Q1 2025 Velocity Financial Inc Earnings Call
Operator: Good day and welcome to Velocity Financial Inc first quarter 2025 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.
Good day, and welcome to velocity Financial Inc. First quarter 2025 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 yearend.
Operator: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw your question please press star then two. Please note this event is being recorded.
Today's presentation there'll be an opportunity to ask questions to ask the question.
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Chris Lal: Withdraw your question. Please press Star then two please note. This event is being recorded I would now like turn the conference over to Mr. Chris Lal Treasurer. Please go ahead.
Christopher Oltmann: I would now like to turn the conference over to Mr. Chris Oltmann, Treasurer. Please go ahead. Thanks, Kayleigh.
Chris Lal: Thanks Kelly.
Christopher Oltmann: Hello everyone and thank you for joining us today for the discussion of Velocity's first quarter 2025 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our first quarter results, and you can find the press release and the accompanying presentation we will refer to during this call on our Investor Relations website at www.bellfinance.com.
Speaker Change: Hello, everyone and thank you for joining us today for the discussion of philosophy as the first quarter of 2025 results.
Speaker Change: Joining me today are Chris Ferrara, while she was president and Chief Executive Officer, and Mark, Japan Philosophy, as Chief Financial Officer.
Speaker Change: Earlier. This afternoon, we released our first quarter results and you can find the press release and the accompanying presentation. We will refer to during this call on our Investor Relations website at Www Dot Delta announced dot com.
Christopher 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. For discussion of the results, please see the risk factors and other cautionary statements made in our communications with shareholders. including risk factors disclosed in our filing for the securities in exchange.
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.
Speaker Change: For a discussion of the results. Please see the risk factors and other cautionary statements made in our communications with shareholders.
Speaker Change: Yeah.
Speaker Change: Including the risk factors disclosed in our filings with the Securities and Exchange Commission.
Christopher 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. For reconciliations of these non-GAAP measures, you should refer to the earnings materials on our Investor Relations website.
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. 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.
Christopher Oltmann: Finally, today's call is being recorded and will be available on the company's website later today.
Speaker Change: Finally, today's call is being recorded and will be available on the company's website later today.
Christopher Farrar: And with that, I will now turn the call over to Chris Farrar. Thanks, Chris. And we appreciate everyone joining our first quarter earnings call. The strong momentum we experienced in 2024 carried into the first quarter this year. As we originated $640 million in new loans, an increase of 69% versus the prior year, which drove a 27% increase in net revenue. a 17%. Our team grew production and remained disciplined by preserving our spreads and credit standards. We continue to see increased demand for all property types with a more recent tilt. and Robust Margins in both programs. forward, our pipeline is strong and growing across With respect to the portfolio, we continue to realize a consistent net interest Cash Flows, and our special servicing...
Chris Shaw: With that I will now turn the call over to Chris Shaw.
Speaker Change: Thanks, Chris and we appreciate everyone joining our first quarter earnings call. The strong momentum we experienced in 2024 carried into the first quarter of this year.
Speaker Change: We originated $640 million in new loans, an increase of 69% versus the prior year, which drove a 27% increase in net revenue and.
Speaker Change: And a 17% increase in core pre tax earnings.
Speaker Change: Our team grew production and remain disciplined by preserving our spreads and credit standards.
Speaker Change: We continue to see increased demand for all property types with a more recent tilt toward commercial loans versus the investor one to four residential loans.
And robust margins and both products.
Speaker Change: Looking forward, our pipeline is strong and growing across the board.
Speaker Change: With respect to the portfolio, we continue to realize consistent net interest income and healthy cash flows and our special servicing team is doing a great job.
Christopher Farrar: Great job. Resolving Delinquent Assets. Real estate markets remain healthy with plenty of dry capital ready to deploy. For Capital Markets Perspective, we've been very busy this year with four successful debt transactions already. And we issued three new securitizations, paid down debt and collapsed one of our re-REMICs, and also sold new shares through our AT&T. Despite the recent volatility, we are very encouraged to see healthy investor demand and participation. We appreciate all our partners that have supported our platform for so many years. Although the markets are choppy, our team is well prepared to operate. and we believe we offer a great platform for investment.
Speaker Change: Ah resolving delinquent assets favorably.
Speaker Change: Our real estate markets remained healthy with plenty of dry capital ready to deploy and reasonably priced assets.
Speaker Change: From a capital markets perspective, we've been very busy this year with four successful debt transactions already completed.
