Walker & Dunlop, Inc. (NYSE:WD) Q4 2023 Earnings Call Transcript

Walker & Dunlop, Inc. (NYSE:WD) Q4 2023 Earnings Call Transcript February 15, 2024

Walker & Dunlop, Inc. misses on earnings expectations. Reported EPS is $0.93 EPS, expectations were $1.05. Walker & Dunlop, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the Q4 2023 Walker & Dunlop, Inc. Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Kelsey Duffey, Senior Vice President of Investor Relations. Please go ahead.

Kelsey Duffey: Thank you, Taryn. Good morning everyone. Thank you for joining Walker & Dunlop’s fourth quarter and full year 2023 earnings call. I have with me this morning our Chairman and CEO, Willy Walker and our CFO, Greg Florkowski. This call is being webcast live on our website and a recording will be available later today. Both our earnings press release and website provide details on accessing the archive webcast. 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 Willie 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 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’ll now turn the call over to Willy.

Willy Walker: Thank you, Kelsey and good morning everyone. 2023 was a challenging year for the commercial real estate industry and the fourth quarter started out with the same headwinds that we saw throughout the year, but the lower than expected CPI print in November drove a 100 basis point rally in rates and the deals in our pipeline held together for the first time all year, resulting in $9.3 billion of total transaction volume in the quarter. This was still down 17% from Q4 of ‘22, but up sequentially from the third quarter and our highest quarterly volume of the year, a nice way to end the year. As you can see on Slide 3, our Q4 financial performance was solid across the board, including total revenues of $274 million down just 3% from Q4 of ‘22 and diluted earnings per share of $0.93.

EPS was off more than other metrics, largely due to two transaction-related adjustments unique to Q4 of last year. Adjusted core EPS, which strips out a good deal of non-cash revenues and expenses, was up 1% from the same period last year. Finally, reflecting the strength of the W&D business model, adjusted EBITDA grew each quarter throughout the year from $68 million in Q1 to $88 million in Q4, down only 5% from Q4 of ‘22. Q4 results were a nice uptick after a very challenging 2023, when full year total transaction volume was down 48% to $33 billion. Yet due to our underlying business model, significant cost management and the exceptional W&D team, full year adjusted EBITDA was $300 million, down only 8% from 2022. We are hopeful that we have effectively weathered the great tightening and that as rates stabilize and potentially head down, that we are extremely well positioned to benefit from the market’s eventual recovery.

The market’s belief that the Fed is done tightening and will start to ease in 2024 is welcome news and very constructive for the commercial real estate industry. Yet there are clearly questions around when and by how much the Fed will ease and the answer to those questions will have a dramatic impact on the market. We are currently seeing a slow start to the year as investors and developers try to incorporate rate cuts or not into their business planning. As shown on this Slide, we started 2023 with a 3.88% ten year, which moved up to 5% over the subsequent 3 quarters, only to rally back down to 3.88% in Q4. That type of rate volatility makes it exceedingly difficult for buyers and sellers of commercial real estate to establish pricing, determine their cost of capital and compute an IRR on the sale or acquisition of an asset.

If the Fed begins easing in Q2 and continues to ease, we would expect a nice uptick in transaction volume this year and also an improvement in the credit landscape. Our multifamily property sales team closed $2.9 billion of sales in the fourth quarter, bringing our full year volume to $8.8 billion, down 55% from 2022, slightly less than the broader market decline of 61%. As a result, we increased market share from 6.7% in 2022 to 7.4% in 2023. Debt brokerage volume declined 34% in Q4 to $2.9 billion and was down 55% for the full year to $11.7 billion. Our GSE volumes and market share remained strong, once again finishing the year as Fannie Mae’s largest dust lender for the fifth consecutive year at $6.6 billion and Freddie Mac’s third largest partner at $4.6 billion of loan deliveries.

Our focus on affordable housing and small balance lending added significant loan volume to our GSE totals. Our research arm, Zelman, provided W&D with stable, subscription revenues as their research continues to be known as some of the very best covering the housing industry. We also extended Zelman’s investment banking capabilities into the commercial market in 2023 and in the fourth quarter, the investment banking team closed three transactions, albeit all in the single family sector, that boosted revenues and expanded the W&D brand significantly. I mentioned our small balance lending group’s importance to our GSE volumes and thanks to the team and technology we have invested in that business. We ended 2023 as the third largest small balance lender with Fannie Mae and the fourth largest with Freddie Mac, expanding market share nicely with both.

