Q1 2024 Velocity Financial Inc Earnings Call

Operator: Good day, and welcome to the Velocity Financial Inc. 1st Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Chris Oltmann, Treasurer. Please go ahead.

Good day and welcome to the velocity Financial Inc.

Christopher J. Oltmann: First quarter 2024 earnings conference call.

Operator: All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Christopher J. Oltmann: After today's presentation there'll be an opportunity to ask questions.

Operator: To ask a question you May Press Star then one on your Touchtone phone.

Operator: To withdraw your question. Please press Star then two.

Operator: Please note this event is being recorded.

Christopher J. Oltmann: I would now like to turn the conference over to Chris Oltman Treasurer. Please go ahead.

Christopher J. Oltmann: Thanks, Danielle. Hello everyone. Thank you for joining us today for the discussion of Velocity's first quarter 2024 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer.

Christopher J. Oltmann: Thanks Danielle.

Speaker Change: Hello, everyone.

Christopher J. Oltmann: And thank you for joining us today for the discussion of velocity as first quarter 2024 results.

Christopher J. Oltmann: Joining me today are Chris Ferrara, philosophy was president and Chief Executive Officer, and Mark Buchanan, yet philosophy as Chief Financial Officer earlier. This afternoon, we released our first quarter results.

Christopher J. Oltmann: Earlier this afternoon, we released our first quarter results. You can find the press release and accompanying presentation, which we will refer to during this call, on our investor relations website at www.bellfinance.com. I'd like to remind everyone that today's call may include forward-looking statements that are uncertain and outside of the company's control, and actual results may differ materially for discussion of some of the risks and other factors that could affect results. Please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission.

Christopher J. Oltmann: Can find the press release and accompanying presentation, we will refer to during this call on our in vitro Investor Relations website at Www Dot Bell for NASDAQ Com.

Christopher J. Oltmann: I'd like to remind everyone that today's call may include forward looking statements, which are uncertain and outside of the company's control and actual results may differ materially.

Christopher J. Oltmann: 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.

Christopher J. Oltmann: 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, but for reconciliations of these non-GAAP measures, you should refer to the earnings materials on our investor relations website. Finally, today's call is being recorded and will be available on the company's website later today. And with that, I will now turn the call over to Chris Farrar.

Christopher J. Oltmann: Please also note that the content of this conference call contains time sensitive information.

Christopher D. Farrar: That is accurate only as of today and we do not undertake any duty to update forward looking statements. We may also refer to.

Christopher D. Farrar: Certain non-GAAP measures on this call.

Christopher D. Farrar: Reconciliations of these non-GAAP measures you should refer to the earnings materials on our Investor Relations website.

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

Christopher D. Farrar: And with that I will now turn the call over to Chris truck.

Christopher D. Farrar: Thanks, Chris, and welcome, everyone, to our first-quarter earnings call. I'd like to start out by thanking all my team members, as we had a tremendous first quarter, as reflected in the results we released after the close.

Christopher D. Farrar: Thanks, Chris and welcome everyone to our first quarter earnings call.

Christopher D. Farrar: To start out by thanking all my team members as we had a tremendous first quarter.

Christopher D. Farrar: As reflected in our results were released after the close origination.

Christopher D. Farrar: Origination volumes were almost 75 percent higher than the previous year and reflect strong demand in our niche, especially since the first quarter is typically lighter in terms of new volumes. Our team continues to originate target assets in a disciplined way while controlling expenses to drive increased earnings and higher returns on equity. Markets are adjusting to the new interest rate realities, and we see healthy activity across the U.S. in our lending segment as we step in with favorable terms where banks have pulled back.

Christopher D. Farrar: Volumes were almost 75% higher than the previous year and reflects strong demand in our niche, especially since the first quarter is typically lighter in terms of new volume.

Christopher D. Farrar: Our team continues to originate target assets in a disciplined way while controlling expenses.

