Q2 2024 Walker & Dunlop Inc Earnings Call

August 8, 2024

please stand byi we are about to begin

Operator: Good day, and welcome to the Q2 2024 Walker & Dunlop Inc. earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kelsey Duffey. Please go ahead, ma'am.

Operator: Good morning, and welcome to the Q2 2024 Walker & Dunlop Inc. Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kelsey Duffey. Please go ahead, ma'am.

kelty deffy: day and welcome to the q two two thousand and twenty four walker and dunlop bank earnings call today's conferen ces being recorded at this time i'd like to turn the conference over to kelty deffy please goaheadm

Kelsey Duffey: Thank you, Lisa. Good morning, everyone.

kelty deffy: thank you lisa good morning everyone thank you for joining walker to up second quarter two thousand andtwentyfour earnings call i have with me this morning our chairman ceeo illie walker and our cfo greg bro kwski this call being webcast live on our website and a recording will beavailable later today

Kelsey Duffey: Thank you for joining Walker & Dunlop's second quarter 2024 earnings call. I have with me this morning our Chairman and CEO, Willie Walker, and our CFO, Greg Florkowski. This call is being webcast live on our website, and a recording will be available later today. Both our earnings press release and our website provide details on accessing the archived webcast. This morning, we posted our earnings release and presentation in the Investor Relations section of our website, www. WalkerDunlop.com.

Kelsey Duffey: Thank you for joining Walker & Dunlop's second quarter 2024 earnings call. I have with me this morning our Chairman and CEO, Willie Walker, and our CFO, Greg Forkowski. This call is being webcast live on our website, and a recording will be available later today. Both our earnings press release and our website provide details on accessing the archived webcast. This morning, we posted our earnings release and presentation in the Investor Relations section of our website, www. WalkerDunlop.com.

Both our earnings press release and website provide details on accessing the archived webcast.

Speaker Change: this morning we posted our earnings release and presentation to the investor relation section of our website w walkerred on lo t com b siides serve in the records point for some ofable williling greg will touch on during the call

Kelsey Duffey: These slides serve as a reference point for some of what Willie 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.

Speaker Change: 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.

Kelsey Duffey: Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are non-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 its forward-looking statements, whether as a result of new information, future events, or otherwise. 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 Willie.

kelty deffy: Investors are urged to carefully read the forward-looking statements language in our earnings release.

kelty deffy: Statements made on this call, which are non-historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker Change: 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. We expressly disclaim any obligation to do so.

kelty deffy: 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 Willie.

Willie Walker: Thank you, Kelsey, and good morning, everyone. We held Walker & Dunlop's annual summer conference in Sun Valley, Idaho, two weeks ago with some of the largest and most active investors in commercial real estate. The sentiment at the conference was that after two years of rising interest rates and limited investment activity, it is time to get active again. Q2 2024 was the first quarter in almost two years with consistent rates and the ability for commercial real estate owners to transact, and with the 10-year treasury falling below 4%, momentum is building in the market.

Willie Walker: Thank you, Kelsey, and good morning, everyone. We held Walker & Dunlop's annual summer conference in Sun Valley, Idaho, two weeks ago with some of the largest and most active investors in commercial real estate. The sentiment at the conference was that after two years of rising interest rates and limited investment activity, it is time to get active again. Q2 2024 was the first quarter in almost two years with consistent rates and the ability for commercial real estate owners to transact. With the 10-year Treasury falling below 4%, momentum is building in the market.

Willie: thank you kelsey and good morning everyone

Willie: We held Walker & Dunlop's annual summer conference in Sun Valley, Idaho two weeks ago with some of the largest and most active investors in commercial real estate. The sentiment at the conference was that after two years of rising interest rates and limited investment activity, it is time to get active again.

Speaker Change: q two two thousand and twenty-four was the first quarter in almost two years with consistent rates and the ability for commercial real estate owners to chan duact

Willie Walker: WND is very well positioned to benefit from the recovery of the commercial real estate transactions market and new growth cycles. As shown on slide 3, Q2 transaction volume was highlighted by debt brokerage of $3.9 billion, up 16% year-over-year. This growth is reflective of our talented capital markets team, finding a diverse and deep market of capital for our clients in need. Financing volumes for the GSEs were down 23% year-over-year to $2.7 billion.

Willie Walker: WND is very well positioned to benefit from the recovery of the commercial real estate transactions market and new growth cycles. As shown on slide 3, Q2 transaction volume was highlighted by debt brokerage of $3.9 billion, up 16% year-over-year. This growth is reflective of our talented capital markets team finding a diverse and deep market of capital for our clients' borrowing needs. Financing volumes for the GSEs were down 23% year-over-year to $2.7 billion

Speaker Change: And with the 10-year Treasury falling below 4%, momentum is building in the market. W&D is very well positioned to benefit from the recovery of the commercial real estate transactions market and new growth cycle.

Speaker Change: ' shown on slide three q two transaction volume was highlighted by debt kerage of three point nine billion dollars up sixteen percent year-over-year this growth is reflective of our talented capital markets team finding a diverse and deep market of capital for our clients bor ing needs

Speaker Change: Financing volumes for the GSEs were down 23% year-over-year to $2.7 billion.

Willie Walker: The GSEs have been sluggish in their lending over the past 18 months, but we are seeing them lean in on deals over the past month and expect higher volumes from them in the second half of 2024. Investment sales volume of $1.5 billion is a good start to the market recovery, up 31% from Q1 of this year. I'd like to make sure we understand both where the market is and what the W&D W&D team can do. We did $7.9 billion of multifamily investment sales in Q2 of 2022 versus $1.5 billion this past quarter. The market has a long way to recover, and our team has tremendous capacity.

Willie Walker: The GSEs have been sluggish in their lending over the past 18 months, but we are seeing them lean in on deals over the past month and expect higher volumes from them in the second half of 2024. Investment sales volume of $1.5 billion is a good start to the market recovery, up 31% from Q1 of this year. But let's make sure we understand both where the market is and what the WND team can do. We did $7.9 billion in multifamily investment sales in Q2 of 2022 versus $1.5 billion this past quarter. The market has a long way to recover, and our team has tremendous capacity.

Speaker Change: The GSEs have been sluggish in their lending over the past 18 months, but we are seeing them lean in on deals over the past month and expect higher volumes from them in the second half of 2024.

Speaker Change: Investment sales volume of $1.5 billion is a good start to the market recovery, up 31% from Q1 of this year.

Speaker Change: But let's make sure we understand both where the market was and what the WND team can do. We did $7.9 billion of multifamily investment sales in Q2 of 2022 versus $1.5 billion this past quarter.

Speaker Change: The market has a long way to recover, and our team has tremendous capacity. Our investment sales pipeline continues to grow, and it is very evident that with lower rates and the need for CRE owners to return capital to investors and deploy new capital, transaction volumes are growing nicely.

Willie Walker: Our investment sales pipeline continues to grow, and it is very evident that with lower rates and the need for CRE owners to return capital to investors and deploy new capital, transaction volumes are growing nicely. Our investment sales market presence and team is extremely strong, and as property sales volumes pick up, it will benefit investment sales, debt placement, valuation services, investment banking, and our affordable housing business. Apprise, our technology-enabled evaluation business, saw volumes grow 26% year-over-year as property sales returned to the market.

Willie Walker: Our investment sales pipeline continues to grow, and it is very evident that with lower rates and the need for CRE owners to return capital to investors and deploy new capital, transaction volumes are growing nicely. Our investment sales market presence and team is extremely strong, and as property sales volumes pick up, it will benefit investment sales, debt placement, valuation services, investment banking, and our affordable housing business. Apprise, our technology-enabled evaluation business. Stock volumes grew 26% year-over-year as property sales returned to the market.

Speaker Change: Our investment sales market presence and team is extremely strong, and as property sales volumes pick up, it will benefit investment sales, debt placement, valuation services, investment banking, and our affordable housing business.

Speaker Change: Apprise, our technology-enabled evaluation business.

Speaker Change: stock volumes grow twenty-six percent year-over-year as this property sales return to the market walker nknown law affordable equity closed on its newest fund of one hundred sixty three million dollars at the start of q two and a see demand from both investors and developers of affordable housing

Willie Walker: Walker & Dunlop Affordable Equity closed on its newest fund of $163 million at the start of Q2 and achieved demand from both investors and developers of affordable housing. Capital raising and deployment are the day-to-day drivers of this business, as is investment realization when assets exit their rent restriction period. W&B affordable equity has not sold many assets over the past two years.

Speaker Change: Capital raising and deployment are the day-to-day drivers of this business.

Speaker Change: as is investment realization when assets exit their rent restriction period. W&D Affordable Equity has not sold many assets over the past two years, but as the market heals, we will see a pickup in sales and realized gains.

Willie Walker: But as the market heals, we will see a pickup in sales and realize gains. Our small balance lending business has maintained market share with Fannie and Freddie, and we are focused on using our technology to enhance and market a product that will allow us to take market share from a regional bank. This business has significant opportunity to grow as transaction activity resumes. HUD financing, part of our affordable housing group, grew volumes 26% year-over-year, and while HUD volumes are relatively small in comparison to our other debt businesses, HUD loans are a fantastic financing option for our customers and generate great Mortgage Servicing Rights.

Willie Walker: But as the market heals, we will see a pickup in sales and realize gains. Our small balance lending business has maintained market share with Fannie and Freddie, and we are focused on using our technology to enhance and market a product that will allow us to take market share from a regional bank. This business has significant opportunity to grow as transaction activity resumes. HUD financing, part of our affordable housing group, grew volumes 26% year over year, and while HUD volumes are relatively small in comparison to our other debt businesses, HUD loans are a fantastic financing option for our customers and generate great Mortgage Servicing Rights.

Speaker Change: Our small balance lending business has maintained market share with Fannie and Freddie, and we are focused on using our technology to enhance and market a product that will allow us to take market share from our regional banks. This business has significant opportunity to grow as transaction activity resumes.

Speaker Change: HUD financing, part of our affordable housing group, grew volumes 26% year-over-year. And while HUD volumes are relatively small in comparison to our other debt businesses, HUD loans are a fantastic financing option for our customers and generate great mortgage servicing rights.

Willie Walker: Finally, Zelman Research and Investment Banking revenues were down slightly on the quarter but will grow as the market recovers and transaction volumes accelerate. Total Q2 transaction volume of $8.4 billion, coupled with the consistent and growing servicing income generated by our $133 billion loan servicing portfolio, generated Q2 Delaney earnings per share of $0.67, down 18% year over year, mostly due to lower GSE volumes and the commensurate non-cash mortgage servicing rights. Adjusted Core EPS, however, which strips out non-cash revenue and expenses, grew 26% to $1.23, while Adjusted EBITDA grew 15% to $81 million for the quarter.

Willie Walker: Finally, Zelman Research and Investment Banking revenues were down slightly on the quarter but will grow as the market recovers and transaction volumes accelerate. Total Q2 transaction volume of $8.4 billion, coupled with the consistent and growing servicing income generated by our $133 billion loan servicing portfolio, generated Q2 Delaney earnings per share of $0.67, down 18% year-over-year, mostly due to lower GSE volumes and the commensurate non-cash mortgage servicing rights Adjusted Core EPS, however, which strips out non-cash revenue and expenses, grew 26% to $1.23, while Adjusted EBITDA grew 15% to $81 million for the quarter.

Speaker Change: finally zman research and investment banking revenues were down slightly on the quarter that will grow as the market recovers and transaction volumes accelerate

Speaker Change: total q two transaction volume of eight point four billion dollars coupled with the consistent and growing servicing income generated by one hundred thirty-three billion dollars loan servicing portfolio

Speaker Change: generated Q2 Delaney earnings per share of 67 cents down 18% year-over-year mostly due to lower GSE volumes and the commensurate non-cash mortgage servicing rights

Speaker Change: adjusted core eps however which strips out noncash revenue and expenses grew twenty-six percent to a dollar in twenty-three cents while adjusted ebitda grep fifteen percent to eighty-one million dollars on the quarter

Greg Florkowski: Adding weather to the brunt of the great tightening and beginning to see transaction volumes return. These financial results are very strong and reflective of our teamwork, excellent business model, recurring revenue streams, and ability to invest in our people, brand, and technology during the past two years of market volatility. As we look forward to a market recovery in transaction volumes, we will continue to invest in our business by adding bankers and brokers who focus on meeting not only the needs of the owners of traditional assets, where people live, work, shop, and play, but also new economy assets, where people work, where they sleep, Play Without Moving Their Bodies, Travel Without Staying in a Hotel, and Where the Housing of Data and Digits is Increasingly Important for the Future of Our Society and Our World.

Willie Walker: Adding weather to the brunt of the great tightening and beginning to see transaction volumes return. These financial results are very strong and reflective of our teamwork, excellent business model, recurring revenue streams, and ability to invest in our people, brand, and technology during the past two years of market volatility. As we look forward to a market recovery in transaction volumes, we will continue to invest in our business by adding bankers and brokers who focus on meeting not only the needs of the owners of traditional assets, where people live, work, shop, and play, but also new economy assets, where people work, and where they sleep. Play Without Moving Their Bodies, Travel Without Staying in a Hotel, and Where the Housing of Data and Digits is Increasingly Important for the Future of Our Society and Our World.

Speaker Change: Adding weather to the brunt of the great tightening, and beginning to see transaction volumes return.

Speaker Change: These financial results are very strong and reflective of our teamwork, excellent business model, recurring revenue streams, and ability to invest in our people, brand, and technology during the past two years of market volatility.

Speaker Change: As we look forward to a market recovery and transaction volumes.

Speaker Change: we will continue to invest in our business by adding bankers and brokers who focus on meeting not only the needs of the owners of traditional assets

Speaker Change: where people live, work, shop, and play.

Speaker Change: but also new economy assets

Speaker Change: where people work where they sleep, play without moving their bodies, travel without staying in a hotel, and where the housing of data and digits is increasingly important for the future of our society and our world.

Greg Florkowski: As Greg will discuss in a moment, WND's credit portfolio remains extremely strong. Our discipline of taking credit risk only on multifamily properties continues to pay dividends as other asset classes incur losses. And while our portfolio is neither perfect nor without losses, given we were the largest lender on multifamily properties in the United States in 2020 and the seventh largest provider of capital to commercial real estate in 2023, as shown on this slide, our credit discipline and minimal losses are truly outstanding.

Greg Forkowski: As Greg will discuss in a moment, W&D's credit portfolio remains extremely strong. Our discipline of taking credit risk only on multifamily properties continues to pay dividends as other asset classes incur losses. And while our portfolio is neither perfect nor without losses, given we were the largest lender on multifamily properties in the United States in 2020 and the seventh largest provider of capital to commercial real estate in 2023, as shown on this slide, our credit discipline and minimal losses are truly outstanding.

Speaker Change: As Greg will discuss in a moment, WND's credit portfolio remains extremely strong. Our discipline of taking credit risk only on multifamily properties continues to pay dividends as other asset classes incur losses.

Greg: And while our portfolio is neither perfect nor without losses.

Greg: Given we were the largest lender on multifamily properties in the United States in 2020, and the 7th largest provider of capital to commercial real estate in 2023, as shown on this slide, our credit discipline and minimal losses are truly outstanding.

