Velocity Financial (VEL) 7 Nov 242024 Q3 Earnings call transcript

Good day, and welcome to the Velocity Financial Third Quarter 2024 Conference Call. [Operator Instructions]. Please note this event is being recorded.

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

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

our Officer. Szczepaniak, Joining Velocity's me results, during and www.velfinance.com. Chief and Mark press find third refer to accompanying President Farrar, at afternoon, on Financial Velocity's release and Chief you this released today Executive Investor Officer; quarter are our website Earlier this Chris presentation Relations the will we can and call we

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

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

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

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

our maintaining team for $XXX grew our actually all margins execute our record XX% new and standards LTV net earnings XX% prior I total the closing loans board. quarter quarter under or to origination as as credit the million X,XXX third thank production just want while average the in to in saw to quarter, the call. portfolio close, our team and the weighted growth for dropped our by UPB. demand XX%. and quarter was another congratulate We on joining company year we across volumes for over the Chris, reported you as loans Thanks, well strong continues After our

of financials, income interest our XX%. terms In the net increased by

basis and grew XX NIM points earnings XX%. up by Our was

Turning performance. to credit

servicing of team rising to estate from well see successfully we're quarter investors. positioned and financing plenty by continues niche, with stable delinquent fund the And special real Our our market great team markets assets delivered a in growth we especially favorably. values conditions. another our continue From healthy take as markets new liquidity advantage capital perspective, very our to to strong of resolving

early approximately cost bonds, us October Our the most X%. Xx of AAA allowed and oversubscribed in of which funds recent excellent an realize deal on closed was to

will we in Looking healthy pipeline company in growing, forward, $X finance future of momentum than October of look is is as and we alone, of lock XXX by of as to in borrowers Obviously, and continues, year-end. UPB month our look UPB our $XXX more goal bright. our for million XXXX, record by received billion portfolio -- financing sorry, to over exceed the and a applications the new

always, as to support long-term value our work we we all we from all. appreciate every have day shareholders for partners As create the and

presentation earnings released close, Page after on starting our materials to turn that X. we'll that, With were the

was look, a up were seeing earnings the off that coming in as take we As X.X%, portfolio portfolio. nice I up growth significantly, to really income which quarter. for mentioned, NIM the great

team just job. is incredible doing of an a terms really great quarter us. million, $XXX.X for which is In production, The

UPB. quarter importantly, relatively last see loans, of we nonperforming flat with a continue X.X% where gain healthy resolutions with and over terms to were very In most

lot and from we of and capital financing business. of completed see very and is investors. the couple demand we I the mentioned market a a part there that to healthy of The Turning securitizations. very strong,

redeploy. equity We underlevered which and million retained able about had of that was also quarter, $XX to the during collapsed the we XXXX-X securitization were

transaction good great warehouse in a capacity. Very for that's liquidity terms So of and us.

So we've went the really well. And business. October got I mentioned, the of there securitization grow off as to room plenty

to reflect Page everybody, we quarter. up value, you'd through book to rest the significantly is On were GAAP prior what here, net with bar the reconcile mark allowed And adjustments the value there adjusted we an then under a the and again, X, book the fair reminding value, adjusted $XX.XX. value, income chart of as in the core book think to some of portfolio come if in we periods, with obviously grow of

we again, cost legacy think the significant portfolio off. there's amortized is gains embedded So run in that to continuing

it to over Mark. With turn that, I'll

Hi, Chris. Thanks, everybody.

credit demand for last XX.X%, so for our strong HFI coupon quarter strong as Chris the Velocity's our UPB. reflect Page $XXX production trend production with increase to quarter the at remaining was at million a QX almost strong to has LTV X. go at continued XX% about $XXX product. about That's been WAC included in over healthy the This The average quarter XX% around also a to during loan third demonstrate X-quarter weighted almost the healthy the and continues QX with weighted are LTV for loans originations the quarter. at last on growth weighted in There low borrower mentioned, originations on X,XXX XXXX continued performance. funded the and over production average the We a coupon tight levels million right QX, from in X growth The XX%. This QX. And for new average QX trend held-for-investment in originations XX.X%.

