Good day, and welcome to the Velocity Financial Second Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Oltmann, Director of Investor Relations. Please go ahead.

Thanks, Danielle. Hello, everyone, and thank you for joining us today for the discussion of Velocity's Second 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 a press release with our second quarter results, and you could find that press release and an accompanying presentation that we will refer to during this call on our Investor Relations website at www.velfinance.com. 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 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. 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 welcome, everyone, to our second quarter earnings call. After the close today, we reported record quarterly results with net income increasing 76% and new loan production up 72% versus Q2 '24. Obviously, our business is performing exceptionally well across the board. I believe our people are our most important asset, and they deserve the credit for delivering this outstanding performance. We grew revenue by $31 million, managed expenses carefully and saw pretax income increase by $14 million as operating leverage boosted our core pretax return on equity to 24%. With respect to our end markets, we saw a pickup in transactions during Q2 and investors are quite active, especially within our niche. Year-over-year, we increased the portfolio by just under $1.4 billion with commercial properties representing approximately $770 million of the increase and residential properties, the other $600 million. Our ability to finance a broad range of property types is a unique strength that differentiates us from other mortgage lenders. We expect strong growth from each of these categories going forward. In terms of the portfolio, our asset management team did a fantastic job of curing delinquent loans, which drove our NIM expansion and resolved NPAs with significant gains. This team knows our asset class well, and they continue to drive exceptional performance. From a capital markets perspective, this was our busiest quarter ever, completing 4 securitizations, issuing just under $1 billion in securities. The strong support for our program and robust market conditions are important tailwinds, which fuel our growth. As we look forward, the pipeline for new loans is very strong, and we expect continued growth in originations as we take market share. Our team is very proud of the earnings growth and the predictability of our unique business model, and we know that the…

Thanks, Chris. Good afternoon and evening, everyone. In the second quarter, then we saw record production and continued strong earnings growth. If we take a look at the slide on Page 6, Q2 had record loan production of just over $725 million in UPB, that was a 13.3% increase from Q1, which was our previous record production was Q1 of $640.4 million. So we've had 2 record productions in a row from 2 quarters. In Q2, there were over 1,600 loans funded. The strong production growth in Q2 included the weighted average coupon on new held for investment originations continuing to come in strong at 10.5%. The weighted average coupon on our HFI originations, if you just look back over the last 5-quarter average, has been at 10.7% and the growth in originations in Q2 continued at tight credit levels, as you can see in the table. The weighted average loan-to-value for the quarter was at 62.7% and on a 5-quarter average trend, 63.2%. So very tight credit levels and good coupons. So the record growth at the healthy WACC and the low LTV continues to demonstrate a consistent trend of borrower demand for Velocity's product, even in the recent current volatile market. On Page 7, as a result of the continued growth in production, we see a growth in Q2 for our overall loan portfolio. Our total portfolio as of June 30 was at $5.9 billion in UPB, that's a 7.5% increase from last quarter from Q1 and a 30.8%, almost a 31% increase year- over-year. The weighted average coupon on our total portfolio as of June 30 was 9.67%, and that's 8 basis points higher than where it was at the end of Q1. It's 42 basis points higher on a weighted average coupon basis, compared to the…

Thanks, Mark. Yes, you can see from the points here on the slide that we feel really good about the future and about our growth prospects. Markets are healthy, both on the end user side and the capital markets side. So we're very bullish on the momentum that we have and expect it to continue in the next year or 2. So with that, that concludes all of our prepared remarks, and we will open it up for questions, please.

[Operator Instructions] The first question comes from Don Fandetti from Wells Fargo.

I was wondering if you can talk a little bit about NIM going into Q3. Do you think you can maintain this level or if there's some pull forward in Q2? And then if you can talk a little bit about the loan growth expectations for H2.

Sure. So yes, I think our target NIM is 3.5%. I think Q1 was a little light. Q2 was obviously very strong. We're trying to target 3.5% on a consistent basis. As Mark mentioned, resolving delinquent assets because they do go on a nonaccrual status, they tend to be very lumpy. So timing when that asset will cure is a little tricky. So there's some volatility around NIM depending on when we actually collect. We do ultimately believe we're going to collect it almost all the time. It's just a question of timing and when. So if you average out the first 2 quarters, you're like 3.6%, I think, on NIM, and we think that's very sustainable going forward.