Christopher D. Farrar: To drive increased earnings and higher returns on equity.

Christopher D. Farrar: Markets are adjusting to the new interest rate realities, and we see healthy activity across the U S. In our lending segment as we step in with favorable terms, where banks have pulled back.

Christopher D. Farrar: The securitization market remains very supportive as we saw spreads tighten, more than the rise in base rates this year for the improved execution of our second deal in April versus the January securitization. Moreover, participation was broad, with 27 different investors purchasing bonds, and the deal was many times oversubscribed.

Christopher D. Farrar: The securitization market remains very supportive as we saw spreads tightened.

Christopher D. Farrar: More than the rise in base rates this year for improved execution of our second deal in April versus the January securitization.

Christopher D. Farrar: Moreover, participation was broad with 27 different investors purchasing bonds in the deal was many times oversubscribed.

Christopher D. Farrar: Our tremendous performance has produced a healthy investor base that believes in our program, and we've worked hard to earn their loyalty. In terms of our portfolio, we continue to execute well by resolving delinquent assets favorably, and our special servicing team has done a great job of driving positive results. We see plenty of fresh money available to purchase the real estate securing our loans when priced appropriately, and values are holding up well. In terms of capital, we placed $75 million in new corporate debt in February to fuel our goal of increasing the portfolio to $5 billion in UPB by 2025.

Christopher D. Farrar: Our tremendous performance has produced a healthy investor base that believe in our program and we've worked hard to earn their loyalty.

Christopher D. Farrar: In terms of our portfolio, we continue to execute well by reserve by resolving delinquent assets favorably and our special servicing teams done a great job of driving positive results.

Christopher D. Farrar: We see plenty of fresh money available to purchase the real estate, securing our loans when priced appropriately and values are holding up well.

Christopher D. Farrar: In terms of capital, we placed $75 million in new corporate debt in February to fuel our goal of increasing the portfolio to 5 billion in your P. B by 20 to 25.

Christopher D. Farrar: Importantly, as you saw in the press release, we have plenty of liquidity to meet those targets as we grow. Speaking of growth, we issued a company record $2 billion worth of LOIs in the month of April and received the most new applications we've had in over two years at just under $400 million in combined UPVMs. Obviously, our pipeline is strong, and customers are responding to our offering. The team is excited and engaged to persist in taking market share, and our strategy of retaining earnings, growing book value, and redeploying capital into high-returning assets will continue to drive earnings growth and shareholder value into the future. That concludes my prepared remarks, and we'll turn over to the presentation, starting on page three.

Christopher D. Farrar: Importantly, as you saw in the press release, we have plenty of liquidity to meet those targets as we grow.

Christopher D. Farrar: Speaking of growth, we issued a company record $2 billion worth of L. O lies in the month of April.

Christopher D. Farrar: Received the most new applications, we've had in over two years at just under $400 million and combined U P V.

Christopher D. Farrar: Obviously, our pipeline is strong and customers are responding and responding to our offering.

Christopher D. Farrar: The team is excited and engaged.

Christopher D. Farrar: Persistent taking market share in our strategy of retaining earnings growing book value and redeploying capital into higher returning assets will continue to drive earnings growth.

Christopher D. Farrar: And shareholder value into the future.

Christopher D. Farrar: That concludes my prepared remarks, and we'll turn it over to the presentation starting on page three.

Christopher D. Farrar: Obviously, great results from an income perspective. The core EPS of 51 cents a share is an all-time high for the company, driven largely by the fair value gains from new originations and the net interest margin coming off the portfolio. The third bullet point there, you can see the NIM up nicely year over year, and all of those combined to drive higher pre-tax ROEs, which we present ROEs on a pre-tax basis as many of our comparable companies are not taxpayers.

Christopher D. Farrar: Obviously great.

Christopher D. Farrar: Great results from our from an income perspective, the core E. P. S. A 50 once a ship 51 cents a share is it.

