other interest incomedeposits increased significantly as a result of rising interest rates over the past three months.
Other Revenues. For the three months ended September 30, 2022, the increase was primarily due to an $8.5 million increase in other revenues from our LIHTC operations, partially offset by a $3.3 million decrease in prepayment fees. For the nine months ended September 30, 2022, the increase was primarily attributable to: (i) a $29.8 million increase in other revenues from our LIHTC operations, (ii) a $12.6 million increase in research subscription fees, and (iii) a $5.2 million increase 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 increase in research subscription fees was primarily driven by the addition of revenues from our subsidiary, Zelman, as there was no comparable activity for the first six months of the year. The increase in prepayment fees was due to a substantial increase in the volume of loans that prepaid year over year due to anticipated changes in thehigher short-term interest rate environment.
Expenses
Personnel. For the three and nine months ended September 30, 2022, the increases were primarily the result of increasesenvironment in salaries and benefits of $7.1 million and $23.4 million, respectively. Additionally, bonus accruals increased by $3.1 million and $10.5 million for the2023 compared to same periods. Salaries and benefits and bonus accruals increased during the three and nine months ended September 30, 2022, primarily due to growth in headcount as a result of the Alliant acquisition that occurred during the fourth quarter of 2021, partially offset by a decrease in the accrual rate due to the Company’s performanceperiod in 2022.
Amortization and Depreciation. For the three and nine months ended September 30, 2022, the increases were 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 $101.0 million of MSRs, net of disposals. Due to acquisitions over the past year, we have added $170.8 million in intangible assets to SAM, resulting in increases in amortization expense of $2.1 million and $8.9 million for the three and nine months ended September 30, 2022, respectively.
Other Operating Expenses. For the three months ended September 30, 2022, the increase primarily stemmed from small increases in various expense types. For the nine months ended September 30, 2022, the increase was primarily due to a $7.4 million increase in other operating costs and a $2.9 million increase in professional fees. The increases in other operating costs and professional fees were primarily due to additional operating expenses incurred at subsidiaries acquired in the second half of 2021.
Other Revenues. For the nine months ended September 30, 2023, the decrease was primarily due to a $21.7 million decline in prepayment fees, partially offset by increases in syndication and other miscellaneous fees from our LIHTC operations of $6.0 million. The decrease in prepayment fees was due to the aforementioned reduction in the volume of loans prepaying and the amount of prepayment fees. Syndication fees increased due to the higher volume of capital syndicated into our LIHTC funds. Expenses Amortization and Depreciation. For thethree and nine months ended September 30, 2023, the decreases were primarily due to reductions in the amortization expense related to write-offs of MSRs due to declines in the prepayment of MSRs, partially offset by increases in the amortization expense of existing MSRs. Provision (benefit) for credit losses. For both the nine months ended September 30, 2023 and 2022, the benefit for credit losses was primarily attributable to updates to our historical loss rate factor. The updates resulted in the loss data from earlier periods within the historical lookback period falling off and being replaced with a period with significantly lower loss data, resulting in the historical loss rate decreasing by 0.6 basis points for both the nine months ended September 30, 2023 and 2022. Interest expense on corporate debt. Interest expense on corporate debt is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s use of that corporate debt. The discussion of our consolidated results above has additional information related to the increase in interest expense on corporate debt. 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 SAM segment is presented below. Our segment levelsegment-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 three months ended | | For the nine months ended | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | September 30, | | September 30, | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | Reconciliation of Net Income to Adjusted EBITDA | Reconciliation of Net Income to Adjusted EBITDA | | | | | | | | | | Reconciliation of Net Income to Adjusted EBITDA | | | | | | | | | | Net Income | | $ | 36,376 | | $ | 21,422 | | $ | 106,612 | | $ | 71,547 | | $ | 45,427 | | $ | 30,923 | | $ | 132,243 | | $ | 92,363 | Income tax expense | | | 12,110 | | | 7,040 | | | 33,799 | | | 21,693 | | | 15,040 | | | 10,204 | | | 42,931 | | | 28,919 | Interest expense on corporate debt | | | | 11,096 | | | 6,324 | | | 31,385 | | | 15,388 | Amortization and depreciation | | | 57,239 | | | 52,388 | | | 170,930 | | | 145,161 | | | 54,375 | | | 57,139 | | | 161,935 | | | 170,501 | Provision (benefit) for credit losses | | | 1,218 | | | 1,266 | | | (13,120) | | | (14,380) | | | 421 | | | 1,218 | | | (11,088) | | | (13,120) | Net write-offs | | | — | | | — | | | — | | | — | | Net write-offs(1) | | | | (2,008) | | | — | | | (8,041) | | | — | Write off of unamortized premium from corporate debt repayment | | | | — | | | — | | | (4,420) | | | — | Share-based compensation expense | | | 574 | | | 694 | | | 2,131 | | | 1,912 | | | 498 | | | 473 | | | 1,338 | | | 1,837 | Adjusted EBITDA | | $ | 107,517 | | $ | 82,810 | | $ | 300,352 | | $ | 225,933 | | $ | 124,849 | | $ | 106,281 | | $ | 346,283 | | $ | 295,888 |
