VEL - Earnings call 3 2023 | Velocity Financial, Inc.

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Operator

Good day, and welcome to the Velocity Financial Q3 2023 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Chris Oltmann. Please go ahead.

Christopher Oltmann

Rachel. Thanks, thank Third us Quarter and discussion for for Velocity's of XXXX you everyone, today joining the Hello, Results.

Officer. Szczepaniak, Joining Velocity's me XXXX website. presentation Chief results, Mark and press third Investor Relations are President Farrar, afternoon, Financial Velocity's accompanying and Chief and released today Executive Officer; quarter are our Earlier this Chris available release our we the and on

company's and control, may I actual include today's forward-looking outside remind of are which to differ the want may call uncertain and results materially. everyone statements, that

For affect Commission. a in disclosed made including risk other discussion that of shareholders, risks and Exchange factors statements results, factors our other factors filings cautionary in could with risk the our with communications please the see the and and Securities

of do this measures not We any forward-looking note call accurate may to the conference also is that update non-GAAP also contains undertake we as on information that of and refer call. statements. only content this duty to today, time-sensitive Please certain

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

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

Christopher Farrar

very I'd execute and well Thank you, we a on from third we growth to everyone released results to earnings our our to Chris, like call. welcome quarter the today, as Earlier strong continue strategy. quarter

and which year continue faced. Our to cross quite earnings market we Despite various core portfolio. in quarter, given take is uncertainty currents, the to our XX% prior the headwinds share the over impressive, various we increased expand expect

of have our system. seeing themes away traditional been key more we're high-quality come tightening credit the from banking that the We're lenders of turned by borrowers way. experiencing is One the

like last long platform our times we've to shine the time, We to in trend is for to positioned as alternative credit team spent this. years and capitalize building XX well towards a continue expect this our

growing, which selective allows as increase and extending credit is as pipeline our well in be us strong Certainly, to coupon. our

experienced we rental charge-offs Real our small-cap ] estate servicing In and special team single-family of CRE and minimal are terms in segments. quarter this cap [ and outperforming terms portfolio, of favorably. healthy in valuation our markets

our strategy. properties will our the last busy capital services markets, in focus serving priced X of We of QX, just with neighborhoods on on continue believe and small year this week. Very essential completing Tuesday securitizations in [indiscernible] we deal the

inaugural new that revolving allows transaction of with One similar our with a that collateralized short-term an pay structure off production. those loans replace to is loans securitizations by us

collapsed sequential the We of last older also the our pay during quarter. deals

sufficiently performance a Our income investors. track to enjoy the broad record of from strong capital access base markets of and us credit fixed allows support

by in other debt our backed as in the fortunate during week. the deal move was underlying policy this timing The to hedge issuances the originated significant Very offset rate future we we our priced loans. earlier treasuries we before quarter our change made newly of base most

predictable accrete cash over support NIM. our achieving our of of statement are that stable, in time hedges strategy will a flow Hedges into income

risk continue debt future a as will We before to good management hedge securitize we issuances practice.

about be uncertainty and opportunistic. events grow of we control, Regardless will rates, and outside the economy our interest other

on to years of nimble navigate our congratulate is another our want strategy Our quarter. lean to and on way. our comes great all remain many I whatever experience members to team

hard and our to we all will work for are people asset, greatest continue Our shareholders.

Page prepared the turn and my starting to materials, concludes X. earnings I'll remarks, That over on

very, quarter in net core quarter. growth there, up I prior stable income, mentioned, strong very from bps NIM, XX As positive the

of our are that historical spreads. on continue put to attractive We new terms coupons production in

transactions. over mentioned didn't will future show issue as It up in I earnings the also mentioned, those strategy, affect deals, And our as QX. which then I hedge for we time

of terms we've portfolio, while for seen raising and was grow volumes production, the coupons. throughout production even loan year, we're record October where, a the all month In

and there encouraged trends. very we're liked the So

of as flat terms assets. gains NPLs, In we were quarter-over-quarter realize to continue resolve we and positive

job mentioned on great the a the out structure. financing On doing We're is to to capital, excited those and securitizations. I create there. X and short-term able be team that loans revolving Our term product

