VEL - Earnings call transcript Q1 2022 | Velocity Financial, Inc.

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Operator

Good day, and welcome to the Velocity Financial Inc First Quarter 2022 Conference Call. All participants will be in 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 Chris Oltmann, Treasurer. ahead. go Please

Chris Oltmann

everyone, for Hello, XXXX you joining for Thanks, discussion and of today the quarter Velocity us Kate. thank Financial's results. first

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

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

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

Chris Farrar

Thanks, Chris, today. and everyone call appreciate joining the

quarter is very for another proud Velocity. team to record Our report

and market in as saw Federal and expected volatility. a rapid During short-term course increase equity Reserve income QX, for we the well changed as fixed rates accommodation, the very quickly monetary

and spreads of challenges. strong remained pleased as despite This traded losers to we're at base on winners report firms often market issue securitization rates. open, reveals difficult navigate and but the New conditions, top markets type of results increased wider these

market enabled a backdrop. risk to nimble unique us sound tricky model, process and navigate management Our

the whole these for rates prices applications, new some adapted we During conditions. to quarter, new attractive sold at successfully loans quickly raised and

Our customer credit rapidly management while adjusting our important team for deserves maintaining relationships.

from terms the year-over-year ever and In over to which quarter. occurs of impressive generated best loan generated income remember The XX% to prior an originations approximately our versus solely earnings over our for in a on many of in that NIM quarter. month increase drove ROE income from in years year's a XXXX, had core XXX% our new portfolio It's is a several and turn lenders. the QX loans portfolio other basis tremendous newly we most of net volume created origination the increase earnings not our the growth XX% and related in led important like interest quarter production, of in

continues we're rate closer delinquency delinquency very the impact as credit, remain quite rates of to is real relates and a strong market and work although slow range as rise. we is to rate from healthy to our the pandemic. resolutions estate much expecting it As normalized decline to appreciation off the the Loan

is Fed fundamentals extending and the is last the over long-term be our we credit as have healthy what viewed doing years, a Lenders pain, see short-term and in on. the rational some and create opinion. may we been several right lend solid properties this While should development underpinning

you materials to our market types and That from turn that, forward our durable provide of we the is built We rate optimistic we'll in cautiously and business remains through continue And earnings see as dynamic. customers higher walk despite to outlook our believe prepared environments. remarks. that. the concludes all to we with Our strong demand presentation stable over move to

XX% The adjustment a quarter, during corporate to press in debt release, costs $X on income from due a net occurred new so portfolio income, prior growth the is the very I core interest million highlighted growth materials. quarter, quarter versus We XX.X% the there of higher increase EPS and prior net driving share. core to NIM that there. over Page the the very our core prior in X of was mentioned strong increased Turning associated basis, the quarter. EPS in number the refinancing the the presentation with our $X.XX stable

new In terms of production, increase sequentially. in XX.X% the $XXX loans million of quarter,

can the we on saw low year-to-date, in the level applications, in over and past applications last or historical of to see coupon applications WAC XX line in on there X% X.X%, And $XXX that impact folks average volume we the with that sensitive sub in month terms our Importantly, bullet of average close And rates. range seen right is pretty applications years. told no we're April so which kind of in in rates not new weighted of to that the increased on we've as our we to that's up. the we've took really you the million that's XX as

In $X.X seen. growth terms we've amount the you of see to that now with very and up the of pleased portfolio, billion

press debt date did We able lower fix briefly our years. were a I points for really debt. on saw transaction so remarks, We announced the by XXX.X% to five of a as very good strong in in saw in good the X.X% quarter of terms coupon previously rates. very of the most refinance I of basis around down another still of – that to compared loans, mentioned In for end quarter, XXX% non-performing fourth importantly, terms us. the recovery And seeing release, that first importantly, corporate we that, we're on in so of my XXX our touch resolutions, and, the quarter. to we the

floating of some So we that risk off. took rate

did one the second In terms in markets, complete April. one the early of the we quarter securitization first and just in deals, here two

we're still think markets of terms returns not when mentioned, margin. there'll We strong were do. deals execute it be these and in, as just not as you I of there. overall Both positive support our borrowing that think all we we did of just But program not earnings the costs. the As we impact those in challenged. that our think normally and and blend small speaks history on it the were continue overall, we've that a longevity And very had participate well with as investors to there, other – pleased to debt, and would have

