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): May 5, 2022
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,<br> Suite 295<br><br> <br>Westlake Village,<br> 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 May 5, 2022, we issued a press release announcing financial results for the quarter ended March 31, 2022. The press release is attached as Exhibit 99 and is incorporated herein by reference.
The information provided in Item 2.02, including Exhibit 99, 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.
Item 9.01 Exhibits.
| Exhibit<br><br> <br>Number | Description |
|---|---|
| 99 | Press Release dated May 5, 2022 |
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: May 5, 2022 | By: | /s/ Roland T. Kelly |
| Roland T. Kelly | ||
| Chief Legal Officer and General Counsel | ||
| Exhibit 99 | ||
| --- |
Velocity Financial, Inc. Reports First Quarter 2022 Results
First Quarter Highlights:
- Net income of $3.1 million and diluted earnings per share (EPS) of $0.09, down from $8.4 million and $0.24 per share, respectively, for 4Q21 - Core net income^(1)^ of $12.4 million and core diluted EPS^(1)^ of $0.36, up from $10.1 million and $0.29 per share, respectively, for 4Q21 - Loan production volume of $581.4 million in unpaid principal balance (UPB), a third consecutive quarterly record and an increase of 16.8% from 4Q21 - Loans held for investment (HFI) UPB of $2.8 billion as of March 31, 2022, an increase of 12.0% from December 31, 2021 - Nonaccrual loans as a percentage of Held for Investment (HFI) loans was 9.8% as of March 31, 2022, down from 10.9% as of December 31, 2021 - Resolutions of nonperforming loans (NPL) totaled $37.4 million in UPB, realizing gains of $1.8 million or 104.8% of UPB resolved - Portfolio net interest margin (NIM) of 4.25%, consistent with 4.27% in 4Q21 - Refinanced and upsized our corporate debt, issuing $215.0 million in principal amount at a rate of 7.125% per annum and paid off higher-cost 9.00% corporate debt of $170.8 million in principal amount - Completed our VCC 2022-1 securitization totaling $273.6 million in UPB - Book value per common share of $10.90 as of March 31, 2022, an increase from $10.84 per share as of December 31, 2021
WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--May 5, 2022--Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company) reported net income of $3.1 million and core net income of $12.4 million for 1Q22, compared to net income of $8.4 million and core net income of $10.1 million in 4Q21. Earnings and core earnings per diluted share were $0.09 and $0.36, respectively, in 1Q22, compared to $0.24 and $0.29, respectively, in 4Q21.
“The first quarter’s performance demonstrated strong momentum in our business with record production volumes and strong financial results across the organization,” said Chris Farrar, President and CEO. “This quarter’s strong financial performance was driven by our investment loan portfolio of nearly $3 billion in UPB, which has grown at a compounded annual growth rate of 20% over the last four years from loan production sourced through our nationwide origination platform.”
Mr. Farrar continued, “While macroeconomic and geopolitical uncertainties have increased, our resilient business model has performed impressively through a variety of market environments. Going forward, we believe that Velocity’s opportunities for growth are robust. Our record production volume this quarter underscores the existence of significant investor demand for investor real estate loans, in addition to growing interest from mortgage brokers to offer commercial investor loan products to their clients. We are well-positioned to execute on these market opportunities as a result of our strong capital position, which was further improved this quarter by the advantageous refinancing of our corporate debt and continued strong investor demand for our securitizations. This capital will help us achieve our growth objectives and continue delivering strong returns for shareholders in the future.
First Quarter Operating Results
| KEY PERFORMANCE INDICATORS | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ( in thousands) | 1Q 2022 | 4Q 2021 | Variance | % Variance | |||||
| Pretax income | 3,911 | $ | 11,377 | ) | (65.6 | )% | |||
| Net income | 3,121 | $ | 8,353 | ) | (62.6 | )% | |||
| Diluted earnings per share | 0.09 | $ | 0.24 | ) | (62.6 | )% | |||
| Core net income(a) | 12,407 | $ | 10,081 | 23.1 | % | ||||
| Core diluted earnings per share(a) | 0.36 | $ | 0.29 | 23.3 | % | ||||
| Pretax return on equity(b) | 4.42 | % | 13.75 | % | (67.8 | )% | |||
| Core pretax return on equity(a) | 18.90 | % | 16.59 | % | 13.9 | % | |||
| Net interest margin - portfolio | 4.25 | % | 4.27 | % | (0.6 | )% | |||
| Net interest margin - total company | 1.69 | % | 3.53 | % | (52.1 | )% | |||
| Average common equity | 353,635 | $ | 330,968 | 6.8 | % | ||||
| (a) Core income, core diluted earnings per share and core pretax return on equity are non-GAAP measures. Please see the<br> reconciliation to GAAP net income at the end of this release. | |||||||||
| (b) 1Q22 pretax ROE reflects deal cost write-off of 7.7 million and prepayment fees of 5.1 million related to refinancing the<br> Company’s corporate debt in March. |
All values are in US Dollars.
