Walker & Dunlop Inc

NYSE:WD

Earnings Call Transcript 2020-Q3

[Kelsey Montz, executive]

Good morning, everyone. I'm Kelsey Duffy, Vice President of Investor Relations at Walker & Dunlop. And I would like to welcome you to Walker & Dunlop's Third Quarter 2020 Earnings Conference Call and webcast. Hosting the call today is Willy Walker, Walker & Dunlop, Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer. Today's call is being recorded, and a replay will be available via webcast on the Investor Relations section of our website. [Operator Instructions] 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 Steve will touch on during the call.

Please also note that we will reference the non-GAAP financial metric, adjusted EBITDA, during the course of this call. Please refer to the earnings release posted on our website for a reconciliation of this non-GAAP financial metric. 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. 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.

[Willy Walker, executive]

Thank you, Kelsey, and good morning, everyone. We hope you and your families are safe and healthy. I want to start our call by sending condolences to one of our colleagues, [ Will Baker ], who lost his father suddenly yesterday morning. Will is an extremely important member of the Walker & Dunlop team, having joined W&D right out of college and risen to become one of our most successful bankers and team members. There's another member of our team, Howard Smith, who also joined Walker & Dunlop right out of college, also rose to become one of our most successful bankers, and has been my partner in building this business as our President. Howard will celebrate 40 years at Walker & Dunlop on November 24. It is people like Will and Howard that make Walker & Dunlop what it is, and I want to reiterate our condolences to Will and the entire Baker family for their loss.

As a company that finances millions of safe, affordable apartment homes and understands the direct correlation between vibrant, integrated communities and economic growth; we remain very focused on the COVID pandemic and issues of racial justice that have impacted our country so dramatically over the past 8 months. We have continued to provide credit to the multifamily industry as landlords have changed how they operate their buildings due to the pandemic and also dealt with rental forbearance. We have raised and donated money to nonprofits that focus on health care and housing. And we have made hires and changes to our corporate leadership and governance that will continue to make Walker & Dunlop a leader on issues of racial and gender diversity and economic opportunity. And while doing all of this in the midst of the pandemic and social unrest, our company continues to perform extraordinarily.

Our team, the W&D brand, the investments we have made in technology, and our long-standing focus on multifamily housing have allowed us to not only weather the storms we have seen in 2020 but make investments that will drive continued growth and outperformance over the coming years.

Our financial performance in Q3 was exceptional, as we grew market share and continued expanding our client base. As you can see on Slide 3, we generated total revenues of $247 million, up 16% from the third quarter of last year and diluted earnings per share of $1.66, up 19% year-over-year. Those growth rates are dramatic given the strength of our performance last year and all that has transpired this year to impact our business model, a pullback in credit to office, retail and hospitality assets, a prolonged pause in the property sales market, remote work and a dramatic drop in interest rates, which has diminished the returns we earn on escrow deposits and balance sheet loans.

Yet even with those headwinds, our team has found ways to continue growing and gaining market share. As shown on Slide 4, on a year-to-date basis, of an exceedingly successful 2019, we have grown total revenues by 22% and diluted earnings per share by 24%. Many Walker & Dunlop investors have benefited over the years from our company's outperformance versus our direct competitors and industry.

For example, Slide 5 shows W&D's performance versus the median of the S&P 600 Financials Index over the past several years. As you can see, W&D has grown significantly faster than the index in total revenues and earnings over both the past 3 and 5 years. Yet as the right side of this slide shows, the median price to earnings ratio for the S&P 600 Financials Index is 16.5, while it is 8.5 for Walker & Dunlop. As W&D continues to outperform, it is our strong belief that our multiple will trend closer and closer to the S&P Financials Index.

As we have scaled our business, we have diversified our capital sources and the volumes of lending we do on all commercial real estate asset classes. You can see on this slide that our Q1 lending was done 57% with the agencies and 43% with other capital sources. Yet as the pandemic hit in Q2, private capital fled the market, and the agencies assumed their role of providing consistent capital flows to the multifamily industry. As a result, in Q2, our agency volumes expanded to 77% of total financing, while capital from banks, CMBS and insurance companies contracted to only 23%. That trend continued into Q3. 75% of the $7.3 billion of debt financing we did in Q3 was with the agencies on multifamily properties, while only $1.8 billion or 25% was with banks, life insurance companies and other sources.