to X. Turning Page

can from the core basis, offset book a of sales. associated a $XX.XX and of the for terms refinance from $XX.X on value, and In the slightly so in core million $XX.XX. see here those the out of net the Most portfolio earnings $X.XX just from regular we corporate costs the of gains strong, income, whole to break that of you very debt, share income about with up non-core terms expenses loan quarter,

we're income on way the really earnings. with trending our overall, seen pleased business and very is positive that core So the the growth and we've

over to that, with it through rest turn I'll you to Mark the presentation. the So of take

Mark Szczepaniak

Thanks, that in very on we'll and of Chris, and through, strong thank Chris We kind the next today's we've forward QX, and of talked know the us well go model it's QX, maintained the Chris has as in you, that really QX. The held said. X, QX financial some kind everybody, and we picked having a off that very highlight and originations, broke on for rate the Slide of then record call. we strong years. quarter far a going built several slides, going had, Even we over very, had of that we X:XX:XX record so mentioned, kind rate environment, worked for just interest up and On loan quarter with volatile we've participating business steady production. first all we've in really about QX.

prior have originations, in million XX.X% So QX. of from we $XXX the up record

to our the product. see both in commercial, the for demand strong Investor continue as borrower And Commercial, increases Traditional X-X. still we came as well the So

our in product in increases origination on saw types side. quarter we the the So of both

increased WAC we basis, mentioned, It's Chris in applications in, pretty sold first and million of of quarter. what bit April, a interest little and $XXX because like new much million also $XXX coming average $XXX X% the the on monthly rate a still environment. As million, that's over in our we

So Page our On raising going interest we our our in-place applications Because portfolio majority our of in didn't up as the see increase a volume originated is X, portfolio. to to originations April rates. and portfolio as accordingly. slack loan off go the any X, and Slide loans go result of would

strong the in originations growth. So QX drove portfolio

we was the were total You'd at remains $X.X a where At loan see over very, our the quarter, first portfolio low. little of year-end. our at increase very XX% LTV end time, same billion the at

more look XX.X% compared page, you is LTV average of balance our that bottom QX. XX.X% for to loan the If towards

at adding that the at lot holding a XX%. consistent we're loans, So loan-to-value same additional ratio time, of

we again, last because down XX, March quarter X.X% was from had portfolio rates in the X.XX% And the little financing market on securitization year towards were coupon because the cheaper lowered end. of end at XXXX. average weighted through much our the getting Our a bit we that's

March some pass we of up and starting to as in in consistent come market lower still on and rates to as Chris door. see coming back our the we've starting borrowers to as again, as that maintain interest that into of at offset maintain And the on consistent that kind any spread. savings we've we rates we seen raised coupons with long our to mentioned, So then the go spread April, might increase the again that end securitization volumes of the

portfolio, our On environment, going quarter, rate slide, is of show want just our of we see loan this the investment at of our XX% wanted I fixed because rising can show risk have. you portfolio end loan our loans. rate as interest for that it's The to next show interest the to you held rate fully that HFI, portfolio, to the the minimal

So any interest risk it. to no rate really there is

our And rate. period, above there, never X the float, and there's hybrid of about below that they remember roughly, ARMs floor XX% set loans loans float hybrid those ARMs. are can say, to to a of were initial other usually XX% you to The initial floating fixed they floor, And convert when fixed fixed But that quarter-end, X then then are to structured have only Those in way rate the as thing key the the floating. an are is float period. ARMs can the they years, initial it.

the rate. spread, a float widening a securitizations, and of rate the then – fixed spread time if ever So you you only the they're up only below can in lock have when can fixed-rate you the not with fixed fixed loans have

is On rate. floating is They're we until get enough the with warehouse lines. XX% $X.X aggregation But lines securitization. can portfolio, bucket using go then are there securitizations financing financed on financing loans remember, then you billion, short-term up for with HFI our about those HFI warehouse another lines. the are XX% side fully about of portfolio, LIBOR-based and to that the very that on – see rate months warehouse fixed The That's fixed and going XX% to only securitize. rate X the for to they into about X

locked-in a rate fixed really So spread.

