Walker & Dunlop, Inc

Bill of Warrant of Walker Knapp's competitor firms spoke before me and said that the next CRA cycle would begin on July 8, 2025, as soon as the new tariff deals were negotiated. I disagreed and said it was highly unlikely all the trade deals would be negotiated by July 8. And second, even if the Trump administration was wildly successful negotiating trade deals, that nobody should think trade is the last macroeconomic issue President Trump is going to try to impact. And guess what? We were both right. The volatility we have seen in the market since the advent of the second Trump administration is likely to be with us for the next three and a half years. And at the same time, the next CRA cycle appears to be underway. This cycle is underway not due to significantly lower rates, higher asset prices, nor macroeconomic tranquility. It has begun because after three years of dramatically lower sales and financing activity, it is time to recycle capital to investors, refinance assets, and deploy capital that was raised prior to the Great Tightening. As you can see on slide three, there is over $640 billion of equity capital in real estate funds that has been invested for over five years and needs to be returned to investors. As you can also see in this chart, capital raising for new funds has plummeted since 2022. That is investors waiting for capital to be recycled prior to investing in new vehicles. And on the right side, the graph shows that there is over $400 billion of dry powder that needs to be invested or will be returned to investors. This slide represents over $1 trillion of real estate focused equity capital that either needs to be recycled or deployed. And these equity flows are what is driving transaction activity today. Beyond this significant macro driver, the multifamily sector is extremely well positioned over the next several years. We do not have enough housing in America, and the delta between the cost of renting and homeownership continues to widen, making multifamily the only option for many Americans. As this slide shows, if we go back to March of 2020, the cost of paying principal and on the median priced home in America was $200 to $300 cheaper than renting the median priced apartment unit. Fast forward five years, and the median home price in America has gone from $285,000 to $410,000. And the monthly cost of principal and interest on a mortgage to own that home is now $500 to $600 more expensive than the cost to rent the median priced apartment per month. Single-family housing is thoroughly unaffordable to someone making anything close to the median income in America today. And this reality is why the multifamily industry has seen record absorption of 227,000 units in the second quarter of 2025 and 794,000 units over the past year. Supporting that point, Q2 household growth was driven entirely by .7% growth in renter households, while owner households remained flat. Apartment construction has collapsed, and as apartment deliveries begin to tail off in 2025 and 2026, owners of multifamily properties will begin to increase rents. The industry is currently at 96% occupancy. So with full properties and rising rents, values will go up, increasing investment sales and financing activity. As one of the largest providers of capital and investment sales to the multifamily industry, W&D is extremely well positioned to meet our clients' capital market needs as this investment cycle accelerates. W&D's Q2 total transaction volume of $14 billion is up 65% from Q2 2024 and over twice our volume in the first quarter of this year. This significant increase in deal flow drove 18% revenue growth and diluted earnings per share of 99 cents, up 48% year over year. Two things of note with regard to volumes, revenue and earnings. First, transaction volumes do not directly correlate to revenue growth. For example, we did an almost $1 billion financing for one of our longstanding clients in Q2, once again showing that W&D is one of the go-to lenders for large, structured GSE financings. But a $1 billion financing does not carry with it the same origination fees nor mortgage banking gains as 10 $100 million loans. Second, while revenues were up 18%, gap earnings were up 48%. This is due to gaining economies of scale on our platform as well as booking significant non-cash mortgage servicing rights. Those non-cash servicing rights, which are the present value of future servicing income, are the lifeblood of Walker & Dunlop over the next five, seven, and 10 years. We love booking significant non-cash MSRs, but we will benefit from their cash flows going forward. As we transition to higher transaction volumes and gap earnings, we should see adjusted EBITDA and adjusted core EPS come down as they did in Q2. Adjusted EBITDA declined 5% in the quarter, while adjusted core EPS declined 7%, largely due to the 100 basis point decrease in short-term rates, which significantly pressures escrow earnings in the quarter. As the market recovers and hopefully rates continue to come down, we will gladly swap out increased origination volumes and MSR revenues in exchange for lower escrow earnings. $14 