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Text: I'm Kelsey Duffey, Vice President of Investor Relations at Walker & Dunlop.
Hosting the call today is Willy Walker, Walker & Dunlop Chairman and CEO.
He is joined by Steve Theobald, Chief Financial Officer.
These slides serve as a reference point for some of what Willy and Steve will touch on during the call.
More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC.
We started off 2021 with strong first quarter financial performance, with the combination of our people brand and technology, continuing to differentiate us in the marketplace, enhance our competitive positioning, and drive terrific financial performance.
First Quarter revenues of $224 million generated diluted earnings per share of $1.79 up 20% over q1 2020 on total transaction volume of $9 billion.
This is a very strong start to the year that appears to be accelerating by the day.
We laid out our five year strategic growth plan in December of last year, with one of the objectives being to move from the number five multifamily lender in the United States to number one.
We plan to build a small loan lending business that rival JP Morgan chases, and amazingly property sales business that rival CBR s two firms ahead of us in the 2019 league tables.
Due to the use of technology, growth of our brand and truly fantastic execution by our team.
We vaulted to the number one position as the largest provider of capital to the multifamily industry.
My father gave me a T shirt when I was in college that read unless you are the lead dog, the scenery never changes.
Well, the scenery can now change and we will use our market leadership position to win more clients continue investing in technology and benefit from the fantastic branding that this accomplishment establishes our vision to be the premier commercial real estate finance company in the United States was established in 2010 when Walker and Dunlop Lync $2.7 billion on commercial properties, or 7%.
of the $37 billion that Wells Fargo lent that year as the largest lender in the country, and over the last decade due to hiring great people investing in technology and building our brand.
by executing for our clients each and every day.
We moved up to the number four spot in the league tables after lending $24.7 billion on commercial real estate in 2020.
Number four, right behind Key Bank, Wells Fargo and JPMorgan Chase.
And while that accomplishment by our team is amazing.
What is even more exciting is how we are positioned to grow going forward.
The use of technology and financial services and commercial real estate expands every day, and will continue to accelerate over the coming decades.
Walker no ops use of technology in 2020 allowed us to vault to the top of the league tables.
By making our bankers and brokers more insightful to their clients.
More efficient in the business they processed and more productive.
We are a company of only 1000 people with a very real opportunity to grow to three to 5000 people by investing in technology and entering new markets.
Our largest competitors have 10s of 1000s and in some instances hundreds of 1000s of employees and will constantly be challenged over the coming years with how technology is going to disintermediate their existing employee base, and businesses.
Our technology investments will continue to focus on actionable technology that enhances the capabilities of our people, as we grow Walker and Dunlop and expand into new markets.
The fact that we ended 2020 with 1000 employees, and over $1 billion in revenues allowed us to maintain our metric of over $1 million of revenue per employee.
As this slide shows, revenue per employee of over $1 million places Walker and Dunlop in line with VSA and just behind the global tech giants, Facebook, Google and Apple.
We believe that over the coming years as we continue to implement more technology and expand our brand, that our revenue per employee can move closer and closer to the tech giants.
The numbers behind our brand strategy are stunning.
This has not only expanded the web brand dramatically, but generated new business.
Just last week, we closed on a $37 million financing.
This transaction brought us brought to us through the combination of digital marketing, branding, technology and flawless execution by our team.
This part of the 27% of our total transaction volume in q1 coming from new clients to Walker and Dunlop.
That is up from 23% for all of 2020.
The other technology proof point we introduced in 2020.
new loans to our servicing portfolio increased to 79% in q1 of 2020, up from 66% for all of 2020 so rather than simply refinancing the loans in Walker and daube sizable $110 billion servicing portfolio.
Almost 80% of the loans we refinanced in q1 were new loans to Walker and Dunlop, generating finance financing fees, and adding mortgage servicing rights to our loan portfolio.
The amount of capital targeting commercial real estate investments continues to fuel the acquisitions market.
According to pre Quinn, commercial real estate focused funds began 2021 with a record $324 billion of dry powder.
