VEL - Earnings call transcript Q2 2021 | Velocity Financial, Inc.

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Operator

Good afternoon and welcome to the Velocity Financial Incorporated Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Officer. Accounting Chief Oltmann, Chris Please go ahead.

Christopher Oltmann

Hello, Thank joining quarter thank for and today you, XXXX for second Melanie. us Financial's the you Velocity everyone, discussion results. of

Officer; Velocity's me Earlier Officer. and we quarter and Joining the Chris second afternoon, Szczepaniak, Farrar, our press are Chief Chief today this Executive XXXX and released Financial accompanying Mark Velocity's presentation, President release and that Relations' outside today's and may on available like I'd are which control, website. are the our statements, of Investor uncertain may company's actual call differ remind which include materially. forward-looking everybody to results earnings

discussion We risks Commission. statements only factors Securities not our filings Exchange is could any update risk that that this some note, shareholders, we of in a this certain and do For call. and statements. see content also Also time-sensitive and disclosed in to factors of undertake with of risk made call information and contains other non-GAAP the the the measures the please results, may the as with our duty factors cautionary other communications refer affect on today, to of accurate forward-looking including

these of earnings on finally, you over Chris later website Investor now the should non-GAAP refer will turn materials will And being Farrar to call remarks. today's to on Relations the website. recorded is opening company's the measures, our call for and reconciliations available For be today. some I

Christopher Farrar

and increasing financing. better niche. the well our economy this team our positioned for capitalize and specifically well see business resolutions, helpful new on quarter we're translating released, our NPL results favorable welcome just tailwinds new fundamentals demand in like to within pleased to and that Chris, net delinquencies, our and interest We quarter as performance outstanding originations, favorable call. to the environment, market I'd the very to in and trends experienced very Thanks, second is improving management with EPS. the to everyone portfolio margin are Obviously, as were

and to interest servicing realized loans Capital estate to and our we had Gains quarter recognized strong respect continue we NPL resolve delinquent real servicing another in as we conditions dramatic real another and special Our is to profitably. Market on increase helped impressive, team I very added recently congratulate saw NPLs a of resolve have we recoveries us for team want were and quarter. segment demand recovery growing. commercial estate market demand our real the strong real great products. securitization another today. a special With our financing, as yield just Residential continue of to in these markets warehouse earlier we're for lending launched search seeing and we're and of healthy well. second relationship estate seeing type from markets the efforts. robust year our Investor of securitized remain for

non-GAAP the season, business of rates. some in some perspective, lower our value demonstrating our equity. these the As and of of deals to later plan our think of about future, new From equity provide the how the value introduce presentation, measure we collapse in advantage we insights and into new a we'll them older take an economic

results on curing That goal translated our everyone of pickup to I'll going we things Team $X.XX directly appreciate advantage of the Page platform. full prepared somebody when nonperforming in there real to that Our for and impart of in understanding take very are of proud These a assets. opportunities And And goals. of and with is lie there $X.XX the XX% QX. PDF. the the lumpy. presentation pay or my income value embedded delinquent XX predict is built to simple in you to it's Biggest to over start who turn the pursuing concludes over we reported us those that the materials net core share, presentation the driver our we great plan reinstate in delivered. difficult X when business see and remarks. from ahead. NIM. that us sequentially income, supports to the into And up forecast EPS And We strong that, was Very to a is net cure off. can the NIM bps loans X.XX%. up are going we've interest

then, We collect And just obviously in the there. going into we know due you'll actually that, value. earnings some past those translate So when fall. in a forward expect to don't that volatility amount. that's to going see exact always pickup book We all NIM expect and timing nice

loan the XX% $XXX sequentially. over originations, million little very up side, On in production healthy quarter,

also saw nonperforming quarter. decrease pips the that of over a improvement loans was quarter We in XXX an

So, get there, we're seeing to nice continuing trends those delinquent see assets resolved.

definitely mentioned but in time, we've As it takes before, direction. headed did the right

