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Good morning, I’m Kelsey Duffey, Senior Vice President of Investor Relations at Walker & Dunlop, and I'd like to welcome you to Walker & Dunlop’s First Quarter 2023 Earnings Conference Call and Webcast. Hosting the call today is Willy Walker, Walker & Dunlop Chairman and CEO. He is joined by Greg Florkowski, Executive Vice President & CFO. Today’s webcast is being recorded, and a replay will be available via webcast on the Investor Relations section of our website. At this time, all participants have been placed in a listen-only mode and the line will be open for your questions following the presentation. [Operator Instructions] This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Greg will touch on during the call. Please also note that we will reference the non-GAAP financial metrics, adjusted EBITDA, and adjusted core EPS during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations, and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy.

Thank you, Kelsey and good morning everyone. Walker & Dunlop’s business and the broader commercial real estate industry faced continued pressure from uncertainty around interest rates and volatile market conditions during the first quarter of 2023. Our financial results reflect the challenges of the current market environment, and while working closely with our clients, our team closed $6.7 billion of total transaction volume, down 47% year-over-year. Our multifamily property sales volume of $1.9 billion was down 46% year-over-year, compared to a 74% decline in the broader market as reported by CoStar. It is important to note as we review quarter-over-quarter numbers that the Federal Reserve began its tightening cycle at the very end of Q1 2022, making it the final quarter of the post pandemic easy-money cycle. Q1 total revenue was $239 million, down 25%, and diluted earnings per share were $0.79, down 63% from Q1 of 2022. Please remember that Q1 2022 included a one-time gain triggered by the GeoPhy acquisition that contributed $0.92 to our EPS of $2.12. Yet despite dramatically lower transaction volumes due to market conditions, along with revenues and EPS, our adjusted core EPS, a metric we introduced last quarter that strips out large non-cash revenues and expenses to give investors better insight into our current income statement, was up 10% versus Q1 2022, and adjusted EBITDA was up 9% to $68 million. I want to underscore this point, in a quarter where transaction volumes were down 47% from the previous year, we grew adjusted core EPS by 10% and adjusted EBITDA by 9%, thanks to our servicing and asset management businesses that generate significant and consistent revenues. Due to dramatically lower transaction volumes across the industry and at Walker & Dunlop, in mid-April we right-sized our business and reduced headcount by 110 employees, or 8%. With this action, and other cost cutting measures that Greg will outline in a moment, we have significantly reduced operating expenses to a level where we can withstand transaction volumes similar to Q1 for the rest of 2023. That is clearly not our hope, and as I will outline in a moment, we see plenty of potential upside. But for now, we had to take the hard step of right-sizing our company and saying goodbye to a group of valuable colleagues who contributed a great deal to our past success. We remain focused on achieving our Drive to 2025 business plan, which has always been highly ambitious, even before the current market dislocation. Yet Walker & Dunlop established its first five-year stretch business plan in 2007, and when the Great Financial Crisis hit, every indicator told us the five-year plan was off the table. Yet we remained focused, grew our counter-cyclical lending relationships with Fannie Mae, Freddie Mac, and HUD, and achieved every element of our five-year plan in 2012. We see a similar opportunity today by focusing on operational excellence and cost containment, and then leaping forward as the market heals. Where is there potential upside? The recent banking crisis pulled banks out of the commercial real estate lending market almost immediately. Fannie Mae and Freddie Mac’s multifamily lending volumes have increased significantly since then, and should these volumes be sustained throughout the year, as the largest GSE lender in the country in 2022, W&D’s GSE volumes will be significantly higher than what we are currently forecasting. Banks pulling back from commercial real estate lending in an effort to build more liquid balance sheets has broader implications than just increasing GSE lending volumes. Nearly 40% of the $4.5 trillion of total commercial mortgage debt outstanding today sits on bank balance sheets. If banks pull back 5 to 10% in commercial real estate lending, it could create the need for $225 billion to $450 billion of new capital from life insurance companies, CMBS securitizations, or private debt funds raised by registered investment advisors like Walker & Dunlop. Not only does Walker & Dunlop have the fund management business to raise and manage this type of capital, but we also have the distribution network with over 220 bankers and brokers across the country to deploy it. In addition to the capital raising opportunities that the bank pullback presents, there is also a long-term growth opportunity for our debt brokerage business. Banks have direct relationships with their commercial real estate customers, which means that a significant portion of the $1.7 trillion of commercial real estate loans on bank balance sheets today was originated without a mortgage broker. The role of debt brokers becomes more important than ever in a capital-constrained market, as borrowers need a broker’s expertise to look broadly across the market for the most competitive capital source. In the short-term, there is no doubt that a lack of liquidity to the broader market will put pressure on our debt brokerage business, but over the long-term, these opportunities could be a significant driver of growth in our brokered volumes. There is plenty of concern about commercial real estate exposure on bank balance sheets, particularly as it relates to office loans. Walker & Dunlop has

