Steve Delaney: Thanks. Good morning everyone and great news on the dividend increase and the buyback. Willy, I was wondering on the buyback, looking back to the end of ‘21, you haven’t repurchased any shares over that period, obviously, the last year or so was sort of uncertain environment, that’s understandable. But as far as your execution, as you are talking to the Board, should we think about the buyback as being opportunistic or programmatic given where you sit today? Thank you.
Willy Walker: Good morning Steve, nice to have you on the call.
Steve Delaney: Yes sir.
Willy Walker: We talked about just this issue yesterday. As you know, Steve, because you have covered us for quite some time, we have a track record of being opportunistic in buying back stock. As Greg underscored in his comments, our cash position at the end of the year is very strong. And as you just reiterated in response to Jade’s question on credit, we feel very, very good as it relates to our credit provisions and our credit outlook. So, with that said, the Board said, we will authorize $75 million of potential share buybacks. I would not think it will be programmatic, Steve, as we see how the year goes. I would also say to you that if we start to see the growth that we expect as rates come down and as transaction volume picks up, we could find ourselves in a more programmatic situation. But for now, the authorization, I would say, is more opportunistic than programmatic.
Steve Delaney: Got it. And Greg, you gave a figure – I probably didn’t get these right. I know Willy, you commented on $13 of EPS by 2025. You mentioned $300 million, I believe of earnings for 2024. In both cases, are you referring to the earnings or the EPS on a GAAP basis as we, I think all tried to convert to over the second half of this – of last year, just for clarity on if we are talking about GAAP or some other measure?
Greg Florkowski: Yes, Steve – when we gave the – yes, we had not yet implemented adjusted for EPS, so we are trying to balance the transition from GAAP to adjusted core, but we are continuing to refer to GAAP as we give guidance. But in my remarks, I did give similar full year guidance for adjusted EBITDA and adjusted core EPS to GAAP diluted EPS, all in mid-single or mid-single digits to low teens.
Steve Delaney: Got it. And just a final thing for clarity. When you define your at-risk portfolio, I assume that’s your bridge book, as well as your Fannie Mae loss sharing. Is there anything else in there that I am missing?
Greg Florkowski: That’s exclusively. We have $40 million of bridge loans left on our balance sheet and then the vast majority of our at-risk book is the Fannie Mae portfolio, nearly $60 million.
Steve Delaney: Got it. Willy, I know there is 20 some of these commercial mortgage REITs out there, like everything in life, there is some really good and some really bad. Most of their problems are obviously office or maybe some hotel, not so much multifamily. But I think both with the CM REITs and even the commercial banks, I think there will be – they are in kind of a pullback hunker down mode on anything other than residential real estate. Is this a year or the next 2 years for W&D to maybe step up a little bit in non-agency multifamily or single-family residential housing given the fact that capital flows from those two industry sectors are likely to be constrained?
Willy Walker: I would say, Steve, yes, but with a very significant aspects or caveat to that statement, which is just that we have been super disciplined in the risk that we have been willing to take. And as again, I would reiterate you know from watching us in various times over the past 13 years as a publicly traded company. There have been lots of opportunities for us to step in and do office loans to do floating rate CLO loans. And at every turn, we have sort of said that’s just not the risk profile of W&D and it has paid massive benefits. And believe me, I met with plenty of investors in ‘21 and ‘22 who watch what some of the CLO originators were doing and said, oh, you are missing market share, you are not growing fast enough.
And we said that’s fine. That’s not a risk that we want to take. We don’t like the fundamentals of that business when interest rates are this low and the credit loss that you would incur by doing those loans is that high. So, I think the bottom line, as you well know, we are not going to not look at anything. We will look at everything. And we have plenty of other capital providers coming to us saying, hey, you have got the distribution network. Can we give you a pool of capital to go deploy, and depending on the risk sharing agreement, depending on how much we are getting paid for the risk we are taking, we will obviously underwrite all of that and make decisions on what we will and won’t do. But I think your general comment is exactly right.
I think there will be plenty of opportunities, but I would also reiterate to investors that you are invested in a company that takes a very conservative credit outlook. And while the opportunity they present itself, that does not necessarily mean that W&D is going to do it.
