VEL - Earnings call transcript Q4 2021 | Velocity Financial, Inc.

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Operator

Good day, and welcome to the Velocity Financial, Inc. Fourth Quarter and Full-Year 2021 Results Earnings 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. to conference like Oltmann. to now would turn over the Chris I go Please ahead.

Christopher Oltmann

Hello, you quarter and today you, everyone, Thank Liz. thank results. discussion Velocity XXXX for of for Financial's full-year fourth and the us joining

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

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

these refer of to Investor the non-GAAP should reconciliations measures, you our For website. earnings materials Relations in

and recorded I the on Farrar. available is Company's today. be to call turn now will that, will the And later today's with being call Finally, Chris website over

Christopher Farrar

to the on joining We had earnings today. note. I'd and obviously off our everyone like year quarter fourth terrific Chris, to quarter high for Thanks, thank a another call finish

quarter another loans by COVID-related decline perspective, for drive fourth continue as quarter, resolve of the managed was recoveries we into and macro over levels. growth more recognized From the year-over-year were in million on Demand as net record to we fourth strong portfolio and during successfully to older delinquencies $XXX operating and in very QX, leverage continue significantly cost the securitizations deals quarter we over two issued economy a up strong Originations expensive impressive that third on increased basis. new grew our Our our just some and was successfully a year. is we see this terms. the strong. We carry demand loans. delinquent and the financed better significantly to

which XX today. the to of points rates based higher X%, December We a spread year imbalance. demand come great the are We quarter the to rising real swap for signaled from fourth during from deal our coupon first rates short was planning with still borrowers just we points basis basis year increase they are and two under on and that underlying the saw our demand/supply and seeing closed which than and the estate increased securitization to some securitization with on Fed financing widening. mainly December us due this to securitizations base the three-year XX about markets in for obviously a February the XX are price to move rates, good

a markets record performance credit capital Our in environment. XX-year track us and execute strong helped choppy

lower stabilizes As around from the normalize expect higher and year we with to grow delinquent we as area look loans coupons. the increased this and rate NIM loan X% forward, replaced are originations to yield resolutions older

income two I perspective, larger that remarks that's already in as as obviously an also opening interest NIM of and And third which done a year-over-year income year, we've can the again, the COVID grew that volume shareholders. expect impressive on record I see Slide From and year, expanded of think net delivering right and year Slide to NIM driven we strong the an third a the On resolutions. that, million the production forward the record all driven sales income have net quarter carry quarter during quarter. cost remain move great future turn me normalize production see loan is new a X.Xx X, over see some of the the of just decreasing optimistic we to XX% nicely realize underlying year. in We million, I to bottom And after portfolio delinquent the this deal mentioned from this you strong XX% deferred was of last basis write-off continue XX%, well core as finally, is year. through by in The at fourth us. look loan the growth of million, Slide on that collapse. the about then income volume increased was I Part rates offset the $X.X to From payoffs. about it and That I'll very we did production expect XX% X, and that kind and another securitization the quarter, XXXX very of from fourth up as high growth In X% up $XX.X we of expenses I in XXX%, again, volume. in the healthy on for that performance favorable kind handout had you areas, EPS But that for first to perspective into area. loans. what through is for on our to driven by overview With presentation almost as very one-time year, made point NIM go the up charge-offs did portfolio with just from loan quarter-over-quarter, can this portfolio impressive. to there X% around interest some X.XX%. months by the swaps that think already down mentioned We our our year up increased $XXX of that we core my through was kind to net and X. increase picked

to to So we $X.X in about I seeing delinquent very had then area that into Getting production now continued and to the our improvement loan are and business folks so are increase see portfolio of to billion pre-COVID continue. kind for favorable a that sort the kind down normal X% to tell real we XX%, XX.X%. up in mentioned very stabilizing strong we also the is of performance to of levels. close

capital the the about second we deals older we deal by on us perspective, X%. borrowings for a X, financing collapsed Page nice and on a three those that different and as the here did, deal two Lastly, deals outlined from coupon and reduced was

Page to X. Turning

we on converted was quarter, a XX% preferred During good address interesting we we to mentioned the clean And more as common Century the opportunity that into February and markets. our fourth XX of in securitization stake stock the and previously slides. stake, the all we detail some we are will announced, quarter business it shares, the then issued end, out I in to we very and on about majority in capital an there. It's acquired that Subsequent excited in February, priced up.

