Velocity Financial(US:VEL)2023-05-05 17:56Financial Data and Key Metrics Changes - The company reported a portfolio yield increase of 49 basis points from Q4 2022, reflecting strong performance in the first quarter [9][25] - The weighted average coupon for new originations was 11.1%, significantly up from 6.3% in Q1 2022, indicating a strong increase in interest rates on loans [21] - The overall portfolio reached approximately $3.6 billion in UPV, representing a 25% year-over-year growth from Q1 2022 [22] Business Line Data and Key Metrics Changes - The company has strategically reduced loan production in early 2023, with Q1 originations at $217 million, but plans to increase volumes moving forward [20][11] - Non-performing loan (NPL) resolutions in Q1 amounted to nearly $39 million, with a 3.5% gain, indicating a return to historical resolution trends [24] Market Data and Key Metrics Changes - The company is experiencing increased lending opportunities due to competitors tightening credit, leading to better borrower quality [8] - The non-performing loan rate was reported at 8.7%, consistent with the previous quarter and down from 9.8% in Q1 2022 [26] Company Strategy and Development Direction - The company is focused on a disciplined growth strategy, capitalizing on the current market conditions to selectively increase loan originations [11][36] - A successful securitization transaction in April 2023 generated approximately $65 million in financing, enhancing the company's capital position [33][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current economic environment, highlighting a healthy demand for loans despite a slowing real estate market [11][36] - The company anticipates continued earnings and portfolio growth, supported by a disciplined credit process and strong asset resolutions [13][37] Other Important Information - The company has maintained a strong cash reserve of $45 million, with $39 million in cash and cash equivalents, ensuring ample liquidity for future operations [32] - The CECL loan loss reserve remained flat at $5 million, indicating stability in the company's risk management practices [27] Q&A Session Summary Question: Opportunities in the current environment and potential for increasing rates - Management indicated that while spreads could potentially increase, they are currently at a healthy level with ROEs well above 25% [40] Question: Future origination run rate expectations - Management suggested a target of approximately $250 million in monthly originations moving forward [41] Question: Legacy transactions and potential for securitization - Management confirmed that they are transitioning most deals to a sequential pay structure, with some legacy deals still in place that will free up capital in the future [42] Question: Impact of recent banking issues on borrower quality - Management noted an increase in the quality of borrowers as banks have become more cautious in their lending practices [45] Question: Growth opportunities in the next two years - Management expressed optimism about growth opportunities, citing strong demand for financing and a favorable market position [48]