A robust investment and acquisition market, combined with a wave of loan maturities will drive healthy transaction volumes over the coming years.
With banks life insurance companies and debt funds coming back into the market and $105 billion of capital for Fannie and Freddie left to lend in 2021.
We expect the financing markets to be very active over the remainder of the year.
And as you can see on this slide, over $320 billion of multifamily loans mature over the next five years.
And since our technology can tell us exactly who holds those loans, there is a massive opportunity for us to capture significant refinancing volume in 2021 and beyond.
And then I'll come back to talk about the terrific accomplishments we weighed in q1 toward our long term strategic growth objectives.
We entered 2021 with momentum from the unique combination of our people brand and technology.
And that momentum contributed to both strong financial results and good progress toward the achievement of our drive to 25 long term strategic objectives in the quarter.
For the first quarter, we generated diluted earnings per share of $1.79 of 20% year over year on 224 million of total revenues.
earnings in the quarter included the positive benefit of reducing our allowance for credit risk by $11.3 million, which added 25 cents to ups.
One personnel expense as a percentage of total revenues was 43%, which is elevated compared to a typical first quarter due to recent investments in people as we continue to scale our business and support our future growth.
During the quarter, we grew our team of bankers and brokers to 214 from 205 at the start of the year, further increase in both our geographic reach with hires in Ohio, California, Texas and Maryland, and our investment sales product capabilities with the acquisition of student housing focused four point even with the increase in compensation expense, operating margin was 33%, inclusive of the reserve release, and 28% without within our typical range of 28 to 30%.
As non personnel expenses continue to grow at a slower rate.
We manage operating margin very closely and are confident that it will remain within our expected range over the course of the year.
Return On Equity was 19% in the quarter, consistent with last year and within our expected range of 18 to 20%.
Total transaction volume of $9 billion was down 20% from the first quarter of 2020.
as anticipated, given that we originated the largest portfolio in our company's history, a $2.1 billion Fannie Mae transaction last q1.
Notably, we saw strong debt brokerage volumes of $4.3 billion in a quarter of a percent from last year has very strong values indicative of an active market for commercial real estate financing is attracting significant amounts of capital as we continue to progress toward a post COVID environment.
72% of our debt brokerage volumes were multifamily compared to 94% in the year ago quarter, reflecting the pickup in London on other asset classes.
A mix of our $7.6 billion of debt financing volume in q1 21 was skewed more heavily toward debt brokerage originations as compared to the first quarter of last year.
primarily due to the large portfolio that I just mentioned.
Our hot volumes at 622 million, we're up 75% from q1 20, continuing the strong performance off of 2020s record year.
In addition, our interim lending program was very active in the quarter with $178 million of multifamily bridge loans originated through our JV with Blackstone, and on our own balance sheet.
The GSE has had a relatively slow start to the year, they carried over a lot of deliveries from 2020 into 2021.
Our market share with Fannie and Freddie remained above 11%.
And we expect that our overall volumes will pick up over the next three quarters, as the GSE has managed their deal flow to ensure that they use all of their remaining $105 billion of lending capacity for the year.
We also expect broker debt volumes for the remainder of the year to rebound strongly from last year's COVID impacted markets.
As life insurance companies, banks, and debt funds are all very competitive capital providers in the market today.
Invest in sales volume of 1.4 billion was down 19% from last year's first quarter.
However, the pipeline of deals entering q2 is extremely robust, and we expect significant growth and investment sales volumes over the remainder of the year, as our recruiting efforts continue to build out both the geographic and product capabilities of the team.
The increase in investment sales activity will also contribute to additional debt financing opportunities over the next three quarters.
q1 adjusted EBIT da $61 million is down slightly from q1 of last year, but it's the highest quarter of the EBIT da since the start of a pandemic.
As we are seeing the benefit of the strong mortgage servicing rights that we booked during 2020 translate into cash servicing fees, which were up 19% in the quarter.