as interest rate minimal So portfolio a loan financing risk environment of big as a the majority the us. creates well for

a the interest Net margin On consistent at mentioned, Chris interest X.XX% again, very margin. net take next page, X.XX%. with QX, QX, look for versus

at end, yield and X.XX% QX. of loan the in decrease from the was compared cost said, a to weighted the QX also portfolio debt quarter-over-quarter basis to points The X.XX% first XX debt was quarter says we X%, cost. Our

you you can that maintaining at side, hand if of look the spread. kind see right So

kind did we all of The So maintaining portfolio performance. borrowers, the down, same as can investment came loan lower pass time, see to you it the the the but next on spread. that cost slide, at WAC to debt

recall, can you very of end time, grow about X.X%. quarter, normal resolved that we're rate NPL was a good line – to down grow portfolio successfully loans of of servicing from this we on continue not successfully. and XXXX if And in NPL ended to of or said rate to we're quarter that not our to We've first concerned like group. XXXX the the got the our as in We the it. also at between, our run the say, We same the see chart, kind very the rate special you end December of originations, at X%. as X% now X.X%, we with but non-performing As kind high of resolving NPL to back we're these And time, that loans. heat It's at COVID, at XX%. with

key the resolving a so those may recovering as charge with recovered these We're right interest the very so we're that's prepayment a first loans. in the well So as our We've rate, contractual gains. cases, We as a we're that's bringing these quarter. run the in and And gains for principal NPL to to that not loans, We're due, all X.X% to job default continue the are extra and normal us. loans to Slide loss. important part. again, XX, make rate off – interesting over we fees, make above many And continuing if resolving good paying gain resolved too. the we X% an by XXX.X%, now

resolutions in X.X%. $XX million, NPL which is had quarter a QX net the total totaled gains of little over million, and in So we at $X.X

we're very we're regular X% and continuing it quickly So profit resolving successfully, margin basis. not to on at a loans about very only non-performing our running do a

For our reserve, our reserve. loan loss CECL

of end at went portfolio $X.X have on loss to because reserve QX. at slightly, type with loan this. associated million of from Every your of you mainly growth. increased books have some loan single the reserve million year end the the That's CECL the $X.X to of have Our

As increase grows, have reserve. your you're loan going in to portfolio some

So QX were QX quarterly a line. Charge-offs that's We is five expected. about X-quarter $XXX,XXX. of in kind a $XXX,XXX, say, quarters in charge-off on average of there. was again and our over, kind $XXX,XXX And in basis, but show right

that's in normal kind is. with it's So rate and right line where average the of run our

and In funding talked have this, very and our durable liquidity financing, we've strategy. terms of we about

the been great always we there for in a As markets got mentioned, Chris reputation us. We've XXXX. out are there. started since brand We've there

also QX. did in one this for done we've $XXX million. of did we another And in year. So then already year securitizations April this We one two

that year. So of kind And debt, our because debt, had, it two was which And it this a extra also to debt we've already debt. we that. two But Chris was we $XXX point it done that corporate issued a actually, touched We paid on securitizations the a $XXX higher It at yield million floating rate floating discount. was refinanced kind X.XX a originally effective was of off million. rate coupon, unamortizing. down because was X-point five-year was was previous

we So top rates P&L. amortization the also of had hitting interest discount on the

X interest It in to was were and at years, So it par. we and QX $XX a and by million and rate able five X issued upsized about refinance for it an upsized. fixed

don't we discount the So have amortization well. as

fixed X.XX% go-forward the rate on of terms years basis P&L, since in up fully with So five anymore rate. we're all picking all, in interest about risk over a next no it's

in locked So With are where go we to value over that to turn thought in the great a over at you deal. in I'll And rate that, was hindsight, seeing rates first quarter. going of earlier that economic equity. Chris, now, that the it we

Chris Farrar

now. equity. Slide of Mark. Appreciate Thanks, a present economic On We've we that. that done value XX, Great. few quarters our for

value. but everyone, I to at saw and suffice So remind take we through just to won't it, pretty it liabilities carry say, everyone fair assets to our time. we similar And what don't last

we a were in higher if embedded of the do book much gains, be terms of in and there to value. certainly, to that, terms So could approximate, trying mark something like

geopolitical we're uncertainties. again, lot yet lot well be a Things in I So Obviously, On – a think still we've the of and that's looking there to of just outlook, we see XX, at macroeconomic realized. that going niche. are are untapped still of there. very kind strong our demand got value