And our other tech enabled business apprise grew faster than the market last year, ending the year with a 11% market share, up from 6% in 2022. I’ll now turn the call over to Greg to review our quarter and full year financial results in more detail. Greg?

Greg Florkowski: Thank you, Willy and good morning everyone. This was a year of persistent, volatile market conditions that depressed commercial real estate investment and transaction activity. However, the sharp decline in long-term rates during the fourth quarter and a positive sentiment that followed the Fed’s November remarks led to increased transaction activity that drove improved performance in our Capital Markets segment. When coupled with the continued strength of our servicing in Asset Management segment, we delivered our strongest quarterly results for 2023. I will spend a little time on our quarterly segment performance before recapping our annual consolidated financial performance and finish with our current outlook for 2024.

Beginning with our Capital Markets segment on Slide 6, this segment delivered its strongest quarterly financial results of the year due to the sequential uptick in total transaction volume. Total revenues were $129 million, down 5% year-over-year, but up 10% from the third quarter of 2023. Revenues benefited from a stronger gain on sale margin compared to the same quarter last year due to the mix of transaction activity that was weighted more heavily towards agents’ deep financing volume this quarter. Personnel expense for the segment declined 17% year-over-year due to a decline in variable compensation. Our Capital Markets segment benefits from a high proportion of performance based compensation and in periods of lower transaction activity and associated revenues, we recognize lower variable compensation costs.

This is reflected in adjusted EBITDA, which improved to a loss of only $2 million this quarter, compared to a $16 million loss in Q3 ‘23, but down from positive adjusted EBITDA of $6 million in the fourth quarter last year. The Servicing & Asset Management sector or SAM produced revenues of $140 million this quarter, as shown on Slide 7, driven by our $131 billion servicing portfolio and $17 billion of assets under management. Revenues this quarter were down $7 million compared to the same quarter last year. Typically, the fourth quarter is the strongest quarter of revenues for Walker & Dunlop affordable equity, formerly Alliant due to the gains realized from the disposition of maturing tax credit deals. The macroeconomic challenges caused the pace of dispositions to slow meaningfully at the end of this year compared to the last 2 years and as a result, investment management revenues were down quarter-over-quarter.

These deals remain in our portfolio and we expect to dispose of the assets when market conditions become more favorable. Our affordable equity team did have its most successful year of equity originations in its history though, syndicating $688 million of new equity during 2023. Our servicing activities, including recurring servicing fees and related placement fees, generated Q4 revenues of $121 million, up 18% year-over-year, offsetting the majority of the decline from investment management fees. But operating margin for this segment was still down 4 percentage points to 30%, while adjusted EBITDA declined 3% to $111 million. Before I discuss our consolidated annual performance, I want to touch on credit, which continues to hold up well. As shown on Slide 8, we ended the year with 3 defaulted loans in our at-risk portfolio, totaling $27 million or just 5 basis points.

We are currently estimating losses of $3 million on the defaulted loans, which compares to our overall risk sharing allowance of $32 million at year end, leaving sufficient reserves to cover any other potential defaults that may materialize during the cycle. In addition to these defaulted loans, last quarter we reported that Fannie Mae requested we repurchase a $13 million loan and we expect to complete that repurchase in the first quarter. We do not expect to incur any loss on the loan and our asset management team is working with the borrower to resolve the outstanding issue that led to the repurchase. We also carefully monitor loans that are more than 60 days delinquent and as of January 2024, we had only 7 such loans compared to 3 last year.

The remainder of our at-risk portfolio is performing very well, as illustrated by the credit fundamentals on this Slide. The weighted average debt service coverage ratio of the at-risk portfolio remains over 2 times. The underwritten loan to value was just over 60% and only $3.4 billion of at-risk loans are maturing over the next two years. As it relate specifically to the maturing loans, the weighted average debt service coverage ratio of those loans is also over 2 times and only 12% are floating rate loans. In short, we have maintained a consistent, disciplined approach to credit for over 30 years as a DUS lender and we continue to feel good about the broad credit fundamentals of our at-risk portfolio, given where we are in the cycle. Turning back to our consolidated financial results, full year total transaction volume of $33 billion was down 48% year-over-year.

