8-K
Velocity Financial, Inc. (VEL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 11, 2020
Velocity Financial, Inc.
(Exact name of Registrant as Specified in Its Charter)
| Delaware | 001-39183 | 46-0659719 |
|---|---|---|
| (State or Other Jurisdiction<br><br><br>of Incorporation) | (Commission<br><br><br>File Number) | (IRS Employer<br><br><br>Identification No.) |
| 30699 Russell Ranch Road, Suite 295<br><br><br>Westlake Village, California | 91362 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (818) 532-3700
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br><br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, par value $0.01 per share | VEL | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On November 11, 2020, we issued a press release announcing financial results for the quarter ended September 30, 2020. The press release is furnished as Exhibit 99.1 and is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
In addition to our earnings press release, we posted to our Investor Relations website, www.velfinance.com, management's third quarter 2020 earnings presentation. A copy of the presentation is furnished as Exhibit 99.2 and is incorporated herein by reference.
The information provided in Items 2.02 and 7.01, including Exhibits 99.1 and 99.2, is intended to be furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act or the Securities Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01 Exhibits.
| Exhibit<br><br><br>Number | Description |
|---|---|
| 99.1 | Press Release dated November 11, 2020 |
| 99.2 | Management's Earnings Presentation Materials |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Velocity Financial, Inc. | ||
|---|---|---|
| Date: November 12, 2020 | /s/ Roland T. Kelly | |
| Roland T. Kelly | ||
| General Counsel |
2
vel-ex991_6.htm
Exhibit 99.1
Investors and Media:
Chris Oltmann
(818) 532-3708
Velocity Financial, Inc. Announces
Third Quarter 2020 Results
Third Quarter Highlights:
| • | Net income of $3.5 million, core earnings of $3.9 million^(1)^ and diluted EPS of $0.11 |
|---|---|
| ‒ | Net income growth of 63% from the prior quarter primarily driven by normalization of credit loss provision expense |
| --- | --- |
| • | Normalized provision expense of $0.4 million. |
| --- | --- |
| • | Restarted loan production activities in September to strong demand |
| --- | --- |
| ‒ | September loan applications totaled $226 million in unpaid principal balance (UPB), mirroring pre-COVID levels; loan production totaled <br>$8 million in UPB |
| --- | --- |
| ‒ | October loan originations totaled $63 million in UPB |
| --- | --- |
| • | Book value per common share as of September 30, 2020, was $10.44 compared to $10.26 as of June 30, 2020 |
| --- | --- |
| • | Portfolio net interest margin of 3.77%, an increase of 23 basis points from the second quarter of 2020 |
| --- | --- |
| • | Approximately $335 million in UPB of loans in the COVID-19 forbearance program were brought current during the quarter |
| --- | --- |
| • | Resolutions of delinquent loans in 3Q20 were 103.5% of assets resolved, continuing our consistent track record of net gains on delinquent loan and real estate owned (REO) resolutions over and above contractual principal and interest |
| --- | --- |
Please see footnotes at the end of this release.
| Third Quarter 2020 Earnings |
|---|
Westlake Village, CA – November 11, 2020 – Velocity Financial, Inc. (NYSE: VEL) (“Velocity” or the “Company”) reported net income of $3.5 million for the third quarter of 2020 and diluted earnings per common share of $0.11. Core income^(^^1^^)^ for the third quarter of 2020 was $3.9 million, excluding severance costs related to workforce reductions. Book value per common share was $10.44, an increase from $10.26 as of June 30, 2020.
“Velocity’s third quarter results highlight the significant progress our team has made in normalizing business operations and improving earnings performance” said Chris Farrar, President and CEO. “The strong volumes we have experienced with the restart of our loan production activities have exceeded our expectations and reflect significant demand for the financing solutions we provide. We believe that opportunities for Velocity have expanded due to fundamental shifts in real estate markets, which have helped fuel heightened interest from our existing brokers and driven the recent addition of nearly four hundred new relationships. With the restart of our production operations, our business is back on track and poised to deliver strong performance and attractive returns going forward.”
Third Quarter Operating Results
| KEY PERFORMANCE INDICATORS | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 3Q 2020 | 2Q 2020 | Variance | % Variance | |||||||
| Pretax income | $ | 5,025 | $ | 2,625 | 91 | % | |||||
| Net income | $ | 3,481 | $ | 2,141 | 63 | % | |||||
| Preferred stock deemed dividend^(1)^ | - | $ | (48,955 | ) | n.a. | n.a. | |||||
| Basic earnings (loss) per share | $ | 0.17 | $ | (2.33 | ) | n.a. | |||||
| Diluted earnings (loss) per share | $ | 0.11 | $ | (2.33 | ) | n.a. | |||||
| Core Earnings^(2)^ | $ | 3,913 | $ | 3,408 | 15 | % | |||||
| Pretax return on equity | 9.60 | % | 4.94 | % | n.a. | 94 | % | ||||
| Return on equity | 6.60 | % | 4.03 | % | n.a. | 64 | % | ||||
| Net interest margin - portfolio | 3.77 | % | 3.54 | % | n.a. | 6 | % | ||||
| Net interest margin -total company | 3.39 | % | 3.18 | % | n.a. | 7 | % | ||||
| Avergage common equity | $ | 209,468 | $ | 212,407 | ) | (1 | )% |
All values are in US Dollars.