There are 2 key points inside this data. First, our business model and team allowed us to deploy a huge amount of agency capital during the pandemic that has driven our tremendous financial performance; and second, while deploying $1.8 billion of capital from banks, CMBS and life companies during Q3 is a significant accomplishment, we lend over $3 billion with these capital sources last year during Q3, showing the significant upside to our transaction volumes as the market normalizes.

Our multifamily property sales business rebounded nicely in Q3. We started the year with a very strong first quarter sales volume of $1.7 billion and then watched the market collapse in Q2, closing only $447 million of sales. But due to our team, brand and technology investments, we saw our multifamily property sales volume rebound to $1.1 billion in Q3 as investors reentered the market with conviction.

We have a significant pipeline moving into Q4 and expect to close $2 billion to $3 billion in property sales volume in the quarter, bringing our annual total to over $5 billion, which is a significant accomplishment given the market fluctuations this year.

Our lending and brokerage volumes and overall financial performance in 2020 are due to having the very best people, brand and technology in the commercial real estate industry. We have continued to add the very best bankers and brokers to our team despite the impact of the pandemic, bringing on new brokerage teams in Austin, Miami, Nashville and San Diego and new bankers in New York, Dallas and Columbus so far in 2020.

We have a distinct competitive advantage against our larger competitors today, where our domestic focus on multifamily is generating strong financial performance, cash flow and the ability to continue investing in our platform to drive growth and market share gains.

Winning and closing the largest multifamily financing likely to be done in 2020, the $2.4 billion Southern Management deal that we closed in Q2; was a marquee deal, where Walker & Dunlop went head-to-head against our 3 largest competitors and won. Every subsequent time, we have gone head-to-head with 1 of those 3 competitors we have been able to reference that deal and underscore how and why W&D won.

At the same time, we launched the Walker webcast just as the pandemic was taking hold across the United States to provide our clients and the market with insights and analysis, not just on the commercial real estate industry, but on all topic areas that are relevant to the unprecedented world we live in today. The webcast has expanded Walker & Dunlop's brand in ways we could have never imagined. Our total viewership of the Walker webcast has exceeded 200,000 unique views. Our e-mail distribution list has expanded from 19,000 distinct e-mail addresses at the beginning of the pandemic to over 120,000 today. And we have received 0.5 million views of webcast clips across all social media channels. While our competitors have tried hard to imitate the Walker webcast, the quality of our guests and weekly viewership will be hard to replicate.

Finally, as our team and brand have expanded, our investment in and use of technology has continued to differentiate Walker & Dunlop and allowed us to gain market share. As you can see on Slide 7, we have taken our market share with the GSEs from 10% last year to 13% this year. Our growth in 2020 has been due to a combination of exceptional service from our talented bankers, brokers and underwriters, the breadth of our brand and the insights our technology provides to both us and our clients.

In the third quarter, 69% of the loans we've refinanced were new to Walker & Dunlop. Let me repeat that number. 69% of the loans we refinanced in Q3 2020 were not from our servicing portfolio and were either new loans from an existing Walker & Dunlop client or new loans from a new client. And as it relates to new clients, 25% of our total financing volume in the third quarter was with new clients to Walker & Dunlop. We will continue to grow our client base and market share by leveraging off our incredible team, brand and technology.

While the current market conditions make the success of our technology strategy, most apparent in our debt financing business, we have also been focused on integrating the data science and data analytics that power our multifamily appraisal business, Apprise throughout our platform. At its core, our business is a valuation business, relying on value to make loans, sell assets and manage our servicing portfolio, and we have been investing heavily in developing and scaling our faster and more accurate method for valuing multifamily properties. We are extremely excited about what the integration of this technology will do for our business over the next several years.

Let me turn the call over to Steve to discuss our financial results in more detail, and then I'll come back to discuss what we see for the rest of 2020 and our next 5-year strategic plan that we've been developing this year. Steve?

[Steve Theobald, executive]

Thank you, Willy, and good morning, everyone. Our third quarter financial performance once again demonstrates the strength and durability of the Walker & Dunlop business model, as we continue to perform incredibly well during these challenging times. Our combination of steady cash generation, extremely strong credit fundamentals and long-term focus on providing exceptional multifamily financing and sales capabilities continue to generate above-market growth in top and bottom line performance. As evidenced by the 16% year-over-year increase in revenue during the quarter to $247 million and 19% growth in diluted earnings per share to $1.66.

