Welcome to Walker & Dunlop's First Quarter 2017 Earnings Conference Call and Webcast. Hosting this call today from Walker & Dunlop is Willy Walker, Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer; and Claire Harvey, Vice President of Investor Relations. Today's call is being recorded and will be available for replay beginning at 11:30 A.M. Eastern. The dial-in number for the replay is 800-283-8183. The archived call is also available via webcast on the company's website. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Claire Harvey. Please go ahead ma'am.

Thank you, Erica. Good morning everyone and thank you for joining the Walker & Dunlop first quarter 2017 earnings call. I have with me this morning, our Chairman and CEO, Willy Walker; and our CFO, Steve Theobald. This call is being webcast live on our website and a recording will be available later this morning. Both our earnings press release and website provide details on accessing the archived call. 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 this morning. Please also note that we will reference the non-GAAP financial metric, adjusted EBITDA, during the course of the 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. With that, I will turn the call over to Willy.

Thank you, Claire, and good morning everyone. I recently celebrated my 50th birthday and as a gift my father arranged for me to visit the USS Theodore Roosevelt aircraft carrier as part of the Navy’s distinguished visitors program. It was an amazing experience to watch flight operations and spend time with the men and women of the United States Navy. As I lay in my bunk listening to the final plane coming to a roaring stop at 1:30 in the morning, and was awoken only four hours later by the first plane taking off. I thought about the amount of practice it takes to ensure that flight operations can be executed flawlessly. Every one of the 5,000 people on the USS Theodore Roosevelt knew exactly what his or her job was, how to do it, and how it fit into the mission of launching and retrieving squadrons of F-16s. And while operating an aircraft carrier, and flying fighter jets is dramatically different than leading a commercial real estate finance company, I couldn't help, but look at Walker & Dunlop first quarter 2017 performance and think that our focus, definition of mission, and exceptional execution is somehow analogous to what I watched happening on the USS Theodore Roosevelt. Define the mission, establish roles and responsibilities, practice, improve, execute, do it again. And once again W&D is posting financial results that reflect our team’s incredible performance throughout the first quarter. $5 billion of total transaction volume is a first quarter record. We grew volumes much more significantly than the market, due to the brand we continue to build and the additional loan origination talent we have added to the platform. Record loan volume, usually generates record revenues, which topped $158 million this quarter setting us up nicely for over $600 million in…

Thanks, Willy and good morning everyone. At the risk of sounding like a broken record, Q1 2017 was yet another stellar quarter for Walker & Dunlop. And speaking of breaking records, this was the most profitable first quarter in the company's history with just over $5 billion in transaction volumes, and diluted earnings per share of $1.35, compared to $0.50 in the first quarter of 2016. Diluted earnings per share included $0.27 benefit from reduced tax expense related to the vesting of employee stock awards during the quarter that I will explain in a moment. As the bottom line results imply, our key metrics for the first quarter where all above our expected target ranges. Slide 5, provides a summary of our key metric performance for the quarter, and as you can see, they all outperformed the prior-year rather dramatically. Operating margin was above our range of 27% to 33% at 35%, and well above the 26% we achieved in the first quarter of 2016. Margins benefited from strong revenue growth in the quarter, as we originated over $4.7 billion in financing volume and completed just under $300 million in investment sales. We continued to see strong market dynamics throughout the quarter as evidenced by our 108% increase in Fannie and Freddie volumes. We aim to once again be one of the largest partners for Fannie and Freddie in 2017, and more than doubling our volume of business quarter-over-quarter is a great start towards achieving that goal. Our HUD volumes were up 67% to $207 million as our HUD teams drive to originate over $1 billion of loans this year. We achieve that level just once before in 2013 and with such a positive first quarter and strong pipeline, the team is well on its way to exceeding that mark…

