Welcome to Walker & Dunlop's Second Quarter 2017 Earnings Conference Call and Webcast. Hosting the call today from Walker & Dunlop is Willy Walker, Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer; and Kelsey Montz from 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 800-839-2398. The archived call is also available via webcast on the company's website. [Operator Instructions] It is now my pleasure to turn the floor over to Kelsey Montz. Please go ahead ma'am.

Thank you, Erica. Good morning everyone. Thank you for joining the Walker & Dunlop second 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. And with that, I will turn the call over to Willy.

Good morning and thank you for joining us. You just heard Kelsey Montz kick off our earnings call for the first time and I'd like to take this opportunity to announce that Kelsey who is taking over for Claire Harvey in leading Walker & Dunlop's Investor Relations activities. As many of you know, Claire has been out on maternity leave and recently made the decision to continue focusing on her family. Claire has been with Walker & Dunlop's since we went public in 2010 and I want to personally thank Claire for her many contributions to Walker & Dunlop over the years and wish her and her family all the best. I also want to welcome Kelsey into her new role. It's nice to have you at this table Kelsey. Our second quarter earnings reflect yet another quarter of fantastic execution and financial performance by the Walker & Dunlop team. For the past several years we have continually reported record numbers and Q2 2017 is no exception. We originated $5.7 billion of loans during the quarter an all-time record, along with $352 million of investment sales for total transaction volume of $6 billion our most active Q2 ever and the second highest total transaction volume in W&Ds history. Solid transaction activity coupled with the continued growth of our servicing portfolio generated 8% net income growth over Q2 2016 resulting $1.08 of diluted earnings per share beating the extremely strong Q2 2016 comp of $1.05 per share. This is our fifth consecutive quarter of year-over-year growth in diluted earnings per share and over those five quarters we've grown EPS by an average of 70%.The platform, brand and client base we have built coupled with the strong macroeconomic drivers behind commercial real estate and more specifically multifamily, we believe we will continue…

Thank you, Willy and good morning to everyone. Our team continued a solid execution in the second quarter as you can see on Slide 6 delivering record loan origination volume of $5.7 billion and record adjusted EBITDA to pass $50 million in the second consecutive quarter. We earned $1.08 per share in Q2 putting us at $2.43 of earnings per share year-to-date, 57% higher than the same period last year. Year-to-date financial highlights can be seen on Slide 7. Our year-to-date return on equity of 24% is outpacing last year's 19% while revenues in the first half of this year of $325 million are up 34% over the $242 million we posted in the first six months of last year. Based on our strong performance in the first half of 2017 and the robust pipeline of business currently in place, we are confident in our ability to meet or exceed the annual financial and operational goals we set out at the beginning of the year. Q2 '17 total transaction volume of just over $6 billion was up 12% from Q2 '16 driven by positive market fundamentals and from growing the number of bankers and brokers at Walker & Dunlop by 33% over the past year and the entire employee base by 17%. Even with a 17% increase in total headcount, we maintain compensation expense as a percentage of revenue at 38% in Q2 and produced a very healthy operating margin of 34%. These numbers clearly show the economies of scale we have achieved as we've grown our business. The $6 billion of total transaction volumes we've driven by an impressive 78% year-over-year growth in brokered volumes to a record level of $1.9 billion. Fannie Mae and Freddie Mac originations were strong at $3.3 billion down slightly from the prior year…

Thank you, Steve. I’ll finish our prepared remarks by reiterating a number of goals and objectives we've established at Walker & Dunlop that we continue to execute upon every day. First it is still our goal to create the premier commercial real estate finance firm in the United States. We just held our annual summer conference in Sun Valley, Idaho with 635 people in attendance. And from the remarks made about the W&D team and the culture we've created at Walker & Dunlop, I'd say we're well on our way to achieving that long-term mission. Second, we established aggressive 2017 financial and operating goals at the beginning of the year that as Steve just reported we're ahead of schedule in meeting. Finally we've established longer-term financial goals of $1 billion in revenues, a $100 billion servicing portfolio and building an $8 billion to $10 billion asset management business by the end of 2020. We finished the first half of 2017 on a run rate well over $600 million in annual revenues. The servicing portfolio that will likely exceed $70 billion by the end of the year. And the announcement of our first venture in the asset management space with the largest private equity asset manager in the world. Our team has never been shy about establishing ambitious long-term objectives and then achieving them and we continue down that path stronger than ever today. Walker & Dunlop business success and unique corporate culture are often recognized through prestigious award, and in Q2, we were named the best workplace for millennial’s by Fortune magazine and the top workplace in the Greater Washington area by the Washington Post. Our commitment to the great people and clients we have at Walker & Dunlop will continue as are focused on driving strong financial performance and long-term shareholder value. I’d like to thank all of you for joining us on this morning's call. I’ll now ask the operator to open the line for any questions. Thank you.