Greg Florkowski: While I'm focused on credit, I'd like to thank our Chief Credit Officer, David Levy, for his magnificent career and 12 years of exceptional work at Walker & Dunlop. David has earned his retirement in many, many ways, and we wish him much happiness going forward. I will turn the call over to Greg to discuss our financial and credit performance in greater detail and then return with some thoughts about what we see ahead and back after the year.

Greg Forkowski: While I'm focused on credit, I'd like to thank our Chief Credit Officer, David Levy, for his magnificent career and 12 years of exceptional work at Walker & Dunlop. David has earned his retirement in many, many ways, and we wish him much happiness going forward. I will turn the call over to Greg to discuss our financial and credit performance in greater detail and then return with some thoughts about what we see ahead and back after the year.

Speaker Change: While I'm focused on credit, I'd like to thank our Chief Credit Officer, David Levy, for his magnificent career and 12 years of exceptional work at Walker & Dunlop. David has earned his retirement in many, many ways, and we wish him much happiness going forward.

Speaker Change: i will turn the call over to greg to discuss our financial and credit performance in greater detail and then return with some thoughts about what we see ahead in back half of the year greg

Greg Forkowski: Thank you, Willie, and good morning, everyone. On our last call, we spoke about interest rates stabilizing heading into this quarter as the market adjusted to higher for longer. An improvement in the supply of capital and transaction activity for non-multi-family assets and the fact that our pipeline was building nicely. Our results reflect the market we described, and we delivered $8.4 billion of transaction activity this quarter, generating 15% growth in adjusted EBITDA year-over-year to $81 million and 26% growth in adjusted core EPS to $1.23 per share. Our diluted EPS decreased 18% to $0.67 per share compared to the same quarter last year, and our operating margin and return on equity remain below historical levels of 10% and 5%, respectively.

Greg Florkowski: Thank you, Willie, and good morning, everyone. On our last call, we spoke about interest rates stabilizing heading into this quarter as the market adjusted to higher for longer. An improvement in the supply of capital and transaction activity for non-multifamily assets and the fact that our pipeline was building nicely. Our results reflect the market we described, and we delivered $8.4 billion of transaction activity this quarter, generating 15% growth in adjusted EBITDA year-over-year to $81 million and 26% growth in adjusted core EPS to $1.23 per share. Our diluted EPS decreased 18% to $0.67 per share compared to the same quarter last year, and our operating margin and return on equity remain below historical levels of 10% and 5%, respectively.

Greg: Thank you, Willie, and good morning, everyone. On our last call, we spoke about interest rates stabilizing heading into this quarter as the market adjusted to higher for longer, an improvement in the supply of capital and transaction activity for non-multifamily assets, and the fact that our pipeline was building nicely.

Speaker Change: Our results reflect the market we described, and we delivered $8.4 billion of transaction activity this quarter, generating 15% growth in adjusted EBITDA year-over-year to $81 million, and 26% growth in adjusted core EPS to $1.23 per share.

Speaker Change: our liilued ps decreaseed eighteen percent to sixty-seven cents per share compared to the same quarter last year and our operatingmargin and return on equity remain below historical levels of ten percent and five percent respectively

Greg Forkowski: The last two years of the Great Tightening have been difficult, but our ability to routinely deliver strong results is reflected not only in the quality of our team but also the durable recurring revenue streams we've built leading into this cycle that will provide the foundation of our future results as transaction activity recovers from here. Turning to our segment results, transaction activity for our capital markets segment rebounded from a slow first quarter, growing 32% from Q1, but coming in flat to the same quarter last year. Total revenues for the segment were $118 million, down 6% year-over-year.

Greg Florkowski: The last two years of the great tightening have been difficult, but our ability to routinely deliver strong results is reflected not only in the quality of our team but also the durable recurring revenue streams we built leading into this cycle that will provide the foundation of our future results as transaction activity recovers from here. Turning to our segment results, transaction activity for our capital market segment rebounded from a slow first quarter, growing 32% from Q1, but coming in flat to the same quarter last year. Total revenues for the segment were $118 million, down 6% year-over-year.

Speaker Change: the last two years of the great tiening have been difficult but our ability to routinely deliver strong results is reflected not only on the quality of our team but also the durable recurring revenue streams we've built leading into this cycle that will provide the foundation of our future results as transaction activity recovers from year

Speaker Change: turning to our segment results transactionactivity for our capital market segment rebounded from a slow first quarter growing thirty-two percent from q one but coming in flat to the same quarter last year

Speaker Change: Total revenues for the segment were $118 million, down 6% year-over-year. We have said repeatedly that our expectation is that GSEs will not meaningfully surpass their 2023 lending volume this year, but Fannie Mae's lending activity slowed during the second quarter, leading to the decline in revenues.

Greg Forkowski: We have said repeatedly that our expectation is the GSEs will not meaningfully surpass their 2023 lending volume this year, but Fannie Mae's lending activity slowed during the second quarter, leading to the decline in revenue. Yet, there is still plenty of capital willing to lend on both multifamily and non-multifamily assets, and our broker transaction activity remains robust, growing 16% over the same quarter last year. Overall, net income for this segment declined $5 million, or 31%, due to lower non-cash MSR revenue, while Adjusted EBITDA improved 17% to a loss of $8 million due to the strength of our overall transaction activity.

Greg Florkowski: We have said repeatedly that our expectation is the GSEs will not meaningfully surpass their 2023 lending volume this year, but Fannie Mae's lending activity slowed during the second quarter, leading to the decline in revenue. Yet, there is still plenty of capital willing to lend on both multifamily and non-multifamily assets, and our broker transaction activity remains robust, growing 16% over the same quarter last year. Overall, net income for this segment declined $5 million, or 31%, due to lower non-cash MSR revenue.

Speaker Change: Yet, there is still plenty of capital willing to lend on both multifamily and non-multifamily assets, and our broker transaction activity remains robust, growing 16% over the same quarter last year.

Speaker Change: overall net income for the segment declined five million dollars or thirty-one percent due to lower noncash m revenues while adjusted ebitda improve seventeen percent to a loss of eight million dollars due to the strength of our overall transaction activity

Greg Florkowski: While Adjusted EBITDA improved 17%... to a loss of $8 million due to the strength of our overall transaction activity. The positive signs of stable to lower interest rates, improving supply of capital, and increased activity from operators are continuing into the third quarter, and we feel very good about the opportunity ahead given the strength of our capital markets team. Our servicing and asset management segment, or SAM, continues to thrive, generating durable, recurring cash revenues from our servicing portfolio, which totaled $133 billion at quarter end.

Greg Forkowski: The positive signs of stable to lower interest rates, improving supply of capital, and increased activity from operators are continuing into the third quarter, and we feel very good about the opportunity ahead given the strength of our capital markets team. Our servicing and asset management segment, or SAM, continues to thrive, generating durable, recurring cash revenues from our servicing portfolio, which totaled $133 billion at quarter end. Our SAM segment also benefits from the strength of W&D Affordable Equity, which closed a $163 million multi-investor fund during the second quarter and now manages over $15 billion of affordable assets; and W&D Investment Partners, which recently closed a $370 million debt fund and now manages over $3 billion of assets and equity.

Speaker Change: the positive signs of stable to lower interest rates improving supply of capital and increased activity from operators are continuing into the third quarter and we feel very good about the opportunity ahead given the strength of ourcapital markets team

Greg Florkowski: Our SAM segment also benefits from the strength of W&D Affordable Equity, which closed a $163 million multi-investor fund during the second quarter and now manages over $15 billion of affordable assets. Our total managed portfolio grew 5% year over year to a total of $150 billion on June 30, 2024, driving the 4% increase in SAM segment revenues to $148 million. Net income for this segment grew 13% year over year, reflecting revenue growth and the benefit of our cost management efforts over the past 12 months.

Speaker Change: our servicing an asset management segment or sam continues to thatve generating durable recurring cash revenues from our servicing portfolio which total one hundred and thirty three billion dollars a quarter end

Speaker Change: Our SAM segment also benefits from the strength of W&D Affordable Equity, which closed a $163 million multi-investor fund during the second quarter and now manages over $15 billion of affordable assets.

Speaker Change: and W&D Investment Partners, which recently closed a $370 million debt fund and now manages over $3 billion of assets and equity.

Greg Forkowski: Our total managed portfolio grew 5% year-over-year to a total of $150 billion on June 30, 2024, driving the 4% increase in SAM segment revenues to $148 million. Net income for this segment grew 13% year over year, reflecting the revenue growth and benefit of our cost management efforts over the past 12 months. Finally, adjusted EBITDA for this segment continues to grow, ending the quarter at $125 million, up 15% from Q2 2023. The SAM segment also includes the impacts of our credit risk portfolio. During the quarter, we recorded a $3 million provision for credit losses.

Speaker Change: Our total managed portfolio grew 5% year-over-year, to a total of $150 billion at June 30, 2024, driving the 4% increase in SAM segment revenues to $148 million.

Speaker Change: net income for the segment grew thirteen percent year-over-year reflecting the revenue growth and benefit of our cost management efforts over the past twelve months

Greg Florkowski: Finally, adjusted EBITDA for this segment continues to grow, ending the quarter at $125 million, up 15% from Q2 2023. The SAM segment also includes the impacts of our credit risk portfolio. During the quarter, we recorded a $3 million provision for credit losses.

Speaker Change: Finally, adjusted EBITDA for this segment continues to grow, ending the quarter at $125 million, up 15% from Q2 2023.

Speaker Change: The SAM segment also includes the impacts of our credit risk portfolio. During the quarter, we recorded a $3 million provision for credit losses.

Greg Forkowski: Last quarter, I provided a detailed update on three loans totaling $62 million where we either indemnified or repaid the loans from the GSEs. During the quarter, we foreclosed on two of those assets and performed thorough reviews of the property condition and asset performance as we prepared to market them for sale. In the process of that review, we increased our loss reserve on the portfolio of loans by $3 million, representing the majority of our provision for credit losses this quarter and bringing the total reserve for these three loans to $5 million. Importantly, we have not received any additional repurchase notifications beyond these three assets.

Greg Florkowski: Last quarter, I provided a detailed update on three loans totaling $62 million where we either indemnified or repaid the loans from the GSEs. During the quarter, we foreclosed on two of those assets and performed thorough reviews of the property condition and asset performance as we prepared to market them for sale. In the process of that review, we increased our loss reserve on the portfolio of loans by $3 million, representing the majority of our provision for credit losses this quarter and bringing the total reserve for these three loans to $5 million. Importantly, we have not received any additional repurchase notifications beyond these three assets.

Speaker Change: Last quarter, I provided a detailed update on three loans, totaling $62 million, where we either indemnified or repurchased the loan from the GSEs.

Speaker Change: during the quarter we' foreclosed on two of those assets and perform thorough views of the property condition and asset performance as we prepare to market them for sale

Speaker Change: In the process of that review, we increased our loss reserve on the portfolio of loans by $3 million, representing the majority of our provision for credit losses this quarter, and bringing the total reserve for these three loans to $5 million.

Speaker Change: Importantly, we have not received any additional repurchase notifications beyond these three assets.

Greg Forkowski: Turning to our at-risk portfolio, we completed our analysis of year-end financial statements during the quarter, and the weighted average debt service coverage ratio remains over two times times the amount of debt at December 31, 2023, which speaks to the overall health of our portfolio and the quality of our underwriting. In addition, the macro backdrop for multifamily remains favorable in the long term, and we have only $1.9 billion of loans in our at-risk portfolio maturing in the next 12 months.

Greg Florkowski: Turning to our at-risk portfolio, we completed our analysis of year-end financial statements during the quarter, and the weighted average debt service coverage ratio remains over two times times the amount of debt at December 31, 2023, which speaks to the overall health of our portfolio and the quality of our underwriting. In addition, the macro backdrop for multifamily remains favorable in the long term, and we have only $1.9 billion of loans in our at-risk portfolio maturing in the next 12 months.

Speaker Change: Turning to our at-risk portfolio, we completed our analysis of year-end financial statements during the quarter, and the weighted average debt service coverage ratio remains over two times at December 31, 2023, which speaks to the overall health of our portfolio and the quality of our underwriting.

Speaker Change: Further, the macro backdrop for multifamily remains favorable in the long term, and we have only $1.9 billion of loans in our at-risk portfolio maturing in the next 12 months, meaning the vast majority of our customers have time for supply dynamics and interest rates to adjust before there is any maturity pressure.

Greg Forkowski: Meaning the vast majority of our customers have time for supply dynamics and interest rates to adjust before there is any maturity pressure. We have a $60 billion at-risk portfolio with over 3,000 loans, and only five of those loans were defaulted at the end of the quarter, a decrease from six loans at the end of the first quarter.

Greg Florkowski: Meaning the vast majority of our customers have time for supply dynamics and interest rates to adjust before there is any maturity pressure. We have a $60 billion at-risk portfolio with over 3,000 loans, and only five of those loans were defaulted at the end of the quarter, a decrease from six loans at the end of the first quarter.

Speaker Change: We have a $60 billion at-risk portfolio with over 3,000 loans, and only five of those loans are defaulted at the end of the quarter, a decrease from six loans at the end of the first quarter.

Greg Forkowski: We remain focused on credit risk in our portfolio and continue to feel good about how our clients are positioned and the risk we took leading into the Great Tightness. Although this cycle is not over, our credit quality is strong. Looking at our consolidator results for the first half of the year, total transaction volumes are down 2%, but the stability of earnings from our SAM segment helped offset the slowdown in transaction volumes. The looted earnings per share was $1.02, down 37% from the first half of 2023, while year-to-date adjusted EBITDA and adjusted core EPS were both up 12% to $155 million and $2.39 per share.

Greg Florkowski: We remain focused on credit risk in our portfolio and continue to feel good about how our clients are positioned and the risk we took leading into the Great Titan. Although this cycle is not over, our credit quality is strong. Looking at our consolidated results for the first half of the year, total transaction volumes are down 2%, but the stability of earnings from our SAM segment helped offset the slowdown in transaction volumes. The diluted earnings per share was $1.02, down 37% from the first half of 2023, while year-to-date adjusted EBITDA and adjusted core EPS were both up 12% to $155 million and $2.39 per share.

Speaker Change: We remain focused on credit risk in our portfolio and continue to feel good about how our clients are positioned and the risk we took leading into the Great Tightening. Although this cycle is not over, our credit quality is strong.

Speaker Change: Looking at our consolidated results for the first half of the year, total transaction volumes are down 2%, but the stability of earnings from our SAM segment helped offset the slowdown in transactions.

Speaker Change: The looted earnings per share was $1.02, down 37% from the first half of 2023, while year-to-date adjusted EBITDA and adjusted core EPS were both up 12% to $155 million and $2.39 per share.

Greg Forkowski: At the start of the year, we provided guidance that our diluted earnings per share, adjusted EBITDA, and adjusted core EPS would increase in the mid-single digits to the low teens this year. Two quarters in, we feel very good about our outlook for Adjusted EBITDA and Adjusted Core EPS. To hit our diluted EPS target, we expected the GSEs to deliver $100 billion of capital to the multifamily market. Activity is picking up across our business, and we believe there will be sufficient demand for GSE capital in the back half of the year for them to close the gap to achieve $100 billion of volume.