In addition, return on equity for the quarter was 20%, up from 18% last year, while operating margin held steady at 28%. Q3 adjusted EBITDA was $45.2 million, down from $54.5 million in Q3 of last year. There is significant upside to EBITDA in 2021 and beyond as the cash-generating components of our business increase.

First, our servicing portfolio has grown by 13% over the past year and now stands at $103 billion, as you can see on Slide 8. In addition, the weighted average servicing fee on the portfolio has increased to 23.4 basis points at the end of Q3. We earned $60 million of high-margin cash servicing fees in Q3, up 10% from last year, and those revenues will only continue to grow with the increase to both the portfolio and the weighted average servicing fee.

Second, volumes from our debt brokerage and property sales teams have been constrained in 2020 due to the impacts of the pandemic on the commercial real estate market. As a result, we have not seen the boost in adjusted EBITDA that these cash-generating businesses can provide, when they are operating with their full capacity as we saw in the first quarter of this year.

And finally, while we expect interest rates to remain low in the near term, any future increase in short-term rates will have a positive impact on the interest income we earned from our now $2.8 billion of escrow deposits, a balance we expect will continue growing as our overall servicing portfolio grows.

We ended the quarter with close to $300 million of cash on the balance sheet, further bolstering our already strong liquidity. During the quarter, we repurchased 254,000 shares at an average price of $53.12 per share, utilizing $13.5 million of our $50 million authorization. We felt that repurchasing stock at these levels presented a very attractive return for our shareholders. Based on our future outlook for the business, including our expectations for continued strong earnings growth, the current exceptional credit performance of our portfolio and the significant reserves we've already taken to cover any future losses.

We currently have $26 million available for share repurchases to use between now and early February of next year. And yesterday, our Board of Directors approved a dividend of $0.36 per share payable to shareholders of record as of November 13. I think it is important to point out that many companies have had to eliminate or significantly reduce their dividends during this crisis, while we have been able to maintain ours due to the underlying strength of our business model. We fully expect to increase the dividend rate next quarter as we have done each year since we instituted it in 2018.

We remain active in seeking out growth opportunities in the market, including recruiting and M&A opportunities as our financial performance and liquidity position give us the ability to take an offensive stance that will let us set us up for continued growth in the future.

As I mentioned, we continue to see fantastic credit performance in the portfolio. At the end of the quarter, we had only 1 $6 million Fannie Mae loan still in forbearance. That is 1 loan in a portfolio of over 2,500 loans, which, by the way, we believe with our production volumes this year is now the largest Fannie Mae portfolio in the country.

Third quarter provision expense was $3.5 million and included a $2.4 million charge related to an increase to the reserve on the 1 loan in our interim loan portfolio that defaulted in the first quarter of last year. The remaining $1.1 million of the quarterly provision expense was driven by the growth in the at-risk portfolio during Q3 as we did not make any changes to our loan loss assumptions during the quarter.

There were no other delinquent loans in our at-risk servicing or interim loan portfolios at the end of September. This performance is a testament to the durability of the agency model and the strength of multifamily lending. As detailed on Slide 9, in our portfolio of 5,345 Fannie, Freddie and HUD loans, we had only 9 loans in forbearance at September 30 or 0.2% of the entire agency portfolio. And as I noted earlier, we only have credit risk on 1 of those loans. We feel great about the performance of the portfolio so far, but it's still too early to declare victory. The unemployment rate continues to remain at a high level, and the economy is not even close to performing at pre pandemic levels. We continue to believe that meaningful jobs gains are necessary to stabilize the economy before we can put credit in the rearview mirror. In the meantime, we continue to think the current reserve balance is sufficient to absorb any losses that may come through in the portfolio.

We had an amazing first 3 quarters of the year and are carrying a lot of momentum into the fourth quarter. The pipeline looks great and includes a continued rebound in both debt brokerage and property sales volumes. After posting a gain on sale margin of 223 basis points in Q3, we expect the increase in debt brokerage volumes and continued strong agency originations to deliver a gain on sale margin in the range of 200 to 220 basis points in Q4. And with year-to-date earnings per share growth of 24%, we are well on track to delivering double-digit earnings growth for the seventh year of our 10 years as a public company.