Speaker Change: And we.
Speaker Change: We issued three new Securitizations pay down debt and collapsed one of our re remics and also sold new shares through our ATM program.
Speaker Change: Despite the recent volatility we are very encouraged to see healthy investor demand and participation in our offerings.
Speaker Change: We appreciate all our partners that are support our supported our platform for so many years.
Speaker Change: Although the markets are choppy our team is well prepared to operate in this environment and we believe we offer a great platform for investors to earn consistent compelling returns.
Christopher Farrar: I want to congratulate all Velocity team members on another fantastic quarter, and as always, we'll continue to work hard to deliver shareholding. With that, I'll turn it over to today's presentation, starting on. As I mentioned, strong net income, core earnings of $0.55 a share. a share a year ago. our second best quarterly earnings in the company history. just a little bit below. 4 of last year. mentioned the production of the on a net basis, the portfolio. 27% and non-profit organizations. relatively stable at 10.8 percent. importantly there. above par resolutions continue, which is. In the financing and capital section, I mentioned the first securitization we completed with a weighted average rate of 6.7%.
Speaker Change: I want to congratulate all velocity team members on another fantastic quarter and as always we'll continue to work hard to deliver shareholder value.
Speaker Change: With that I'll turn it over to the.
Speaker Change: Today's presentation, starting on slide three.
Speaker Change: As I mentioned strong net income core earnings of 55 cents a share up from 51 cents a share a year ago.
Speaker Change: And our second best quarterly earnings in the company history, I'm, just a little bit below what we did in Q4 of last year.
Speaker Change: Mentioned the production the Vulcan day on a net basis the portfolio is up 27%.
Speaker Change: And nonperforming loans continue to be relatively stable at 10, 8%.
Speaker Change: Most importantly, there.
Speaker Change: N P. A resolutions again in the quarter of 102.4.
Speaker Change: Above par resolutions continue which is great.
Speaker Change: In the financing and capital section.
Speaker Change: The first securitization organization, we completed with a weighted average rate of six 7%.
Christopher Farrar: collapsed the re-Remek which freed up uh... we issued one point six common shares, just under $29 million of proceeds. and those shares. In terms of our liquidity and warehouse capacity, you can see we're in great shape. on page 4. one of the other securitizations. did in early April was our short... backed by our short-term loans. And that was another successful transaction. And the third one listed here on this page. The second deal that we did, and I highlight this one. for a very important reason, priced April 8th. you know, in the heart of all of.
Speaker Change: Collapsed, the re remic, which freed up $52 $6 million of retained securities that are available to us to do with whatever we want.
Speaker Change: We issued 1.6 million common shares just under $29 million of proceeds.
Speaker Change: And those shares were accretive to book value.
Speaker Change: In terms of our liquidity and warehouse capacity you can see we're in great shape there.
Speaker Change: On page four.
Speaker Change: One of the other Securitizations. We did early April was a short term.
Speaker Change: Backed by our short term loans and that was another successful transaction and the third one listed here on this page.
Speaker Change: What was the second deal that we did.
Speaker Change: I like this one for a very important reason priced April 8th and AR that was you know in the <unk>.
Speaker Change: Heart of all of the disc.
Christopher Farrar: Disruption, and the Mark see our weighted average rate actually was 30 bps better than our first. part of the year. So, again, thank you. Although there's all this volatility, we continue to see strong support from our investors.
Speaker Change: Disruption in the market and as you can see our weighted average rate actually was 30 bps better than our first deal.
Speaker Change: In the first part of the year so again.
Speaker Change: Although there's all this volatility we continue to see strong support from our investors and we're very pleased with the execution we've seen so far this year.
Christopher Farrar: On page 5, walk... Corp. earnings. right. build up in book value. Far-Right. make an adjustment if GAP allowed us to adjust. all of are held for cost loans to fair value. adjusted book value of $18.50 a share. that is that. reflective of all of the assets that are in place and on the balance sheet. So you can see we're getting nice growth in book value as we retain our earnings and execute on our strategy.
Speaker Change: On page five walk you through just a simple adjustments that we make to get to core earnings.
Speaker Change: And then on the right we have a bridge showing the buildup in book value and to the far right.
Speaker Change: We make an adjustment if gap allowed us to adjust.
Speaker Change: All of our held for cost loans to fair value.
Speaker Change: We would we would we'd be reporting an adjusted book value of $18.50 a share.
