Velocity Financial, Inc.

Good day and welcome to the Velocity Financial, Inc. 4th Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Oltmann. Please go ahead, sir.

Thank you, Chuck. Hello, everyone, and thank you for joining us today for Velocity Financial's fourth quarter 2020 earnings call. With me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our fourth quarter 2020 press release and accompanying earnings presentation, which are available on our Investor Relations website. I'd like to remind everybody that today's call may include forward-looking statements which are uncertain and outside of the company's control, and actual results may differ materially. For discussions of some of the risks and other factors that could affect results, please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission. Also note that the content of this conference call contains time-sensitive information that is accurate only as of today, and we do not undertake any duty to update forward-looking statements. We may also refer to certain non-GAAP measures on this call. For reconciliations of these non-GAAP measures, you should refer to the earnings materials on our investor relations website. And finally, today's call is being recorded and will be available on the company's website later today. I would like to turn the call over to Chris Farrar for opening remarks.

Thanks, Chris. Appreciate it. Welcome, everyone, to the Q4 earnings call. As you can see from our press release, we obviously had a very strong quarter to finish the year, and we're really proud of the fact that we overcame the difficult challenges we faced in 2020 so well. Despite elevated delinquency levels, our portfolio continued to provide positive income in all four quarters and we also improved on last year's net income, which is really impressive under the extreme conditions we faced. Our people are so important to our business and I want to thank every team member at Velocity who worked so hard to quickly adapt to the rapidly changing world that we all faced. From a macro perspective, we continue to see strong real estate values in most parts of the country. Fortunately, we have no credit exposure for the types of commercial properties that were most hard hit, i.e., hospitality, movie theaters, and standalone restaurants. On the residential side of things, we're starting to see many states roll out tenant and or landlord relief for those impacted by the pandemic, and our special servicing team is sharing relevant information with our borrowers as it becomes available. We hope that these programs will allow folks to survive the difficulties they've encountered and get back on track. Tremendous government stimulus and low interest rate environment that's been a strong backdrop for real estate in general, and we continue to see impressive origination, demand, and healthy functioning real estate markets. Turning to velocity more specifically, on the asset side, we saw increased delinquency as well as an increased level of payoffs and cured loans. So we still see some borrowers struggling with the impacts of the epidemic, obviously, and other borrowers are catching up or paying off entirely. Overall, Q4's activity was much higher than Q3 as we see markets starting to normalize. Fortunately, we realized very strong recovery rates in the quarter and we're very pleased with the quality of new lending opportunities that we see. On the liability side, we recently completed two important financing Design to minimize mark-to-market risk and provide us with new growth capital. More confident with our risk profile now as a result of these important changes and excited to put this capital to work. We're well positioned to organically grow our business with a more stable funding base. As always, we appreciate your continued support and want all investors to know that our entire organization is focused on performing for our customers and and delivering real value to all stakeholders. That concludes my prepared remarks and now we'll turn to the presentation materials. On page three of the Q4 highlights, I'll hit the first page here and then turn the presentation over to Mark and wrap it up at the end. But again, really great quarter for us, strong net income and EPS. The big differentiator here that's a little bit unusual for us is that we sold just under $100 million of loans in the quarter. Typically, we don't do that. We aggregate everything, obviously, for securitization. That was really driven by two factors. One, we had some very, very attractive prices, and two, we really wanted to be prudent with our liquidity and manage that well up until the point where we got the new corporate debt done. So that was the drivers for kind of the change in the quarter. That gain on sale really boosted the earnings over and above our normal just kind of portfolio income. Also importantly, you saw NIMS increased in the fourth quarter, again, as our special servicing team continued to drive good, strong recovery rates. yields that were higher even though we had an uptick in delinquency. So again, very strong recovery rates on delinquent assets is driving that NIM wider. In terms of production and the portfolio, really good fourth quarter of $179 million in new originations. I mentioned the strong resolutions. We got 103.5 in terms of recovery rates. So again, still making money over and above the contractual interest that's due. So good results there. And then as I mentioned in my opening remarks, non-performing loans did tick up to $332 million. Seeing the majority of that is really driven by my folks that were given forbearance and then unfortunately have gone back to delinquent status. So even though we had a A lot of assets resolved favorably. We are seeing some people still fall behind. And then again, I guess just to kind of wrap up here from the financing and capital perspective, we added a $200 million non-mark-to-market warehouse facility. So that was a great achievement for us. really helps us minimize any risk going forward as we aggregate for securitization. We closed that in February and then also entered into the new syndicated term loan, which we've got some really great partners there that are supporting us. And that transaction gave us roughly $80 million of growth capital going forward. So we've got a couple of years of capacity here as we continue to grow the portfolio and make more loans. So that's kind of a high-level wrap-up on the quarter. I'll turn it over to Mark on page four to take you through the rest of the presentation.