Thank you Willy, and good morning everyone. As Willy discussed, challenging conditions in the commercial real estate market persisted into 2023, putting pressure on our first quarter transaction volumes, revenues, and earnings. Diluted EPS was $0.79 per share, down from $2.12 per share in the year-ago quarter. As a reminder, the first quarter 2022 included a $40 million benefit due to the revaluation of our appraisal business upon closing the acquisition of GeoPhy. This boosted total revenues and added $0.92 per share to diluted EPS in the quarter. Importantly, adjusted core EPS, which eliminates the large swings that can occur from non-cash revenues and expenses and acquisition related activity, grew to $1.17 per share, up 10% over last year. As we have consistently seen through the volatility over the last year, our servicing and asset management businesses continue to generate durable and growing cash revenues, which in combination with our variable expense structure, has enabled us to consistently generate healthy adjusted EBITDA. Our escrow and interest earnings have also benefitted from the rapid increase in interest rates over the last 12 months, and offset some of the declines in transaction volumes. As a result, despite transaction volumes declining 47%, our Q1 adjusted EBITDA was $68 million, growing 9%. Adjusted EBITDA also benefitted from the performance of Alliant and

Thank you, Greg. The 25 basis point increase in the Fed Funds rate yesterday was anticipated, and Chairman Powell’s commentary that a pause is forthcoming is welcome news. This is still restrictive monetary policy, but is the first sign that there may be an end to the Fed’s tightening cycle since it began in March of last year. We remain extremely focused on operational excellence, cost containment, and winning every piece of business we can. Walker & Dunlop is known for operational excellence, our margins have been industry-leading since we went public in 2010, and our net promoter score of 95 reflects amazing client satisfaction with our operations and service. Yet we can always do better. Our recent headcount reduction presents career opportunities for our remaining team members, and also the opportunity to use more technology. We put Steve Theobald in the position of Chief Operating Officer to drive efficiencies and coordination across Walker & Dunlop, and his team is doing just that. It is during challenging times like these when everything is questioned, analyzed, and hopefully made better. With regards to cost containment, Greg just explained in detail our cost reduction efforts. Yet we need to be careful not to be penny wise and pound foolish. We continue to invest in our client relationships. We continue to invest in technology. And we continue to invest in our employees, such as not cutting our Wellness program that is 100% focused on employee mental and physical health. Yet we are delaying our All Company meeting from 2023 until 2024, even though we still see the value in pulling people together to share experiences and our common identity as W&Ders. But that is why I have met with our team members in Bethesda, Denver, Atlanta, Los Angeles, and Irvine over the past week, and will continue to travel the country to meet with our team, thank them for all they do for our customers every day, and ensure that the amazing culture that makes W&D so unique only grows during these challenging times. Finally, we are exceedingly focused on winning every piece of business we possibly can. Clearly, our scale with Fannie Mae and Freddie Mac is extremely beneficial to winning business. With a limited number of lenders with access to GSE capital, and there only being one number one, our debt capital markets team led by Don King is taking advantage of our market positioning and winning all we can. Our multifamily property sales business’s volumes were dramatically down in Q1, yet the number of valuations and broker opinions of value that Kris Mikkelsen and his team generated were as busy as any quarter ever. That investment of time and effort should pay dividends when the transaction market resumes. As I mentioned earlier in the call, it is our expectation our debt capital markets group will become more relevant to the market than ever given the pull-back by banks. But finding financing today, particularly for non-multifamily assets such as office and retail, is extremely difficult. Every broker on our debt capital markets team is part of the largest GSE lender in the country, and they are actively selling that execution. Our HUD business continues to struggle from a volume standpoint primarily due to HUD inefficiencies, but we are working closely with HUD to help them deploy more capital and meet borrower’s needs, particularly for multifamily construction loans given the pull-back by banks. I mentioned earlier the pullback in need for appraisals due to lower transaction volumes, as well as the uptick in volume in our small balance lending business due to the bank pullback. Finally, Alliant and

The line is now open for questions. [Operator Instructions] Our first question comes from Jade Rahmani of KBW. Jade?