Speaker Change: That is that is reflective of all of the assets that are in place and on the balance sheet at 331.
Speaker Change: So you can see we're getting nice growth in book value as our as we retain our earnings and execute on our strategy.
Mark Szczepaniak: With that, I'll turn the presentation back over to Mark. Thanks, Chris.
Mark: I'll turn the presentation back over to Mark to continue.
Speaker Change: Thanks, Chris.
Mark Szczepaniak: Good afternoon, everyone.
Mark Szczepaniak: In the first quarter, as Chris mentioned, we saw continued strong production, actually setting a record for the company for a single quarter's production, a production of $640.4 million for the quarter, which is a 13.7% increase from Q4 of last year. We had 1,500 loans funded in the first quarter, and that was an increase of almost 18% on a loan-count basis over the previous quarter. The strong production growth during Q1 included the weighted average coupon on new health investment originations continuing to be strong at 10.5%. And the weighted average coupon on our health-first investment originations for the last five quarter average trend was at 10.8%.
Mark: Everyone in.
Speaker Change: In the first quarter as Chris mentioned, we saw continued strong production.
Speaker Change: Setting a record for the company for a single quarter's production was $640 4 million for the quarter, which is a 13, 7% increase for last year. We had 1500 loans funded in the first quarter and that was an increase of almost 18% low Cal.
Speaker Change: Basis over the previous quarter.
Speaker Change: Strong production growth during Q1 included the weighted average coupon of new health investment originations.
Speaker Change: These strong at 10 a M.
Speaker Change: And the weighted average coupon on our.
Speaker Change: First in originations for the last five quarter average spread was at 10, 8%.
Mark Szczepaniak: The growth originations in Q1 also continued at tight credit levels, with the weighted average loan-to-value for the quarter being just under 63, 62.6%, and the last five-quarter average trend at 63.4.
Speaker Change: The gross originations in Q1 also continued to tighten credit months weighted average loan to value for the quarter just under 63, 66%.
Speaker Change: In the last five quarter average trends at 63.4.
Mark Szczepaniak: So the strong Q1 production at a record growth, the healthy WAC, the low LTV continues to show borrower demand for our products through all different market cycles and environments.
Speaker Change: Strong Q1 production at a record growth of healthy whack low LTV continues to show borrower demand for our products wall different market cycles and environments.
Mark Szczepaniak: We go to page 7. As a result of the continued growth in production, page 7 shows a growth in Q1 for our overall loan portfolio at the end of the quarter. Total loan portfolio as of March 31st was just under $5.5 billion in UPB, and that's a 7.8% increase from year-end 2024 and a 27.3% increase year-over-year. This weighted average coupon on our total portfolio at the end of the quarter was just under 9.6 at 9.59%, which is six basis points increase from the WAC at the end of the year and 52 basis points increase from the same time first quarter last year.
Speaker Change: We go to page seven.
Speaker Change: As a result of the continued growth of production page seven shows the growth in Q1 for our overall lung colon.
Speaker Change: Our total loan portfolio as of March 31st was just under $5 billion in U P. D. That's the seven 8% increase from year end 2024 at 27.3 increase year over year.
Speaker Change: Weighted average coupon on our total portfolio at the end of the quarter was just under $9 six at 9596 basis points increase from there.
Speaker Change: We ended the year.
Speaker Change: 52 basis points increase from the same time first quarter last year.
Mark Szczepaniak: The total portfolio weighted average loan-to-value remained consistently low at 66.1% at the end of the quarter. Going to page 8, our Q1 portfolio NIM was 3.35%, representing one of our more normalized NIMs compared to Q4 of 24. Q4 of 2024 was a little bit higher NIM due to cash interest received on non-performing loans. So the cash that comes in on non-performing loans tends to come in kind of sporadically and lumpy, and that can cause some spikes in the NIM. Our Q1 NIM was consistent on a year-over-year basis. Our portfolio yield for Q1 of this year decreased by 23 basis points quarter-over-quarter, again, due to the high cash non-performing loan interest received in Q4, but it increased year-over-year by 40 basis points, while our cost of funds increased by nine quarter-over-quarter and increased by 30 basis points year-over-year.
Speaker Change: Total portfolio weighted average loan to value remained consistently low at 66, 1% during the quarter.
Speaker Change: Moving to page eight our Q1 portfolio NIM was 335% representing one.
Speaker Change: So a more normalized here as compared to Q4 of 24 in Q4 of 2024, it was a little bit higher NIM due to cash interest received on nonperforming loans instead of the cash that comes in outperforming wells.