Christopher D. Farrar: All time high for the company.

Christopher D. Farrar: Driven largely by the.

Christopher D. Farrar: The fair value gains from new originations and that and the net interest margin coming off the portfolio.

Christopher D. Farrar: The third bullet point, there you can see the NIM up nicely.

Christopher D. Farrar: Year over year, and all of those combine to drive higher pretax ROE, we should represent our always on a pretax basis says.

Christopher D. Farrar: Many of our comparable companies are not taxpayers.

Christopher D. Farrar: In terms of production and the loan portfolio, Again, very strong production for the first quarter continued into April, as I mentioned, and the pipeline is very healthy. The portfolio is up nicely here over here. NPLs are manageable at just around 10%.

Christopher D. Farrar: In terms of production in the loan portfolio.

Christopher D. Farrar: Again very strong production for the first quarter continued into April as I mentioned and the pipeline is very healthy.

Christopher D. Farrar: Portfolio was up nicely year over year.

Christopher D. Farrar: Npls are manageable.

Christopher D. Farrar: Just around 10%.

Christopher D. Farrar: And most importantly, for that metric, we continue to see positive gains in the resolution, from a financing and capital perspective. I mentioned the January securitization and also completed the April securitization. Those markets are very, very strong right now. We've got plenty of liquidity and warehouse capacity.

Christopher D. Farrar: And most importantly from that metric, we continue to see positive gains in the resolutions.

Christopher D. Farrar: From a financing and capital perspective.

Christopher D. Farrar: I mentioned the January securitization and also completed the April securitization of those markets are very very strong right now.

Christopher D. Farrar: We've got plenty of liquidity and warehouse capacity.

Christopher D. Farrar: And as I mentioned, we issued those new notes to fuel our growth. Turning to page four, on the left-hand side is a reconciliation of our core adjustments related to stock transactions. And then on the right-hand side is a walk-up in book value as we continue to... retain our earnings and grow the book value, as I mentioned. On the far right, we've added two bars there to try to give folks a sense of...

Christopher D. Farrar: And as I mentioned, we issued those new notes to fuel our growth.

Christopher D. Farrar: Turning to page four on the left hand side is a reconciliation of our core adjustments are related to stock transactions.

Christopher D. Farrar: And then on the right hand side is a walk up in book value as we continue to.

Christopher D. Farrar: Retained earnings and grow the book value as I mentioned on the far right.

Christopher D. Farrar: We added two bars, there to try to give folks a sense of.

Christopher D. Farrar: The embedded gains in the in the amortized cost portfolio and if they were to be brought into book value.

Christopher D. Farrar: The embedded gains in the amortized cost portfolio and if they were to be brought into book value, I want to make the point that we think there's significant unlocked value there and as we move forward as a firm over time, work, and move the whole balance sheet to the fair value option, think that there will be a much higher book value for all shareholders. But after that, I'll turn it over to Mark to start on page 5.

Christopher D. Farrar: I want to make the point that there's we think there's significant unlocked value there.

Mark: And as we move forward as a firm over time.

Mark: And moved the whole balance sheet to the fair value option.

Mark: We think that there'll be much higher.

Mark: Book value for all shareholders.

Christopher D. Farrar: With that I'll turn it over to Mark to start on page five.

Mark R. Szczepaniak: Thanks, Chris. Hi everyone. Our first quarter of the year started out the year, as Chris mentioned, on a positive note, with strong loan originations and a healthy securitization market. On page 5, loan production for the first quarter was almost $379 million in UPB. That's a 7.5% increase from $352 million in Q4 of last year, and I think, as Chris mentioned, almost a 75% increase year over year. Strong production growth during Q1 was achieved, with the new weighted average coupon on originations at 11.1% for the quarter.

Mark: Thanks, Chris Hi, everyone.