| (1) | The net write-off for the nine months ended September 30, 2023 includes the write off of collateral-based reserves related to a loan held for investment. | |
The following tables present period-to-period comparisons of the components of SAM adjusted EBITDA for the three and nine months ended September 30, 20222023 and 2021.2022. ADJUSTED EBITDA – THREE MONTHS SERVICING & ASSET MANAGEMENT | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 1,106 | | $ | 2,109 | | $ | (1,003) | | (48) | % | | Origination fees | | $ | — | | $ | 1,106 | | $ | (1,106) | | (100) | % | Servicing fees | | 75,975 | | | 70,628 | | | 5,347 | | 8 | | | 79,200 | | | 75,975 | | | 3,225 | | 4 | | Investment management fees | | 16,301 | | | 2,564 | | | 13,737 | | 536 | | | 13,362 | | | 16,301 | | | (2,939) | | (18) | | Net warehouse interest income, loans held for investment | | 1,802 | | | 1,860 | | | (58) | | (3) | | | Escrow earnings and other interest income | | 17,760 | | | 1,945 | | | 15,815 | | 813 | | | Net warehouse interest income (expense), loans held for investment | | | 534 | | | 1,802 | | | (1,268) | | (70) | | Placement fees and other interest income | | | 39,475 | | | 17,760 | | | 21,715 | | 122 | | Other revenues | | 21,718 | | | 16,655 | | | 5,063 | | 30 | | | 15,966 | | | 16,829 | | | (863) | | (5) | | Personnel | | (21,102) | | | (9,752) | | | (11,350) | | 116 | | | (16,641) | | | (18,255) | | | 1,614 | | (9) | | Net write-offs | | — | | | — | | | — | | N/A | | | (2,008) | | | — | | | (2,008) | | N/A | | Other operating expenses | | (6,043) | | | (3,199) | | | (2,844) | | 89 | | | (5,039) | | | (5,237) | | | 198 | | (4) | | Adjusted EBITDA | $ | 107,517 | | $ | 82,810 | | $ | 24,707 | | 30 | | $ | 124,849 | | $ | 106,281 | | $ | 18,568 | | 17 | |
ADJUSTED EBITDA – NINE MONTHS SERVICING & ASSET MANAGEMENT | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Loan origination and debt brokerage fees, net | $ | 2,113 | | $ | 4,582 | | $ | (2,469) | | (54) | % | | Origination fees | | $ | 522 | | $ | 2,113 | | $ | (1,591) | | (75) | % | Servicing fees | | 222,916 | | | 205,658 | | | 17,258 | | 8 | | | 232,027 | | | 222,916 | | | 9,111 | | 4 | | Investment management fees | | 47,345 | | | 9,115 | | | 38,230 | | 419 | | | 44,844 | | | 47,345 | | | (2,501) | | (5) | | Net warehouse interest income, loans held for investment | | 4,606 | | | 5,702 | | | (1,096) | | (19) | | | Escrow earnings and other interest income | | 26,166 | | | 5,712 | | | 20,454 | | 358 | | | Net warehouse interest income (expense), loans held for investment | | | 3,450 | | | 4,606 | | | (1,156) | | (25) | | Placement fees and other interest income | | | 100,636 | | | 26,166 | | | 74,470 | | 285 | | Other revenues | | 75,991 | | | 28,312 | | | 47,679 | | 168 | | | 46,061 | | | 59,651 | | | (13,590) | | (23) | | Personnel | | (60,064) | | | (25,092) | | | (34,972) | | 139 | | | (52,331) | | | (51,374) | | | (957) | | 2 | | Net write-offs | | — | | | — | | | — | | N/A | | | (8,041) | | | — | | | (8,041) | | N/A | | Other operating expenses | | (18,721) | | | (8,056) | | | (10,665) | | 132 | | | (20,885) | | | (15,535) | | | (5,350) | | 34 | | Adjusted EBITDA | $ | 300,352 | | $ | 225,933 | | $ | 74,419 | | 33 | | $ | 346,283 | | $ | 295,888 | | $ | 50,395 | | 17 | |
| (1) | The net write-off for the nine months ended September 30, 2023 includes the write off of collateral-based reserves related to a loan held for investment. | |
Three and nine months ended September 30, 2023 compared to three and nine months ended September 30, 2022 compared to three months ended September 30, 2021 Servicing fees increased due to growth in the average servicing portfolio period over period as a result of loan originations, and an increasepartially offset by a decrease in the average servicing fee rate. Investment managementPlacement fees increased due to the addition of our LIHTC operations from our acquisition in the fourth quarter of 2021. Escrow earnings and other interest income increased primarily due to the riseincreases in the escrow earnings rate.placement fee rates. Other revenues increaseddecreased primarily due to the addition of other revenues from our LIHTC operations, partially offset by a decreasedecreases in prepayment fees. Personnel and other operating expensesNet write-offs increased due to growththe write-off of a loan held for investment during the second quarter of 2023 and the settlement of a risk-sharing obligation in headcount and operations from the aforementioned acquisition.
Nine months ended September 30, 2022 compared tothird quarter of 2023, with no comparable activity in 2022. For the nine months ended September 30, 2021
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 average servicing fee rate. Investment management fees increased due to the addition of our LIHTC operations acquired in the fourth quarter of 2021. Escrow earnings and other interest income increased primarily due to the rise in the escrow earnings rate. Other revenues increased primarily due to an increase in prepayment fees and the additions of (i) other revenues from our LIHTC operations and (ii) research subscription fees as there was no comparable activity for the first six months of 2021. Personnel and2023 only, other operating expenses increased largely due to growth in headcountprofessional fees and operations from the aforementioned acquisitions.various other expense categories.