In resolutions, strong quarter. terms and of really the NPL again, REO another

we've strongest contractual in UPB terms the XXX.X% of and had, above gains I interest. principal think of of the one

complete ROEs Also, a again, off So of of Obviously, those, X.XX%. funds perspective, unique. securitization which rate and are weighted is From to assets, average we making obviously XXXX capital helpful earlier very and our of did financing the in delinquent a good money still those little line end subsequent driving very earlier margins. we year we XXXX quarter, the That the the strong costs Russell XXXX quarter, were added are call. indices. in warehouse Xth in us. to the for I and of mentioned had to very nice a the was that And we - the added boost with that our see excited earlier in to then,

very increase So X, we net the realized process. broad value you quickly where Page $X XX% going just we've reserve $X GAAP was through core income fee, from interest part the quarter. in us income growth. provision Core default in loan excludes, prepayment obviously, contractual $X.X released, almost our million a of million that and Included I'm future loss help income of first CECL fund of interest, to base grow will and walk that sits. million partners of good got

strong So pickup again, per the nice resolutions. very And value share. there on book then, performance in

in pickup kind earnings of there. here So [Technical of ended portfolio the all just quarter assets. Difficulty] the nicely the of Majority come

wraps that turn take X to of slides. several my next it So slides. over And Mark? through to you Mark kind up I'll the

Mark Szczepaniak

everybody. to $XXX afternoon Chris. On X the of continued good and Good to million $XXX to shows million, in over production Thanks, for has evening, Page momentum from QX loan deck, the build really going $XXX QX. how million

you product, QX QX, When X% QX from quarter quarter-over-quarter. Year first the year, we over product. And demand by we in applications we're million can under product. coming short-term was back that were that last up on production And $XX short-term quarter see our holding an long-term just products. forth we under reintroduced in resuming in XX% that's just our funded back on both started and - product, and increase very our in our QX volume. in We and to increase that to million about $XXX reintroduced in in have we loans also for good driven short-term production. had date, So in

$X year. for on So the our I think we're way to billion hitting well a

funded of a and $XXX point So great as the coming we reference And environment. out July, in million of growth again, in loans. momentum COVID continued

our Page we to loan portfolio. momentum overall that our production On through. It of type again, have portfolio. coming So very X, grow on good continues

in ended And see portfolio we a we just with spread portfolio locked so the said, billion, at billion. quarter under the securitizations. you under a As the $X.X have $X.XX

coming increase value a interest the in, an default has loan that as X.XX% increase So resolution to to now margin portfolio, of holding NPL is the that in comprised QX contractual driven at as that points that basis by million about hold That LTV, of generated came interest interest Page while mainly our cash, Chris of fees. portfolio continuing margin. - net alluded was nice mainly and same X.XX% by generating, driven growth interest time XXXX the in well activity for growth XX% so LTV nonperforming XX at ratios strong was On through prior X we're its portfolio. consistent. And growing of prepayment strong nice is QX, $X to, type for we're in low as from the

to the is a a something cash quarter, for It's this QX. basis. or lumpy. not the on booked very into it But Take strong it's look X.XX%. right. So every because bring bottom coming resolution That very month, predictable strong that's quarter at the was

cost see can our You that we had decrease of a in funds. also

nonperforming that So resolution NPL to funds on cost if QX. XXXX. X.XX%. low portfolio. decreased On securitization downward to But in we to that did impacted since X.XX% QX from yield time, rate basis you strength went look at our look loans our at portfolio a it, end largely our we at the of been at fixed points has same the due X, take the the Page X.XX%, of of XX trending X.XX% by up Nonperforming overall, a X.XX% in

actually we're this almost down XX.X% up of we at X%, from ended QX XXXX year where end at nonperforming So XX.X%.

