Q4 2021 Velocity Financial Inc Earnings Call
[music].
Good day and welcome to the Velocity Financial Inc. fourth quarter and four-year 2021 results earning conference call.
Good day and welcome to the velocity Financial Inc, fourth quarter and full year 2021 results earnings Conference call.
All participants will be in a listen-only mode. Should you need assistance, please signal the conference specialist by pressing star then zero.
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After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch screen phone. To withdraw your question, please press star, then two.
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Please note, this event is being recorded. I would now like to turn the conference over to Chris Altman, please go ahead.
Please note this event is being recorded.
I would now like turn the conference over to Chris Hoffman. Please go ahead.
Thank you rich.
Chris Altman: Hello, everyone, and thank you for joining us today for the discussion of Velocity Financial's fourth quarter and full year 2021 results.
Hello, everyone and thank you for joining us today for the discussion of velocity financial fourth quarter and full year 2021 results.
Speaker Change: Joining me today are Chris Farrar, Philosophy's President and Chief Executive Officer, and Mark Zipaniak, Philosophy's Chief Financial Officer.
Joining me today are Chris Ferrara, philosophy, as President and Chief Executive Officer.
And Mark the Penny philosophy, as Chief Financial Officer.
Speaker Change: Earlier this afternoon, we released our fourth quarter 2021 press release and the accompanying presentation, which are on our – which are available on our investor relations website.
Earlier. This afternoon, we released our fourth quarter 2021 press release and the accompanying presentation, which are on our which are available on our investor Relations website.
Speaker Change: 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.
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.
Speaker Change: 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.
For a 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.
Speaker Change: 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.
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.
Speaker Change: 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 in our investor relations website.
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 in our Investor Relations website.
Speaker Change: 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.
Finally, today's call is being recorded and will be available on the company's website later today.
With that I will now turn the call over to Chris Ferrara.
Speaker Change: Thanks, Chris, and I'd like to thank everyone for joining our fourth quarter earnings call.
Thanks, Chris and I'd like to thank everyone for joining our fourth quarter earnings call today.
Speaker Change: We obviously had another terrific quarter to finish off the year on a high note. Our year-over-year growth was impressive, and we successfully managed our cost to drive increased operating leverage as we grew the portfolio by just over $500 million on a net basis. Originations were another record in Q4, up significantly over the third quarter levels. COVID-related delinquencies continued to decline as we recognized strong recoveries
We obviously had another terrific quarter to finish off the year on a high note.
Our year over year growth was impressive and we successfully managed our costs to drive increased operating leverage as we grew the portfolio by just over $500 million on a net basis.
Originations were another record in Q4 up significantly over the third quarter levels.
Covid related delinquencies continue to decline as we recognize strong recoveries and resolve delinquent loans.
Issued two securitizations during the fourth quarter and successfully financed some of our older more expensive deals on significantly better terms.
Demand for new loans was very strong in the fourth quarter and we continue to see that demand carry into this year.
From a macro perspective, the economy is strong we're seeing great borrowers come to us for financing in the real estate markets are still rising due to a demand supply imbalance.
But obviously signaled during the fourth quarter that they're planning to increase short rates this year.
And the two and three year swap rates, which we price our securitizations from <unk>.
Increased about 70 to 80 basis points from December to today.
We closed our first securitization of the year on February 15th with a coupon of just under 4%, which was higher than the December deal.
Based mainly on the underlying moving base rates and saw good demand for the securitization with some spread widening.
Our 10 year track record and strong credit performance helped us execute in a choppy capital markets environment.
As we look forward, we expect originations to grow this year and NIM to normalize around the 4% area as the increased yield from delinquent loan resolutions stabilizes.
And older higher rate loans are replaced with lower coupons.
Alrighty increase rates this year to offset the underlying move I mentioned in swaps.
And expect to realize strong growth in our portfolio this year.
We remain optimistic about our future and look forward to delivering another record year for our shareholders.
With that I'll turn it over.
The presentation and go to slide three.
Speaker Change: presentation and go to slide 3.
Speaker Change: In the handout there on slide 3, you can see for 2021, just an overview of the year, great performance in all areas, net income up 64 percent, loan production up 2 percent.
Hand out there on slide three you can see for.
For 2021 just an overview of the year.
<unk> performance in all areas net income up 64%.
Loan production up 200%.
The portfolio almost 30% on a net basis after payoffs I mentioned the NIM can expand from from some of that delinquent interest we picked up on the Covid loans.
And then finally on the bottom right you can see charge offs decreasing year over year as we continue to see favorable resolutions.
On slide four our.
Net income of $8 4 million core income of $10 1 million a new high for us.