Corporate FINANCIAL RESULTS – THREE MONTHS CORPORATE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | | 2023 | | 2022 | | Change | | Change | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | Other interest income | | $ | 369 | | $ | 87 | | $ | 282 | | 324 | % | | $ | 3,525 | | $ | 369 | | $ | 3,156 | | 855 | % | Other revenues | | | (2,620) | | | (668) | | | (1,952) | | 292 | | | | (618) | | | (2,620) | | | 2,002 | | (76) | | Total revenues | | $ | (2,251) | | $ | (581) | | $ | (1,670) | | 287 | | | $ | 2,907 | | $ | (2,251) | | $ | 5,158 | | (229) | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | | | | | | | | Personnel | | $ | 9,403 | | $ | 19,845 | | $ | (10,442) | | (53) | % | | $ | 21,395 | | $ | 9,350 | | $ | 12,045 | | 129 | % | Amortization and depreciation | | | 1,655 | | | 1,093 | | | 562 | | 51 | | | | 1,967 | | | 1,655 | | | 312 | | 19 | | Interest expense on corporate debt | | | 9,306 | | | 1,766 | | | 7,540 | | 427 | | | | 1,624 | | | 552 | | | 1,072 | | 194 | | Other operating expenses | | | 21,885 | | | 17,009 | | | 4,876 | | 29 | | | | 19,297 | | | 21,885 | | | (2,588) | | (12) | | Total expenses | | $ | 42,249 | | $ | 39,713 | | $ | 2,536 | | 6 | | | $ | 44,283 | | $ | 33,442 | | $ | 10,841 | | 32 | | Income from operations | | $ | (44,500) | | $ | (40,294) | | $ | (4,206) | | 10 | | | Income (loss) from operations | | | $ | (41,376) | | $ | (35,693) | | $ | (5,683) | | 16 | | Income tax expense (benefit) | | | (17,329) | | | (9,747) | | | (7,582) | | 78 | | | | (10,357) | | | (15,140) | | | 4,783 | | (32) | | Net income | | $ | (27,171) | | $ | (30,547) | | $ | 3,376 | | (11) | | | Net income (loss) | | | $ | (31,019) | | $ | (20,553) | | $ | (10,466) | | 51 | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | (32,646) | | $ | (31,668) | | $ | (978) | | 3 | % | | $ | (35,080) | | $ | (32,593) | | $ | (2,487) | | 8 | % |
FINANCIAL RESULTS – NINE MONTHS CORPORATE | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | | 2022 | | 2021 | | Change | | Change | | | 2023 | | 2022 | | Change | | Change | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | Other interest income | | $ | 517 | | $ | 260 | | $ | 257 | | 99 | % | | $ | 8,674 | | $ | 517 | | $ | 8,157 | | 1,578 | % | Other revenues | | | 41,641 | | | (1,658) | | | 43,299 | | (2,612) | | | | (431) | | | 41,641 | | | (42,072) | | (101) | | Total revenues | | $ | 42,158 | | $ | (1,398) | | $ | 43,556 | | (3,116) | | | $ | 8,243 | | $ | 42,158 | | $ | (33,915) | | (80) | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses | | | | | | | | | | | | | | | | | | | | | | | | | Personnel | | $ | 43,794 | | $ | 48,294 | | $ | (4,500) | | (9) | % | | $ | 53,254 | | $ | 43,741 | | $ | 9,513 | | 22 | % | Amortization and depreciation | | | 4,409 | | | 3,162 | | | 1,247 | | 39 | | | | 5,390 | | | 4,409 | | | 981 | | 22 | | Interest expense on corporate debt | | | 22,123 | | | 5,291 | | | 16,832 | | 318 | | | | 4,623 | | | 1,247 | | | 3,376 | | 271 | | Other operating expenses | | | 66,922 | | | 42,487 | | | 24,435 | | 58 | | | | 51,820 | | | 66,922 | | | (15,102) | | (23) | | Total expenses | | $ | 137,248 | | $ | 99,234 | | $ | 38,014 | | 38 | | | $ | 115,087 | | $ | 116,319 | | $ | (1,232) | | (1) | | Income from operations | | $ | (95,090) | | $ | (100,632) | | $ | 5,542 | | (6) | | | Income (loss) from operations | | | $ | (106,844) | | $ | (74,161) | | $ | (32,683) | | 44 | | Income tax expense (benefit) | | | (29,378) | | | (23,396) | | | (5,982) | | 26 | | | | (26,698) | | | (24,302) | | | (2,396) | | 10 | | Net income | | $ | (65,712) | | $ | (77,236) | | $ | 11,524 | | (15) | | | Net income (loss) | | | $ | (80,146) | | $ | (49,859) | | $ | (30,287) | | 61 | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | (96,137) | | $ | (78,955) | | $ | (17,182) | | 22 | % | | $ | (89,017) | | $ | (96,084) | | $ | 7,067 | | (7) | % |
Revenues Other interest income. For the three and nine months ended September 30, 2023, the increases were due to increases in the interest rates we earn on our cash deposits held by our corporate segment combined with an increase in the average balance concentrated in interest-earning accounts. Other revenues. For the three months ended September 30, 2023, the increase was largely due increases in miscellaneous fees and income from equity-method investments. Revenues
Other Revenues. For the nine months ended September 30, 2022,2023, the increasedecrease was primarily due to the $39.6 million Apprisegain from revaluation gain,of previously held equity-method investment, which was a one-time transaction recognized in the first quarter of 2022. As part of our acquisition of GeoPhy, we acquired its 50% interest2022, and a $5.2 million decrease in Apprise. The revaluation of our existing 50% ownership interest withincome from equity-method investments, partially offset by 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 $7.0$3.3 million increase in incomerevenues from our other equity-method investments, mostly related to the first quarter of 2022. Partially offsetting the increase in Other revenues was a $3.0 million decrease in investment income from the Company’s deferred compensation plan.
