VEL - Earnings call 1 2023 | Velocity Financial, Inc.

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Operator

Good afternoon, and welcome to the Velocity Financial First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Chris Oltmann, Treasurer and Director of Investor Relations. Please go ahead.

Christopher Oltmann

Thank you, Danielle. you First us Quarter thank discussion for and Velocity's of XXXX everyone, for today joining the Hello, results.

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

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

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

today. website Finally, today's call is being be available later recorded the company's will on and

that, turn to now the Farrar. will And I over with call Chris

Christopher Farrar

and strong to as profitable disciplined like everyone Chris call. to our we'd grow we today, Thanks, welcome to in we mentioned, quarter quarter and another first as Chris, way. Earlier continue reported a earnings

up locking rise the of in matched held rates. funding Our fixed considering rate strategy rapid spreads well successful very has

[long] opportunities us. of the has from been step to increased market, of lending keenly continue to away or naturally a banks, As lending entirely see for borrowing essentially tremendous there's many you're short competitors these led credit volatility and an aware, tighten in amount whom were the regional all which

believe of higher play stress. to we're for out remainder result borrowers theme We assets and of banking this quality a and the year, better the as will continue seeing this

terms contributed portfolio In performance. levels which XX avoid Perhaps problematic portfolio, resolutions and more to basis rate, continue way expected see constructed to increase a rebounded of more a to of to from typical most as QX our point first in our we've real commercial yield a importantly, portfolio the estate 'XX. such quarter assets. we

by XX% Over XX% component. has a of are the and of secured single-family our portfolio properties loans residential rental

properties our be significant where On buildings the realized are high usually small the backing to exposure assets business, starting losses. to to lenders small other loans neighborhood not tend that commercial are demand. office serving segment large our of very Do have see in

outcomes slowing recently variety conservative with originations potential As the we of look believe forward, as have first positioned in economy. started part we're to volumes. succeed to well our new respect we in to year we growth, of experience With a but a we increase were very the

borrower we Although real continue transactions see to plenty estate of market slowed, have demand.

loan new requests credit the adding our stable and $XXX allows be us 'XX new process originated over income healthy example, in an and selective in to This just over assets. disciplined in in new in-place did quarter we billion loans. received demand, first As portfolio $X of very million

us further support up repo most with stable continued and financing. capital we resecuritizing to second growth by Year of year the significant short-term our way our structure Deal provides the a rates attractive at retained of basis. priced we side completed market a of regular capital business, investor This pleased new portion demand. just bonds for on alternative non-mark-to-market fuel more transaction a to frees as our the our platform our we're In On to see strong April, of

we forward, portfolio another continued positive successful expect and resolutions growth, year. asset earnings and Looking

last team to remarks, simple, the to straightforward think of Page our concludes slightly I'm number. all shifting the do perspective, earnings be well the of earnings prepared company to and X. below very the presentation very absorb speaks will year. to pop to same support navigate and times, on able an -- and our all XX quarter, the I to And business the that that our core stakeholders earnings thank my has change clean, for quarter we've over where almost of in nice proud that want last model strength seen from were they how prior their I type the months continued From a our

rates, In earnings strong of terms NPL another again, quarter from positive recovery of recoveries.

mentioned, pleased So only we're I increase back on on to results. continuing new not resolutions but those that very yields NPLs. our with higher bounced as from originations, And in wax see we're

going We things healthy kind said, In reduce intentionally. to were pretty as of and in terms going to of there, because the wanted as production as forward. could but really demand getting more we're said, general. are done good see the did increase have markets capital securitization markets that portfolio, the we're on the behave side, production, volumes I of rest expected. We And how going performing, I to

we off the we the those $XX what into bonds to that assets opened as just important did a repo a re-REMIC very I certainly as mentioned, ability generated the and just of second really those us, well. In under for paid we capital million off the new was up And transaction million have continue financing mention will against securitization I went be avenue well. we we put $XX of to that terms priced of and think as in new business, was re-REMIC future, the capital, that retain

markets the pleased very with we're So that we the capital in support got there.

book On growth Page grow as value. our X, book retain strong to another strategy earnings looking value execute quarter book at we of on value, and