Thank you very much for taking the questions. I was impressed by the resiliency of credit performance across the bank space. We're seeing increased CECL reserves across the commercial mortgage REIT space, similar trends, as well as a spike in loans on nonaccrual. Yet, W&D, if I read correctly, has just three loans that are in default across $125 billion of servicing. Can you talk to the multifamily credit trends? I know in the past, you've given that service coverage ratio on the Fannie Mae at-risk book. I think that's around two times. What are you expecting in terms of credit? And how's the performance held up?

So, good morning, Jade, and thanks for joining us. As you accurately state, the credit performance has been exceptional. I think it's really important to keep in mind that W&D has not really strayed outside of our core lending business with the agencies as it relates to credit exposure. And as a result of that, all of the loans in the portfolio were underwritten with a 1:5 debt service coverage ratio. Our client base is sort of, if you will, cherry clients as you can possibly find. And that has -- many of our competitors had the opportunity and did dive into lending with debt funds, doing CLOs, holding a lot of bridge exposure on their balance sheet, etc. There were plenty of opportunities for us to jump and do that. We didn't. There have been plenty of opportunities for us to lend and take credit loss on office buildings and retail centers. We made a conscious decision not to do that. And so, while we always, as you know very well, have had fantastic revenue growth, could we have grown revenues and earnings a little bit faster during the pro cyclical times? Of course, but we decided not to. And obviously, today we benefit from that discipline. And I would just say, we locked a $120 million Fannie Mae five-year fixed rate deal yesterday. And it had a 1:5 debt service cover, and it was a whopping 53% loan-to-value loan. That's the discipline that has been implemented by the agencies. And that Walker & Dunlop has been a very active participant in lending in that fashion and that manner. Would that client have liked more than 53% leverage? I'm certain of it. But that's where we go and that's what makes the servicing portfolio so healthy.

As it relates to the debt service coverage ratio on the at-risk portfolio, do you have that number approximately?

Greg mentioned it in passing. We're still pulling together year-end financials, so we don't have an update from our September -- the last number we gave on that was over two times in September. So far, we're through over 50% of our financial analysis, and we're still well over a [Indiscernible] debt service cover. But we don't have it for the entire book.

What are your thoughts around interest rate caps expiring this year? Do you expect that to create a material credit headwind?

It was the topic [Indiscernible] at the beginning of the year, Jade. But, we had a very significant financing that we were working on to take a floating rate loan and turn it into a fixed rate loan, and the borrower went out and priced new three-year caps. And rather than doing the conversion from float to fix, they decided to just buy a three-year cap and move forward. It's a very well--capitalized client who could go and do that. While there are clearly some clients who are feeling the pain of having to fund cap costs at, to their view, exorbitant numbers, given where caps were priced only a year ago, so far, it's not a crisis. There are special servicers who have been willing to talk to clients about making adjustments to the caps and the calculation of caps and the length of caps. There are other special servicers who basically -- or I should say master servicers who have given them the hand. But so far, it has not turned into any kind of a crisis. There are clearly some borrowers who would like some relief there. But I have to say, neither agency seems to be terribly concerned about that issue today.

And just the last question would be on capitalization. And the reason I ask is, in this environment of uncertainty, how are you feeling about the balance sheet liquidity, about leverage, access to financing, and also counterparty risk, if there's any regional bank exposure on that front?