portfolio portfolio September healthy a from point increase average total On $X.X a billion. increase. see the almost September is The XX X.X% as as Page of X.XX%, from That's portfolio. was growth result increase our in was year-over-year we of a year-over-year. which weighted similar X, in production, XX.X% XX a growth coupon as a XX basis The basis and and for QX of loan on a loan XX point QX increase overall the QX

the end the of XX% Our at at total weighted LTV average low remains portfolio quarter. consistently

flip X. you to If Page

QX basis year-over-year points cost as points increased year-over-year, XX basis net points yield and only our and X quarter increased XX quarter-over-quarter points Our funds portfolio XX and quarter-over-quarter basis third basis of points interest quarter-over-quarter The interest margin basis XX while we from the increased the at basis that the in increase mentioned from WACs, markets. production is with the the securitization the by healthy XX just loan spreads coupled strong net favorable in higher quarter driven year-over-year. in margin mainly execution continued points

favorable XX.X%, On And consistent Page X loan was nonperforming XX.X%. for X, better X. illustrated NPL rate end QX servicing at by averaging remained our just strong on last flat which QX special the to at our department resolutions loans result to gains, over rate is nonperforming loan Page has at XX%. efforts our the in collection of quarters, continues of The our relatively

of you per the at UPB Our last were of QX X almost basis, look resolved. about NPL UPB million the gain quarter. quarters, or on $X.X resolution trend a $XX resolved NPL the quarter. in we've X.X% back a total averaged million if X.X% We And resolutions gains on our

at Page and our Moving activity. CECL gain to look net REO reserve loss take loan We also loan our XX. a and loss charge-off on

the at basis non-fair On million. HFI the outstanding the CECL of or points quarter end $X.X was value side, our left-hand XX portfolio. of the reserve

expected Keep loan table charge-offs the shows reserve right-hand loss during that range the being in reserve at net REO-related from include loans XX fair quarter. value. not CECL our gain basis does side of and mind CECL carried remains Our to activities within XX points. The

the For And gain at if QX, last X net you million the quarter averaging we on X quarters. take last gain per look a average, on had average of we're $XXX,XXX. over a quarters, $X.X it about

Page XX shows liquidity durable the funding at position of our QX. and end

end of $XX and unfinanced the million, equivalents available quarter million cash total of comprised the liquidity at almost $XX almost and collateral. Our liquidity in was million in cash on $XX about

capacity of available $XXX warehouse had of Maximum at we million. end capacity quarter was addition, $XXX the In line million. the

and the quarter, collateral As on million fourth securitizations. issued. securitization it able and we issue the refinanced was this warehouse Then in we'll September, million securities quarter, be issued following in with that October, up over mentioned, we future was October, million into in In $XXX in collateral XXXX-X put fifth $XXX of quarter, the that our securities the issued August, then have issued. the year most and just $XX to after take we in in Chris security, also freeing did over during lines, our collapse of during subsequently securitization

back with to presentation turn of So an on key to the for Chris outlook I'd Chris? drivers. that, Velocity's overview like business

Thanks, Mark.

we look As market forward, think well. we functioning healthy and the is

The overall robust, assets. there. happy show credit in results earnings resolution up delinquent be We perspective, as think very and able to our continue but a an we've are and in the of NIM, continue the that we grow, support to with and got business. capital should of are very only earnings not should And to markets the performance of grow the from we lot continued our we

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

Stephen question from Raymond first James. The comes Laws Instructions] [Operator from

Mark, well. congrats and you quarter. the through things year or last on are rate I lot great feel like, and on environment X, done another really a going guys in volatile a consistent of you've man, really

guess talk about statement, Clearly, So recent that the probably with I can volatility you timing. good in rates?

up warehouse probably loans your and pipeline about the of at anything think we've how you few lot need and in securitization impact had last can seen quarter You those as as to end. the But in origination down got rates? done that both months a volatility cleared move you or might a we October talk about far the in on

time niche the XXs. in I in quarter. over Yes, average. low only very high one fortunate move the the the stable question. typically pretty a And see the XXs, during thanks in to can of that that rates bit, sure. you that remains rates user. Stephen, We're the in very little end for think, terms we're We X-quarter We're

to So daily And we production. our and ultra-sensitive that. just then to rates also everyone, remind not we're not hedge changing

volatility. favorable, some be that will those it be out hedged in we've of months So but kind some where rate marks months, of will interest are, terms unfavorable

we're so that And as hedging loans out spread. on, putting we're

of so dampens And volatility. kind some that of the

question pipeline, strong. your was really, mentioned, of really as the I about October terms in And

bit, So levels. we're seeing around to going we it continue even though and think the quite strong impact rates bouncing have origination a to not been pipeline, have we're

about opportunity you mentioned month insured multi I Yes. quarterly loans. prepared you an government a contributor more could production to How Around pipeline, noticed bit a little big you be, I great of October know think the or was going the in monthly as remarks. that about a talk that? forward? Can your

niche a great of It's the market. Sure.