| ^(1)^ | Charged against common equity |
|---|---|
| ^(2)^ | Core earnings is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release. |
| --- | --- |
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| Third Quarter 2020 Earnings |
|---|
Discussion of results:
| • | 3Q20 net income of $3.5 million reflects continued improvement in Velocity’s platform as it recovers from the COVID-driven market dislocation earlier this year | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| • | The difference between core earnings^(1)^ and GAAP net income is severance costs related to workforce reduction resulting from streamlining of our loan operations processes | ||||||||||
| --- | --- | ||||||||||
| • | Net interest margin improvement was driven by fewer new nonperforming loans during 3Q20 | ||||||||||
| --- | --- | ||||||||||
| TOTAL LOAN PORTFOLIO | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ of UPB in millions) | 3Q 2020 | 2Q 2020 | Variance | % Variance | |||||||
| Held for Investment | |||||||||||
| Investor 1-4 Rental | $ | 1,008 | $ | 841 | 20 | % | |||||
| Mixed Use | 254 | 260 | ) | (2 | )% | ||||||
| Multi-Family | 187 | 193 | ) | (3 | )% | ||||||
| Retail | 173 | 178 | ) | (3 | )% | ||||||
| All Other | 364 | 373 | ) | (2 | )% | ||||||
| Total | $ | 1,986 | $ | 1,845 | 8 | % | |||||
| Held for Sale | |||||||||||
| Investor 1-4 Rental | $ | - | $ | 214 | ) | (100 | )% | ||||
| Total Managed Loan Portfolio UPB | $ | 1,986 | $ | 2,059 | ) | (4 | )% | ||||
| Key loan portfolio metrics: | |||||||||||
| Total loan count | 6,029 | 6,294 | |||||||||
| Weighted average loan to value | 66.18 | % | 65.86 | % | |||||||
| Weighted average total portfolio yield | 8.21 | % | 7.59 | % | |||||||
| Weighted average portfolio debt cost | 5.07 | % | 4.63 | % |
All values are in US Dollars.
Discussion of results:
| • | The weighted average total portfolio yield was 8.21% in 3Q20, an increase of 62 basis points from 2Q20, primarily driven by fewer new NPLs |
|---|---|
| • | The 44 basis point increase in portfolio related debt cost was primarily attributable to the higher cost 2020-2 and 2020-MC1 securitizations, completed in June and July, respectively |
| --- | --- |
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| Third Quarter 2020 Earnings | ||||||||
|---|---|---|---|---|---|---|---|---|
| • | Velocity’s loan portfolio was $1.986 billion as of September 30, 2020, a 4% quarter-over-quarter decrease from June 30, 2020 | |||||||
| --- | --- | |||||||
| • | Transferred approximately $214 million in UPB of short-term loans to the held for investment (HFI) portfolio during 3Q20. Previously these loans were accounted for as held for sale (HFS). | |||||||
| --- | --- | |||||||
| LOAN PRODUCTION VOLUMES | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in millions) | Oct. 2020 | Sept. 2020 | Variance | % Variance | ||||
| Investor 1-4 Rental | $ | 47 | $ | 6 | 656 | % | ||
| Traditional Perm. | 16 | 2 | 733 | % | ||||
| Short-term loans | - | - | - | |||||
| Total loan production | $ | 63 | $ | 8 | 674 | % |
All values are in US Dollars.
Note: Loan production operations were suspended in late March 2020 and resumed in September 2020.
Discussion of results:
| • | Velocity resumed loan production activities in September, funding $8 million in UPB of 30-year Investor 1-4 and Traditional Commercial loans in 3Q20 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ‒ | The relaunch has been met with strong demand from existing broker relationships and the addition of 396 new broker registrations resulted in $226 million in UPB of loan applications | ||||||||||
| --- | --- | ||||||||||
| • | Loan application volume in October totaled $252 million in UPB, and production volume totaled $63 million in UPB | ||||||||||
| --- | --- | ||||||||||
| CREDIT PERFORMANCE INDICATORS | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | 3Q 2020 | 2Q 2020 | Variance | % Variance | |||||||
| Nonperforming loans^(1)^ | $ | 314,727 | $ | 329,132 | ) | (4 | )% | ||||
| Nonperforming loans % total HFI Loans | 15.84 | % | 15.99 | % | (1 | )% | |||||
| Total Charge Offs^(2)^ | $ | 1,046 | $ | 75 | n.a. | ||||||
| Charge-offs as a % of HFI loans | 0.053 | % | 0.004 | % | n.a. | ||||||
| CECL Reserve | $ | 5,748 | $ | 5,221 | 10 | % |
All values are in US Dollars.
| ^(1)^ | Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure and in bankruptcy. |
|---|---|
| ^(2)^ | $788 thousand of 3Q 2020 is related to an unusual and nonrecurring charge-off due to a fraud loan and not related to COVID-19 pandemic. |
| --- | --- |
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| Third Quarter 2020 Earnings |
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Discussion of results:
| • | Nonperforming loans as a percent of total loans as of September 30, 2020, decreased to 15.84% from 15.99% as of June 30, 2020, driven by: | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ‒ | Continued strong nonperforming asset resolution activity and fewer new nonperforming loans | ||||||||||
| --- | --- | ||||||||||
| • | The quarter-over-quarter increase in charge-offs was primarily due to one loan totaling $787 thousand, resulting from an unusual circumstance not indicative of worsening credit conditions | ||||||||||
| --- | --- | ||||||||||
| ‒ | Adjusted for the unusual circumstance loan, 3Q20 charge-offs were <br>$259 thousand and in-line with historical levels | ||||||||||
| --- | --- | ||||||||||
| • | The CECL reserve increase in 3Q20 was driven a $1.6 million loan loss provision, $1.2 million of which was related to the transfer of short-term loans to the HFI portfolio, with the remainder related to normal provisioning | ||||||||||
| --- | --- | ||||||||||
| NET REVENUES | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | 3Q 2020 | 2Q 2020 | Variance | % Variance | |||||||
| Interest income | $ | 41,374 | $ | 39,755 | 4 | % | |||||
| Interest expense - portfolio related | (22,347 | ) | (21,189 | ) | ) | 5 | % | ||||
| Interest expense - corporate debt | (1,913 | ) | (1,894 | ) | ) | 1 | % | ||||
| Net Interest Income | $ | 17,114 | $ | 16,672 | 3 | % | |||||
| CECL provision | (1,573 | ) | (1,800 | ) | (13 | )% | |||||
| Gain on loan sales | (51 | ) | 155 | ) | (133 | )% | |||||
| Other Operating (loss) income | 1,400 | (1,494 | ) | n.a. | |||||||
| Total Net Revenues | $ | 16,890 | $ | 13,533 | 25 | % |
All values are in US Dollars.