to But had have wasn't resolution almost trying going rate we down, servicing time So that going try take low that bring to continuously overnight. strong We're so seeing. far we've to X%. that's and we're XXXX X. coming that and continuing activity Page that rate loans down would we were some happen said nonperforming what it down, special the department, we with during on bring LTV seen non-performing to the

into our resolution of gain over long-term resolutions principal on overall the year, very UPB over QX of and added resolved quarters. translates XXXX up short-term resolutions you the activity, gives the We these an for on which interest. between both and you terms strong product for contractual X.X% for NPL the of XXXX and above $XXX breakout kind of a the had In NPL and resolutions, very, QX $X.X gain, this if for million million

a gain. XXXX, resolutions coming XX the year. back of reserve. indicated trend, this we normally been track X on point our right So gain at previously first our the CECL X.X% out NPL X, that very realize months we're Page is pandemic always for going X have a year of for around X strong, we've And

the do forecast million stress historical that nice million, use stress economy. the a comprised the of the pre-pandemic, to Chris a in end needed is of kind mentioned, improvement pick of think Under the CECL scenario $X.X reserve, for to outstanding reserve million And can reserve $X.XXX in macroeconomic of that But showed see we improvement reference, mainly June, versus so CECL we go baseline because we've at of because on based loss of where basis broke have a by new your QX XX sitting last a about from forecast. reserve continuing XX/XX/XXXX an that forecast QX the billion a a U.S. of it we at QX points which of our in the And in QX, As UPB we're $XXX,XXX end it points forward. forward the the was at macroeconomic up, down baseline using you were as the reserve a of requirements, on COVID stress as at had at rate. reserve forecasts the forward point $X where of by under system, since CECL COVID of forecast. reserve modeling you just when a in as about looking basis total looks XX basis out the I end the portfolio. were about been the improvement to took was driven by economy, $X.X on using that pandemic quarter adjusting Then macroeconomic been second we've projection, forecast stress the year,

So we end rate of pandemic. the a year outstanding of in than reserve of higher UPB, prior an at the than that to the were down, XX% more still bringing even at end the by terms QX we're now XXXX

we So And We very resolving XX% we with that loans given through our of feel that NPL have. nonperforming good the feel route with very a over the about XX%, good we went resolutions gain. reserve. X.X% that just reserves

loan one $XXX,XXX the Page charge-offs quarter bottom for the were had there charge-off. higher of The to $XXX,XXX, than right other The XX. charge-offs that the $XXX,XXX QX a was end

than total that of quarter, So accounted one X.XX%, loan that for the that was loan already less and for $XXX,XXX, reserved half QX. back that which for in

of knew it reserve, of part did reserve already P&L hit reserved. XXXX we part had So loss and QX already was not loan for was about a that we our

looking outstanding basis, if total run a months points the at we're XXXX. UPB first like to terms rate and six, still of has On been is X basis on run X.X for total X months top X X in on you run right what basis a that's points. points has of historical So, about our look of this rate, rate at charge-offs, basis UPB, the been seven years last year of

for I I'll back of Velocity's feel on we're run we're where for really charge-offs, rate So right good turn outlook Chris, on on our top you it still our that. business. at and to

Christopher Farrar

On you, of been see and Thank I that landlords are very economy well. this estate mentioned half the mentioned, of kind the coming we Great. Mark. we've real expect doing in And markets, XX, to out continue appreciate government about into it. signs improvement seen I The there's chatter second year. renters. as lot for that and a of assistance

to assistance borrowers them that it available. disseminating still the landlords many help as and through we the way system. is them we that is let of by information, renters are its out can most trying those working think I know and getting But to to info and as

helpful also those to resources. move forward as So I that people out think access we here. will And how be figure

in In the see drive obviously, demand types. the performance that demand all income well in securitization, net next structure. the and expect across interest very that probably of earnings, which future and NPLs then and another basis by to we growing We're income think those go portfolio, QX, see product portfolio, strong one here, to interest net the on this portfolio, terms also terms of should there. capital expect to good see growing good continue we We in the growing and