Our scaled, servicing and asset management platform contributed significantly to our revenues, which totaled $1.1 billion, down only 16% from 2022. Diluted earnings per share continues to be impacted by lower transaction activity and was $3.18 per share for the full year, down 50% from 2022. However, the durable recurring cash flows generated by the servicing and asset management segment supported our adjusted EBITDA and adjusted core EPS. 2023 adjusted EBITDA of $300 million was down 8% year-over-year, while adjusted core EPS totaled $4.68 per share down 16%. Finally, operating margin was 13% and return on equity was 6%, compared to 21% and 13% respectively in 2022. We have a fantastic business model that generates strong cash flow and we ended the year with $329 million of cash on hand.

Our cash position always decreases in the first quarter as we pay company bonuses, repurchase shares connected to employee stock vesting events and settle our tax liabilities. This year we will also pay another earn-out installment to Alliant as they have now achieved 47% of the aggregate earn-out and remain on pace to achieve the full amount over the next 2 years. Given the stability of our cash earnings, yesterday, our board approved a quarterly dividend of $0.65 per share, a 3% increase and authorized a $75 million share repurchase program. This is our sixth annual dividend increase since we initiated the dividend in February 2018 at $0.25 per share and represents a cumulative increase of 160% over the last 6 years. Our 2023 cash generation is a testament to the strength and durability of our business model in a downturn, giving us confidence to increase the dividend yet again, while still retaining capital to support the business.

Over the past year, we struck a cautious tone with respect to the market. We actively managed our business to withstand the sharp decline in transaction activity by cutting personnel and G&A costs, refinancing and upsizing our term loan and preserving capital and while we exited 2023 in a strong financial position, we remain cautious entering 2024. For starters, Q1 is going to be slower than last year from an earnings perspective, likely in the range of $0.40 to $0.60 per diluted share, as transaction activity is off to a slow start and we will not repeat the $11 million net benefit for credit losses resulting from the annual update to our CECL methodology, nor will we replicate the $7.5 million investment banking transaction we closed in Q1 last year.

As it relates to our full year outlook, Fannie Mae and Freddie Mac have stated they expect their 2024 lending volumes to be similar to 2023. That would be a disappointing outcome given the potential for stable and maybe even declining interest rates this year, but we cannot disregard the view of our 2 large partners. Finally, there are many macroeconomic drivers that we do not control, including interest rates, political elections and inflation that will undoubtedly impact our business this year. Those are the challenges, but there are opportunities. There are over $450 billion of multifamily loans maturing over the next two years. We are leveraging our data and technology to understand those deals, meet with those customers and win their business.

We added 17 bankers and brokers to our platform in 2023 through our recruiting efforts, giving us a clear opportunity to gain market share this year. There are over 0.5 million multifamily units under construction that are being delivered in 2024 and our team will assist many of those developers with selling or recapitalizing their assets. Last year was also challenging for LIHTC dispositions, but we are focused on reviewing opportunities with our developers and evaluating ways to make 2024 a better year for our clients. Finally, we generate strong cash flow from operations and have a solid capital base that will allow us to invest in our business and raise capital to meet the market demand, just as we did when we announced the first close of our new debt fund in February that raised $150 million of capital and when levered will allow us to fund $0.5 billion of bridge business.

We have a terrific team that has performed over the long-term and that team is focused on the opportunities that will help us return to growth in 2024. As a result, as shown on Slide 12, our full year guidance is for diluted earnings per share, adjusted EBITDA and adjusted core EPS to increase in the mid single digits to low teens this year. While the challenges of 2023 are not in the rear view mirror, we move into 2024 with the business model and the people, brand and technology to continue exceeding our clients expectations, executing on our long-term strategy and generating extremely strong cash flows to set our business up for long-term success. Thank you for your time this morning. I will now turn the call back over to Willy.

Willy Walker: Thank you, Greg. As you just heard, our solid Q4 financial performance was thanks to the rally in the debt markets and the prospect of rate cuts in 2024. And while those two macro shifts drove top and bottom and line performance in Q4, they do not explain why our balance sheet is so strong where our credit book remains healthy and why our brand and team are so exceptional. Performance in those metrics takes years of consistent investment in performance. Our balance sheet and cash position are so strong because we have built a wonderful business model over decades, which supplies us with durable revenues and earnings. And we have continuously invested in businesses like Zelman and Alliant that have broadened our client offering and diversified our revenue and earnings away from our core debt finance and sales businesses.