Expenses Personnel. For the three months ended September 30, 2022,2023, the decreaseincrease was primarily the result ofdue to a $6.2$9.6 million decrease to the accrual forincrease in subjective bonus expense and a $1.8 million increase in stock compensation expense. The increases in subjective bonuses and stock compensation were due to a $4.9 million decrease inlower bonus and stock compensation expense relatedin the third of quarter of 2022 compared to the Company’s performance share plan, partially offset by a slight increasethird quarter of 2023, resulting from downward adjustments to the annual accruals made in salaries and benefitsthe third quarter of 2022 due to an increase inour financial performance for the average headcount.year-to-date period ended September 30, 2022 and the expected performance for the remainder of 2022. For the nine months ended September 30, 2022,2023, the decreaseincrease was primarily the result of (i) a $6.3$7.4 million decrease to the accrual forincrease in subjective bonuses, (ii) a $3.0$3.4 million decreaseincrease in compensation expense related to the Company’ssalaries, and a $3.3 million increase in deferred compensation plan, and (iii)costs, partially offset by a $1.2$4.2 million decrease in stock compensation expense related toas we are accruing performance-based stock compensation at an overall lower rate this year than last. An increase in the Company’s performance share plan, partially offset by a $5.5 million increase incorporate average headcount during 2023 was the primary driver for the increased subjective bonus and salaries and benefits due to an increaseexpenses. The corporate average headcount for the nine months ended September 30, 2023 does not fully reflect the impact of our workforce reduction that we announced in April and that was effective at the average headcount.beginning of May. Interest expense on corporate debt. Interest expense on corporate debt is determined at a consolidated corporate level and allocated to each segment proportionally based on each segment’s use of that corporate debt. The discussion of our consolidated results above has additional information related to the increase in interest expense on corporate debt. Other operating expenses.For the three and nine months ended September 30, 2022,2023, the increasesdecreases were primarily driven by the doublingdecreases in the size of our corporate debt during the fourth quarter of 2021, an increase in the interest rate on our corporate debt as the lock on our floating interest rate expired, and an increase in interest expense related to a note payable at our subsidiary, Alliant, which we assumed in the fourth quarter of 2021. Other Operating Expenses. For the three months ended September 30, 2022, the increase was primarily driven by: a $3.6 million increase in office expenses and small increases in other expenses includingprofessional fees, travel and entertainment, and marketing costs. The increasesmiscellaneous expense categories, partially offset by a small increase in expenses were attributable tooffice expenses. Professional fees decreased $2.0 million and $8.2 million for the growth of the Company, especially from acquired subsidiaries.
For thethree and nine months ended September 30, 2022, the increase was primarily driven by: (i) a $6.4 million increase2023, respectively. The decreases in professional fees largelywere primarily due to increases in legal and otherelevated professional fees in 2022 related to our acquisitionsacquisition costs. Travel and growth ofentertainment decreased $0.7 million and $2.4 million for the Company, (ii) an $11.1three and nine months ended September 30, 2023, respectively. Miscellaneous expenses for the three and nine-month periods decreased $1.1 million increase in office expenses related to the growth of the Company and acquired offices, (iii) a $2.6$6.5 million, increaserespectively. The decreases in travel and entertainment costs attributable to the growth of the Company and as travel and entertainment costs in 2021miscellaneous expenses were depressedprimarily due to our cost-reduction initiatives. Office expenses increased $0.7 million and $2.3 million for the pandemic,three and (iv) a $2.0 million increasenine months ended September 30, 2023, respectively, due primarily to increases in marketing costs related to the growth of the Company, especially from acquisition subsidiaries.software costs.
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 Corporate segment is presented below. Our segment levelsegment-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: ADJUSTED FINANCIAL MEASURE RECONCILIATION TO GAAP CORPORATE | | | | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | September 30, | | September 30, | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | Reconciliation of Net Income to Adjusted EBITDA | | | | | | | | | | | Net Income | | $ | (27,171) | | $ | (30,547) | | $ | (65,712) | | $ | (77,236) | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | Reconciliation of Net Income (Loss) to Adjusted EBITDA | | | | | | | | | | Net Income (Loss) | | | $ | (31,019) | | $ | (20,553) | | $ | (80,146) | | $ | (49,859) | Income tax expense (benefit) | | | (17,329) | | | (9,747) | | | (29,378) | | | (23,396) | | | (10,357) | | | (15,140) | | | (26,698) | | | (24,302) | Interest expense on corporate debt | | | 9,306 | | | 1,766 | | | 22,123 | | | 5,291 | | | 1,624 | | | 552 | | | 4,623 | | | 1,247 | Amortization and depreciation | | | 1,655 | | | 1,093 | | | 4,409 | | | 3,162 | | | 1,967 | | | 1,655 | | | 5,390 | | | 4,409 | Share-based compensation expense | | | 893 | | | 5,767 | | | 12,062 | | | 13,224 | | | 2,705 | | | 893 | | | 7,814 | | | 12,062 | Gain from revaluation of previously held equity-method investment | | | — | | | — | | | (39,641) | | | — | | | — | | | — | | | — | | | (39,641) | Adjusted EBITDA | | $ | (32,646) | | $ | (31,668) | | $ | (96,137) | | $ | (78,955) | | $ | (35,080) | | $ | (32,593) | | $ | (89,017) | | $ | (96,084) |
The following tables present period-to-period comparisons of the components of Corporate adjusted EBITDA for the three and nine months ended September 30, 20222023 and 2021.2022. ADJUSTED EBITDA – THREE MONTHS CORPORATE | | | | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | | | For the three months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Other interest income | | 369 | | | 87 | | | 282 | | 324 | % | $ | 3,525 | | $ | 369 | | $ | 3,156 | | 855 | % | Other revenues | | (2,620) | | | (668) | | | (1,952) | | 292 | | | (618) | | | (2,620) | | | 2,002 | | (76) | | Personnel | | (8,510) | | | (14,078) | | | 5,568 | | (40) | | | (18,690) | | | (8,457) | | | (10,233) | | 121 | | Other operating expenses | | (21,885) | | | (17,009) | | | (4,876) | | 29 | | | (19,297) | | | (21,885) | | | 2,588 | | (12) | | Adjusted EBITDA | $ | (32,646) | | $ | (31,668) | | $ | (978) | | 3 | | $ | (35,080) | | $ | (32,593) | | $ | (2,487) | | 8 | |
ADJUSTED EBITDA – NINE MONTHS CORPORATE | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended | | | | | | | For the nine months ended | | | | | | | | September 30, | | Dollar | | Percentage | | September 30, | | Dollar | | Percentage | | (dollars in thousands) | 2022 | | 2021 | | Change | | Change | | 2023 | | 2022 | | Change | | Change | | Other interest income | | 517 | | | 260 | | | 257 | | 99 | % | | 8,674 | | | 517 | | | 8,157 | | 1,578 | % | Other revenues | | 2,000 | | | (1,658) | | | 3,658 | | (221) | | | (431) | | | 2,000 | | | (2,431) | | (122) | | Personnel | | (31,732) | | | (35,070) | | | 3,338 | | (10) | | | (45,440) | | | (31,679) | | | (13,761) | | 43 | | Other operating expenses | | (66,922) | | | (42,487) | | | (24,435) | | 58 | | | (51,820) | | | (66,922) | | | 15,102 | | (23) | | Adjusted EBITDA | $ | (96,137) | | $ | (78,955) | | $ | (17,182) | | 22 | | $ | (89,017) | | $ | (96,084) | | $ | 7,067 | | (7) | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 20222023 compared to three months ended September 30, 20212022 Other interest income increased primarily due to an increase in the interest rates on our cash deposits and increased balances. Other revenues increased due to increases in miscellaneous fees and income from equity method investments. The decreaseincrease in personnel expense was primarily due to lower subjective bonus expense in the decreases in accrualsthird quarter of 2022 than the third quarter of 2023 due to our expected financial performance for subjective bonuses and expenses related to the Company’s deferred compensation plan, partially offset by slightly increased salaries and benefits resulting from increases 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 acquisitions.2022. Nine months ended September 30, 2023 compared to nine months ended September 30, 2022 Other interest income increased primarily due to an increase in interest earned on our cash deposits and increased balances. Other revenues decreased, largely due to a decline in income from equity-method investments. The increase in personnel expense was primarily due to increased Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
Other revenues increased primarily due to our equity method investments generating income in 2022 compared to losses in 2021. The decrease in personnel expense was primarily due to decreases in deferred compensation costssubjective bonus and the accrual for subjective bonuses, partially offset by increased salaries and benefits resulting from increasesexpense due to an increase in corporate average headcount.headcount during 2023. Other operating expenses increaseddecreased as a result of the overall growth of the Company over the past year and from increased office costs anda decline in professional fees resulting from our acquisitions.and other operating expenses as a result of cost-reduction initiatives.