That core EPS growth was 25% from the third quarter.
And it's.
It's driven obviously by the by the increased volume as well as some loan sales that we did during the fourth quarter.
Speaker Change: From an interest income perspective, that grew also nicely 5 percent from the third quarter, which to me is very strong, very healthy, again, driven by record loan production volume. The fourth quarter, NIM was down at 4.27 percent. Part of that is driven by kind of a one-time write-off of some deferred deal cost expenses with the securitization collapse, but I think the larger...
From an interest income perspective that grew also nicely, 5% from the third quarter, which to me is very strong and very healthy.
Again, driven by record loan production volume.
The fourth quarter NIM was down 4.27%.
Part of that is driven by kind of a one time write off of some deferred.
Deal cost expenses with the securitization collapse.
I think the larger kind of point that we made and I made in my opening remarks is that we expect NIM to kind of normalize around that 4% area.
From protection and portfolio perspective again.
46% increase in volume quarter over quarter very impressive.
Then I think.
Just as impressive as well.
The carry through into this year, we've already done 358 million for the through the first two months of the year and that's up about two and a half times, what we did last year. So we're seeing them.
Very strong production continue.
You mentioned the increase in the portfolio.
Up to about two and a half billion now and then also.
Continued to see very favorable improvement in our in our <unk>.
Delinquent loan performance down to 10.9%.
Getting to that area that we tell folks is kind of normal for the business, 8% to 10%. So we're real close to kind of stabilizing in too.
Sort of pre COVID-19 levels.
Lastly on page four from our financing and capital perspective outlined here the two different deals that we did.
And.
The second deal was a nice deal for us as we collapsed three older deals.
And reduce the coupon on those borrowings by about 4%.
Turning to page five.
During the fourth quarter, we converted all of the preferred stock into common shares.
That was good to clean that up and then as previously announced we acquired a majority stake 80% stake in century.
And we're very excited about the opportunity there.
It's an interesting business and we'll we'll address it in more detail on some slides.
Later in the presentation.
Subsequent to the quarter and I mentioned in February we priced our securitization.
February 15th.
Very pleased to continue to.
Issue out in the capital markets.
Turning to page six core income and book value per share.
You can see the costs that were made up in the in the core.
Net income add backs.
Mostly related to the noncash write offs from the Securitizations and some of the legal expenses.
Or for the century acquisition.
So <unk> got kind of a more normalized book value per share.
Driven largely by the by the stock conversion obviously.
I'm turning to page seven.
In terms of production.
Speaker Change: saw good increases across both products, both the 1 to 4 product up 45% quarter over quarter and the traditional commercial up 55% Q over Q. So both products participating, small portion in the short-term products and, again, the majority of our business driven, as we've said in the past, on the longer-term type product. Good, impressive numbers in terms
We saw good increases across both products both for the one to four product up 45% quarter over quarter and attrition traditional commercial up 55% Q over Q. So.
Both products participating.
Small portion in the in the short term products and again the majority of our business driven as we've said in the past on the longer term.
Type product.
Good impressive numbers in terms of new broker additions up 21% quarter over quarter, and we're seeing a lot of broker activity in our internet portal.
At the beginning of the year as well so see a lot of good broker demand.
As we said in the past, we think as that as the sort of a paper consumer.
Refinance opportunities go away, we tend to see brokers.
Show more interest in our products and our programs as they find new ways to generate income and we're seeing very healthy demand from those brokers.
On page eight we've got a little more detail around the the century acquisition. Most of this was already released in our press release, So I don't want to.
Overdo it here, but it's a very simple straightforward kind of fee for service business, we don't take any credit risk.
Money are originating these loans and then building a servicing strip there's.
A little over 500 million in servicing.
And the servicing portfolio rights.
At the end of the year, and we look to grow that going forward.
In terms of a contribution to earnings you can see that the pre tax income for last year was $2 3 million.
We own we own 80% of that now go on a go forward basis, we'd expect that to be somewhere in that level for this year.
And really hope that the different growth initiatives that we're going to undertake this year will start to show up in next year as a result.
On nine I'll turn it over to Mark and let him handle the rest of the presentation.
Thanks, Chris Good afternoon, and good evening everyone.
Speaker Change: On slide nine, loan portfolio, as Chris mentioned, our production growth is very robust for 21 and especially Q4, and that's.
<unk> loan portfolio as Chris mentioned, our production growth was very robust for 'twenty, one and especially Q4 and that's kind of transcends into our in place portfolio is holding a majority of those loans in our portfolio. So we ended the year at just under $2 $6 billion and you can be.