| CECL Reserve Reconciliation (Balance Sheet): | ||
|---|---|---|
| ( in thousands) | ||
| Beginning Balance 6/30/2020 | (5,220 | ) |
| Add: Reserve for short-term loans transferred to HFI | (1,166 | ) |
| 3Q20 CECL provision | (407 | ) |
| Deduct: 3Q20 charge-offs | 1,046 | |
| Ending Balance 9/30/2020 | (5,748 | ) |
| Income Statement (HFS to HFI Reclass): | ||
| Interest Income | ||
| Provision for Loan Loss | (1,166 | ) |
| Other Income | ||
| Reversal of HFS LOCOM Valuation | 1,307 | |
| Net P&L Impact | 141 |
All values are in US Dollars.
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| Third Quarter 2020 Earnings |
|---|
Discussion of results:
| • | Net Revenue grew by 25% quarter-over-quarter, driven by normalized loan loss provisioning levels and increased interest collections on nonperforming loans | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| • | Approximately $1.2 million of the reported $1.6 million total provision expense was offset by a $1.3 million LOCOM valuation reversal in other income driven by the transfer HFS loans to the HFI portfolio, resulting in a net P&L increase of $0.1 million | ||||||||
| --- | --- | ||||||||
| OPERATING EXPENSES | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | 3Q 2020 | 2Q 2020 | Variance | % Variance | |||||
| Compensation and employee benefits | $ | 5,692 | $ | 5,863 | ) | (3 | )% | ||
| Rent and occupancy | 415 | 448 | ) | (7 | )% | ||||
| Loan servicing | 2,168 | 1,754 | 24 | % | |||||
| Professional fees | 1,051 | 588 | 79 | % | |||||
| Real estate owned, net | 898 | 408 | 120 | % | |||||
| Other expenses | 1,641 | 1,847 | ) | (11 | )% | ||||
| Total expenses | $ | 11,865 | $ | 10,908 | 9 | % |
All values are in US Dollars.
Discussion of results:
| • | Operating expenses increased $1.0 million due to loans servicing expense growth resulting from higher securitized loan balances, legal fees related to pending litigation, and REO expenses | ||||||
|---|---|---|---|---|---|---|---|
| SECURITIZATIONS | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Trusts | Securities<br><br><br>Issued | Balance at<br><br><br>9/30/2020 | W.A. Rate | ||||
| 2011-1 Trust | $ | 61,042 | $ | - | - | ||
| 2014-1 Trust | 161,076 | 25,599 | 6.97 | % | |||
| 2015-1 Trust | 285,457 | 41,190 | 7.52 | % | |||
| 2016-1 Trust | 319,809 | 62,339 | 7.54 | % | |||
| 2016-2 Trust | 166,853 | 46,984 | 6.40 | % | |||
| 2017-1 Trust | 211,910 | 80,174 | 5.08 | % | |||
| 2017-2 Trust | 245,601 | 138,456 | 3.34 | % | |||
| 2018-1 Trust | 176,816 | 110,262 | 4.02 | % | |||
| 2018-2 Trust | 307,988 | 208,206 | 4.51 | % | |||
| 2019-1 Trust | 235,580 | 192,856 | 4.05 | % | |||
| 2019-2 Trust | 207,020 | 168,819 | 3.42 | % | |||
| 2019-3 Trust | 154,419 | 132,893 | 3.25 | % | |||
| 2020-1 Trust | 248,700 | 233,005 | 2.84 | % | |||
| 2020-2 Trust | 96,352 | 94,113 | 4.48 | % | |||
| 2020-MC1 Trust | 179,371 | 162,173 | 4.50 | % | |||
| $ | 3,057,994 | $ | 1,697,069 |
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| Third Quarter 2020 Earnings |
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Discussion of results:
| • | In July, the Company issued its third securitization of the year (VCC 2020-MC1) for $179 million at a rate of 4.50%. The VCC 2020- MC1 securitization was collateralized primarily by short-term loans secured by 1-4 unit investor properties, in addition to 30-year loans secured by residential 1-4 unit investor and small commercial properties originated through Velocity’s operating platform. | |||||
|---|---|---|---|---|---|---|
| • | Expect to complete Velocity’s next securitization in the first quarter of 2021, backed by newly originated 30-year loans | |||||
| --- | --- | |||||
| RESOLUTION ACTIVITY | THIRD QUARTER 2020 | SECOND QUARTER 2020 | ||||
| --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | UPB | Gain /<br>(Loss) | UPB | Gain /<br>(Loss) | ||
| Paid in full | ||||||
| Paid current | ||||||
| REO sold | ) | |||||
| Resolutions as a % of nonperforming UPB | % | % |
All values are in US Dollars.