Discussion of results:
- Net income in 1Q22 was $3.1 million, down from $8.4 million in 4Q21 resulting from deal cost write-offs and prepayments fees of $12.8 million related to refinancing the Company’s corporate debt in March
- Core net income^(1)^ was $12.4 million in 1Q22, a 23.1% quarter-over-quarter increase from 4Q21. Core net income reflects after-tax adjustments of $9.3 million from the write-off of costs related to the refinancing of our corporate debt
- Portfolio NIM^^in 1Q22 was 4.25%, consistent with the 4.27% from 4Q21.
- The GAAP pretax return on equity was 4.42% in 1Q22, down from 13.8% in 4Q21. Adjusted for one-time debt issuance costs of $12.8 million, Core pretax return on equity was 18.90%.
| TOTAL LOAN PORTFOLIO | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ( of UPB in millions) | 1Q 2022 | 4Q 2021 | Variance | % Variance | |||||
| Held for Investment | |||||||||
| Investor 1-4 Rental | 1,319 | $ | 1,225 | 7.7 | % | ||||
| Mixed Use | 380 | 331 | 14.9 | % | |||||
| Multi-Family | 279 | 228 | 22.5 | % | |||||
| Retail | 278 | 234 | 18.6 | % | |||||
| Warehouse | 201 | 173 | 16.3 | % | |||||
| All Other | 343 | 309 | 10.9 | % | |||||
| Total | 2,800 | $ | 2,500 | 12.0 | % | ||||
| Held for Sale | |||||||||
| Investor 1-4 Rental | 77 | $ | 87 | ) | (12.1 | )% | |||
| Total Managed Loan Portfolio UPB | 2,877 | $ | 2,587 | 11.2 | % | ||||
| Key loan portfolio metrics: | |||||||||
| Total loan count | 7,365 | 6,964 | |||||||
| Weighted average loan to value | 67.9 | % | 67.7 | % | |||||
| Weighted average total portfolio yield | 7.76 | % | 8.21 | % | |||||
| Weighted average portfolio debt cost (a) | 4.00 | % | 4.58 | % | |||||
| (a) 4Q21 weighted average portfolio debt cost includes one-time costs totaling 1.5 million related to the collapse of three VCC<br> securitizations. | |||||||||
| Adjusted for these costs, the 4Q21 weighted average cost of funds was 4.29%. |
All values are in US Dollars.
Discussion of results:
- Velocity’s total loan portfolio was $2.9 billion in UPB as of March 31, 2022, an increase of 11.2% from $2.6 billion in UPB as of December 31, 2021
‒ Portfolio growth was driven by record loan production volume
‒ Payoff activity totaled $139.5 million in UPB, down 6.2% from $148.7 million in 4Q21
- The weighted average loan-to-value of the portfolio was 67.9% as of March 31, 2022, consistent with 67.7% as of December 31, 2021, and the eight-quarter trailing average of 66.7%
- The weighted average total portfolio yield was 7.76% in 1Q22, a 45 basis point (bps) quarter-over-quarter decrease driven by lower interest rates on recent production and payoff activity of older higher-rate loans
- Portfolio related debt cost in 1Q22 was 4.00%, a decrease of 58 bps from 4Q21
| LOAN PRODUCTION VOLUMES | |||||||
|---|---|---|---|---|---|---|---|
| ( in millions) | 1Q 2022 | 4Q 2021 | Variance | % Variance | |||
| Investor 1-4 Rental | 293 | $ | 267 | 9.8 | % | ||
| Traditional Commercial | 272 | 203 | 33.5 | % | |||
| Short-term loans | 16 | 27 | ) | (39.8 | )% | ||
| Total loan production | 581 | $ | 498 | 16.8 | % |
All values are in US Dollars.