[Operator Instructions] And our first question is coming from Jade Rahmani from KBW. Please go ahead. Your line is open.

Just wondering, if you could discuss the competitive landscape and specifically tie ups between large commercial real estate brokerage firms and GSE, multifamily originators, specking of the recent Newmark, Berkeley Point deal and if that changes anything and how you think of current competitive dynamics?

So, as you know since going public at Walker & Dunlop, we have been consistently, well, as I had slide was filed with that we showed the rankings of the GSEs slide three I think it was, or was it slide two, I am not exactly sure which one it was. Yeah, slide two. As you can see since 2012, we've been at the very top of Fannie and Freddie's lead tables, as either the number one or two Fannie Mae DUS Lenders and the other number three or number four Freddie Mac Seller/Servicer. And during most of that time, we didn't have an investment sales business at Walker & Dunlop. So, not having investment sales clearly has not inhibited Walker & Dunlop from being at the very top of the lead tables. And so to be straightforward with you, we've been dealing with that competitive pressure for many years without having a platform. Now that we have a platform, we’ve seen the benefit that it has brought to Walker & Dunlop as far as the client relationships and the ability to work on both investment sales as well as financing for them. But quite honestly with the HFS, Eastdil Secured and CB’s out there. That change doesn't change the competitive landscape when I order.

Can you just comment on the tone of what you're seeing from investors and if anything in the mix of your originations, whether it be refi versus acquisition deals or average loan size, weather there are any notable trends in the quarter?

So, I think as Steve pointed out, in Q2 we saw institutional real estate investors come back into the market and typically opt for floating rate debt due to the payoff flexibility to floating rate debt provide. And he also highlighted the fact that during the quarter average LTV on deals went down year-on-year and average debt service cover on deals went up year-on-year, so, somewhat counter intuitively. We are seeing people asking for lower leverage deals that have higher debt service cover, at a time in the cycle when in past cycles most people start to stretch on deals asking for more leverage and looking to make deals work that one might think they shouldn’t be going after. So from those two data points, I would say to you that we feel extremely good about not only where we are in the cycle, but the type of debt financing that our borrowers are asking us for.

And are you seeing, being increase participation from institutions as a result of delayed capital deployments and now they are behind the business plans, maybe they are on the sidelines waiting to see, if there be any volatility in pricing. And so, is it a temporary phenomenon or do you think it speaks to a better outlook for say 2018?

So, I sort of turn that question around to you, because, you’ve been quite bearish on where the market was going. We have been quite bullish on the market throughout both '16 as well as in the '17. It’s an extremely active market on both the debt side I think as you well know investment sales activity fell off quite dramatically in Q1, started to recover a little bit in Q2, but your own research has shown that it was still off year-on-year in Q2 but as Steve pointed out in his comments, our pipeline investment sales activity is strong for what we see for the rest of the year. And so I would say that I think the election changed a lot Jade as you and I have discussed beforehand. I think that as rates started to move in Q1 many investors were waiting to see whether there would be a cap rate adjustment as rates started to move. And then rates rallied, cap rate didn't move and I think Q2 was a sense of investor saying it’s time to get back to work it's time to start deploying capital again because this market has more legs to it than we thought. And so I think that what you're seeing in Q2 is sort of the renewed interest, renewed investment and that we expect to carry on for the rest of the year.

Then Jade I would just add the majority of our financing activity in Q2 was actually refi versus acquisition financing and I think that - Curtis both made comments about our optimism about the investment sales market for the back half year. So we’re starting to see if transaction activity pick up there and that should bode well for the financing side of the business as well.

And just could you share your thoughts on what percentage of adjusted EBITDA is coming from the servicing fee stream since I think you've been highlighting how well that business has grown?

Yes Jade, as you know we don't provide the underlying economics behind the servicing business we’ve been our financial services difficult to answer that question precisely.

Just looking at your personnel expense, how do you think we should think about the allocation between originations and servicing?