Got it. And in terms of the pace of loan growth in the next quarter or 2?

Yes. I think we still expect to grow. What we've seen historically is you kind of go in a step function. You don't -- it doesn't go up continuously every month. You sort of get to a new level, digest that level and then take another step up. So I don't have a forecast for you on the actual rate of growth, but we do expect to grow going forward.

The next question comes from Steve Delaney from Citizens JMP.

Congrats on a great quarter. Really remarkable with the numbers, the NIM and the ROE. I guess, Chris Farrar, when you look at where you are, pretty darn good. Where are the opportunities -- are there opportunities from improved things that you lay awake at night thinking, gosh, if I could just get this number a little bit better, how you look at the results in the future.

Yes. I appreciate it, Steve. Yes, it's funny. I remember a long time ago, I go into an AYSO game and this soccer coach told all the parents, the worst thing you can do is watch your kids best game and then go out every week and expect your kid to perform at that level. So I get your point. But I do think this is -- I don't think it's a high point for us. We're doing exceptionally well, that's true. And we did see kind of that big pickup in the NIM and some of those things. So some of those things are timing issues. But I still feel like we have room to improve. And the biggest areas that we're working on, just staying focused in our knitting is technology. We're undertaking a program right now over the next, call it, 12 to 18 months, where we're breaking down our entire process and looking where we can apply technology to improve processes and make our team more productive. So I don't think we're at peak performance. I think we're a very strong performance, but I think it's sustainable going forward. And I do think we could improve on the efficiency side of the business. As a very small example, we just recently rolled out some technology in our post-closing department that makes our people probably 5x more productive than they were with the old process. So those won't be massive gains every quarter. But over the next 1.5 years, we think we can drive some more performance and some more efficiency out of the business.

Yes, I think everyone likes to have better technology or at least keep up. Geography, you guys are out on the West Coast, and it's a big country. Do you -- in your current markets you're operating in, maybe describe concentration, West Coast, how broad is your origination platform? How far can you reach? And I'm just curious if you can touch the Southeast or possibly touch the Florida market with your existing setup and structure.

Yes. Good question. So we like to concentrate on the major MSAs. We have loans in 48 states. So we have deep reach across the country, and we like the diversity in the portfolio. You mentioned Florida. We do have an office in Miami, and they're one of our highest producing offices per capita. So they do a fantastic job for us. And you tend to see the portfolio kind of barbells between the coasts and then some of the southern states, so kind of the smile, if you will. So I think we'll stay with that footprint largely, and we think there's plenty of runway to expand there.

[Operator Instructions] The next question comes from Tim Chiang from BTIG.

This is Eric Hagen, BTIG. You guys have historically leaned into securitization as basically the only source of longer-term financing. But with all this private capital that's being raised right now in the market, I mean, do you think there could be an opportunity to incorporate loan sales into the routine? And would alternative financing sources maybe allow you guys to grow more quickly?

Yes. Hi Eric, good question. We are getting reverse inquiries from some of these private credit sources. And I do think there's some opportunities for us to put financing in place to grow the portfolio. We have looked at whole loans in the past. I don't expect that, that will be a big source for us. But I do think that maybe there's some private structures that might work that could help us expand another leg of the stool, if you will.

Okay. That's interesting. When looking at the prepayment rate and how it increased quarter-over-quarter, and I realize these are longer duration assets to begin with and a prepayment rate kind of is less applicable, maybe to the strategy. But what's driving that? I imagine it's not really an interest rate incentive because the coupons don't really move around a lot. So what's the context behind prepayment activity?

Yes. Good question. So we've studied that in the past, and we found roughly about half the time folks are selling the property and about half of the time they're refinancing somewhere else. So we've always kind of positioned the firm as a medium-term lender that the borrower has some immediate need for capital, and they utilize our capital for, call it, 1 to 5 years depending on their situation, and then they tend to move on. So it's pretty typical for our business. As you know, we collect prepayment penalty fees in those cases to maintain our yields. So we're indifferent if they do choose to leave. It's largely driven by their unique circumstance and their situation and whether or not they're refinancing or selling the property.

This concludes our question-and-answer session, and the conference has now been concluded. Thank you for attending today's presentation. You may now disconnect.