Discussion of results:
- Loan production in 1Q22 totaled $581.4 million in UPB, a new quarterly production record, and a 16.8% increase from the previous record of $497.8 million in UPB in 4Q21.
‒ Traditional Commercial production was up $68.2 million in UPB from 4Q21, a 33.5% quarter-over-quarter increase from 4Q21, driven by strong demand for multifamily and mixed-use properties
‒ Investor 1-4 Rental production was up $26.2 million in UPB from 4Q21, a 9.8% quarter-over-quarter increase from 4Q21
- Increased the weighted average coupon to 8.10% on April new application volume of $338 million in UPB
| HFI PORTFOLIO CREDIT PERFORMANCE<br> INDICATORS | ||||||||
|---|---|---|---|---|---|---|---|---|
| ( in thousands) | 1Q 2022 | 4Q 2021 | Variance | % Variance | ||||
| Nonperforming loans(a) | 275,487 | $ | 273,100 | 0.9 | % | |||
| Average Nonperforming Loans | 278,349 | $ | 274,112 | 1.5 | % | |||
| Nonperforming loans % total HFI Loans | 9.8 | % | 10.9 | % | n.a. | (9.9 | )% | |
| Total Charge Offs | 328 | $ | 143 | 129.9 | % | |||
| Charge-offs as a % of Avg. Nonperforming loans(b) | 0.47 | % | 0.21 | % | n.a. | 126.4 | % | |
| Loan Loss Reserve | 4,664 | $ | 4,262 | 9.4 | % | |||
| (a) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual. | ||||||||
| (b) Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period. |
All values are in US Dollars.
Discussion of results:
- Nonperforming loans (NPL) totaled $275.5 million in UPB as of March 31, 2022, or 9.8% of loans HFI, compared to $273.1 million and 10.9%, respectively, as of December 31, 2021
‒ The modest growth in NPLs UPB was driven by a 3.0% increase in the UPB of loans in foreclosure from December 31, 2021
- Charge-offs in 1Q22 totaled $328.1 thousand compared to $142.7 thousand in 4Q21
‒ 1Q22 charge-offs were consistent with the trailing five quarter charge-off average of $323.9 thousand per quarter
- The loan loss reserve totaled $4.7 million as of March 31, 2022, a 9.4% increase from $4.3 million as of December 31, 2021, driven primarily by portfolio growth
- Capitalized interest recovered on COVID forbearance loans granted a deferral totaled $3.3 million since the program's inception in April 2020, with a remaining balance of $7.2 million as of March 31, 2022. None of the capitalized interest has been forgiven.
| NET REVENUES | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ( in thousands) | 1Q 2022 | 4Q 2021 | Variance | % Variance | |||||
| Interest income | 52,049 | $ | 49,360 | 5.4 | % | ||||
| Interest expense - portfolio related(a) | (23,556 | ) | $ | (23,666 | ) | (0.5 | )% | ||
| Interest expense - corporate debt(b) | (17,140 | ) | $ | (4,462 | ) | ) | 284.1 | % | |
| Net Interest Income | 11,353 | $ | 21,232 | ) | (46.5 | )% | |||
| Loan loss provision | (730 | ) | (377 | ) | ) | 93.6 | % | ||
| Gain on disposition of loans | 4,540 | 2,357 | 92.6 | % | |||||
| Other operating income (expense) | 1,108 | 260 | 326.2 | % | |||||
| Total Net Revenues | 16,271 | $ | 23,472 | ) | (30.7 | )% | |||
| (a) Net interest expense - portfolio related in 4Q21 includes 1.5 million of one-time costs related to the collapse of our<br> higher-cost securitizations. | |||||||||
| (b) Net interest expense - corporate debt includes in 1Q22 includes 12.8 million of nonrecurring costs related to the refinance<br> of Velocity's senior corporate debt. |
All values are in US Dollars.