Personnel expense allocation between origination and service we break out commission expense.

I guess the other thing I would say is, we had 33% headcount growth in our origination team and only 17% companywide. So I would pause that would imply that the majority of our headcount growth is actually supporting the origination activity of the company as opposed to other elements of operations.

[Operator Instructions] We'll go next to Steve DeLaney with JMP Securities.

Congratulations on the quarter and I also get my congratulations to Kelsey and to Claire. We look forward to work with Kelsey going forward thanks. So wanted to talk about recruiting, because if I guess there's a single thing that I would point to that’s led to kind of the breakout performance year-over-year it's the success in moving to this 140 producers versus 99 last year that's a 41% increase year-over-year. It would not appear to be a sustainable average absent in some kind of M&A transaction, but two part question, do you have a specific goal for the next second half of this year or for the next 12-month period that would be part one and would you think that over the next three to five years that if we were to model say a minimum of 10% producer bank or broker headcount growth if that would be a reasonable assumption?

So Steve as I mentioned in my comments if you look at the W&D sales force versus any of our peers we are very small and the revenue per not only per banker or broker but revenue per employee at Walker & Dunlop if you comp that to any of our peers is sort of off the charts most of them are in the low hundreds of thousands of dollars and we're over $1 million per employee in revenue. So we are just as it relates to the size of the platform and the efficiency that we get from everybody who is on the platform we are far, far above our peer set on that metric. So with the 136 to 140 brokers and bankers on the Walker & Dunlop platform, we have the ability to continue to actively recruit and unlike many of our peers we don't run into while that market is saturated with bankers at X company or that client is already covered by a banker at Y company. And so our ability to continue to go and hire either some competitors or acquire smaller brokerage operations which has really been the strategy, the Deerwood acquisition that we just did is our fifth acquisition. And I think hiring individual people is very difficult. I think we've been wildly successful in not overpaying in signing bonuses to bring on talent. And in many instances we've gone and we've acquired firms and done a very good job of both finding roles for the management team at Walker & Dunlop that wants to be part of a larger platform. And then made sure, that the talented loan origination professionals, as well as investment sales brokers at those firms stick around. And so, I think your question mark we clearly have annual goals and we have long-term goals as it relates to the growth. I think your question as it relates to should we model 10% broker/banker growth over the next several years, I would say you are well under our plans as it relates to continued growth in bankers and brokers at Walker & Dunlop over the coming years if you do your 10% as the growth rate there.

That’s great.

I should to add on to that I think we did establish a goal - in the beginning of the year to grow 15to 25 number.

15 to 25 headcount from year-end to year-end.

Correct.

Okay. That's helpful, thanks. And then switching over to the bridge loan JV, we know it's 85/15 and now we see the initial movement of loans post 630 which Blackstone also cited on their call. One thing we've never heard I don't believe publicly is any discussion about the ultimate size of that joint venture either in terms of total loans funded or total capital committed. Have you said anything publicly or are you in a position where you can talk about how large that joint venture could grow?

So we were at $330 million of loans on our balance sheet. And I believe that we mentioned that we wanted to - through this joint venture scale to $1 billion of loans that sort of if you will the first hurdle that we and Blackstone are headed towards. But Blackstone has been very clear in saying if we’re capable of scaling it $1 billion there's no reason we can't continue to scale it. So there's no if you will limit to the amount of capital that Blackstone is willing to commit to this venture and there is no limit to the amount of capital that Walker & Dunlop is willing to commit to it particularly only because we’re only 15% partner. And so given the amount of cash sitting on our balance sheet and the amount of cash for generating today, we have lots of opportunity to continue to fund loans in that joint venture. I would say the other piece to it is I've been extremely pleased with the way that the Blackstone team and the Walker & Dunlop team have been interacting with one another as it relates to underwriting loans, figuring out where we can and can't play with this new joint venture. And I would say that quite honestly we are playing in a much bigger sandbox today having Blackstone as our partner given that we can go after larger deals and we can also go after deals - quite honestly they’re a little bit more complex than we were looking at previously just because of Blackstone and everything they do at BXMT and across the platform of Blackstone. So it's a great start. It obviously just started in Q2 and as they do high expectations for this joint venture.

And at this time we have no further questions. So I’d like to turn the call back over to Willy Walker for any closing remarks.

Great, thank you Jade and Steve for your questions. Thank you everyone for joining us this morning and we hope you have a fantastic day.

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