Speaker Change: At the start of the year, we provided guidance that our Diluted Earnings Per Share, Adjusted EBITDA, and Adjusted Core EPS would increase in the mid-single digits to low teens this year. Two quarters in, we feel very good about our outlook for Adjusted EBITDA and Adjusted Core EPS.

Unknown Attendee: Good day and welcome to the Q2 2024 Walker & Dunlop Inc, earnings call. Today's conference is being recorded.

Speaker Change: To hit our diluted EPS target, we expected the GSEs to deliver $100 billion of capital to the multifamily market.

Kelsey Duffey: At this time I'd like to turn the conference over to Kelsey Duffey. Please go ahead, ma'am. Thank you, Lisa. Good morning, everyone. Thank you for joining Walker & Dunlop's second quarter 2024 earnings call. I have with me this morning our chairman and CEO, Willie Walker and our CFO Greg Borkowski. This call is being broadcast live on our website and a recording will be available later today. Both our earnings press release and website provide details on accessing the archive webcast.

Speaker Change: Activity is picking up across our business, and we believe there will be sufficient demand for GSE capital in the back half of the year for them to close the gap to achieve $100 billion of volume. And that would provide a significant boost to MSR revenues and earnings during the second half of the year.

Greg Forkowski: And that would provide a significant boost to MSR revenues and earnings during the second half of the year. We are also looking to our other business lines to drive the earnings we are expecting in 2024. With our second half pipelines building nicely, we are maintaining the diluted DPS guidance we gave at the beginning of the year. Turning to our balance sheet, there's been a strong market for high-quality corporate issuers thus far in 2024, and during the second quarter, a window opened for us to reprice the $200 million tranche of our term loan B and reduce the spread over SOFR from 300 basis points to 225 basis points.

Greg Florkowski: And that would provide a significant boost to MSR revenues and earnings during the second half of the year. Turning to our balance sheet, there's been a strong market for high-quality corporate issuers thus far in 2024, and during the second quarter, a window opened for us to reprice the $200 million tranche of our Term Loan B and reduce the spread over SOFR from 300 basis points to 225 basis points. The resiliency of our business and the strength of our adjusted EBITDA positioned us well to take advantage of that repricing window with our lender group.

Speaker Change: we are also looking to our other business lines drive the earnings we are expecting in two thousand and twenty four with our second half pipelines building nicely we are maintaining the diluted dps guidance we gave at the beginning of the year

Kelsey Duffey: This morning we posted our earnings release and presentation to the investor relations section of our website, www.walkardunlop.com. These sides serve as a reference point for some of what Willie and Greg will touch on during the call. Please also note that we will reference to non-gap 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-gap financial metrics.

Speaker Change: turning to our balance sheet there's been a strong market for high quitycorporate suers thus far in two thousandandtwenty four and during the second quarter a window openened for us to reprice the two hundred million dollars trons of our term lumby and reduce the spread over soofaur from three hundred basis points to two hundred and twenty five basis points

Greg Forkowski: Lowering our cost of borrowing by $1.5 million annually. The resiliency of our business and the strength of our adjusted EBITDA positioned us well to take advantage of that repricing window with our lender group. The continued strength of our cash generation also allowed us to end the quarter with $208 million of cash, and our board of directors approved a quarterly dividend of $0.65 per share, payable to shareholders of record as of August 22.

Speaker Change: Lowering our cost of borrowing by $1.5 million annually.

Kelsey Duffey: Investors are urged to carefully read the four-looking statements language in our earnings release. Statements made on this call, which are non-storical facts, may be deemed four-looking statements within the meeting of the private security litigation reform act of 1995. Four-looking statements describe our current expectations and actual results may differ materially. Walker and Dunlop are under no obligation to update or alter our four-looking statements, whether as a result of new information, future events or otherwise. 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.

Speaker Change: The resiliency of our business and the strength of our adjusted EBITDA positioned us well to take advantage of that repricing window with our lender group.

Speaker Change: the continued strength of our cash generation also allowed to end the quarter with two hundred eight mill dollars of cash and our voard directors approved the quarterly dividend of sixty five cents per share yesterday payable to shareholders of record as of august twenty- second

Greg Forkowski: Our results demonstrate the resiliency of our platform and the strength of our team. The macro backdrop continues to strengthen as the path for exiting the rate tightening is coming into focus, with lower interest rates and an increasing supply of capital to the commercial real estate sector. We are optimistic about the opportunities to capture deal flow and grow as the commercial real estate market recovers from the last two years of restricted interest rates. Thank you for your time this morning. I'll now turn the call back over to Willie.

Greg Florkowski: Our results demonstrate the resiliency of our platform and the strength of our team. The macro backdrop continues to strengthen as the path for exiting the rate tightening is coming into focus. We are optimistic about the opportunities to capture deal flow and grow as the commercial real estate market recovers from the last two years of restricted interest rates.

Speaker Change: Our results demonstrate the resiliency of our platform and the strength of our team. The macro backdrop continues to strengthen as the path for exiting the rate tightening is coming into focus.

Speaker Change: with lower interest rates and an increasing supply of capital to the commercial real estate sector.

William Walker: I will now turn the call over to Willie. Thank you, Kelsey.

Speaker Change: We are optimistic about the opportunities to capture deal flow and grow as the commercial real estate market recovers from the last two years of restricted interest rates.

William Walker: Good morning, everyone. We held Walker and Dunlop's annual summer conference in Somalia, Idaho two weeks ago with some of the largest and most active investors in commercial real estate. The sentiment at the conference was that after two years of rising interest rates and limited investment activity, it is time to get active again. Q2, 2024 was the first quarter in almost two years with consistent rates and the ability for commercial real estate owners to charm that.

Speaker Change: Thank you for your time this morning. I'll now turn the call back over to Willie.

Willie Walker: As Greg just underscored, Unknown Attendee, Kyle Joseph, Jason Blum, Rob Finlay, Aaron Appel, Kris Mikkelsen, The conventional thinking is that those platforms, with scaled workforce solutions and asset management platforms, would endure a downturn better than W&D due to their long-term, low-margin facilities management and outsourcing contracts. Not so, and that is due to the strength of WND's servicing and asset management businesses. And what is really exciting is that as we enter this next cycle, WND's capital markets focus will benefit disproportionately from increased transaction volumes in financing, property sales, appraisals, research, and investment banking.

Willie Walker: As Greg just underlined, the Servicing and Asset Management businesses, along with cash origination fees from debt financing and property sales, allowed us to generate strong year-over-year growth in adjusted EBITDA and adjusted CORE-EPS. One of the analysts who covers W&D recently did an analysis of peak earnings in 2022 to trough earnings in 2023 for W&D and several of our largest competitors, which the data shows. Unknown Attendee, Kyle Joseph, Jason Blum, Rob Finlay, Aaron Appel, Kris Mikkelsen, The conventional thinking is that those platforms, with scaled workforce solutions and asset management platforms, would endure a downturn better than W&D due Not so.

Willie: Thank you, Gregg, as Gregg just underscored.

Willie: and asset management businesses along with cash origination fees from debt financing and property sales.

Speaker Change: allowed us to generate strong year-over-year growth in adjusted ebitda an adjusted correy ps

William Walker: And with the 10-year treasury falling below 4%, momentum is building in the market. W&D is very well positioned to benefit from the recovery of the commercial real estate transactions market and new growth cycle. I shown on slide three Q2 transaction volume was highlighted by debt brokerage of $3.9 billion, up to 16% year over year. This growth is reflective of our talented capital markets team, finding a diverse and deep market of capital for our clients, borrowing needs.

Speaker Change: One of the analysts who covers WND recently did an analysis of peak earnings in 2022 to trough earnings in 2023 for WND and several of our largest competitors.

Willie: But the data shows...

Speaker Change: eventually contrary to many investors perceptions is the w d s adjusted ebit da was down dramatically less than the competition at just eight eight percent versus an average ofat thirty six percent per cba j l and new mark

William Walker: But dancing volumes with the GSEs were down 23% year over year to $2.7 billion. The GSEs had been sluggish in their lending over the past 18 months, but we are seeing them leaning on deals over the past month and expect higher volumes from them in the second half of 2024. Investment sales volume of $1.5 billion is a good start to the market recovery, up 31% from Q1 of this year. But I'd like to make sure we understand both where the market was and what the W&D team can do.

Speaker Change: The conventional thinking is that those platforms, with scaled workforce solutions and asset management platforms, would endure a downturn better than W&D due to long-term, low-margin facilities management and outsourcing contracts. Not so.

Willie Walker: And that is due to the strength of WND's servicing and asset management businesses. And what is really exciting is that as we enter this next cycle, WND's capital markets focus will benefit disproportionately from increased transaction volumes in financing, property sales, appraisals, research, and investment banking. As WND investors know, originating loans with mortgage servicing rights is a large and important component of WND's revenues and GAAP EPS. However, over the past two years, we have endured something of a perfect storm with regard to MSRs due to reduced GSE lending volumes, reduced servicing fees, and reduced loan duration. Going forward, we believe all three of these components should improve significantly.

Speaker Change: And that is due to the strength of WND's servicing and asset management businesses. And what is really exciting is that as we enter this next cycle, WND's capital markets focus will benefit disproportionately from increased transaction volumes in financing, property sales, appraisals, research, and investment banking.

Willie Walker: As WNDA investors know, originating loans with mortgage servicing rights is a large and important component of WNDA's revenues and GAAP EPS. Over the past two years, we have endured something of a perfect storm with regard to MSRs due to reduced GSC lending volumes, reduced servicing fees, and reduced loan duration. Going forward, we believe all three of these components should improve significantly.

William Walker: We did $7.9 billion of multifamily investment sales in Q2 of 2022 versus $1.5 billion this past quarter. The market has a long way to recover when our team has tremendous capacity. Our investment sales pipeline continues to grow and it is very evident that with lower rates and the need for CRE owners to return capital to investors and deploy new capital, transaction volumes are growing nicely. Our investment sales market presence and team is extremely strong and as property sales volumes pick up, it will benefit investment sales, debt placement, valuation services, investment banking and our affordable housing business.

Speaker Change: as d investors no originating loans with mortder servicing rights it is a large and important component of wdds's revenues and gaap eps

Speaker Change: Over the past two years, we have endured something of a perfect storm with regard to MSRs due to reduced GSE lending volumes, reduced servicing fees, and reduced loan duration.

Speaker Change: Going forward, we believe all three of these components should improve significantly.

Willie Walker: The GSEs only do one thing, lend on residential real estate, and they happen to have the cheapest cost of capital of any market participant. They will play their role as the market recovers, and as they grow their lending volumes, so will W&D. Regarding servicing fees, we are seeing a recovery in pricing due to lower rates and investor spreads remaining tight. Finally, regarding terms, over the past several years, many borrowers went short and put on fixed-rate debt for only five years, thinking rates would come back down, and they could refinance. To put numbers behind this, in 2020, 45% of all Fannie Mae multifamily loans were 10-year loans, and 0% were 5-year loans.

Speaker Change: The GSEs only do one thing, lend on residential real estate, and they happen to have the cheapest cost of capital of any market participant.

Willie Walker: They will play their role as the market recovers, and as they grow their lending volumes, so will W&D. Regarding servicing fees, we are seeing a recovery in pricing due to lower rates and investor spreads remaining tight. Finally, regarding term, over the past several years, many borrowers went short and put on fixed-rate debt for only five years, thinking rates would come back down and they could refinance. To put numbers on this, in 2020, 45% of all Fannie Mae multifamily loans were 10-year loans, and 0% were 5-year loans.

Speaker Change: they will play their role with the market recovers and as they grow their lending volumes so will'll w indeed

William Walker: A prize, our technology-enabled valuation business, stock volumes grow 26% year-over-year as property sales return to the market. Walker and Dunlop affordable equity closed on its newest fund of $163 million at the start of Q2 and it seemed demand from both investors and developers of affordable housing. Capital raising and deployment of the day-to-day drivers of this business as is investment realization when assets exit their restriction period. W&B affordable equity has not sold many assets over the past two years but as the market heals we will see it pick up in sales and realize gains.

Speaker Change: Regarding servicing fees, we are seeing a recovery in pricing due to lower rates and investor spreads remaining tight.

Speaker Change: Finally, regarding term, over the past several years, many borrowers went short and put on fixed rate debt for only five years, thinking rates would come back down and they could refinance.

Speaker Change: To put numbers to this, in 2020, 45% of all Fannie Mae multi-family loans were 10-year loans and 0% were 5-year loans.

Willie Walker: In the first six months of 2024, the percentage of 10-year loans at Fannie Mae dropped to 26%, while the volume of 5-year loans grew from 0% to 32% of total lending. As the yield curve normalizes, and CRE owners can acquire assets with positive leverage once again, we will see more borrowers go long and request 7 and 10-year paper. Higher financing volumes, normalized servicing fees, and longer loan terms will benefit our mortgage servicing rights substantially in the coming years. Let me give an example of a W&D client going long, as it is instructive on a number of fronts.

Speaker Change: In the first six months of 2024, the percentage of 10-year loans at Fannie Mae dropped to 26%, while the volume of 5-year loans grew from 0% to 32% of total lending.

William Walker: Our small balance lending business has maintained market share with Fannie and Freddie and we are focused on using our technology to enhance and market a product that will allow us to take market share from our regional banks. This business has significant opportunity to grow as transaction activity resumes. HUD financing, part of our affordable housing group, grew volumes 26% year-over-year and while HUD volumes are relatively small in comparison to our other debt businesses, HUD loans are a fantastic financing option for our customers and generate great mortgage-servicing rights.

Speaker Change: As the yield curve normalizes and CRE owners can acquire assets with positive leverage once again, we will see more borrowers go long and request 7 and 10-year paper.

Speaker Change: Higher financing volumes, normalized servicing fees, and longer loan terms will benefit our mortgage servicing rights substantially in the coming years.

Willie Walker: The client's existing loan was $34 million, and the new loan was only sized to $30 million. The fundamentals of the property were sound, so the borrower put $4 million of fresh equity into the property to pay off the $34 million loan. In the process, they bought down the interest rate by 30 basis points from 5.80% to 5.50%. And at that coupon rate, they decided to go long and lock up the financing for 10 years.

Willie Walker: Let me give an example of a W&D client going long, as it is instructive on a number of fronts. The client's existing loan was $34 million, and the new loan was only sized to $30 million. And with good assets and appropriate financing, many owners are starting to go long and push out long term. This example is not unique to multifamily.

Speaker Change: Let me give an example of a W&D client going long as it is instructive on a number of fronts. The client's existing loan was $34 million and the new loan only sized to $30 million.

William Walker: Finally, Zellman research and investment banking revenues were down slightly on the quarter but will grow as the market recovers and transactions can accelerate. Total Q2 transaction volume of $8.4 billion coupled with the consistent and growing servicing income generated by our $133 billion loan servicing portfolio. Generated Q2 delineating earnings per share of $0.67 down 18% year-over-year, mostly due to lower GSE volumes and the commensurate non-cash more conserving rights. Adjusted core EPS however, which strips out non-cash revenue and expenses grew 26% to a dollar and 23 cents while adjusted EBDA grew 15% to $81 million on the quarter.

