Welcome to Walker & Dunlop's Third Quarter 2016 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 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 800-839-2492. 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 hand the floor over to Miss Claire Harvey. Please go ahead Ma'am.

Thank you, Erica. Good morning, everyone. Thank you for joining the Walker & Dunlop third quarter 2016 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 may reference the non-GAAP financial metric, adjusted EBITDA, during the course of this call. Please refer to the earnings release and presentation 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 annual and quarterly report filed with the SEC. With that, I will turn the call over to Willy.

Thank you, Claire. Before I begin I’d like to ask call participants to make sure you have the slides posted to our website open during the call. Both Steve and I will reference many slides in discussing our year-to-date results and the opportunities we see ahead. As the earnings release this morning detailed, Q3, 2016 was an exceptional quarter for Walker & Dunlop. It was the Company's best third quarter ever, with $0.96 per share of diluted earnings up 45% over Q3, 2015. $0.96 this quarter follows $1.05 in Q2, bringing us to $2.51 in year-to-date EPS up 26% over last year. We are clearly tracking to generate double-digit EPS growth for the third consecutive year. The W&D team continues to execute daily for our clients and year after year for our shareholders. Q3 revenue growth was exceptional with a $155 million representing 28% growth over Q3, 2015. Much of the revenue growth was attributable to very strong Fannie Mae and HUD loans originations along with the 27% increase in servicing fees. W&Ds loan servicing portfolio now stands at $59 billion, and with the successful integration of the Oppenheimer portfolio, acquired in Q2, we are on the doorstep of growing our servicing portfolio from $50 billion to $60 billion in less than a year. That incremental $10 billion of servicing will generate over $26 million in high-margin servicing fees in the coming year. W&D is currently the eighth largest commercial loan servicer in the United States, and that our current rate of loan originations we have our sights firmly set on being the seventh-largest by the end of the year. The growth in loan origination and servicing income history has driven dramatic growth and adjusted EBITDA. Our EBITDA total $36 million this quarter up from $31 million in Q3, 2015.…

Thanks Willy and good morning everyone. Third quarter 2016 represents another period of strong financial results for our company, marked by significant volumes with the agency's double-digit revenue growth and above target returns. Our core business has never been better, and we believe the momentum we have coming into the fourth quarter will carry into next year given the current market dynamics and macro trends shaping both the housing market and the broader U.S. economy. I will highlight a few key aspects of our results, and how we see those elements of our business performing in the future. We earned $0.96 per share in the third quarter, an increase of 45% from the prior year. As you know, we set a goal to grow earnings per share by double digits this year, and with year-to-date earnings per share now at $2.51 compared to $2.65 for all of last year, we will achieve that goal and re-establish it for 2017. Our results have benefited from across the board revenue growth, at 14% year-to-date this year compared to last. All expenses during the same period have increased only 11%. This has pushed our operating margin for the year to 31% above our target of mid 20%. We continue to see the benefits from scale and are operating our business efficiently even while making investments to continue growing the platform. Based on our current pipeline, we would expect our Q4 operating margin to be around 28% at the high end of our range. During the quarter we generated a return on equity of 22% bringing our year-to-date ROE to 20% well above our target returning mid to high-teens. Our strong ROE this year has been driven almost entirely by earnings growth as our equity balance which is nearly $570 million as of just…

Thanks, Steve. The strength of our financial performance gives Walker & Dunlop the ability to continue growing by investing in our people, and investing in new products and services for our clients. You notice that Steve said, we didn't buy back any stock in Q3. Given are extremely strong financial performance this year, coupled with the growth opportunities we see ahead, we would liked to buy back stock during the quarter, but we held onto our cash for potential investments in companies, people and new loan origination in our conduit and on our balance sheet. Those types of investments are what will produce continued growth and long-term shareholder value at Walker & Dunlop. Our current cash balances, monthly cash flow generation and exit from the CMBS business will afford us with the ability to both invest in growing our business, will also buying back stock should the opportunity present itself. We've established a culture at W&D of setting and exceeding ambitious goals and once again in 2016 our team will exceed expectations and deliver exceptional performance. What is most gratifying for me personally is that we have built a scaled national platform with the same great company characteristics that placed us on Fortune magazine's list of great places to work for the first time in 2012, and once again in 2016 for the fourth time in five years. Making Fortunes list of great places to work is a huge honor. Investors spend a great deal of time focusing on our numbers, and we get that, but it is also important to remember that a financial services company is only as good as its people. We have successfully scaled our business with great people, operating inside a wonderful corporate culture, and that corporate culture is critically important to growing Walker &…

Thank you. The floor is now is open for question. [Operator Instructions]. Our first question is coming from the Steve DeLaney from JMP Securities.

