Q1 2022 Velocity Financial Inc Earnings Call

Good day and welcome to the Velocity Financial Inc. first quarter 2022 conference call. All participants will be in 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.

Good day and welcome to the velocities Financial Inc. First quarter 2022 conference call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Sarky followed by zero. After today's presentation. There will be an opportunity to ask question to ask a question you may press farther.

To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, 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. Please go ahead.

One on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded.

I'd now like to turn the conference over to Chris Open Treasurer. Please go ahead.

Thanks, Kate. Hello, everyone, and thank you for joining us today for the discussion of Velocity Financial's first quarter 2022 results.

Thanks, Kate Hello, everyone and thank you for joining us today for the discussion of velocity financials first quarter 2022 results. Joining me today are Christopher our philosophy, as President and Chief Executive Officer, and Mark <unk> philosophy, as Chief Financial Officer.

Joining me today are Chris Farrar, Velocities President and Chief Executive Officer, and Mark Zetaniak, Velocities Chief Financial Officer.

Earlier this afternoon, we released our first quarter 2022 press release and the accompanying presentation which are available now on our investor relations website.

Earlier. This afternoon, we released our first quarter 2022 press release and.

In the accompanying presentation, which are available now 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.

I would 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 shale heralders, 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.

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.

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.

And 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 appreciate everyone joining the call today. Our team is very proud to report another...

Today's call is being recorded and will be available on the company's website later today.

I will now turn the call over to Chris Ferrara.

Thanks, Chris I appreciate everyone joining the call today.

Team is very proud to report another record quarter for velocity.

During Q1, the federal reserve quickly change the expected course for monetary accommodation.

We saw very rapid increase in short term rates as well as fixed income and equity market equity market volatility.

New issue securitization markets remained open but traded at wider spreads on top of increased base rates.

New issue, securitization markets remained open but traded at wider spreads on top.

This type of market often reveals the winners and losers as firms navigate difficult conditions and we're pleased to report strong results despite these challenges. Our unique model

This type of market often reveals the winners and losers as firms navigate difficult conditions and we're pleased to report strong results. Despite these challenges.

Our unique model nimble process and sound risk management enabled us to navigate a tricky market backdrop.

During the quarter, we quickly raised rates for new applications, sold some whole loans at attractive prices, and successfully adapted.

During the quarter, we quickly raise rates for new applications sold some whole loans at attractive prices and successfully adapted to these new conditions.

Our management team deserves credit for rapidly adjusting while maintaining our important customer relationships.

In terms of loan production, we had our best quarter ever and generated a volume increase of approximately 150% in new originations over the prior year's quarter. The tremendous year-over-year growth

In terms of loan production, we had our best quarter ever and generated a volume increase of approximately 150% and new originations over the prior year's quarter.

They're tremendous year over year growth in our portfolio led to a 43% increase in portfolio related net interest income versus Q1 'twenty one.

Which in turn drove an impressive 14% ROE on a core earnings basis for the quarter.

It's important to remember that most of our income is generated from our NIM and the earnings from newly created loans occurs over several years and not solely in the month of origination like many other lenders.

And remember that most of our income is generated from our NIM and the earnings from newly created loans occurs over several years.

Not solely in the month of origination like many other lenders.

As it relates to credit our delinquency rate continues to decline and is much closer to a normalized range as we work off the delinquency impact from the pandemic.

Pandemic.

Loan resolutions remain very healthy, and although the real estate market is quite strong, we're expecting the rate of appreciation to slow as rates rise. While this may create some short-term pain, what the Fed is doing

Loan resolutions remained very healthy and although the real estate market is quite strong we're expecting the rate of appreciation to slow as rates rise.

While this may create some short term pain, what the fed is doing is right and should be viewed as a healthy long term development in our opinion.

Lenders have been rational in extending credit over the last several years, and we see solid fundamentals underpinning the properties we lend on. Our outlook remains cautious.

Lenders have been rational and extending credit over the last several years and we see solid fundamentals underpinning the properties we lend on.

Our outlook remains cautiously optimistic and we continue to see strong demand from our customers. Despite the higher rate dynamic.

We believe our business is built to provide durable and stable earnings as we move forward in all types of market environments.

durable and stable earnings as we move forward in all types of market environments.