Mark R. Szczepaniak: And the weighted average coupon on our originations has averaged 11% for the last five quarters. The growth and originations in Q1 were also at tighter credit levels, with the weighted average loan-to-value for the quarter at just under 64%.

Mark R. Szczepaniak: Our first quarter of the year started out the year as Chris mentioned out on a positive note with strong loan originations and a healthy securitization market on page five loan production for the first quarter was almost $379 million in U P. D that seven 5% increase from $352 million in Q4 of <unk>.

Mark R. Szczepaniak: Last year, and I think as Chris mentioned, almost 75% increase year over year.

Mark R. Szczepaniak: The strong production growth during Q1 was achieved with the new weighted average coupon on originations at 11, 1% for the quarter and the weighted average coupon on originations has averaged 11% for the last five quarters. The growth in originations in Q1 was also a tighter credit levels with a weighted average loan to value.

Mark R. Szczepaniak: For the quarter at just under 64%.

Mark R. Szczepaniak: Strong Q1 production growth at the high weighted average coupon and the low LTV further demonstrates the continued borrower demand for our product. As a result of the strong growth in production, page 6 shows a similar growth in Q1 for our overall loan portfolio. The total loan portfolio as of March 31st was almost $4.3 billion. That's a 5.1% increase from Q4 of last year and over a 19% increase year over year.

Mark R. Szczepaniak: Strong Q1 production growth at the high weighted average coupon in the low LTV further demonstrates the continued borrowing demand for our product.

Mark R. Szczepaniak: As a result of the strong growth in production on page six shows a similar growth in Q1 for our overall loan portfolio. The total loan portfolio as of March 31st was almost $4 3 billion. That's five 1% increase from Q4 of last year and over a 19% increase year over year.

Mark R. Szczepaniak: The weighted average coupon on our total portfolio as of March 31st was 9.07 percent, 19 basis points higher than at the end of last year and 92 basis points higher year over year. The Portfolio Weighted Average Loan-to-Value ratio declined slightly to 67.6 as of March 31st, compared to 67.8 as of the end of last year and 68.1 as of Q1'23.

Mark R. Szczepaniak: The weighted average coupon on our total portfolio as of March 31 was 9.07% 19 basis points higher than at the end of last year, and 92 basis points higher year over year.

Mark R. Szczepaniak: The portfolio weighted average loan to value ratio declined slightly to 67 six as of March 31, compared to 67.8 as at the end of the year last year and $68 one as of Q1 'twenty three.

Mark R. Szczepaniak: So again, generating strong production at high weighted average coupons with still a low weighted average loan-to-value ratio. On page 7, as Chris mentioned, our Q1 NIM decreased 17 basis points from Q4 and increased 12 basis points year-over-year as our portfolio yield remained relatively flat quarter-over-quarter but increased year-over-year by 71 basis points. Well, our cost of funds increased 18 basis points quarter over quarter and 60 basis points year over year. The slight quarterly decrease in NIM was mainly driven by the timing of NPL interest, which is recorded as it's received on a cash basis.

Mark R. Szczepaniak: Again generating strong production at high weighted average coupons with still low weighted average loan to value ratios.

Mark R. Szczepaniak: On page seven as Chris mentioned, our Q1, NIM decreased 17 basis points from Q4, and increased 12 basis points year over year as our portfolio yield remained relatively flat quarter over quarter, but increased year over year by 71 basis points, while our cost of funds increased 18 basis points quarter over quarter and 60 basis.

Mark R. Szczepaniak: Points year over year, the quarter over quarter, a slight decrease in NIM was mainly driven by the timing of the NPL interest, which was recorded as it's received on a cash basis.

Mark R. Szczepaniak: While short-term base financing rates increased during Q1, we continue to see an improvement in the overall securitization market, and the strong growth and originations, coupled with a healthy NIM, are reflected in our Q1 earnings. On page 8, our non-performing loan rate at the end of Q1 was 10.1%, compared to 9.7% for Q4 last year and 8.7% for Q1 year-over-year. The ongoing strong collection efforts by our special servicing department have resulted in continued resolutions of our NPL loans and favorable gains.