Morning and congratulations on another very strong quarter. We've certainly noted the pickup and the gain on sale margin for the last two quarters 215 basis points in 2Q and now 237. when I think about that and I think of all the press releases you put out over the past year of the new loan officers that have been hired and comments about their background, I'm just curious if the pickup in the gain on sale margin and specifically the HUD component of the origination mix, do you attribute that any of that to direct hiring decisions bringing in loan officers with specific skills and HUD loans or should we continue to think of sort of the HUD mix being more coincidental? Thanks.

Good morning, Steve.

Good morning, Willy.

I'd say no to your specific question as it relates to the sales force that we brought in over the last 12 to 24 months, the people we've added have been absolutely fantastic contributors to the platform, but that that if you will dramatic outperformance and gain on sale margin is really due to the mix. And as Steve outlined a predominantly due to doing a lot of Fannie business, a lot of Fannie fixed-rate business, and then HUD as a percentage of overall origination volumes moving from 2% in q2 up to 10% in Q3.

And I think Steve on the HUD front and that's just, we've seen a general pick up in our HUD volumes across the board and while we do have a dedicated HUD team, not insignificant amount of our HUD volume is actually coming from either our capital markets folks or our multifamily agency folks as well.

So I think, Steve does raise a really good point there Steve which is just that we are seeing a tremendous amount of cross-selling amongst the groups where capital markets originator will have a client who needs to HUD loan and bring in a HUD originator to help work on that deal and similarly HUD originator might find a GSE deal and bring in a Fannie Freddie expert to help them get it done.

Got it, got. And is part of as you formulate your goals for 2017 will you revisit your sort of bass range of a 179 to 190 basis points, is that something that you think you'll be having to discuss internally as you communicate your goals to this for next year?

Yes. I think it's fair to say Steve we -- whether you use subscribe to an annual budget process or not, but each year is we have kind of finish off one year and start the next we revisit all of our goals and targets and if we're going to make changes will certainly communicate that out probably in the fourth quarter call.

I'd also add one quick point which is just that if you remember Steve in the last cycle back in the mid 2000s one of the big pressure points on gain on sale margin was the volume that CMBS was doing, and as you know in 2007 that peak to $ 230 billion. This year projections were the CMBS we do a $100 billion I wouldn't be surprised if we finish the year seeing CMBS is closer to about $50 billion to $60 billion. And so the lack of that competitive pressure on gain on sale margins has been a significant if you will adjustment to the way that we've been looking at the market.

And interesting point, yes, in terms of your ability to price loans to borrowers versus the required yield from the GSEs. And just to close out if I may, this is the first when you talked about asset management I believe this is the first time that I heard a specific goal for AUM of 8 billion to 10 billion. So can you get some clarity on that Willy when you talk about 8 billion or you talking about a loan portfolio, you know bridge loan portfolio or other types of loans that would be that would be the principal balance of the target portfolio and I assume you are going to use some leverage in whatever vehicle you have. And so does that represent something in the order of 2 billion to 3 billion of equity -- actual equity that would need to be raised or assimilated?

So, Steve, the $8 billion to $10 billion number comes from this business need to be meaningful at Walker & Dunlop and as we just had a call finishing 2016 with over $530 million of revenues with a goal to get revenues over a $1 billion by 2020 to make the asset management business relative and a company that's growing as fast as we are, it needs to be that size. If you were the components of it, it could end up being that we buy the manager of mortgage REIT and use that as a vehicle to scale up assets under management. It could be that we go and raise a fund with the institutional investors and use those funds to fund our lending operations and those funds could be a series of funds you could have one focused on interim loans as we're doing our balance sheet today. You could have another one that would be focused on preferred equity; you could have another one that would be focused on health care lending construction loans. So there are a number of different strategies if you will that we would like to be able to provide capital to our clients that are in our current format probably not things we want to do on our balance sheet, but very clearly would be executions that we'd like to have if we were to raise the capital from third parties and be able to use our broad origination platform to put that capital to work.

