Good morning, I’m Kelsey Duffey, Senior Vice President of Investor Relations at Walker & Dunlop, and I would like to welcome you to Walker & Dunlop’s Fourth Quarter and Full-Year 2022 Earnings Conference Call and Webcast. Hosting the call today is Willy Walker, Walker & Dunlop Chairman and CEO. He is joined by Greg Florkowski, Executive Vice President & CFO. Today’s webcast is being recorded, and a replay will be available via webcast on the Investor Relations section of our website. This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Greg will touch on during the call. Please also note that we will reference the non-GAAP financial metrics, adjusted EBITDA and adjusted core EPS, during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations, and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. 2022 was a challenging year for the debt markets, commercial real estate industry, and Walker & Dunlop. Since going public in 2010, we have generated outstanding shareholder returns of over 800%. Yet in 2022, not only was our stock price down precipitously, but we did not achieve our annual financial targets. While the Federal Reserve raising interest rates by 425 basis points, is the direct reason for the commercial real estate financing and sales markets falling apart. We take full accountability for our 2022 performance. On this earnings call last year, we outlined significant growth for Walker & Dunlop, not knowing the extent of the dramatic of the Federal Reserve's tightening plan. And as the rate hikes got more consistent and significant, the commercial real estate transaction market slowed down dramatically. We closed $11.2 billion of total transaction volume in Q4, down 59% from Q4 of 2021, generating total revenues of $283 million, down 31% from Q4 of 2021. Diluted earnings per share was $1.24, down 49% from the previous year, reflective of the dramatic deceleration in capital markets activity we saw in the back half of the year. Full-year debt financing and sales volume was $63 billion, down only 7% year-over-year, generating revenues of $1.3 billion flat from 2021. Full-year diluted earnings per share was $6.36, down 22% from 2021, primarily due to significant declines in mortgage servicing rights from our Fannie Mae and HUD loan originations. The dramatic drop in MSR revenues was due to pricing with Fannie Mae and overall lending volumes with HUD. The rising interest rate environment in Q3 and Q4 forced us to adjust pricing on our Fannie Mae loans to make deals work for our clients, which resulted in lower guarantee fees for Fannie Mae and…

Thank you, Willy, and good morning, everyone. Our $11.2 billion of fourth quarter transaction volume generated total revenues of $283 million, down 31% from the same quarter last year and diluted earnings per share of $1.24, down 49%, compared to last year. As a result of the challenging fourth quarter market dynamics Willy just described and the associated impacts on our deal level profitability, our operating margin and return on equity remain below our target ranges at 17 % and 10% respectively. We continue to generate durable and growing cash revenues from our servicing and asset management businesses and benefit from the variable nature of our compensation structure when transaction volumes decline. As a result, adjusted EBITDA was $93 million, down only 16% from the same quarter last year despite a 59% year-over-year decline in total transaction volumes. Notably, recent acquisitions Alliant and Zelman contributed $42 million of revenues this quarter and over $130 million of primarily cash revenues this year. Highlighting the stability of those two businesses and the value of those recent investments. We also continue to benefit from earnings on our escrow deposits, which are tied to short-term rates and grew dramatically throughout the year, increasing to $26 million in Q4, up from just $2 million a year ago. Entering 2022, we were confident that our investments in people, brand and technology along with a strong and loyal client base and a stable interest rate environment would allow us to continue growing revenues, diluted EPS and adjusted EBITDA by double-digits and deliver a high 20% operating margin and high teens to low 20% return on equity. Our outperformance during the first half of the year supported that confidence, but the unprecedented movements in interest rates and associated impacts on liquidity, supply to commercial real estate brought on…