Mark R. Szczepaniak: While short term find their based financing rates increased during Q1, we continue to see an improvement in the overall securitization market and a strong growth in originations coupled with the healthy NIM is reflected in our Q1 earnings.

Mark R. Szczepaniak: On page eight our nonperforming loan rate at the end of Q1 was 10, 1% compared to nine 7% for Q4 of last year and $8 seven for Q1 year over year.

Mark R. Szczepaniak: The ongoing strong collection efforts by our special servicing Department has resulted in continued resolutions or NPL loans have favorable gains in.

Mark R. Szczepaniak: The table on page 9 highlights this continued success of our NPL resolution efforts. In Q1, we resolved almost $55 million worth of UPV of NPL loans and REOs for a net gain of $1.3 million, or 2.3%. We've averaged about a 2.5% gain on NPL resolutions over the last five quarters. And again, that's a gain over and above collecting all the contractual principal interest.

Mark R. Szczepaniak: The table on page nine highlights the continued success of our NPL resolution efforts in Q1, we resolved almost $55 million worth of U P. D of NPL loans and <unk> for a net gain of $1 3 million or two 3%.

Mark R. Szczepaniak: We've averaged about a 2.5% gain on NPL resolutions over the last five quarters and again, that's again over and above collecting all of the contractual principal interest.

Mark R. Szczepaniak: Page 10 presents a Cecil Oatloss Reserve and Net Loan Charge-off and REO Activity. The CECL reserve as of March 31st was 5.3 million, or 19 basis points of our outstanding non-fair value loans health reinvestment portfolio, and our CECL reserve is within our expected range of 15 to 20 basis points. The Cecil Loan Loss Reserve, as a reminder, does not include loans being carried at fair value.

Mark R. Szczepaniak: Page 10 presents a seasonal loan loss reserve.

Mark R. Szczepaniak: Yeah.

Mark R. Szczepaniak: And net loan charge off at all REO activity.

Mark R. Szczepaniak: So reserve as of March 31 was $5 3 million or.

Mark R. Szczepaniak: 19 basis points of our outstanding non fair value loans held for investment portfolio.

Mark R. Szczepaniak: These reserves within our expected range of 15 to 20 basis points.

Mark R. Szczepaniak: The loan loss reserve as a reminder, does not include loans being carried at fair value.

Mark R. Szczepaniak: The table to the right of the page shows our net gain or loss from charge-offs and REO-related activities during the quarter. For Q1, we had a net loss on charge-offs and REO-related activities of $800,000, compared to a net loss of $300,000 for Q4 of 23. Page 11 shows our durable funding and liquidity position at the end of Q1. Total liquidity as of March 31st was almost $79 million, comprised of about $35 million in cash and cash equivalents and another $44 million in available liquidity on unfinanced collateral.

Mark R. Szczepaniak: The table to the right of the page shows our net gain loss from charge offs and Oreo related activities. During the quarter for Q1, we had a net loss on charge offs and our real estate activities of $800000 compared to a net loss of $300000 for Q4 23.

Mark R. Szczepaniak: Page 11 shows our durable funding and liquidity position at the end of Q1 total liquidity as of March 31 was almost $79 million comprised of about $35 million in cash and cash equivalents and another $44 million in available liquidity on financed collateral.

Mark R. Szczepaniak: We did issue, as Chris mentioned, one securitization in Q1. In January, we issued the 2024-1 security, totaling just under $210 million in securities issued. Our available warehouse line capacity as of March 31st was 529 million with a maximum line capacity of 85. In February, we entered into a $75 million five-year senior secured note at a fixed rate of $9.875 to support continued growth of the company. And then, subsequent to quarter end in April, we completed our second securitization of the year, totaling $295 million of securities issued. With that, I'd like to now turn the presentation back to Chris for an overview of Velocity's outlook on key business drivers. Chris?