Speaker Change: kind of transcends into our in-place portfolio as we hold the majority of those loans in our portfolio. So we ended the year just under $2.6 billion in UPV, which is almost a 14% quarter over quarter increase from the third quarter and a very good increase over the 1.9 billion that we ended last 2020 with.
Almost a 14% quarter over quarter increase from the third quarter and a very good increase over the $1 9 billion that we ended last 2020 with.
Speaker Change: So we've done a really good job in building up the loan portfolio, and as you can see, the LTVs, meantime, remaining very consistent right around that 66, 67% level.
So we've done a really good job in building up the loan portfolio.
You see the Ltvs meantime, remaining very consistent right around that 66, 67% level.
Speaker Change: The way the average coupon did reduce slightly, and that's again, as Chris mentioned, you get some of the higher coupon, older loans paying off, you get some lower coupon and newer loans coming on. So that's just the rate reduction in the market as well as all the strong loan production activity that we had during the year.
The weighted average coupon and it didn't did reduce slightly and that's again as Chris mentioned, you get sort of a higher coupon older loans paying off because you got some lower coupon and do the loans coming on so that's just the rate reduction in the market as well as all the strong.
Loan production activity that we had during the year.
Speaker Change: Page 10 on the net interest margin, our portfolio net interest margin, as you can see, went from 497 to Q3 to 427, and part of that, again, 497, remember we said was going from Q4 for the first three quarters of 21, and we ended 2020 with a 17% non-performing, and we ended 2021 with a 10.9, so almost a 6.5%.
Page 10 on the net interest margin our portfolio net interest margin did see went from 497 for Q3 to $4 27.
And part of that again 497 remember we said we're going from Q4 for the first three quarters of 'twenty one.
We ended 2020 with 17% nonperforming. We ended 2021 10.9, so you're almost a six and a half point.
Speaker Change: improvement in our non-performing rates and as we're doing that the first three quarters as we're Successfully resolving those non-performing loans. We've always said that we resolve them We usually collect default interest prepayment fees. We make about a four point gain on average on Resolutions and so you see a lot of that in the higher
Improvement in our nonperforming rates and as we were doing that through the first three quarters.
Successfully resolving those nonperforming loans, you've always said that we resolve them, we usually collect default interest prepayment fees. We may on a four point gain on average.
The dilutions and so you see a lot of that in the higher <unk>.
Speaker Change: NIM for Q3, as we're getting a lot of that extra income coming in, and now we're starting to see NPL rates coming back to more of a normal level for us, we're starting to see that NIM start to normalize as well. We've always said on a run rate, you know, around a four-point NIM is kind of what we strive to hit, and we're kind of coming back to that for Q4 on a normal level.
For Q3, as we're getting wanted that extra income coming in and now we're starting to see NPL rates coming back to more of a normal level for us we're starting to see that start to normalize as well what we set out a run rate you know round four point.
It's kind of what we strive to get there.
Are you back to that for Q4 at a normal level.
Speaker Change: And also on Q4, the 427 does have some deal cost write-offs in there, as Chris mentioned. When we did our December securization, we had collapsed three older deals and included the loans in that. We re-leveraged them in the new December deal. Those three older deals were running, on average, about a 7.25% interest. And we were able to put them in a new deal that's closer to, say, you know, 3.25, 3.5, so we pick up almost four points of interest.
And also on Q4 the 427.
Does he have some deal cost write offs in there as Chris mentioned, we picked up our December securitization, we eclipsed three older deals and included the loans and that we leverage them into new December deal. Those three older deals were running on average about a 7% interest and we're able to put them in a new deal with closer to say three in a quarter.
Three and absolutely pick up almost four places.
Speaker Change: betterment on the interest expense, but there were some deferred unamortized costs on those three older deals, so we collapsed it. We had to take the write-off on those. If you adjusted that Q4 NIM to exclude that one-time deal cost write-off, it would have come in close to around 450.
Betterment on the interest expense, but there were some deferred on the amortized costs and have three older deal. So we collapsed it we have to take the write off on those if you adjusted that Q4 NIM to exclude that one time deal cost write off it would come in closer to around $4 50.
Speaker Change: On the portfolio yield and cost of funds, on the right-hand side, again, you can kind of see our yield portfolio of 821 on the loan side, and on the debt side, you know, you see the 458. And again, the 458 is up a little bit from Q3 because, again, the same thing, those deal costs. Those deal costs go with the interest expense, which is kind of inflated. The deal costs a little bit on an adjusted basis, the Q4 debt costs would be closer to 429 if you exclude that one time write-off on those three deal costs.