Steve Delaney: Well, thank you both for the color and congrats on a solid close to a difficult year for everyone. Thanks.
Willy Walker: Thanks Steve.
Greg Florkowski: Thanks Steve.
Operator: We will move to our next question with Jay McCanless from Wedbush Securities. Please go ahead.
Jay McCanless: Hey. Good morning everyone. Thanks for taking my questions. Greg, could you talk to the – I think you said potentially for 1Q, somewhere between $0.40 to $0.60 in earnings, maybe talk about, what would have to happen to get to the high end versus the low end of that range?
Greg Florkowski: Yes. Thanks Jay. Certainly, I think look, ultimately, it’s a matter of what transaction activity is going to look like in the first quarter and then whether some of our other businesses that – whether it would be investment banking can generate some fees in the first quarter, what our dispositions or syndication activity looks like in our affordable business. So, there is a range there because we have got, obviously, different opportunities within the platform, but those are the big variables, I would say as transaction activity and then the likelihood of other revenue streams from either affordable or investment banking coming through.
Jay McCanless: Okay. And then maybe just for the full year and underpinning some of the full year assumptions, maybe talk about where you guys think the 10-year ends up? And are we going to continue to see some of this volatility we have seen? Just trying to get a sense of what your assumptions were for the full year guide regarding EPS and EBITDA?
Willy Walker: So, I will jump in there, Greg. So, Jay, a couple of things. First of all, I talked about this on the Walker webcast yesterday with some of my colleagues. We were out at NMHC, the National Multifamily Housing Council meeting and meeting with a number of W&D clients who are sitting on a pile of capital, pile of capital. There is so much equity capital sitting out there to be deployed. And in one of the meetings, one of the client said, we are not active right now because we don’t like negative leverage. And my question to the individual was, okay, let’s play this out. We get a Fed funds rate cut, the Fed funds rate comes down, do you really think the 10-year rallies much from here if the Fed starts to cut, the client sort of said, maybe a little bit, I said, great.
So, do you think that cap rates are going to stand still when you get a rally in the short end of the curve, as well as the long end of the curve and the client said to me, no. And I said, so then when do you think you are going to get yourself back to a positive leverage position? And the client said, well, you make a good point. And then the client said that we probably ought to be taking a look at acquisition based on IRR and on replacement cost and not so much on negative leverage. And I think that we are seeing more and more people realize that if you want to deploy capital into this market that you should probably take as an assumption that the 10-year sits somewhere in the band that it’s been in for the last 1.5 months, which is obviously it’s gotten down into the high-3s, but just say 4 to 4.25 to your specific question, where do you think the 10-year goes this year.
10-year shouldn’t move that much as the short end of the curve comes down, it really shouldn’t. I have a big bet with one of our clients. He thinks the 10 years at 3.50 at the end of the year, I think it’s closer to 4.50 at the end of the year. And as I have said to him, I win both ways. If it’s at 3.50, we are going to be doing a ton of business and I am happy to pay you my losses. And if it’s 4.50, I win the bet. The point being there is I think that the amount of dry powder sitting on the sidelines realizes that it needs to move. There is a dramatic amount of refinancing volume that is needs capital this year, which is why I underscore the point that Fannie and Freddie saying they think they are going to do the same amount of volume in ‘24 as ‘23 to – is a ridiculous statement.
And then the final piece to it is that, if you do get rates coming down, it is going to provide some relief to floating rate borrowers, which will make the credit outlook better, which should then stabilize the sales market and get transaction volumes coming back there. But that is not a pre-requisite to overall financing volumes picking up in ‘24 from ‘23, just based on the volume of loans that need to be redone. And so the name of the game for ‘24 is re-financings and going out and getting them and as we have underscored in these comments and in our public statements, we don’t have a lot of re-financings in our portfolio. So, what we need to do and have done very consistently in the past is go out and refinance loans that are sitting in other people’s portfolios.
And in one instance, fortunately with banks, some of them don’t want to redo those loans, so those aren’t difficult in the sense of trying to pull them away, in other situations where there are other lenders who have as solid a company as Walker & Dunlop and as positive an outlook as Walker & Dunlop, there is swift competition to win those deals away from them and we could be competing for them.