made Core you acquisition. up can related expenses non-cash Turning income the legal share, write-offs and were the per the value that to mostly costs see and to for addbacks net the book some from the Century income securitizations in X. the core of Page

of driven per by kind more So we obviously. stock value the largely a conversion the normalized share got book

to Turning Page X.

production, In the both both good terms increases up traditional quarter-over-quarter, it's XX% of up not the X-X across commercial products, and Q-over-Q. product XX%

type a our Good the our business product. majority numbers in broker of products quarter-over-quarter. we seeing in in activity short-term And products, the broker of participating of driven up on small portion said as the we've again both terms well. the portal So longer are year past new in additions Internet term of the lot beginning at the as XX% impressive

good we a demand. broker So lot see of

there that originating building I strip, consumer, a think any in from away, more million and these our here. over it's as portfolio business. As the more opportunities go got sort the right is Most servicing little of look see detail the to very healthy refinance paper ways a brokers press want But brokers. don't servicing a was to simple loans are kind On end this programs our acquisition. we our said new the around year, in and seeing and of so interest credit as fee-for-service of show risk a it don't income, take Page Century we money we and released find and going tend in to already to forward. in they we we've We we the very $XXX little product generate a overdo straightforward release, X, then at demand of we – those past, grow

on of be in the pre-tax really that different initiatives rest We you will In year a turn I'll terms We handle start to contribution over that $X.X XX% expect going Mark to of undertake and this for and to somewhere presentation. the would are let level in hope of On year now was that X, the year's show him year, we go-forward it own to that million. next can results. see up this basis. for earnings, income growth to last that the that

Mark Szczepaniak

the mean, our evening, portfolio very and production Chris. XXXX in-place transcends that's of of our those and loan hold portfolio. On robust as Slide was Chris good portfolios, for afternoon majority into everyone. in our I growth QX. Thanks, mentioned we Good X, especially loans kind

$X.X So XXXX XX% quarter over very $X.X the from we just which in we ended with. ended billion good the is last UPB, quarter-over-quarter almost and the that a increase under billion third increase year

weighted loans XX% done the did that off. as really remaining as have we a see and you loan building the mentioned, in got paying XX%, portfolio. you some consistent again, good slightly, meantime coupon Chris around very level, right can of higher So older coupon that job the reduced And LTVs average up

we lower coming So on. newer have some loans coupon and got

on production market reduction So that year. activity the On as interest margin. loan had in that's net rate the XX as all during we strong Page well the the just

that successfully first resolving and made said margin almost non-performing, so was remember We usually three on a said XXXX our X.X we from to point we X.XX% for average collect QX XXXX improvement We've portfolio non-performing a Remember, quarters first interest in that, point XX.X%, that of on XXXX. was resolved a loans. fees, and four a we of loan ended with as ended in with went always the as net them. are we again, prepayment and X.XX%, about X.XX%, we we the Our resolutions. three default QX XX% non-performing quarters from interest part so are gain rates doing we

NPL the in a income of that we lot coming And as you NIM to a lot so a starting getting level see are to we us, – start NIM the see as now we normal that to as for of that in. to QX are rates higher normalize And well. extra for coming back of more are starting

NIM deals did older QX a older put deal, running them included average on a kind rate, deal. costs And level. X.X%. we hit were our that them in we three we and are said When X.XX% on three write-offs to a also always and December We is around a to deal able there deals December closer have We four Those does Chris say, releveraged mentioned. that. loans the normal the as strive about X.XX%, kindly collapsed run the of to in new in securitization, have interest had on new we coming were to some back on point we a what for X.XX% in QX, and

up on picked were the on amortized betterment interest those three there but on four costs of we older So some deferred deals. points almost expense,

those. take on had write-off We So it. we to collapsed the

If closer that one-time write-off, you come deal NIM to that around adjusted would exclude in cost X.XX%. QX to it

see see portfolio of from can on cost of interest the performance. mentioned basis. On adjusted QX an deal the bit side because cost in side, on those costs. with closer little bit X.XX% and On X.XX% three inflated again, of kind the the on a again, is side, go exclude debt X.XX% hand that deal expense, costs a you is funds and you little of if the thing, loan to which We costs. portfolio deal investment would our up the yield again, X.XX% costs the same Page on Those the right write-off the those kind this. portfolio loan QX yield of kind deal one-time XX, just be debt The and