Our portfolio is performing extremely well. Our transaction platform is taking market share from the competition, and we amassed a significant cash position, all of which gives us flexibility to both return capital to shareholders through our quarterly dividend and share buybacks and evaluate market opportunities that will position us for continued growth over the next several years.

As borne out by the stats that Willy went over, related to our historical performance relative to the S&P 600 financials, our business model consistently demonstrates that it is built to sustain market downturns due to our focus on multifamily, access to countercyclical capital, and the strong credit standards that underpin our servicing portfolio; while our business also performs well when times are good as a result of our great people, strong brand and investments in growth in technology.

As we close out on 2020 and look ahead, we will continue to leverage this winning formula to power our future success. Thanks for your time this morning. And I'll now turn the call back over to Willy.

[Willy Walker, executive]

Thank you, Steve. Our exceptional performance over the past several years and through the first 3 quarters of 2020 puts us at the doorstep of achieving almost all of the component parts of the 5-year growth plan that we set out at the end of 2015 called Vision 2020. Our long-standing mission has been to build the premier commercial real estate finance company in the United States. And as we have set ambitious growth objectives to bring us closer to achieving that goal, exceptional financial results have followed.

The first part of Vision 2020 was to grow our debt financing volume to over $30 billion by the end of 2020. On a trailing 12-month basis, we are now at $31.4 billion of debt financing and are projecting that we end 2020 at a similar annual run rate.

As you can see on Slide 11, over the past 5 years, we have grown annual loan originations at a 14% compound annual growth rate, and we believe we continue that growth trajectory, given the people, brand and technology we have built. As the right-hand side of this slide shows, we have grown our servicing portfolio at a 16% compound annual growth rate, which pushed the portfolio over the $100 billion mark early in the third quarter, achieving the second component of Vision 2020. We have doubled the size of our servicing portfolio from $50 billion to over $100 billion over the past 5 years and now stand as the eighth largest commercial loan servicer in the United States.

The third objective was to grow our multifamily property sales volume to over $8 billion a year. And while we will come up short of that goal, as you can see on Slide 12, we have grown that business from $1.5 billion in 2015 to $5.3 billion for the trailing 12 months ending Q3 2020, a 28% compound annual growth rate. We are seeing acquisition volume pick up as institutional capital begins to reenter the market and investors look for opportunities to invest in multifamily properties.

The fourth component of Vision 2020 was to build an $8 billion asset management platform. And while we won't achieve that goal after entering that business later than we anticipated with the acquisition of JCR Capital in 2018. As you can see on the right-hand side of the slide, since setting our Vision 2020 objective, we have grown our AUM to $1.9 billion, and we continue to focus on building out this area of our business over the next several years.

When we established Vision 2020 in 2015, the underlying goal was to take W&D's annual revenues from $468 million to $1 billion. And as we have seen, since we started establishing bold, ambitious 5-year growth plans for Walker & Dunlop back in 2007, with our team, focus and determination, we have consistently achieved the majority of our goals. As shown on Slide 13, over the trailing 12 months, we have generated $951 million of total revenues. And over the last 2 quarters, we are on a $1 billion annual run rate, an incredible accomplishment for our team.

So with Vision 2020 behind us, the drive to '25 begins now. Our next 5-year bold, ambitious, strategic plan will be rolled out at our Investor Day on December 10. But I will share a number of component parts we are focusing on today. At our core W&D finances communities, places where Americans shop, work, play and live. And our future growth plan is based upon expanding our impact on American communities as we continue to scale our business and deliver strong financial results.

The first component will be to become the #1 multifamily lender in the country; after finishing 2019 as the fifth largest with $16.7 billion of lending volume. 3 of the companies ahead of us in the league tables have specific capabilities that we are going to invest in to advance in the league tables. JPMorgan is the largest multifamily lender at $22.7 billion of financing in 2019, with the majority of that lending done on small loans. We are a licensed small loan lender with both Fannie Mae and Freddie Mac, and we will invest in technology solutions that will allow us to scale our small loan origination business dramatically. Wells Fargo finished 2019 as the second largest multifamily lender in the country, leveraging off their commercial and investment banking platforms. We will build investment banking capabilities that will be married up with our scale lending platform to expand the services we provide to our clients and grow revenues. Finally, CBRE was the third largest multifamily lender in 2019; using their position as the largest multifamily property sales brokerage firm to drive financing volumes. Walker & Dunlop will continue to recruit the very best investment sales brokers to our company as well as continue to invest in cutting-edge technology to become the largest multifamily property sales broker in the country.

