Velocity Financial, Inc. Q1 FY2026 earnings call

Moving to net interest margin, it was 3.56% in Q1 consistent with Q4. Portfolio yield increased due to loan production, funds cost decreased. Non-performing loan rate improved. Loan held for investment portfolio has specific loss reserves. Real estate owned activity has stable asset percentage and detailed gain/loss on new and existing REOs. Non-performing loan resolutions show resolution of significant UPB loans with recovered revenue.

First quarter net interest margin was 3.56%, consistent with Q4's 3.59%. Portfolio yield increased by 12 basis points year over year due to continued loan production at healthy WACs. Portfolio cost of funds decreased by 14 basis points quarter over quarter and year over year. Non-performing loan rate at the end of Q1 was 10.1%, a 70 basis point year-over-year decrease. Amortized cost loan portfolio had a $4.9 million CECL loss reserve, fair value loan portfolio had a $52.2 million valuation adjustment loss allowance, combined valuation loss allowance of 83 basis points on the entire HFI portfolio. Real estate owned activity: left-hand side shows real estate assets percentage to total HFI portfolio consistent year over year. Right-hand side shows gain or loss on new and existing REOs. In Q1 of 26, $6.8 million gain on transfers of non-performing loans to new REOs, $3.3 million loss on existing REOs, net gain of $3.5 million. Resolved over $70 million in UPB non-performing loans in Q1 of 26, with total recovered revenue of $4.6 million, 6.5% over UPB principle.

Continue to expect a 3.5% NIM. Expect the portfolio to continue to grow this year with origination volumes ticking up in the latter half of the year. Expect ROEs to hold in the high teens as focused on maintaining margin which translates into ROE.

Q: Do you guys expect origination volumes in 2026 to continue on a similar path to what we saw last year with a pickup later in the year?

A: Yeah, we do. I think we felt a little bit of a slowdown kind of the end of the year, the beginning of this year. I think it was more seasonal in nature. Maybe it was the market. But We've already seen kind of new origination volumes starting to pick up a little bit, and we think similar to last year, kind of Q2, Q3, those volumes will accelerate.

Q: Do you think that [ROEs] can hold in the high teens? How are you guys thinking about ROEs going forward?

A: Yeah, we expect them to hold in there. As I mentioned, we're very disciplined on margin. The margin is probably the most important thing to us. We treat our capital as precious and we need to make sure we earn those returns. So we don't have to chase volume because we have this in-place portfolio. We're far more focused on maintaining margin, which obviously translates into ROE. So yes