XX/XX/XXXX, to back ended go XX.X%. the you see at XX% and look and down from where up You we XXXX, to went

loans level. together that pandemic those have Page we strong work normalized and into XXXX of ties of those our on as more So of kind COVID we have under were good Page XX it all XX. had the continued throughout down resolutions kind bring non-performing to with crazed

point down, As rates still we gain. those brought non-performing X that we maintain

the third see the around are both can of X.X, You overall gain. for right we of and points year, X second fourth quarters, half

You very and are long-term. consistent. see short-term They the breakout between

kind or half you loans resolved You million was second resolved XX% the of or of $XXX million in XXXX, off paying look UPB resolved million by total worth gain about current, that generating in $XXX $XXX of point that the which of of paying that X see. we

it our looking – are pandemic brought the COVID the at X% a all time reserve, generated QX. even inflated getting loan scenario. $X.X with on million, to gain ever scenario reserve economic million those just REO We using CECL the Remember, kind XXXX, is made given that was consistent XXXX resolutions. half of out. the type overall the is tempered it the leveled severely So reserve. end reserve, a at of going more that more COVID to about year it the Things you only now at pretty NPL of to loss where And QX resolutions and our stress back have the last XX, of at in of same stayed about Page stress were that $X.X normal. overall,

at We for at of a year a reserve now end the sufficient or are that's million we So reserve $X.X XX plus basis us. good about points. feel the

running are on the that levels loan. lifetime than actual a lower charge-off for actually basis Our

a actually feel points is we basis So reserve. XX good that

an almost can charge-offs have some charge-offs see been you right hand X but resolving You QX $XXX,XXX, or to side. X last can our see the the basis around quarter, again, a quarters, and then about we $XXX,XXX only the for these as on are like XXXX, loans of points. roughly average two

the maturities. our is warehouse we sufficiently history those $X.X look XX, balances the it's non-mark-to-market. portfolio our have and continue reserve with is modified debt at year, a mark-to-market. warehouse reserved our of So of to feel the portfolio. we end the lines five repurchase the that charge-offs capacity for We are have Page on year given of resolutions and outstanding One ended billion. remain low. kind We funding at that our fully five facilities of about financing four as staggered overall On They

are And said capacity, we or really calls we a in margin on We staggered And good mitigating have on any the the on we feel that risk that can't kind four of deal. can see So capacity well that. warehouse another on maximum have of you $XXX year Chris February of mitigation with We the the financing side, five anything hand given good have for we structure. our and place already had non-mark-to-market. is at did in financing securitization good we job warehouse long-term million the on of available we right short-term this done end financing of the just on lines with get the the all of financing of risk turbulent think deal we about $XXX five that lines. capacity and have the million. maturities, done market a year, demand a at

drivers. to side to to take positioned us back business give With So kind XXXX some our the I'll for to on securitization. turn that, it on of an us well aggregation I short-term outlook for are think of the we over key Chris

Christopher Farrar

remains highlights We overall another the the a to very terms as Great. market, good in increase and healthy well demand, a there volume feel as backdrop in real have demand of macroeconomic for healthy. Thank you, very think strong is year. we Hitting expect confident for here see Credit XXXX Mark. so we estate there.

we capital, this securitizations are terms see of to year. more In going

We are five six or deals. going at do least

of issuing, the the We rate though are will perspective, of will do growth are we very a being think burning by that's risk this market NIM growth kind interest shortening kind going between earnings pre-pandemic still our just expect back earnings level, one by the have be there time frequently out be often. we even driven we and deals a From of frequently year to higher balances. loan we ways manage the earnings an in we and to good

So at of equity. about economic times of our fair very optimistic a cost. value just for where a look are done don't all We have we we this XX, headed again, them slide XXXX. of at On assets. now, We hold value couple

a up comps how answer compare give And so just stack we think there. at want We to folks here, them. out we to look to other Short that's we think try us against there platform folks hopefully recognize and value. and created embedded a is and over our the back that envelope in valued realize of in we've that that in healthy the portfolio time the value here might

tremendous there So will to realize our grow to we we as and that. have folks on is continue results, start created think think that we and deliver value we

the That up of will So and kind for we questions. open we think undervalued stock our presentation prepared is remarks, and it significantly. concludes

