Good morning, everyone. I'm Kelsey Duffey, Vice President of Investor Relations at Walker & Dunlop, and I would like to welcome you to Walker & Dunlop's First Quarter 2021 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. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. [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 what 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 statement 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'll now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. We started off 2021 with strong first quarter financial performance with the combination of our people, brand, and technology continuing to differentiate us in the marketplace, enhance our competitive positioning, and drive terrific financial performance. First quarter revenues of $224 million generated diluted earnings per share of $1.79, up 20% over Q1 2020 on total transaction volume of $9 billion. This is a very strong start to the year that appears to be accelerating by the day. We laid out our five-year growth plan in December of last year with one of the objectives being to move from the Number 5 multifamily lender in the United States to Number 1. To do this, we plan to build a small loan lending business that rivaled JP Morgan Chase's and a multi-family property sales business that rivaled CBRE's, two firms ahead of us in the 2019 league tables. Yet due to the use of technology, growth of our brand, and truly fantastic execution by our team; we vaulted to the Number 1 position as the largest provider of capital to the multi-family industry in 2020. My father gave me a t-shirt when I was in college that read unless you are the lead dog, the scenery never changes. Well, the scenery can now change and we will use our market leadership position to win more clients, continue investing in technology, and benefit from the fantastic branding that this accomplishment establishes. Our vision to be the premier commercial real estate finance company in the United States was established in 2010 when Walker & Dunlop lent $2.7 billion on commercial properties or 7% of the $37 billion that Wells Fargo lent that year as the largest lender in the country. And over the last decade due to…

Thank you, Willy and good morning, everyone. We entered 2021 with momentum from the unique combination of our people, brand, and technology and that momentum contributed to both strong financial results and good progress towards achievement of our Drive to '25 long-term strategic objectives in the quarter. For the first quarter, we generated diluted earnings per share of $1.79, up 20% year-over-year on $224 million of total revenues. Earnings in the quarter included the positive benefit of reducing our allowance for credit risk by $11.3 million, which added $0.25 to EPS. Q1 personnel expense as a percentage of total revenues was 43%, which is elevated compared to a typical first quarter due to our recent investments in people as we continue to scale our business and support our future growth. During the quarter, we grew our team of bankers and brokers to 214 from 205 at the start of the year further increasing both our geographic reach with hires in Ohio, California, Texas, and Maryland; and our investment sales product capabilities with the acquisition of student housing focused FourPoint. Even with the increase in compensation expense, operating margin was 33% inclusive of the reserve release and 28% without, within our typical range of 28% to 30% as non-personnel expenses continued to grow at a slower rate. We manage operating margin very closely and are confident that it will remain within our expected range over the course of the year. Return on equity was 19% in the quarter, consistent with last year and within our expected range of 18% to 20%. Total transaction volume of $9 billion was down 20% from the first quarter of 2020 as anticipated given that we originated the largest portfolio in our Company's history, a $2.1 billion Fannie Mae transaction last Q1. Notably, we saw strong…

Thank you, Steve. Along with delivering strong financial results during Q1, we made significant progress towards our strategic objective of our five-year growth plan the Drive to '25. The over-reaching goal of the Drive to '25 is to grow revenues from $1 billion in 2020 to $2 billion in 2025 by continuing to invest in people, brand, and technology in our core businesses and building three new businesses in small balance lending, appraisals, and Investment Banking. As I previously mentioned, to become the largest provider of capital to the multifamily industry, we thought we needed to enter and grow dramatically our small balance lending business. Roughly half the multifamily loans originated every year are considered small balance loans. Most of the small balance lending is done by banks where a property owner may use the bank for checking and savings accounts and ask for a small balance multifamily loan. We see this market where local, regional, and national banks are the incumbent lenders as ripe for disintermediation using our brand, technology, and people. If you enter a bank branch office and ask for a small multifamily loan, your loan officer is a generalist who could just as easily provide you with a boat loan as an apartment building loan. We think our focus and brand as the largest provider of capital to the multifamily industry can win this customer over. We have data and visibility into who owns these properties and we are building digital marketing strategies to capture clients' attention. We are also investing in technology to drive down the cost of underwriting a small balance loan. We are acquiring a technology company that allows us to quote a small balance loan in just over a minute and also streamline the loan application, underwriting, and closing process. We have…

The floor is now open for questions. [Operator Instructions] The first question is coming from Henry Coffey at Wedbush Securities. Henry?

Can you hear me now?

We can.

Right. Good morning everyone and thank you for taking the call. It does seem reading the text of your press release and some of your comments that you're expecting more of an acceleration in volume as we go forward. Can you give us some insights into what factors are going to drive that and what the mix is going to look like? How much is going to be in multifamily and how much is going to be outside? Just a general overview as to what that production is likely to look like.