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)(iii) fund our portion of the equity necessary for the operations of the Interim Program JV, and otherto support equity-method investments; (v)(iv) fund investments in properties to be syndicated to LIHTC investment funds that we will asset-manage; (vi)(v) make payments related to earnouts from acquisitions, (vii)(vi) meet working capital needs to support our day-to-day operations, including debt service payments, joint venture development partnerships contributions, advances for servicing advancesand loan repurchases and payments for salaries, commissions, and income taxes,; and (viii)(vii) 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 September 30, 2022.2023. The net worth requirement is derived primarily from unpaid balances on Fannie Mae loans and the level of risk-sharing. As of September 30, 2022,2023, the net worth requirement was $275.0$301.6 million, and our net worth was $646.0 million,$1.0 billion, as measured at our wholly-owned operating subsidiary, Walker & Dunlop, LLC. As of September 30, 2022,2023, we were required to maintain at least $54.7$60.0 million of liquid assets to meet our operational liquidity requirements for Fannie Mae, Freddie Mac, HUD, Ginnie Mae and our warehouse facility lenders. As of September 30, 2022,2023, we had operational liquidity of $131.9$186.4 million, as measured at our wholly-owned operating subsidiary, Walker & Dunlop, LLC. We paid a cash dividend of $0.60$0.63 per share forduring the third quarter of 2022,2023, which is 20%5% higher than the quarterly dividend paid in the third quarter of 2021.2022. On November 8, 2022,2023, the Company’s Board of Directors declared a dividend of $0.60$0.63 per share for the thirdfourth quarter of 2022.2023. The dividend will be paid on December 9, 20228, 2023 to all holders of record of our restricted and unrestricted common stock as of November 25, 2022.24, 2023. Over the past three years, we have returned $216.4 million to investors through the repurchase of 0.6 million shares of our common stock under share repurchase programs for a cost of $37.2 million and cash dividend payments of $179.2 million. Additionally, we have invested $655.1 million in 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 lines. As of September 30, 2022,2023, we did not fully fund any such loans.loans held for investment, and we funded a de minimis amount of loans held for sale. We continually seek opportunities to complete additional acquisitions if we believe the economics are favorable.
In February 2022,2023, our Board of Directors approved a stock repurchase program that permits the repurchase of up to $75.0 million of shares of our common stock over a 12-month period beginning February 13, 2022.23, 2023. Through September 30, 20222023, we have not repurchased 109 thousandany shares under the 20222023 stock repurchase program and have $63.9$75.0 million of remaining capacity under that program. 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. 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 and cash held in collection accounts to be used to fund the repayment of the Alliant note payable.loan. We are generally required to share the risk of any losses associated with loans sold under the Fannie Mae DUS program, our only off- balanceoff-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 September 30, 2022,2023, we held substantially all of our restricted liquidity in Agency MBS in the aggregate amount of $138.8$131.0 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 September 30, 20222023 collateral requirements as outlined above. As of September 30, 2022,2023, reserve requirements for the September 30, 20222023 DUS loan portfolio will require us to fund $71.8$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 September 30, 2022.2023. Sources of Liquidity: Warehouse Facilities and Notes Payable Warehouse Facilities We utilizeuse a combination of warehouse facilities and notes payable to provide funding for our operations. We utilizeuse warehouse facilities to fund our Agency Lending and Interim Loan Program, and LIHTC operations.Program. Our ability to originate Agency mortgage loans and loans held for investments depends upon our ability to secure and maintain these types of financing 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 in the consolidated financial statements in our 20212022 Form 10-K, as updated in NOTE 6 in the condensed consolidated financial statements in this Form 10-Q. Notes Payable We have a senior secured credit agreement (the “Credit Agreement”) that provides for a $600 million term loan (the “Term Loan”) that bears interest at Adjusted Term SOFRSecured Overnight Financing Rate (“SOFR”) plus 225 basis points with a floor of 50 basis points and has a stated maturity date of 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, On January 12, 2023, we may also electentered into a lender joinder agreement and amendment to request one or morethe Credit Agreement that provided for an incremental term loan commitments not(“Incremental Term Loan”) with a principal amount of $200.0 million, modified the ratio thresholds related to exceedmandatory 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 lesserTerm Loan. The Incremental Term Loan bears interest at Adjusted Term SOFR plus 300 basis points and matures on December 16, 2028. We are obligated to make principal payments on the Incremental Term Loan in consecutive quarterly installments equal to 0.25% of $230the aggregate original principal amount of the Incremental Term Loan on the last business day of each March, June, September, and December, which began on June 30, 2023. We used approximately $115.9 million of the proceeds to pay off the Alliant note payable principal balance and 100%related accrued interest and other fees of trailing four-quarter Consolidated Adjusted EBITDA, provided that total indebtedness would not cause the leverage ratio to exceed 3.00 to 1.00.a subsidiary. As of September 30, 2022,2023, the aggregate outstanding principal balance of the original Term Loan and Incremental Term Loan (“Corporate Debt”) was $595.5$788.5 million. The note payable and the warehouse facilities are senior obligations of the Company. As of September 30, 2022, we 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 in the consolidated financial statements in our 20212022 Form 10-K. There have been no changes The note payable and the warehouse facilities are senior obligations of the Company. As of September 30, 2023, we were in compliance with all covenants related to the Credit Agreement in 2022.Agreement. We have a note payable through our wholly-owned subsidiary Alliant, which has an outstanding balance of $120.2 million as of September 30, 2022 and bears interest at a fixed rate of 4.75%. The note has a stated maturity of January 15, 2035 and requires quarterly payments of principal, interest, and other required priority items shortly after the beginning of each quarter as further detailed in “Notes Payable – Alliant Note Payable” in NOTE 6 in the consolidated financial statements in our 2021 Form 10-K. There have been no changes to the terms of the note payable during 2022.