Thank you, Steve. I want to loop back for a second to the aircraft carrier I visited recently. When a fighter pilot lands his F-16 on the carrier; he is shooting for the third catch wire on the deck; if he picks up the first or second cable, he is coming in at too steep an angle; if he catches the fourth cable, he is coming to flat and miss the target. And if he misses all four cables he needs to take off immediately, it is called a bolter. Every day the landing performance of the fighter pilots is analyzed and if a pilot gets too many bolters, he won't be flying fighter jets on the carrier much longer. As I listened to Steve run through our financial performance, I think it is fair to say that W&D team caught the third cable pretty consistently throughout Q1. The results Steve just discussed are a fantastic start to the year, and our business is very well positioned to perform at a high level going forward. We established a goal at the beginning of the year to build an $8 billion to $10 billion asset management business at Walker & Dunlop. Last week, we reached agreement with Blackstone Mortgage Trust to create a joint venture with the strategic purpose of originating multi-family interim loans. This new partnership with Blackstone will greatly enhance our ability to scale our interim loan business, and also bring with it a partnership with the largest owner of commercial real estate in the world. We will fund 15% of the equity investment in the JV, as well as underwrite service and assets manage the loans originated and held by the joint venture. If we are successful in growing the outstanding loan balances through this partnership from the…

[Operator Instructions] Our first question is coming from the line of Jade Rahmani from KBW.

Thanks very much. Just on the MSR point, how do you think about the net present value versus where it’s carried on the balance sheet?

Specifically Jade, what you mean I guess.

Well how much higher do you think the MSR is worth versus where it is marketed? I think 563 million.

Yes, so clearly as you know we do a fair value on the entire MSR portfolio each quarter and that has historically been significantly higher than what we’re carrying the book at. I think the point that we are trying to make here is what we are booking is, an indicator of future growth in the servicing fees as opposed to necessarily evaluation point.

And on loans that replay out of the servicing portfolio, what’s your historical capture rate on the refinancing?

We haven't disclosed that publicly Jade. We as you can imagine track it very closely and work very hard to capture as much of it as we possibly can, but we have not disclosed that number.

I guess can you maybe give us some color on the current environment and commercial real estate investor sentiment since there seems to be a mixed data whether it is the real capital on analytics volumes, you cited or the market share gains that players such as yourselves appear to be experiencing, just how do you characterize overall sentiment and sort of deal volumes?

From the public data that we have seen, as far as our competitor firms Jade, everyone had solid first quarters. We grew, I believe faster than everyone that I have seen, but nonetheless it was a solid quarter for the industry. I would put forth that the election and the subsequent market movements change the attitude in the commercial real estate industry dramatically. And I believe that Q1 was somewhat for sorting out as it relates to where interest rates were going to go and whether they were going to be any Cap rate adjustments related to interest rate moments, and that is what put if you will download pressure on investment sales, although as you saw in our investment sales business we actually had growth on the quarter, but my sense is that as we head into Q2, and without having a dramatic rate increase those price adjustments that some investors were waiting for are not being waited for further and I would think that we have increased investment sales activity in Q2, and continued refinancing and financing volumes in Q2 and throughout the rest of the year, given the current market environment as Steve mentioned.

And since visibility from our perspective is limited are you able to comment on whether volumes increased sequentially through the quarter, maybe what percentage of volumes came in March and also any color on how April looked?

Yes, I’d put forth in the following. As you know we had a very strong Q4 and there wasn’t a lot of carryover business between 2016 into 2017. It was a very consistent flow throughout the first quarter. And as Steve mentioned our pipeline for Q2 looks very good and I would say to you that as we look out at the overall activity across every business line we have, they are all very active. There is not one that is saying investors haven’t gone there or people don't like that source of capital. We are seeing very active markets across all of our business lines.

And just lastly on the joint venture with Blackstone Mortgage Trust, can you comment on this structure, you mentioned the 15% capital that you would be contributing, but also if you receive any management fees and how you envision the business growing from here, that billion dollar in volume target is that a one-year target or is that a year-end target?