That concludes.

our prepared remarks, and with that, we'll turn over to the presentation materials to walk you through that.

Our prepared remarks, and with that we'll turn it over to the.

Presentation materials to walk you through that.

Turning to page three in the presentation materials.

uh... we highlighted in the press release net income of three million uh... on a core basis

We highlighted in the press release net income of $3 million on a core basis.

36 cents a share adjustment.

adjustment there is due to the refinancing costs associated with our new corporate debt that occurred during the quarter.

The adjustment there is is due to the refinancing costs associated with our <unk>.

New corporate debt that occurred during the quarter.

Core EPS growth of 23% from the prior quarter, so very strong.

Growth in the core EPS number there.

I mentioned the increased portfolio driving higher net interest income, 10.9% increase over the prior quarter, and our NIM was very stable versus the prior quarter. In terms of production,

I mentioned the increased portfolio driving higher net interest income.

9% increase over the prior quarter.

And our NIM was very stable.

Versus the prior quarter.

In terms of production.

$581 million of new loans in the quarter.

16, 8% increase sequentially.

Importantly, we've told folks in the past it.

We're not as sensitive to rates and you can see on the on the sub bullet there that we increased our WAC on new applications in the month of April to eight 1%, which is pretty close to our historical.

<unk>.

Weighted average coupon that's kind of in the low eight range over the last 10 or 12 years.

And in terms of applications, we saw $338 million in applications.

And in terms of applications, we saw $338 million in applications and.

And that's right in line with the average level of applications that we've seen year to date.

And that's right in line with the average level of applications that we've seen year to date, so really no.

Impact on volumes as we took rates up.

In terms of the portfolio you can see we're up to $2 $8 billion now.

We're up to $2.8 billion now and very pleased with the amount of growth that we've seen. In terms of non-performing loans...

And very pleased with the amount of growth that we've seen.

In terms of nonperforming loans I mentioned out in my remarks, we're down to nine 8%.

As of the end of the third I'm, sorry first quarter end.

Very importantly, in terms of our resolutions, we saw another strong quarter of 104.8 compared to the 104% that we saw in the fourth quarter, so still seeing very good recovery rates.

Very importantly in terms of our resolutions we saw another strong quarter of $104 eight compared to the one 4% that we saw in the fourth quarter. So.

Still seeing very good recovery rates.

I did touch briefly on the <unk>.

Refinancing corporate debt [noise] excuse me I'm sorry.

previously announced that in a press release. It's a really good transaction for us. We were able to lower our coupon by around 200 basis points and, most importantly, fix that debt for five years. So we took some of that floating rate risk off. In terms of the securitization...

We've previously announced that in our press release, so really good transaction for US we were able to.

Lower lowered our coupon.

Around 200 basis points and most importantly, fix that date that for five years. So we took some of that floating rate risk off.

In terms of the securitization markets. We did complete two deals one in the first quarter and the second one just here in early April .

As I mentioned, the those markets were challenged.

Both of these deals did not execute as well as we normally do.

Both of these deals were not did not execute as well as we normally do we.

We still think there'll be positive earnings and returns, they're just not as strong in terms of margin, but when you blend it in overall with all of the other debt I think it will just have a small impact on our overall borrowing costs and.

positive earnings and returns there, just not as strong in terms of margin.

When you blend it in overall with all of the other debt, I think it would just have a small impact.

We're very pleased that investors continue to participate and support our program, let me think.

very pleased that investors continue to participate and support our program.

Debt.

Speaks to the longevity and the history that we've had there.

Turning to page four, in terms of coordinate income.

Turning to page four.

In terms of core net income.

We break out the costs here associated with the refinance of that corporate debt and you can see on a core basis.

We break out the costs here associated with the refinance of that corporate debt and you can see on a core basis.

$12 $4 million of income for the quarter. So.

very strong. In terms of book value, up slightly from 1,084 to 1,090. Most of those non-CORAC

Very strong.

Our book value up slightly from 10 84 to $2 90.

Most of those.

Our noncore expenses offset.

The gains from just the regular portfolio earnings and about 10 cents a share.

the gains from just the regular portfolio earnings and about 10 cents a share.

the whole loan sales. So, overall, we're really pleased with the way the business is trending and the growth that we've seen.