Yes, Henry. First of all, great to have you on the call this morning. Second, I think Steve did a really good job of laying out where the various volumes were in Q1. I think that as we look back on Q1, as you know, interest rates moved up significantly during the quarter and that interest rate movement made it so that to have interest for the 10-year go from 90 basis points at the beginning of the quarter to 160 basis points by the end of the quarter had a lot of borrowers and deals moving around during the quarter. We've been very pleased to see rates sort of stabilize in this 150 to 170 range for the past month and that in and of itself has started to accelerate deal flow. The second thing is, as we pointed out, the agencies had a slow start to the year. They had a big carryover of business and they at the end of Q1 still had $105 billion of capital to lend between the two of them. And as we all know, they're going to lend every single dollar they have. And so, we are set up for three very strong quarters between now and the end of the year given the caps that the agencies have to lend and given our market position as Fannie's largest partner and Freddie's fourth largest partner, the second largest agency lender in the country. I would say the third thing, as Steve underscored, our investment sales business and the pipeline there is extremely robust. We are seeing a very active market. That rate movement in Q1 slowed some deals down as buyers and sellers were trying to find pricing. Now that we've been in sort of this 150 to 170 and let's just call it a 160 10-year treasury range for a while, transactions are starting to happen at a very accelerated pace. And then the final thing is you've got to think about Q1 2020 to Q1 2021 as it relates to capital to overall commercial real estate. Pre-pandemic all the capital sources were lending on multi, industrial, office retail, and hospitality. And in Q1 of 2021, you only really had capital going to multi and industrial. And so as Steve pointed out, even though we did do more non-multi in Q1 with our capital markets team in 2021 than we did in 2020 which is a huge accomplishment; as capital starts to come back to office buildings, as capital starts to come back to hospitality, and as it starts to come back to retail; our capital markets team across the country will see increased flows. So, all of those different things come together to say to us that things are accelerating and accelerating pretty dramatically.

When I was talking to the - my homebuilding analyst, Jay McCanless, about the Zelman acquisition - investment acquisition, we started talking about some of Zelman's thoughts in the multifamily area, things like taking empty stores and ultimately turning them into apartments, multifamily businesses, townhouses, et cetera. Is there - as part of this transaction or independent of this transaction, are you seeing opportunities in the sort of single-family business that weren't there before for Walker & Dunlop and seem to be there now?

So, I'd say two things on that. One, as we tried to articulate in the call, Henry, we see the convergence of single-family and multifamily in the built for rent and single-family rental space as something that is very exciting. We have a huge number of Walker & Dunlop multifamily clients that are focused on that space and are investing in that space. There are also lots of single-family homebuilders from the other side of the market, if you will, who are entering and in the single-family rental and built for rent space. We don't have longstanding relationships with those single-family housing developers and owner operators, Zelman does. And so as we have Zelman's insight into both single-family as well as multifamily and the single-family built for rent space, we believe that we will be a much more relevant source of capital for the SFR, VFR space. To extend your question into does Walker & Dunlop get into the single-family lending space? That is not our intention out of the gate. I watch what's going on in the single-family lending space right now and how there is a, everybody who had a loan to be refinanced did it last year and so their refinancing volumes did come down significantly and how there is no prepayment protection on those loans. There are great companies in the single-family mortgage space, great ones, but they deal with a very different market dynamic than we do. And as our slide in the presentation shows, there is a huge opportunity over the coming five years for us to refinance lots and lots of commercial properties and more specifically multifamily properties given the prepayment protection that exists on almost all commercial real estate loans.

Could you have an offering in the single-family rental space not the residential business, we know that. But in the single-family rental space, the dynamics are very similar to multifamily and I think that's the focus of my question.

That's correct. And there's a lot there to be done both on built for rent, which right now is being financed by predominantly banks and we are working on working with banks as well as life insurance companies to put capital out in built for rent communities; and then also on single-family rental, those loans are ending up in securitization pools, Henry, as you know. And that's right down the middle of the plate for the bankers at Walker & Dunlop who have done large pooled securitizations in the past with firms like Deutsche Bank and Citigroup and others that are very active in that space right now.

And Henry, I would also add to that. You had mentioned specifically conversion of other commercial real estate assets into multifamily and I would tell you anecdotally we are seeing a number of requests on the equity side coming to our asset management platform at Walker & Dunlop Investment Partners. So, we are certainly seeing hotel conversions and some office conversions happening in the multifamily space.

Thank you.

Thanks, Henry. Our next question comes from Jade Rahmani at KBW.

Thank you very much. Just wanted to ask about, Willy, your earlier comments regarding M&A. Do you expect to consummate large scale M&A transactions as part of the Drive to '25 and W&D's overall growth plans?