That's an annual origination target and we haven't disclosed the specific fees as it relates to asset management fees and origination fees as such in the joint venture, but there are fees between us and Blackstone to award both parties for helping grow the venture.

Thanks very much.

Thank you, Jade.

Thanks David.

Thank you. Our next question will come from Steve Delaney with JMP Securities. Please go ahead.

Good morning and congratulations on the strong start to 2017. Willy obviously volume up 90% is kind of mind-boggling, can you estimate for us how much of that increase you would attribute to your 2016 acquisitions versus what you might call same store production? Thanks.

We haven't broken that out Steve. I would just put forth it, as we talked about in our Q4 call three months ago, a little bit less than three months ago, the team that we put on the field if you will in 2016, really didn't have that much impact on our 2016 financial results, which as you know were fantastic. So, I do believe that what we are gaining right now is the additional flow from having added quite significantly the team in 2016, and as you know we continue to add to the team in 2017, but I would also put forth to you that our top mortgage bankers. The people who are at the top of our league tables if you will as it relates to production volume are as protective if not more productive than they have ever been, and I do truly believe that that is due to the brand that we have, and the fact that people when people are thinking about specifically agency financing and HUD, they say if you want to go with the best you go with Walker & Dunlop. There are one or two other competitors who are in that same, if you will competitive set with us, and you know well who they are, but I do believe that the brand and the reputation we have built is starting to incrementally win that additional if you will unit of business. So, I think it is a combination of new feed on the street access to the deal flow, as well as the overall platform growing in the productivity of the very, very talented bankers that we already had at W&D.

That’s very helpful thanks. It sounds like the long timers are stepping up their game as well, so not just adding incremental producers. In the first quarter, if we look at sort of the mix between - you had nice Fannie, you had nice HUD, 40% Fannie, close to 5% HUD, can you comment on sort of if you look at over the year whether you think that mix is sustainable, obviously given that those are highly profitable products versus Freddie Mac? Thanks.

There are two things there; first of all as you look at our market share over the past several years, we have sort of been in a band with both Fannie and Freddie of sort of 10% to 12% of each of their annual volume. It is obviously our hope and expectation to continue to grow market share with both of them, but to some degree as we move up with one on a given quarter, and have sort of a slow quarter with the other one, invariably they kind of revert back to the mean. With that said, I did underscore what we are seeing from the borrower preference standpoint, which is going with long term fixed rate financing as we are in this increased rate environment. And Fannie has been stronger than Freddie, doesn't mean they won’t change their strategy and get very, very competitive on this product in the next quarter or two, but year-to-date and throughout 2016 Freddie Mac was a stronger floating rate lender and Fannie Mae is a stronger fixed rate lender. And so as our clients are opting for long-term fixed rate financing, Fannie May has been the more competitive bid and that is therefore driven stronger warnings of Fannie Mae, but I would underscore Steve that both Fannie and Freddie move in and out of the market and move in and out of certain products throughout the year, given their overall origination volumes and where they sense the competition playing and where they want to play. And so I wouldn't sit there and sort of sit back and say okay for the rest of the year Fannie is going to own the fixed rate market and Freddie is going to continue to own the floating rate market, the two of them jump in and jump out and then the only other thing, I would underscore there is the following. Private equity firms, the big sponsors typically like floating rate debt because it gives them pre-payment flexibility and as you know their fun lives are typically seven years, so they will want to buy assets and move them inside of a 10-year window. And so therefore they typically shy away from long-term fix it rate financing, and opt towards short-term floating rate financing and as you have seen with some of the big deals that we have done in the past with big sponsors those have typically been large deals, but typically done with Freddie Mac on floating rate debt.

Sorry Steve, I was just going to add to what Willy said, on the brokered side, so where we are seeing pretty significantly lift from the acquisitions we’ve done is on the brokered production and I would expect to see outsize performance on the brokered side, which is why we’ve guided gain on sale margin to the 180 to 200 basis point range?