From the whole loan sales. So overall, we're really pleased with the way the business is trending and the growth that we've seen and I'm very positive on our core income earnings.

So with that, I'll turn it over to Mark to take you through the rest of the presentation.

So with that I'll turn it over to Mark to take you through the rest of the presentation.

Thanks, Chris. Thank you everybody for participating on today's call. The next several financial slides and then we'll go through, you know, highlight the strong first quarter that we had, and we really just kind of picked up off of Q4. We had a very strong Q4 and we've built on that so far going forward in Q1. As Chris said, even with some kind of volatile rate interest rate environments, we've really helped steady and kind of maintained

Thanks, Craig Thank you everybody for participating on today's call.

Next several financial slides and then we'll go through and highlight the strong first quarter that we've had and it really just kind of picked up well for Q4, we had very strong Q4, we built on that so far going forward in Q1, as Chris said, even with some kind of volatile rate interest rate environments. We've really held steady at kind of maintained the business model that we know is worth.

of the business model that we know has worked for us very, very well over all the years. On slide five, loan production, Chris mentioned, we talked about having a record quarter in Q4 of originations, and we broke that record in Q1.

Very good well over all the years on slide five loan production and Chris mentioned, we had talked about having a record quarter in Q4 originations and we broke that record in Q1. So we have $581 million in originations up 16, 8% from the prior record of Q4. So we still continue to see strong borrower demand.

So we have $581 million in originations, up 16.8% from the prior record of Q4. So we still continue to see strong borrower demand for our product. And the increases came in both the commercial, official commercial, as well as the investor one to four. So we saw increases in the quarter in both of our product types on the origination side.

For our product the increases came in both the commercial and commercial as well as the Investor one four so we saw increases in the quarter as both of our product types and origination side as Chris mentioned, we also increased our WAC because of the interest rate environment, that's a little bit over 8% and still saw over $300 million of new applicator.

As Chris mentioned, we also increased our WAC because of the interest rate environment.

to a little bit over 8% and still saw over $300 million of new applications come in in April . That's pretty much what we average on a monthly basis.

I mean in April that's pretty much what we average on a monthly basis like 320 $230 million in the first quarter. So did you see any slack off in April applications as a result of raising interest rates.

$320, $330 million the first quarter. So it didn't see any slack off in the April applications as a result of raising the interest rates.

Yeah.

On slide six, page six, loan portfolio, because the majority of our loans go to our in-place portfolio, as our originations and originated volume would increase, then our portfolio's gonna go up accordingly. So the strong originations in Q1 drove portfolio growth. You'd see at 2.9 billion was our total loan portfolio at the end of the first quarter, a little over 11% increase from where we were at year end.

On slide six page six loan portfolio, because majority of our loans go to our in place portfolio as our originations and originated volume the increase in our portfolio is going to go up accordingly, so the strong originations in Q1 drove portfolio growth you'd see at a $2 9 billion with our total loan portfolio.

At the end of the first quarter, a little over 11% increase.

At the same time, our LTV remains very, very low. If you look more towards the bottom of that page, our average loan LTV balance is 67.9% compared to 67.7% for Q4. So we're adding a lot of additional loans at the same time, holding that loan-to-value ratio consisted at 6.67%.

At the same time, our LTV remains very very low he look more towards the bottom of that page.

Our average loan balance of 67, 9% compared to 67, 7% for Q4, so we're adding a lot of additional wells at the same time holding that loan to value ratio consistent at $6 67 per cent.

Wade Everett's coupon in the portfolio was 7.5% March 31st, down a little bit from the 7.76 at quarter end.

I never its coupon in the portfolio was seven 5% as of March 31st down a little bit from the 776 at quarter end and again, that's because we had lowered our rates towards the end of last year, because we were getting much cheaper financing through a securitization market in 'twenty. One so we pass some of that savings go onto our borrowers with lower rates as long as we maintained a consistent spread.

And again, that's because we had lowered our rates towards the end of last year, because we were getting much cheaper financing through the securization market in 21. So we passed some of that savings on to our borrowers with lower rates, as long as we maintain that consistent spread.

And then as we just mentioned, as we see the interest rates starting to go back up again, starting at the end of March and into April , we've raised our coupons.

to kind of offset any increase that might come in on the securization market to, again, maintain that spread. And we've seen the consistent volume still coming in the door.