On the portfolio yield and cost of funds on the right hand side again, you can kind of see our yield portfolio of 821 of the loan side and on the debt side you didn't see the 458 and again the $4 58 is up a little bit from Q3, because again the same thing goes deal costs. Those deal costs go with the interest expense, which is kind of inflated the deal cost.
On an adjusted basis for Q4 that classically closer to $4 29, excluding one time write off on those three dual class.
Yeah.
Speaker Change: On page 11, Loan Investment Portfolio Performance, we kind of just mentioned this. You go back to the 12-31-2020 and you look at where we ended up, 21, see it went from 17% down to 10.9%. So we've had good, strong resolutions all throughout 2021 as we've continued to work on those non-performing loans that were kind of crazed under the COVID pandemic and bring those down to more of our normalized level.
On page 11 loan investment portfolio performance because you just mentioned if you go back to the 12 31 2020, and you look at where we ended up 21 C. 17% down to 10, 9%. So we've got good strong resolutions all throughout 2021 as we've continued to work on those nonperforming loans.
Craig's under the Covid pandemic and bring those down into more of a normalized level.
Page 12.
Speaker Change: kind of ties it together with page 11. As we brought those non-performing rates down, we still maintained that four-point gain. You can see for both third and fourth quarters, the second half of the year, we're right around three and a half, four points of overall gain. You see a breakout between short-term and long-term. They're very consistent. You kind of look in total in the second half of 21.
It ties it together with page 11, you have to block those nonperforming rates down we still maintained at four point game you'd see for both third and fourth quarter to the second half of the year right around three and a half four points of overall gains do you see the break out between short term and long term, they're very consistent you know you kind of look in total in the second half of 'twenty.
One we resolved the amount of $104 million worth of U P D of which 102 million or 98% or 4 million resolved was resolved by the loans paying off.
Speaker Change: We resolved about $104 million worth of UPV, of which $102 million, or 98% of that $104 million was resolved by the loans paying off.
Speaker Change: or paying currents, generating that four-point gain that you see.
Or paying current generating that four point gain that you see.
Speaker Change: So you only have about 2% of all those resolutions that ever even made it to REO. And overall, it generated about a $3.8 million gain in the last half of the year just on the MPO list.
So you only have about 2% of all of them and all of the resolutions ever even made it to Oreo and overall it generated about a $3 $8 million gain in the last half of the year just on the NPL resolutions.
Yeah.
Speaker Change: Page 13, looking at our overall loan loss reserve, our CECL reserve, it stayed pretty consistent with Q3. Remember, the end of 2020, the Q4 of 2020, it was an inflated reserve. We were using a severely COVID stress economic scenario, and that brought the reserve up at the time to 5.8 million. That same type of stress scenario now is more tempered, given where the COVID pandemic has kind of leveled out. Things are getting more back to normal.
Page 13, looking at our overall loan loss reserve I see so reserve stayed pretty consistent with Q3.
Remember the end of the end of 2020 in Q4, 2000, Twenty's kind of inflated reserve youre using a severely cold big stress economic scenario that brought their votes at the time to $5 8 million. The same type of stress scenario now it's more tempered given where they call. It. The COVID-19 pandemic has kind of leveled out things are getting more back to normal. So we're now we're in a four.
Speaker Change: So now we're at a $4.3 million reserve, roughly at the end of the year, or about 17 basis points.
$3 million reserve off at the end of year or about 17 basis points.
Speaker Change: We feel that's a good sufficient reserve for us. Our actual charge-off levels are running actually lower than that on a lifetime basis for the loan. So we actually feel that at 70 basis points.
Feel that that's.
Sufficient reserve for I'm, sorry, actual charge off levels are running actually lower than that on a lifetime basis for the loan. So we actually feel that had 70 basis points is a good reserve you can see the charge offs on the right hand side.
Speaker Change: is a good reserve. You can see the charge-offs on the right-hand side. You know, Q420, again, is we're resolving some of these loans, now it's $300,000, but then you can see for the last two quarters, our charge-offs have only been, like, about, on average, $150,000 a quarter, or roughly around two to three basis points.
Q4, 'twenty again, if it were resolved in some of these loans and almost 300000, but then you can see for the last two quarters. Our charge offs have always been like a lot of I heard $150000 a quarter or roughly about two to three basis points. So our charge offs continue to remain low we feel the reserve is sufficiently reserved for the portfolios that they have kind of given out.
Speaker Change: So our charge-offs continue to remain low. We feel the reserve is sufficiently reserved for the portfolio that we have, kind of given our history of resolutions on that portfolio.
Our history of resolutions on their portfolio.
Speaker Change: On page 14 we look at our overall financing and funding capacity, these are outstanding debt balances at the end of the year, it's about 2.4 billion, at the end of the year we were 4.2 billion.