Speaker Change: That's radically lumpy.
Speaker Change: Cause spikes and then there are Q1 example is consistent on a year over year basis.
Speaker Change: Total yields for Q1 of this year decreased by 23 basis points quarter over quarter again due to the high nonperforming.
Speaker Change: Nonperforming loan interest received in Q4, but an increase year over year by 40 basis points, while our cost of funds increased by nine quarter over quarter increased by 30 basis points year over year.
Mark Szczepaniak: Page 9, our non-performing loan rate at the end of Q1, as Chris mentioned, was 10.8 percent. That's been relatively flat. It's 10.7 at the end of 2024, and it's been consistent for the last five quarters at an average of about 10.5 percent. We continue to see strong collection efforts by our special servicing department that have resulted in favorable gain resolutions of our NPA assets. My NPA assets include our NPL loans as well as the REOS. The table on page 10 shows the continued positive results of our in-house NPA resolution efforts. Our Q1 NPA resolution gains were $1.9 million, or 2.4% of the $76.4 million in overall UPB resolved.
Speaker Change: Page nine our nonperforming loan rate at the end of Q1 as Chris mentioned is 10, 8% that's been relatively flat at $7 seven at the end of 2024, and it's been consistent for the last five quarters at an average of about 10, 5%.
Speaker Change: Kidney to see strong collection efforts by our social search and departments that have resulted in favorable gain resolutions of our NPA assets <unk> assets, our NPL loans as well as the Oreo assets.
Speaker Change: The table on page 10 shows the continued positive results of our in house NPA resolution efforts, our Q1, FCA resolution gains were $1.9 billion or two 4% of the $76 4 million overall, NPV result, and on a trend basis in the averaging.
Mark Szczepaniak: And on a trend basis, we've been averaging about a 3.3 quarterly NPA resolution gain over the last five quarters.
Speaker Change: About $3 three quarterly NPL NPA resolution gain over the last five quarters.
Mark Szczepaniak: Page 11 presents, on the left-hand side, our CECL loan loss reserve, and on the right-hand side, our net loan charge-off and gain loss and ROI activity. The CECL reserve at the end of the quarter was 5 million, or 22 basis points, of our outstanding amortized cost total investment portfolio. The CECL reserve at the end of Q1 was slightly above our expected normal range of 15 to 20 basis points, and that's due to the latest macroeconomic forecast. CECL requires you to do a macroeconomic forecast using a modeling system and the outside model that we use. Given all of the uncertainty and the movement around in Q1 in the markets, it just had a little bit more of a severe stuff on the macroeconomic forecast.
Speaker Change: Page 11 presents the left hand side, our Cecil loan loss reserve the right hand side, our net loan charge offs gain wall scenario activity.
Speaker Change: See some reserve at the end of the quarter was $5 million or 22 basis points of our outstanding amortized cost held for investment portfolio.
Speaker Change: The seasonal reserve at the end of Q1 was slightly above our expected normal range of 15 to 20 basis points and Thats due to the latest macroeconomic forecast Cecil requires you to do a macroeconomic forecasts using a modeling system outside model that we use given all the uncertainty and the movement around in Q1 of the markets.
Speaker Change: Just had a little bit more severe.
Speaker Change: Stefan the macroeconomic forecast, there's only two basis points to 20 basis points at year end two basis points.
Mark Szczepaniak: It's only two basis points. Instead of 20 basis points a year end, it's 22 basis points. The Houston Loan Loss Reserve, remember, does not include our loans being carried at fair value, just amortized costs. And then the table to the right of this page shows our net gain loss from both loan charge drops and REO-related activities during the quarter, and for Q1, the gain on REO activities offset the net loan charge.
Speaker Change: She's a loan loss reserve coverage does not include our loans being carried at fair value just amortize cost.
Speaker Change: And then the table to the right of this page shows our net gain loss from both loan charge offs and Oreo related activities during the quarter for Q1 that gain at our El activities offset the net loan charge offs.
Speaker Change: Yeah.
Mark Szczepaniak: Page 12 shows our durable funding and liquidity position at the end of the quarter. Total liquidity as of March 31st was $75.6 million. Neps comprised of $51.7 million in cash-to-cash equivalents and another $23.9 million in available liquidity on our unfinanced collateral. In addition, the available warehouse line capacity at the end of the corner was $238 million with a maximum line capacity of 810 million. As Chris mentioned previously, in Q1, we issued our first securitization of 2025 with 342.8 million in securities issued. And then subsequent to first quarter, in April, we issued our second long-term securitization, 2025-2, and we also issued a short-term securitization, 2025-RTL1, is the securitization of our short-term loans.