Got it, because obviously that’s a lower margin product. Okay. Thank you, but for that. Just to wrap it up, I mean we could talk about seasonal patterns thanks, but I think you’ve covered it pretty well for us and we will be in good shape for modeling. So just stepping back from how obviously the momentum that you’ve built, the macro risk to the business model generally into WD, what you see out there Willy, that could - forget things, I am talking about things beyond your control that could change the marketplace and slow the kind of momentum that you are on. I think about the 10-year treasury yield is impacting borrower, but is that it or there are other factors we should be thinking about?

We will see what the Fed does from an interest rate standpoint Steve, but as we have spoken about we are projecting that the yield curve continues to flatten and that the 10-year U.S. Treasury remains relatively low given buyer interest in continuing to hold that. As such long-term fix it rate financing is still relatively very cheap. And so other than very, very consistent continued rate increases by the FED throughout this year and into next year, I don't really think that the interest rate environment is going to change too significantly to slow down the normal financing environment. If as we saw in Q1 from a M&A standpoint, big rate moments in a short period of time typically get real estate investors to pause and wait for cap rates to adjust, and so if you get sequential rate increases, I do think that the M&A activity or the investment sales activity will slow for a period of time as people wait to see whether prices adjust, and then just as we are seeing right now once they have seen where they either adjust or don’t adjust, they come back into the market. The second thing is that, I was very surprised that with only 70 basis points of GDP growth in Q1 that the equity markets didn't sell off a little bit more and that we didn't actually get more of a rally in Treasuries. And so as a result of that with the equity markets continuing to perform the way they are, I do think that that is a general sense out there that CEOs and owners of the commercial real estate are investing. They think that growth is coming, and I think that that is net positive for both the equity markets, as well as a…

That's great. Very helpful big picture color, thank you.

[Operator Instructions] And we will go next to Charles Nabhan from Wells Fargo. Please go ahead.

Hi good morning and thank you for taking my question. Most of my questions have been asked, but I wanted to get your comments on the competitive environment. Specifically, your results would imply you gaining market share from somebody, so just wanted to get a sense from what you are seeing out there, whether some of your competitors are retracting, whether they are aggressively pursuing the same business, and furthermore if you see, if there is potential to go up the rankings and Freddie and HUD during 2017?

Chuck a couple of things. One I follow our competitors press releases quite a bit and also have a pretty good sense from a recruiting standpoint who is adding people and who is not, and throughout 2016 I don't think it is a stretch to say that we are one of the few that was actually adding people during 2016 because it was our view that the markets were strong and we are going to stay strong, whereas I think some of our competitors felt that the markets were coming to the end of the cycle and therefore we are holding. And so what we're seeing right now is that additional sales force, the people out there every day really starting to benefit us when many of our competitors last year were not adding. I think the second thing on that is just as we have continued to grow this platform and grow the brand we’re picking up that incremental piece of business as I talked about previously. And I think that that just comes from having executed for some great clients who then turned to other clients and say why aren’t you working with Walker & Dunlop. The third thing I would say there is that as you know we have done some large transactions in the past although Q1 really didn't have too many big transactions. It had one specifically on the student housing side, which we announced, but we have started to work with some of the larger borrowers, some of the sponsors, and clearly working in to get access to them is a very difficult thing, but once you get in there, they are a huge source of potential deal flow and we have been very successful at capturing deal flow from some of the very biggest owners of commercial real estate in the country. And so I think as it relates to your question on can we move up in the league tables. We were number one with Fannie for three years, and then fell back to number two, as you can imagine we are desirous to get back into the number one spot. On the Freddie side, we have been three and four and we were three at the end of last year, can we jump up to number two, we would love to, but we got to keep our head down and keep going. And then on the HUD side, as you saw in the press release we made just a couple of weeks ago, and I highlighted in my comments, you know we have now gotten into the top five with HUD and we are thrilled to have ended last year in the number four position, and has Steve said in his remarks, given what we did in Q1 and given the HUD pipeline, yes we very clearly can move up in the league tables on the HUD side given the team we have and the pipeline we have right now.