do borrowers Our folks sensitive. immediately, very a well-established to very, of are division robust worth net has very have patient. high rate and anything very Century they're pipeline don't They that are they and

at they're the end the rate in terms will, you Velocity if sensitivity. other unlike spectrum, business, So kind the core of of of

And so in seen haven't so, the last XX transact or we lot. months a them

going gain that's we'll interesting of increase, and think recognize As immediately we've for thing we is will a to there do look we into of originate on just there pipeline that as and cash loans cash, The got deals. 'XX, sale. we healthy sell all those

So sit that comfortable of our a that think we'll for north high the those that won't sheet year, ROE, -- kind growth. there next in to more will than XX very XX million will on going execution it's originations earnings into $XXX add But I to we're see of days. balance just capital-light

It carved a niche great sounds like there. out you've

X. earnings? I we or the it on deals so, accretion portfolio, just the if but the XXXX-X. year do normal next of we on How of collapse kind that can to in think as is earnings impact may in as or there? get more process about How seasoning far Lastly, think a about year collapse probably more one potential a of the do Or

say, probably earnings unique. say collapsing, the majority deal deal, because be particular of at our the -- by we'll was equity a would able COVID -- and to have a That lift more during I of advance wouldn't of Yes. the efficiently to That positive relever somewhat we'll effectively. done our deals. It of that kind that's rate. true of rest remainder vast was low I

well pro rata fairly good levered. we are And their structure, the get of duration. throughout others leverage paydown because The

an of It's future. not the majority earnings collapsing away So from in of the I vast or going would delta much expect not deals material. probably

from The next from question Wells comes Don Fargo. Fandetti

the very dynamic has a Chris, favorable. competitive been market. It's fragmented

very to to? that's is thing expect if terms strong was see have You of if curious type seeing for them this I a in in, the to guys any niche, and new while. of assume too come I just volumes. barriers you're players you some Or just you origination this doing continue entry

You issuance just have good well. dynamics? you securitization those talk as Can about

but starting design say exactly Sure, for go haven't their ours after we in or Don. of Yes, niche. or coming this hear question. wanting people rumblings I competitors to, that Thanks seen to the like program would material we any

So certainly say and feel there are. because got new to mentioned, like to are customers continue I you And that it's lot competitors we've don't no we runway as new of and fragmented, develop to -- but want it's there grow. a clients

of say and I'd see sheet. from pressure the unions their competitive on and cautious banks of banks, constrained the also there. So most we a balance based lot very don't And still set are credit

that's think will tailwind So time. I for we think also a that some continue

is Got it. been pretty Are on that going anything stay in to you're good And Are range? front? thinking on NPLs watch there the collateral steady. And pretty have you you to values? this feeling

range. Yes. is Yes, I think our they'll in stay this view that

concerning, on in a estate We exposures no of lot, think managing depends are markets obviously forward. risk. up seeing real the well, that's a and giving us the we're holding we're job But good going anything think doing anything or digestion. dangerous economy I not

that there's in see we pipeline right nothing that So concerning that's now.

question Delaney The Citizens JMP Steve from Securities. next from comes

another quarter. on -- Congrats yet another great

WAC, First, average be there seems up. coupon product. gone just has such mentioned heard your demand your for strong And your core a I you actually to

you they to country at rental of is rental and we heart figure. make. the this, your in this, up, the for we've to housing still get of opportunity when it a of issue terms going And an supply got see bottom with that particular. incredible appreciating as best your mentioned the really of investments At rents a in the housing can pricing, I think X% borrowers they just one acquire look even properties properties in

it in to it front and props trying people able opportunity So back it. the figuring bring out and exists to exploit this of just to I'm why to being guys getting right and you for