On gain back we've got here bit for there. X, much Slide We X, add on on components. You book -- we report value of there's not is believe can of value some see though we economic book economic And and higher. -- the did basis, and a from -- book value. even core the quite showed healthy in well of the We portfolio value that equity growth we a GAAP value reflected GAAP book healthy you embedded in accurately still book GAAP value. excess and where think our is is in little the

to Slide So Mark it with those X to I'll us over forward. comments, turn on take

Mark Szczepaniak

looks X Thanks, our hi, Slide loan and Chris, everybody. production. at

mentioned, As that year. result the our had first at of and pull to as markets strategically And originations, back time. to on in we've the also of the that this of to year little since a end then beginning volatility bit decided QX we we a towards continue loan production had we that going some begun this we'll saw do forward of pick up quarter

Our loan production during UPB. was in $XXX million QX

the key is on XX.X%. new million $XX average originations, weighted takeaway there new a that those originations was in of think I coupon

into quarter this continued the response So our we this one recent have continuously on raising note during rates loans year, year our kind rates the the year and second all year. to last last first in half Fed of and of of

to raise rates the So we've loans. continued on the interest

average activity pipeline XX% still this good originations mentioned, weighted WAC year. demand Chris our first application have and And borrowers. quarter from very As strong again,

demand 'XX, of in increase give That's those compare off went the X, by ended to our our properties. Year-over-year The increases which the multifamily second average and about that points, has strong quarter X that driven towards you $X.X entire and end 'XX note done half of the put X.XX% to X.XX% as you year first UPB. average of quarter quarter an we've up end portfolio to coupon idea XX $X.X end about the compared of portfolio of weighted Page to been the on rates. as the for growth doing strong of the total coupon so QX investor of on evenly of the year-over-year. year end our If portfolio. of of first a 'XX of overall last of billion X.X% growth portfolio, coupon a X the weighted we've kind and year-over-year at the strong compared QX, overall basis the from the that was of at the portfolio pretty QX growth of and out the to reflects of of -- was that On end XX% last first originations, at in in and WAC year,

for beginning new books our quarter fair We call now accounting originations. mentioned that fair originations in elected we It we our at had those option FBO, October fair put X, means option value. value last on loan XXXX, we value

our XXXX fair as well originations. originations now at went as So out value as QX our QX

investment in are books our portfolio we was value. X, now we option We still down. Again, of have So activity resolution of On the during loans activity resolutions at the value end first in rate little, like fair was resolution. health about QX, not a resolution UPB on million of X% of nonperforming quarter our fair our loans total $XXX strong. UPB at were had a the Page the QX, just asset were loan mentioned the gain down that NPL

a we of And first month. of We a response We NPL million million take we QX, almost X.X% in our a that gain just pick was NPL for $XX lower a that would quarter gain. we and QX or again look thought $X.X up 'XX at kind resolutions mentioned have. in resolutions see

again, quarter look year-over-year, $XX in look we NPL 'XX And $XX first at million resolutions. you But QX, million. at if

kind historical that terms first gains resolve of quarter you So see this UPB used our to of to trend type back seeing. in and of the we're of year

note as of NPL yield, news. a interest gains stronger So good well Page yield. that in done the points your increase all end margin that's portfolio The That As XX point drove cost those increasing basis into the our mentioned, X? of bps. yield coming goes from yield basis year the rates combination in of that our dollars, increase as increased quarter. The QX. XX resolution first XX the very increased to in wax, Chris the our up funds on net the What's of the is to end all

portfolio yield of the our well again, So outpaced cost funds.

seeing a again. because And now we some that. out saw profession back So widening of We QX widen out that the of see we're in volatility.

with And our points we with consistent end ended at full year-end our QX yield, a we X.X%, a NIM. portfolio On much XXX investment nonperforming it for It's at X.X%. with basis performance, ended the or was rate pretty XXXX, X.X%. equal quarter from Page where QX at X.X%. at which down So was the XX, X.XX% of

So historical on gain of average those consistent. And slide showed, nonperforming loan that on previous seeing still resolutions. or of NPL again, we're stay more the points as we're rates our fairly X

at was Our end million, which million. the it quarter at $X basically CECL loan XXXX at year to loss reserve flat $X.X ended the of the is where for

see XX the X the that, cost. the So we're portfolio We and in points basis basis level around XX, that past changing And much XX kind is been we've quarters. on points now. don't X, really at is that the of on holding at for keep constant too that right [indiscernible], CECL mind amortized that

the loans are this last in on that we in value put So the QX and QX loans. year that fair newer year option

to because loan at subject a value. they always not fair are They carried reserve loss CECL