Page 14, if you look at our overall financing and funding capacity.
Any debt balances at the end of the year was about $2 4 billion. We ended the year with five warehouses repurchase facilities and four of those five warehouse lines are fully non mark to market.
Speaker Change: warehouse repurchase facilities, and four of those five warehouse lines are fully non-mark-to-market.
Speaker Change: One is a modified mark-to-market, they have staggered maturities. So we feel on our warehouse financing capacity, we really have a good risk mitigation in place, given that four of the five are non-mark-to-market. You know, we can't get margin calls or anything on that. And the staggered maturities, we think we've done a good job of mitigating any risk on the short-term financing with the warehouse lines.
As a modified mark to market they have staggered maturities. So we feel on our warehouse financing capacity, we really have a good risk mitigation in place given that spot for the five year non mark to market. You know, we can't get margin calls or anything on that and the staggered maturities and we think we've done a good job mitigating any risk on the short term financing with the warehouse lines, Chris already said that.
Speaker Change: Chris already said that we've done well on the securitization on the long-term financing structure. We just did another deal February of this year in kind of a turbulent market, and we had good demand for that deal. And you can see at the end of the year, on the right-hand side, we had about $349 million of available financing capacity. And maximum capacity on all five lines is 650.
We've done well on the securitization on the long term financing structure. We just did another deal February of this year and kind of a turbulent market. We had good demand for that deal and you can see at the end of the year on the right hand side, there's about $349 million of available financing capacity and maximum capacity on all five lines of 650 million. So we think we're well.
Speaker Change: So I think we're well positioned for the aggregation on the short-term side to take us over to securitization.
Physician for the aggregation on the short term side to take us over to securitization.
Speaker Change: With that, I'll turn it back to Chris to kind of give us an outlook on 2022 for some of our key business drivers. Great. Thank you, Mark.
With that I'll turn it back to Chris to kind of give us an outlook on 2022 for some of our key business drivers.
Great. Thank you Mark.
Just hitting the highlights here for 'twenty two in terms of demand, we see very healthy demand and expect to have another increase.
The increase in overall volume for the year.
Credit remains healthy and we think there's a good macro economic backdrop as well as a strong real estate market. So we feel.
Confident there.
A capital where we're gonna see more securitizations. This year, we're going to do at least five or six deals as volume continues to grow.
We're shortening the time between deals anymore.
Out there frequently issuing.
One of the way, we we kind of manage our interest rate risk because just by being in the market frequently and often.
From an earnings perspective, we do expect to earning.
Earnings growth this year, even though the NIM will be.
Reverting back to a kind of a prepay and stomach level. We still think we'll have very good earnings growth driven by higher loan balances. So I'm very.
Optimistic about where we're headed for all of 2022.
On 16, we've done this slide a couple of times now again just.
If I look at economic value of equity, we don't fair value our assets, we hold them at cost and so we think.
Folks compare us to other.
Other comps out there we want to try to give a look at how we might stack up against them.
For an answer here and we think that the stock is tremendously undervalued and that there is a real embedded.
Healthy.
That's that we've created in the platform and in the portfolio that hopefully overtime folks recognize and realize.
Our back of the envelope here is over $23 a share and book value. So we think there's tremendous value that we've created and as we continue to grow and deliver on our.
Results, we think folks will start to realize that so we think the stock is under valued significantly here.
That concludes our prepared presentation and remarks, and we'll open it up for questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
We will now begin the question and our first question.
Good question look that's star then one on you touched on.
Speakerphone, please pick up.
Your question please.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
But it is part of your question has been at this time I would like to withdraw your question. Please press star two.
Finally, we will pause momentarily to assemble our doctor.
Speaker Change: The first question comes from Stephen Laws with Raymond James. Please go ahead.
The first question comes from Stephen laws with Raymond.
Please go ahead.
Stephen Laws: Hi, good evening, you know, Chris Smart, nice quarter, you know, you guys continue to.
Hi, good evening.
You know, Chris Martin Nice quarter.
Continue to you know.
Speaker Change: You talked about outlook for production growth, can you quantify that? The quarterly production has really grown quite a bit the last two quarters, so when you think about where does that growth plateau and reach a consistent quarterly run rate and what level do you think that is?
Really improve the metrics here you talked about outlook for production growth can you help me quantify that you know the quarterly production has really grown quite a bit the last few quarters. So when you think about you know where does that growth plateau in kind of a reach of.
Consistent quarterly run rate and what level do you think that is.
Hi, Steven Thanks, Thanks for the question.
Speaker Change: We really don't think about where it plateaus. We think there's a lot of.