Willie Walker: The fundamentals of the property were sound, so the borrower put $4 million of fresh equity into the property to pay off the $34 million loan.

Willie Walker: In the process, they bought down the interest rate by 30 basis points from 5.80% to 5.50%. And at that coupon rate, they decided to go long and lock up the financing for 10 years.

Willie Walker: There are several themes to this loan. First, there is plenty of equity capital to be invested in properties. Second, all-in borrowing costs, particularly on multifamily properties, are not that high and are getting lower fast. And with good assets and appropriate financing, many owners are starting to go long and push out long term. This example is not unique to multifamily.

Speaker Change: There are several themes to this loan. First, there is plenty of equity capital to be invested in properties.

Speaker Change: second all in boing costs particularly on multifamily properties are not that high and are getting lower fast and with good assets in appropriate financing many owners are starting to go long and push out longan term

William Walker: Having weathered the brunt of the great tightening and beginning to see transaction volumes return, these financial results are very strong and reflective of our teamwork, excellent business model, recurring revenue streams, and ability to invest in our people brand and technology during the past two years of market volatility.

Willie Walker: Some of you may have heard about the refinancing of 277 Park Avenue in Manhattan. This is not a financing Walker & Dunlop worked on, but it is instructive about today's market. The property had a $750 million loan at a 3.60% interest rate that matured this year. However, the new loan was only sized to $500 million. The new interest rate was almost double the old one, so the owners wrote a $250 million check to pay off the maturing mortgage. The building recently signed 175,000 square feet of new leases to bring the building back to 98% occupancy.

Willie Walker: This example is not unique to multifamily.

Willie Walker: Some of you may have heard about the refinancing of 277 Park Avenue in Manhattan. This is not a financing Walker & Dunlop worked on, but is instructive of today's market. The property had a $750 million loan at a 3.60% interest rate that matured this year.

William Walker: As we look forward to a market recovery and transaction volumes, we will continue to invest in our business by adding bankers and brokers who focus on needing not only the needs of the owners of traditional assets where people live, work, shop and play, but also new economy assets where people work, where they sleep, play without moving their bodies, travel without staying in a hotel, and where the housing of data and digits is increasingly important for the future of our society and our world. As Greg will discuss in a moment, W&D's credit portfolio remains extremely strong.

Speaker Change: the new loan only size two five hundred million dollars

Speaker Change: New interest rate being almost double the old one.

Willie Walker: So the owners wrote a $250 million check to pay off the maturing mortgage.

Speaker Change: Recently signed 175,000 square feet of new leases to bring the building back to 98% occupancy.

Willie Walker: This is a trophy asset in America's largest office market, but a $250 million cash refinancing is not a minor deal, reflecting that there is still plenty of debt and equity capital in the market for great assets and that new office leases are actually being signed. Let me shift from the market to technology for a moment. We continue to invest in data analytics to find new business and better serve our clients.

Willie Walker: This is a trophy asset in America's largest office market, but a $250 million cash-in refinancing is not a minor deal, reflecting that there is still plenty of debt and equity capital in the market for great assets, and that new office leases are actually being signed.

William Walker: Our discipline of taking credit risk only on multi-family properties continues to pay dividends as other asset classes incur losses. And while our portfolio is neither perfect nor without losses, given we were the largest lender on multi-family properties in the United States in 2020, and the seventh largest provider of capital to commercial real estate in 2023, as shown on this slide, our credit discipline and minimal losses are truly outstanding.

Speaker Change: Let me shift from the market to technology for a moment.

Speaker Change: we continue to invest in data analytics to find new business and better serve of our clients

Willie Walker: Our Galaxy application continues to generate new client opportunities, and in Q2, 77% of our refinancings were new loans to Walker & Dunlop. All new lending opportunities come to us in myriad ways, coverage, referrals, sales transactions, and, in some instances, just dumb luck. Galaxy has been an incredibly powerful tool that shows our team the composition of a client's entire debt portfolio. And given the very small volume of loan maturities in WND's existing loan portfolio for 2024 and 2025, the name of the game for our team is winning new loans and new customers away from the competition. And Galaxy helps tremendously with this.

Speaker Change: Our Galaxy application continues to generate new client opportunities, and in Q2, 77% of our refinancings were new loans to Walker & Dunlop. While new lending opportunities come to us in myriad ways,

William Walker: While on focused on credit, I'd like to thank our chief credit officer, David Leedy, for his magnificent career and 12 years of exceptional work at Walker & Dunlop. David is earned his retirement in many, many ways, and we wish a much happiness going forward.

Willie Walker: client coverage referrals sales transactions and in some instances just dumblck

Gregory Florkowski: I will turn the call over to Greg to discuss our financial and credit performance in greater detail, and then return with some thoughts about what we see ahead in back after the year. Greg. Thank you, Willie.

Willie Walker: It shows our team the composition of a client's entire debt portfolio. And given the very small volume of loan maturities in WND's existing loan portfolio for 2024 and 2025, the name of the game for our team is winning new loans and new customers away from the competition. And Galaxy helps tremendously with this.

Speaker Change: galaxy has been an incredibly powerful tool and it shows our team the composition of a client's entire debt portfolio

Willie Walker: and given the very small volumeable maturities and w these existing loan portfolio for two thousand and twenty-four and two thousand and twenty-five the name of the game for our team is winning new loans at new customers away from the competition and galaxy helps tremendously with this

Gregory Florkowski: Good morning, everyone. On our last call, we spoke about interest rates stabilizing, heading into the score as the market adjusted to hire for longer. An improvement in the supply of capital and transaction activity for non-multifamily assets, and the fact that our pipeline was building nicely. Our results reflect the market we described, and we delivered $8.4 billion of transaction activity this quarter, generating 15% growth in adjusted EBITDA year over year to $81 million, and 26% growth in adjusted core EPS to $1.23 per share.

Willie Walker: Our technology team also created a new digital experience for WND servicing clients named Client Navigator that allows our borrowers to do analytics on their loans and interface with WND through a dramatically enhanced user interface. We currently have over 3,000 active users on ClientNavigator. And as you can see on this slide, our customer service ratings on ClientNavigator are above some of the top financial services institutions in the world, as the market continues to recover and then grow extremely well petitioned.

Willie Walker: Our technology team also created a new digital experience for WND servicing clients named Client Navigator that allows our borrowers to do analytics on their loans and interface with WND through a dramatically enhanced user interface. We currently have over 3,000 active users on Client Navigator. And as you can see on this slide, our customer service ratings on Client Navigator are above some of the top financial services institutions in the world, as the market continues to recover and then grow.

Speaker Change: Our technology team also created a new digital experience for W&D servicing clients named Client Navigator that allows our borrowers to do analytics on their loans and interface with W&D through a dramatically enhanced user interface.

Speaker Change: We currently have over 3,000 active users on ClientNavigator, and as you can see on this slide, our customer service ratings on ClientNavigator is above some of the top financial services institutions in the world.

Gregory Florkowski: Our diluted EPS decreased 18% to $0.67 per share, compared to the same quarter last year, and our operating margin and return on equity remain below the historical levels at 10% and 5% respectively. The last two years of the great tightening have been difficult, but our ability to routinely deliver strong results is reflected not only of the quality of our team, but also the durable recurring revenue streams we built leading into this cycle.

Speaker Change: As the market continues to recover and then grow.

Willie Walker: We have the bankers and brokers today to achieve our drive to 25 loan origination target of $65 billion and our inviscent sales target of $25 billion if the market returns to normalized transaction levels. W&D is known for being one of the very best at multi-billion dollar multifamily financings, and our team is currently being asked to pitch on large portfolio financings that have not existed in the market over the past two years.

Willie Walker: [inaudible] We have the bankers and brokers today to achieve our drive to 25 loan origination target of $65 billion and our inviscent sales target of $25 billion if the market returns to normalized transaction levels. W&D is known for being one of the very best at multi-billion dollar multifamily financings, and our team is currently being asked to pitch on large portfolio financings that have not existed in the market over the past two years.

Speaker Change: extremely well positioned

Willie Walker: We have the bankers and brokers today to achieve our drive to 25 loan origination target of 65 billion dollars and our inviscent sales target of 25 billion dollars if the market returns to normalized transaction levels

Gregory Florkowski: That will provide the foundation of our future results as transaction activity recovers from here. Turning to our segment results, transaction activity for our capital market segment rebounded from a slow first quarter, growing 32% from Q1, but coming in flat to the same quarter last year. Total revenues for the segment were $118 million, down 6% year over year. We have said repeatedly that our expectation is that GSEs will not meaningfully surpass their 2023 lending volume this year, but Fannie Mae's lending activity slowed during the second quarter, leading to the decline in revenues.

Speaker Change: W&D is known for being one of the very best at multi-billion dollar multifamily financings and our team is currently being asked to pitch on large portfolio financings that have not existed in the market over the past two years.

Willie Walker: What is new and very exciting is that our multifamily investment sales team is also being asked to pitch on large portfolio transactions. And to that, our evaluation services. Contributions. Howard Smith, our longtime president who retired at the beginning of 2024, stepped down from the WND board in May. Then in June, our longtime lead independent director, Mike Malone, died suddenly and tragically from a heart attack.

Willie Walker: What is new and very exciting is that our multifamily investment sales team is also being asked to pitch on large portfolio transactions. Added to that are valuation services. Shared Voices Howard Smith, our longtime president who retired at the beginning of 2024, stepped down from the WND board in May. And in June, our longtime lead independent director, Mike Malone, died suddenly and tragically from a heart attack.

Speaker Change: What is new and very exciting is that our multifamily investment sales team is also being asked to pitch on large portfolio transactions.

Speaker Change: Added to that are evaluation services, research,

Speaker Change: investment banking capabilities and how go to market presence has never been stronger.

Gregory Florkowski: Yet there is still plenty of capital willing to lend on both multifamily and non multifamily assets, and our broker transaction activity remains robust, growing 16% over the same quarter last year. Overall, net income for the segment declined $5 million or 31% due to lower non cash MSR revenues, while adjusted EBITDA improves 17% to a loss of $8 million due to the strength of our overall transaction activity. The positive signs of stable to lower interest rates, improving supply of capital, and increased activity from operators are continuing into the third quarter, and we feel very good about the opportunity ahead given the strength of our capital market's team.

Willie Walker: Howard Smith, our longtime president who retired at the beginning of 2024, stepped down from the WND board in May.

Speaker Change: Then in June , our longtime lead independent director, Mike Malone, died suddenly and tragically from a heart attack. Mike was an amazing director and friend, and he will be missed by our fellow board members and senior executives dearly.

Willie Walker: Mike was an amazing director and friend, and he will be missed by our fellow board members and senior executives dearly. Jeff Hayward, Executive Vice President of Fannie Mae prior to retiring in January of 2024, joined the WND board in Q2 and has had an immediate impact due to having run the Fannie Mae DUS program for 12 years. And also in Q2, McKinsey partner and chairman of McKinsey North America, Gary Pincus, joined our board.

Willie Walker: Mike was an amazing director and friend, and he will be missed by our fellow board members and senior executives dearly. Jeff Hayward, Executive Vice President of Fannie Mae prior to retiring in January of 2024, joined the W&D board in Q2 and has had an immediate impact due to having run the Fannie Mae DUS program for 12 years. And also in Q2, McKinsey partner and chairman of McKinsey North America, Gary Pincus, joined our board.

Speaker Change: Jeff Hayward, Executive Vice President Fannie Mae prior to retiring in January of 2024, joined the WND board in Q2 and has had an immediate impact due to having run the Fannie Mae DUS program for 12 years.

Willie Walker: and also in Q2, McKinsey partner and chairman of McKinsey North America Gary Pincus joined our board.

Gregory Florkowski: Our servicing and asset management segment, or SAM, continues to thrive, generating durable recurring cash revenues from our servicing portfolio, which totaled $133 billion at quarter end. Our SAM segment also benefits from the strength of W&D Affordable Equity, which closed the $163 million multi-investor fund during the second quarter, and now manages over $15 billion of affordable assets, and W&D Investment Partners, which recently closed a $370 million debt fund and now manages over $3 billion of assets and equity.

Willie Walker: While we will miss Howard and Mike's contributions greatly, we are very excited to have Jeff and Gary's insights and wisdom going forward. As Greg said earlier, we feel very good about our current pipeline of business and our expectations for deal volumes and financial results in the back half of 2024. Lower interest rates and the need to recycle and invest equity capital should push property sales, financing, appraisals, research, and investment banking volumes higher.

Willie Walker: And while we will miss Howard and Mike's contributions greatly, we are very excited to have Jeff and Gary's insights and wisdom going forward.

Willie Walker: As Greg said earlier, we feel very good about our current pipeline of business and our expectations for deal volumes and financial results in the back half of 2024.

Willie Walker: lower interest rates and the need to recycle and invest equity capital should push property sales financing appraisals research and investment banking volumes higher

Willie Walker: What is imperative is that we remain focused on our clients and exceed their expectations. We need to retain and expand our team as the market recovers. We need to reinforce our credit discipline as new opportunities arise, and as I noted earlier, we need to constantly evolve to meet the needs of the new economy, not just the established economy where we have been so successful over the past two decades. Thanks to the people of Walker & Dunlop and our business model, our financial results during the Great Tightening were significantly less affected than the competition.

Gregory Florkowski: Our total managed portfolio grew 5% year over year to a total of $150 billion at June 30th, 2024, driving the 4% increase in stand segment revenues to $148 million net income for the segment grew 13% year over year, reflecting the revenue growth and benefit of our cost management efforts. Finally, adjusted EBITDA for the segment continues to grow, ending the quarter at $125 million, up 15% from Q2 2023. The SAM segment also includes the impacts of our credit risk portfolio.

Willie Walker: what is imperative is that we remain focused on our clients and exceeding their expectations

Willie Walker: We need to retain and expand our team as the market recovers.

Willie Walker: we need to reinforce our credit discipline as new opportunities arise and as i noted earlier we need to be constantly evolving to meet the needs of the new economy not just the established economy where we have been so successful over the past two decades

Willie Walker: thanks to the people of walking dl p in our business model our financial results during the great tightening were impacted submittantly less than the competitionand now that we sit at the door steps of a recovery and new cycle we feel extremely well positioned to benefit from the macro economic shift

Willie Walker: Now that we sit at the doorsteps of a recovery and new cycle, we feel extremely well positioned to benefit from the macroeconomic shift. Thank you for joining us this morning. Operator, please open the line for any questions. Thank you.

Gregory Florkowski: During the quarter, we recorded a $3 million provision for credit losses. Last quarter, I provided a detailed update on three loans, totaling $62 million, where we either indemnified or repurchased the loan from the GSEs. During the period of the month, we had a $370 million debt fund. In the quarter, we foreclosed on two of those assets and performed thorough reviews of the property condition and asset performance as we prepare to market them for sale.

Gregory Florkowski: In the process of that review, we increased our loss reserve on the portfolio of loans by $3 million, representing the majority of our provision for credit losses this quarter and bringing the total reserve for these three loans to $5 million. Importantly, we have not received any additional repurchase notifications beyond these three assets. Turning to our at-risk portfolio, we completed our analysis of year-end financial statements during the quarter, and the weighted average debt service coverage ratio remains over two times at December 31, 2023, which speaks to the overall health of our portfolio and the quality of our underwriting.