So values up reflect written of or down. to they the need be fair kind

is So costs. the at this that's amortized portfolio for reserve older

come dollars, we value put expect of and at amortized CECL that loans hopefully to as fair see start cost more the loans gets of in you'd pay as reserves down, smaller. to more that terms portfolio smaller So and down on and

the terms goes. of to on been charge-offs kind zero X in XXX,XXX it QX section about basis charge-offs of points. at right in bottom quarters, charge-offs page average QX. and our the have And have as and XX, Page And is on XX charge-offs you look can we compared comes -- In in last

that property, then cases, then sell the the out the on previously loan point you and goes made we the if And a work an up you keep And mind, charge-offs And that for when REO off many resolution very is loan. the is table back on charge-offs loan the the REO, the converting table, sometimes charge-offs gains REO, property resolution. resolution go you, on REOs. what on very, GAAP charge-offs. in NPL in happens when the in we come usually you're when to we away. the charge And So low showed we sale terminology one of have the fix to for of I'd we the a majority

resolution REO, you gain a and in of XX, table. on we're charge-off, those So And charge-offs, which durable times, credit in separate whole strategy. a to lot recovering it's on but a funding show reflected accounting, the was the liquidity there's Page

of of was is cash unfinanced unfinanced about million first quarter $X strong, Our is and actual million collateral. equivalents cash $XX collateral the in $XX end million, and about very reserves about the at cash that

capacity maximum of lines, million is At available of QX, on $XXX still had total the Our we million maximum. capacity. warehouse the our $XXX about end

in did we're better plenty of reserves one Chris were showing seeing So saw execution cash on the 'XX strong little and of market shows and securitization capacity October, indicative right the pricing pricing. bit available a we QX out little available the securities bit coming back improved we in that for even did markets already that financing mentioned, first securitization -- January now now, as our the in a in the and liquidity.

We April we that in of we about by to generated have releverage received repoed in that we and taking mentioned, Chris as tranches the retain $XX $XX can't a We at million security million from them those that where financing. almost stress the mark-to-market re-REMIC had retained time. or in year, those securitizations not other And older now enough is in did issued. financing decided not certificates and this takeaway, time, any security we at main and could and we new

mentioned, a for the we new That's something that's new tranches, on is happens. Chris non-mark-to-market if non-mark-to-market financing that's This to -- subject repo, margin As mark-to-market. calls a us financing. older facility do a retained vehicle

adaptability proud shows that. non-mark-to-market on And I kind think of have a very the we I'm just world. of that that

Chris, turn XXXX it kind back Velocity's outlook that, to to you on key business of give drivers. With I'll an

Christopher Farrar

Great. I appreciate it.

seeing we're up seeing able markets transactions, the when end rates market, the REO. liquidate still certainly functioning we and as with higher to of terms In from pressures do mentioned, and assets lower I but

to cautious currents and see a seems market-by-market a go. Obviously, we'll choosy be the of market, with a how lending, our more we'll we're cross in that off. I are things to credit perspective, on continue there basis. From there. think paying that's So stable and and lot being and monitor

these Some gains. markets markets actually Other come of are down. still seeing are seeing prices

monitoring location portfolio. we're geographic the in So

In that capital us strong the -- for had, of put we capital, a terms that successful mentioned be and a healthy going to our just and forward. with that And going to to to forward good, liquidity continue growth transactions really creates us of spreads think then contribute originate terms going we're of in assets in earnings, will I to knitting stick lot good and I position. earnings

for prepared our up and open presentation. up wraps that remarks So We can questions. it

Operator

from Delaney [Operator Instructions] The question first comes from JMP Steve Securities.

The from James. Laws that. about Stephen Sorry of Raymond next question comes

Stephen Laws

Chris Mark. and

very volatile rates, you at numbers. things there UPB start that look holding few When I to really applaud we're other let's nonaccrual where want a the say First, in portfolios. I really can guys. environment recoveries or not in companies -- have solid

you think the and do how with at liquidity Re-REMIC, action up opportunities looking you're about that take so to the And to the free going today?

XX.X%. when mean have on and increased back? environment And you banks can that was putting you're about WAC think work the money how today? others additionally returns in know be this new do I pulled to I

Christopher Farrar

would think start Sure. is where into be Good questions. money you but be limit Yes, of private us. Could feel we an want we funds with we that go terms we like I to there where to higher spread? in if probably, get upper -- competitive

and last So two we're if where XX%. you ROEs current well north our we're at seeing securitizations the spread look executing of on

think or want our think hits we or And target. be very to X% level healthy where so that's in more. We a that's we NIMs and

much to the probably monitor and market, we're obviously, see. I So going think I we'll it have here. more from treasury to mean, we'll raise don't

Stephen Laws

about the point should as a originations from outlook I You on we environment back forward? competitive over And selective agree as you with the of does well move some how think QX. lot quarterly be a like And year? we purposely do Sure. of balance the run your the though, to rate a less maybe mentioned or or Kind pulled more side. growth credit monthly number in

Christopher Farrar

Yes.