Thank you, Greg. Rarely it ever has forecasting for our business and the broader economy been more challenging. On one hand multi-family fundamentals are extremely strong. The public multifamily REITs, who have already reported show solid growth in rents and compressing cap rates to start the year. With over 80% of Walker & Dunlop revenues coming from the multifamily industry and 100% of our credit risk being on multifamily properties, we feel great about our market positioning. And as the largest GSE lender in the country, we feel extremely good about our access to capital to meet our clients' borrowing needs. And yet after watching the Federal Reserve successive 75 basis point rate hikes in the back half of 2022 literally sees the financing and sales markets. It's exceedingly difficult to predict when transaction volumes will return to a normalized pace. There are plenty of data points to give us optimism. At the National Multifamily Housing Council's Annual Conference in Las Vegas three weeks ago, the topic of discussion was when interest rates and cap rates stabilize to allow investors to transact again and not distress. One of Walker & Dunlop’s largest warehouse lenders, a Citibank, that halted all CRE lending in the back half of 2022, just offered to expand the size of our warehouse line and ask us to take down our unused capacity. And most of the lenders at the Mortgage Bankers Association Annual Conference last week were looking to lend more on commercial real estate in 2023 than they did in 2022. And finally, the Federal Reserve's 25 basis point rate hike earlier this month was well received by the market, and prompted an uptick in transaction volumes. Yet clarity on whether the Fed raises 2 or 3 more times and by how much is keeping…

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

Can you hear me?

We can, Jade.

Hey, how's it going?

Great.

Thanks so much for your comments. Just on the Fannie Mae side, that was one of the main variances for the downside versus our estimate. Can you comment on the outlook for that business line? In particular, historically WDs had extremely strong market share with Fannie Mae, a very high-quality track record with the company. And I know that in my conversations with the industry, the GSEs are very focused on mission-driven housing -- affordable housing. So where does WD's business model fit within that? And are you confident that Fannie Mae originations in particular will pick up as we move later in the year? Thank you.

Sure, Jade. Well, as I hope that slide that we put up there, the CoStar produced, it's a pretty dramatic slide as it relates to the growth in W&D's volumes with Fannie Mae over the last five years. As not only we moved into the number one position, but then we moved further to the right and gained a lot of volume, a lot of our competitor firms moved to the left and in some instances fell off the chart. The agencies are there to provide liquidity when the market dislocates, which is where we are today. And they are doing that. And so from an overall volume standpoint, I don't think we have any doubt that we will continue to be at the very top of the lead tables and continue to do a tremendous amount of volume with Fannie Mae. As Greg and I both underscored, servicing fees have been under pressure due to pricing in the market. It is our very strong conviction that when rates stabilize and cap rates stabilize, we can get back to historic pricing on servicing fees. But until we get back to that moment, every deal in a rising rate environment is going to be under pressure from a pricing standpoint. And therefore we are going to be under pressure to reducing those fees just as Fannie is reducing their GP to be able to win business. The final piece is the focus on affordability and mission. If you look in the Fannie Mae press release that announced that Walker & Dunlop was largest DUS lender in 2022, it also breaks out in that press release the various, if you will, subgroups of affordable housing, manufactured housing, seniors housing, [Li-Tech] (ph) housing, et cetera, et cetera, and you look at those lead tables, you can see very clearly Jade that Walker & Dunlop is right there as it relates to the specialty products and being high in the lead tables with Fannie Mae on those areas of the business that are mission driven and are very important to them hitting their scorecard. And the final piece I'd say is we've only had a lion inside of Walker & Dunlop for a year. A lion had an exceptional year in 2022 and Greg underscored their financial performance in his comments. Our continued growth in the affordable housing space as a tax credit syndicator as a lender of debt, as an equity razor and then deployer is super, super helpful. To us growing and having, if you will, the synergies between our core existing business pre-Alliant acquisition to where we are today post-Alliant acquisition and integration.

Great. So just to confirm, it sounds like you don't have any concerns in terms of a shift going on at Fannie Mae with respect to their focus on affordable that is -- that has a negative impact on W&D?

No.

Great. Second question would be the credit performance. I mean, it's astonishing to me how good the performance is. You noted average debt service coverage ratio and then risk sharing book at over 2 times. I think that even defaulted loans with a very, very minimal decrease. So what are you seeing on the credit side? And specifically as multifamily loans come up for repayment especially floating rate loans? What do you expect to happen? And could this even be an opportunity to extend servicing of those loans as they come up for maturity?