Speaker Change: Page 12 shows our durable funding and liquidity position at the end of the quarter total liquidity as of March 31 was $75 6 million comprised of $51 7 million in cash cash equivalents and another $23 9 billion in available liquidity on our own finding as collateral.
Speaker Change: In addition, the available warehouse line capacity at the end of the quarter was $238 million the maximum wind capacity of 810.
As Chris mentioned previously in Q1, we issued our first securitization of 2025 to $342 8 million in Securities issued and then subsequent to first quarter in April we issued our second long term securitization 2025 dash too and we also the issue of short term securitization in 'twenty.
Speaker Change: 25, RTL, one securitization of our short term loans.
Mark Szczepaniak: And remember, the very first short-term securitization we ever did was in 2023. So in 2025, we simultaneously collapsed the 2023-RTL1 short-term securitization and issued the 2025-RTL1 securitization. And the RTL-1 securitization, the only thing I want to add about that is it includes $59 million in UPB from the old 2023 securitization that was freed up when it was collapsed and it rolled into the RTL-1 for 2025.
Speaker Change: And that remember the very first short term securitization we ever did was in 2023. So in 2025, we simultaneously collapsed the 2023, our T online short term securitization issued the 2025 RTL about securitization.
Speaker Change: And the article one securitization, it's only going to add about that is it was $59 million in U P. B from the old 2023 securitization that's freed up when it was collapsed from enrollment to the RTL one for 2025.
Mark Szczepaniak: That concludes my first quarter financial recap.
Speaker Change: That concludes my first quarter financial recap.
Christopher Farrar: I'll turn the presentation back to Chris now for an overview of our 25 outlooks. Thank you, Mark. from a market perspective. credit perspective, still seeing very good positive resolutions, I think it remains to be seen what happens with all of the tariff talk and those types of things, but from our perspective. really. Thank you. In terms of capital, we've been very active there and the markets are supportive. We feel very good about the future and the rest of this year. path.
Chris: Turn the presentation back to Chris now for an overview of our 25 outlook.
Chris: Thank you Mark.
Speaker Change: I think from a from a market perspective, you can see that we're seeing very strong healthy demand real estate markets are functioning well. So we feel good there.
Speaker Change: From a credit perspective, still and still seeing very good positive resolutions.
Speaker Change: Yeah.
Speaker Change: Think remains to be seen what happens with all of the tariff talk and those types of things, but from our perspective, we don't think it's going to have any.
Speaker Change: Impact on our business.
Speaker Change: Really.
Speaker Change: In terms of capital we've been very active there.
Speaker Change: <unk> are supportive of us in terms of earnings we feel very good about the future and the rest of this year.
Speaker Change: I'm excited to continue on our path so with that that concludes our prepared remarks, and we'll open it up for questions.
Operator: So with that Thank you for your prepared remarks and we'll open it up for questions.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time.
Speaker Change: Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Donald Fandetti: Our first question comes from Don Fandetti with Wells Fargo. Please go ahead. Hi, good evening.
Speaker Change: Our first question comes from Don D. M D D with Wells Fargo. Please go ahead.
Don D.: Hi, good evening just.
Christopher Farrar: I just wanted to clarify, it sounds like the NIM is more normalized now, so would you think Q2 would be sort of in the same zip code as Q1? Yeah, hi, Don. I think that's right. I mean, we generally target percent. So... 35 to 350 right in there.
Speaker Change: I just wanted to clarify it sounds like the NIM is more normalized now so would you think Q2 would be sort of in the same Zip code as Q1.
Don D.: Yeah, Hi, Don.
Don D.: I think that's right I mean, we generally target around three 5% so.
Don D.: 335 to $3 50, right in there is what we would say is pretty normal.
Christopher Farrar: got it, and then also on new origination yield. They've been steady, ticked down a little bit. Are you thinking that we hold in this range? we go through 2025. Yeah, I think that's right. We took the coupons down a little bit to reflect the... Reduction in our Costs to Borrow. maintaining our spread. I think, you know, it all depends on where. sort of three-to-four-year treasury. price off of three to four year interpolated rates. So wherever those rates go. The price are spread accordingly. I think our expectation is that they should be fairly stable with the possibility, I guess, of going down later in the year if the Fed continues to cut.