billion of total transaction volume included growth across almost all transaction channels, including $4.9 billion of lending volume with the GSEs, our highest GSE volume in 11 quarters. As shown on slide 6, our -to-date GSE market share has increased to 11.4%, up from .3% at the end of last year. Both Fannie Mae and Freddie Mac are extremely active in the market today, and with the prospect of a future privatization being considered by the Trump administration, we expect both GSEs to be focused on hitting their multifamily caps in 2025 and beyond. Property sales volume grew to $2.3 billion in Q2, up 51% -over-year. Our team awarded a higher volume of deals in the month of June than they did in all of Q1 2025. Those transactions will be closed in the second half of the year and reflect a strong pipeline moving into the third quarter. Our broker debt volume grew to $6.3 billion in Q2, up 64% -over-year. This is fantastic growth and shows the increased deal volume across all commercial real estate asset classes, not just multifamily. We work with a wide range of capital providers in our debt brokerage business, and this pickup and loan originations is reflective of a huge amount of liquidity across the capital markets. We continue to focus on expanding our affordable housing platform, which includes affordable property sales, loan originations, and low-income housing tax credit syndications. Our HUD lending volumes grew 55% to $288 million in Q2, and W&D Affordable Equity completed its largest effort, largest ever $240 million multi-investor fund syndication at the beginning of the quarter. Our technology-enabled businesses of small balance lending and appraisals continue to grow nicely, with appraisal revenues up 61% in the quarter and small balance lending revenue up 99%. Galaxy, our proprietary loan database, continues to source new clients and loans, with 17% of our transaction volume -to-date being with new clients to walk or numb up, and 58% of our refinancing volume being new loans to walk or numb up. These numbers speak to the use of technology and expansion of our brand to win new loans and clients from the competition. And Client Navigator, our servicing and loan analytics platform using our data and machine learning, now has over 5,600 active users that allows our borrowers to seamlessly analyze their loans. These are very exciting data points as we enter the next market cycle with the W&D team, brand, technology, and market presence. I will now turn the call over to Greg to talk through our second quarter and -to-date results

in more detail. Greg?

Thank you, Willie, and good morning, everyone. The second quarter marked a significant inflection point for commercial real estate transaction activity and our financial performance, as we saw meaningful stabilization in long-term interest rates and transaction volume rebounded. Our team took advantage, closing $14 billion in total transaction volume, up 65% -over-year. This strong performance puts us back on track toward achieving our 2025 operational and financial goals. Gap EPS expanded 48% this quarter to $0.99 per share, largely in line with transaction volume growth and specifically by a significant increase in originated MSR revenues. Those newly originated MSRs represent long-term contractual revenues that will boost our cash earnings over the next 5 to 10 years. As expected, growth in our adjusted metrics continues to lag gap earnings growth due to lower short-term interest rates -over-year that is causing our placement fee earnings to decline compared to last year. Turning to our segment performance, our capital market segment built significant momentum in Q2. We closed 68% more debt financing volume and 51% more property sales volume than the prior year. As a result, segment revenues grew 46% -over-year, as shown on slide 8. Debt income grew 200% to $33 million, while adjusted EBITDA also improved 116% to $1.3 million. As expected under our variable compensation model, personnel expense for the segment grew 26% over the prior year on the strength of our transaction volumes this quarter. Importantly, the momentum in our GSE volumes is promising and we anticipate both Fannie Mae and Freddie Mac to remain active in the coming months, and that will continue to benefit our MSR and origination fee revenues the rest of the year. During Q2, we executed several larger deals and also saw an increase in shorter duration deals to take advantage of the shape of the yield perf. Those two trends are tightening our origination fee and MSR margins, and we expect both margins to remain in line with Q2 over the next couple of quarters. Our investment banking platform, Zelman, also had another strong quarter, with 9% -over-year growth in revenues driven by robust demand for its investment banking, research, and advisory services. We are very pleased to see the investments we made leading up to and during the great tightening benefit our financial results in the capital market segment this quarter, and we expect the segment to perform well in a growing market over the coming quarters. Our Servicing and Asset Management, or SAM, segment continues