Our credit book is healthy because we have taken the conservative, thorough underwriting perspective throughout both bullish and bearish markets. 92% of our at-risk portfolio is fixed rate loans. We have no exposure to CLOs and we have no credit risk on commercial real estate asset classes outside of multifamily. And our brand and team are so strong because we are continually innovating and investing in them both. We take a long-term view of our business and this long-term view has not only benefited our company and financial performance, but also our investor returns. As you can see on Slide 13, over the past 1, 5 and 10 years, Walker & Dunlop has generated total shareholder returns greater than any of our direct competitors in the commercial real estate services, specialty finance and real estate technology space.

Note that we aren’t cherry picking here. These are global firms and domestic firms, services firms and specialty finance firms, lenders and technology companies and we aren’t selecting a convenient time period. W&D’s outperformance is over the short, medium and long-term, thanks to establishing bold, highly ambitious business plans, focusing our exceptional team on achieving those goals and then executing. We grow faster than the competition through cycles due to a business model that allows us to invest when others pull back. We have scale and brand in the multifamily market that is a competitive advantage every day. And we have avoided making investments and taking balance sheet risk in the office, retail and hospitality sectors. Long-term outlook, bold, highly ambitious business plans, never stop investing in people and technology and be mindful that it is often equally as important what you didn’t do as what you did do.

That is what has made W&D such an exceptional company to invest in and we will continue to generate shareholder returns going forward. The market run up over the last few months reflected widespread views that the Fed tightening is over and that easing is near. And while we believe 2024 will be a better financing and sales environment than 2023, it is way too early to predict when market conditions return to normal. Just 2 weeks ago, we saw New York Community Bank dramatically increase their commercial real estate loan loss reserves and cut their dividend. Similarly, the publicly traded multifamily REIT saw average rent decline of 3.4% in Q4. And while W&D’s credit outlook is very solid and 3.4% negative rent growth in no way impairs any loan in our portfolio, these market data points clearly reflect the marketing transition not stabilized.

Therefore, as Greg just outlined, our outlook for 2024 is optimistic, yet cautious. Yet as we demonstrated in 2023 when our financing and sales volume fell by almost 50%, we have the business model, active management, an exceptional team to generate solid results as in $300 million in adjusted EBITDA on the year, only 8% below 2022 in challenging markets. As we stated throughout 2023, we remain focused on our current 5-year growth plan, the drive to ‘25, including growing our debt and property sales volumes, scaling our servicing and asset management businesses and scaling our newer businesses of small balance lending, appraisals and investment banking. Through 2022, we were on path to achieve the financial targets of the drive to ‘25, including $2 billion of total revenues and $13 of diluted earnings per share.

But the market condition set us off course in 2023. And as we sit here today in a market that still has numerous headwinds, generating $13 of EPS in 2025 is going to be extremely challenging. Yet we know we have the people, brand and technology to achieve $13 a share of earnings in a robust market, which is very exciting. We also have a long history of making significant strategic acquisitions, 18 in total that have accelerated our growth, such as when we acquired CWCapital in 2012, doubling the size of W&D and fully achieving our first 5-year highly ambitious business plan. What is fundamental for investors to understand is that the business strategy underpinning the drive to ‘25 is the right long-term strategy for W&D and that our team will continue to focus on achieving our ambitious goals with or without a strong macro environment.

I’d like to finish this call with a couple of points on people and culture. Our President, Howard Smith, retired at the end of the year. I want to once again thank Howard for all of his contributions to W&D and for being such an outstanding executive, steward of our culture and partner to me over the past 20 years. Second, I want to reiterate my excitement about our current management team. We are blessed to have a wildly talented group of executives at W&D, who love both what they do and the people they work with every day. Third, we’ve been fortunate to recruit some exceptional banking and brokerage talent to W&D over the past year from some of our largest and most formidable competitors. And their perspective on being part of W&D is super exciting.