Operator: Thank you, Mr. Walker. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And again, that is star 1 to ask a question. Our first question comes from Jade Rahmani with KBW. Please go ahead.

Willie Walker: Thank you for joining us this morning. Operator, please open the line for any questions. Thank you.

Operator: Thank you, Mr. Walker. If you'd like to ask a question, please signal by pressing Star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And again, that is Star 1 to ask a question.

Operator: Our first question comes from Jade Romani with KBW. Please go ahead.

Jade Rahmani: Thank you very much. Can you give some further color as to what's going on with the GSEs? It seems like there's been a regular stream of media reports about them adding more scrutiny, tightening their processes, which seems to express some caution on their part, not just about interest rates having an impact, but about the entire, you know, system that they're exposed to. Most recently, JLL, in its earnings, did note about 0.5% of their agency portfolio had fraud. So, I just want to get some color as to your thoughts and insights into this phenomenon that's going on.

Jade Rahmani: Thank you very much.

Jade Rahmani: Can you give some further color as to what's going on with the GSEs? It seems like there's been a regular stream of media reports about them adding more scrutiny, tightening their processes, which seems to express some caution on their part, not just about interest rates.

Jade Rahmani: having an impact but about the entire system that they're exposed to in most recently jaill in their earnings did note about point five percent of their agency portfolio had fraud

Gregory Florkowski: Further, the macro backdrop for multifamily remains favorable in the long term, and we have only $1.9 billion of loans in our at-risk portfolio maturing in the next 12 months, meaning the vast majority of our customers have time for supply dynamics and interest rates to adjust before there is any maturity pressure. We have a $60 billion at-risk portfolio with over 3,000 loans, and only five of those loans are defaulted at the end of the quarter, a decrease from six loans at the end of the first quarter.

Jade Rahmani: So just want to get some color as to your thoughts and insights into this phenomenon that's going on.

Willie Walker: Jade, thanks for joining us this morning, and I saw your note this morning as it relates to our numbers versus your projections, and I would take my hat off to you for being right on top of where we came in on the quarter. As it relates to the GSEs, the article that was in the Wall Street Journal earlier this week, I would say that article probably should have been written a year ago, not today, in the sense that, as you know, the GSEs sort of shift in a view on asset management was prompted by some of the issues that that Wall Street Journal article mentioned as it relates to one GSE lending partner sort of being blacklisted by the GSEs, focus on both fraud as well as overall asset condition.

Speaker Change: Jade, thanks for joining us this morning and I and I saw your note this morning as it relates to our numbers versus your projections and I would take my hat off to you for being right on top of where we came in on the quarter.

Gregory Florkowski: We remain focused on credit risk in our portfolio and continue to feel good about how our clients are positioned and the risk we took leading into the great tightening, although this cycle is not over, our credit quality is strong. Looking at our consolidated results for the first half of the year, total transaction volumes are down 2%, but the stability of earnings from our SAM segment helped offset the slowdown in transactions. Deluted earnings per share was $1.02, down 37% from the first half of 2023, while year-to-date adjusted EBITDA and adjusted core EPS were both up 12% to $155 million and $2.39 per share.

Speaker Change: As it relates to the GSEs, the article that was in the Wall Street Journal earlier this week, I would say that article probably should have been written a year ago, not today, in the sense that, as you know, the GSEs sort of shift

Speaker Change: in a view on asset management was prompted by some of the issue that that most journal article mentioned as it relates to one gsc lending partner sort of being black listed by the gsse' and ensuing

Willie Walker: focus on both fraud as well as overall asset condition. And for the past year, the agencies have been very focused on that. I would say that they are both now very much on the front foot, as it relates to their focus, what they're looking at, and how they are working with their DAS and Optigo lenders. Compared to a year ago, it was sort of, they were moving very quickly in ways that we'd never seen them move before. And so, I would say this is not anything new.

Willie Walker: And for the past year, the agencies have been very focused on that. I would say that they are both now very much on the front foot, as it relates to their focus, what they're looking at, and how they are working with their DAS and Optigo lenders. Compared to a year ago, it was sort of, they were moving very quickly in ways that we'd never seen them move before. And so, I would say this is not anything new.

Gregory Florkowski: At the start of the year, we provided guidance that our deluted earnings per share adjusted EBITDA and adjusted core EPS would increase in the mid-single digits to low teens this year. Two quarters in, we feel very good about our outlook for adjusted EBITDA and adjusted core EPS. To hit our deluted EPS target, we expected the GSEs to deliver $100 billion of capital to the multifamily market. Activity is picking up across our business, and we believe there will be sufficient demand for GSE capital in the back half of the year for them to close the gap to achieve $100 billion of volume, and that would provide a significant boost to MSR revenues and earnings during the second half of the year.

Willie Walker: focus on both fraud as well as overall asset condition.

Willie Walker: And for the past year, the agencies have been very focused on that.

Willie Walker: I would say that they are both now very much on the front foot.

Willie Walker: as it relates to their focus what they're looking at and how they are working with their d and optgo lenders

Willie Walker: versus a year ago was sort of

Speaker Change: They were moving very quickly in ways that we've never seen them move before. And so I would say this is not anything new. We've been working very closely with both Fannie and Freddie for the past year. As Greg and I both said, we feel very good as it relates to our overall portfolio. And I think the most important thing is that while they have been somewhat distracted over the past year as it relates to asset management and looking at their past book of business, we're very encouraged to see both of them, if you will, focusing to the future as it relates to new loan originations.

Willie Walker: We've been working very closely with both Fannie and Freddie for the past year, and as Greg and I both said, we feel very good as it relates to our overall portfolio. And I think the most important thing is that while they have been somewhat distracted over the past year as it relates to asset management and looking at their past books of business, we're very encouraged to see both of them, if you will, focusing on the future as it relates to new loan originations and processing business with both us as well as our competing firms.

Willie Walker: Thanks very much.

Operator: Thanks very much.

Gregory Florkowski: We are also looking to our other business lines to drive the earnings we are expecting in 2024. With our second half pipelines building nicely, we are maintaining the diluted DPS guidance we gave at the beginning of the year. Turning to our balance sheet, there's been a strong market for high quality corporate issuers thus far in 2024. And during the second quarter, a window opened for us to reprice the $200 million trance of our term Lumbee and reduce the spread over sofa from 300 basis points to 225 basis points.

Willie Walker: and processing business with both us as well as our competitor firms.

Operator: And we'll move to our next question from Steve DeLaney with Citizens JMP. Please go ahead.

Steve DeLaney: And we'll move to our next question from Steve DeLaney with Citizens JMP. Please go ahead.

Steve DeLaney: Thanks very much.

Gregory Florkowski: Lowering our cost of borrowing by $1.5 million annually. The resiliency of our business and the strength of our adjusted EBITDA positioned us well to take advantage of that repricing window with our lender group. The continued strength of our cash generation also allowed us to end the quarter with $208 million of cash, and our board of directors approved a quarterly dividend of $0.65 per share yesterday, payable to shareholders of record as of August 22nd.

Speaker Change: And we'll move to our next question from Steve Delaney with Citizens JMP. Please go ahead.

Operator: Good morning, everyone. I appreciate Jade asking the question because there is a lot of conversation out there among clients about how far this GSE thing and the Meridian thing might go. So, thanks, Jade.

Unknown Attendee: Good morning, everyone. I appreciate Jade asking the question because there is a lot of conversation out there among clients about how far this GSE thing and the Meridian thing might go. So thanks, Jade.

Steve DeLaney: Good morning, everyone. I appreciate Jade asking the question because it's a lot of conversation out there among clients about how far this GSE thing and the Meridian thing might go. So, thanks, Jade. Thank you for your reply, Willie. I want to talk just about the earnings statement, if I might.

Steve DeLaney: Thank you for your reply, Willie. I want to talk just about the earnings statement, if I might. Your front-line numbers are GAP, and I think most of the analysts agree with the numbers we put into our consensus. I'd like to just make the point that I think... Well, let me ask you this, Willie and Greg, Adjusted Corp EPS seems to take out a lot of the noise from fair value marks and servicing, etc. Internally, does management and the board focus more on adjusted core earnings or more on gap earnings when you're looking at your profitability?

Willie Walker: Thank you for your reply, Willie. I want to talk just about the earnings statement, if I might. You know, your front-line numbers are GAP, and I think most of the analysts use the numbers we put into our consensus. I'd like to just make the point that I think... Well, let me ask you this, Willie and Greg, adjusted corporate EPS. Seems to take out a lot of the noise from fair value marks and servicing, etc. Internally, does management and the board focus more on the adjusted core or more on gap earnings when you're looking at your profitability?

Gregory Florkowski: Our results demonstrate the resiliency of our platform and the strength of our team. The macro backdrop continues to strengthen as the path for exiting the rate tightening is coming into focus. With lower interest rates and an increasing supply of capital to the commercial real estate sector, we are optimistic about the opportunities to capture deal flow and grow as the commercial real estate market recovers from the last two years of restricted interest rates.

Speaker Change: Your front-line numbers are GAP, and I think most of the analysts, the numbers we put into our consensus. I'd like to just make the point that I think...

Speaker Change: well let me ask you this willilli in greats adjusted corep eps

Willie Walker: Let's start there if we can. Thanks.

Unknown Attendee: Let's start there if we can. Thanks.

Unknown Attendee: Seems to take out a lot of the noise.

Unknown Attendee: Thank you for your time this morning.

Unknown Attendee: from Fair Value Marks and servicing, et cetera.

William Walker: I'll now turn the call back over to Willie. Thank you, Greg. As Greg just underscored of our servicing and asset management businesses, along with cash origination fees from debt financing and property sales, allowed us to generate strong year over year growth and adjusted EBITDA on adjusted core BS. One of the analysts who covers W&D recently did an analysis of peak earnings in 2022 to draw earnings in 2023 for W&D in several of our largest competitors.

Unknown Attendee: internally

Unknown Attendee: Does management and the board focus more on adjusted core or more on gap earnings when you're looking at your, evaluating your profitability? Let's start there if we can. Thanks.

Willie Walker: Steve, it's a heck of a good question because I will tell you that while the growth and adjusted core as well as EBITDA show the incredible strength of the platform and the enduring cash flow that we have been able to create, we also know that the booking of mortgage servicing rights is extremely important for the next cycle. So the reason we've done so well over the last two years is because we were so successful at building up a $133 billion loan servicing portfolio that it would kick off cash during times when transaction volumes went down.

Willie Walker: Steve, it's a heck of a good question because I will...

Willie Walker: Tell you that while the growth and adjusted core, as well as an EBITDA, show the incredible strength of the platform and the enduring

Willie Walker: We also know that the booking of mortgage servicing rights is extremely important for the next cycle.

William Walker: But the data shows eventually contrary to many investors perceptions is that W&D's adjusted EBITDA was down dramatically less than the competition at just 8% versus an average of 36% for CBRE, JLL and Newmark. The conventional thinking is that those platforms with scaled workforce solutions and asset management platforms would endure the downturn better than W&D due to long term, low margin facilities management and outsourcing contracts, not so. And that is due to the strength of W&D's servicing and asset management businesses.

Willie Walker: So, the reason we've done so well over the last two years is because we were so successful at building up a $133 billion loan servicing portfolio, it would kick off cash during times when transaction volumes went down.

Willie Walker: and we have been the net beneficiary of that over the last two years.

Willie Walker: But we also realize that...

Willie Walker: whether it's five years from now, seven years from now, let's hope it's ten years from now.

William Walker: And what is really exciting is that as we enter this next cycle, W&D's capital markets focus will benefit disproportionately from increased transaction volumes in financing, property sales, appraisals, research, and investment banking. As W&D investors know, originating loans with mortgage servicing rights is a large and important component of W&D's revenues and GAP EPS. Over the past two years, we have endured something of our perfect storm with regard to MSRs due to reduced GSE lending volumes, reduced servicing fees, and reduced loan duration.

Willie Walker: is booking lots of mortgage servicing rights over the next three, five, seven years.

Willie Walker: And so one of the things that we are very focused on is that there is no shifting of focus inside of Walker & Dunlop away from booking mortgage servicing rights because that is the business model.

Willie Walker: And we have been the net beneficiary of that over the last two years. But we also realize that There is no shifting of focus inside of Walker & Dunlop away from booking mortgage servicing rights because that is the business model. So while our financial results, as I said in the call, feel very good about, it is up to us to continue to have our loan originators going out and finding lending opportunities that generate significant mortgage servicing rights, which will benefit non-cash earnings and non-cash revenues as we book them, which will then pay huge dividends three, five, And that's the resilience of the platform, but it's also very much our strategy, and that has not changed one iota.

Willie Walker: And so while our financial results, as I said in the call, feel very good about, it is up to us to continue to have our loan originators going out and finding lending opportunities that generate significant mortgage servicing rights, which will benefit non-cash earnings and non-cash revenues.

William Walker: Going forward, we believe all three of these components should improve significantly. The GSEs only do one thing, lend on residential real estate, and they happen to have the cheapest cost of capital of any market participant. They will play their role as the market recovers, and as they grow their lending volumes, so will W&D. Regarding servicing fees, we are seeing a recovery in pricing to the lower rates and investor spreads remaining tight Finally regarding term over the past several years many borrowers went short and put on fixed rate debt for only five years thinking rates would come back down and they could refinance five of your loans.

Willie Walker: as we book them, which will then pay huge dividends three, five, seven years from now when we hit the next downturn where transaction volumes come down. And that's the resiliency of the platform, but it's also very much our strategy. And that has not changed one iota.

Willie Walker: I got it. So what you're saying is, when you think about WD and the origination side of your business, your GSC business, obviously, the MSR is a fair value. Unknown Attendee, William Walker, Jason Blum, Rob Finlay, Aaron Appel, Kris Mikkelsen, Jenna Simms, Walker & Dunlop Inc. What you're telling me is we can't have it both ways, right? I mean, if we're going to look at the MSRs as revenue as they're booked, then we're just going to have to live with any adjustments going through, you know, other than the normal amortization going forward.

Unknown Attendee: Got it. So what you're saying is, when you think about WD and the origination side of your business, your GSC business, obviously, the MSR is a fair value.

Speaker Change: Got it. So what you're saying is when you think about WD and the origination side of your business, your GSC business, obviously the MSR is a fair value.

Unknown Attendee: Unknown Attendee, Kyle Joseph, Jason Blum, Rob Finlay, Aaron Appel, Kelsey Duffey, Gregory Florkowski, Jason Blum, Rob Finlay, Aaron Appel, Jason Blum, Rob Finlay, Aaron Appel, Unknown Attendee, Kyle Joseph, Jason Blum, Rob Finlay, Aaron Appel, Jason Blum, Rob Finlay, Unknown Attendee, Kyle Joseph, Jason Blum, Rob Finlay, Umnoun Attendee, Cliff feet, Unknown Attendee, Ben Erickson, Sydney Benicki, Unknown Attendee, Bill Strickland, Unknown Attendee, Brian Zeldin, Unknown Attendee, Utmita Mohr Unknown Attendee, Gregory Florkouts,

Speaker Change: recognition of that discounted.

