Velocity Financial, Inc.

Good day and welcome to the Velocity Financial, Inc. first quarter 2022 conference call. All participants will be in 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 touch-tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Oltman, Treasurer. Please go ahead.

Thanks, Kate. Hello, everyone, and thank you for joining us today for the discussion of Velocity Financial's first quarter 2022 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Sopaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our first quarter 2022 press release, and the accompanying presentation which are available now 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 discussion of some of the risk 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. Please 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. And with that, I will now turn the call over to Chris Farrar.

Thanks, Chris, and appreciate everyone joining the call today. Our team is very proud to report another record quarter for velocity. During Q1, the Federal Reserve quickly changed the expected course for monetary accommodation, and we saw a very rapid increase in short-term rates as well as fixed income and equity market volatility. New issue, securitization markets remained open but traded at wider spreads on top of increased base rates. This type of market often reveals the winners and losers as firms navigate difficult conditions and we're pleased to report strong results despite these challenges. Our unique model, nimble process, and sound risk management enabled us to navigate a tricky market backdrop. During the quarter, we quickly raised rates for new applications, sold some whole loans at attractive prices, and successfully adapted to these new conditions. Our management team deserves credit for rapidly adjusting while maintaining our important customer relationships. In terms of loan production, we had our best quarter ever and generated a volume increase of approximately 150% in new originations over the prior year's quarter. The tremendous year-over-year growth in our portfolio led to a 43 percent increase in portfolio-related net interest income versus Q1 21, which in turn drove an impressive 14 percent ROE on a core earnings basis for the quarter. It's important to remember that most of our income is generated from our NIM and the earnings from newly created loans occurs over several years and not solely in the month of origination like many other lenders. As relates to credit, our delinquency rate continues to decline and is much closer to a normalized range as we work off the delinquency impact from the pandemic. Loan resolutions remain very healthy, and although the real estate market is quite strong, we're expecting the rate of appreciation to slow as rates rise. While this may create some short-term pain, what the Fed is doing is right and should be viewed as a healthy long-term development in our opinion. Lenders have been rational in extending credit over the last several years and we see solid fundamentals underpinning the properties we lend on. Our outlook remains cautiously optimistic and we continue to see strong demand from our customers despite the higher rate dynamic. We believe our business is built to provide durable and stable earnings as we move forward in all types of market environments. That concludes are prepared remarks that will turn over to the presentation materials to walk you through that turning to page 3 in the presentation materials we highlighted in the press release net income of three million on a core basis 36 cents a share the adjustment there is due to the refinancing costs associated with our New corporate debt occurred during the quarter. Core EPS growth of 23% from the prior quarter, so very strong growth in the core EPS number there. I mentioned the increased portfolio driving higher net interest income, 10.9% increase over the prior quarter, and our NIM was very stable versus the prior quarter. In terms of production, $581 million of new loans in the quarter, 16.8% increase sequentially. Importantly, we've told folks in the past that we're not as sensitive to rates, and you can see on the sub-bullet there that we increased our whack on new applications in the month of April to 8.1%, which is pretty close to our historical weighted average coupon that's kind of in the low eight range over the last 10 or 12 years. In terms of applications, we saw $338 million in applications, and that's right in line with the average level of applications that we've seen year to date. So really no impact on volume as we took rates up. In terms of the portfolio, you can see we're up to $2.8 billion now. and very pleased with the amount of growth that we've seen. In terms of non-performing loans, I mentioned down in my remarks, we're down to 9.8% as of the end of the first quarter. And very importantly, in terms of our resolutions, we saw another strong quarter of 104.8 compared to the 104% that we saw in the fourth quarter. So still seeing very good recovery rates. I did touch briefly on the refinance of the corporate debt excuse me I'm sorry we previously announced that in a press release it's a really good transaction for us we were able to lower our coupon by around 200 basis points and most importantly fix that date debt for five years so we took some of that floating rate risk off in terms of the securitization markets we did complete two deals one in the first quarter and the second one just here in early April. As I mentioned, those markets were challenged. Both of these deals did not execute as well as we normally do. We still think there will be positive earnings and returns there, just not as strong in terms of margin. But when you blend it in overall with all of the other debt, we think it will just have a small impact on our overall borrowing costs. We're very pleased that investors continue to participate and support our program, and we think that speaks to the longevity and the history that we've had there. Turning to page four, in terms of core net income, we break out the costs here associated with the refinance of that corporate debt, and you can see on a core basis, $12.4 million of income for the quarter, so very strong. In terms of book value, up slightly from 1084 to 1090 most of those non-core expenses offset the gains from just the regular portfolio earnings and about 10 cents a share from the whole loan sales so overall we're really pleased with the way the business is trending and the and the growth that we've seen and very positive on on our core income earnings So with that, I'll turn it over to Mark to take you through the rest of the presentation.