Operator

We Laws will James. Please the comes now Stephen The question with session. go ahead. from begin question-and-answer first Instructions] [Operator Raymond

Stephen Laws

evening. Good nice quarter. Mark, Hi. Chris,

to continue the here. sequentially really You guys improve metrics

talked two really The a that? outlook quarterly is quarters. maybe you for the quantify grown production Can production You last about bit quite growth. in

is? So think run reach of you that plateau quarterly does do when consistent you where that about a and level what rate kind growth and think

Christopher Farrar

to just people be know trained is system. there people, the they're think importantly of the doing there is think us fast. about Stephen. us where our the it lot out Hi, quality, qualified there's maintaining really don't credit for more Thanks for into plateaus. what Yes. limiter getting We room question. Probably for grow. We can just a that not too growing and And real just

So we smartly there's and we of But somewhat geopolitical we just expand have and that We for fast. these be things grow room next probably think amount of too couple while months, of cautious grow. to here. But of not to a upside to think all will here really, out. continue lot a the tremendous go shake

Stephen Laws

think Thanks deal, the two if for and but comment and missed that collapsing how are those comments. a around apologies that the may about when I [XX.X the occur? around and XX.X] thoughts When this, what legacy – securitization, the other of kind you

Christopher Farrar

Yes.

those of of confused. process the my now. would getting on both in we're deals So working expect I

do think positive, two. and think I'm could It I slipped. probably XX.X going then one have one, I do we're quarter first, them other them we'll XX quarter. and the to the following not but this of

Stephen Laws

Great. I'll again. see you comments. Appreciate you. the Thank

Christopher Farrar

Sure.

Operator

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

Arren Cyganovich

The Yes. your of has brokers how Thanks. have What's growth you've number been – mentioned for an of you the production impressive system. driving of this in new putting some you been that because partly that brokers been increase have into that the here? are rising and outlook those much of

Christopher Farrar

Yes, of we've products alternative Yes. us, new as folks Arren. significant looking are the a it's offer Thanks, that Appreciate I've to their seen out to growth for lot the question. because, customers. reaching that are mentioned, to

deals exact QX, and people or lot loan a all they're or out sending and it's the so of of that are we So This of web XX type us about how marketing to we're think new to Brokers product, thing. in of reach terms doing, hundreds month. educate traffic one where of us – product much doing. haven't isn't officers them I send of or volume have our but have just come for a that time. tend two room deals looking don't meaningful. I an month at a the drove with thousands XX a for XX But still of some we're the yet you we we're in seeing reached to quantification that there what

so they deal adding two. it's new just customers bring to So broker a through roof, get good or doesn't but and us a drive the things to new speak,

when sure. add that so we And some it's massive the cumulatively of quarter, not for but of at brokers growth each margin, overall, it's hundreds driving pickups,

Arren Cyganovich

XXXX? better the where capital off to going of then you put markets you a Okay. how any recently. we've plans? seen near-term liquidity that today financing side, could standpoint investors the And were And from we versus are Is volatility on some in positioned securitization in just kind remind

Christopher Farrar

Yes, sure.

of getting most So the to we're talking yes, I in, not the watching as but longer. a pricing, underlying been mentioned, We've our widening serious. And anything they're it’s done, the base has widening, bit markets. spread bankers. capital investment taking of rates are been Deals little

So deal either a we to on the how or depending comes deal May, together. just looking will in be whole do April

we to turn pattern to on consistent have you pretty things continue So if just volume there on will. stay our a based over to

adjusted And and I good think mentioned, still like feel we And see our market so we've I for rates conditions. demand. those raised as

kind So of on consistent in we two of expect sort to three to very issuance. stay months terms of that

Arren Cyganovich

I more just believe a And from bit getting have financing that's you markets standpoint case of a liquidity, little of the in capital out further of better structured whack?

Christopher Farrar

Yes.

forgot I Yes. question. of your the second about that half Sorry,

one facing could renewed kind in that come of down having shape the for margin yes, much just yes, with ride any calls through Yes, the of some here. storm be got balance we facilities So a to sheet to that feel the very comfortable. features, liquidity crunch, if more we non-mark-to-market kind good dislocation was there or other and year not horizon we're our going big of

Arren Cyganovich

Okay. you. Thank

Christopher Farrar

Welcome.