Credit Quality and Allowance for Risk-Sharing Obligations The following table sets forth certain information useful in evaluating our credit performance. | | | | | | | | | | | | | | | | | September 30, | | | September 30, | | (dollars in thousands) | | 2022 | | 2021 | | | 2023 | | 2022 | | Key Credit Metrics | | | | | | | | | | | | | | | Risk-sharing servicing portfolio: | | | | | | | | | | | | | | | Fannie Mae Full Risk | | $ | 49,241,243 | | $ | 44,069,885 | | | $ | 53,549,966 | | $ | 49,241,243 | | Fannie Mae Modified Risk | | | 9,177,094 | | | 8,235,475 | | | | 9,295,368 | | | 9,177,094 | | Freddie Mac Modified Risk | | | 23,615 | | | 36,883 | | | | 23,415 | | | 23,615 | | Total risk-sharing servicing portfolio | | $ | 58,441,952 | | $ | 52,342,243 | | | $ | 62,868,749 | | $ | 58,441,952 | | | | | | | | | | | | | | | | | Non-risk-sharing servicing portfolio: | | | | | | | | | | | | | | | Fannie Mae No Risk | | $ | 8,109 | | $ | 12,593 | | | $ | 5,519 | | $ | 8,109 | | Freddie Mac No Risk | | | 37,217,856 | | | 38,002,131 | | | | 38,632,721 | | | 37,217,856 | | GNMA - HUD No Risk | | | 9,634,111 | | | 9,894,893 | | | | 10,320,520 | | | 9,634,111 | | Brokered | | | 15,224,581 | | | 13,429,801 | | | | 17,091,925 | | | 15,224,581 | | Total non-risk-sharing servicing portfolio | | $ | 62,084,657 | | $ | 61,339,418 | | | $ | 66,050,685 | | $ | 62,084,657 | | Total loans serviced for others | | $ | 120,526,609 | | $ | 113,681,661 | | | $ | 128,919,434 | | $ | 120,526,609 | | Interim loans (full risk) servicing portfolio | | | 251,815 | | | 238,713 | | | | 40,000 | | | 251,815 | | Total servicing portfolio unpaid principal balance | | $ | 120,778,424 | | $ | 113,920,374 | | | $ | 128,959,434 | | $ | 120,778,424 | | | | | | | | | | | | | | | | | Interim Program JV Managed Loans (1) | | | 900,037 | | | 918,518 | | | | 736,320 | | | 900,037 | | | | | | | | | | | | | | | | | At risk servicing portfolio (2) | | $ | 53,430,615 | | $ | 48,209,532 | | | $ | 57,857,659 | | $ | 53,430,615 | | Maximum exposure to at risk portfolio (3) | | | 10,826,654 | | | 9,784,054 | | | | 11,750,068 | | | 10,826,654 | | Defaulted loans | | | 78,203 | | | 48,481 | | | | — | | | 78,203 | | | | | | | | | | | | | | | | | Defaulted loans as a percentage of the at-risk portfolio | | | 0.15 | % | | 0.10 | % | | | 0.00 | % | | 0.15 | % | Allowance for risk-sharing as a percentage of the at-risk portfolio | | | 0.09 | | | 0.13 | | | | 0.05 | | | 0.09 | | Allowance for risk-sharing as a percentage of maximum exposure | | | 0.46 | | | 0.63 | | | | 0.26 | | | 0.46 | |
| (1) | As of September 30, 20222023 and 2021,2022, this balance consists 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-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. |
| (4) | Defaulted loans represent loans in our Fannie Mae at-risk portfolio which are probable of foreclosure or that have foreclosed and for which the Company has recorded a collateral-based reserve (i.e. loans where we have assessed a probable loss). Other loans that have defaulted but not foreclosed or that are not probable of foreclosure are not included here. Additionally, loans that have foreclosed or are probable of foreclosure but are not expected to result in a loss to the Company are not included here. |
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. | | | | 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”Segments - Capital Markets section of “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”1. Business” in our 2022 Form 10-K 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 collateral-based 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 the Company’s $52.1$57.4 billion at-risk Fannie Mae servicing portfolio as of September 30, 20222023 was $38.9$31.0 million compared to $52.3$39.7 million as of December 31, 2021.2022. The significant decrease in the CECL reserve was principally related to a reduction in our historical loss rate factor, used for both the three and nine months endedwhich decreased from 1.2 basis points as of December 31, 2022 to 0.6 basis points as of March 31, 2023 (with no change from March 31, 2023 to September 30, 2022 and the forecast-period loss rate for the three months ended June 30, 2022 and September 30, 2022.2023), as a year with significant losses in our 10-year lookback period was replaced with a year with significantly fewer losses. As of September 30, 2022,2023, no at-risk loans were in default compared to three at-risk loans with an aggregate UPB of $78.2 million were in default compared to two loans with an aggregated UPB of $48.5 million as of September 30, 2021.2022. The collateral-based reserve on defaulted loans was $10.8 millionzero and $7.6$10.8 million as of September 30, 20222023 and September 30, 2021,2022, respectively. We had a provision for risk-sharing obligations of $0.6 million for the three months ended September 30, 2023 compared to a provision for risk-sharing obligations of $1.2 million for the three months ended September 30, 2022 compared to2022. We had a benefit for risk-sharing obligations of $1.3$11.1 million for the threenine months ended September 30, 2021. We had2023, compared to a benefit for risk-sharing obligations of $13.0 million for the nine months ended September 30, 2022 compared2022. We are obligated to a benefit for risk-sharing obligations of $13.7 millionrepurchase loans that are originated for the nine months ended September 30, 2021. 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; however, in October 2023, we received a repurchase request from each of Freddie Mac and Fannie Mae relating to loans with an outstanding principal balance totaling $24.8 million. We appealed the repurchase request from Freddie Mac and are awaiting a final determination on the appeal. Our appeal request may not be honored, resulting in a repurchase during the fourth quarter of 2023. The repurchase request from Fannie Mae will result in the repurchase of the loan in the first quarter of 2024. Based on the value of the underlying collateral, we do not believe we will realize a material loss for the repurchase of either loan. New/Recent Accounting Pronouncements As seen in NOTE 2 in the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, there are no 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 as of September 30, 2022.2023. Item 3. 