Good morning, everyone. I’m Kelsey Duffey, Vice President of Investor Relations at Walker & Dunlop. And I would like to welcome you to Walker & Dunlop’s Third Quarter 2020 Earnings Conference Call and webcast. Hosting the call today is Willy Walker, Walker & Dunlop, Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer. [Operator Instructions] This morning, we posted our earnings release and presentation to the Investor Relations’ section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Steve will touch on during the call. Please also note that we will reference the non-GAAP financial metric, adjusted EBITDA, during the course of this call. Please refer to the earnings release posted on our website for a reconciliation of this non-GAAP financial metric. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations, and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. We expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. We hope you and your families are safe and healthy. I want to start our call by sending condolences to one of our colleagues, Will Baker, who lost his father suddenly yesterday morning. Will is an extremely important member of the Walker & Dunlop team, having joined W&D right out of college and risen to become one of our most successful bankers and team members. There’s another member of our team, Howard Smith, who also joined Walker & Dunlop right out of college, also rose to become one of our most successful bankers, and has been my partner in building this business as our President. Howard will celebrate 40 years at Walker & Dunlop on November 24. It is people like Will and Howard that make Walker & Dunlop what it is, and I want to reiterate our condolences to Will and the entire Baker family for their loss. As a company that finances millions of safe, affordable apartment homes and understands the direct correlation between vibrant, integrated communities and economic growth; we remain very focused on the COVID pandemic and issues of racial justice that have impacted our country so dramatically over the past eight months. We have continued to provide credit to the multifamily industry as landlords have changed how they operate their buildings due to the pandemic and also dealt with rental forbearance. We have raised and donated money to nonprofits that focus on healthcare and housing. And we have made hires and changes to our corporate leadership and governance that will continue to make Walker & Dunlop a leader on issues of racial and gender diversity and economic opportunity. And while doing all of this in the midst of the pandemic and social unrest, our company continues to perform…

Thank you, Willy, and good morning, everyone. Our third quarter financial performance once again demonstrates the strength and durability of the Walker & Dunlop business model, as we continue to perform incredibly well during these challenging times. Our combination of steady cash generation, extremely strong credit fundamentals and long-term focus on providing exceptional multifamily financing and sales capabilities continue to generate above-market growth in top and bottom line performance. As evidenced by the 16% year-over-year increase in revenue during the quarter to $247 million and 19% growth in diluted earnings per share to $1.66. In addition, return on equity for the quarter was 20%, up from 18% last year, while operating margin held steady at 28%. Q3 adjusted EBITDA was $45.2 million, down from $54.5 million in Q3 of last year. There is significant upside to EBITDA in 2021 and beyond as the cash-generating components of our business increase. First, our servicing portfolio has grown by 13% over the past year and now stands at $103 billion, as you can see on slide eight. In addition, the weighted average servicing fee on the portfolio has increased to 23.4 basis points at the end of Q3. We earned $60 million of high-margin cash servicing fees in Q3, up 10% from last year, and those revenues will only continue to grow with the increase to both the portfolio and the weighted average servicing fee. Second, volumes from our debt brokerage and property sales teams have been constrained in 2020 due to the impacts of the pandemic on the commercial real estate market. As a result, we have not seen the boost in adjusted EBITDA that these cash-generating businesses can provide, when they are operating with their full capacity as we saw in the first quarter of this year. And finally, while we…

Thank you, Steve. Our exceptional performance over the past several years and through the first three quarters of 2020 puts us at the doorstep of achieving almost all of the component parts of the five-year growth plan that we set out at the end of 2015 called Vision 2020. Our long-standing mission has been to build the premier commercial real estate finance company in the United States. And as we have set ambitious growth objectives to bring us closer to achieving that goal, exceptional financial results have followed. The first part of Vision 2020 was to grow our debt financing volume to over $30 billion by the end of 2020. On a trailing 12-month basis, we are now at $31.4 billion of debt financing and are projecting that we end 2020 at a similar annual run rate. As you can see on slide 11, over the past five years, we have grown annual loan originations at a 14% compound annual growth rate, and we believe we continue that growth trajectory, given the people, brand and technology we have built. As the right-hand side of this slide shows, we have grown our servicing portfolio at a 16% compound annual growth rate, which pushed the portfolio over the $100 billion mark early in the third quarter, achieving the second component of Vision 2020. We have doubled the size of our servicing portfolio from $50 billion to over $100 billion over the past five years and now stand as the eighth largest commercial loan servicer in the United States. The third objective was to grow our multifamily property sales volume to over $8 billion a year. And while we will come up short of that goal, as you can see on Slide 12, we have grown that business from $1.5 billion in 2015…

The floor is now open for questions. [Operator Instructions]. Thank you. Our first question is coming from Henry Coffey of Wedbush.

Hey, Henry. You’re still unmute.

Yes. Can you hear me now?

Yes.

Sure thing.

Great. Sorry about that. Two very basic questions. Rates go up, how does that affect volumes? And how does that affect the overall tone of the business?