As you can see on this slide, the servicing portfolio ended the quarter at $110 billion with a weighted average servicing fee of 24.3 basis points of one fold basis point from the first quarter of last year, which is huge given the overall size of the book, and the fact that we have added over $15 billion of net new loans to the portfolio in the last 12 months.
With 85% of the portfolio's future servicing fees being prepayment protected, the portfolio will continue to fuel meaningful stable cash servicing fees, approaching $275 million on an annual basis.
Additionally, this should be the last quarter of significant year over year declines in escrow interest and short term rates which drive the pricing of our escrow deposits collapsed at the end of first quarter of 2020 due to the pandemic.
During the quarter we lowered the loss forecast used to determine the allowance for risk sharing obligations.
As I mentioned earlier, this resulted in an $11.3 million recapture of provision for credit losses in q1 of 2021.
Compared to an expansive $23.6 million in the first quarter of 2020 when the pandemic was declared one year later, we have very few loans in forbearance.
Our portfolio has had no defaults related to the pandemic, reflecting the resiliency of multifamily.
And the quality of our underwriting and servicing teams have done an expert job of managing our credit risk, both before and during the pandemic further Evidence of the strong performance of our portfolio.
The debt service coverage ratio of the $50 billion of loans we have risk on, remained above two times at the end of 2020, consistent with the end of 2019, while unemployment rates are still relatively elevated at 6%, this is a significant improvement from the higher 14.7% that we saw in April of 2020.
Reflecting the return of jobs across the Academy, the most recent stimulus bill, combined with an anticipated full reopening of the economy by the fall in forecast and strong economic growth over the next year, gives us confidence that the fantastic credit metrics we are seeing in the portfolio today will persist into the future.
We feel that the current level of the allowance at $64.6 million is sufficient to cover any future losses that could arise in the portfolio over its expected remaining life.
We ended the quarter with over $277 million of cash on our balance sheet, and another $62 million funding loans held for sale, bringing our total cash available to $339 million.
We are currently exploring a number of strategic acquisition opportunities that are in line with our drive to 25 objectives, investing in revenue generating technology and initiatives and continuing to bring on banking and brokerage talent, all of which is supported by our strong cash position today.
Yesterday we announced the acquisition of 75% of Zelman and Associates, the leading housing focused research firm in the country.
The transaction is expected to close sometime in the third quarter, pending regulatory approval.
We expect the Zellman platform to contribute between 15 and 20 cents in earnings per share in its first year.
Our focus remains reinvesting our capital back into the business through acquisitions like Zelman our strong financial position, and the steady cash generation of our business enables us also to return a portion of our capital to shareholders.
Yesterday, our board of directors approved the quarterly dividend at 50 cents per share payable to shareholders of record as of May 20.
Quarter ago, we laid out ambitious goals for double digit growth and earnings per share, and adjusted EBIT da for 2021.
Strong start to the year in terms of our financial performance, credit, quality, and cash position, and our expectations for the market opportunity ahead, give us confidence that we will achieve both of those goals.
Along with delivering strong financial results.
During q1, we made significant progress toward our strategic objective of our five year growth plan to drive to 25.
The overarching goal of the drive to 25 is to grow revenues from $1 billion in 2020 to $2 billion in 2025.
By continuing to invest in people brand and technology in our core businesses, and building three new businesses in small balance lending, appraisals and investment banking.
As I previously mentioned, to become the largest provider of capital to the multifamily industry, we thought we needed to enter and grow dramatically our small balance lending business.
Roughly half the multifamily loans originated every year are considered small balanced loans.
Most of the small balance lending is done by banks, where a property owner may use the bank for checking and savings accounts and asked for a small balanced multifamily loan.
We see this market where local, regional and national banks are the incumbent lenders as ripe for disintermediation, using our brand technology and people.
If you enter a bank branch office and ask for a small multifamily loan, your loan officers a generalist who could just as easily provide you with a boat loan as an apartment building loan.
We think our focus and brand is the largest provider of capital, the multifamily industry can win this customer over.
We have data and visibility into who owns these properties.