Mark R. Szczepaniak: In February we entered into a $75 million five year senior secured notes at a fixed rate 9.875 to support continued growth of the company.

Christopher D. Farrar: Thanks Mark. I think as we look forward, the market seems healthy, and values are holding up, as I mentioned. There are good employment levels, and the economy seems to be... doing well. From a capital perspective, as I mentioned, securitization markets are a tailwind for us right now, and we're very fortunate to take advantage of that, and from an earnings perspective, obviously. We're seeing the benefits pick up there, and we expect to continue to grow our earnings going forward. So, all in all, very positive and very optimistic about the future. And that wraps up our prepared presentation, and we'll open it up for questions.

Mark R. Szczepaniak: With that I'd like to now turn the presentation back to Chris for an overview of last year's outlook on key business drivers Chris.

Christopher D. Farrar: Doing well.

Christopher D. Farrar: Securitization markets are a tailwind for US right now and we're very fortunate to take advantage of that.

Christopher D. Farrar: And from an earnings perspective, obviously.

Christopher D. Farrar: We're seeing the benefits pick up there and.

Christopher D. Farrar: We expect to continue to grow our earnings going forward.

Operator: 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. If at any time your question has been answered and you would like to withdraw your question, please press star, then 2. The first question comes from Stephen Laws from Raymond James. Please go ahead.

Christopher D. Farrar: Hi, good afternoon. Congratulations on a great start to the year. Chris, I wanted to touch on a few things with regard to your production. April, obviously, started off where you're kind of on pace to meet or exceed Q2, but notice the LTV on New Originations continues to drop, so it seems like you're sacrificing volumes to improve credit while you're able to maintain the coupon. I just wanted you to touch on that and what you're seeing in the market and what that should do longer term. Will we eventually see a trending down on non-performing loans, or is that part of this type of product, and we'll eventually see larger gains on resolutions given you're attached to a more conservative level on collateral?

Speaker Change: Congrats on a great start to the year, Yeah, Chris wanted to touch on a few things with regards to to.

Christopher D. Farrar: Sure, Steven. Good, good questions. You know, I think we're, as we said before, seeing better opportunities at lower LTVs, so we're taking advantage of those. But we are very protective of our margins. We want to deploy capital, you know, efficiently and make sure we earn a return. And to us, the way we look at it, risk reward is very important. So we're not the kind of firm that's going to just do volume for volume. We want to do it at healthy margins, so that's really what's driving those decisions. I do think so.

Christopher D. Farrar: The delinquency is going to largely just depend on, you know, the overall economy and how things go going forward. I would expect, with lower LTVs, continued to see very positive resolutions. Our, our sort of forecast for, those resolutions remains the same. We still think we'll end up with positive outcomes there. So, yeah, we like the credit dynamics that we're seeing and hope to continue to grow there.

Christopher D. Farrar: Great. And one follow-up question, you know, kind of looking at the mix of loan production, you know, the investor one to four rental, you know, kind of looking at the trailing four-quarter average, you know, 167, sort of right in line with what you've been doing, commercials have grown, you know, materially. So, you know, is that filling a void? You know, why are you seeing a better opportunity there? And maybe that points a little more to the competitive landscape, but I'd be curious to get your thoughts on kind of a little bit of a shift or more opportunity you're seeing on the commercial side.

Christopher D. Farrar: Yeah, that's a good observation. I think that's an uptick as a result of the banks continuing to tighten and pull back. We're definitely seeing more demand there. We sort of set up our program on an agnostic basis where we're happy to do either product, and we try to price accordingly.

Christopher D. Farrar: So we haven't made many changes there. It's mainly been a market shift where I think there's just. Banks are being tougher, and so we're seeing more share.