Discussion of results:
- Total net interest income, including corporate debt interest expense, decreased by $9.9 million, or 46.5% from 4Q21, driven by nonrecurring costs from the refinancing of our corporate debt
‒ Nonrecurring costs included debt issuance cost write-off of $7.7 million and prepayment fees of $5.1 million associated with the payoff of higher-cost floating-rate corporate debt with a principal balance totaling $170.8 million
‒ Excluding these costs, net interest income was $24.2 million
- Portfolio-related net interest income (excluding corporate debt interest expense) totaled $28.5 million, an increase of 10.9% from 4Q21, resulting from portfolio growth and continued strong realization of default interest from NPL resolutions
- Gain on the disposition of loans grew 92.6% quarter-over-quarter, resulting from the sale of loans in 1Q22 totaling $144.1 million in UPB
- Other operating income growth from 4Q21 was primarily driven by a valuation gain in our servicing portfolio resulting from expected slower prepayment speeds in a rising interest-rate environment.
| OPERATING EXPENSES | ||||||||
|---|---|---|---|---|---|---|---|---|
| ( in thousands) | 1Q 2022 | 4Q 2021 | Variance | % Variance | ||||
| Compensation and employee benefits | 5,323 | $ | 4,720 | 12.8 | % | |||
| Rent and occupancy | 442 | 429 | 3.0 | % | ||||
| Loan servicing | 2,450 | 2,480 | ) | (1.2 | )% | |||
| Professional fees | 1,362 | 1,716 | ) | (20.6 | )% | |||
| Real estate owned, net | (175 | ) | 417 | ) | (142.0 | )% | ||
| Other expenses | 2,848 | 2,333 | 22.1 | % | ||||
| Total operating expenses | 12,250 | $ | 12,095 | 1.3 | % |
All values are in US Dollars.
Discussion of results:
- Operating expenses totaled $12.3 million in 1Q22, an increase of 1.3% from 4Q21, primarily driven by higher production-related compensation
| SECURITIZATIONS | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Securities | Balance at | Balance at | ||||||||
| Trusts | Issued | 3/31/2022 | W.A. Rate | 12/31/2021 | W.A. Rate | |||||
| 2015-1 Trust | $ | 285,457 | $ | 14,407 | 7.21 | % | $ | 17,536 | 7.22 | % |
| 2016-1 Trust | 319,809 | 32,518 | 8.10 | % | 36,401 | 8.22 | % | |||
| 2017-2 Trust | 245,601 | 75,303 | 3.36 | % | 86,497 | 3.37 | % | |||
| 2018-1 Trust | 176,816 | 57,284 | 4.04 | % | 62,375 | 4.04 | % | |||
| 2018-2 Trust | 307,988 | 123,854 | 4.31 | % | 143,152 | 4.39 | % | |||
| 2019-1 Trust | 235,580 | 115,299 | 3.95 | % | 132,306 | 4.02 | % | |||
| 2019-2 Trust | 207,020 | 114,665 | 3.45 | % | 122,205 | 3.44 | % | |||
| 2019-3 Trust | 154,419 | 90,919 | 3.27 | % | 95,521 | 3.26 | % | |||
| 2020-1 Trust | 248,700 | 162,092 | 2.85 | % | 174,550 | 2.82 | % | |||
| 2020-2 Trust | 96,352 | 73,750 | 4.36 | % | 80,676 | 4.45 | % | |||
| 2020-MC1 Trust | 179,371 | 12,842 | 4.57 | % | 35,711 | 4.42 | % | |||
| 2021-1 Trust | 251,301 | 228,015 | 1.74 | % | 236,190 | 1.73 | % | |||
| 2021-2 Trust | 194,918 | 191,183 | 2.01 | % | 197,744 | 2.28 | % | |||
| 2021-3 Trust | 204,205 | 199,381 | 2.46 | % | 202,793 | 2.45 | % | |||
| 2021-4 Trust | 319,116 | 305,530 | 3.16 | % | 315,489 | 3.11 | % | |||
| 2022-1 Trust | 273,594 | 270,642 | 3.94 | % | ||||||
| $ | 3,700,247 | $ | 2,067,684 | 3.12 | % | $ | 1,939,146 | 3.20 | % |
Discussion of results:
- The weighted average rate on Velocity’s outstanding securitizations decreased 8bps from 4Q21, driven mainly by the collapse of higher-cost securitization in 4Q21 and issuance of $970 million of securitizations in 2021 at a weighted average rate of 2.42%
‒ Issued the VCC 2022-1 securitization in February 2022 with a balance of $273.6 million and a weighted average rate of 3.94% as of March 31, 2022. The higher rate reflects the rising interest-rate environment.
