Velocity Financial, Inc.

Good afternoon and welcome to the Velocity Financial Incorporated conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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 telephone keypad. 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 Mr. Chris Altman, Chief Accounting Officer. Please go ahead.

Thank you, Melanie. Hello, everyone, and thank you for joining us today for the discussion of Velocity Financial's second quarter 2021 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Sapaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our second quarter 2021 press release and the accompanying earnings presentation, which are available on our industrial 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 discussion 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, the content of this 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 will now turn the call over to Chris Farrar for some opening remarks.

Thanks, Chris, and I'd like to welcome everyone to our second quarter management call. Obviously, we're very pleased with the outstanding quarter and results that were just released. We experienced favorable trends in new originations, delinquencies, NPL resolutions, net interest margin and EPS. We see the improving fundamentals in the economy translating to better performance in our portfolio as well as increasing demand for new financing. Tailwinds are very helpful to the business and our team is well positioned to capitalize on this favorable environment specifically within our market niche. Our special servicing team had another very strong quarter of recoveries as we continue to resolve delinquent loans profitably Gains we recognized were impressive and we saw a dramatic increase in realized NPL interest from these efforts. Residential real estate markets remain strong and we're seeing a healthy recovery in our segment of the commercial real estate market as well. Investor demand for our type of real estate is real and growing. Market conditions have helped us resolve NPLs and I want to congratulate our special servicing team on another great quarter. With respect to financing, we recently added another warehouse lending relationship and just launched our second securitization of the year earlier today. Capital markets continue to search for yield, and we're seeing robust demand for securitized products. As some of our older deals season, in the future we plan to collapse them and take advantage of these lower rates. From an equity perspective, later in the presentation we'll provide some new insight into how we think about the value of our business and introduce a new non-GAAP measure demonstrating the economic value of our equity. Our goal there is to impart a simple understanding of the real value embedded in our platform. The team is very proud of the business we've built and the results we've delivered. We plan to take full advantage of the great opportunities that lie ahead. And we appreciate everyone who supports us in pursuing those goals. That concludes my prepared remarks. And with that, we'll turn over to the presentation materials and start the presentation on page three of the PDF. Very strong net income. Core EPS of 25 cents a share, up 25% sequentially over the 20 20 cents that reported in Q1. The biggest driver there was the pickup in net interest income from curing non-performing assets. And you can see that translated directly into our NIM, NIM up 73 bps to 483. These things are lumpy and it's difficult for us to forecast and predict when delinquent loans are going to cure when somebody is going to reinstate or pay off. So we expect going forward you'll see some volatility in NIM there. We always expect to collect that past due amount. We just don't know the exact timing and when that's actually going to fall. And then all those earnings obviously translate into a nice pickup in book value. On the loan production side, very healthy quarter. little over $250 million in originations, up 10% sequentially. We also saw an improvement in the non-performing loans. That was a decrease of 153 bps quarter over quarter. So we're seeing nice trends there, continuing to see those delinquent assets get resolved. As we've mentioned before, it takes time, but it's definitely headed in the right direction. In terms of the NPL and REO resolutions, again, another really strong quarter. I think one of the strongest we've had, 103.9 of UPS in terms of gains above the contractual principle and interest. So again, still making money off of delinquent assets, which obviously is very unique. From a financing and capital perspective, we did complete our 2021 securitization earlier in the year with a weighted average rate of 1%. Obviously, those costs of funds are very helpful to driving strong ROEs and good margins. Also, earlier in the quarter, we were very excited to see that we were added to the Russell 2000 and 3000 industries. That was a nice little boost for us. And then subsequent to the end of the quarter, we added the fifth warehouse line that I had mentioned earlier in our call. So we've got a very broad base of good partners that will help us grow and fund future growth. Page four, just going to walk you through core income quickly and where value sits. Poor income of $8.5 million excludes, obviously, the million-dollar loan loss provision that we released as part of our CECL reserve process. Included in GAAP net income was almost $7 million of realized contractual interest, default interest, and prepayment fee, 59% increase from the first quarter. So, again, very strong performance there on the resolutions. And then nice pickup in book value per share, so ended the quarter nicely there. Majority of the pickup here in just kind of portfolio earnings come all of the assets. So that kind of wraps up my two slides, and I'll turn it over to Mark to take you through the next several slides.