Christopher D. Farrar: Great. Well, again, congrats on a great start to the year, and I appreciate your comments this afternoon.

Operator: Again, if you have a question, please press star 1. The next question comes from Steve DeLaney from Citizens JMP. Please go ahead. Hello, everyone.

Operator: Sir, hello everyone. Great quarter. Nice to be on air with you tonight.

Christopher D. Farrar: Chris, yeah, sure. You guys are out in the LA area, and you've got your headquarters there, but can you talk a bit about the regional management structure that you have around the country and how are you using it, how are you attacking individual targeted geographic markets? So just sort of your management structure underneath you or Jeff on the production side. Thanks.

Christopher D. Farrar: Hi Steve. So... We kind of split the country in two. We have two operation centers, if you will, one on the East Coast and one on the West Coast, just to handle the different time zones. Okay. Makes sense. Yeah.

Christopher D. Farrar: And then we have, you know, several different sales locations to reach our customers. But from a geography perspective, we try to target the larger MSAs where properties are more liquid, and we tend to stay away from the rural and tertiary markets where we don't want to be sitting on an asset for a year or two trying to sell it in smaller settings. So those are the two things that drive our portfolio strategy, and if you look at the portfolio, we're pretty highly concentrated on the coasts and then along kind of the Texas area as well.

Christopher D. Farrar: [inaudible] Your contact with the borrowers, I assume you use the internet. Are you also working on coordination?

Christopher D. Farrar: Yes, that's our primary source of business. I thought it would be. Yeah. Yeah, we call them lead generators, and so they basically bring us the transaction, and we take over from there, and that's primarily how we market and educate.

Christopher D. Farrar: We cover United Wholesale. It's working pretty well for them in terms of a recognition strategy, so I'm not surprised that you're using that.

Christopher D. Farrar: Have you been growing these broker relationships can you comment on how many you have and over the last year or two is that increasing.

Christopher D. Farrar: Can you share with us how you have been growing these broker relationships? Can you comment on how many you have had over the last year or two? Is that increasing your number of touch points?

Speaker Change: Number of touch points. Yeah. We are we are growing our the number of approved brokers were also adding sales folks so by adding sales folks they tend to break.

Christopher D. Farrar: Yeah, we are growing our number of approved brokers. We're also adding sales folks. So by adding sales folks, they tend to bring relationships with them or, you know, prior existing contacts, and so yet, you know, we have a little over 2,000 approved brokers, and we're adding to that list, you know, quarterly.

Christopher D. Farrar: Breaking relationships with them or you know prior existing contacts and so yeah. You know we have.

Christopher D. Farrar: Little over 2000 approved brokers and where we're adding to that list you know quarterly.

Christopher D. Farrar: Very helpful. Thank you very much.

Speaker Change: Very helpful. Thank you very much okay. Thank you Steve.

Operator: This concludes our question. Oh, I'm sorry. There's another question. The next question comes from Eric Hagan from BTIG. Please go ahead.

Speaker Change: This concludes our question Oh I'm sorry, there's another question.

Operator: Hey, thanks, hope you're well. Thanks for sneaking me in. On the REO sales, can you share how, you know, any trends that would have sort of led to successfully exiting those assets at a gain and how quickly you might be able to work through the remainder of the...

Eric Hagan: Hey, Thanks Hope you well thanks for sneaking me in on the Oreo sales can you share how you know any trends on what.

Operator: What sort of led to successfully exiting those assets at a gain and how quickly you might be able to work through the remainder of the RVO pipeline.

Christopher D. Farrar: Yeah, sure, hi, Eric. You know, we try to price our REOs so that they'll move fairly quickly. We are pretty disciplined there and try to avoid kind of the perception of a kind of distressed lender bank kind of blowout. So oftentimes, we will put a little TLC into our REOs to get them ready for market. So I think we probably take a little longer than most folks to sell REOs, but it shows up in the recovery rates, and you can see in the actual final... Resolutions.