We we really don't think about where it plateaus, we think theres a lot of room out there for us to grow probably more importantly for us is just.
Speaker Change: there for us to grow, probably more importantly for us.
Speaker Change: Maintaining credit quality, not growing too fast. And the real limiter there is just the people, just getting qualified people that know what they're doing.
You know maintaining credit quality not growing too fast.
And in the real Limiter. There is just you know just the people just getting qualified people that know.
What they're doing and can be trained into our system. So.
We think you know that there's a lot of room to continue to expand and grow.
We probably will be somewhat cautious here for the next.
A couple of months, while all of these geopolitical things shake out but.
There's really we think a tremendous amount of upside here.
But we just have to grow smartly and.
Not go too fast.
Speaker Change: Thanks for those comments. You know, when you think about the other two legacy securitizations, and apologies if I missed a comment around this, but the 15-1 and the 16-1 deal, you know, what are the thoughts around collapsing that and, you know, kind of how, you know, when that may occur? Yeah. So.
Thanks for those comments you know when you think about the <unk>.
They're two legacy securitization, so I apologize if I missed the comment around this but the the 15 one in the 16 one deal you know what what are the thoughts from collapsing that and you know kind of how you know what when that may occur.
Yeah. So we're in the process of working on both of those now I would expect.
I'm I'm getting my deals confused I think we're gonna do 15, one first and then 16 to like it could have them flipped I'm not positive, but I think we'll do one of them this quarter and probably the other one the following quarter.
Speaker Change: I think we'll do one of them this quarter and probably the other one the following.
Speaker Change: Great. Appreciate the comments this evening. Thank you.
Great I appreciate the comments of savings.
Sure.
Speaker Change: The next question comes from Aaron Saikanovich with Citi. Please go ahead.
Our next question comes from Adam Holt.
H.
Please go ahead.
Aaron Saikanovich: Thanks. The production you mentioned partly has been rising because of an increase in the number of brokers that you've been putting into your system. What's the outlook for that, and how much of those new brokers have been driving some of this impressive growth you have here? Yeah, thanks, Aaron. Appreciate the question. It's significant because
Thanks, He had the production you mentioned part mentioned partly.
It's been rising because of the increase in.
The number of brokers that are that you've been putting into your system. You know, what's what's the outlook for that and how much each of those new brokers have been driving some of this impressive growth you have here.
Yeah. Thanks Erin.
The question, Yes, it's it's significant because.
As I've mentioned.
A lot a lot of the new growth that we've seen.
Are folks that are reaching out to us I'm looking.
Looking for an alternative products to.
Speaker Change: offer to their customers, so I don't have an exact quantification for you.
To offer to their customers. So we I don't have an exact quantification for you in terms of how much of that drove.
Speaker Change: volume for Q4, but it's meaningful.
The volume for Q4, but it but its meaningful.
We still think the Earth.
Speaker Change: thousands of loan officers that we haven't reached yet with our products, so we have a lot of room to reach out to people and educate them about what we're doing. But just looking at web traffic and some of the marketing that we're doing, we're seeing new people come in all the time.
A thousands of loan officers that we haven't reached yet with her product. So we haven't we have a lot of room to reach out to people and educate them.
About what we're doing but but just looking at web traffic and some of the marketing that we're doing we're seeing.
New people come in all the time.
You know brokers tend to send US you know one or two deals a month type of thing this isn't a product where they're sending us 15, or 20 or 30 deals a month, so adding a new broker doesn't.
Drive things through the roof, so to speak but it's good to just.
Get new customers and they bring us a deal or two in and.
So.
At the margin it's not massive.
Massive pickups, but overall when we add you know hundreds of brokers each quarter.
Typically it's driving some of that growth for sure.
Speaker Change: Okay. And then on the financing side, you know, we've seen some volatility in the capital markets recently. Is that going to put off kind of any near-term securitization plans and could you just remind investors, you know, how you're better positioned today from a liquidity standpoint versus where we were in 2020?
Okay, and then on the financing side.
We've seen some volatility in the capital markets recently.
And is that going to cut off can I mean near term securitization plans and.
And could you just remind investors.
How you're better positioned today from a liquidity standpoint versus where we were in in 'twenty 'twenty, yes.
Speaker Change: Yeah, sure. So, yeah, we're watching the capital markets. We've been talking to our investment bankers. The deals are getting done. They're pricing. It's taking longer and
Yeah sure. So yeah, we're watching the capital markets, we've been talking to our investment bankers they deals.
Deals are getting done there pricing, it's taking longer and.
Most of the.
Widening has been and as I mentioned, the underlying base rates, a little bit of spread widening but not anything serious.