Don D.: Got it and then also on a new origination yields you know they've been steady ticked down a little bit are you thinking that we hold in this range.
Don D.: We go through 2025.
Don D.: Yeah, I think that's right. We we took coupons down a little bit to reflect the underlying reduction.
Don D.: The reduction in our cost of tomorrow, so maintaining our spreads that's what drove the coupon down but I think you know it all depends on where.
Don D.: Sort of three to four year Treasury.
Don D.: We price off of three to four year interpolated rates, so wherever those rates go well.
Don D.: Our spread accordingly, but I think our expectation is that they should be fairly stable with the possibility I guess sort of going down later in the year. If the fed continues to cut which remains to be seen.
Christopher Farrar: Great, thank you. Sure.
Don D.: Great. Thank you sure.
Eric Hagen: And the next question comes from Eric Hagen with BTIG. Please go ahead. Hey, thanks. Good afternoon. You noted some more commercial demand, I think, in your opening remarks. We know that transaction volume for the market is down, right? So are you guys seeing more demand because borrowers are being shut out of other channels? And on maybe like a related note, is there a level that you expect for overall origination volume through, you know, call it the end of the year?
Speaker Change: And the next question comes from Eric Hagen with B T. I D. Please go ahead.
Eric Hagen: Hey, Thanks, good afternoon.
Eric Hagen: You noted some more commercial demand I think in your opening remarks, we know that transaction volume for the market is down right. So are you guys seeing more demand because borrowers are being shut out of other channels and maybe like a related note is there a level that you expect for overall origination volume through you know call at the end of the year.
Eric Hagen: And then maybe like at this point, what would maybe catalyze your origination volume to be meaningfully higher than whatever you're currently projecting?
Eric Hagen: And then maybe like at this point, what would maybe catalyze your origination volume to be meaningfully higher than whatever your currently.
Eric Hagen: Projected.
Christopher Farrar: Hi, Eric, thanks for the questions there. Yeah, in terms of the commercial aspect. Commercial Division. focuses just purely in commercial type lending and so I think The vast driver there has just been their ramp-up and their growth in production. Less, I think. and Story. us opening up a new channel, that channel... Inclusively on owner-occupied commercial real estate. So, I think that's the driver there. modulate back and forth between the one to four in the small commercial. We're comfortable with both.
Eric Hagen: Hi, Eric Thanks for the question so yeah in terms of the commercial aspect.
Eric Hagen: We.
Eric Hagen: Yes.
Eric Hagen: Year, and a half ago started at a small commercial division that focuses just purely commercial type lending and so I think that the vast driver. There has been it's just been their ramp up in their growth in production. So.
Eric Hagen: It's less I think of a of a demand.
Eric Hagen: Story and more of us opening up a new channel.
Eric Hagen: Channel focus is almost exclusively on owner occupied commercial real estate.
Eric Hagen: Hum.
Eric Hagen: So I think that's the driver there over the years, we've seen you know.
Eric Hagen: Modulate back and forth between the one to four in the small commercial we're comfortable with both and just.
Eric Hagen: Sort of ebbs and flows but this one is more more tied to our direct effort.
Christopher Farrar: tied to our In terms of run rate production, I think... this current page. Sustainable Sewage. for the rest of the year. I think it would only be... just a very large drop in rates. I don't expect that. cards.
Eric Hagen: In terms of run rate production I think you know we think this current pace is sustainable. So I think that's a good run rate if you want to project out for the rest of the year end.
Eric Hagen: Something that would mean, if meaningfully drive volumes significantly higher I think it would only be probably just a very large drop in rates.
Eric Hagen: You know back to kind of like what we saw during the Covid levels I don't expect that at all.
Eric Hagen: That is.
Eric Hagen: As in the cards, but if it if it were to happen that would probably be the single largest a boost we could get.
Christopher Farrar: But if it were to happen...
Eric Hagen: Mhm, Okay. That's that's good color I appreciate that.
Christopher Farrar: Can you say what you did with the capital that you raised, like was it to de-lever a little bit and then when you come in to maybe raise additional capital from here is there an expectation for what you plan to maybe do with that capital? Yeah, so we just used it to continue to make more loans. I think any capital that we do raise solely for the purpose of take, as you know, all of our earnings and retain them and put them back. So, you know, that marginal return on capital is very attractive and we're seeing very high ROEs there, so.