We wanted to show you this because we want to show the minimal interest rate risk that we have. You know, in the rising interest rate environment, we just wanted to show that our HFI, our loan portfolio, as you can see at the end of the quarter, about 70% of our loan portfolio is fully fixed rate loans. So it doesn't have any interest rate risk to it. The other roughly, say, 30% are hybrid ARMs. Those are loans that they usually have an initial fixed period, three to five years, and then they convert to floating. And as of quarter end, about 70% of those ARMs were in the floating rate.

But the key thing to remember there, the way our hybrid arms are structured is there's a floor set to the initial fixed rate.

fixed rate, and then when the loans float, they can only float above that initial fixed floor. They can never float below it.

So you can only have, if you lock in a fixed rate spread at the time they're fixed with fixed rate securitizations, then you can only have a widening of the spread when the loans float up and not ever below the fixed rate. On the financing side for that HFI portfolio, you can see about 83% of that HFI portfolio of $2.8 billion is financed with fully fixed rate securitizations.

If you have if you lock in a fixed rate spread at the time, there fixed with fixed rate securitization. Then you can only have a widening this red with a loan slowed up and that's separate below the fixed rate on the financing side for that H five portfolio you can see about 83% of that eight to five portfolio of $2.8 billion is financed was fully fixed rate securitisations.

And then about another 17% is on our warehouse lines. The warehouse lines are floating rate. They're usually LIBOR-based warehouse lines. But remember, those are only, loans are only on there for about two to three months until we get the aggregation up to enough to securitize. That's very short-term financing, and then they go into the 83% bucket with the fixed-rate securitization. So really a locked-in fixed-rate spread for a big majority of the loan portfolio as well as the financing, creates a minimal interest rate risk environment for us.

And then about another 17% is on our warehouse lines.

The warehouse lines are floating right, they're usually whiteboard base slip warehouse lines, but remember those are only loans are only on there for about two to three months until we get the aggregation of to enough to securitize. If that's very short term financing and then they go into the the 83 per cent bucket with a fixed rate securitization, so really unlocked and fixed rate spread through <unk>.

Big majority of a loan portfolio as well as the financing.

Some minimal interest rate risk environment for us.

On the next page, take a look at net interest margin. Net interest margin for Q1, again, Chris mentioned, very consistent with Q4, 4.25 versus 4.27. Our portfolio weighted loan yield at the end, we said it was 7.76 compared to 8.21. And also the debt cost. The debt cost as of the first quarter was 4%, a decrease of 58 basis points.

And the next page look at net interest margin ministers farther for Q1 again, Chris Chris mentioned very consistent with Q4, four and a quarter versus 427.

[noise] portfolio weighted low yield at the empty said was 776 compared to 821 and also the desk cause the deck cautious than the first quarter was 4% decrease of 58 basis points quarter over quarter from 2421. So if you look kind of at the right hand side, you can see maintaining that spread so you know as the depth.

quarter over quarter from Q4 to Q1. So if you look kind of at the right-hand side, you can see maintaining that spread. So as the debt cost came down, we did lower the WAC to kind of pass it on to the borrowers. But at all the same time, you can see maintaining that spread.

Hoss came down we did lower the WAC to kind of pass that onto the borrowers, but that'd be all the same time, you can see maintaining that spread.

The next slide loan investment portfolio performance as we continue to grow our portfolio and grocery originations at the same time. We're also resolving successfully the nonperforming loans, we ended the quarter with our M. P. L. Right at nine 8%, it's not on this chart, but if you're kind of recall.

As we continue to grow our portfolio and grow the Originations, at the same time, we're also resolving successfully the non-performing loans. We ended the quarter with our NPL rate at 9.8%.

It's not on this chart, but if you kind of recall, at the end of 2020, or in the heat of COVID, that MPL rate was as high as 17%.

At the end of 2020, and the heat of Covid that upheld rate was as high as 17% and we said at that time were not that concerned about it. We've got very good special servicing group you resolve these N P alone very successfully and you can see from December of 2020 now to end of first quarter, we're down to 9.8 per cent back in line kind of our <unk>.

