Velocity Financial (VEL) 1 Aug 242024 Q2 Earnings call transcript

Good afternoon, and welcome to the Velocity Financial Q2 2024 Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Chris Oltmann. Please go ahead.

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

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

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

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

close, segments. quarter well we continues second joining as to all the perform thank reported After our Chris, you quarter and Thanks, for call. business our all another across great earnings

year's over XX% revenue the in earnings. core quarter, net a Our XX% resulting increased in increase prior

in increase 'XX. Our and standards. importantly, credit our versus XX% QX were healthy with And we a maintained volume margins originations

and of well delinquent servicing performing team job great our resolving to assets do is a favorably. special portfolio Our continues

we REO over net realized gain and remain charge-offs $X from in our quarter. this activity low Our million

X result securitizations saw a As investors. issued Both June. and strong we priced and our April deals in from bond demand originations, of our increased well

tailwind reminder, drag both debt. which price on all period our the spreads starting required is members Banks current in Real to rate future see and cuts, financing congratulate all associated from earnings, and constrained their market still strong demand costs period, of to a are to commitment want trade-off going appreciate we this is for the see and the us continue should expense borrowers. which quarter deals as be to going team for excellence. I market we're As estate current on has truly have a but issuance as we're my with recognize forward no forward. amortization to a performing well expense I great on to us we another increased those for

X in continue my to execute shareholders. presentation billion over and some of to strategy in through the the prepared by to will go all earnings with remarks we'll reach Page We XXXX ultimate That rewarding growth the UPB goal of concludes our turn XxXX numbers. to $X

WAC of a As result The again, mentioned, quarter. from the NIM the from widened core strong share a bps, originations. earnings, of for earlier up as I up showing new to growth $X.XX good XQ out by in of 'XX increased XX

forward. to we growth million resolutions to basis loan to were total loans in a do on UPB still those portfolio NPL and on And that XX%. of continue of up terms XX.X%. NPLs positive see $XXX production, expect and In slightly year-over-year The going

securitization a current period X sort said, And issue. as earlier per a compared financing of forward help terms that drag acquired quarter. securitizations prior that share going & there from because NIM originated I with that was but had $X.X more we the $X.XX also the and borrowers mentioned how the of million was securitization. where that's for one new in in will second going trade we're deals forward. Century terms to here build some Ginnie on just typically timing new during Health issuing In to on We as It many done Mae capital, I should earnings periods of highlighted from bank we relationships business. continuing each platform great issue, the MSRs a recent we're loans. a establish That that Housing quarter, us for out depend

there. we're liquidity, of in strong terms a In position

$X.XX just of go to here. under Page with remember, of plenty adjustments there's out should see core to it value, X, share. And then side, the On had here end we of can the on not the $XX.XX. at $XX book break the typo that most will forward a of as build our you to up the a add on. capacity quarter book right-hand $XX.XX also be value you the In million You adjusted out per warehouse point the we far if I $XX.XX, right, there.

retain that basis. we website on execute again, shortly. our a be as call to But nicely correcting earnings the as the continuing we're on hold grow book we on So, will go-forward and strategy growth value that and

Mark and from that turn Page So, me, it it on I'll to over X. covers

our continued mentioned, quarter. the UPB. increase in In XX.X% our Chris. of were funded X,XXX $XXX.X On This was production strong to little second loan Kind note, million $XXX loans performance. as a everybody. was Page in X, million from the QX, QX, an XXXX QX. we there for in over Thanks, Chris over Hi,

it's during again, to LTV, demonstrates tight originations X-quarter low weighted growth growth with consistent strong the very the originations at with the WAC XX%, levels continued and at QX the for demand coupon for growth product. also remaining strong weighted QX the the the And average So, trend loan production continuing credit The quarter the with high for achieved coupon. XX.X%. borrower XX% was a a average new value in the production product. the This great QX was for of a demand in

a As the in strong growth a we QX the overall X, similar in see loan Page portfolio. result for of growth production,

loan Our of points weighted $X.X from June QX portfolio. increase increase a as increase XX XX an our and the portfolio XX weighted yield average X basis our basis was an increase. basis XX points X.X% and billion, weighted from coupon while XX points basis year-over-year, point quarter-over-quarter increase XX.X% at and on coupon XX a it's portfolio year-over-year as year-over-year almost component QX a NIM in portfolio as average -- year-over-year. portfolio portfolio X.XX%, of Page XX The June only XX% and basis June low was over XX basis ratio average point points year-over-year is total which XX as points loan-to-value our the The of this points funds increased X.X% increased XX. On consistently QX and X, quarter-over-quarter basis QX increased remained cost of basis from