Speaker Change: Yeah, sure Hi, Hum.

Christopher D. Farrar: You know, we we try to price our oreos, you know where they'll move fairly quickly we are.

Christopher D. Farrar: Pretty disciplined there and try to avoid kind of the perception of a kind of distressed lender bank kind of blow out. So oftentimes, we will put a little TLC into our oreos to get them ready for market. So I think.

Christopher D. Farrar: We'd probably take a little longer than most folks to sell oreos, but.

Christopher D. Farrar: It shows up in the recovery rates and you can see in the actual final Reza.

Christopher D. Farrar: Resolutions, we typically sell them for a little better or right, where we had a marked so it's our teams are pretty good at it trying to figure out you know where that where that property will transact.

Christopher D. Farrar: We typically sell them for a little better or right where we had them marked. So our team's pretty good at trying to figure out where that property will sell. And fortunately, we see a lot of buyers show up at either foreclosure sales or after the fact once we get the property on the market. So I would say. You know, it's going to take us time to work through them all. I think that we still have new ones coming on, so I would say we'll stay at this level probably for the rest of the year, kind of on a net basis, as new ones come on and old ones come off.

Christopher D. Farrar: Yep, yep, that's helpful. Thank you.

Christopher D. Farrar: The market.

Christopher D. Farrar: It's going to take us time to work through.

Christopher D. Farrar: Those oreos and I think that we still have new ones coming on so I would say, we'll stay at this level probably for the rest of the year kind of on a net basis.

Christopher D. Farrar: I think one other thing to note is that over 95% of our non-performing loans are resolved by either paying off or paying current; less than 5% ever even make it to foreclosure or the REL process.

Christopher D. Farrar: Yep. No, that's definitely helpful. Thanks for fleshing that out.

Christopher D. Farrar: Looking at the liquidity position, it's around $80 million. How comfortable do you feel there? Any kind of minimum level of liquidity you feel like you have to run with with your leverage at this level? And then are there any opportunities to call and maybe re-lever any of the securitized debt that you have in the stack?

Christopher D. Farrar: Thank you. Sure. Absolutely.

Christopher D. Farrar: Sure, absolutely. So, from a liquidity perspective, I feel very good there. You know, by retaining our earnings, that's also additional fuel and capital as we go forward. So we just continue to recycle that capital. So we've got very strong visibility well into next year from that perspective.

Christopher D. Farrar: And then in terms of collapse opportunities, we do have two securitizations out there, one of them was a, We've sort of done it on all of our delinquent assets from prior collapse deals. There's a significant amount of equity locked up there that will roll off sometime next year. And then there's one other transaction that we have an opportunity to pull some capital out of as it ultimately pays off or call it away. You know, combined, that's in excess of probably $75 million.

Christopher D. Farrar: The rest of the transactions are structured as pro-rata paydowns, so we did that intentionally because we own this risk, and so it kind of works nicely. We're really not incented to call those deals away because our cost of funds is staying very stable. As in a sequential structure, these costs of funds tend to spike near the end of their lives, but they stay very stable for us. By and large, most of the deals we probably won't call or collapse until near the very end because of that stable fixed rate financing.

Christopher D. Farrar: That's great. Thank you guys so much. I appreciate it. You're welcome. Thank you.

Christopher D. Farrar: This concludes our question and answer session. I would like to turn the conference back over to Chris Farrar for closing remarks.

Christopher D. Farrar: This concludes our question and answer session I would like to turn the conference back over to Christopher Marr for closing remarks.

Christopher D. Farrar: Thanks again to everybody on the call for taking the time to hear our story, and we look forward to catching up with everyone again next quarter.

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

Christopher D. Farrar: Thanks again for everybody.

Christopher D. Farrar: On the call taking the time to hear our story and we look forward to catching up with everyone again next quarter.

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

Operator: Yeah.