Can you say, what you did with the capital that you raised like was it to Delever a little bit and then when you come in to maybe raise additional capital from here is there an expectation for what you plan to maybe do with that cap.
Eric Hagen: Capital Yeah. So we just we just use it to continue to make more loans.
Eric Hagen: I think any capital that we do raise will be solely for the purpose of growing the portfolio. We take as you know all of our earnings and retain them and put them back in.
Eric Hagen: So you know that marginal return on capital is very attractive and we're seeing very high ROE is there. So we think the smartest thing to do is allocate capital back to to new assets and.
Christopher Farrar: The smartest thing to do is allocate capital back to new assets. We have a number of levers we can pull there. continue to support. Yep, that's good to hear.
Eric Hagen: So we can we have a number of levers we can pull there and we'll just continue to support the growth.
Eric Hagen: Yep well that's good to hear I'm sorry, if this is a naive question, but when you book a gain on the Oreo sales does that include the back interest from the point the borrower initially defaulted or is it just a gain relative to the U P. B of your cost basis.
Eric Hagen: Sorry if this is a naive question, but when you book a gain on the REO sales, does that include the back interest from the point the borrower initially defaulted, or is it just a gain relative to the UPB of your cost basis? Yeah, Eric, when we look at the gain on the REO and we're showing those resolution tables and all, that would just be the gain not counting the back interest. Because by the time it's an REO, that back interest has already been taken out of the financials. It's already been reversed, right? So the loan goes non-performing.
Speaker Change: Take that Mark.
Mark: Yeah, Eric when we look at the gain on the on the Oreo Charlatans resolution tables, all of that will just be the the gain.
Speaker Change: Holding the back interest by Dennis Arriola back interest has already been taken out of the financials, it's about it really been reversed and logos nonperforming.
Christopher Farrar: We take all the accrued interest to that point, and we've reversed it, backed it out. So that interest kind of hits, so to speak, and it has already been taken out. So we never recorded the interest. So then we show the REO being disposed as any gain over and above anything else that we've already backed.
Speaker Change: All the accrued interest to that point, where we reversed it backed it out so that interest kind of hit so to speak and has already been taken also dealt with a separate quarters. The interest. So then we saw the IPO being disposed since any gain over and above anything else would be already back.
Christopher Farrar: Yeah, and I would add the same thing happens on the gain on transfer when that loan first transfers to REO, same concept. Once the loan stops being a loan, that previous interest on that loan that never was received has already been backed out, and it's reflected in the financials by reducing earnings. Got you.
Speaker Change: Yeah, and I would add the same thing happens on the gain on transfer one whatnot.
Speaker Change: First transfers to Oreo same same concept right.
Speaker Change: Oh, that's a launch that's being alone that that previous interest on that loan.
Speaker Change: <unk> has already been backed out.
Speaker Change: The financials by reducing earnings.
Speaker Change: Gotcha Okay.
Eric Hagen: Okay, really helpful. Thank you guys. Thank you, Eric.
Speaker Change: Really helpful. Thank you guys. Thank you Eric.
Steve DeLaney: And the next question comes from Steve DeLaney with Citizens GMP. Please go ahead. Thanks. Hello, everyone.
Speaker Change: And the next question comes from Steve Delaney with citizens T. M. P. Please go ahead.
Steve DeLaney: Hello, everyone Congrats to a great start to 2025.
Christopher Farrar: Congrats to a great start to 2025. Chris, I guess, Chris, oh, no, excuse me, Chris F, Chris Farrar. What is your current total head? and You know employees yeah, we're 300 320 And how many office locations do you have folks sitting in around the country? So we have... All five office locations. We kind of have a hybrid model, so how many folks are sitting in those office locations is a wild card, Steve, but... You can't see who's there anyway, can you? Right. be kind of a virtual business, I know, but I was trying to get a sense for the footnotes.
Speaker Change: Chris I guess, Chris.
Speaker Change: Chris No.
Steve DeLaney: I think Chris that for our.
Speaker Change: What was your what is your current total head count in terms of.
Steve DeLaney: Floyd.
Yeah, we're in a couple of 103 hundred 23.
Speaker Change: 323, Okay, and how many office locations do you have.
Speaker Change: Folks sitting in around the country. So we have five office locations.
Speaker Change: Or have we kind of have a hybrid model. So how many folks are sitting in those office locations is a wildcard Steve but you.
Speaker Change: You can't see who's there anyway.
Speaker Change: Right [laughter].