So, look, I think, Jade, we have a very healthy cash position. We're generating liquidity. I think our adjusted EBITDA growth shows that. We're confident in our business model and how we're managing this. We do have some, as I mentioned in my remarks, some assets that are maturing that will add some cash here over the coming quarters. We'll harvest that. I think, no concerns there. Our banks are -- we speak with them routinely. They're large national banks that fund our business. We have no issues there from an overall liquidity perspective. And then, from a regional banking perspective, we've spent a lot of time over the last month, month and a half on that. At this point, all of our cash, the corporate capital that we hold is with large national banks, many of the money centers, where we hold it in a fiduciary capacity. We've tried to limit that exposure to no more than the FDIC-insured amount. So, I don't see any material concerns there. There are obviously some customers that want to hold their cash with smaller banks, and we're just working with them to make sure they're on top of what's going on out there as the sector is changing rapidly. But at this point, there are no concerns on our end.

Thanks for taking the questions.

Yes. Thank you.

Thank you, Jade. Our next call comes from -- I'm sorry, next question comes from Jay McCanless of Wedbush Securities. Jay?

Hey, good morning, everyone. So, my first question, does the low end of the updated guidance assume a steady state from 1Q 2023 in terms of liquidity? Or is the expectation in that low end that it would get worse from here, either from a liquidity standpoint and/or transaction standpoint?

It's essentially, Jay, a pretty steady state from Q1 forward. I think, as Willy mentioned, the GSEs are starting to be a bigger part of the market. But as we finished Q1 and really thought about speaking to you all today, we had to take a hard look at what it would look like if the Q1 conditions persisted. And that's where we tried to share the bottom-end of the range based on that set of conditions.

Thanks. And then my next question if I look at the opportunities that you talked about in the prepared script, you have small balance lending. You also have opportunities on the commercial real estate side, and then the GSE business. I guess right now, what's most actionable, given where liquidity is, in opportunities for Walker & Dunlop to grow business?

So, Jay, first of all, thanks for joining us. Clearly being the largest agency lender in the country, we have real scale there, we have real brand there, and we have the best bankers in the country. Fannie Mae just put out their annual top banker list. And of their top 10 bankers across the entire industry, four of the 10 were Walker & Dunlop bankers. Nobody else had more than one. So, we've got an incredible platform and incredible brand and market share there. And, as Greg just said, fortunately we are seeing the agencies back in the market to a distinct degree from where they were in Q1. So, that's clearly opportunity, number one. And we're blessed to have both the access to and also scale with the agencies that we have. The second is both our debt brokerage businesses, as well as our property brokerage businesses, are trying to win every single deal. And clearly, clients have needs. There are some clients who are selling multifamily to raise capital for other commercial asset exposure. And therefore, we're seeing some sales there on the multifamily side. And as Greg pointed out, our multifamily investment sales volumes were down significantly less than the broader market in Q1. And I'm quite confident that given the strength of our brokers across the country, that we will continue to outperform the overall market and pick up a lot as that market heals. On the debt brokerage side, it's challenging. Half of the capital that we put out in Q1 was bank capital. And as I said in my prepared remarks, banks have pulled back precipitously. But there's also been $70 billion of private capital raised focused on commercial real estate in the last six or 12 months. I was meeting with a large institutional investor yesterday who has had every private debt opportunity on commercial real estate, walked through their office. And it's a huge opportunity for private capital once it gets raised and once we get to, if you will, clearing levels. Many people are waiting for some capitulation as it relates to what is actual -- what is the rate you should be lending at and what are the terms and what's the value of the actual asset. But as Greg alluded to, we've been waiting for the Fed to say, we're going to pause. And while they didn't specifically say they're going to pause yesterday, it's most people's expectation that yesterday was the beginning of them taking a pause next month. That's the type of stability in the market that will get it. So, rates and cap rates can stabilize, and people can transact again. And so, we see a great opportunity once things, if you will, calm down a little bit. And then the SBL side of things, Jay, is super opportunistic, if you will. If you look at the top 15 small balanced lenders in the country, 13 of the 15 are banks. And 11 of the 15 are regional and local banks. JPM and Wells Fargo are the two big ones in there. But all the others, there are a lot of the ones who are in the headlines today as it relates to having real trouble or going away. And so for us being one of the two non-bank lenders in that list, there's a really great opportunity for us to step into that market and pick up market share. And behind all of that is just, making sure that we continue to do what we're doing and then also raising that private capital so that our bankers and brokers have capital at Walker and that they can use to meet our clients' needs.

Great. And then, staying on small balance lending for a second. Willy, I can't remember. Did you give the actual dollar value opportunity things out there maybe with those 15 banks, or with the market in general? What type of dollars are we talking about?