Discussion of results:
| • | Strong asset resolution trends continued in 3Q20, realizing gains of $440 thousand, or 103.5% of nonperforming UPB resolved during the quarter |
|---|
Conference Call Information
The Company will host a webcast to discuss the third quarter 2020 results on November 11, 2020 at 5:00 p.m. Eastern Time. Listeners can access the webcast via the link below:
https://services.choruscall.com/links/vel201111roBZnCkl.html
The earnings discussion can also be accessed by dialing 1-866-807-9684 in the U.S. and Canada. International callers must dial 1-412-317-5415. Callers should ask to be joined into the Velocity Financial, Inc. earnings call. To listen to the webcast, please go to Velocity’s website at least 15 minutes before the call to register and to download and install any needed software.
Management’s slide presentation will be available on the Company’s Investor Relations website at www.velfinance.com after the market close on Wednesday, November 11, 2020.
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| Third Quarter 2020 Earnings |
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A replay of the call will be available through midnight on November 18, 2020 and can be accessed by dialing 1-877-344-7529 in the U.S. and 855-669-9658 in Canada or 1-412-317-0088 internationally and entering access code #10148332. The replay will also be available on the Investor Relations section of the Company's website under "Events and Presentations.”
About Velocity Financial, Inc.
Based in Westlake Village, California, Velocity is a vertically integrated real estate finance company that primarily originates and manages investor loans secured by 1-4-unit residential rental and small commercial properties. Velocity originates loans nationwide across an extensive network of independent mortgage brokers it has built and refined over 15 years.
| ^(^^1^^)^ | Core Earnings is a non-GAAP financial measures the Company presents to help investors better understand unique items that impact earnings. For a reconciliation of GAAP net income to Core Earnings, please refer to the sections of this press release titled “Non-GAAP Financial Measures” and “Adjusted Financial Metric Reconciliation to GAAP Net Income.” |
|---|
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with United States generally accepted accounting principles (“GAAP”), the Company uses Core Earnings, which is a non-GAAP financial measure. For more information on Core Earnings, please refer to the section of this press release below titled “Adjusted Financial Metric Reconciliation to GAAP Net Income” at the end of this press release.
Forward-Looking Statements
Some of the statements contained in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to anticipated results, expectations, projections, plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “goal,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.
The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ
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| Third Quarter 2020 Earnings |
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significantly from those expressed or contemplated in any forward-looking statement. While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to, (1) the continued course and severity of the COVID-19 pandemic, and its direct and indirect impacts, (2) general economic and real estate market conditions, (3) regulatory and/or legislative changes, (4) our customers' continued interest in loans and doing business with us, (5) market conditions and investor interest in our contemplated securitization and (6) changes in federal government fiscal and monetary policies.
Additional information relating to these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements can be found in the section titled ‘‘Risk Factors” in our Form 10-Q filed with the SEC on May 14, 2020, as well as other cautionary statements we make in our current and periodic filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.
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| Third Quarter 2020 Earnings |
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Velocity Financial, Inc.
Consolidated Statements of Financial Condition
(Unaudited)
| Quarter Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 09/30/2019 | ||||||
| (In thousands) | ||||||||||
| Assets | ||||||||||
| Cash and cash equivalents | $ | 19,210 | $ | 9,803 | $ | 7,649 | $ | 21,465 | $ | 8,849 |
| Restricted cash | 7,821 | 6,735 | 4,483 | 6,087 | 3,152 | |||||
| Total loans, net | 2,004,413 | 2,077,119 | 2,148,595 | 2,080,787 | 1,949,311 | |||||
| Accrued interest receivables | 13,134 | 17,793 | 14,470 | 13,295 | 12,450 | |||||
| Receivables due from servicers | 44,466 | 36,028 | 37,884 | 49,659 | 38,349 | |||||
| Other receivables | 402 | 4,609 | 2,516 | 4,778 | 7,585 | |||||
| Real estate owned, net | 14,653 | 15,648 | 16,164 | 13,068 | 15,806 | |||||
| Property and equipment, net | 4,446 | 4,718 | 4,964 | 4,680 | 4,903 | |||||
| Deferred tax asset | 1,832 | 5,556 | 10,111 | 8,280 | 4,127 | |||||
| Other assets | 16,489 | 9,042 | 10,519 | 12,667 | 17,219 | |||||
| Total Assets | $ | 2,126,866 | $ | 2,187,051 | $ | 2,257,354 | $ | 2,214,766 | $ | 2,061,751 |
| Liabilities and members' equity | ||||||||||
| Accounts payable and accrued<br><br><br>expenses | $ | 61,859 | $ | 55,938 | $ | 58,591 | $ | 56,146 | $ | 41,957 |
| Secured financing, net | 74,776 | 74,571 | 74,364 | 145,599 | 145,285 | |||||
| Securitizations, net | 1,670,930 | 1,599,719 | 1,576,431 | 1,438,629 | 1,377,733 | |||||
| Warehouse & repurchase facilities | 19,541 | 160,796 | 297,537 | 421,548 | 349,115 | |||||
| Total Liabilities | 1,827,106 | 1,891,024 | 2,006,924 | 2,061,922 | 1,914,090 | |||||
| Mezzanine Equity | ||||||||||
| Series A Convertible preferred stock | 90,000 | 90,000 | - | - | - | |||||
| Stockholders' Equity | ||||||||||
| Stockholders' equity | 209,760 | 206,027 | 250,430 | 152,844 | 147,661 | |||||
| Total Liabilities and members' equity | $ | 2,126,866 | $ | 2,187,051 | $ | 2,257,354 | $ | 2,214,766 | $ | 2,061,751 |
| Book value per share | $ | 10.44 | $ | 10.26 | $ | 12.47 | n.a. | n.a. | ||
| Shares outstanding | 20,087 | 20,087 | 20,087 | n.a. | n.a. |
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| Third Quarter 2020 Earnings |
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Velocity Financial, Inc.