the XX.X% our quarter-over-quarter at This Chris driven the higher the QX, in increase Page end in cost to NIM the coupons XX.X% for QX. spreads, low. On in production nonperforming quarter fairly as recent improvement strong keeping mainly and healthy loan the of and loan mentioned, was securitization compared the again, is the rate also X, market, by, growth due to

also at last for over The our resolutions to on the special gain of of the on loan gains. loans result net resolution the the nonperforming a continue quarters on NPL servicing we loan remained highlights by Page And the the in resolutions and consistent efforts has and overall again, or more last department NPL our average charge-off NPL reflects favorable X X basis, CECL XX REO continued to X rate efforts. collection trend continues our about reserve loan Our X% loss success activity. quarters. Page table and ongoing

loan investment bottom is fair the value. XX June expected The our loan portfolio. a our during points over not million loans and loss and $XXX,XXX value cost. or carried to we CECL slight of loans loan REO-related our include at It's QX. does non-fair reserve the for million bottom held the chart, On had charge-offs left-hand of amortized the The on compared of charge-offs, a QX, And a activities net little shows reserve REO-related quarter. table gain CECL $X being loss of range. only number right $X.X outstanding gain loss our was within XX for CECL to as The net basis activities reserve for net from the

really durable position funding on XX REOs So the again, these lot again end doing of at net well quarter. Page our for gain QX. loan-loan selling liquidity a of charge-offs, a shows and booking in the activity and

on another our of over about available mentioned, million $XX.X collateral. $XX just up and as cash in liquidity million Chris XX $XX that's equivalents in cash million our million, June liquidity under and of made $XX As and was unfinanced total

April, a securitizations we And we result our issued. with we did strong security almost of in XXXX-X our issued. securities issued issue QX. securities issued of XXXX-X production, our $XXX security with X As June, million loan $XXX million of in

line capacity million. Our line of a capacity $XXX the warehouse end quarter was million with maximum of $XXX.X the available at

So, warehouse on support still plenty of lines company. growth the for to existing capacity available our future

on Now, overview business Chris? I'd Velocity's drivers. back presentation the to outlook like to key to now Chris turn

think activity the I real headed. markets side We are and looking both mean we're and feel the see I like Yes. on Mark. side. about feel good we where Thanks, healthy the forward, estate good borrower

like the on of lot credit, continue NPL Fed mixed softening get basis. probably do going signals positive of those feels out feels some and healthy forward. there. to terms is do market a good In go-forward But Securitization it a is going here. Obviously, seeing expect to we to resolutions

And continue an that and things very we So, good think from there. we're execute the earnings just do future. for very we like positive look perspective, to

for So questions. it open that, we'll with up

question-and-answer first Stephen with session. now Instructions] you. Raymond comes The Thank from James. Laws the We'll begin [Operator question

have products. short-term second really across on from little production. showing seasonality want QX, X quarter. loan investor I in pretty I touch the Page a in board. And mean, particularly very a with the Congratulations nice on consistent commercial growth rebounded loan loans to and Chris, strong

great. [Technical what's think would right originations? the Do outlook this is So, you your Difficulty] [Technical So, Difficulty]. be

a here Stephen, I think your do just will Yes, little rate on product a levels. in seeing I expect the I but for what around moves was there, production year think feels think little something run the bit like QX. I think sometimes you this right. going And it cut forward, we the mix question out of QX rest would you're bit, but be around

that. of year, look we so the to I pretty similar should think yes, for it And the think rest

Curious And on do July. fair you of as quarter-to-date? have and there of adjusted value end changed the update rate that moves have how mark Difficulty] may the an maybe book [Technical

out to positive, be the at the a change going be we definitely there I were the largely today, Yes. settle if to where mark dependent to on would It's you're of right, end mean things quarter. yes, obviously.

So, rates an book if today, were yes, I in to where you'd for stay think from they the the sure. overall are things in base see increase drop

any but comments return [Technical Difficulty]? [Technical market to too XX% Chris, curious have lastly, put banks Difficulty] around then And you any really coupons? the to continuing So not probably, seen up about the competitive,

Seeing Not hearing to would Yes. expect think be banks. the there. I that us of by normally much borrowers a lot handled come to

really is not very hear I of any the I'm seeing So, signs that limited they're just that everything constrained new on credit. and -- and

on congrats Difficulty]. again a nice Well, [Technical

Appreciate Stephen. it, Thank you.