So additional we've product capacity got that grow to going forward.

growth. warehouse good to we're In in of there terms liquidity, and position support future

nice of can Turning which, $X.XX see Very quarter. value to X. in the share, combination as you Q-over-Q as generated with in other well we're additional portfolio book Page up per earnings build income a

demonstrate as a Turning to the quarters now of X. slide changes amount And this of there's quarter the that portfolio gain to platform. speeds. that's grown to embedded embedded a compare Page We've of you'll our prepay shown you believe us pretty securitized the note, assumptions slowing of one significantly, in for prior in the significant a and result number we try and this equity on the has if

quarter. as to slower assume prepay and going And speeds, out portfolio the obviously that's So the future increase earnings. extend we during we did that

we've equity So story of there's the good real think the value we in platform. around that built economic the a here

to So presentation. it with with I'll that, turn over continue to Mark the

Mark Szczepaniak

even everyone. again Hi, interest rate our production with the third quarter Chris. loan X, for earnings to during continues On improve Page Thanks environment. current the joining Thanks, call. year high

from our coupons demand while quarters strong see, average in QX can XX%, has almost weighted a remaining continues XX.X% increase for demonstrate at UPB, production originations products. the QX constant and new XXXX the growth production. all about with almost WACs growth strong X QX over XXXX at production higher production the increase borrower with for occurred XX% a million And during you which our $XXX was As is the to

overall X portfolio. growth growth of result a loan similar production the shows on a As our in in Page strong

compared That's at $X.X X.XX%. XX the LTV portfolio from loan was X% QX, portfolio to XX%. And average a higher Our September on total production, total of The end loan higher our portfolio year-over-year XX last year. basis. XXXX points increase of actually a basis third at little is of on averaged quarter has basis consistent weighted while than coupon XX%. points was ratio XX% on loan-to-value our almost of is as September And -- the X.X% almost increase at growing, billion, a QX the and lower as portfolio the year-over-year our XX which XX remains overall

Page our X, third quarter On NIM basis XX QX. increased over points

increased increased basis Our of while only points, by portfolio yield quarter-over-quarter funds about XX our X%. cost by

NIM. growth but So only are an also we we're production, not our in seeing increase seeing in

our On to NPL as Page And loans the at Chris our mentioned, X, for of servicing special compared flat was efforts XX% in gains. rate QX. resolutions QX favorable loan strong collection to nonperforming our own department, by continued result has to ongoing

If UPB our you efforts. a $XX.X the In NPL NPL Page QX, continued of worth of XX, look gain highlights net at $X.X resolved for loans million of it million. success we of resolution

we XXXX, gain Although all year-to-date NPL of XX, not if on for through look a this September of so over million slide, XXXX a of of at you $X UPB $XXX million. resolved take total for loans

loan investment XX reserve $X.X million in and our CECL Page for CECL our cost reserves bps amortized loans The loan September held or balance. of outstanding charge-offs. and loss presents XX XX was

quarters. been has And over reserve loans include bps at That's the very our reserve X last CECL being XX to does loss X the at Our at loan the amortized XX fair loans not costs. CECL carried keep to in mind, value. consistent

right on also corner shown XX. Page in are the charge-offs QX

And to have our minimal For X only third charge-offs they're quarter, X continued to over last quarters. $XX,XXX. be the

in liquidity $XX Page liquidity million. million funding as unfinanced at That's XX collateral. end equivalents and another liquidity about $XX.X the our durable QX. was on shows comprised of available cash $XX and our cash in XX position Total of million September and