So Jade, as I've heard you ask in a couple other investor excuse me, a couple other earnings calls so far this cycle. There is very clearly an issue with floating rate financing and in particular people, who need to fund escrow accounts for new caps that need to go in place on those floating rate loans. There are a couple of things to keep in mind as it relates specifically to Walker & Dunlop. The first thing is that we do not carry any risk on CLOs, period end of statement. We have no risk on CLOs. The second thing is that our Freddie Mac business and our Freddie Mac servicing book carries no risk to Walker & Dunlop. And so while Freddie Mac has been the predominant floating rate lender in the multifamily space, as I underscored given our Q4 volume with Freddie Mac, and our lower volume of Fannie Mae, we don't take risk on those Freddie Mac loans, the BP's buyers on those loans are the ones who carry the risk on those floating rate loans. Does it provide an opportunity for Walker & Dunlop to step in and help our clients in refinancing those deals, trying to potentially negotiate with the master servicers some type of relief from a cap cost expense standpoint? Very much so. And as you can imagine, we're doing that daily. But as it relates to credit risk to Walker & Dunlop, we don't carry credit risk on those floating rate Freddie Mac loans. And then I'd say the final thing is as a company that emerged from being a small privately held family-owned company to the company we are today, credit has always been at the center of everything we do at Walker & Dunlop. When I joined Walker & Dunlop, if we had one loan go bad, it could have bankrupted the company. And as a result of that, that very deep focus on credit has paid incredible dividends as we scale this business to be much, much bigger. To the point where quite honestly, we can “afford to take more losses”, but we don't because of that credit underwriting discipline. And David Levy, who is our Chief Credit Officer, I've got incredible confidence in David and his entire underwriting team, and so we feel extremely good right now from a credit perspective, particularly Jade given the underlying fundamentals of multifamily. While the transaction volume has fallen off precipitously, given where rates have gone and waiting for adjustment to cap rates for people to allow to reenter the market. As I said at the beginning of my comments, all the publicly traded multifamily REITs, who have reported so far are showing fantastic rent growth and compressing cap rates starting 2023. And so the fundamentals of multifamily are holding up very well and that plays into the strength of our fixed rate Fannie Mae loan servicing portfolio.

Thank you very much.

Yes.

Thank you, Jade. Our next question comes from Jay McCanless at Wedbush Securities. Jay?

Thanks. Good morning, everyone. Thank you for taking my questions. If we could start with the adjusted earnings calculation and Greg, please correct me where I'm wrong on this, but it looks like the change from the way you were expressing it in the third quarter of ‘22 to now, looks like you just took stock comp out of it and made a change to the tax adjustment. Am I reading that correctly?

For the most part, and we're also fully including all of the revaluation adjustments as well Jay, which we haven't included in the past, particularly the fourth quarter adjustment to the earnouts. So there's a slight change from that. But…

I mean high level, why exclude the stock comp? I would think that's something that since it's a non-cash expense, typically something you want to take out to show true operating earnings?

Yes, I think more -- not necessarily trying to make it a cash metric, Jay, but something that just gives you a better sense of sort of the core performance of the platform and the stock comp is a meaningful part of our compensation plan for most of our key executives and senior management. And we feel like it's an important expense to include, because it is what retains people. So we don't want to -- we think that's an important adjustment for EBITDA, but not necessarily for the new core adjusted EPS metric.

Okay, got you. And then I guess the second question on GeoPhy, is it more a competitive issue with everyone trying to do more small balance lending right now, Willy? Or was it really a demand issue from the potential borrowers?