And we said at that time, we're not that concerned about it. We've got a very good special servicing group. We resolved these NPL loans very successfully. And you can see from December of 2020 now to end of first quarter, we're down to 9.8% back in line kind of with our normal run rate at between say like seven and 9%. So we're right within our normal run rate. So very good job in resolving.

We'll run rate is between seven and 9%. So we're right within our normal run rate. So very good job in resolving these loans.

And on slide 10, as we're resolving these loans, we continue to make gains. I think that's the key important part. We're not bringing the NPL rate down through losses, we're continuing to make gains. For the first quarter, we recovered 104.8%, so a 4.8% gain over and above recovering all the contractual principal and interest due to us. Again, that's due in many cases to the default interest that we charge, an extra 4%, as well as if the loans are resolved by paying off, there's prepayment fees too.

And a slight Ken as we're resolving these loans, we continue to make games I may ask the key important part not bringing in the empty all right down through losses were continuing to make any for the first quarter, we've recovered, 104.8%, a 4.8% gain over and above recovering all the contractual principal and interest.

To us again, that's too many cases default interested we charge extra 4% as well as if the loans are resolved by paying losses prepayment fees too. So total NPL resolutions in the quarter told a little over $37 million and we had gangs in Q1 O $1.8 million, which is at 4.8%. So we're not one.

So total NPL resolutions in the quarter, totaled a little over $37 million, and we had net gains in Q1 of $1.8 million, which is that 4.8%. So we're not only resolving our non-performing loans very quickly and very successfully, we're continuing to do it at about a 4% profit margin.

Resolving our nonperforming loans very quickly and very successfully we're continuing to do it at about 4% profit margin on a regular running basis.

For our loan loss reserve, our CESA reserve, CESA reserve increased slightly. It went from $4.3 million at the end of the year to $4.7 million at the end of Q1. That's mainly because of the portfolio growth. You know, every single loan you have on your books has to have some type of loan loss reserve associated with it. So as your loan portfolio grows, you're going to have some increase in reserve.

For a loan loss reserve or <unk> increased slightly it went from a $4.3 million at the end of the year to $4.7 million at the end of Q1, that's mainly because of the portfolio growth. Every single alone you have on your books that you have some type of loan loss reserve associated with this place your loan portfolio grows we're gonna have some increase in reserve <unk>.

So that's kind of expected. Charge-offs at Q1 were $328,000. But again, right in line, we show kind of a 5 quarter charge-off there. And our average over, say, 5 quarters is about $323,000 on a quarterly basis. And Q1 was $323,000. So it's right in line with the average. That's kind of what our normal run rate is.

Expected charge offs in Q1 with $328000, but he had the right line, we show what kind of a five quarter charge off there in our average over say five quarters is about 323000.

Quarterly basis in Q1 was three to 323, so it's it's right in line with the average.

Put our normal run radios.

In terms of our financing, we've talked about this. We have very durable funding and liquidity strategy. As Chris mentioned, the markets are always there for us. They've been there since we started in 2011. We've got a great brand reputation out there. So we've done two securitizations already this year. We did one in Q1.

Terms of our financing and we've talked about this we we have a very durable funding and liquidity strategy as Chris mentioned the markets are always there for US has been there since he started 2011, we've got a great brand reputation out there. So we've done to securitization is already this year, we didn't want in Q1.

<unk>.

And then we also did another one in April of this year for $252, $253 million. So we've done two securizations already this year, and we also refinanced our corporate debt because it kind of touched on that.

And then we also did another one in April of this year for 252 and $53 million. So then to securitization is already this year and we'd also refinanced our corporate debt cause it's kind of touched on that we paid off the previous step that we had which was originally higher 75 million. It was down to 170 cause. It was it was an amortizing but that was.

We paid off the previous debt that we had, which was originally $175 million. It was down to $170 because it was amortizing, but that was a floating rate debt, a five-year floating rate debt, and it was about a two-point extra coupon, actually two and a quarter.

A floating rate that a five year floating right that and it was a <unk> about a two point extra coupon actually two and a quarter.

Effective yield was higher because it was issued at a three point discount. So we also had discount amortization on top of the interest rates hitting the P&L. So we're able to refinance it in Q1 and upsize it. Upsize it by about $45 million at a seven and an eighth.