Speaker Change: their value is critical, right, to your accounting and your profitability. So I guess what I'm hearing you say, Willie, in a normal

William Walker: In the first six months of 2024, the percentage of 10-year loans at then may drop to 26% while the volume of five-year loans grew from 0% to 32% of total lending. As the yield curve normalizes and CRE owners can acquire assets with positive leverage once again, we will see more borrowers go long and request seven and 10-year paper. Higher financing volumes, normalized servicing fees and longer loan terms will benefit our mortgage servicing rights substantially in the coming years.

Speaker Change: origination focused environment which will'll have here with hopefully with lower rates that ms our recognition in the current period is is an important part of your business model so i guess i was asking for

Speaker Change: taken away noise but you what you're telling me is we can't have it both ways right i mean if we're going to look at the msrs as revenue as their book to then we're just going to have to live with any adjustments going through other than the normal amortization going forward

Willie Walker: Yeah, I mean Steve, let me just let me put a finer point on this if I if I if I can. I just in the call talked about some of our larger-scale competitive competitors, and the thinking always was that because they were broad and diversified and had these lower margin services.

Willie Walker: Yeah, I mean Steve, let me just put a finer point on this if I if I if I can. I just in the call talked about some of our larger-scale competitive platforms. And the thinking always was that because they were broad and diversified and had these lower-margin services, Trax that in the downturn, they would do better than Walker & Dunlop. And as Jade's analysis showed, they didn't.

Willie Walker: it

Willie Walker: Yeah, I mean, Steve, let me just let me put a finer point on this. If I if I if I can, I just in the call talked about some of our larger scaled competitive platforms. And the thinking always was that because they were broad and diversified and had these lower margin services.

William Walker: Let me give an example of a W&D client going long as it is instructive on a number of fronts. The client's existing loan was $34 million and the new loan only sized to $30 million. The fundamentals of the property were sound so the borrower put $4 million of fresh equity into the property to pay off the $34 million loan. In the process, they bought down the interest rate by 30 basis points from 5.80% to 5.50% and at that coupon rate, they decided to go long and lock up the financing for 10 years.

Willie Walker: contracts, that in the downturn, they would do better than Walker & Dunlop. And as Jade's analysis showed, they didn't.

Willie Walker: So then we go to the other extreme, which is some of our other competitor firms that are all transaction volume focused. If we were to forget about GAAP EPS, we would run after adjusted core EPS, which is the cash flow from the servicing portfolio, but it is also just cash transaction fees. And what happens is if you're solely focused on cash transaction fees, you do really well on cash earnings, but you do not have that mortgage servicing rights portfolio to hold on to when those transaction volumes come down.

Willie Walker: Okay, so then go to the other extreme, which is some of our other competitor firms that are all transaction volume focused. If we were to forget about GAAP EPS, we would run after adjusted core EPS, which is the cash flow from the servicing portfolio, but it is also just cash transaction fees. And what happens is if you're solely focused on cash transaction fees, you do really well on cash earnings, but you do not have that mortgage servicing rights portfolio to hold on to when those transaction volumes come down.

Willie Walker: Okay, so then go to the other extreme which is some of our other competitor firms that are all transaction volume focused

Willie Walker: If we were to forget about GAP EPS...

Willie Walker: we would run after adjusted coreyeps

William Walker: There are several themes to this loan. First, there is plenty of equity capital to be invested in properties. Second, all in borrowing costs, particularly on multi-family properties, are not that high and are getting lower fast. And with good assets and appropriate financing, many owners are starting to go long and push out long term. This example is not unique to multi-family.

Willie Walker: which is the cash flow off the servicing portfolio, but it is also just cash transaction fees.

Willie Walker: and what happens is if you're lely focused on cash transaction fees you do really well on cash earnings but you do not have that mortgage servicing right portfolio to hold on to dirt windows transaction volumes come down and so that's the beauty of the model and so if

Willie Walker: And so that's the beauty of the model. And so if our compensation committee came to me and said, Willie, we think for you and the other senior managers, we should start to focus on adjusted core EPS and less on GAAP EPS, I would say no way, because it's the GAAP EPS and the generation of those mortgage servicing rights over time that will benefit this platform. 5, 7, 10 years from now when we have another downturn in transaction volumes. That's the plan, and we'll stick to it. That's very helpful.

Willie Walker: Our compensation committee came to me and said, Willie, we think for you and the other senior managers, we should start to focus on adjusted core EPS and less on gap EPS. I would say, no way, because it's the gap EPS and the generation of those mortgage servicing rights over time that will benefit this platform.

William Walker: Some of you may have heard about the refinancing of 277 Park Avenue in Manhattan. This is not a financing walker no up work done, but is instructive of today's market. The property had a $750 million loan at a 3.60% interest rate that matured this year. The new loan only size to $500 million. The new interest rate being almost double the old one. So the owners wrote a $250 million check to pay off the maturing mortgage.

Willie Walker: 5, 7, 10 years from now when we have another downturn in transaction volumes. That's the model and we'll stick to it.

Steve DeLaney: That's very helpful, Willie. I appreciate that clarity. Thanks so much.

Speaker Change: That's very helpful, Willie. I appreciate that clarity. Thanks so much.

Operator: And we'll move to our next question from Derek Sommers with Jeffries. Please go ahead.

William Walker: The building recently signed 175,000 square feet of new leases to bring the building back to 98% occupancy. This is a trophy asset in America's largest office market. But a $250 million cash and refund aid is not a minor deal. Reflecting that there is still plenty of debt and equity capital in the market for great assets, and that new office leases are actually being signed.

Speaker Change: and we'll move to the next question from derek sum with jeffreies please go ahead

Derek Sommers: Hey, good morning. Everyone was wondering, you know. I think in the

Unknown Attendee: Hey, good morning, everyone. I was wondering, you know.

Willie Walker: I was wondering, you know, I think in the prior quarter, talking about a kind of large property sales pipeline. I was just kind of wondering how that compares at the end of this quarter, and what were the puts and takes of that deal flow pulling through? Yeah, Derek, joining the sales team and moving up in the league tables is fantastic, not only from the flow business but also being invited to pitch for some very large portfolio transactions where Walker & Dunlop wouldn't have been invited to those bake-offs, if you will.

Derek Sommers: I was just wondering, you know, I think in the prior quarter, we talked about a kind of large property sales pipeline. I was just kind of wondering how that compares at the end of this quarter, and what were the puts and takes of that deal flow pulling through? Yeah, Derek.

Speaker Change: Hey, good morning, everyone. I was wondering, you know, I think in the prior quarter, we talked about a kind of large property sales pipeline. I was just kind of wondering, you know, how that compares at the end of this quarter and what were the puts and takes of that deal flow pulling through?

Willie Walker: there

Willie Walker: David Sommers, [inaudible] www.thevenusproject.com sales team and moving up in the lead tables is fantastic, not only from the flow business but also being invited to pitch for some very large portfolio transactions where Walker & Dunlop wouldn't have been invited to those bake-offs, if you will. I will say that if you look at the first half of the year, a number of our competitor firms had some significant growth in their volumes year over year from 2023 to 2024. And our volumes were down slightly.

William Walker: Let me shift from the market to technology for a moment. We continue investing data analytics to find new business and better serve our clients. Our Galaxy application continues to generate new client opportunities and in Q2, 77% of our refinanceings were new loans to walker in the lot. While new lending opportunities come to us in myriad ways, clients, coverage, referrals, sales transactions, and in some instances just dumb luck. Galaxy has been an incredibly powerful tool that shows our team the composition of a client's entire debt portfolio.

Speaker Change: Pipeline is...

Speaker Change: develoing very nicely and sits we haven't disclosed the actual number but it's it's great then as i tried to give color one of the our success in

Willie Walker: and moving up in the league tables.

Willie Walker: is

Willie Walker: fantastic not only from the flow business but also being invited to pitch for some very large portfolio transactions were previously Walker & Dunlop

Willie Walker: I will say that if you look at the first half of the year, a number of our competitor firms had some significant growth in their volumes year over year from 2023 to 2024, while our volumes were down slightly.

Willie Walker: wouldn't have been invited to those to those bake-offs if you will.

Willie Walker: I will say that if you look at the first half of the year, a number of our competitor firms had some significant growth in their volumes year-over-year from 2023 to 2024, and our volumes were down slightly. That's disappointing as it relates to our overall competitive positioning. But we're still a top-five multifamily investment sales platform.

William Walker: And given the very small volume of loan maturities and W&D's existing loan portfolio for 2024 and 2025, the name of the game for our team is winning new loans and new customers away from the competition. And Galaxy helps tremendously with this. Our technology team also created a new digital experience for W&D service clients named client navigator that allows our borrowers to do analytics on their loans and interface with W&D through a dramatically enhanced user interface.

Willie Walker: That's disappointing as it relates to our overall competitive positioning, but we're still a top five multifamily investment sales platform, and our pipeline is very strong.

Willie Walker: And as I said in our comments, our team is doing everything right, right now. So I feel very good about where we are positioned. And the combination of investment sales and lending has us right now. Any multifamily owner, operator, or investor in the U.S. who's thinking about selling either an individual asset or a scaled portfolio, Walker & Dunlop is going to be on their list of firms to talk to. And given the strength of our financing platform, those two things, during this next cycle, should benefit one another tremendously. Very helpful, Culler. Thank you.

Willie Walker: pipeline is very strong and as i said in our comments our team is doing everything right right now so i feel very good about where we are position and the combination of investment sales and lending has us right now

William Walker: We currently have over 3000 active users on client navigator. And as you can see on this slide, our customer service ratings on client navigator is above some of the top financial services institutions in the world. As the market continues to recover and then grow extremely well positioned. We have the bankers and brokers today to achieve our drive to 25 loan origination target of $65 billion and our viscent sales target of $25 billion if the market returns to normalize transaction levels.

Willie Walker: Any multifamily owner, operator, investor in the U.S. who's thinking about selling either an individual asset or a scaled portfolio, Walker & Dunlop is going to be on their list of firms to talk to, and given the strength of our financing platform, those two things during this next cycle should benefit one another tremendously.

Willie Walker: And then just to switch to the GSEs, you know, coming to the end of the year here, have there been any conversations about the multifamily caps? And then, I guess, given the election cycle, any kind of pertinent thoughts on, you know, working with different administrations? Cool, I'll skip the second one.

Derek Sommers: And then just to switch to the GSEs, you know, coming to the end of the year here, have there been any conversations about the multifamily caps? And then, I guess, given the election cycle, any kind of pertinent thoughts on, you know, working with different administrations? Cool. I'll skip the second one.

Speaker Change: Got it. Very helpful, Culler. Thank you. And then just to switch to the GSEs.

Willie Walker: Coming to the end of the year here, have there been any conversations about the multifamily caps?

William Walker: W&D is known for being one of the very best at multi-billion dollar multi-family financials and our team is currently being asked to pitch on large portfolio financials that have not existed in the market over the past two years. What is new and very exciting is that our multi-family investment sales team is also being asked to pitch on large portfolio transactions. Add to that our valuation services research and investment banking capabilities and our go-to-market presence has never been stronger.

Speaker Change: then i guess given the election cycle you any kind of perttainent thoughts on working with different administrations

Willie Walker: On the first one, http://www.youtube.com, Take Q3 to see where the GSEs are as far as their volumes and coming up with what they want to do on the scorecard in the coming year. I've spoken to the regulator, various people at FHFA, over the past couple months, and I think that they're looking at a lot of different data points right now. I think they see the market recovery coming.

Willie Walker: On the first one, http://TheBusinessProfessor.com, Take Q3 to see where the GSEs are as far as their volumes and coming up with what they want to do on the scorecard in the coming year. I've spoken to the regulator, various people at FHFA, over the past couple months, and I think that they're looking at a lot of different data points right now. I think they see the market recovery coming.

Speaker Change: Cool, I'll skip on the second one.

Willie Walker: FHFA is.

Willie Walker: They always take Q3 to see where the GSEs are as far as their volumes and coming up with what they want to do in the scorecard in the coming year. I've spoken to the regulator, various people at FHFA.

Willie Walker: And as a result of that, I would think that they lean towards maintaining the caps where they are rather than either shrinking or expanding them. But only time will tell. And that's obviously something that the regulator has complete discretion over.

William Walker: Howard Smith, our longtime president who retired at the beginning of 2024, stepped down from the W&D board in May.

William Walker: Then in June, our longtime lead independent director Mike Malone died suddenly and tragically from a heart attack. Mike was an amazing director and friend and he will be missed by our fellow board members and senior executives dearly.

Willie Walker: over the past couple of months.

Willie Walker: And I think that they're looking at a lot of different data points right now. I think they see the market recovery coming, and as a result of that, I would think that they lean towards maintaining the caps where they are, rather than either shrinking or expanding them. But only time will tell, and that's obviously something that the regulator has complete discretion over.

William Walker: Jeff Hayward, executive vice president, Fannie Mae prior to retiring in January of 2024, joined the W&D board in Q2 and has had an immediate impact due to having run the Fannie Mae dust program for 12 years. And also in Q2, McKinsey partner and chairman of McKinsey North America, Gary Pinkis joined our board.

Willie Walker: And then I will only say as it relates to the election that

Willie Walker: And then, I will only say as it relates to the election: We will likely have, regardless of whether it is a Trump administration or a Harris administration, we will likely have a change in the directorship of FHFA. I don't know Director Thompson's personal desires personally about whether she wants to stay on or go, but I would assume that with either one of those new administrations, there would be a new director at FHFA.

Willie Walker: We will likely have, regardless of whether it is a Trump administration or a Harris administration, we will likely have a change in the directorship of FHFA. I don't know Director Thompson's...

William Walker: And while we will miss Howard and Mike's contributions greatly, we are very excited to have Jeff and Gary's insights and wisdom going forward. As great said earlier, we feel very good about our current pipeline of business and our expectations for deal volumes and financial results in the back half of 2024. Lower interest rates and the need to recycle and invest equity capital should push property sales, enhancing appraisals, research and investment banking volumes higher.

Willie Walker: Desires personally about whether she wants to stay on or go, but I would assume that with either one of those new administrations

Willie Walker: And so, always with a new director, there is change. And we've been pretty good at adapting to that change from some directors of FHFA who have had a very aggressive strategy for changing what the GSEs do to others who have been more in line, if you will, with the previous director. But I would put forward that we'll see what happens in the election and we'll see what happens at FHFA in 2025. But we've sort of been to this rodeo before, if you will, having worked with Fannie and Freddie for as long as we have, and particularly since they went into conservatorship in 2008.

Willie Walker: that there would be a new director at FHFA. And so always with a new director, there is change. And we've been pretty good at adapting to that change from some directors of FHFA who have had a very...

William Walker: What is imperative is that we remain focused on our clients and exceeding their expectations. We need to retain and expand our team as the market recovers. We need to reinforce our credit discipline as new opportunities arise. And as I noted earlier, we need to be constantly evolving to meet the needs of the new economy, not just the established economy, where we have been so successful over the past two decades. Thanks to the people of Walker & Dunlop and our business model, our financial results during the great tightening were impacted significantly less than the competition.