Speaker Change: We are proud of our virtual business I know because I'm, just trying to get a sense for the for the footprint.
Christopher Farrar: And so, as you think... about growth versus execution. I mean, you had great... you're knocking the ball to the park, I mean, in terms of the start to 2025. Thank you. So, you know, as you talk with the board, I mean... I guess I'm trying to get a pic. Kris Hickman. three, five years. where do you want the company to be? Other than having been very profitable and everybody has done well. Yeah, yeah. Is there a vision for, a vision out there for, say, five years for where you'd like to take the company? Yeah, I mean, I think we'd like to see the portfolio at $10 billion.
Speaker Change: So as you think.
Speaker Change: About growth versus execution, I mean, you had great you're executing you're knocking the ball park I mean in terms of the start to 2025.
Speaker Change: As you talk with the board.
Speaker Change: Oh.
Speaker Change: I'm trying to get a picture.
Speaker Change: Christopher.
Speaker Change: Three five years from now where do you want the company to be Oh.
Speaker Change: Other than having been very profitable and everybody done has done yeah.
Speaker Change: Is there a vision for <unk>.
Speaker Change: A big thing out there for say five years or where you'd like to like.
Speaker Change: Yeah, I mean, I think we'd like to see the portfolio with $10 billion.
Speaker Change: So we expect to continue to grow.
Christopher Farrar: That will require headcount. We are generally concentrated sort of east coast and west coast. Probably add, maybe we might potentially add some space in the midwest. Texas area, something like that maybe. trying to use a lot of technology to scale the business without adding too much headcount. You always have to add some headcount, but we've been very successful if you look at our average balance funded per loan officer or account executive, that balance is going up. So we're making our Productive, which is great. our head count for that. But you do have to support it on the back end with the credit.
Speaker Change: That will require head count we are generally concentrated sort of east coast and West coast, probably add maybe we might potentially add some space in the mid west or east, Texas area or something like that maybe.
Speaker Change: I'm trying to use a lot of technology to scale the business without adding.
Speaker Change: Too much head count I mean, you always have to add some head count, but we've been very successful if you look at.
Speaker Change: Our.
Speaker Change: Sort of average.
Speaker Change: Balanced funded perfect for per loan officer account executive that balance is going up so we're making our existing people more productive which is great. Because you don't have to her head count for that.
Speaker Change: But you do have to support it on the backend with the credit.
Christopher Farrar: Functions. So... Sure. You know, I would hope that we would, we'd add. couple hundred people over five years, but we're going to really try to implement as much technology as we can.
Speaker Change: And support functions so for.
Speaker Change: I would hope that we would we'd add.
Speaker Change: You know maybe a couple of hundred people over five years, but.
Speaker Change: We're going to really try to implement as much technology as we can to.
Speaker Change: Minimize that.
Christopher Farrar: Sure, and you do all your servicing in-house, don't you? So we do all of our special servicing in-house. The primary servicing is outsourced, the bill collection, the payments, the insurance, the administration, all of that. is outsourced. We just managed. We own that risk and we think we're the best people to resolve that.
Speaker Change: Sure.
Speaker Change: You do all your servicing in house don't you.
Speaker Change: So we do all of our special servicing in house.
Speaker Change: The primary servicing is outsourced to build collection of payments the insurance Fund administration all of that.
Speaker Change: As outsource, we just manage delinquent assets, because we own that risk and we think we're the best best people to resolve those risks.
Speaker Change: Great well thanks for those comments I just wanted to get a kind of a picture to what the company looks like.
Steve DeLaney: Well look, thanks for those comments. I just wanted to get a, you know, kind of a picture to what the company looks like, you know, the phones and where you're planning to go with that. I appreciate it, Chris. Thanks. Yeah, thank you, Steve. Take care.
Speaker Change: Yes.
Speaker Change: Uh huh.
Speaker Change: Are you planning to go with that.
Steve DeLaney: I appreciate Chris Thanks, Yeah. Thank you Steve take care.
Operator: This concludes our question and answer session.
Steve DeLaney: This concludes our question and answer session I would like to turn the conference back over to Mr. Farrar for any closing remarks.
Christopher Farrar: I would like to turn the conference back over to Mr. Farrar for any closing remarks. Thanks again, everyone, for joining the call, and we appreciate your support. We'll talk to you again after the second quarter. Thank you.
farrar: Thanks again, everyone for joining the call and we appreciate your support we'll talk to you again after the second quarter. Thank you.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
farrar: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.