All of these investments in people and technology will drive revenue and profit growth and make Walker & Dunlop the #1 multifamily lender in the country. And at the same time, we will be financing tens of thousands of safe, affordable homes for Americans. The investments we make to achieve #1 in multifamily lending will also help us expand into financing other commercial real estate asset classes, where people work, shop and play. We will continue to add debt brokers to our team, who can finance office, retail and hospitality assets with third-party capital as well as capital Walker & Dunlop raises and controls.

The technology investments we continue to make in Apprise and the small balance lending business will allow us to provide insights to our clients that will power new investment banking capabilities such as valuation, capital raising and M&A advisory.

Finally, we will continue to focus on recruiting the very best and most diverse workforce to Walker & Dunlop to allow us to meet our clients' needs with exceptional service and execution. We are more invested than ever before in expanding the range of backgrounds, experiences and perspectives that comprise W&D, have set ambitious long-term goals to expand the representation of females and minorities in our management positions and among the company's top earners, and I'm very pleased that Jason Gollum joined us in Q3 as Vice President of Diversity, Equity and Inclusion.

I will finish this call where I started it. These are extremely challenging times for our world, country and industry. There are Americans suffering and dying from COVID-19. There are millions of unemployed Americans who want to get back to work. And there are clients of Walker & Dunlop who have hotels, retail properties and office buildings that are suffering due to the economic downturn. We are mindful of all of these challenges and remain focused on providing capital and advisory services to our clients to help them weather this storm, while we continue to invest in our people, brand, technology and to finance communities where people work, shop, play and live.

We have an incredible track record of growth and profit since our IPO in 2010. And with the scale we have achieved by accomplishing Vision 2020 and the investments we will continue to make, we have the opportunity to scale our company dramatically over the coming years. I could not be more thankful and impressed by all the incredible work our team has done during Q3 and throughout this challenging year. We have done so much right, and as reflected in our growth, client satisfaction, market share and financial results.

Thank you to everyone who joined us this morning, and I will now ask the operator to open the line for any questions.

[Kelsey Montz, executive]

The floor is now open for questions. [Operator Instructions] Our first question is coming from Henry Coffey of Wedbush.

[Henry Coffey, analyst]

2 very basic questions. Rates go up, how does that affect volumes? And how does that affect the overall tone of the business?

[Willy Walker, executive]

Look, where rates are right now. 2 things, one, few expect rates to move significantly. I had Peter Linneman on the Walker webcast 2 weeks ago, and Peter said that he would be very surprised if the 10-year gets above [ 150 ] over the next 3 years. But you think about how much rates have fallen and what the effective coupon rates that we're lending at today, Henry, rates could move significantly, and I do not think they impact our overall volumes.

And the second thing, as you well know, unlike the single-family mortgage industry, which is refinancing every single loan they possibly can right now, due to prepayment protection in the commercial mortgage industry. There's only a certain amount of loans that we actually can refinance given where rates are today and given the opportunities. And so one of the interesting things there is as much as rates are extremely low, I don't expect them to go up, and we also have the opportunity to continue refinancing rates over the coming -- loans over the coming years, given that prepayment protection component to commercial mortgages.

[Henry Coffey, analyst]

Of course, the other side of the equation is, "Rates don't go up, and we have a softer economy," are there particular pockets in 2021 within the guarantee book that you're worried about. I know you haven't had any issues. Multifamily generally doesn't have a lot of issues. But if you look at your existing book, are there either problems or, frankly, maybe opportunities that could come your way if we have a weaker-than-expected economy in 2022. I'm sorry, in 2021.

[Willy Walker, executive]

Right. So as you know, Henry, we take no risk on any non-multifamily loan in our servicing portfolio. So as it relates to Walker & Dunlop and risk management, as Steve ran through in great detail, our very scaled multifamily portfolio, and the at-risk portfolio has performed exceptionally well. And so, we do not see anything as it relates to Walker & Dunlop and any potential losses or risk in 2021 on non-multifamily assets. And as Steve said, our multifamily portfolio has performed exceptionally well. Are there opportunities? I think there will be opportunities, Henry, in the hospitality space, in the retail space.