to refi to XX, them, sometime on be of doesn't should and see collapse opening is undervalued. are the tailwind for platform a step we equities last that the As and in a older our we in something slide we going this the feel nice On we we is I the deals my looking mentioned for all introduce which new a market us. appreciate time, And warehouse the that us, promised back, which of couple taking feel were sort line. a remarks, year we in value that probably this like

we a we very to try to how look So wanted analysis create of it. simple at

the is, first fully did That's our the the first diluted did is value. what of the here - economic kind this chart bar so as book that. stock is expect that option earliest of value where million equity able can will $XX equity. value just exercise that we basically a on of October plus be we based the on conversion And and expect we we preferred chart buildup to in of do on the today's happen And that's to sorry, trading, of

the you in simple gives section, base the section first that the a make that all the of So component to of here, retained we securitizations. of expect NPV off just middle of our interests earnings discounted is orange all

securitizing So the we're calling that an portfolio. in embedded gain

number on that use flows of And top CPRs, And so brought back to CDRs. for of various cash thirdly, and platforms folks, got in of is $XXX private rate XX% did XX% running that bankers NPV the us the the they're then million. what annual platforms all origination we And capital talking volumes. a those of take today, and projected trade with side. we're all just typical origination relevant the in seeing are of And markets assumptions, run XX% to with premiums in telling have investment discount rate the that, the

$X $XXX value. did end and So we million billion lower would if said of we and kind took the XX% that of of that imply platform year a of

here of yeah, of diluted. see, value our share, economic you So, $XX in all up those can per eyes, fully north

book great story but and to a an communicate is that important earnings the understand well. only as there think Not have market is value help story, do real here everyone we a to it. so, solid thing we And

hope underappreciated market to at we So that's we that recognize that think value the as start will and look it.

So presentation all here. of wraps up our that

questions. So it for I'll turn any back to Melanie,

Operator

Thank you.

We DeLaney [Operator Securities. Instructions] from will Steve Please question now the begin the The comes session. question-and-answer with first ahead. go JMP

Stephen DeLaney

quarter. $XX could progress think loans. And realize loan to Chris, quarter. bridge of should Love a first in be $XX staying the whole the in did of a and Historically, on gain the I rather is some first, type in Gosh, Great, terms lot of reintroduction about the million format? those held doing the that safe. start that Thank and Maybe for I see than a sale with just you unpack as you're what here. fact you million, sale? did we Hello, short-term was you're everyone. loans well great making. premium way Hope would they to view And sold if you. securitization?

Christopher Farrar

you. Good Steve. Thanks, Sure. hear from to

we securitization for a that holding was past, right interest. sell those. are when sheet like because whole for do them on the We what we And So investment basis. the the works got balance believe we typically in would held were a as loan in now, doing we did we've certainly exit those on taking participating

making then, were we points upfront. so, were spread. And interest on end, back an couple we making the a And of

you wanted all figure to time, able execute to price. that mean, we going to earn is could are can be figure strategy just probably we actually in, spread the hope like which XXX I more if you and our something, the be meaningful. on So, to over XXX.X think securitization But

do going terms to So in of we're flexibility one, either we to have do modeling, the but hold plan to it.

Stephen DeLaney

NPL crazy seem sticky, your XX built Mark XXXX In for yet. obviously, of X% loan that everything's great. of don't - at it Okay, any you quarter stuff, lot and your think sense know models But quarterly of like at and has have you looking as points recoveries. X%. do mind, yields legacy I sort some out, and move. the And XX if the least to a explained And the big is in basis NIM, the the I a Mark a with model

financing. going sense much any Do like - the going you in improvement have on much how doesn't second you're target? NIM, further in you're up yield sound the side, to the quarter? loan so, X.XX% of get And all to a from the compression it pick and the that on from is there But

Christopher Farrar

you. thank Yeah,

QX. of right QX not we're what use think somewhere out think to number but kind - is probably putting guidance, and I it's between the we official that

I for quarter, think that X delinquent in been all And again, you elevated. we QX X one is loans get or a cure this it's that months, if right? XX interest get little

Stephen DeLaney

yeah. Yeah,

Christopher Farrar

kind we So, of to that's were why warn. trying

Stephen DeLaney

Lumpy.