That's helpful Willy. Thanks for your comments this morning.

Thank you.

Thank you. [Operator Instructions]. We'll go next to Charles Nabhan from Wells Fargo.

Hi. Good morning. When we think about Freddie Mac's projections for 2017 and 2016 and 2017, could you talk about your expectations for GSE market share of the overall market and how they could potentially play out over the next couple years?

Yes, Chuck. Good morning. If you think about -- if you go back to last year's numbers the number on 2015 was actually just revise by the Mortgage Bankers Association to 250 billion. So Fannie and Freddie did a combined 88 million last year, so their market share last year was in the mid 30%. The regulator has said very clearly that they'd like Fannie and Freddie not to exceed a 40% market share if the markets remain if you will normal and healthy and they are more than happy to see Fannie and Freddie go well beyond 40% market share in any type of market dislocation or whether there -- where their capital is needed to provide stability and liquidity. So, if you think about a $282 billion 2016 right now both Fannie and Freddie are projecting that they will do between $53 billion and 55 billion each, so you're talking about a $106 billion and $110 billion between the two of them on a 282, year which is the projection. Again they will be below 40% market share at those volumes. So I think that you saw the regulator twice this year raise the caps for Fannie and Freddie in a reasonably normal market. And so our view of it is that from a regulatory standpoint the regulator is very supportive of Fannie and Freddie's growth in the market. And right now there is nothing from a market share standpoint that would cause anyone to think that Fannie and Freddie will be if you will restricted in their growth as the multifamily market continues to grow and clearly if it grows from 282 this year to 300 next year anybody will have the opportunity to continue to grow with the market.

Right. And as a follow-up I wanted to follow up a bit on Steve's question about the external vehicle. I'm assuming that the primary focus would be in multifamily within that vehicle, but can you talk about your appetite for other property types as well as your expectations for fees from AUM fees?

So as it relates to the primary focus will be Chuck on multifamily because that's our strength, that's the space where today we have a very, very strong market position and share. And at the same time as you know we continue to invest in growing our capital markets business and the acquisition of Elkins mortgage last week is a perfect example of our desire to continue to grow our capital markets business where we are interacting with commercial property owners of all asset classes not just multi-family. So, we will go probably the multifamily as sort of our if you will strong point to raise capital because that's where institutional investors seem most excited to put capital work with Walker & Dunlop, but we clearly have the interest over time to broaden that and raise capital that could be lent on non multi-family commercial properties. As it relates to fees, as we have looked at this pace quite honestly, I cannot give you a sheet if you will on what they will look like because it is all over the place. It will depend greatly on how much of our own capital we put to work. It will depend greatly on what type of discretion we have and will depend greatly on what the strategy is. A first trust debt fund has a certain return expectation and hurdle to it and asset management fees versus a preferred equity type fund or a seniors housing skilled nursing fund will have higher return expectations on it and we'll also therefore have higher fees associated with it. So there is no sort of set asset management see that we're targeting right now. The real idea is to build this business and grow at $8 billion to 10 billion of AUM and if we do grow at $8 billion to $10 billion AUM I am certain that Walker & Dunlop shareholders will be very pleased with the asset management fees that we make off of that.

Okay. Thank you.

[Operator Instructions]. We'll go next to Jade Rahmani from KBW.

Good morning. Thanks for taking my questions. Can you discuss the decision to wind down the CMBS conduit? It seems at odds with your comments on risk retention that you've recently made. So I was wondering if this could possibly relate to the asset management initiative you mentioned. Are you looking at entities that currently do have CMBS conduits in their operations?

Good morning, Jade. As you know I won't comment on what we're looking at but I would say to you that the reasons that Steve gave in the call for why we are exiting the CMBS business are exactly that. There's no if you will ulterior motive or underlying strategy. We entered that business with great hopes and expectations and we also entered at a time where we thought that CMBS volumes were going to grow dramatically and that we could be a major player in that space. What we have seen is that our core client base has not looked to Walker & Dunlop for that type of loan execution. And so it has not been as accretive if you will to our client relationships as we would have expected. The second is that the volumes in the CMBS world have not met expectations. And the third is that risk retention and the way the market today is structured is requiring real participants to having major balance sheet and be able to weather the ups and downs and the cycles of the CMBS business. And to be honest with you after having participated in it for two-plus years we made the decision that for us right now given all the other growth opportunities that we have we want to focus our time and attentions on our other business lines and exit the CMBS business.