As issued. by is XXXX Chris that's by for very security was Chris product. first July, mentioned security of this Velocity loan issue in a ever we noteworthy issued with we security being securitizations RTLX $XX.X because issued mentioned, short-term about QX. securities million did our us collateralized X it In the the

is security new for a for short-term the pay This of with as reinvestment existing non-mark-to-market fixed-rate period, cost-effective newly loans security further loans and added Velocity, the off. type originated demonstrates diversification type another where be options and us financing our financing. security it's to can financing of This

collateralized And older in $XXX of August this debt. one the in tandem collapsed with by quarter, long-term issued product, older, In was that issued. mentioned, we securities, XXXX-X million XXXX-X, of our security, Chris almost security, our the as higher-cost securities long-term we loan an

of is older waterfall security the tranches XXXX-X paid the one where low-cost sequential first. The higher-rated securities, off

pay down, off became So kind things pro all evenly. more as where they started the doing expensive. rata, we of those tranches the XXXX, pay in Remember,

bring cost. to nice expensive over time be securities collateral, one take it's loan collateral, XXXX-X able securitization collapse it So freed-up at of that into the those lower and more that got and a to

maximum total of Finally, September available almost $XXX was line of $XXX on as million. capacity XX capacity warehouse million line

the it economic with to over So to Chris turn outlook. over that, back I'll go

Christopher Farrar

Thanks, just Mark. overview a high-level XX, On Page headed. where of we're

beginning, prior from market economic they're break see positioned, on to gains right, at the lots continues predictions the assets, way LTVs. portfolio there. mentioned in to price well in continue of be positive expectations, like we they As things and expect with if which I our but of year's to different when Still regardless terms and murky based and a outlook move of and valuation low our experience priced quickly, REOs we we the feel we're strong

see to that mention prepay starting we're did I slow. speeds

in uptick for growing future income portfolio us on it'll more help that, an So the with and us potentially scale. in be

capital, terms year In going the we capital deal that we already that expect access of markets have last that to and and the mentioned that believe I of forward. good -- priced we

this I and for And to going credit is that be perspective, really lastly, theme guess, as from tailwind I a earnings we forward. grow an of help us think us going tight

up we'd there our if open like presentation, for to that prepared So it concludes questions, are any. and

Operator

question first Laws Raymond with comes James. Stephen from Your

Stephen Laws

X on month, most same think, right? an And nice pipeline, your year. think so Another numbers I the October's about how the any wanted think see around seasonality congratulations quarters. outlook? talk QX I volumes then Or in, Can is year-end? pace that out? strongest you the a idea plays I of for new to you in that. for the normal? Chris, kind quarter, do about get Where And think, the production October I production to -- you do

Christopher Farrar

sure. Yes,

whatnot. of the good But the and the always of people try of strongest end November quarter So everything as a holidays to quarter fourth by of us our yes, always be think will close because month year. December I year. a the little is for up Thanksgiving light the is

our think I be to quarter. expect I So it strongest

this And I then, on did higher significantly than volumes think we what year. we're next year, for pace

January a little builds. First again, and February, starts slow, but quarter, just off

that a forward on not high, touch for is too in think run month, away we October to if that run the probably use but wanted a from So rate rate far you that. every

Stephen Laws

look volumes strong competition. they'll on continue. you're And you on these new given the you as talk about places some where high-quality focus much see to can I like don't really think as side? can probably originations? Great other terms you production less about talk coupon underwriting pushing But the you to could,

Christopher Farrar

Yes, sure. Thanks, Stephen.

some get of a is it. with where a us we larger a there, come someone We've a So coming would seeing that things million $X bank, to loan historically sizes. able of are the or million $X these be at loan yes, $X us capitalize borrowers bit one crack at we even little to wouldn't been and million, with to

they higher sheet. scores folks, and those seeing we're stronger a balance to have little credit And tend

the the of third assets at put of quarter. end a fourth we number So of on those and start here the

we trend continue So we as think forward. move that will

Stephen Laws

when last talking the securitization deal getting period, would new on last you first the which with and done. fantastic. eventually were touched sequential delay. the all that replenishment reinvest about And the we one, pay feature, congrats those remember ago years And Great. on I Mark, sounds they

time, how talk longer expected the think do the that a we with on how often So amortize we life period over deal expenses the mean, production, -- I will a that given loans? expected of longer turn? benefits period, can about reinvest But of we how those new And what's life? about as