Christopher Farrar

Lumpiness, yeah.

I would points you if those It's X. like So That's range. towards debt. it more between X%, we'll I the… probably the before where it's I corporate NIM the just on say, probably somewhere mean, now. think the X.XX% model That's

Stephen DeLaney

portfolio Oh, that's yeah. with everything else, sure,

Christopher Farrar

Yeah, yeah.

Stephen DeLaney

I'll your Okay, some that. on comments. for rest line. leave stuff great. for the But thanks for the thanks other guys Well, of the Bye.

Christopher Farrar

Steve. you, Thank

Operator

Thank you.

next go question Raymond comes with Please Stephen from Our James. ahead. Laws

Stephen Laws

Chris, Mark. Chris afternoon, good Hi, and

cost you months some that or where to there? inflection should of last, As a time, And And really funds a with the looking Can in Steve us, from get great see X congrats, accomplished know, where we it'll collapsing at XX on yeah, said, trend? good cost little accelerate origination bit It seems deals? big we'll hearing try outlook, prepared is think, covered lower? Can there point from like quantify I that the you of spend couple the quickly guys you we opportunity lot for think you're months remarks. maybe how a the about a year there, funds have positive side where I in are, ago. I Steve you. time really And X of on a more over

Christopher Farrar

one? to you to hit that do Mark, try want

Mark Szczepaniak

to to the - way, of nice by some again. older hi, Stephen, the Yeah, you talk

running handle. on to the re-leveraging overall so Some X% collapsed, cost able in refinancing, be a close somewhere X% we of in are of cost we that somewhere being nice are that. bring pretty currently the handle, new in funds funds that probably these And pick with to of up older securitizations could think to securitizations X that into

Stephen Laws

million go? And, Yeah, pace business? July. in number of a business, at own remarks thinking Are platform With and now as for current $X monthly still $XXX opportunity significant origination a see the that of in the a the about on as to about year upside where Is scale, there about can the thanks trending that color. you kind good your far we for kind prepared mentioned volume? billion pace

Christopher Farrar

Yeah, aggressive. there's over to want get We more room, there's I there's go our We demand. grow think definitely too want skis go. more room to to definitely and But smartly. run don't

and expand So those as volumes we we more people will to relationships. continue grow think add more

next there's to definitely So there's yeah, I and there. room volumes higher think run we plenty that think of expect year,

Stephen Laws

Thanks time Chris. afternoon. your the this comments, for Great. Appreciate

Christopher Farrar

You're you. welcome. Thank

Mark Szczepaniak

And quarter. X started mind one the reintroducing Stephen, offering to hit $X months the much the year. short-term short-term almost dollars halfway it the was year. pretty And we to is XXXX thing of product most we keep this the in billion in billion just offering products already of and last that for we're

So…

Stephen Laws

Where see maybe to kind said run you there product? you any target that, I Is like next million? of think would year that $XX on even rate that gives you, quarterly

Christopher Farrar

out came million see where million a so would just we to it's of the But that, Yeah, we'll I that goes. sure. easily think it neighborhood month $XX in somewhere gate have $XX for to the with of

So…

Stephen Laws

it. volumes that Yeah, Thanks to grow Appreciate really Great. additional color, then. Mark. year the for opportunity next

Operator

you. Thank

ahead. question comes go Please with next Cyganovich Citi. from Our Arren

Arren Cyganovich

Thanks. recovered that say The $X was Did I'm the you million the that income resolutions have from interest each excess quarter. from quarter? that quarter. you you for you assuming received And some that penalty

idea frame kind or of an kind just levels So out? half what of that get I'm trying normal that just to to of like more trying