But the other thing to keep in mind is that the banking system is extremely well capitalized. The life insurance companies that have loans on commercial real estate have extremely low leverage loans with lots of coverage to them. And so, it's my expectation that you don't see a lot of workouts and foreclosures on commercial properties in bank portfolios as well as life insurance company portfolios. Which really only leaves CMBs as collateral that will be distressed and needing to be worked out foreclosed upon, with a recapitalization of those assets. And as you know, over the last 10 years, while CMBS has come back somewhat, it is by no means, a very significant form of financing to commercial real estate.

And so, I think there are plenty of investors out there looking for opportunities. But I think, because of the capitalization of the banking system, as well as the life insurance companies that are in the commercial real estate space, the number of workouts and opportunities will be limited.

[Kelsey Montz, executive]

The next question is coming from Jade Rahmani of KBW.

[Jade Rahmani, analyst]

Willy, I wanted to ask you if you could comment on how you see the M&A landscape taking shape. And just generally speaking, do you think large-scale mergers of equal types of transactions create value in the brokerage space, equal sized companies and represent an opportunity for Walker & Dunlop? Or do you think that cultural and personnel considerations offset the benefit as we've seen a lot of friction costs in recent deals. Just curious about your thoughts there.

[Willy Walker, executive]

Yes. Jade, first of all, thanks for joining us this morning. Second, as you well know, we've been quite an acquisitive company over our history. And one of the key transactions that we did at Walker & Dunlop was in the depths of the financial crisis. In 2009, we acquired Column from Credit Suisse, and that was a transformative deal for our company. And on the backs of that acquisition, we ended up going public in 2010.

So to put it very bluntly, we're always looking for opportunities to acquire great companies and continue our growth path. With that said, I would say a couple of things. One, culture is incredibly important at Walker & Dunlop. And while there are several firms out there that I think have the opportunity to add services and scale to Walker & Dunlop. We would never make an acquisition of a company that didn't fit culturally with Walker & Dunlop. And I can think of 2 or 3 out there that would not be a fit in any way.

The second thing is, I think that the value of the global brands, the [ CBs ] and the JLLs of this world are very diminished today. I think that those platforms have lots and lots of; they are a, not getting the synergies of being global platforms because the world is on kind of rolling shutdowns as we're seeing in Europe right now.

And the second thing is that they're very broad in there in many, many different markets in commercial real estate. They're in leasing, they are in property management. Those 2 asset classes or divisions are, as you well know, Jade, suffering right now. And so those platforms right now, have certain divisions that are doing well and others that are suffering dramatically. We are very fortunate, given our focus on multifamily and also on the United States to be able to perform so well during these times, which I think gives us the opportunity, coming out of it, to grow even faster. And so, are we looking for M&A opportunities? Always. And at the same time, and do we have the capital to do it? Without a doubt, as Steve talked about on the call, given our cash balances today and also our borrowing capacity. But it would have to be exactly the right company from a cultural standpoint, and it would also have to be a company that doesn't have a lot of things dragging on it right now to make it make sense for us.

[Jade Rahmani, analyst]

And so as a follow-on, are you seeing -- it seems that, based on the press releases you guys have put out that there's continued pace of hiring? Are you seeing a lot of opportunity to recruit talent? And could you also comment, as to what the year-on-year growth, the front office brokerage head count is?

[Willy Walker, executive]

Yes, I don't have the exact number on where we are from a banker broker standpoint. But I think we're -- I don't know, Steve, you got 210, 220. And you're still on mute. But Jade, when we have been recruiting over the last 5 years, as we grew our investment sales platform, and as we've added bankers and brokers to Walker & Dunlop. One of the things we would always tell people is that, given our focus on multifamily and our size and scale with consistent capital from Fannie, Freddie and HUD, that when a downturn came, which we all knew it would come at some point, Walker & Dunlop would be exceedingly well positioned. And that while others were laying people off and trying to contain costs, we would be able to continue and invest. And that's exactly what has happened. And so it is a real competitive advantage, as I said in my prepared remarks that we are positioned, where we are today, and have the ability to go out and attract new talent to Walker & Dunlop to continue to grow. And so we will continue to do that, and we feel that our competitive positioning is as strong or better than ever before.