Mark Szczepaniak

Yes.

and XX loans. those On are between XX-month loans, the mostly short-term loans anywhere

the months, short-term life anywhere loans off. somewhere loans. this so that in average any So start range. interest-only, the XX-month deal loans an original XX XX would the new those period, in to are paying XX originating is Remember, interest-only reinvestment XX And to months, as be

is principal maturity. paid So the at

they're new paying then the with them we replace as can So loan. off,

We keep What continue is we and to them go market bunch there. them, out don't to have to just and costs right? new of have whole do of incur that financing it with us a securitization securitization and helps to to go to kind finance again re-add a

us. for plus big a that's So

the value of are to. terms deal the in that loans doing we're cost, accounting keep fair And we in all mind applying now,

amortize costs, don't and on all defer the were value we the deal loans. costs, anymore on and fair if there origination So it

the are You long-term in have And recognize to upfront. are to we value we loans, those as short-term costs applying loans. just the fair

Stephen Laws

Great. I appreciate comments Appreciate afternoon. you highlighting the that. this

Christopher Farrar

Thanks, Stephen.

Operator

The Barcomb with next Sarah BTIG. question comes from

Sarah Barcomb

quarter. the on Congrats

you outlook we kind backdrop NPL hoping of outlook had could through give in on higher-for-longer you those NPLs. we're If your cycle, higher interest assume for another resolutions. on resolutions evolve? can on So your quarter I strong that the bit another give we might that you a of in hike how see rate this next gains rate on that year, could more and context little NPLs was QT

Christopher Farrar

thanks sure. for Sarah, joining. Yes,

them lot And a we market, steps sell I on of the assets. at activity, feel the when when a very for there. we we good the capital of There's about sidelines lot cash to these buyers. think either foreclosure see go or we good outlook

the continue. So have impact are going right is a and now, of the we're on value view getting those our huge that not to hikes rate recoveries that expect we the to

you economy that probably saw stress unemployment if really would change my tank will. we if think or and the to high I outlook there, start and projection,

So as see continue economic that activity, out will strong favorably believe come I long as think it's we there. we -- very to

Sarah Barcomb

Great.

that you portfolio I the I income the value bit just Century the outlook there. of then And little and license of about Okay. talk was was out and coming about next a HUD the thinking earnings year, for hoping value more the could fee-based

to hoping that Just a little investors of kind you bit. highlight could

Christopher Farrar

some Sure. increased, pipeline building on robust. a very we've spent of we've there. what's going with our developing muscle year originators got Yes, and out we're this And very great excited there. that We team team really the is and

very year going which our book. do gain-on-sale from great didn't be is and because this also to perspective, is ROE, of but robust servicing build to some the we nice we year, next and income So expect there, quite lot loans a think see high it's is, then

So I'm pull year through. very next bullish on for they pipeline the as opportunity this

Sarah Barcomb

Congrats Great. again.

Christopher Farrar

it. Appreciate Sarah. Thanks,

Operator

question [Operator with Instructions] Securities. Your from Delaney JMP comes next Steve

Steven Delaney

think, underway, it's so Mark Chris, maybe, curious afternoon, until Thanks, Chris, borrowers, buying Is the strategy to detecting, bridge that great and this at got hope working rate Chris, -- good the today, the in X where comes before to they then floater refi permanent? some sort long market guess, that and you've that the you another they've and trying in to everyone. there's a go of higher and a maybe point time if locking next that with play on they product for and I you. just about the new there down project end and years in of lending, going are I'm rates are, to got X are into part

you is starting more think and Just projects just Or do up curious environment, about in anything despite new the new that Curious on like shift actually, taking bridge projects? gaming the organic any on? thoughts. there's going of your [ form if entrepreneurs ] the -- lending