One broker who joined W&D at the beginning of the year wrote, it’s abundantly clear that the velocity, intentionality, level of energy and spirit of growth at W&D is remarkable and unique in the industry. We join the best platform and are thrilled about our new home. As I reflect back on 2023, I’m deeply thankful for all the hard work and results our team achieved. Walker & Dunlop is blessed to be a great company in the most dynamic commercial real estate market on earth. We have the team, brand and technology to continue delighting our clients, meeting the competition and growing and we plan to do just that in 2024. Thank you all for joining us this morning and I will now ask Karen to open the line for any questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] We will take our first question from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani: Thank you, very much. Appreciate the balanced commentary about the outlook, I think that’s the prudent thing to do. I wanted to ask about credit, how it’s holding up. I think, Greg, in your remarks, you did cite seven loans delinquent as of January 2024. How are you all feeling about the outlook? And have you looked at the portfolio stating by 2021 to 2022 vintages and focusing on geographies with excess supply.

Greg Florkowski: So yes, I think, look, go ahead, Will.

Willy Walker: No, no, no. Greg, go.

Greg Florkowski: Yes, Jade I was just going to say about that, I think that, as I said in my remarks and as we’ve said for the last few quarters, our credit is holding up well. I think seven delinquent loans in our at-risk book is on a book of close to 3,000 loan. So we’re feeling really good about how our borrowers are performing and how they are capitalized and how their assets are doing. We are looking at different markets, but most of the ones we have are going to be longer-term, longer duration. So the ‘21 to ‘23 visage that you cited there is really going to be maturing in 5 to 10 years. So that’s much farther out than the deals we’re looking at that are maturing in the next 2 years that are likely our focus just given where the macro is right now.

So again, I’d just reiterate what we said on the call and what we’ve been saying, which is we’ve got real cash flowing assets with over 2x debt service coverage ratio, low going-in LTVs and limited maturities over the next 2 years. And I think that, that has us feeling good about where we’re positioned at this point in the cycle.

Willy Walker: Yes, I’d only jump in behind that, Jade and just say, 92% fixed rate. So many of the problems that people are seeing right now are on floating rate debt on our at-risk portfolio, 92% are fixed rate. And as Greg just said, the ‘21 and ‘22 vintages are all longer-term fixed rate loans. And then we only have 3.0 what was it, $3.2 billion of loan maturities in the portfolio in ‘24 and ‘25. So we don’t even have significant refi risk in the portfolio on a fixed rate loan that was done at 3%. It needs to be redone at 6.5%. So generally speaking, feeling extremely good. But as you well know from covering the broader industry, the multifamily industry has credit concerns to it today and particularly deals that were advanced in ‘21 and ‘22 with floating rate debt on them. And we are very fortunate to not have done a lot of that.

Jade Rahmani: Okay. And then in terms of the CECL reserve, I know you have to factor in your current expectations and the period of loss look back is probably 2 decades, a period during which there is very strong multifamily credit performance for lots of different reasons. But then when you look at prior periods, the ‘80s and early ‘90s, clearly, there was a lot of pressure there. So is it reasonable to expect a general uptick in CECL reserves in the coming quarters? In 2023, there are a lot of releases that took place.

Greg Florkowski: Yes, yes, I think I would say I look back at the last 10 years, which included even during the GFC probably actually look at over our entire history and we’ve lost our losses on defaulted loans total in that 30-year period, $15 million. So we’ve had an excellent track record of credit that includes some of the cycles that you’re talking about and included the GFC, it included what happened post COVID and I think ultimately, our CECL reserve today is greater than that by 2x. So we feel like we’ve got adequate reserves given history, we’re absolutely going to continue to monitor the market and the fundamentals. One of the reasons I gave the guidance for Q1 was that we aren’t going to have a release of reserves like we’ve had in the last 2 or 3 years and we’re expecting to at least maintain that level of reserves on a forward-look basis.

We will continue to take a forward look as you said. Right now, I think our forward-look reserves for the next year or 2 are 6x or 7x our average historical loss rate. So look, we will keep an eye on that for sure. But right now, I don’t see anything more than normal growth, absent some change in the credit fundamentals that we just went through both Willy and I just talked through.

Jade Rahmani: Thank you very much.

Operator: We will move to our next question from Kyle Joseph with Jefferies. Please go ahead.