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. Some of our assets and liabilities are subject to changes in interest rates. EarningsPlacement fee revenue from escrowsescrow deposits generally track the effective Federal Funds Rate (“EFFR”). The EFFR was 308533 basis points and six308 basis points as of September 30, 20222023 and 2021,2022, respectively. The following table shows the impact on our annual escrow earningsplacement fee revenue due to a 100-basis point increase and decrease in EFFR based on our escrow balances outstanding at each period end. A portion of these changes in earnings as a result of a 100-basis point increase in the EFFR would be delayed by several months due to the negotiated nature of some of our escrowplacement arrangements. | | | | | | | | | | | | | | | | | As of September 30, | | | As of September 30, | | Change in annual escrow earnings due to: (in thousands) | | 2022 | | 2021 | | | Change in annual placement fee revenue due to: (in thousands) | | | 2023 | | 2022 | | 100 basis point increase in EFFR | | $ | 30,790 | | $ | 29,824 | | | $ | 28,164 | | $ | 30,790 | | 100 basis point decrease in EFFR (1) | | | (30,628) | | | (2,357) | | | | (28,164) | | | (30,628) | |
The borrowing cost of our warehouse facilities used to fund loans held for sale loans held for investment, and investments in tax credit equity is based on LIBOR or Adjusted Term Secured Overnight Financing Rate (“SOFR”).SOFR. The base SOFR was 531 basis points and 298 basis points as of September 30, 2022. 30-day LIBOR as of September 30, 2021 was eight basis points.2023 and 2022, respectively. The interest income on our loans held for investment is based on 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 LIBOR or Adjusted Term SOFR, based on our warehouse borrowings outstanding at each period end. In the table below, the large decrease in absolute value for 2023 is due to a significant decline in the outstanding Agency Warehouse balances as of September 30, 2023. The changes shown below do not reflect an increase or decrease in the interest rate earned on our loans held for sale. | | | | | | | | | | | | | | | | | As of September 30, | | | As of September 30, | | Change in annual net warehouse interest income due to: (in thousands) | | 2022 | | 2021 | | | 2023 | | 2022 | | 100 basis point increase in SOFR or 30-day LIBOR | | $ | (23,630) | | $ | (26,212) | | | 100 basis point decrease in SOFR or 30-day LIBOR (2) | | | 23,630 | | | 1,684 | | | 100 basis point increase in SOFR | | | $ | (7,822) | | $ | (23,630) | | 100 basis point decrease in SOFR | | | | 7,822 | | | 23,630 | |
Our Term LoanCorporate Debt is based on Adjusted Term SOFR as of September 30, 2022.2023. In December 2021, we fully paid the prior $300 million term loan agreement, which was based on interest at 30-day LIBOR and entered into a $600 million note payable with an interest based Adjusted Term SOFR and a SOFR floor of 50 basis points.January 2023, our Corporate Debt increased by $200 million. The following table shows the impact on our annual earnings due to a 100-basis point increase and decrease in SOFR and/or 30-day LIBOR as of September 30, 20222023 and September 30, 2021,2022, respectively, based on our current and previous notesthe note payable balance outstanding at each period end. The Alliant note payable isas of September 30, 2022 was a fixed-rate debt;note; therefore, there iswas no impact to our earnings related to this debt when interest rates change.change as of September 30, 2022. | | | | | | | | | | As of September 30, | | Change in annual income from operations due to: (in thousands) | | 2022 | | 2021 | | 100 basis point increase in SOFR or 30-day LIBOR | | $ | (5,955) | | $ | (2,925) | | 100 basis point decrease in SOFR or 30-day LIBOR (2) | | | 5,955 | | | 235 | |
| (1) | The decrease is limited to EFFR in cases where the 100 basis point decrease resulted in a negative effective interest rate. |
| (2) | The decrease as of September 30, 2021 is limited to 30-day LIBOR as of September 30, 2021, as it was less than 100 basis points, or the interest rate floor. |
| | | | | | | | | | As of September 30, | | Change in annual income from operations due to: (in thousands) | | 2023 | | 2022 | | 100 basis point increase in SOFR | | $ | (7,885) | | $ | (5,955) | | 100 basis point decrease in SOFR | | | 7,885 | | | 5,955 | |
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 $43.2 million as of September 30, 2023 compared to $40.6 million as of September 30, 2022 compared to $37.2 million as of September 30, 2021.2022. Our Fannie Mae and Freddie Mac servicing engagements provide for prepayment fees inloans include economic deterrents that reduce the eventrisk of a voluntaryloan prepayment prior to the expiration of the prepayment protection period.period, including prepayment premiums, loan defeasance, or yield maintenance fees. These prepayment protections generally extend the duration of a loan compared to a loan without similar protections. If a loan is prepaid prior to the expiration of the prepayment protection period, and the customer is obligated to incur a prepayment premium, our servicing contacts with Fannie Mae and Freddie Mac allow us to receive a portion of the prepayment premium. Our servicing contractscontract with institutional investors and and HUD do not require them to provide us with prepayment fees. As of both September 30, 2023 and 2022, 90% and 2021, 89% of the loans for which we earn servicing fees are protected from the risk of prepayment through prepayment provisions.provisions, respectively. Given this significant level of prepayment protection, we do not hedge our servicing portfolio for