LTVs continuing at that good the So that a preparing things be we'll lend of lend very always even rough, We think, and in worst does I confident that we get levels we the for but make hoping we're little shape. up. for best, to cautious, be if we're bit everybody, the kind have feel at

transaction growth the obviously debt capital. new capital, additional In some us gave terms of

great us was and have the and to we'll continue throughout that we able be as it markets to securitize believe for So access capital year. the

than going the believe, for able will growth. our to we we we good from of earnings think to as operating that, portfolio So type And very be perspective, a forward. grow stable, to an and our leverage faster earnings fuel definitely NIM that durable continue achieve continue we'll just and recognize targets expenses then

and summarizes questions. of kind it our prepared think for open that presentation and up we should I So remarks our

Operator

from question-and-answer begin will Securities. JMP Our of We Delaney [Operator is Please Instructions] Steve now the go session. first ahead. question

Steven Delaney

heard can't out week I'm it you've Thanks. of there, on sure how calls. I you I this value to of question. earnings for accounting some of somebody a the refreshing there's tell doesn't be appreciate fair I'm lot those pain call gain-on-sale use residuals. its is residential who a and saying and

props So It of on makes sense that. you. lot for a

on clarification little XX. a Just Page

I not to seeing shares. whole from Mark, clarify Chris, $X.XX, on sales. But $X.X XX, that? get really can like gains And me it in $X.XX, matters. it mentioned help XX.X more for You million Page loan million like you that looks I'm

Mark Szczepaniak

tax $X.X been tax I I not have effect, might well. tax going don't million substituted Chris' effect not net… by number – the all the as mean to right, that's is

Steven Delaney

you. got Yes. I

Okay, Yes, keep REIT. forgetting you're my for I apologize a not bad. I that.

You to pay taxes. go

it. Got Okay.

Mark Szczepaniak

We're a C-corp, Yes. yes. Yes.

Steven Delaney

it's mentioned recalibrate, still the blended will a higher still Okay. mean, as it a going coupons I out. be get loans is I you make? to credit find to will up volatility in that come on some to guys up your how bit? that happen? markets mean at and NIM spreads, of But of X% combination settle for I And things Chris, investors, – to obvious the much they and hoping execute down the your didn't to kind and coupons X.XX%. blows What that know above everything of is primarily well. just Obviously, is you securitizations, time, needs if

Chris Farrar

that's Yes, Yes. think I right.

two. the of combo I think a it's

the to historically, range. As X.X% I at lent X.XX% we've we've mentioned, been in call –

we've getting of to kind back where been. we're So mind always in – our

of so good big to going the and Fed oversubscribed securitizations to is us. the for doesn't struggle participants, go saw feel really work both their just So extraordinary And just right we level in at. were in to what's put talking the demand money there. We to it market a where is and

can blends. because poor time we but the are in of think, get get So market it can we amazing out We expect. – I execution, get frequently, most what we we sometimes fortunately, we the execution, sometimes

putting the I the certainty are where money clarity we rates more from to so investors see income work. going, inflation and and on more think And as side get Fed we'll fixed

Steven Delaney

you if not And sense. come Makes decide be market, Yes. away will when you to there back. your you're investors the sure step from

So...

Chris Farrar

Right.

Steven Delaney

Thanks you I sure the hear I loud I it things other and clear. to ask. comment. leave the for Yes. have am guys will some there.

Chris Farrar

Thank you, Steve.

Operator

Instructions] [Operator remarks. are I would back closing There over session. the question-and-answer This time. our like at questions Chris this to turn Farrar no other for concludes conference to

Chris Farrar

you excited quarterly to Thank so much. our results. present I'm

Our we have be tend that very business simple try simple we very it to because calls a way. to keep and

talk we'll So everybody appreciate much. support and I to quarter. next so everyone's Thanks

Mark Szczepaniak

Thank you, nice everybody, day. a for participation. Have

Operator

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

You may now disconnect.

Velocity Financial (VEL) 7 May 222022 Q1 Earnings call transcript