| RESOLUTION ACTIVITIES | ||||||
|---|---|---|---|---|---|---|
| LONG-TERM LOANS | ||||||
| RESOLUTION ACTIVITY | FIRST QUARTER 2022 | FOURTH QUARTER 2021 | ||||
| ($ in thousands) | UPB | Gain / (Loss) | UPB | Gain / (Loss) | ||
| Paid in full | ||||||
| Paid current | ||||||
| REO sold(a) | ||||||
| Total resolutions | ||||||
| Resolutions as a % of nonperforming UPB | % | % | ||||
| SHORT-TERM AND FORBEARANCE LOANS | ||||||
| RESOLUTION ACTIVITY | FIRST QUARTER 2022 | FOURTH QUARTER 2021 | ||||
| ($ in thousands) | UPB | Gain / (Loss) | UPB | Gain / (Loss) | ||
| Paid in full | ||||||
| Paid current | ||||||
| REO sold | ||||||
| Total resolutions | ||||||
| Resolutions as a % of nonperforming UPB | % | % | ||||
| Grand total resolutions | ||||||
| Grand total resolutions as a % of<br> nonperforming UPB | % | % |
All values are in US Dollars.
Discussion of results:
- Total NPL resolution activities in 1Q22 totaled $37.4 million in UPB and realized net gains of $1.8 million, or 104.8% of UPB resolved, compared to $44.1 and $1.8 million, or 104.0% of UPB resolved, respectively in 4Q21
‒ Long-term loan resolutions in 1Q22 totaled $19.3 million in UPB and realized gains of $1.1 million compared to $25.4 million in UPB and realized gains of $1.0 million in 4Q21
‒ Short-term loan resolutions in 1Q22 totaled $18.1 million in UPB and realized gains of $0.72 million compared to $18.7 million in UPB and realized gains of $0.74 million, respectively, in 4Q21
^_______________^
^(1)^“Core” income is a non-GAAP measure that excludes nonrecurring and unusual activities from GAAP net income.
Webcast Information
The conference call will be webcast live in listen-only mode and can be accessed through the Events and Presentations section of Velocity Financial’s Investor Relations website https://www.velfinance.com/events-and-presentations. To listen to the webcast, please go to Velocity’s website at least 15 minutes before the call to register, download, and install any needed software. An audio replay of the call will also be available on Velocity’s website following the completion of the conference call.
Conference Call Information
To participate by phone, please dial-in 15 minutes before the start time to allow for wait times to access the conference call. The live conference call will be accessible by dialing 1-833-316-0544 in the U.S. and Canada and 1-412-317-5725 for international callers. Callers should ask to join the Velocity Financial, Inc. earnings call.
A replay of the call will be available through midnight on May 31, 2022 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. The passcode for the replay is #3636606. 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 built and refined over 18 years.
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company uses non-GAAP core net income and core diluted EPS, which are non-GAAP financial measures.
Non-GAAP core net income and non-GAAP core diluted EPS are non-GAAP financial measures that represent our net income (loss) and net income (loss) per diluted share, adjusted to eliminate the effect of certain costs incurred from activities that are not normal recurring operating expenses, such as COVID-stressed charges and recoveries of loan loss provision, nonrecurring debt amortization, the impact of operational measures taken to address the COVID-19 pandemic and workforce reduction costs, and costs associated with acquisitions. To calculate non-GAAP core diluted EPS, we use the weighted-average number of shares of common stock outstanding that is used to calculate net income per diluted share under GAAP.
We have included non-GAAP core net income and non-GAAP core diluted EPS because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that non-GAAP core net income and non-GAAP core diluted EPS provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain items that we expect to be nonrecurring.
These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.