prepayment risk. As interest rates have risen rapidly over the past 18 months, we have experienced a significant reduction in prepayment activity within our loan servicing portfolio, which in turn has significantly reduced the volume and amount of prepayment premium revenues we receive. London Interbank Offered Rate (“LIBOR”) Transition In the first quarter of 2021,On June 30, 2023, the United Kingdom’s Financial Conduct Authority, the regulator for the administration of LIBOR, announced specific dates for its intention to stopstopped publishing LIBOR rates, including the 30-day LIBOR (our(previously our primary reference rate) which is scheduled for June 30, 2023. It is expected that. All of our legacy GSE LIBOR-based loans will transitiontransitioned to Secured Overnight Financing Rate (“SOFR”) on or before June 30, 2023. With respectSOFR effective July 1, 2023, after providing formal notice to the loans we underwrite and service, we have been working closely with the GSEs on this matter through our participation on subcommittees and advisory councils.We continue to monitor our LIBOR exposure, review legal contracts and assess fallback language impacts, engage with our clients and other stakeholders, and monitor developments associated with LIBOR alternatives. We have also updatedall impacted borrowers. All of our debt agreements with warehouse facility providers to include fallback language governing the transition and have already transitioned our Term Loan and five of our warehouse facilities have transitioned to SOFR.SOFR as of June 30, 2023.
Item 4. 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. There have been no changes in our internal control over financial reporting during the quarter ended September 30, 20222023 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.
PART II OTHER INFORMATION Item 1. 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 1A. Risk Factors We have included in Part I, Item 1A of our 20212022 Form 10-K descriptions of certain risks and uncertainties that could affect our business, future performance, or financial condition (the “Risk Factors”). There have been no material changes from the disclosures provided in the 2021our 2022 Form 10-K, with respect toexcept as provided in Part II, Item 1A of our quarterly report on Form 10-Q for the Risk Factors.quarterly period ended March 31, 2023. Investors should consider the Risk Factors prior to making an investment decision with respect to the Company’s stock. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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. During the quarter ended September 30, 2022,2023, we purchased 14ten thousand shares to satisfy grantee tax withholding obligations on share-vesting events. During the first quarter of 2022,2023, the Company’s Board of Directors approved a share 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 13, 2022.23, 2023. During the quarter ended September 30, 20222023 we did not repurchase any shares under this share repurchase program. The Company had $63.9$75.0 million of authorized share repurchase capacity remaining as of September 30, 2022.2023. The following table provides information regarding common stock repurchases for the quarter ended September 30, 2022:2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | July 1-31, 2022 | | 1,204 | | $ | 98.13 | | — | | | 63,901,743 | | | August 1-31, 2022 | | 4,720 | | | 113.20 | | — | | | 63,901,743 | | | September 1-30, 2022 | | 7,975 | | | 98.24 | | — | | | 63,901,743 | | | July 1-31, 2023 | | | 923 | | $ | 79.09 | | — | | | 75,000,000 | | August 1-31, 2023 | | | 4,872 | | | 90.53 | | — | | | 75,000,000 | | September 1-30, 2023 | | | 4,205 | | | 84.87 | | — | | | 75,000,000 | | 3rd Quarter | | 13,899 | | $ | 103.31 | | — | | | | | | 10,000 | | $ | 87.09 | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information None.Rule 10b5-1 Trading Arrangements
Item 6. Exhibits (a) 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 Alinksy, 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, 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 Walker & Dunlop, Inc. and Column Guaranteed LLC (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) | 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) | 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 filed on August 9, 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, and 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) | 10.1 | | Amendment No. 46 to Master Repurchase Agreement, dated as of September 15, 2022,12, 2023, by and among Walker & Dunlop, LLC, Walker & Dunlop, Inc.,Inc, and JPMorgan Chase Bank,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)15, 2023) | 10.2 | | Amendment No. 12 to Amended and Restated Letter, dated as of September 15, 2022,12, 2023, 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)15, 2023) | 10.3 | *† | Amendment One to the Walker & Dunlop, Inc, Deferred Compensation Plan | 10.4 | * | Form of Trust Agreement | 31.1 | * | Certification of Walker & Dunlop, Inc.'s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 31.2 | * | Certification of Walker & Dunlop, Inc.'s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 32 | ** | Certification of Walker & Dunlop, Inc.'s Chief Executive Officer and Chief Financial Officer 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 in Exhibit 101) |
†:Denotes a management contract or compensation plan, contract or arrangement. *: Filed herewith. **: Furnished herewith. Information in this Quarterly Report on Form 10-Q 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 filing. SIGNATURES Pursuant to the requirements 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. | Date: November 9, 20222023 | | By: | /s/ William M. Walker | | | | William M. Walker | | | | Chairman and Chief Executive Officer | | | | | | | | | Date: November 9, 20222023 | | By: | /s/ Gregory A. Florkowski | | | | Gregory A. Florkowski | | | | Executive Vice President and Chief Financial Officer |
|