Appreciate our unions, $XXX,XXX you it's size, It's loan Steve. tend to for exciting slower was a loan be of and not that. originate at underserved. super thesis, it's our it, lot it's and and credit institutions, When look over core time that Thanks, niche. a to not their of take financial unique and out a time. kind is Yes. they It at proven really average definitely banks,

we good for say and reputation able do us I trust a think we've that. built we'll what for our being to do, clients

And different why there's lot of access capital. a reasons a needs borrower to

of really we consistent we've reliable that reasons. them, we've feel markets there's a is of us people been but to execution -- a something one broad mentioned You on. premium spectrum over capital time, the steady, of and of like recognize that And provider put just a they as that certainty

off And do have up did borrowers just and stop, XX-year XX the when that loans, -- moved And fall of dramatically? slows in you your refi down. like resi borrower applications everything October lot the basic rate goes far volume, see your sensitive don't just the agency Is less XX-year points, here, see in your you you like a borrowers? are repeat basis

Yes.

unique a of is segment it So the market.

a changed time we rates give quarter. you during Just the one to perspective,

most changing are daily rates change maybe think we once. or I lenders weekly, whereas So

of there's borrowers. less So it's sensitivity a and here different the and for rate segment much sensitivity more just market, our transaction

then October your question, new in actually applications, in of And million record than was the to $XXX more company, UPB. terms XXX second applications for for a

So there. we're seeing growth actually

impacting our the rates have origination not of it's September, even So the know moved from dramatically end I just though, pipeline.

rolling. Congratulations, Wow, keep well it

Thank you, Steve. appreciate it. We

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

the NPL on up Following pipeline.

how sale itself then another NPLs, where in all think counter-party? foreclosure there's forward? is property, who's do are the I especially you cases, NPLs to risk being time in the interest which a case a durable of foreclosure about source the the follow-up of loans maybe investor? And resolving foreclosure, I in it the is in Like that. how at demand for SFR for? rates? the most typically going mean, higher do Like think these the For line at are mean, a long And you

Eric. Sure,

So terms nonlegal state you're the time of XXX foreclose dependent. you to a can -- foreclose it, it time depends A states, you couple -- days' frame. lot of foreclosure of One, things days. the, XX in call XX foreclosure in in it's In Texas, line, there. can

get York you the X can When New If things. out into you resolutions. in extend judicial you go nonjudicial Jersey, quicker type foreclosure, for get those X, foreclosure years a states, New

hands-on our and protected preserved, weighted assets some the to sit So those in special top are are the team stays of assets is around of rents being There good a average, we've sure on probably that X that condition. deterioration -- in there, got good are foreclosure very somewhere XX properties being and make months. assets risk we're servicing

best our do we that. So manage to

But X here. important part to different of sort product there's I other is the understand think there sets

end There to of a a be can single-family different home. in X for lot the that home. be be users an are It can That properties, investor buyer buying On X investing family can anybody. a neighborhood. a the

So of in that's the unique part portfolio. of that kind

of commercial who's the some a it's an say, or in either people always, and it's of estate to business real to estate that out On their get user and business, real almost dozen to side, that you type goes that tend let's repair investor location. automotive small owner there's waiting see shop using

investor-oriented looking those the can So But X X, for little business and just the end is commercial to a people oriented. a be buyers more home. literally

you. Interesting stuff. Got

maybe that's changed value least delivering credit loans return and get balance on think there, you capitalizing to or Going the the about clipped? is back like think the into the at you versus return like securitization apart tease October there risk you the Is actually what how from total a to the that the we about sheet way total the securitization, return or the feel all? when at

the XX%. ROEs you I north get Yes. mean that, well like are of Yes. an when execution

outstanding get just and in mean that We're not doing get you incredibly execution. going we're execution. get very but on when losses execution. the poor think around, even you credit great well. that But Other frequently bake of all average on in that an you enough sort we sometimes blended sometimes that's for type to thing. It time in, and in every we're basis, get every a And of deal. So you I moves market times,

little see. So each a have each is market the you to time, and deal, different

ROEs properly and the the So overall, right we job and though, I if our think originations, very do the compelling. portfolio manage are

you. great quarter. Got on a it. Congrats Appreciate

Thanks. Thanks so much.

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

joining guess, at Thanks everybody do of at Thanks, next everyone, we and fourth for look the speaking end to to I the quarter. at the beginning call. for great to or a for year Velocity everyone continuing forward job, to the

So thank all. you

you, Thank everybody.

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

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