So we will we will be looking to do a deal either in April or may.
Depending on just how about how the whole deal comes together.
So we.
Speaker Change: We have to stay on a pretty consistent pattern there, just based on our volume to continue to turn things over, if you will. And so, I think we feel like we've adjusted for those.
And we have to stay on a pretty consistent pattern. There just based on our volume to continue to.
Turn things over if you will.
And so I think we feel like we've adjusted for those market conditions and.
I mentioned raised our rates and still see good good.
Good demand. So we expect them to stay kind of on that consistent sort of two every two to three months.
In terms of issuance.
Speaker Change: And just from a standpoint of, you know, liquidity, I believe you have financing that's, you know, better structured in the case of, you know, further capital markets.
And just from a standpoint of.
<unk> you believe me.
Financing, that's better better structured them and in the case of the you know further capital markets are getting.
Speaker Change: getting a little bit more out of whack. Yeah, yeah, sorry, I forgot that about your second half of the question, yes. So yes, just renewed one of our other big facilities.
Getting a little bit more.
Out of whack, yeah, Yeah, sorry, I forgot that about your second half of the question, yes. So yes, I'm just renewed one of our other.
Big facilities for it for a year.
With having the non mark to market features we feel much more comfortable yes. If there was some kind of dislocation that we're not going to be facing.
Margin calls or liquidity Crunch, and yes, we've got the balance sheet in very good shape too.
To ride through any kind of storm that could come down the horizon here.
Okay. Thank you.
Speaker Change: The next question comes from Delaney with GNP Securities. Please go ahead.
The next question comes from Kevin.
Please go ahead.
Delaney: Hello, everyone, and congratulations on an outstanding year following a tough year in 2020. Just picking up on your comments, Chris, and Aaron's question, we're hearing a lot, and frankly, I'm hearing more on the CMBS and CLO side on the commercial than I am on the RMBS side, and I guess that's where you kind of fall in, somewhere in between. Thank you.
Hello, everyone and congratulations on an outstanding year following a tough year in 2020.
Just picking up on your comments.
Chris and Aaron's question, we're hearing a lot and frankly I'm hearing more on the C. B S and C. L O side on the commercial.
Than I am on the on the arm B S side, or and I guess, that's where you kind of fall in somewhere in between.
But.
Delaney: It sounds like what you're saying to me in your conversation with your bankers that yes, there's been widening, and frankly, in the markets I mentioned, there's been spread widening, not just rate widening.
It sounds like what you're saying to me in your conversation with your bankers that yes, there's there's.
Been widening and frankly in the markets I mentioned theres been spread widening not just not just rate binding.
Delaney: But I guess I'd like to say two things. It sounds like to me that from your conversations with your bankers and capital markets that you're operating as if.
But I guess I'd I'd like to say two things it sounds like to me that from your conversations with your bankers in capital markets that you're operating as if.
Delaney: the markets are open that you can continue to originate aggressively, aggregate, and find an execution that works for your parameters.
The markets are open that you can continue to originate aggressively aggregate and find an execution date works for your parameters.
Speaker Change: First, I mean, am I correct in that, and have you had to increase your rates on your products to your borrowers, say, in the last three or four months to kind of accommodate what you're seeing in the capital markets? Thanks. Sure, Steve. Thank you for the comments.
First I mean or is am I correct in that and have you had to increase your rates on your products.
To your borrowers say in the last three or four months to kind of accommodate what you're seeing in the capital markets. Thanks sure Steve. Thank you for the comments and yes.
The short answer to both of your questions is yes.
We.
Do you think we can continue to issue regularly deals are pricing their pricing wider and as a result, we have.
Speaker Change: to issue regularly, deals are pricing, they're pricing wider, and as a result we have increased our rates to offset for that widening. We can't move the pipeline as quickly as the markets move, so there's a little bit of a lag there.
<unk> increased our rates to offset for that widening.
With that we can't move the pipeline as quickly as the markets move.
So there's a little bit of a lag there it'll take a month or two for that to catch up but.
You know the work for as I said, we're frequently in the markets.
You really can't timeless thing perfectly to try to get the best execution every months, but overall when you look at a year. Some some mix. Some deals you get unbelievable pricing most of the time you get kind of typical pricing and then other times you get not so great pricing, but on a blended basis, we are very confident.
And we will be able to maintain our spreads and our nims this year, even with the with the higher rates and do you expected.
Continued higher rates from the fed.
Speaker Change: Great. It sounds like your borrowers with more business purpose focus are probably less rate sensitive than we would see in the straight owner occupied resi market. Yeah, that's for sure. That's always been the case with us. Yes, we've been in a lot of different ratings.