So, we did $1 billion of SBL last year, and we're trying to grow that business to doing $5 billion on an annual basis. And the opportunity is right in front of us. It's never been a wider landscape for us, Jay, to go after, given the pullback by banks. And that space is dominated by banks. And the issue with it is those borrowers don't necessarily go out and go to industry conferences or, know who Walker & Dunlop or CBRE are. They go to their local branch office of either Wells Fargo, JPM, or PacWest and say, hey, I need a small balance loan for the multifamily property that I own. And they get it from their branch office. And so, if they go to a branch office that either is closed or they get we're not lending any more to you, they now are faced with where do I go? And that's the opportunity for us to step in.

And, Jay, I'll just add that I think that the MDA data on that is just around $600 billion of total multifamily debt on bank balance sheets. So, I think that gives you a sense of the total addressable market that we're talking about here.

Okay, $600 billion total multifamily debt.

But that's --

[Indiscernible]

Jay, just to be specific, that's all multifamily loans, not just small loans.

Got it. And then, the last question I have, Willy, when you talked about the $225 billion to $450 billion range of CRE debt on bank balance sheets, could you what's the difference between the high end and the low end there? Could you break that out a little bit more for me?

Yes, no, Jay, was just trying to -- so there are a couple of things there. There's $1.7 trillion of commercial real estate loans sitting on bank balance sheets across the country, $1.7 trillion. What I was basically saying was if banks pull back 5% to 10%, which I think is a low estimate, but just take it as 5% to 10%, that would create the need for that much capital that you just referenced. So, that $250 billion to $0.5 trillion is just that pullback, if you will. The bottom-line is two things, one, you could easily say that the market won't need that much capital because values have come down and therefore the market doesn't need another 5% or 10% because values have come down and therefore you don't need it. So, you have to take it that that number is off of the market as it was at the end of 2022. And obviously, the decrease in values means that there's not that much capital that's needed today. But if the values reflate and the market goes back and banks don't step in, as we don't think they will, that capital has to come from somewhere. And we think that that's a great opportunity for life insurance companies, CMDs, as well as private capital. And the bottom-line is all of those numbers are so huge that for W&D that has an emerging asset management business, we go out and raise $1 billion, $3 billion, $5 billion in debt funds to meet that need. That is a massive opportunity for us that has a very significant financial impact on W&D.

Okay, very helpful. Thank you, Willy.

Thank you.

Thank you, Jay. We now have a follow-up question from Jade Rahmani of KBW.

Thanks. I wanted to ask about competition on the brokerage level in the multifamily space. A lot of brokers in the commercial real estate sector are going to be suffering from a lack of business, and the office issues could be secular in nature. I think CBRE expects it to take twice as long for values to recover in office. So, as those brokers have a lack of business, they may be looking to more resilient sectors like multifamily. Do you expect an increase in competition? And how do you think about W&D's competitive positioning therein?

So, Jade, I guess, first of all, brokers can't really switch asset classes in that way. It's very siloed in the extent that the best multifamily investment sales teams do multifamily, the best industrial investment sales team do industrial, and the best office do office. So, while there are some that play across asset classes, mostly people are focused on one asset class. The second thing I would say is that one of our competitors took on a very significant office sales team last quarter, and I'm not exactly sure what kind of volumes they underwrote to make that investment. But I would only say that I'm happy that we didn't make a big investment on office investment sales at this time in the cycle. And then, the final thing I'd say is Kris Mikkelsen has gone about building the very, very best investment sales team in the country because he got to build it from ground up. We acquired Engler back in 2015, which was a one-office Atlanta-based investment sales team. And we built it from there and built the very best teams in every MSA in the country, other than two, Seattle and Phoenix. And so, to have that kind of a national platform that has been, for all practical purposes, handpicked, I think positions us. It's the reason we grew so fast. We went from less than $1 billion to $20 billion of annual investment sales over a six-year period. And so, I think we're exceedingly well positioned there. And obviously, it's a competitive market. Obviously, we go up against very, very talented and scaled teams with great brands, but we feel very good about where we're positioned there, and also the fact that we're only focused on multifamily.

Great. Thanks very much.

Sure.

At this time, it appears we have no further questions. So, I will turn the call back to Willy for closing remarks.