Jade, first of all, nice to have you on the call this morning. Good morning. Secondly, look Steve pointed out that we have over $300 million of cash sitting on the balance sheet today. We have plenty of borrowing capacity as it relates to our overall debt to equity ratio at Walker & Dunlop. And it should come as no surprise to investors that given our growth and given the expansion of our brand that we have never had more inbound calls as it relates to companies wanting to be part of what we're creating and have created at Walker & Dunlop. As I mentioned in the call, jade, from a recruiting standpoint, I've been out on the road meeting with candidates, if you will, who are at competitor firms and I have never ever had more people make comments about how what we've created at Walker & Dunlop is very unique in the marketplace. The use of technology is without a doubt far beyond our competitor. I met with one team two weeks ago who has done a full diligence because they're leaving one firm and looking at us versus three other competitor firms and they have dived into the technology to see who really is giving them actionable technology that allows them to grow their own origination volumes as well as their W2s. And in that meeting, they could not have been more explicit that we are far ahead of the competition as it relates to the implementation of technology in this space. And so as a result of all that, we have a lot of people coming to us saying we'd like to be part of W&D. Our business development team has never been more active. With that said, you know with Zelman now we've acquired 11 firms over the past 11 years. And we've been very, very careful to acquire great companies with great leadership. We've been very, very careful to acquire companies that would fit well into the Walker & Dunlop culture. And we've been very, very careful to acquire companies that are accretive to our earnings. And so we will continue to use that lens or filter as we go to see whether all these companies that are coming to us and raising their hands saying we'd love to be part of Walker & Dunlop are real fits for us from an M&A standpoint.

Thank you for that. One of Walker & Dunlop's differentiating factors is also its servicing portfolio given the prepayment protected nature of loans and the strong cash flows it generates. Do you happen to know generally speaking what the Company's historical retention ratio is of loans in the servicing portfolio? I know that the MSR is basically a runoff analysis and even the fair value of the MSR is also a runoff analysis. But if you were to assume something like a 50% ability to win those refinancings, that of course is worth a lot more than carrying value.

Yes. Jade, I'll take that one. We historically have not disclosed that. But if you look at the nature of why loans pay early, oftentimes it's the sale of the asset, which obviously there is - in cases if we are managing the sale, we have a good shot at doing the refinancing, but otherwise those tend to be jump balls. When it comes to actual refinancing of our portfolio, our retention rate is significantly higher than on an overall basis when you exclude asset sales. But we don't disclose those specific numbers, but it is. And if you look at - Willy gave the stat on how many new refinances came into our book and then you look at the net growth of the portfolio, you can intuit that there is a significant retention of our existing loans in the portfolio.

Thank you. Some questions I've gotten from investors relate to the GSE multifamily origination outlook and when we look at the deliveries that they provided for the first quarter totals about $35.5 billion. So when you say that they had a slow start to the year, I believe you're probably referring to the timing difference between rate lock, which is when Walker & Dunlop recognizes revenue and deliveries, which is about I believe 45 days to 60 days later than that. So, is that really the discrepancy there?

That's it in a nutshell, Jade. If you look at their - both agencies' January and February deliveries, they were quite high and that's a function of business that was rate locked in 2020 and carried over from a delivery standpoint into the first quarter.

Okay. Thank you very much for taking the questions.

Thank you.

Thank you, Jade.

Thanks Jade. Our next question is coming from Steve Delaney at JMP.

Good morning, everyone, and congratulations on Zelman and moreover all you've done to position WD as a go-to employer in the space. It's exciting to see. I want to pick up on Jade's last question about the GSE volumes in the first quarter and understanding the difference between locks and deliveries, but I do believe the caps are based on delivery volume. Freddie was fine. They're both looking nice on a year-over-year, but Freddie was fine at $14 billion versus the average quarter limit of $17.5 billion. But Freddie obviously - excuse me, Fannie obviously blew through it and I assume that $10 million - $10 billion in January was probably a mega loan. But Willy, I guess I'm looking at this and thinking back to this late summer and fall of 2019. We came in from, if you want to argue that it was $80 billion last year, at $70 billion. I'm worried that we're going to get into a situation where we're in the last three, four months of the year and we're going to run out of space on the $70 billion. So, how are you thinking about that and do you think FHFA would respond to that or going to leave the market to its own devices? Thanks.