Mark Szczepaniak

once because this all the Mark. into we cash actual in cash nonperforming already come it million that and is off income. loans on we actual nonperforming, the then, the for income to interest interest was had income of the received to nonaccrual. related our Arren, QX Yeah, taken Hey, reverse where put we the wait goes And $X the loan out rebook resolution books,

interest pay Remember, the second rate, interest come we X% that default - cash in actual either was passed was it the prepayment was as a in the came So the to or quarter. charge come fees then if current. default loan do off was prepayments $X in came pay contractual And that loan be current million a depending loan, to that was or well. on window, it

cash was million $X loans. the came nonperforming in So that all on

we terms I a average said, as think, QX, of I very an I'd just it really them, in cash we increase on predict, that. we a X% hard when QX through rate, loans, it our run going get It's that basis, it's very because But of most it probably in resolve we to it's work the predict get book and hard to get think to highest it's to come and like company was about that book don't of was know since take XX% we're hard we've gain really hard but over and say cash when a resolution gains QX QX. we going project Yeah, to at a on never the I in but terms know, high. least And that. until had cash the nonperforming resolution and cash. to we of to

Arren Cyganovich

That's understand. Yeah, I helpful.

question that in new addition was new But pace there, had your Clearly, new a few front? are what some a additions, had is for or loan coming new on are The resolved quarter. slow you've other you beginning additions formation. also to the quite nonperforming loans I nonperforming on of that views the the

Christopher Farrar

just majority they're loans that making and folks failing, in not COVID slowing the it. of forbearance, of that type see they're are Yeah, some those we do were

that So, think, newer perspective, originations I new already borrowers, mostly encouraged, are that is from not struggling. that we're driven folks by or

everyone this as take these figure to think I and why So that's why you we've of see telling to work get backlog kind resolved. through and deal reality, borrowers their to going offset. that's time how been the is with whole And out

forbearance it's incorporating. loans that So we're mostly

Arren Cyganovich

Okay. All you. Thank right.

Christopher Farrar

Thank Yeah. Arren. you,

Operator

next comes Your ahead. go Don Instructions] Fargo. Please Wells Fandetti with from [Operator question

Donald Fandetti

smaller lenders. questions. structures Hi, your it Chris, just very couple are any largely doing private the looked coming and in case It there sounds dynamic. COVID? like checking of been JVs down business Is has competitive I that of fragmented nature still at road? seems on things out One, like strategic the that guess, more of a And - you've the

Christopher Farrar

Don. Hi, Yeah.

right, think smaller highly You're we to your is from private share lenders. we fragmented. take characterization continue - right. And It's

in the couple some in past that's with We a and private some have REIT right as looked assets. at think, can been the a in aggressively We particular, - one have JVs. works acquiring now do I

be coming financial growth. we but another where And agreed is by of a to so, our that's their still not And the and seeing majority really large, we're partner, the business institution. brokers. necessarily JV through with But, the

Donald Fandetti

in you that versus Okay. was just that And then, touch curious could the if I the Investor noticed the than upon quarter faster to production commercial. there X-X QX, more Rental. I if you was grow and expect

Christopher Farrar

in last year. Yeah, I the cautious think our restarted back view was that we were somewhat on it we when fall

COVID that product, reopen to allowed and going sure and just that going tougher long just were to we businesses where be on was went make were if a So to to take. little how

assets. outlook balanced borrowers between going be most on those and X attribute that types. of I expect growth pretty of product I would forward, But to So I types to think the the those

Donald Fandetti

it. Got

Okay. [I'm [ph]. also] Thanks

Christopher Farrar

Sure.

Operator

I like This Farrar, over Chris back for question-and-answer turn would to to concludes closing conference session. our remarks. any the

Christopher Farrar

the We're and to the forward Thank taking today you speaking very all soon. present to for joining to look listen everyone the time and appreciate you to our presentation to call. again obviously pleased results

thank you all. So

Operator

concluded. now presentation. has for you conference attending The today's Thank

You disconnect. may now

Velocity Financial (VEL) 8 Aug 212021 Q2 Earnings call transcript