Willie Walker: aggressive strategy on changing what the gsc do to others who have been more in line if you will with the previous director but i would put forth that we'll see what happened inthe election and we'll see what happens at f h a in two thousand and twenty five but we've

Willie Walker: But we've sort of been to this rodeo before, if you will, having worked with Fannie and Freddie for as long as we have, and particularly since they went into conservatorship in 2008. And so none of that is terribly concerning at this point.

Willie Walker: sort of been this radio before if you will having worked with fan freddie for as long as we have in particularly since they went into conservatorship in two thousand and eight and so noneof that 's terribly concerning at this point

Unknown Attendee: And so none of that is terribly concerning at this point. Thank you. That's all for me.

Operator: And moving to our next question from Brian Violino with Wedbush Securities. Please go ahead.

Operator: And moving to our next question from Brian Violino with Webb Bush Securities. Please go ahead.

William Walker: Now that we sit at the doorstep of a recovery and new cycle, we feel extremely well positioned to benefit from the macro economic shift.

Operator: And moving to our next question from Brian Violino with Webb Bush Securities. Please go ahead.

Unknown Attendee: Great. Thanks. Good morning.

Brian Violino: Great. Thanks. Good morning.

Unknown Attendee: Thank you for joining us this morning operator. Please open the line for any questions. Thank you. Thank you, Mr. Walker. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. And again, that is star one to ask a question.

Unknown Attendee: Just on escrow income, obviously, that's been a benefit over the last few years with higher short-term rates. We're just curious, you know, if we do see the Fed start to cut here, could you kind of frame what the negative impact on escrow revenues would be for, say, each 25 basis point cut? And obviously, I know that would be offset by better transaction revenues. We're just curious what the offset could be there and maybe the timing between the two.

Brian Violino: Just on escrow income, obviously, that's been a benefit over the last few years with higher short-term rates. We're just curious, you know, if we do see the Fed start to cut here, could you kind of frame what the negative impact on escrow revenues would be for, say, each 25 basis point cut? And obviously, I know that would be offset by better transaction revenues, but I was just curious what the offset could be there, and maybe the timing between the two.

Speaker Change: Great. Thanks. Good morning.

Unknown Attendee: Just on escrow income, obviously that's been a benefit over the last few years with

Greg Forkowski: Yeah, absolutely. So, simply, we have about, depending on the time of the year, we have between $2.2 and $2.5 billion of escrow reserves that we hold. So, you know, a quarter point is going to be multiplied by that balance, and then you're going to just take that. So whenever a reduction in Fed funds occurs, it is effectively when our rate is decreased. So expect that to just be. Unknown Attendee, Kyle Joseph, Jay McCanless, Gregory Florkowski, Jason Blum, Rob Finlay, Aaron Appel,

Unknown Attendee: higher short-term rates. But just curious, you know, if we do see the Fed start to cut here, could you kind of frame what the negative impact on escrow revenues would be for, say, each 25 basis point cut? And obviously, I know that would be offset by better transaction revenues, but just curious what the offset could be there, and maybe the timing between the two.

Jade Rahmani: Our first question comes from Jade Rahmani with KBW. Please go ahead. Thank you very much.

Greg Florkowski: Yeah, absolutely. So, simply, we have about, depending on the time of the year, we have between $2.2 and $2.5 billion of escrow reserves that we hold. So, you know, a quarter point is going to be multiplied by that balance, and then you're going to just take that. Whenever a reduction in Fed funds occurs is effectively when our rate is decreased. So expect that to just be at, https://www.youtube.com.au

William Walker: Can you get some further color as to what's going on with the GSEs? It seems like there's been a regular stream of media reports about them adding more scrutiny tightening their processes, which seems to express some caution on their part. Not just about interest rates, having an impact, but about the entire system that they're exposed to. And most recently, JLL in their earnings did note about 0.5% of their agency portfolio had fraud. So just want to get some color as to your thoughts and insights into this phenomenon that's going on.

Greg Florkowski: Brian , do you want to take that? Yeah, absolutely.

Greg Florkowski: But simply, we have about, depending on the time of the year, we have between $2.2 and $2.5 billion of escrow reserves that we hold.

Greg Florkowski: A quarter point is going to be multiplied by that balance, and then you're going to just take that. Whatever the reduction in fed funds occurs is effectively when our rate is decreased. So expect that to just be...

Greg Florkowski: just be implemented as soon as the rate change occurs, that type of a change will occur to our revenues. Whatever you're projecting or thinking about from a forward curve perspective is what you'll see the impact be on our financials on the annualized basis from that point forward.

William Walker: Jade, thanks for joining us this morning. And I saw your note this morning as it relates to our numbers versus your projections. And I would take my hat off to you for being right on top of where we came in on the quarter. As it relates to the GSEs, the article that was in the Wall Street Journal earlier this week, I would say that article probably should have been written a year ago, not today in the sense that as you know, the GSEs sort of shift in a view on asset management was prompted by some of the issues that that Wall Street Journal article mentioned as it relates to one GSE.

Brian Violino: Okay, thanks. And then just on the expense side, you know, it sounds like there's plenty of capacity, but just, you know, curious how you're thinking about fixed expenses at this point. If we do see a more notable uptick in volumes, is it fair to say that you think the expenses are pretty set for, you know, where you see volumes at least going in the very near term?

Speaker Change: Okay, thanks. And then, just on the expense side, you know, it sounds like there's plenty of capacity, but just, you know...

William Walker: The lending partner sort of being blacklisted by the GSEs and the ensuing focus on both fraud as well as overall asset condition. And for the past year, the agency has been very focused on that. I would say that they are both now very much on the front foot as it relates to their focus, what they're looking at, and how they are working with their dust and optical lenders. Versus a year ago was sort of they were moving very quickly in ways that we've never seen the move before.

Speaker Change: Curious how you're thinking about fixed expenses at this point, if we do see a more notable uptick in volumes, is it fair to say that you think the expense base is pretty set for, you know, where you see volumes at least going in the, you know, very near term?

Greg Florkowski: Absolutely. We've made sure to maintain capacity. We've got, as Willie said in his remarks, plenty of capacity. With respect to the team, he gave some stats on where our investment sales team was at the peak of the market. So there's a lot of room for us to run from where we are today to there, but there's absolutely going to need to be a little bit of incremental expense increases; we need to add, you know, just processing power, if you will.

Greg Forkowski: Absolutely. We've made sure to maintain capacity. We've got, as Willie said in his remarks, plenty of capacity with respect to the team. He gave some stats on where our investment sales team was at the peak of the market. So there's a lot of room for us to run from where we are today to there, but there's absolutely going to need to be a little bit of incremental expense increases; we need to add, you know, just processing power, if you will.

Greg Florkowski: yeah

Greg Florkowski: Absolutely. We've made sure to maintain capacity. We've got, as Willie said in his remarks, plenty of capacity with respect to the team. He gave some stats on where our investment sales are.

Greg Forkowski: But nothing that would be, you know, too excessive. And I think as transaction volumes grow back, it'll be somewhat of a, I don't think it'll be a massive spike. So I think we'll be able to grow into the market pretty easily from here without a lot of change there. The one other thing I'd jump in.

Greg Florkowski: The game was towards the peak of the market, so there's a lot of room for us to run from where we are today to there. There's absolutely going to need to be a little bit of incremental expense increases. We need to add, you know, just processing power, if you will, but nothing that would be, you know,

Greg Florkowski: But nothing that would be, you know, excessive or, you know, too much of a good thing. And I think as transaction volumes grow back, they'll be somewhat, I don't think it'll be a massive spike, so I think we'll be able to grow into the market pretty easily from here without a lot of change there. The one other thing I'd jump in.

Greg Florkowski: outsized or too excessive. And I think as transaction volumes grow back, I don't think there'll be a massive spike. So I think we'll be able to grow into the market pretty easily from here without a lot of change there.

Willie Walker: The one other thing I'd jump in behind, Greg, on the escrows and origination volumes. First of all, to your specific point, that's exactly right, that the growth in volumes will more than offset the... step down in escrow income. But the other piece to it is that escrow income acts as a hedge to our borrowing costs as well. And so as escrow income goes down, so do our borrowing costs.

Willie Walker: The one other thing I'd jump in behind Greg on the escrows and origination volumes. First of all, to your specific point, that's exactly right, that the growth in volumes will more than offset the... step down in escrow income. But the other piece to it is that escrow income acts as a hedge to our borrowing cost as well. And so as escrow income goes down, so does our borrowing cost.

Willie Walker: the one of the thing i jump in behind it i on the es on the escos and origination volumes the first of all to your specific point that's exactly right that the growth in volumes will more than offset the

William Walker: And so I would say this is not anything new. We've been working very closely with both Fannie and Freddie for the past year. Greg and I both said we feel very good as it relates to all the whole portfolio. And I think the most important thing is that while they have been somewhat distracted over the past years, it relates to asset management. And looking at their past book of business, we're very encouraged to see both of them, if you will, focusing to the future as it relates to new loan originations and processing business with both us as well as our competitor firms. Thanks very much.

Speaker Change: Step down in escrow income, but the other piece to it is that there's also the escrow income Acts as a hedge to our borrowing cost as well. And so as escrow income comes down So there's our borrowing cost so you know our Greg talked about that as it relates to how you also have as escrow comes down So there's our borrowing cost on our debt So those two act as a hedge against one another and then if you're in a lower rate environment It's very clearly the assumption that transaction volumes step up and so net net that's all net beneficial to us in a rising rate environment It was nice to have that hedge against the increased borrowing cost in the escrows But as that steps down the debt cost in the escrows work Basically in tandem with the hedge and then what you pick up is increased transaction volumes

Willie Walker: So you know, Greg talked about that as it relates to how as escrow comes down, so does our borrowing cost on our debt. So those two act as a hedge against one another. And then if you're in a lower rate environment, it's very clearly the assumption that transaction volumes step up. And so, net net, that's all net beneficial to us in a rising rate environment. It was nice to have that hedge against the increased borrowing cost in the escrows. But as that steps down, the debt cost in the escrows works basically in tandem with the hedge, and then what you pick up is increased transaction costs.

Willie Walker: So you know, or Greg talked about that as it relates to how as escrow comes down, so does our borrowing costs on our debt. So those two act as a hedge against one another. And then if you're in a lower rate environment, it's very clearly the assumption that transaction volumes step up. And so, net net, that's all net beneficial to us. In a rising rate environment, it was nice to have that hedge against the increased borrowing cost in the escrows. But as that steps down, the debt cost in the escrows works basically in tandem with the hedge. And then what you pick up is increased transaction volumes.

Steve DeLaney: And we'll move to our next question from Steve DeLaney with Citizens JMP. Please go ahead. Good morning everyone. I appreciate Jade asking the question because it's a lot of conversation out there among clients about how far this GSE thing and the Meridian thing might go. So thanks Jade. Thank you for your reply, Willie. Most of the analysts where the numbers we put into our consensus. I'd like to just make the point that I think, well, let me ask you this, Willie, in great. Adjusted core PPS. Things to take out a lot of the noise from their value marks and servicing, etc.

Operator: And our next question is from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani: Make sense? Thanks a lot.

Speaker Change: And our next question is from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani: Thank you. I just wanted to ask about the affordable equity business, the business that used to be known as Alliant. Just on the LITHC outlook, you know, what are you seeing there? And I think you alluded to the lower rate environment outlook potentially benefiting that business.

Jade Rahmani: Thank you. I just wanted to ask about the affordable equity business, the business that used to be known as Alliant, just on the LITHC outlook. Now, what are you seeing there? And I think you alluded to the lower rate environment outlook potentially benefiting that business.

Jade Rahmani: Thank you. I just wanted to ask about the affordable equity business, the business that used to be known as Alliant.

Jade Rahmani: Just on the LITHC outlook, what are you seeing there and I think you alluded to the lower rate environment outlook potentially benefiting that business.

Willie Walker: A couple things there, Jade. First of all, Unknown Attendee, Kyle Joseph, Jason Blum, Rob Finlay, Aaron Appel, and Kris Mikkelsen, to increase the amount of low-income housing tax credits being issued at the federal level by both 9% as well as 4%. And I think that we're extremely well positioned as it relates to the need for more low-income housing tax credits to drive the building of affordable housing across the country. The second thing is that, you know, we bought Alliant two years ago.

Willie Walker: A couple things there, Jade. First of all, Unknown Attendee, Kyle Joseph, Jay McCanless, Gregory Florkowski, Jason Blum, and Rob Finlay, to increase the amount of low-income housing tax credits being issued at the federal level by both 9% as well as 4%. And I think that we're extremely well positioned as it relates to the need for more low-income housing tax credits to drive the building of affordable housing across the country. The second thing is that, you know, we bought Alliant two years ago.

Willie Walker: A couple things there, Jade. First of all,

William Walker: Internally, does management and the board focus more on adjusted core or more on gap earnings when you're looking at your evaluating your profitability? Let's start there if we can. Thanks. Steve, it's a heck of a good question because I will tell you that while the growth and adjusted core as well as an EBITDA show the incredible strength of the platform and the enduring cash flow that we have been able to create, we also know that the booking of Morgan servicing rights is extremely important for the next cycle.

Willie Walker: just did not pass the bill that had in it increased LIHTC for 2025, which was disappointing as it relates to specifically that issue. But the general consensus is that...

William Walker: So the reason we've done so well over the last two years is because we were so successful at building up $133 billion loan servicing portfolio that would kick off cash during times when transaction volumes went down and we have been the net beneficiary of that over the last two years. But we also realize that, like it will be, whether it's five years from now, seven years from now, let's hope it's 10 years from now.

Willie Walker: increase the amount of low-income housing tax credits being issued at the

Willie Walker: And I think that we're extremely well-positioned as it relates to the need for more low-income housing tax credits to drive the building of affordable housing across the country.

Willie Walker: We've integrated Alliant into Walker & Dunlop, raised our newest fund at the beginning of Q2, and we are starting to see that integration of Alliant into Walker & Dunlop and the general branding of our affordable housing business start to have real benefits. We moved Sherry Thompson into running all of the affordable housing earlier this year.

Willie Walker: The second thing is that, you know, we bought Alliant two years ago. We've been integrating Alliant into Walker & Dunlop, raised our newest fund at the beginning of Q2, and we are starting to see that integration of Alliant into Walker & Dunlop and the general branding of our affordable housing business.

Willie Walker: start to have real benefits we move sherry thompson into running all of affordable housing earlier this year and so bring the formerly known as aalliant business wel up affordable equity in with our affordable b originations are affordable investment sales

Willie Walker: And so bringing the formerly known as Alliant Business, Walker & Dunlop, affordable equity in with our affordable debt originations, our affordable investment sales, and pulling all of that together, I think is going to start to really show some benefits. And so we feel very, very good about it. We have a fantastic team that we brought in during that acquisition, and clearly, the assets in that portfolio have been operating extremely well. And the additional EBITDA that we generate from that business has been very beneficial over the last two years.

William Walker: But in the next cycle, what will get us through that next cycle is booking lots of Morgan servicing rights over the next three, five, seven years. And so one of the things that we are very focused on is that there is no shifting focus inside of Walker and Dunlop away from booking Morgan servicing rights because that is the business model. And so while our financial result, as I said in the call, feel very good about it is up to us to continue to have our loan originators going out and finding lending opportunities that generate significant Morgan servicing rights which will benefit non-cash earnings and non-cash revenues as we book them which will then pay huge dividends three, five, seven years from now when we hit the next downturn where transaction volumes come down.

