Velocity Financial, Inc.

Good afternoon and welcome to the Velocity Financial first quarter 2023 earnings 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 Chris Oltman, Treasurer and Director of Investor Relations. Please go ahead.

Thank you, Danielle. Hello, everyone, and thank you for joining us today for the discussion of Velocity's first quarter 2023 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 first quarter 2022 results, and the press release and accompanying presentation 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 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. 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.

Chris Farrar Thanks, Chris. And we'd like to welcome everyone to our first quarter earnings call. Earlier today, as Chris mentioned, we reported another strong quarter as we continue to grow in a disciplined and profitable way. Our successful matched funding strategy of locking in fixed rate spreads has held up very well considering the rapid rise in rates. As you're all keenly aware, there's been a tremendous amount of volatility in the regional banks, many of whom were essentially borrowing short and lending long. We continue to see these competitors tighten credit or step away entirely from the market, which has naturally led to an increase in lending opportunities for us. We believe this theme will continue to play out for the remainder of the year, and we're seeing better borrowers and higher quality assets as a result of this banking stress. In terms of our portfolio, we continue to see expected levels of performance, and first quarter resolutions rebounded to a more typical rate, which contributed to a 49 basis point portfolio yield increase from Q4 2021. Perhaps more importantly, we've constructed our portfolio in such a way as to avoid the most problematic commercial real estate assets. Over 15% of our loans are secured by single family rental properties and 75% of the portfolio has a residential component. On the small commercial segment of our business, the properties backing our loans tend to be small neighborhood serving assets that are usually in very high demand. We do not have exposure to large office buildings where other lenders are starting to see significant realized losses. As we look forward, we believe we're well positioned to succeed in a variety of potential outcomes as we experience a slowing economy. With respect to growth, we were very conservative with new originations in the first part of the year, but have recently started to increase our volumes. Although real estate market transactions have slowed, we can continue to see plenty of borrower demand. As an example, we received over $3 billion in new loan requests in the first quarter of 23 and originated just over $200 million in new loans. This healthy demand, disciplined credit process, and our stable in-place portfolio income allows us to be very selective in adding new assets. On the capital market side of our business, we're pleased to see continued support for our platform as we just priced our second regular way deal of the year with strong investor demand. In April, we completed our most significant transaction of the year by re-securitizing a portion of our retained bonds at attractive rates on a non-mark-to-market basis. This new structure frees up capital to fuel further growth and provides us a more stable alternative to short-term repo financing. Looking forward, we expect continued earnings and portfolio growth, positive asset resolutions, and another successful year. Very proud of how well our team has prepared our company to navigate these shifting times and want to thank all our stakeholders for their continued support. That concludes my remarks and I'll pop over to the earnings presentation on page three. From an earnings perspective, a very clean, simple, straightforward quarter. you know, nice core earnings slightly below where they were the prior quarter from last year, and I think that speaks to the strength of our business model to be able to absorb all the change that we've seen in the last 12 months and almost do the same type of number. In terms of recovery rates, again, another strong quarter of positive earnings from NPL recoveries, so we're very pleased with those results. And as I mentioned, we're continuing to see our yields increase not only from higher wax on new originations, but that bounce back in resolutions on NPLs. In terms of the portfolio, things are pretty healthy there, kind of performing, as I said, as expected. We did reduce volumes intentionally. We could have done more production, but really wanted to see how capital markets were going to behave and the rest of the markets in general. And as I said, because we're getting good demand on the securitization side, we're going to increase that production going forward. In terms of financing and capital, I did mention the second securitization that we just priced went off very well. And as I mentioned, the The re-REMEC was a really important transaction for us, generated just under $65 million of new capital that we put into the business, paid off $15 million of repo that was against those bonds, and opened up what we think will be a new avenue. As we continue to retain assets in the future, we certainly have the ability to to re-remix those as well. So we're very pleased with the support that we got in the capital markets there. On page four, looking at book value, another strong quarter of book value growth as we execute on our strategy to retain earnings and grow book value. You can see we did well there. And on a core basis, there's a little bit of ad back here for some of the equity components. On five, even though we've got healthy book value growth and on slide four we showed you GAAP book value, we think the economic book value is much higher. We believe the embedded gain in our portfolio is not accurately reflected in GAAP book value and that economic value is still quite healthy and in excess of where we report GAAP book value. With those comments, I'll turn it over to Mark on slide six to take us forward.