So Jay, I'd say there are a couple of things there. First of all, we have been somewhat capital constrained in the box that the agencies have been willing to lend on. Because there are some requirements in the SBL space as it relates to the number of properties owned that make it so that lending to a new borrower in the SBL space has been somewhat challenging with the agencies. We raised outside capital to be able to meet that need and then had our capital partner in that joint venture basically said that they didn't want to do lending in the back half of the year. And so that sort of took that source of capital off to the side. They have now come back and said that they are ready to go and rolling up their sleeves and saying let's put money to work. And we also have if you will, increase momentum with the agencies in our SBL space. I have to tell you there are very few pieces to our business. That I have as much excitement and confidence around as our SBL lending space. And the reason for that to be kind of direct and blunt. In all of our businesses, it's a very, very competitive landscape, but this SBL space is dominated by the big money center banks. And as I've said to our team multiple times, if we can't beat the big money center banks from a focused client service and execution standpoint, I mean that's what Walker & Dunlop built itself on. You look at the lead table that we showed there as it relates to our Fannie Mae volumes and how we've just moved up and moved up. Those are some pretty big brands that we jumped over. Those are some pretty big brands that we've continued to outperform against. And so SBL just gives us another, if you will, bite at the apple to go after some of these large behemoth firms that really not focused in this space and start to take share. And then the final thing I'd tell you, there were a couple of upstart companies in that space, one of which was sold to a regional bank, so I kind of discount them as being a competitive force anymore. And then there are only a few other entrepreneurial companies and that we have to really compete with to win market share. And we feel very good about that sort of head-to-head battle.

Great. Thank you. And then I guess my next question, I know you talked about it in the prepared remarks that your confidence around adjusted EBITDA gives you the confidence to raise the dividend, but being I don't know skeptical, I would say of what rates are going to do this year? It just seems like -- maybe seems premature to raise the dividend at this point. Maybe can talk about that and kind of the bull bigger around making that decision?

I don’t -- let's just put it this way, we had a very good discussion at our board meeting, but given our overall financial performance, the natural hedge that we have from our escrows against increasing interest expense and the cash that the servicing portfolio, as well as the asset management portfolio kick off. We feel extremely good as it relates to our cash generating capabilities. And as a result of that, rather than raising the dividend 10% as we've done quite consistently, the Board decided to go with the 5% dividend increase. But felt very good and very confident in doing that.

Great. Thank you. And then my last question, we've seen a lot of rate facility between January 23 and February 23, I guess, could you talk a little bit about what volumes look like in January directionally and then what you've seen so far in February and have you seen some people getting more hesitant or clients getting more hesitant about entering transactions just given some of the volatility we've already had this year?

It's actually the opposite. If you look at -- I mean, we were at NMHC and I was meeting with one of the agencies. And I said, how you're feeling about hitting your cap this year and they're like, well, for the first and second week of the year, our inflows were nothing. So if they continue at that level, they were $700 million a week for the first two weeks of the year and we won't hit our cap. But we had $4.3 billion of inflows last week, and so if they continue at that rate, boy, we'll have to manage to our cap. The year started out slow as it typically does, but also coming off of six months of very limited transaction volume is our numbers and the overall market volumes would tell you. The market has started to gain momentum. But as Greg and I both underscored and as you can imagine, we were editing our comments up until yesterday afternoon to try and get investors as insightful of you on the market as we possibly can. Just over the last week, we've added a lot to our pipeline. But you add to the pipeline today and it's a March or April deal. And so what we're seeing is the market build. We just had a client call us up and say they want to go do a new facility with us, because they want to have dry powder, they see the market coming back. We love getting phone calls like that, but you're not going to base a quarter on one facility that you're doing for a fantastic historic plant. So I would only say that we, as I said in my prepared remarks, Jay, we are seeing plenty of signs for optimism and at…

Great details. Thank you, Willie. Appreciate it.

Sure.

We have no further questions at this time. So I will now turn the call back to Willy for closing remarks.

Thank you everyone for joining us this morning and thank you to W&D team, and as well thanks for the earnings team for pulling all this together as effectively and professionally as you always do. I hope everyone has a great day and I appreciate you all joining us this morning. Thanks.

Goodbye.