Good morning, Henry. And thank you for joining us. Look, where rates are right now. Two things, 1, few expect rates to move significantly. I had Peter Linneman on the Walker webcast two weeks ago, and Peter said that he would be very surprised if the 10-year gets above 150 over the next three years. But you think about how much rates have fallen and what the effective coupon rates that we’re lending at today, Henry, rates could move significantly, and I do not think they impact our overall volumes. And the second thing, as you well know, unlike the single-family mortgage industry, which is refinancing every single loan they possibly can right now, due to prepayment protection in the commercial mortgage industry. There’s only a certain amount of loans that we actually can refinance given where rates are today and given the opportunities. And so one of the interesting things there is as much as rates are extremely low, I don’t expect them to go up, and we also have the opportunity to continue refinancing rates over the coming -- loans over the coming years, given that prepayment protection component to commercial mortgages.

Of course, the other side of the equation is, "Rates don’t go up, and we have a softer economy," are there particular pockets in 2021 within the guarantee book that you’re worried about. I know you haven’t had any issues. Multifamily generally doesn’t have a lot of issues. But if you look at your existing book, are there either problems or, frankly, maybe opportunities that could come your way if we have a weaker-than-expected economy in 2022. I’m sorry, in 2021.

Right. So as you know, Henry, we take no risk on any non multifamily loan in our servicing portfolio. So as it relates to Walker & Dunlop and risk management, as Steve ran through in great detail, our very scaled multifamily portfolio, and the at-risk portfolio has performed exceptionally well. And so, we do not see anything as it relates to Walker & Dunlop and any potential losses or risk in 2021 on non multifamily assets. And as Steve said, our multifamily portfolio has performed exceptionally well. Are there opportunities? I think there will be opportunities, Henry, in the hospitality space, in the retail space. But the other thing to keep in mind is that the banking system is extremely well capitalized. The life insurance companies that have loans on commercial real estate have extremely low leverage loans with lots of coverage to them. And so, it’s my expectation that you don’t see a lot of workouts and foreclosures on commercial properties in bank portfolios as well as life insurance company portfolios. Which really only leaves CMBs as collateral that will be distressed and needing to be worked out foreclosed upon, with a recapitalization of those assets. And as you know, over the last 10 years, while CMBS has come back somewhat, it is by no means, a very significant form of financing to commercial real estate. And so, I think there are plenty of investors out there looking for opportunities. But I think, because of the capitalization of the banking system, as well as the life insurance companies that are in the commercial real estate space, the number of workouts and opportunities will be limited.

Thank you. The next question is coming from Jade Rahmani of KBW.

Great. Good to hear from everyone. Willy, I wanted to ask you if you could comment on how you see the M&A landscape taking shape. And just generally speaking, do you think large-scale mergers of equal types of transactions create value in the brokerage space, equal sized companies and represent an opportunity for Walker & Dunlop? Or do you think that cultural and personnel considerations offset the benefit as we’ve seen a lot of friction costs in recent deals. Just curious about your thoughts there.

Yes. Jade, first of all, thanks for joining us this morning. Second, as you well know, we’ve been quite an acquisitive company over our history. And one of the key transactions that we did at Walker & Dunlop was in the depths of the financial crisis. In 2009, we acquired Column from Credit Suisse, and that was a transformative deal for our company. And on the backs of that acquisition, we ended up going public in 2010. So to put it very bluntly, we’re always looking for opportunities to acquire great companies and continue our growth path. With that said, I would say a couple of things. One, culture is incredibly important at Walker & Dunlop. And while there are several firms out there that I think have the opportunity to add services and scale to Walker & Dunlop. We would never make an acquisition of a company that didn’t fit culturally with Walker & Dunlop. And I can think of two or three out there that would not be a fit in any way. The second thing is, I think that the value of the global brands, the CBs and the JLLs of this world are very diminished today. I think that those platforms have lots and lots of; they are a, not getting the synergies of being global platforms because the world is on kind of rolling shutdowns as we’re seeing in Europe right now. And the second thing is that they’re very broad in there in many, many different markets in commercial real estate. They’re in leasing, they are in property management. Those two asset classes or divisions are, as you well know, Jade, suffering right now. And so those platforms right now, have certain divisions that are doing well and others that are suffering dramatically. We are very fortunate, given our focus on multifamily and also on the United States to be able to perform so well during these times, which I think gives us the opportunity, coming out of it, to grow even faster. And so, are we looking for M&A opportunities? Always. And at the same time, and do we have the capital to do it? Without a doubt, as Steve talked about on the call, given our cash balances today and also our borrowing capacity. But it would have to be exactly the right company from a cultural standpoint, and it would also have to be a company that doesn’t have a lot of things dragging on it right now to make it make sense for us.

And so as a follow-on, are you seeing -- it seems that, based on the press releases you guys have put out that there’s continued pace of hiring? Are you seeing a lot of opportunity to recruit talent? And could you also comment, as to what the year-on-year growth, the front office brokerage headcount is?