Sure, Steve. Nice to have you on this morning. The $10 billion in January for Fannie was carryover business from 2020. And so as a result of that, that mismatch that Steve just talked about, is what ends up happening is that we recognize revenue for those loans in Q4 of 2020 yet they get delivered to Fannie Mae in January of 2021 and hit, if you will, their accounting in 2021. So, all the numbers that you and jade just outlined are exactly right. The issue with it is we got credit for them in Q4 of last year and then they take them into their cap analysis for 2021. As it relates to the outstanding amount of capital that they have of $105 billion, we're super excited about that because we know that we - well, first of all, we have seen a dramatic change in April from February and March as it relates to agency pricing on deals, dramatic because they both pulled back. After having a lot of carryover, they both pulled back in February and March. They're both back in the market and very active right now. And the second thing is that there is plenty of capacity there for us between now and December 31 to do our commensurate market share which, as Steve said, we held in Q1 at 11% on a combined basis with Fannie and Freddie. We have grown our Fannie market share up to about 15% at the end of 2020 and I'm - I have all the confidence in the world that we'll do that much Fannie Mae business, if you will, of their total $70 billion this year, but it comes at different times in the year. Clearly didn't come in Q1, that's fine; no big issue. And…

I would also add though, Steve, that irrespective of whether the caps are changed or not as Willy pointed out, we will get our fair share and then some of the $105 billion that remains to be done. And given our footprint and capabilities as the multifamily market grows this year from last year, we have plenty of opportunity to get those loans financed by life insurance companies, banks, et cetera through our capital markets teams. So, we feel very well positioned either way.

Now that's great color, guys. And Steve, on your final point about capital markets team. You guys I think way back maybe five or six years ago, you had - I believe you had someone focused on CMBS conduit lending into private CMBS. I mean I guess eventually depending on what FHFA does, it would seem that is something you could - a capability you could certainly add to serve your customers in a broader way beyond the agencies.

Yes, that's exactly right, Steve. We have many outlets for our borrowers financing on multifamily, it's not just the agencies. And we expect - as Willy mentioned and I alluded to in my remarks as well, we expect an acceleration in the amount of brokered financing that we are doing this year certainly relative to last year when the markets were pretty soft because of the pandemic.

Yes. I would also - just Steve, if I can just before we move off of that, I'd just add one other thing. Our investments in databases started in the multifamily sector and that's what has driven those new client acquisitions and refinancings to our portfolio. We are very focused right now on expanding those databases into broader commercial and as we develop those databases and use the same technology to find leads, find new clients, that will also accelerate our growth in the broader capital market space as it relates to lending on office, retail, hospitality, and industrial. And so I would just say that while Steve gave a great number as it relates to Q1 versus Q1 in the amount of non-multi we did in Q1 of this year, all of that focus on technology that started in multi is now moving into the broader commercial space and that will benefit us tremendously as capital comes back to those other asset classes.

Yes. That'll be an important data point for us to track going forward because I agree that's important strategically for you to add those other property types. A final quick thing. Obviously, it's political season and obviously we're getting a lot of ideas thrown about tax law changes, whether they'd be corporate or even real estate. The implication of corporate tax change at a higher rate is pretty obvious. But Willy, it seems the 10-31 exemption, the tax-free exchanges; from talking to your investment sales team, how big a deal is that in terms of driving activity? And if it was to be modified or eliminated, could that freeze the market for some period of time in terms of multifamily transactions? That's my final. Thank you.

So Steve, I'm going to say something that won't please many commercial real estate investors and developers and in the process of that probably a lot of our clients. But there are not that many that I think this is going to upset. But the bottom line is the 10-31 exchange issue is not an issue whatsoever for Walker & Dunlop. There is a paper that was published by the - by two professors at the University of Florida that looked at the total commercial real estate sales market between 2010 and 2020. It was published in September of 2020. And in that paper, they looked at every transaction across all asset classes and came back with 7% - not 70%, 7% of total commercial real estate sales transactions between 2010 and 2020 had a 10-31 exchange so 7%. Inside of that, the average sales price of that 7% was $500,000. So, the average sales price that our investment sales team had on the properties they sold in 2020 was $46 million. So first of all, it's a small part of the market. And second of all, it is transactions that Walker & Dunlop doesn't either broker nor finance. Now some of our competitor firms focus on those types of deals. In that exact same study, they cite Marcus & Millichap's own research saying that 23% of their investment sales volume in 2017, '18, and '19. 23% was on 10-31 exchange transactions. So for a firm like M&M, they got a lot of clients who use 10-31 money to swap out of assets and not pay taxes. For W&D, it is not an issue. As it relates to the capital gains rate, certainly if you had a change in the capital gains rate, that could accelerate transactions in 2021 depending…

Very helpful comments. Thank you, both.

Thanks, Steve.

Thank you, Steve.

Thank you, Steve. At this time, there are no further questions so I'll turn it back over to Willy for closing remarks.

I'd just reiterate; thank you, everyone, for joining us this morning. Great start to the year for W&D. Our growth is accelerating, which is really exciting to see. And thank you to Steve and to Kelsey and to our team for all they did to put this call together. I hope everyone has a great day.