$XXX good a number is -- think million the I good going I forward. think

I to number see offer year, for steady any million But is out. slow, think think craziness. you use for and I we'll climb good this to us barring $XXX a a

Stephen Laws

the securities down then some the do there? of be collapse about some were expensive? Great. get out were Re-REMIC deal, on talk I or some if may Can more amortized you understand new And resecuritization lastly, into to look retained transactions financing recent and that correctly, Any call side, or type of deals. there you you legacy that opportunities put to to more of assume it had able sequentially those a the I

Christopher Farrar

yes, Yes, absolutely.

almost transitioned sequential the to of structure. our all we've So pay over deals

two are more there that's that very deal left So pretty sequential expensive. that. is we It's could A XXXX do a deals where balance. small

$XX under million. our have also mixed it's think I collateral And we deal. then

that a it's pays assets. capital another months really was big XX It once nonperforming off. that got deal bunch there We've pays but got of probably chunk a off, that before XX to of financed

So are before so capital. a future not that there need callable Those to we access some full free capital. notes up pay that down will can we get

Operator

Delaney The Instructions] comes Securities. from JMP Steve question [Operator of next

Steven Delaney

I kicking way it's or I it's just this age know apologize market myself. my in. don't old managed disconnecting back. I whether But to for find

You're with stuck me.

Christopher Farrar

I horse. got thrown thought off you your

Steven Delaney

call liability but by kick before. No, done I beyond to going no, have that hard three time, former that the -- brand borrowers seeing hard kind it's we great with broadly the we're you're through. crazy Obviously the what But on have major with it's cell does it name companies customers. country? this talking management in failed you could bank asset stage the the presentation at unfortunate have horse, These I to about to a failures. intrigued that across take to Are point? off. your comment phone go of this have a the this it that been, but believe Seriously, was at It's world. institutions financial

Christopher Farrar

banks, Yes. definitely horns in Yes. their seeing be there most yes. short is cautious all, and not pull sure. answer The if more just for

Steven Delaney

real on estate, you specifically And think...

Christopher Farrar

us And ago, have up seeing frankly, coming bank. X to than would Yes. we're Yes. used higher of quite a at the to months probably ended X, quality definitely Yes. we're borrower that,

Steven Delaney

Yes, stability. that's We need anything. don't system financial wish

problems it anywhere to little and pay lenders back would the price. absolutely, week. like have is for world, We're calls seeing right, a competitive too, is bridge commercial So better mortgage appear. we're But it comes that the sounds it going not else opportunities, because to the all to on root going the guy [Hannes], bridge, on the it some this

all of X was the the -- is it were is ago. anyway a not months They what or -- competition very demand, talking banks lots even about not among month X

interested So see we'll going to be forward. that

an XX.X% trying the got banks for could XXX, XXXX. be you think maybe of have I'm could where whatever Let's the mean WAC maybe sensing set your what grow. lower opportunity the or mean, -- long I the rates opportunity And it -- your between dependent relief, tone they're to end, are and is a the If economy. is what, new just going on only potential little rate tell of more be, in to your let's we the say about Fed you've that I sort us is and originations. done on about

to things kind where your just there it's me big. I like the is there a charming business, a years, giving you're manage of Velocity sit you it's really that that not aspect right, get just -- you I'm growth quality today? to an of But can about ugly is X over and think up strikes is it next -- the curious, not and And one so big like there's

Christopher Farrar

No, XX this think We right, it. we've years. It's I appreciate -- Yes. that's Steve. been doing

were So so think when medicine all -- of different took lot rising deposits market seen kinds year the A our I of of fast. And we've last lag. kind banks, their rates conditions. we we

had think they than to the I face so did. later we music And

definitely to and grow it's yes, in of ourselves selectively financing. we see a we the really So here, demand lot position the from inquiries side, we here in an and requests opportunity showing for like good thoughtfully, feel get and but put a up

I right, if probably to you're help that more. even were rates So would think only us down, tick

Steven Delaney

start doing to months. great and a on forward look to few in congrats Well, this XXXX, we'll again a

Operator

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

Christopher Farrar

remarks. Thank you all be No joining, further quarter. in touch next we'll for and

So thank you.

Mark Szczepaniak

Thank you, everybody.

Operator

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

may disconnect. now You

Velocity Financial (VEL) 4 May 232023 Q1 Earnings call transcript