Okay. Thanks for that. In terms of expanding the business why do you think asset management is so attractive given that the constant tension modestly sized that's a manager's face between raising new funds and dealing with runoff not to mention fee pressure and also increased co-investment requirements from LTs [ph]. Have you also looked at growing the origination platform into other property types, you didn't mention healthcare earlier so it's just wondering about the sort of trade off between those two?

Point one is that we have no intentions of becoming a bank zero, so as a result of that since that is not how we are going to aggregate capital and the securitization markets on the CMBS side are there for us to lend with but at the same time we just exited that business. The asset management business and raising funds provides us with access to capital and the ability to make additional revenues and margin beyond the brokerage business so as you know the brokerage business is a fantastic business we love it, we're growing it, but that's really an effort to gain access to deal flow where we then we'll bring in our strong underwriting capabilities and asset management capabilities and servicing capabilities to both lend on properties and then also take the risk on them and asset manage them. And so the asset management business seems to be a perfect fit where we want to raise capital to feed into our loan distribution network. The second part of your question was.

Just other origination platforms or business lines to move beyond multi-family into other sectors and you did mention healthcare?

Yeah. I mean think about I mean look we are expanding our brokerage business in all asset classes as it relates to actually lending a little bit back to Chuck's question. We will raise funds around multi-family because that is what we are known for that is where we have a demonstrable track record over 30, while 29 years taking risk on the Fannie Mae lending that we do, as well as all the expertise we've shown over the last three years lending with our balance sheet where we've had no credit losses and we've converted 92% of the loans that we put on our balance sheet in two permanent financing. So we will play off of that strength as it relates to raising capital. And at the same time look there's $3 trillion of debt outstanding in the commercial real estate, a trillion of it is in multifamily so we're in the largest asset class with the most amount of debt outstanding. But at the same time there's $2 trillion of debt that's going out to office retail hospitality and industrial that our markets that we can and probably should enter at some point, but for right now the real focus would be on multi.

Okay. In terms of recruiting can you comment on how that's going and what processes are in place to maintain discipline on compensation packages, we've definitely been hearing about some agree this package is being offered in the marketplaces?

We've heard about him too and I'm happy to say that what you've heard about has not been Walker & Dunlop competition package. It's a competitive market. We are working extremely hard to bring in fantastic people but we're also being very careful to put together compensation packages that allow people to do extremely well at Walker & Dunlop over the long term and we are being very careful to not be giving people the opportunity to just make a trade, get a big check and head off somewhere else. So it is a very, very competitive market out there today. I believe that many of our commercial real estate services firms are looking at a slowdown in revenue growth and trying very hard to bring in new origination talent, new leasing talent new investment sales talent to try and keep their revenue growth up as you can see from our numbers Jade we are doing very well at both organic growth and we are also executing our strategy to grow the Sales force by 25% this year. So I would just say you are correct that there are compensation packages that are being talked about on the street that have a very big numbers to them. And I think is we have shown in the past were extremely good at both acquiring companies and integrating those companies and holding onto the origination talent as well as bringing in origination talent to Walker & Dunlop and putting in place long-term compensation plans that align their interest with ours.

And Steve, can you just clarify the comments you made about 2017 expectations. I wasn't sure if I heard you correctly.

Yes. Jade, I think my comment was you know is we did this year and setting an objective to grow EPS double-digits our expectations we're going to set the same objective for 2017.

Okay. Thanks very much for taking my questions.

You bet.

At this time we have no further questions. I'd like to turn it back over to Mr. Walker for closing remarks.

Great. I just reiterate my thanks to those who participate in a call today and my congratulations to the W&D team for an absolutely fantastic Q3 and 2016. Have a fantastic day and thank you all for joining us.

Thank you. This does conclude today's conference call. Please disconnect your line at this time and have a wonderful day.