Your next question Steve JMP. Delaney Citizens from comes with

quarter. Great

presence is your and -- in Chris, right? It's is on come that right to and have the to really franchise, the you do it, not It's undercut remarkable, market if and down your come you to loan market rates going just market. production defensible you those is you Just that somebody tie brokers But the brand. -- relationships you flow? kind And steal it the and consistency that a borrowers? that of do with of the

think so. I Yes,

can. out I of this we more do -- believed pressure the much fragmented. lender underserved put disciplined lot And We the of just and kind because There we can other we sheets a on margin. to portfolio originators as think have same this highly niche. don't are players feel we comes be that stick to we spread our an was volume there. are we've always It's in, a and always knitting income that that different around as

that recognize execution so there's And certainly certainty a reliable of think yes, customers and I people our -- there. we're

think production our so And in in I our and shows up loyalty volumes. margins that

to on commitment been you've XX%. sort a about you've So, of a target -- of got

be rate? off kind I is have last if Just are mean, to some late is market X your of [Technical going like going world Like on change, you are modeling? credit in have are, the you XX ] cuts can the or since to it X a months thinking have over you next guys respond? of of internally rates is regardless when impact Or thinking card, May, XX% couple the to to X the XX-year you X we And in cards XX% about right? bps. -- credit to how when to that [ Difficulty] are where get not -- months,

Yes. -- down a monitor lowered Good rates weeks took rates X.XX question. point. Yes. We the of bond when couple just We we so and ago markets.

with So, won't we is depending the weighted to of we the bonds X- there. priced some move on necessarily debt between life. sort mainly because But X-year lockstep markets our volatility there of somewhere off average

and keep adjust where that's we for We focus. we movements. shorter rate on so of kind eye base bond And an those rates those

the continues, we'll it So yes, I if mean, I follow think market.

happy. as long we're maintaining we're that pass spread, And as along will borrowers. our to our We

Right.

So, benefit your would get SOFR liability side rate on I the your fixed funds. are with the lines I are you obviously guess, assume would The -- securitizations on only right? floating, guess warehouse

Right. Correct.

Yes.

will there, you get So obviously offset coupons it's bit some by a lower loans. the carry the obviously, on although little benefit

yes, right. Probably,

Great quarter.

estimates quarter. beating You every keep

little to we're have up [Technical it Difficulty]. catch guess going up I to crank bit So, to a

crank up too it Steven. much Don't

just Yes, Congratulations, won't. of We I We that's know. guys. good won't, it. the Difficulty] we it like [Technical part

Steven. so much. you, Thank Thanks

question from Hagen [Operator comes Instructions] next with Your BTIG. Eric

how cost operational you mean you're a more leverage can you on now? do you now? current originate potentially little your up do think and operational right with origination Following underwriting from bit of at kind structure like side. standpoint, extract capacity the right I Or an originating feel like and much

you've that lot in to to thanks. And Yes. of quarter, a got in do technology. place. spent We've Eric, on money units have order X,XXX a

I to capacity. say XX% XX% I'd think So, more. have we I excess probably don't know,

year, some growth. As end at the some to we of accommodate margin not significant. But increase headcount we it's and go it's the will the probably hopefully, into too

quite not to add can we a bit structure. with the think more volume I So, cost too much

of that I And did quarter. if Thanks for context there. deals for a like securitization you what mean, you securitization spreads sensitize and that ROE? is I from and a at you to X benchmark mean some the does see of feel levels, even originating ROE have kind these benchmark that last that? your Is tighten, there we for if all-in giving way like what spreads kind mean, do delivering into with the

ROEs Yes. question. that rate these a are see fixed north levels. over We XX% Good we're debt. Yes. tighten, fixed because of If at period, the that loans in think we'll spreads of locking the against rate obviously, benefit multiyear

So boost could if I in the think spreads, tightening some we significantly see ROE. that yes,

well at a But all XX%. blend go-forward new the it's deals, north of the of the I margin, On obviously, transactions. stuff is of think

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

look We call. the plan quarter. joining execute and everyone Thank your to you. to forward for going continue everyone, our Thanks, just on appreciate to to next and support Yes. we're speaking

time. Thank you, for everybody, your

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

You disconnect. may now