Consolidated Statements of Income
(Unaudited)
| Quarter Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 09/30/2019 | |||||||
| Revenues | ||||||||||||
| Interest income | $ | 41,374 | $ | 39,755 | $ | 44,637 | $ | 44,124 | $ | 40,379 | ||
| Interest expense - portfolio related | 22,347 | 21,189 | 22,848 | 22,689 | 21,827 | |||||||
| Net interest income - portfolio related | 19,027 | 18,566 | 21,789 | 21,435 | 18,552 | |||||||
| Interest expense - corporate debt | 1,913 | 1,894 | 6,342 | 4,070 | 3,842 | |||||||
| Net interest income | 17,114 | 16,672 | 15,447 | 17,365 | 14,710 | |||||||
| Provision for loan losses | 1,573 | 1,800 | 1,289 | 242 | 338 | |||||||
| Net interest income after provision for<br><br><br>loan losses | 15,541 | 14,872 | 14,157 | 17,123 | 14,372 | |||||||
| Other operating income (expense) | 1,349 | (1,339 | ) | 1,620 | 833 | (212 | ) | |||||
| Total net revenues | 16,890 | 13,533 | 15,777 | 17,956 | 14,160 | |||||||
| Operating expenses | ||||||||||||
| Compensation and employee benefits | 5,692 | 5,863 | 5,041 | 3,992 | 3,712 | |||||||
| Rent and occupancy | 415 | 448 | 455 | 426 | 369 | |||||||
| Loan servicing | 2,168 | 1,754 | 2,239 | 1,939 | 1,957 | |||||||
| Professional fees | 1,051 | 588 | 1,184 | 469 | 398 | |||||||
| Real estate owned, net | 898 | 408 | 1,134 | 1,300 | 485 | |||||||
| Other operating expenses | 1,641 | 1,847 | 1,998 | 1,688 | 1,563 | |||||||
| Total operating expenses | 11,865 | 10,908 | 12,051 | 9,814 | 8,484 | |||||||
| Income before income taxes | 5,025 | 2,625 | 3,727 | 8,142 | 5,676 | |||||||
| Income tax expense | 1,544 | 484 | 1,148 | 2,960 | 1,796 | |||||||
| Net income | $ | 3,481 | $ | 2,141 | $ | 2,579 | $ | 5,182 | $ | 3,880 | ||
| Less deemed dividends on preferreds<br><br><br>stock | $ | 48,955 | ||||||||||
| Net loss allocated to common<br><br><br>shareholders | $ | (46,814 | ) | |||||||||
| Basic earnings (loss) per share | $ | 0.17 | $ | (2.33 | ) | $ | 0.13 | n.a. | n.a. | |||
| Diluted earnings (loss) per common share | $ | 0.11 | $ | (2.33 | ) | $ | 0.13 | n.a. | n.a. | |||
| Basic weighted avergage common<br><br><br>shares outstanding | 20,087 | 20,087 | 20,087 | n.a. | n.a. | |||||||
| Diluted weighted avergage common<br><br><br>shares outstanding | 32,435 | 20,087 | 20,087 | n.a. | n.a. |
11 | Page
| Third Quarter 2020 Earnings |
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Velocity Financial, Inc.
Net Interest Margin ‒ Portfolio Related and Total Company
(Unaudited)
Net Interest Margin :::— Portfolio Related and Total Company
| Quarter Ended September 30, 2020 | Quarter Ended June 30, 2020 | Quarter Ended September 30, 2019 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest | Average | Interest | Average | Interest | Average | ||||||||||||||||
| Average | Income / | Yield / | Average | Income / | Yield / | Average | Income / | Yield / | |||||||||||||
| ($ in thousands) | Balance | Expense | Rate^(1)^ | Balance | Expense | Rate^(1)^ | Balance | Expense | Rate^(1)^ | ||||||||||||
| Loan portfolio: | |||||||||||||||||||||
| Loans held for sale | $ | - | $ | 220,047 | $ | 122,763 | |||||||||||||||
| Loans held for investment | 2,016,414 | 1,875,260 | 1,703,377 | ||||||||||||||||||
| Total loans | $ | 2,016,414 | $ | 41,374 | 8.21 | % | $ | 2,095,307 | $ | 39,755 | 7.59 | % | 1,826,140 | $ | 40,379 | 8.84 | % | ||||
| Debt: | |||||||||||||||||||||
| Warehouse and repurchase facilities | $ | 22,306 | 703 | 12.61 | % | $ | 242,676 | 2,632 | 4.34 | % | 246,532 | 3,527 | 5.72 | % | |||||||
| Securitizations | 1,742,669 | 21,645 | 4.97 | % | 1,589,191 | 18,557 | 4.67 | % | 1,401,930 | 18,301 | 5.22 | % | |||||||||
| Total debt - portfolio related | 1,764,975 | 22,348 | 5.07 | % | 1,831,867 | 21,189 | 4.63 | % | 1,648,462 | 21,828 | 5.30 | % | |||||||||
| Corporate debt | 78,000 | 1,913 | 9.81 | % | 78,000 | 1,895 | 9.72 | % | 136,882 | 3,842 | 11.23 | % | |||||||||
| Total debt | $ | 1,842,975 | $ | 24,261 | 5.27 | % | $ | 1,909,867 | $ | 23,084 | 4.83 | % | 1,785,344 | 25,670 | 5.75 | % | |||||
| Net interest spread - portfolio related^(1)^ | 3.14 | % | 2.96 | % | 3.55 | % | |||||||||||||||
| Net interest margin - portfolio related | 3.77 | % | 3.54 | % | 4.06 | % | |||||||||||||||
| Net interest spread - total company^(2)^ | 2.94 | % | 2.75 | % | 3.09 | % | |||||||||||||||
| Net interest margin - total company | 3.39 | % | 3.18 | % | 3.22 | % | |||||||||||||||
| ^(1)^ | Net interest spread - portfolio related is the difference between the rate earned on our loan portfolio and the interest rates paid on our portfolio related debt. | ||||||||||||||||||||
| --- | --- | ||||||||||||||||||||
| ^(2)^ | Net interest spread - total company is the difference between the yield on our loan portfolio and the interest rates paid on our total debt. | ||||||||||||||||||||
| --- | --- |
12 | Page
| Third Quarter 2020 Earnings |
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Velocity Financial, Inc.