Kyle Joseph: Hey, good morning, Willy, Greg. Thanks for taking my question. First one probably for Greg, I just want to kind of get a little bit more on guidance. From what – from your commentary, it sounds like you guys are baking in kind of flattish agency volume. So, just want to get a sense for the incremental growth there in ‘24. Is that a function of servicing or is that kind of other channels of origination opening up more so than agency?

Greg Florkowski: Yes, I think, Kyle, great to hear you. Thanks for joining us this morning. I think a couple of things, one is I mentioned we added 17 bankers and brokers last year. So even as the market was shifting on us, we were still bringing on talent and making sure that we were bolstering our bankers and brokers. So we think we have an opportunity to gain share even in a flat environment. I think importantly, there is a lot of deliveries coming online in 2024 and there is going to be an opportunity for our investment sales team to get involved in some of those deals for merchant builders and help them capitalize those assets. And I think there is – there is likely to be more Capital Markets transactions this year than in prior years.

So while may the uncertainty – may not be as active, there is certainly market data. The MBA is projecting the market to increase to $350 billion from multifamily perspective in ‘24. So there is going to be transactions likely brokered or Capital Markets. Obviously, we have a very talented team there as well. So we will capture our share and I think there is many different ways for us to try to take the diversified platform we have and deliver those results to generate that growth, even if Fannie and Freddie are flat year-on-year.

Willy Walker: Yes, and kind of…

Kyle Joseph: Very helpful. And then…

Willy Walker: Kyle, let me – if I can just add one other quick thing, which is, as Greg said, I want to reiterate one thing that Greg said in his commentary. It is ridiculous that Fannie and Freddie are signaling to the market that their volumes are going to be flat between 2023 and 2024. They are in the market to provide counter cyclical capital. Their role is to provide counter cyclical capital to the market and their capital is needed in this market. So while we are reflecting to everyone on this call what we are hearing from Fannie Mae and Freddie Mac, as it relates to their outlook for 2024. And as Greg said, we can’t do anything about that outlook other than work with them. I just want to underscore the point that as Fannie’s largest partner and Freddie Mac’s third largest partner, seeing the opportunity in the market to meet refinancing needs in a year where refinancing is up dramatically in the multifamily market as it relates to demand.

There is no reason that Fannie and Freddie’s volume should be the same in 2024 as they were in 2023.

Kyle Joseph: That’s helpful. That makes sense. Yes, that’s a good segue to my next question, just on Slide 11, in the maturity wall on multifamily. Just – and given your knowledge of the market, any sort of color you can give us on the quality of this portfolio, whether it’s floating versus fixed, Class A, Class B and geographic areas. And then specifically, if there is any, I don’t know geographic areas you’re looking to avoid or target as a result of this upcoming maturity ways?

Willy Walker: So if you look at the overall maturities in 2024 per the Mortgage Bankers Association, in 2023, the ‘24 number for total commercial real estate refinancings were somewhere in the $600 billion number, $620 billion and about $300 billion of loans that were scheduled to be refinanced in 2023 were pushed to 2024. So the 2024 total commercial real estate refinancing volume is over $900 billion now. That’s going to present a significant challenge to the market to find enough capital across the spectrum to meet that need for financing, particularly as we see banks pull back. CMBS had growth in 2023. You probably expect to see continued growth in CMBS. Life insurance companies have been very, very consistent at doing about 10% of the market’s volume through cycles even in good times and bad times when they could actually expand out beyond 10%.

And the interesting part about the 2024 refi is that the agencies, Fannie and Freddie have a very small amount of deal flow in their own books that is maturing in ‘24. And so the opportunity for us in ‘24 is to go out and take refinancing opportunities from the competition. And to your specific question, Kyle, what those loans look like, how much new equity needs to go into them to refinance them or preferred equity or a recapitalization is the real question. And I think that, we have got the team, we have got the capital as it relates to both first-trust financing, as well as anything above that, whether it would be in a mezzanine or preferred equity position to be able to meet borrowers’ needs. But there is no doubt that a lot of those deals that are coming up for maturity in ‘24, fortunately not in our portfolio, but a lot of them are going to need some type of structured finance to get them refinanced out.

Kyle Joseph: Really helpful color. Thanks for taking my questions.

Operator: [Operator Instructions] We will move to our next question from Steve Delaney with Citizens JMP. Please go ahead.

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.