Factive yield was higher because it was issued at a three point discount. So we also had discount amortization on top of the interest rates are hitting the P&L. So we were able to refinance it in Q1 and upsize it upsize it by about $45 million and a seven and eight fixed rate interest for five years and it was issued a car. So we don't have the disk.

fixed rate interest for five years, and it was issued at part, so we don't have the discount amortization as well. So all in all, in terms of P&L, we're picking up about two and a quarter percent.

Don't amortization as well so all in all in terms of Pinel were picking up about 2.25% on the Gulf War based on the next five years with no interest rate risk any more if it's fully fixed rate. So we thought that was a great deal and in hindsight senior rates are going now Rosemary locked in at that rate earlier in the first quarter.

on the go-forward basis of the next five years with no interest rate risk anymore if it's fully fixed rate. We thought that was a great deal and in hindsight, seeing where rates are going now, we're glad we locked that in at that rate earlier in the first quarter. With that, Chris, I'll turn it over to you to go over the economic value of equity. Great. Thanks, Mark. Appreciate that. All right.

Cause that Chris I'll turn it over to you to go over the economic value of equity.

Great. Thanks.

Team.

Economic value of equity we've done that for a few corners now so.

Take everyone's through it but suffice it to say pretty pretty similar to what we saw last time and.

remind everyone, we don't carry our assets and liabilities at fair value. So, trying to, you know, approximate if we were to do something like that, certainly in terms of the embedded gains, there could be a much higher mark in terms of book value. So, again, still think that we're, we've got a lot of untapped...

Just to remind everyone we don't carry.

That's in liabilities at fair value so.

Trying to you know approximate if we were to do something like that certainly.

In terms of the embedded gains.

Higher Mark in terms of book value. So.

I can still think that work.

He's got a lot of untapped value that you have to be realized.

Ah 14, just kind of looking at the outlook we still.

She's very strong demand in our niche things are going well there.

Obviously, there's a lot of macro.

Macroeconomics geopolitical uncertainties, so that that does make everybody I think.

Cautious, but we're continuing to land.

At levels that we always had an.

Kind of hoping for the best preparing for the worst.

T L T V's that we learned that we feel very confident even if things get rough.

Good shape.

Terms of capital that the new that transaction, obviously gave us some additional growth capital. So it was great for US continue to believe that will be able to securitize and access to capital markets cause we have.

Throughout the year so.

So that we believe will just continue to fuel our growth.

And then from earnings perspective.

We continue to recognize good operating leverage as we grow the portfolio faster than expenses.

And definitely think that will be able to achieve our targets for for them and a very stable mm.

Durable type of earnings going forward.

So that kind of summarizes our prepared remarks and our presentation.

So that kind of summarizes our prepared remarks in our presentation and I think we should open it up for questions.

We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then 2. Our first question is from Steve Delaney of JMP Securities. Please go ahead. Thank you.

We will now begin the question and answer session can I ask a question you may <unk>. Sorry, then one on your touch 10 pounds, if you're using a speaker phone. Please pick up your handset before pressing a key to withdrawal from your question can you. Please pass by then too.

My first question is from speed Delaney of JMP Security. Please go ahead [noise].

Thanks. I appreciate the question. I can't tell you how refreshing it is to be on a residential.

Thanks I appreciate the question I can't tell you how refreshing it is to be on a residential.

earnings call this week for somebody that doesn't use gain-on-sale accounting and fair value of its residuals. I'm telling you, it's been a lot of pain. There's a lot of pain out there and I'm sure you've heard some of those calls. Props on that. It makes a lot of sense for you. Just a little clarification on page 17. You mentioned 10 cents, Chris, for whole loan sales. It looks like to me, from page 17, I get more like 30 cents.

Earnings call. This week for somebody who doesn't use gain on sale accounting in fair value of its residuals [laughter] I'm sorry, it's been a lot of pain, there's a lot of pain out there and I'm sure you've heard some of those calls so.

<unk> props on that it's it makes it makes a lotta sense for Ya just one little clarification on page 17.

You mentioned 10 cents, Chris for hold on sales and it looks like to me from page 17, I get more like 13 cents.

it really matters. But Mark, can you help clarify that?

Matters, but mark do you just can you help clarify that.

I'm seeing 4.5 million in gains on 34.2 million shares.

I'm seeing a 4.5 million and gains in on 34.2 million shares.

