Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Velocity Financial Inc (VEL, Financial) reported a record quarter with origination volumes growing by 64% over the prior year quarter.
- Net interest income increased by 29%, and net interest margin (NIM) was up 26 basis points, contributing to a 31% growth in earnings.
- The company successfully resolved delinquent assets favorably, maintaining a healthy real estate market presence.
- The recent securitization deal was six times oversubscribed, allowing for an excellent cost of funds at approximately 6%.
- The loan production for Q3 was almost $477 million in UPB, marking a 13% increase over the previous quarter, with a strong weighted average coupon of 10.8%.
Negative Points
- Non-performing loan rate remains relatively high at 10.6%, consistent with the last five quarters.
- The CECL loan loss reserve was $4.9 million, indicating ongoing concerns about potential loan losses.
- The company faces potential risks from foreclosure timelines, especially in judicial foreclosure states where processes can extend up to 2-3 years.
- Despite strong performance, the market remains fragmented, and there are rumblings of new competitors entering the niche.
- The company is exposed to interest rate volatility, although it hedges production to mitigate this risk.
Q & A Highlights
Q: Can you discuss how recent volatility in interest rates might impact your origination pipeline?
A: Christopher Farrar, CEO: Our niche market remains stable in terms of rates to the end user, with minimal rate changes. We hedge our production to manage interest rate volatility, which helps dampen its impact. Despite rate fluctuations, our October pipeline was strong, indicating continued robust origination levels.
Q: How significant is the opportunity in government-insured multi-loans for future production?
A: Christopher Farrar, CEO: This niche market has a robust pipeline with high-net-worth borrowers who are rate-sensitive. We expect increased activity in 2025, with over $150 million in originations anticipated. These loans are sold immediately for cash, contributing to capital-light earnings growth.
Q: Are you seeing any new competitors entering your niche market?
A: Christopher Farrar, CEO: While we hear of potential new entrants, we haven't seen any material competitors with programs like ours. The market remains fragmented, and we have significant runway to develop new clients. Banks and credit unions remain cautious, providing us with a competitive advantage.
Q: How do you view the stability of non-performing loans (NPLs) and collateral values?
A: Christopher Farrar, CEO: We expect NPLs to remain stable, contingent on the broader economy. We see no concerning exposures, and real estate markets are holding up well. Our risk management practices are effective, and we are not currently worried about collateral values.
Q: Can you elaborate on the foreclosure timeline and the demand for resolving NPLs?
A: Christopher Farrar, CEO: Foreclosure timelines vary by state, averaging 9-10 months. We manage risks through active special servicing. Demand for resolving NPLs is strong, with end buyers ranging from families to investors, ensuring a diverse and durable market for these properties.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