And we are building digital marketing strategies to capture clients attention.
We are also investing in technology to drive down the cost of underwriting a small balance loan.
We are acquiring a technology company that allows us to quote a small balance loan in just over a minute and also streamline the loan application, underwriting and closing process.
We've also completely revamped our small loan origination team, bringing in new leadership and establishing a regional origination model that we believe will allow us to originate higher volumes of loans with fewer people.
Through our multifamily appraisal business uprise we have quietly built out our licensed appraisers across the country, and are now capable of producing by Ria compliant appraisals using more technology and fewer people than any competitor in the market.
A year ago, a prize produced 55 appraisals in q1 this year, we did 5x that volume and we intend to continue growing that number by multiples.
The use of technology in our appraisal business has broad applications in our lending and investment and sales businesses as well.
The final growth area that we made significant progress on in q1 is investment banking.
As our brand is expanded and our relationships with our clients have deepened, the need for investment banking capabilities to meet all our clients needs has become more pressing.
Many of our bankers and brokers serve their clients in advisory capacities today.
But as part of our drive to 25 objectives, we set a goal to formalize and expand our investment banking services.
To that end, yesterday, we announced the acquisition of Zelman and Associates, a wonderful boutique, real estate focused search and investment banking firm IV Zelman, Dennis McGill and their team have built out what one of the most well respected housing research and analytics teams in the industry.
gentleman's research team covers both single family and multifamily housing.
And as these two industries collide in the single family homes for rent market, Zelman and WD will be perfectly positioned to provide expert coverage of these markets, gentleman's research and analytical capabilities, coupled with Walker and dunlops vast data from our 100 and $10 billion servicing portfolio, and technology investments provide the bankers and brokers at Walker and Dunlop with the very best insight into micro and macro markets across the country to enable their sales efforts.
It is our expectation that w Andy's proprietary research and market insights will make us more relevant and valuable to our clients than ever before.
Gentlemen, is a registered broker dealer.
And as a housing focused investment banking team that has an incredible track record in the m&a debt and equity transaction markets, including advising in the IPOs of firms such as Rocket Mortgage and invitation homes.
The broker dealer and investment banking capabilities inside Zelman provide a fantastic launching pad for W Andy's investment banking business in the commercial real estate arena.
If you add to that equation, being the largest provider of capital to the multifamily industry, and fourth largest lender on commercial real estate in the United States, the opportunities for new recruits is vast.
But there is one point about our brand and digital marketing that is very important to underscore.
We have just begun to capitalize on what we have created.
That is one of many examples where our brand has generated new opportunities for Walker and Dunlop.
We will figure this out.
But we are just scratching the surface on how to identify and convert these new client touchpoints into new business and opportunities for growth.
As we make significant strides toward the strategic and financial components of the drive to 25.
We remain focused on the environmental, social and governance elements of our 2025 goals, with significant attention being given to our diversity, equity and inclusion efforts.
We recently launched a diversity initiative called care united in partnership with some of the largest players in the commercial real estate industry, including Fannie, Freddie greystar KKR, Kayne Anderson and Pacific life.
The Alliance is working to identify the obstacles that minority care owners and operators face and implement real changes across the industry to break down these barriers.
Internally, Walker and Dunlop is also setting ambitious DNI goals, including increasing the proportion of women and minorities among management and top company earners by 2025.
as outlined in our recent proxy statement, our compensation committee will oversee our progress toward these ambitious long term goals, which will be directly tied to executive compensation.
I've watched this wonderful company grow from one office and just over 40 employees into the national powerhouse it is today and I must say I've never been prouder, nor more excited about all we are currently doing.
We established another ambitious five year growth plan at the end of 2020.
And in just a few months, we have made real and exciting progress toward our goals.
We remain a great place to work due to the incredible people that that make W and D what it is, we continue to invest in technology to enable our people to be more insightful, more efficient, and more productive than the competition.

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compname reports 20% growth in diluted earnings per share to $1.79.
q1 earnings per share $1.79.

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