Great and it sounds like your borrowers with more business purpose focus our probably less rate sensitive than you know then we would see in the in the straight or owner occupied rosy market Yeah sure.
That's that's always been the case with US yes, we've got lots of different rate environments and they are always kind of had a need for capital.
Speaker Change: So one final just clean up thing on, you know, great job series A conversion. I think having that complexity in the balance sheet and in your book value is a real plus for, especially for people, new eyeballs looking at the stock. So now that that's off the balance.
So one final just cleanup thing on you know great job series, a conversion I think having that complexity in the bank balance sheet and in your book value was is a real plus for especially for people new eyeballs looking at the stock. So now that that's off the balance sheet other than the warrants does that open you up.
Speaker Change: other than the warrants, does that open the opportunity up for you to look at unsecured corporate debt or a straight preferred or some capital vehicle such as that, that would allow to the extent that you need additional capital to grow your balance sheet or those types of things?
The opportunity up for you to look at unsecured corporate debt or straight straight preferred or sub capital vehicles, such as that that would allow us to the extent that you need additional capital to grow your balance sheet or those types of.
Speaker Change: sources of capital, something that you would consider.
Sources of capital something that you would consider.
Yeah absolutely.
Speaker Change: We definitely think all those things are on the table and as we, you know, manage volume going forward, we'll see.
We definitely think all those things are on the table and as we as we manage volume going forward, we'll see how things play out this year and how much volume, we see but we absolutely think that all of those things are going to be accessible to us to.
Speaker Change: how things play out this year and how much volume we see but we absolutely think that all those things are going to be accessible to us you know it'll be a finance 101 type thing
You know what it will be a it'll be a.
Finance one on one type thing just whats the smartest way for us to.
Raise additional growth capital and make sure that it's accretive to earnings and book value.
Right I appreciate the comments Chris. Thank you Okay. Thank you Steve.
Speaker Change: As a reminder, if you have a question, please press star, then 1 to be joined in the queue.
Cause that reminder, if you have a question. Please press Star then one debate join the queue.
Speaker Change: The next question comes from Dawn Sandetti with Wells Fargo, QP. Please go ahead.
The next question comes from Don.
Well right now.
That's fine.
Please go ahead.
Dawn Sandetti: Thank you. So the weighted average coupon went down a good bit, quarter for quarter. Can you talk a bit more about that? What's driving it and where do you think?
Thank you so the weighted average coupon went down a good bit quarter over quarter can you talk a bit more about that what's driving it and where do you think.
Speaker Change: you know, yields on new originations could go this year. Yeah, sure.
Yields on new originations could go this year yeah sure if done that's a good question. So yeah. It's it's a combination of.
Speaker Change: question. So yeah, it's a culmination of...
Speaker Change: fact that the Fed did lower rates last year, so we maintained our spread and lowered, you know, kind of origination.
The fact that the fed did lower rates last year. So we were we maintained our spread and lowered you know kind of originations.
Bonds. If you will so that's probably a big part of it as Mark had mentioned as well some of the older loans that are paying off from three or four years ago are written at higher rates. So the combination of those two.
Speaker Change: That's a big part of it, as Mark had mentioned as well, some of the older loans that we're
Speaker Change: four years ago were written at higher rates, so the combination of those two lead to it. I think that we're sort of expecting for the year that we'll be in the seven and a half to seven and three-quarter range, which obviously a lot depends on where we are.
Lead to it.
I think that we're sort of expecting for the year that will be in the seven and a half to seven and three quarters range.
Yeah.
Obviously, a lot depends on what the fed does but we completely expect to be able to maintain our spread and our NIM.
Hum.
As you know based on sort of the where the forward curve is right now.
If if things got crazy and really went vertical you know maybe that might not be the case.
Well you know our expectation just based on where the feds, indicating they're going to go.
We should be able to maintain that.
Speaker Change: that yield so it would probably go down a little
That yield so it would probably go down a little and kind of the first two quarters and then I would expect it to start rising in the second half of the year.
Speaker Change: first two quarters, and then I would expect it to start rising in the second half of the year.
Thank you, yes sure.
Yeah.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Chris Favreau for any closing remarks.
This concludes our question and our first question.
I would like to turn the conference back over to Chris about for any closing remarks.
Chris Favreau: Great. Thank you all for investing your time and listening to our story. We're excited about what we've been up to and looking forward to 22 and continuing to...
Great. Thank you all for investing your time in listening to our story, we were excited about what we've been up to in and looking forward to 'twenty, two and continuing to deliver great results. So thank you all.
Thank you everybody.
Yeah.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. Please disconnect.
The conference has now concluded thank you for attending today's presentation.