Adjusted Financial Metric Reconciliation to GAAP Net Income
(Unaudited)
| "CORE" EARNINGS PER SHARE | ||||
|---|---|---|---|---|
| Quarter Ended | ||||
| ($ in thousands) | 9/30/2020 | 6/30/2020 | ||
| Net Income | $ | 3,481 | $ | 2,141 |
| COVID-19 Impact | 1,267 | |||
| Workforce reduction costs | 432 | - | ||
| "Core" Earnings | $ | 3,913 | $ | 3,408 |
| Diluted weighted average common shares outstanding | $ | 32,435 | $ | 20,087 |
13 | Page
vel-ex992_7.pptx.htm
3Q20 Earnings Presentation November 11, 2020 Exhibit 99.2 [GRAPHIC] Investor 1-4 Multi-Family Mixed-Use Commercial
Forward-looking statements Some of the statements contained in this presentation may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases. You can also identify forward-looking statements by discussions of strategy, plans, or intentions. The forward-looking statements contained in this presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include but are not limited to: (1) the continued course and severity of the COVID-19 pandemic, and its direct and indirect impacts (2) general economic conditions and real estate market conditions, (3) regulatory and/or legislative changes, (4) our customers' continued interest in loans and doing business with us, (5) market conditions and investor interest in our contemplated securitization and (6) changes in federal government fiscal and monetary policies. For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see the section titled ''Risk Factors" previously disclosed in our Form 10-Q filed with the SEC on May 14, 2020. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.
3Q20 Highlights Production& Portfolio Earnings Financing & Capital Net Income of $3.5 million and Core Earnings(1) of $3.9 million; diluted EPS of $0.11 Net income growth of 63% from the prior quarter primarily driven by normalization of provision expense Normalized provision expense of $0.4 million(2) Portfolio net interest margin of 3.77%, an increase of 23 basis points (bps) from 2Q20 Restarted loan production activities in September to strong demand September loan applications totaled $226 million in unpaid principal balance (UPB), mirroring pre-COVID levels; loan production totaled $8 million in UPB Resolutions of delinquent loans in 3Q20 were 103.5% of assets resolved, continuing our consistent track record of net gains on delinquent loan and real estate owned (REO) resolutions over and above contractual principal and interest Approximately $335 million in UPB of loans in forbearance were brought current with past due amounts added to principal and will be recovered at liquidation Finalizing agreements for new warehouse financing lines without mark-to-market provisions Expect to complete Velocity’s next securitization in the first quarter of 2021, backed by newly originated 30-year loans (1) “Core” earnings is a non-GAAP measure. Please see the reconciliation to GAAP net income on page 4. (2) Please see slide 16 “CECL Reserve & HFS to HFI Reclass Reconciliation” in the Appendix of this presentation
Core Earnings and Book Value Core Earnings(1) Book Value Per Share ($0.02) 3Q20 core earnings(1) of $3.9 million, an increase of $0.5 million from $3.4 million in 2Q20 The difference between core earnings and GAAP net income is severance costs related to company-wide workforce reductions resulting from the impacts of the COVID-19 pandemic and streamlining of our loan operations processes Book value per share as of September 30, 2020 of $10.44 per share up from $10.26 per share as of June 30, 2020(2) GAAP net income $3,481 $0.19 (4) (1) Core income is a non-GAAP measure. Please see the Company’s third quarter earnings press release for a reconciliation of Core income to GAAP net income. (2) Adjusted for taxes based on an effective tax rate of 28% (3) Based on 20,087,494 common shares outstanding as of September 30, 2020 and June 30, 2020, respectively. (4) Includes increase to APIC from stock-based compensation Workforce reduction costs $(432) Core earnings $3,913 (3) (3) (2) [BAR CHART] $10.26 $0.20 $10.44 Book value at 6/30/20 Workforce Reduction Core Earnings Book value at 9/30/20
3Q20 Asset Resolution Activity $ UPB in millions Realized net gains of $0.44 million from 3Q20 resolution activity or 103.5% of UPB resolved Paid in full $9.7 Paid current REO sold $1.6 $1.2 $ UPB $ Gain / Loss $0.73 $0.02 $(0.31) 3Q20 Resolution Activity Nonaccrual loans paid in full during 3Q20 totaled $9.7 million in UPB with a $0.73 million net gain on resolution Gains primarily reflect the collection of all default interest, in addition to regular interest and prepayment penalties Loans paid current during 3Q20 total $1.6 million in UPB with a $0.02 million net gain Gain reflects collection of default interest, in addition to regular interest, and loan remains in our portfolio REO sales totaled $1.2 million for a net loss of $(0.31) million. Resolutions of delinquent loans and REO continue to consistently realize gains