Chris, my number might have been tax-affected, too. It might have been tax-affected as well. I mean, the 4.5 is not tax-affected, right? That's not all going to net. I got you.

I I don't pray, Chris Chris might number might've been tech resected too goodbye.

By the <unk> as well I mean, the four qualifies isn't that that's exactly right. That's not long ago I Gotcha Yep Yep, Okay. My bad apologize for that yes, I keep forgetting you're not to read you gotta pay taxes, [laughter], Yeah, [laughter] <unk> [laughter], Okay and Chris.

Yeah. Okay. My bad. Apologize for that. Yes. I keep forgetting. You're not a REIT. You got to pay taxes. Okay. Yeah. Yeah. REIT Corp. Yeah. Okay. And

You know, it's obvious that, you know, you mentioned that the securitizations, they didn't execute as well. Obviously, your blended NEM is still.

It's obvious that you mentioned that the securitization they didn't execute as well obviously, you're blended near him is still up at four and a quarter, what primarily needs to happen I mean, I know Tom volatility just kinda blows everything out but for the markets to recalibrate.

up at four and a quarter. What primarily needs to happen, I mean, I know time volatility just kind of blows everything out, but for the markets to recalibrate.

You know, how much of that is going to be on you guys to get your coupons up above 8%?

Great.

How much of that is gonna be on on you guys to get your coupons up above you know 8%.

still find some loans to make. I mean, is it a combination of higher coupons and hoping the investors, things will settle down and credit spreads will come in a bit? Yeah. Yeah, I think that's right. I think it's a combination.

Still find some loans to make I mean is it is it a combination of higher coupons and hoping to investors things will settle down and and credit spreads will come in a bit yeah. Yeah. I think I think that's right I think it's a combo of the two.

As I mentioned.

Historically, we've lent in the, call it, eight and a quarter to eight and a half range. So we're, in our mind, getting back to where we've always been.

Historically, we've been we've lenten call at eight and a quarter to eight and a half range. So we're sort of in our mind getting back to kind of where we've always been so it doesn't doesn't feel.

extraordinary for us.

Extraordinary for US we were.

over-subscribed in both of the securitizations.

Oversubscribed and both of the securitization.

So we saw good demand there and just in talking to market participants.

And so we saw good demand there and just in talking to market participants. There you know they're big struggle is really just whereas the fed gonna go and what's the right level to put money to work at so I think Fortunately because we are out in the market frequently you know.

you know they're big struggle is really just where is the fed can it go and you know what what right level put money to work at so

I think, fortunately, because we are out in the market frequently, it blends.

Blends, which is sometimes we could get amazing execution, sometimes we get poor execution, but most of the time, we get what we expected. So I think as as we get more certainty and clarity from the fed and inflation.

get amazing execution, sometimes we get poor execution, but most of the time we get.

as we get more certainty and clarity from the Fed and inflation and where rates are going, we'll see more investors on the fixed incomes

It's are going we'll see more investors.

Fixed income side, putting money to work.

Yep. Makes sense. And if you step away from the market, you're not sure your investors will be there when you decide to come back. Right. So I hear you loud and clear. Thanks for the comments. I'm sure the other guys have some things to ask, too. Thank you, Steve. I'll just leave it there.

Yep.

Makes sense in a few step away from the market you're not sure. Your investors will will be there when you decide to come back so right I hear you loud and clear thanks for the comments I'm I'm sure. The other guys have.

Some things to ask me.

Thank you just leave it there yes.

Again, if you have a question, please press star, then 1.

Again, if you have a question. Please press Star then one.

There are no other questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Chris Farrar for closing remarks.

There are no other questions at this time. This concludes our question and answer session I would like to turn the conference back over to Chris rock or closing remark.

Thank you so much.

Excited to present our quarterly results. Our calls tend to be very simple because we have a very simple business and we try to keep it that way.

You know excited to present, our quarterly results are calls tend to be very simple because we have a very simple business and we try to keep it that way so.

We appreciate everyone's support and we'll talk to everybody next quarter. Thanks so much. Thank you everybody for your participation.

I appreciate everyone's support and we'll we'll talk to everybody next quarter. Thanks. So much. Thank you everybody for participating have a nice day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

That's what I'm thinking now concluded. Thank you for attending today's presentation you may now disconnect.