to deliver stable and largely cash-driven recurring revenues and earnings. The servicing portfolio now stands at $137 billion, as shown on slide 9, and generated servicing fees of $84 million, up 4% -over-year. However, total SAM revenues declined 5% from Q2-24, primarily due to a 12% decrease in placement fees tied to the lower Fed funds rate. As a reminder, placement fees fluctuate directly with short-term rates. Depending upon future Fed action, revenues for this line item may increase or decrease in future quarters. Investment management fees were also down 49% this quarter. While most of our investment management revenues are stable and recurring, a portion of the revenue is tied to asset performance and or asset dispositions, particularly for our affordable platform. Consistent with recent years, we continue to see fewer affordable asset dispositions in response to lower asset values driven by the Great Tightening. As a reminder, we estimate realization-related revenues each quarter, with a final true-up recorded at the end of the year based on actual results. Based on last year's full year results, we reduced our quarterly estimates for this year, which explains the majority of the decline in investment management fees in this Q2 versus last year's Q2. Based on the realizations to date and our second half pipeline, we continue to expect these revenues to remain in line with 2024 on a full year basis. That said, we continue to see strong investor demand for new funds in the affordable sector. And as Willy just mentioned, we closed the largest fund in that business's history this quarter, offsetting a portion of the decline in asset management fee revenue. Turning to credit, there were no new defaults this quarter, but we did recognize a $1.8 billion provision for loan losses related to updated valuations for previously defaulted loans and -over-year growth in the at-risk portfolio driven by the strength of our Fannie Mae Loan Origination volumes this quarter. Our key credit metrics are shown on slide 11 and demonstrate the credit quality and strong performance of our portfolio. Out of the nearly 3,200 loans in our $65 billion at-risk portfolio, only eight are in default as of the end of the quarter, totaling just 17 basis points. Based on the 2024 financials that have now been collected for all loans in the at-risk portfolio, the weighted average debt service coverage ratio remains over two times, a testament to the strength of the property-level cash flows. We closely monitor the credit risk in our portfolio and continue to feel good about our clients' positioning. We ended the quarter with $234 million of cash on our balance sheet, reflecting the strength of our cash generation and the rebounding capital markets activity. Our capital deployment strategy remains focused on organic growth opportunities through recruiting and retention, reinvestment in strategic areas of the business, and continued support of our quarterly dividend. Yesterday, our Board of Directors approved a quarterly dividend of $0.67 per share payable to shareholders of record as of August 21. We have thrown the dividend steadily for seven years, even in volatile markets, reflecting the strength and stability of our business model in up and down markets. In February, we provided annual guidance shown on slide 12 that anticipated gap EPS expanding at a faster rate than adjusted EBITDA and adjusted core EPS, due largely to the reduction in placement fees resulting from the decline in short-term interest rates. We expected the decline in cash revenues to be offset by an increase in transaction activity that would drive growth in non-cash MSR revenues. That scenario is playing out through the first six months as 41% growth in transaction volume so far this year has lifted our -to-date diluted earnings per share to $1.07, up 5% over 2024. Placement fees have fallen 14%, and -to-date adjusted EBITDA totaled $142 million, down 9% from 2024, while adjusted core EPS declined 16% to $2 per share. -to-date return on equity improved slightly to .2% while operating margin expanded to 9% compared to 8% in 2024. We remain committed to the full-year guidance we laid out in February, recognizing the path to achieving our targets requires focused execution and continued strength in transaction volumes. As we look ahead, we expect the momentum of the second quarter to carry into the back half of the year, supported by a healthy third quarter pipeline, significant liquidity across commercial real estate lending markets, strong demand for commercial real estate assets, and positive underlying market fundamentals. Our second quarter performance reflects the pickup and market activity that we had been anticipating. Hints of demand, abundant liquidity, and the conviction to deploy capital are now driving a steady flow of transactions across our platform. Throughout the last few years, we remained committed to investing in our people, brand, and technology, and we believe those investments have positioned Walker & Dunlop to outperform the market as it normalizes. Thank you for your time this morning. I'll now turn the call back over to Willie.