Yes, I don’t have the exact number on where we are from a banker broker standpoint. But I think we’re -- I don’t know, Steve, you got 210, 220. And you’re still on mute. But Jade, when we have been recruiting over the last five years, as we grew our investment sales platform, and as we’ve added bankers and brokers to Walker & Dunlop. One of the things we would always tell people is that, given our focus on multifamily and our size and scale with consistent capital from Fannie, Freddie and HUD, that when a downturn came, which we all knew it would come at some point, Walker & Dunlop would be exceedingly well positioned. And that while others were laying people off and trying to contain costs, we would be able to continue and invest. And that’s exactly what has happened. And so it is a real competitive advantage, as I said in my prepared remarks that we are positioned, where we are today, and have the ability to go out and attract new talent to Walker & Dunlop to continue to grow. And so we will continue to do that, and we feel that our competitive positioning is as strong or better than ever before.

Okay. In terms of multifamily credit, and I noticed on your webinar, this is definitely your webinar series. This has been a topic. We are looking at some of the data in terms of the mix of units, and there’s clearly a bifurcation in terms of credit performance between the large units that are in those more denser urban environments and most of the multifamily, which is below 20 units. Can you talk to the reasons that you’re seeing this strong resilience in credit performance and also looking at the servicing portfolio, if you see any bifurcation in terms of the unit concentration between larger and smaller type multifamily?

Sure. So we are -- I believe, we are somewhat -- I don’t want to say we are uniquely positioned, but we are extremely well positioned between those two extremes that you just effectively outlined, Jade. So where you’re seeing weakness is on the very large high-rise buildings in major urban centers. Many of those assets are owned by large multifamily REITs such as EQR, Avalon Bay and a couple of others. I’m not picking them out specifically that they have credit issues. I’m just saying they are the large publicly traded multifamily REITS. And lots of those properties are owned by those types of borrowers, who are not consistent or historic borrowers of Walker & Dunlop because they typically aren’t doing secured financing through the agencies, and they typically are using their credit lines to go and borrow and on to finance those assets. And so we don’t have a significant amount of exposure from a credit standpoint to what I call brass and glass, trophy assets in major MSAs like New York and San Francisco. Then you’ve got the middle of the market, which has held up extremely well from a credit standpoint, which is reflected in the numbers that Steve talked about in our prepared remarks. And then where you have weakness is in small loans. And as much as I just said that Walker & Dunlop will focus on becoming a big small loan lender going forward, using a lot of technology and our expert underwriting capabilities that we have demonstrated over decades. The small loan space right now is where you’re seeing significant weakness because it makes sense, right? If you’ve got a four unit multifamily property and one person has lost their job and isn’t paying, you now have 75% economic occupancy. You just lost 25% of your rent roll. And so, you are seeing weakness in that. And right now, very fortunately, Walker & Dunlop does not have a large portfolio of small loans, which is hurting some of our competitor firms.

Okay. That’s a good, go ahead, Stephen.

Sorry Jade, I was just going to jump in. And apologies, I was on mute earlier. So we’re at 203 bankers and brokers as of the end of September, which is up 13 net for the year.

And so just to follow-on on that point. I’ve gotten a few questions from some top-tier investors on this. They look at your fee revenue, your cash revenue, excluding noncash MSR gains, and it grew by a slower pace than your personnel expense. But do you want to talk to how that feeds into the future revenue profile because servicing fees are in the future. And so, the production that these brokers are driving, even though that, in this quarter, those broker headcount was up 13%, it translates into larger servicing revenues in the future. Would you like to speak to that dynamic?

Sure. So you’re correct in that as the servicing portfolio has grown pretty significantly this year. That bodes well for cash servicing fees. And as I pointed out in my earlier remarks, it’s not just the growth in the portfolio, but we’ve actually seen a little uptick in the weighted average servicing fee as a result of the strong servicing margins we’re seeing on our Fannie Mae business. So that’s going to generate a lot of future cash and drive growth there. In addition, I think a lot of our success on the agency side is driven by the fact that, as Willy pointed out, multifamily is the game right now. And a lot of our brokers who historically have done potentially a lot of office retail and other non multi type transactions are doing a lot more on the multifamily side and, by definition, more on the agency front. So we’re seeing a lot of production coming from that team that, when things start to normalize, will get back to generating more brokered transactions to our LifeCos and CMBS, et cetera. And that will also then generate more cash revenues. And I pointed back to the first quarter of this year, pre pandemic, we did almost $4 billion of brokered volume in that quarter, which was an all-time high for us. And the expectation is, once the market gets back to a more normalized level, that’s the level of production that our team is capable of generating on a regular basis.

Thanks for taking the question. And great job on the transaction and growth.

Thanks, Jade.

Thank you. Okay. At this time, we have no other questions. So I will turn the call back over to Willy for closing remarks.

Great. I want to thank everybody for joining us this morning. Congratulate my colleagues at Walker & Dunlop for an absolutely fantastic quarter as well as year, and wish everyone a great day, and thanks again for joining us.

Thanks, everyone.