Held for Investment Loan Portfolio $(79) $(3) Loan Portfolio Waterfall Loan Portfolio Composition (UPB in millions) Total portfolio as of September 30, 2020 was $1.99 billion in UPB, down from $2.06 billion in UPB as of June 30, 2020 Transferred approximately $214 million in UPB of short-term loans previously accounted for as held for sale (HFS) to the held for investment (HFI) portfolio during the third quarter Driven by completion of the VCC 2020- MC1 securitization which is collateralized primarily by short-term loans secured by 1-4 unit investor properties (UPB in millions) (1) Includes $974 thousand in UPB of repurchased loans. (1) [BAR CHART] $ 1,928 $2,059 $1,986 65.2% 65.9% 66.2% 3Q19 2Q20 3Q20 Loans HFI Loans HFS Loan to Value [BAR CHART] $2,059 $9 $1,986 Portfolio at 6/30/20 Loan Production Principal Payments Foreclosures Porfolio at 9/30/20
Production Re-start Met With Strong Demand Re-launched production operations in September Application volume totaled $226 million in UPB during September and $256 million in UPB during October Funded production volume totaled $8 million in UPB during September and $63 million in UPB during October Anecdotal information from longstanding broker relationships suggests significant financing demand from their investor clients Utilized the temporary suspension of production operations in 2Q20 to implement significant enhancements to our online Broker Portal, including: Streamlined registration for new brokers Electronic document submission Appraisal order submission Secure chat functionality for real-time interaction with Velocity loan operations Electronic document approval (DocuSign) Loan Application & Production Volume ($ of UPB in millions) Redesigned Broker Portal significantly enhances ease of use and efficiency Applications Production [BAR CHART] $226 $252 $8 $63 September October September October [BROKER PORTAL GRAPHIC]
Portfolio Net Interest Income & NIM(1) Net Interest Income and Margin 3Q20 Net Interest Income (NII)(1) totaled $19.0 million, an increase of 2% Q/Q and 3% Y/Y 3Q20 Net Interest Margin (NIM)(1) was 3.77%, an increase of 23 bps Q/Q, and a decrease of 29 bps Y/Y The Q/Q increase in NII and NIM was primarily driven by a decrease in new nonperforming loans Portfolio Yield and Cost of Funds Portfolio Related Portfolio Related ($ in Millions) (1) Net Interest Income and Net Interest Margin related to the loan portfolio only; excludes corporate debt. [BAR CHART] $18.6 $18.6 $19.0 4.06% 3.54% 3.77% 3Q19 2Q20 3Q20 Net Interest Income ($ in '000) - portfolio related Net Interest margin [LINE GRAPH] 8.84% 7.59% 8.21% 5.30% 4.63% 5.07% 3Q19 2Q20 3Q20 HFI Loan Yield W.A. Cost of funds
Nonaccrual Loans Total nonaccrual loans as of September 30, 2020 totaled $315 million in UPB, or 15.8% of total loans held for investment, down from 16.0% as of June 30, 2020, and an increase from 6.6% as of September 30, 2019 Charge-offs were $1.05 million in 3Q20, primarily due to one loan totaling $787 thousand that resulted from an unusual circumstance not indicative of worsening credit conditions Adjusted for the unusual circumstances loan, charge-offs were $259 thousand and in-line with historical levels Charge-offs $ UPB in thousands Loan Portfolio Performance $ thousands 0.33% $259 Adjusted charge-offs [BAR CHART] $127,021 $329,132 $314,727 6.59% 15.99% 15.84% 3Q19 2Q20 3Q20 Nonaccrual loans % of total nonaccrual to total loans [BAR CHART] $323 $75 $1,046 0.52% 0.10% 1.36% 3Q19 2Q20 3Q20 Charge-offs Charge-offs as % of nonaccrual loans (annualized)
CECL Reserve and Charge-Offs CECL Reserve Velocity’s CECL reserve increased 1 bps Q/Q to 29 bps of HFI loans at September 30, 2020, from 28 bps at June 30, 2020 The increase to the CECL reserve in 3Q20 was primarily driven by the transfer of $214 million in UPB of short-term loans to the HFI portfolio $1.2 million of the $1.6 million provision expense was an income statement reclass from other income driven by transfer of loans from HFS to HFI loans. Adjusted provision expense for 3Q20 was $0.4 million Transfer of HFS loans to HFI resulted from the issuance of the 2020-MC1 securitization CECL reserve increase driven by growth of HFI portfolio from transfer of short-term loans; improved macroeconomic outlook drives reduction of macroeconomic reserve [BAR CHART] $2,377 $3,496 $5,220 $5,748 0.13% 0.18% 0.28% 0.29% 1/1/2020 1Q20 2Q20 3Q20 CECL as % of Loan HFI