Operator

comes Steve JMP The Securities. with ahead. next from DeLaney question go Please

Stephen DeLaney

tough year XXXX. in congratulations on a Hello, year following an everyone, outstanding and

than what like up bankers I'd side, your in spread on you're and saying fall like conversations comments, I'm picking that been to I find with from that's frankly you markets your can the But commercial in of there's you it I question, been But conversation with am we're to and that frankly, yes, as and the widening, bankers It guess aggressively open, markets between. where me aggregate if me the and there's works your RMBS say like you're lot in to on for your your operating somewhere that originate in Arren's continue sounds kind widening capital things. Just CMBS a I side an I more CLO your on and in Chris, hearing mentioned that hearing not to just that are the guess sounds parameters. markets rate the execution in two widening. on

I And in had your three that? four what rates to your to the to Thanks. increase months last seeing say correct have am kind mean, in you're you capital accommodate on your the products or borrowers markets? I First, of in

Christopher Farrar

the And to yes. they Steve, you of your our can rates as as to pricing the move. yes, Sure. as is have move pipeline thank offset for comments. pricing, We quickly markets result, that the continue wider. short that answer questions regularly, can't for think the we to are do are increased issue we deals both We widening. a And

a the perfectly NIMs time pricing, best can't so our there's great unbelievable this you you and you this and deals the the the our a a Fed. month some So other we're rates and rates I really we'll year or and get maintain even markets month. higher the But said, typical be look with try to on most the take in blended able very of catch pricing. get pricing, from not spreads a that of confident get of frequently times at continued It'll a that the kind higher bit when we're time expected basis, to little two year, get overall, execution thing work, there. to for lag you up. every But to as But then

Stephen DeLaney

see market? borrowers rate less with Great. more It business the sounds straight would focus like are earn purpose or in we sensitive than your occupied resi probably

Christopher Farrar

environments been in for with always always of the That's need we've they've capital. of been lots had different Yes, rate us. kind Yes. case a for That's sure. and

Stephen DeLaney

final A one just thing job conversion. clean on great up to So – on Series

having is new think the at the value book your plus looking in stock. complexity sheet eyeballs, real for people that and a balance especially then I with

look capital as consider? for that, now unsecured you sheet, to sources would off corporate opportunity that other such So or balance to those of on a the that capital the balance that you warrants, preferred you open something to at up that's capital debt that vehicle additional than straight your extent would you the allow Are does sheet? grow of types that need the

Christopher Farrar

things we all absolutely. going volume table out absolutely this those things see, but those the forward, and we'll accessible it'll be are raise additional – what's going us us earnings see Yes, capital thing, be to make finance the how and way how to and accretive XXX for that on definitely think as to to type to are We all year that a value. and book smartest it’s think sure manage things we just we volume play much growth

Stephen DeLaney

right. appreciate comments, you. the All Chris. Thank I

Christopher Farrar

Steve. Okay. Thank you,

Operator

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

Donald Fandetti

Thank you.

new originations and go down average more you yields where the a could think quarter-over-quarter. So good you went coupon this year? weighted bit on Can driving it talk a bit about do What's that?

Christopher Farrar

That's Don. a good Sure, Yes. question.

combination did that fact So a last year. yes, lower the Fed it's rates the of

and So originations kind will. we maintained our lowered coupons, of if spread you

some of were Mark written loans years it, a as higher had So well, part probably off ago three, rates. that paying are of that's big the as four older from at mentioned

of two it. the those lead So combination to

maintain that expectation based to forward we're on be in where where they're of based really the maintain does, be we went yield. our that to that for our things expect X.X I might But not vertical, to go, going and the which just the to that right depends is to case. crazy be sort now. maybe on expecting our we the able the think year will sort is indicating got of able Fed's on Fed If curve and X.XX we but be what spread should the lot completely obviously range, a NIM

second go the first start So expect of it half kind it two down I rising little would a in then probably quarters, the and of would in the to year.

Donald Fandetti

Got Thank you. it.

Christopher Farrar

Sure. Yes.

Operator

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

Christopher Farrar

Great. investing time all for to our and story. you listening Thank your

and forward excited and been to up deliver we've about to are to We looking continuing results. XXXX what great

all. thank So you

Mark Szczepaniak

everybody. you Thank

Operator

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

Velocity Financial (VEL) 11 Mar 222021 Q4 Earnings call transcript