Great and as a follow-up, I was wondering if the BXMT joint venture and your upcoming investments in technology alter your M&A strategy at all, and if not just wanted to get a sense for what you’re looking for, what you're seeing from a pricing standpoint, as well as the willingness of potential targets to sell?

So Deerwood as I mentioned was our sixth acquisition since the financial crisis and as you know we up until now we have only acquired either loan origination platforms or investment sales platforms. We continue to look for them and continue to think that we know how to both identify them, identify platforms that are culturally aligned with us and be able to execute on the acquisition and then integrate the people, which has no minor feed and then actually take their volumes to a whole different level. So given our track record there, there is absolutely no reason for us to sort of forget about that as a means for future growth, and quite honestly leveraging off of the capabilities we have at Walker & Dunlop. With that said, I did outline what we are focused from a technology standpoint. You may recall Chuck that we made an investment in a technology firm called [indiscernible] in Q1 of 2016, which is a real estate technology firm and we continue we have a seat on their board and we watch what they are doing in their growth. So we have invested in the technology front in the past, but what I outlined in my comments is really very focused on how can we make Walker & Dunlop more efficient in what we do, how can we make our customer experience more customer friendly, and efficient on their end. And then eventually once we've made real progress there, how can we start to analyze the data that comes out of our today $64 billion servicing portfolio to try and grow our business in new ways. And that’s a multi-year project, but what is really exciting from my perspective is that we are very focused on it. We have already embarked on this sort of multi-year strategy to first focus on efficiencies, drive some costs out of the business, make ourselves more customer friendly, and then once we have done that we then go to the next level, which is really starting to look at the data and how that can help us grow our business.

And Chuck we remain focused on building out our asset management business and that’s another area where we would be desirous of doing some potential M&A transaction, so that hasn't really changed.

Great, thank you.

Thank you. And we will go back to Jade Rahmani for a follow-up.

Thanks very much, in terms of M&A, I was wondering is there a focus in interest level, primarily on acquiring teams such as the most recent few transactions or are you also equally focused on something quite large?

It really depends on the opportunity. As you know Jade, we've got plenty of spending capability if you will. And we're generating a huge amount of cash right now. And as you know also with the amount of debt we have outstanding and with the EBITDA we are generating right now, we have the ability to put significant leverage on the company where we need to do so, but with all that said, it really depends on the opportunity at hand and we have since CW, which as you may recall was we doubled the size of the company when we bought CW, and be integrated them successfully throughout 2013 and have benefited dramatically from that acquisition, but subsequent to that we have basically been buying smaller companies and we have gotten great, great returns from them. So, it is not a different elephant hunting nor are we just looking for smaller firms, we are, I think we are known as a company that people can be acquired by that the culture is a fantastic place to work and that the ability for the loan originators and the investment sales brokers to grow their individual business at Walker & Dunlop is dramatic. And that is out there and so what ends up happening is that people call us, and they say hey we have got a old partner who wants to retire, would you like to think about buying us, we have got - we can't seem to grow like you all are, could we benefit from your scale and your capabilities. So those types of opportunities are presenting themselves to us, and I would put forth very good at analyzing, which ones we are to engage on and which ones we should pass on.

Thanks very much.

Thank you. And at this time we have no further questions. I would like to turn the floor back over to Mr. Walker. Please go ahead.

Great. I thank everyone again for joining us this morning. Congratulate the W&D team again for just an absolutely fantastic first quarter. And wish everyone a very good Wednesday. Have a nice day.

Thank you. This does conclude today's conference call. Please disconnect your lines, and have a wonderful day.