Improved Performance from Loan Portfolio Profitability and Growth Expect continued strong demand for our products Market opportunities have expanded for Velocity as a result of recent and fundamental shifts in real estate demand Transaction volumes following the restart of our production operations have exceeded our estimates and we expect market demand for the financing solutions we provide to remain strong for the foreseeable future Expect to see production volume consistent with pre-COVID level by 2Q21, driving strong growth in net interest income Reduce liquidity risk by growing warehouse capacity and the diversity of financing providers, while mitigating mark-to-market risk While economic risks persist, we expect steady improvement in portfolio performance, aided by continued strong real estate values Velocity’s historical track record of resolving delinquent loans at net gains is expected to continue Expectations for the Future
Appendix
Velocity Financial, Inc. Balance Sheet (Unaudited) (In thousands) Assets Cash and cash equivalents Restricted Cash Total loans, net Accrued interest receivables Receivables due from servicers Other receivables Real estate owned, net Property and equipment, net Deferred tax asset Other assets Total Assets Liabilities and members' equity Accounts payable and accrued expenses Secured financing, net Securitizations, net Warehouse & repurchase facilities Total Liabilities Mezzanine Equity Series A Convertible preferred stock Stockholders' Equity Stockholders' equity Total Liabilities and members' equity Book value per share Shares outstanding Quarter Ended 9/30/2020 6/30/2020 3/31/2020 12/31/2019 09/30/2019 $ 19,210 7,821 2,004,413 13,134 44,466 402 14,653 4,446 1,832 16,489 $ 2,126,866 $61,859 74,776 1,670,930 19,541 1,827,106 90,000 209,760 $ 2,126,866 $ 10.44 20,087 $ 9,803 6,735 2,077,119 17,793 36,028 4,609 15,648 4,718 5,556 9,042 $ 2,187,051 $ 55,938 74,571 1,599,719 160,796 1,891,024 90,000 206,027 $ 2,187,051 $ 10.26 20,087 $7,649 4,483 2,148,595 14,470 37,884 2,516 16,164 4,964 10,111 10,519 $ 2,257,354 $ 58,591 74,364 1,576,431 297,537 2,006,924 - 250,430 $2,257,354 $12.47 20,087 $21,465 6,087 2,080,787 13,295 49,659 4,778 13,068 4,680 8,280 12,667 $2,214,766 $56,146 145,599 1,438,629 421,548 2,061,922 - 152,844 $2,214,766 n.a. n.a. $8,849 3,152 1,949,311 12,450 38,349 7,585 15,806 4,903 4,127 17,219 $ 2,061,751 $41,957 145,285 1,377,733 349,115 1,914,090 - 147,661 $2,061,751 n.a. n.a.
Velocity Financial, Inc. Income Statement (Unaudited) ($ thousands) Revenues Interest income Interest expense - portfolio related Net interest income - portfolio related Interest expense - corporate debt Net interest income Provision for loan losses Net interest income after provision for loan losses Other operating income (expense) Total net revenues Operating expenses Compensation and employee benefits Rent and occupancy Loan servicing Professional fees Real estate owned, net Other operating expenses Total operating expenses Income before income taxes Income tax expense Net income Less deemed dividends on preferreds stock Net loss allocated to common shareholders Basic earnings (loss) per share Diluted earnings (loss) per common share Basic wighted average common shares outstanding Diluted weighted avergage common shares outstanding Quarter Ended 9/30/2020 6/30/2020 3/31/2020 12/31/2019 09/30/2019 $ 41,374 22,347 19,027 1,913 17,114 1,573 15,541 1,349 16,890 5,692 415 2,168 1,051 898 1,641 11,865 5,025 1,544 $ 3,481 $ 0.17 $ 0.11 20,087 32,435 $ 39,755 21,189 18,566 1,894 16, 672 1,800 14,872 (1,339) 13,533 5,863 448 1,754 588 408 1,847 10,908 2,625 484 $ 2,141 $ 48,955 $ (46,814) $ (2.33) $ (2.33) 20,087 20,087 $44, 637 22,848 21,789 6,342 15,447 1,289 14,157 1,620 15,777 5,041 455 2,239 1,184 1,134 1,998 12,051 3,727 1,148 $ 2,579 $ 0.13 $ 0.13 20,087 20,087 $ 44,124 22,689 21,435 4,070 17,365 242 17,123 833 17,956 3,992 426 1,939 469 1,300 1,688 9,814 8,142 2,960 $ 5,182 n.a n.a. n.a n.a. $ 40,279 21,827 18,552 3,842 14,710 338 14,372 (212) 14,160 3,712 369 1,957 398 485 1,563 8,484 5,676 1,796 $ 3,880 n.a. n.a. n.a. n.a.
Total Loan Portfolio Portfolio by Property Type (100% = $1.99 billion UPB)(1) (1) As of September 30, 2020 Portfolio by State [PIE CHART] Investor 1-4 51% Mixed Use 13% Multifamily 9% Retail 9% Office 6% Warehouse 6% Other 7% [PIE CHART] Other 34% New York 23% California 23% Florida 12% New Jersey 8%
CECL Reserve & HFS to HFI Reclass Reconciliation CECL Reserve Reconciliation (Balance Sheet): 3Q 2020 ($ in thousands) Beginning Balance 6/30/2020 $ (5,220) Add: Reserve for short-term loans transferred to HFI (1,666) 3Q20 CECL provision (407) Deduct: 3Q20 charge-offs 1,046 Ending Balance 9/30/2020 $ (5,748) Income Statement (HFS to HFI Reclass): 3Q 2020 Interest Income Provision for Loan Loss $ (1,166) Other Income Reversal of HFS LOCOM Valuation 1,307 Net P&L Impact $ 141