Velocity Financial, Inc.

Good day and welcome to the Velocity Financial Incorporated first quarter 2024 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 touchtone phone. 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 Altman, Treasurer. Please go ahead.

Thanks, Danielle. Hello, everyone, and thank you for joining us today for the discussion of Velocity's first quarter 2024 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 results. and you can find the press release and accompanying presentation we will refer to during this call on our investor relations website at www.bellfinance.com. I'd like to remind everyone 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. 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.

Thanks, Chris, and welcome everyone to our first quarter earnings call. I'd like to start out by thanking all my team members as we had a tremendous first quarter as reflected in the results we released after the close. Origination volumes were almost 75% higher than the previous year and reflect strong demand in our niche, especially since the first quarter is typically lighter in terms of new volume. Our team continues to originate target assets in a disciplined way while controlling expenses to drive increased earnings and higher returns on equity. Markets are adjusting to the new interest rate realities, and we see healthy activity across the U.S. in our lending segment. as we step in with favorable terms where banks have pulled back. The securitization market remains very supportive as we saw spreads tighten more than the rise in base rates this year for improved execution of our second deal in April versus the January securitization. Moreover, participation was broad with 27 different investors purchasing bonds, and the deal was many times oversubscribed. Our tremendous performance has produced a healthy investor base that believe in our program, and we've worked hard to earn their loyalty. In terms of our portfolio, we continue to execute well by resolving delinquent assets favorably, and our special servicing team has done a great job of driving positive results. We see plenty of fresh money available to purchase the real estate securing our loans when priced appropriately and values are holding up well. In terms of capital, we placed $75 million in new corporate debt in February to fuel our goal of increasing the portfolio to $5 billion in UPV by 2025. Importantly, as you saw in the press release, we have plenty of liquidity to meet those targets as we grow. Speaking of growth, we issued a company record $2 billion worth of LOIs in the month of April and received the most new applications we've had in over two years at just under $400 million in combined UPV. Obviously, our pipeline is strong and customers are responding to our offering. The team is excited and engaged to persist in taking market share in our strategy of retaining earnings, growing book value, and redeploying capital into high returning assets. We'll continue to drive earnings growth and shareholder value into the future. That concludes my prepared remarks and we'll turn over to the presentation starting on page three. Obviously, great results from an income perspective. The core EPS of 51 cents a share is an all-time high for the company, driven largely by the fair value gains from new originations and the net interest margin coming off the portfolio. The third bullet point there, you can see the NIM up nicely year over year. and all of those combined to drive higher pre-tax ROEs. We present ROEs on a pre-tax basis as many of our comparable companies are not taxpayers. In terms of production and the loan portfolio, again, very strong production for the first quarter continued into April, as I mentioned, and the pipeline is very healthy. Portfolio is up nicely year over year. NPLs are manageable at just around 10%. And most importantly, from that metric, we continue to see positive gains in the resolutions. From a financing and capital perspective, I mentioned the January securitization and also completed the April securitization. Those markets are very, very strong right now. We've got plenty of liquidity and warehouse capacity. And as I mentioned, we issued those new notes to fuel our growth. Turning to page four, on the left-hand side is a reconciliation of our core adjustments related to stock transactions. And then on the right-hand side is a walk-up in book value as we continue to retain our earnings and grow the book value, as I mentioned. On the far right, We added two bars there to try to give folks a sense of the embedded gains in the amortized cost portfolio and if they were to be brought into book value. We want to make the point that we think there's significant unlocked value there. And as we move forward as a firm over time and move the whole balance sheet to the fair value option, we think that there will be much higher a book value for all shareholders. With that, I'll turn it over to Mark to start on page five.