Christopher Farrar

good Yes, sure. a It's question.

we in of like see not the former good stretched feels those, distressed you up a on think because somebody most lot risk. that it end posed. I But and us or of kind passing we to of probably who's a

on those. pass of So kind we

be are needs doing, of the that markets. housing like on. ones still refurbished, the who that bet those The see that most that folks rehabbed and to more their to lot we flippers a And we and out aged know our and we end up experienced there there's successful, are seasoned,

Steven Delaney

Okay.

would bit. quarters the in Trying be for anomaly, why is handle it's was you. year. third down I looking good that just nice where Curious activity to it's a first just Maybe appears still at that of Page you versus to XX. get are X hear your charge-offs a it on -- necessarily, running at quarter the an -- why but the looking along nicely So that the were

Christopher Farrar

to do Mark, want handle that Yes. you one?

Mark Szczepaniak

charge-off, if our charge-off that $XXX,XXX therefore that, There servicer second lowers the that $XXX,XXX our was that in less you borrower loan, by the payment came $XXX,XXX. of was the value recall, of quarter On carrying earnings call, $XXX,XXX lowered a have there Yes. one, should it into the been probably that on charge-off.

that get servicers P&L. from that didn't closed I'm after to the sorry, we information the a But and it's quarter, $XXX,XXX immaterial -- total out was our

So QX. that we well, we'll in just recovery said, book

you're what Steve. that's So seeing there,

you'd normalize lower by really wanted $XXX,XXX to you and $XXX,XXX if it, put the in it So QX.

Steven Delaney

it. Got

been much -- was that have I this it that Well, makes if of That there. thanks, Okay. aware going would surprised trend wasn't no I anomaly. anyway. down

So Not see bit a XX%. going about up surprising, thing. just final obviously, and one NPLs to -- to year-over-year

you're first is mean guess, Chris, it's I more value these to terminal of looking the into of a when just or this? of heck thing days. running primary problems Or my is properties comes also expensive borrower one lot cause borrower it we're there multiple? market with cost a at I mind, But situations, the carry, execution. of these problems the fair to with a be that

Just there that set problem back to? when kind your major look of curious, loans, of you at looking would loans, you dynamic is point one anecdotally, workout

Christopher Farrar

a I one quite with I of hard dig point Good cost so starting we've them We're would if a helped there. to. out a -- get bit lot they're to you getting dynamic someone's hole, and think to of borrowers. that it's in question, There's But Steve. loans, What rate behind, do that it. on Yes. I burdens not fixed agree there's completely

most flushed to peak particularly and out out see as homes anecdotally, X-to-X there, I uptick TV think, a found who our thing you. people a that, easy talking that, side, the part they just that that asset were going and is I being in have is, on of managers I quite would that business lot for me, to seeing to data to show don't some and it get borrowers not and sort But a flip interesting of just close speculating that the the on hard I maybe I it's of think The we're said, significant or out, I'm to saw -- add as thought.

seeing So that the we're I X-to-Xs. think on

well. they're On even are delinquency X-to-Xs, and rates assets, are than in lower extremely the commercial there the the small actually up holding they

are So in I X-to-Xs. neighborhood-serving seeing think but of the it washed goes characteristic that out that demand, speculators definitely on high some to, like still said, of, I kind the get

Steven Delaney

Yes. That for makes challenging comments, quarter, great another perfect market out an in sense. so the much there. Well, thanks extremely great and quarter

Christopher Farrar

Appreciate it. Steve. Thanks,

Mark Szczepaniak

it. Appreciate Steve. Thanks,

Operator

question-and-answer concludes This for I'll hand our any remarks. session. back now closing

Christopher Farrar

you talk Nothing and quarter. further. we'll Thank next you all to for joining,

Mark Szczepaniak

Thank you, everybody. Appreciate your time.

Operator

The is attending. Thank you for now call concluded. conference

You disconnect. may now

Velocity Financial (VEL) 2 Nov 232023 Q3 Earnings call transcript