Willie Walker: And pulling all of that together, I think is going to start to really show some benefits. And so we feel very, very good about it. We have a fantastic team that we brought across in that acquisition. And clearly the assets in that portfolio have been operating extremely well.

Willie Walker: and the additional EBITDA that we generate from that business has been very beneficial over the last two years.

Willie Walker: And then on the HUD business that picked up meaningfully, and I know it's a high-margin business, although dollar volume is not that big, but what are your thoughts on the outlook there?

Speaker Change: Thank you. And then on the HUD business, that picked up meaningfully, and I know it's a high-margin business, although dollar volume's not that big, but what are your thoughts on the outlook there?

Willie Walker: I think you just said it, which is that it's an extremely valuable business. HUD volumes have been down, we're very focused on increasing those volumes. Their D4 product, which is their construction loan product, is a fantastic product for people who want to build and hold rather than build and sell. And we're very, very, and we've got a fantastic D4 team, the very best in the country.

Willie Walker: I think you just said it, which is that it's an extremely valuable business. HUD volumes have been down. We're very focused on increasing those volumes. Their D4 product, which is their construction loan product, is a fantastic product for people who want to build and hold rather than build and sell. And we've got a fantastic D4 team, the very best in the country.

Speaker Change: I think you just said it which is that it's extremely valuable business HUD volumes have been down we're very focused on increasing those volumes. They are D for product, which is their construction loan product.

William Walker: And that's the resiliency of the platform, but it's also very much our strategy and that has not changed one Iota. Got it. So what you're saying in it when you think about WD and the origination side of your business, your GSC business, obviously the MSR is a fair value recognition of that discounted fair value is critical right to your your accounting and your and your profitability. So I guess what I'm here to say, Willie, in a normal origination focused environment, which will have here with hopefully with lower rates.

Willie Walker: Is a is a fantastic product for people, who want to build and hold rather than build and sell them and we're very very well and we've got a fantastic D for team the very best in the country.

Willie Walker: And one of the big issues that were driving our higher HUD volumes pre-tightening was what are called interest rate reduction loans, where you put a HUD loan on back in whenever, 2014, and because rates came down, we could go and redo that loan. That was a big driver of volumes pre-great tightening. That volume obviously fell off as we moved into this higher rate environment, and there hasn't been a whole lot of new lending that would have had more of those IRR loans going forward.

Speaker Change: And one of the big issues that was driving our higher harvest volumes pre tightening was what are called interest rate reduction loans, where you've put a HUD loan on back in 2014, and because rates came down we could go in and redo that loan that was a big driver of volumes pre.

William Walker: That MSR. Ignition in the current period is an important part of your business model. So I guess I was asking for taking away noise, but you can't, what you're telling me is we can't have it both ways, right? I mean, if we're going to look at the MSR's as revenue as their book, then we're just going to have to live with any adjustments going through, you know, other than the normal amortization going forward.

Willie Walker: Great tightening that volume, obviously fell off as we moved into this higher rate environment.

Willie Walker: And there hasnt been a whole lot of new lending that would.

Willie Walker: Oh to having more of those IRR loans going forward. So the name of the game right now Jade is increased before as well as $2 23, App, which is just their standard refinancing product and our team knows that but those are the two products that we're out selling and that we need to get ourselves there.

Willie Walker: So the name of the game right now, Jade, is increased D4 as well as 223F, which is just their standard refinancing product. And our team knows that those are the two products that we're outselling, and that we need to get ourselves, the aggregate volume is important, but lead tables are extremely important to us, and continuing to be at the very, very top of the lead tables versus the competition is super important, and our whole team is focused on doing just that.

Willie Walker: So the name of the game right now, Jade, is increased D4 as well as 223F, which is just their standard refinancing product. And our team knows that those are the two products that we're outselling, and that we need to get ourselves. The aggregate volume is important, but lead tables are extremely important to us. And continuing to be at the very, very top of the league tables versus the competition is super important, and our whole team is focused on doing just that.

William Walker: Yeah, I mean, Steve, let me just let me put a finer point on this if I if I if I calm. I just in the call talked about some of our larger scaled competitive platforms and the thinking always was that because they were brought in diversified and had these lower margin services contracts that in the downturn, they would do better than Walker & Dunlop. And as Jade's analysis showed, they didn't. Okay.

Willie Walker: The aggregate volume is important but lead tables are extremely important to us and continuing to be at the very very top of the league tables versus the competition.

Willie Walker: Super.

Willie Walker: Important and our whole team is focused on doing just that.

Speaker Change: Thank you.

Willie Walker: Okay.

Operator: And ladies and gentlemen, that concludes the Q&A portion of today's call. I'd like to turn the conference back to Mr. Willie Walker for additional or closing remarks.

Speaker Change: And ladies and gentlemen that concludes the Q&A portion of today's call I'd like to turn the conference back to Mr. Willy Walker for additional or closing remarks.

William Walker: So then go to the other extreme, which is some of our other competitive firms that are all transaction volume focused. If we were to forget about gap EPS, we would run after adjusted core EPS, which is the cash flow off the servicing portfolio, but it is also just cash transaction fees. And what happens is if you're solely focused on cash transaction fees, you do really well on cash earnings, but you do not have that mortgage servicing right portfolio to hold on to during those transaction volumes come down.

Willie Walker: Great. Thank you everyone for joining us today. And thank you to the WND team for all they did to produce a very solid Q2 2024. And we look forward to talking to you all at the end of Q3. And, well, again, you have Q4 for Q3. Thanks, everyone. Have a nice day.

Willie Walker: Great. Thank you everyone for joining us today and thank you to the WD team for all they did to produce a very solid Q2, 2024, and we look forward to talking to you all at the end of Q3 and beginning of Q4 for Q3.

Willie Walker: Everyone have a nice day.

Willie Walker: Okay.

Operator: Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.

Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.

William Walker: And so that's the beauty of the model. And so if our compensation committee came to me and said, Willie, we think for you and the other senior managers, we should start to focus on adjusted core EPS and less on gap EPS. I would say no way because it's the gap EPS and the generation of those mortgage servicing rights over time. They will benefit this platform five, seven, ten years from now when we have another downturn in transaction volumes. That's the model and we'll stick to it. That's very helpful, Willie.

Operator: Okay.

Steve DeLaney: Appreciate that clarity. Thanks so much.

Operator: [music].

Derek Sommers: And we'll move to our next question from Derek Summers with Jeffries. Please go ahead. Hey, good morning, everyone. I was wondering, you know, I think in the prior quarter, we talked about a kind of large property sales pipeline. I was just kind of wondering, you know, how that compares at the end of this quarter and what were the puts and takes that deal flow pulling through. Yeah, Derek. The pipeline is very nicely and sits.

Operator: Yeah.

Operator: Okay.

Operator: [music].

Derek Sommers: We haven't disclosed the actual number, but it's great. And as I tried to give color, one of the, you know, our success in sales team and moving up in the lead tables is fantastic. Not only from the flow business, but also being invited to pitch for some very large portfolio transactions were previously walking them up. Wouldn't have been invited to those to those bakeoffs, if you will. I will say that if you look at the first half of the year, a number of our competitor firms had some significant growth in their volumes year over year from 2023 to 2024.

Operator: Yeah.

Operator: [music].

Operator: Yeah.

Operator: [music].

Derek Sommers: And our volumes were down slightly. That's disappointing as it relates to our overall, you know, competitive positioning. But we're still a top five multi family investment sales platform pipeline is very strong. And as I said in our comments, our team is doing everything right right now. So I feel very good about where we are positioned. And the combination of investment sales and lending has us right now. Any multi family owner operator investor in the US who's thinking about selling either an individual asset or a skilled portfolio.

Operator: Okay.

Operator: [music].

Derek Sommers: Walker and Delop is going to be on their list of firms to talk to. And given the strength of our financing platform, those two things during this next cycle should benefit one another tremendously. Yeah, that's very helpful color. Thank you. And then just to switch the GSEs, you know, coming to the end of the year here, have there been any conversations about the multi family caps? And then I guess given the election cycle, you know, any kind of pertinent thoughts on, you know, working with different administrations.

William Walker: Cool, I'll skip on the second one. On the first one, the FHFA is always take Q3 to see where the GSEs are as far as their volumes and coming up with what they want to do in the scorecard in the coming year. I've spoken to the regulator, various people at FHFA over the past couple months. And I think that they're, they're looking at a lot of different data points right now. I think they see the market recovery coming.

William Walker: And as a result of that, I would think that they lean towards maintaining the caps where they are rather than either shrinking or expanding them. But only time will tell and that's obviously something that the regulator has complete discretion over. And then I will only say as it relates to the election that we will likely have regardless of whether it is a Trump administration or Harris administration. We will likely have a change in the directorship of FHFA.

William Walker: I don't know director Thompson's desires personally about whether she wants to stay on or go, but I would assume that with either one of those new administrations that there would be a new director of FHFA. And so always with the new director, there is change and we've been pretty good at adapting to that change from some directors of FHFA who have had a very aggressive strategy on changing what the GSEs do to others who have been more in line if you will with the previous director.

William Walker: But I would put forth that we'll see what happens in the election and we'll see what happens at FHFA in 2025. But we've sort of been to this rodeo before if you will having worked with Fannie and Freddie for as long as we have and particularly since they went into conservatorship in 2008. And so none of that is terribly concerning at this point. Thank you.

Unknown Attendee: That's all from me.

Brian Violino: And moving to our next question from Brian Bielino with Web Bush Securities. Please go ahead. Great. Thanks. Good morning. Just on escrow income, obviously that's going to benefit over the last few years with higher share term rates.

Gregory Florkowski: It's just curious, you know, if we do see the Fed start to cut here, could you kind of frame what the negative impact on escrow revenues would be for say each 25 basis point cut. And obviously I know that would be all said by better transaction revenues, but just curious what the all said could be there and maybe the timing between the two. Yeah, absolutely. So simply we have about depending on the time of the year, we have between 2.2 and $2.5 billion of escrow reserves that we hold.

Gregory Florkowski: So, you know, a quarter point is going to be multiplied by that balance and then you're going to just take that whatever the reduction in Fed funds occurs is effectively when our rate is decreased. So, expect that to just be. You know, just be implemented this year as the rate change occurs, that type of a change will occur to our revenues whatever you're projecting or thinking about from a forward curve perspective is what you'll see the impact be on our financials on the annualized basis from that point forward.

Gregory Florkowski: Okay, thanks and then just on the expense side, you know, it sounds like there's plenty of capacity, but just, you know, curious how you're thinking about six expenses at this point as we do see a more notable upkick and volumes is a fair to say. But you think the expense base is pretty set for, you know, where you see volumes at least going in the very near term. Absolutely, we've made sure to to maintain capacity, we've got as Willie said on his remarks, plenty of capacity with respect to the team, he gave some stats on where our investment sales team was towards the peak of the market.

Gregory Florkowski: So there's a lot of room for us to run from where we are today to there. There's absolutely going to need to be a little bit of incremental expense increase as we need to add. You know, just processing power, if you will, but nothing that would be, you know, outsized or, or, you know, too excessive. And I think as as transaction volumes grow back, it'll be somewhat, I don't think it'll be a massive spike. So I think we'll be able to grow into the market pretty easily from here without a lot of, not a lot of change there.

William Walker: The one other thing I jumped in behind right on the escrow on the escrow's and origination volumes. First of all, to your specific point, that's exactly right that the growth in volumes will more than offset the step down in escrow income, but the other piece to it is that there's also the escrow income access a hedge to our borrowing cost as well. And so as escrow income down, so there's our borrowing cost.

William Walker: So you know what Greg talked about that as it relates to how you also have as escrow comes down, so there's our borrowing cost on our debt. So those two act as a hedge against one another. And then if you're in a lower rate environment, it's very clearly the assumption that transaction volume step up. And so net net, that's all net beneficial to us. In a rising rate environment, it was nice to have that hedge against the increased borrowing cost in the escrow's, but as that steps down, the debt cost in the escrow's work basically in tandem with the hedge. And then what you pick up is increased transaction volumes.

Jade Rahmani: And our next question is from Jade Romani with KBW, please go ahead. Thank you. Just wanted to ask about the affordable equity business, the business that used to be known as aligned. Just on the L.I. THC outlook. Now what are you seeing there? And I think you alluded to the lower rate environment outlook potentially benefiting that business.

William Walker: A couple of things there, Jade, first of all, just did not pass the bill that had in it increased light tax for 2025, which was disappointing as it relates to specifically that issue. But the general consensus is that obviously to increase the amount of low income housing tax credits being issued at the federal level of both 9% as well as 4%. And I think that we're extremely well positioned as it relates to the need for more low income housing tax credits to drive the building affordable housing across the country.

William Walker: The second thing is that, you know, we bought a line two years ago, we've been integrated line into Walker and Dunlop raised our newest fund at the beginning of Q2. And we are starting to see that integration of a line into Walker and Dunlop and the general branding of our affordable housing business start to have real benefits. We move Sherry Thompson into running all of the affordable housing earlier this year. And so bringing the formerly known as a lion business, Walker and Dunlop affordable equity in with our affordable debt originations are affordable investment sales and pulling all of that together.

William Walker: I think it's going to start to really show some benefits. And so we feel very, very good about it. We have a fantastic team that we've got across in that acquisition and clearly the assets in that portfolio have been operating extremely well. And the additional EBIC DA that we generate from that business has been very beneficial over the last two years.

William Walker: Thank you. And then on the HUD business that picked up, meaningfully, and I know it's a high margin business, although dollar volume is not that big, but what are your thoughts on the outlook there? I think you just said it, which is that it's extremely valuable business. The product, which is a construction loan product, is a fantastic product for people who want to build and hold rather than build and sell. And we're very, very, and we've got a fantastic D14, the very best in the country.

William Walker: And one of the big issues that was driving our higher HUD volumes pre tightening was what are called interesting reduction loans, where you put a HUD loan on back in whenever 2014 and because we came down, we could go and do that loan. That was a big driver of volumes pre-great tightening. That volume obviously fell off as we moved into this higher rate environment. And there hasn't been a whole lot of new lending that would having more of those IOR loans going forward.

William Walker: So the name of the game right now, J.H, is increased D4 as well as 223 F, which is just their standard refinancing product. And our team knows that, that those are the two products that we're out selling, and that we need to get ourselves, that the aggregate volume is important, but lead tables are extremely important to us. And continue to be at the very, very top of the lead tables versus the competition is super important, and our whole team is focused on doing that.

Unknown Attendee: And ladies and gentlemen, that concludes the Q&A portion of today's call.

William Walker: I'd like to turn the conference back to Mr. Willy Walker for additional or closing remarks. Great. Thank you, everyone, for joining us today. And thank you to the W&D team for all they did to produce a very solid Q2, 2024. And we look forward to talking to you all the end of Q3. And well, again, here's Q4, 4, Q3. Thanks, everyone. Have a nice day.

Unknown Attendee: Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.

Unknown Attendee: [inaudible]

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