[Jade Rahmani, analyst]

In terms of multifamily credit, and I noticed on your webinar, this is definitely your webinar series. This has been a topic. We are looking at some of the data in terms of the mix of units, and there's clearly a bifurcation in terms of credit performance between the large units that are in those more denser urban environments and most of the multifamily, which is below 20 units. Can you talk to the reasons that you're seeing this strong resilience in credit performance and also looking at the servicing portfolio, if you see any bifurcation in terms of the unit concentration between larger and smaller type multifamily?

[Henry Coffey, analyst]

Sure. So we are -- I believe, we are somewhat -- I don't want to say we are uniquely positioned, but we are extremely well positioned between those 2 extremes that you just effectively outlined, Jade. So where you're seeing weakness is on the very large high-rise buildings in major urban centers. Many of those assets are owned by large multifamily REITs such as EQR, Avalon Bay and a couple of others. I'm not picking them out specifically that they have credit issues. I'm just saying they are the large publicly traded multifamily REITS. And lots of those properties are owned by those types of borrowers, who are not consistent or historic borrowers of Walker & Dunlop because they typically aren't doing secured financing through the agencies, and they typically are using their credit lines to go and borrow and on to finance those assets. And so we don't have a significant amount of exposure from a credit standpoint to what I call brass and glass, trophy assets in major MSAs like New York and San Francisco.

Then you've got the middle of the market, which has held up extremely well from a credit standpoint, which is reflected in the numbers that Steve talked about in our prepared remarks. And then where you have weakness is in small loans. And as much as I just said that Walker & Dunlop will focus on becoming a big small loan lender going forward, using a lot of technology and our expert underwriting capabilities that we have demonstrated over decades. The small loan space right now is where you're seeing significant weakness because it makes sense, right? If you've got a 4 unit multifamily property and 1 person has lost their job and isn't paying, you now have 75% economic occupancy. You just lost 25% of your rent roll. And so, you are seeing weakness in that. And right now, very fortunately, Walker & Dunlop does not have a large portfolio of small loans, which is hurting some of our competitor firms.

[Steve Theobald, executive]

Sorry Jade, I was just going to jump in. And apologies, I was on mute earlier. So we're at 203 bankers and brokers as of the end of September, which is up 13 net for the year.

[Jade Rahmani, analyst]

And so just to follow-on on that point. I've gotten a few questions from some top-tier investors on this. They look at your fee revenue, your cash revenue, excluding noncash MSR gains, and it grew by a slower pace than your personnel expense. But do you want to talk to how that feeds into the future revenue profile because servicing fees are in the future. And so, the production that these brokers are driving, even though that, in this quarter, those broker headcount was up 13%, it translates into larger servicing revenues in the future. Would you like to speak to that dynamic?

[Steve Theobald, executive]

Sure. So you're correct in that as the servicing portfolio has grown pretty significantly this year. That bodes well for cash servicing fees. And as I pointed out in my earlier remarks, it's not just the growth in the portfolio, but we've actually seen a little uptick in the weighted average servicing fee as a result of the strong servicing margins we're seeing on our Fannie Mae business. So that's going to generate a lot of future cash and drive growth there. In addition, I think a lot of our success on the agency side is driven by the fact that, as Willy pointed out, multifamily is the game right now. And a lot of our brokers who historically have done potentially a lot of office retail and other non-multi type transactions are doing a lot more on the multifamily side and, by definition, more on the agency front. So we're seeing a lot of production coming from that team that, when things start to normalize, will get back to generating more brokered transactions to our LifeCos and CMBS, et cetera. And that will also then generate more cash revenues.

And I pointed back to the first quarter of this year, pre pandemic, we did almost $4 billion of brokered volume in that quarter, which was an all-time high for us. And the expectation is, once the market gets back to a more normalized level, that's the level of production that our team is capable of generating on a regular basis.

[Kelsey Montz, executive]

[Operator Instructions] Okay. At this time, we have no other questions. So I will turn the call back over to Willy for closing remarks.

[Willy Walker, executive]

Great. I want to thank everybody for joining us this morning. Congratulate my colleagues at Walker & Dunlop for an absolutely fantastic quarter as well as year, and wish everyone a great day, and thanks again for joining us.

[Steve Theobald, executive]

Thanks, everyone.