For more information on Core Income, 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 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-K filed with the SEC on May 10, 2021, 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.
| Velocity Financial, LLC | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated Statements of Financial Condition | ||||||||||
| Quarter Ended | ||||||||||
| 3/31/2022 | 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | ||||||
| Unaudited | Audited | Unaudited | Unaudited | Unaudited | ||||||
| (In thousands) | ||||||||||
| Assets | ||||||||||
| Cash and cash equivalents | $ | 36,629 | $ | 35,965 | $ | 35,497 | $ | 27,741 | $ | 20,434 |
| Restricted cash | 10,837 | 11,639 | 9,586 | 7,921 | 6,808 | |||||
| Loans held for sale, net | 77,503 | 87,908 | 0 | 7,916 | 0 | |||||
| Loans held for investment, at fair value | 1,352 | 1,359 | 1,360 | 1,370 | 1,364 | |||||
| Loans held for investment | 2,793,968 | 2,494,204 | 2,265,922 | 2,057,046 | 1,983,435 | |||||
| Net deferred loan costs | 34,334 | 33,360 | 29,775 | 26,707 | 25,070 | |||||
| Total loans, net | 2,907,157 | 2,616,831 | 2,297,057 | 2,093,039 | 2,009,869 | |||||
| Accrued interest receivables | 14,169 | 13,159 | 11,974 | 11,094 | 11,169 | |||||
| Receivables due from servicers | 78,278 | 74,330 | 57,058 | 73,517 | 77,731 | |||||
| Other receivables | 4,527 | 1,812 | 870 | 10,169 | 3,879 | |||||
| Real estate owned, net | 16,177 | 17,557 | 17,905 | 20,046 | 14,487 | |||||
| Property and equipment, net | 3,690 | 3,830 | 3,348 | 3,625 | 3,891 | |||||
| Deferred tax asset | 16,477 | 16,604 | 17,026 | 13,196 | 9,246 | |||||
| Mortgage Servicing Rights, at fair value | 7,661 | 7,152 | - | - | - | |||||
| Goodwill | 6,775 | 6,775 | - | - | - | |||||
| Other assets | 7,345 | 6,824 | 6,843 | 7,257 | 7,325 | |||||
| Total Assets | $ | 3,109,722 | $ | 2,812,478 | $ | 2,457,164 | $ | 2,267,605 | $ | 2,164,839 |
| Liabilities and members' equity | ||||||||||
| Accounts payable and accrued expenses | $ | 92,768 | $ | 92,195 | $ | 79,360 | $ | 70,049 | $ | 65,003 |
| Secured financing, net | 208,956 | 162,845 | 163,449 | 164,053 | 129,666 | |||||
| Securitizations, net | 2,035,374 | 1,911,879 | 1,623,674 | 1,558,163 | 1,453,386 | |||||
| Warehouse & repurchase facilities | 424,692 | 301,069 | 258,491 | 151,872 | 203,314 | |||||
| Total Liabilities | 2,761,790 | 2,467,988 | 2,124,974 | 1,944,137 | 1,851,369 | |||||
| Mezzanine Equity | ||||||||||
| Series A Convertible preferred stock | - | - | 90,000 | 90,000 | 90,000 | |||||
| Stockholders' Equity | ||||||||||
| Stockholders' equity | 344,441 | 341,109 | 242,190 | 233,468 | 223,470 | |||||
| Noncontrolling interest in subsidiary | 3,491 | 3,381 | - | - | - | |||||
| Total equity | 347,932 | 344,490 | 242,190 | 233,468 | 223,470 | |||||
| Total Liabilities and members' equity | $ | 3,109,722 | $ | 2,812,478 | $ | 2,457,164 | $ | 2,267,605 | $ | 2,164,839 |
| Book value per share | $ | 10.90 | $ | 10.84 | $ | 12.05 | $ | 11.62 | $ | 11.12 |
| Shares outstanding | 31,913 | 31,787 | 20,098 | 20,087 | 20,087 |
| Velocity Financial, LLC | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated Statements of Income | |||||||||||||
| Quarter Ended | |||||||||||||
| ($ in thousands) | 3/31/2022 | 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | ||||||||
| Unaudited | Audited | Unaudited | Unaudited | Unaudited | |||||||||
| Revenues | |||||||||||||
| Interest income | $ | 52,049 | $ | 49,360 | $ | 46,923 | $ | 44,978 | $ | 40,707 | |||
| Interest expense - portfolio related | 23,556 | 23,666 | 20,321 | 20,566 | 20,832 | ||||||||
| Net interest income - portfolio related | 28,493 | 25,694 | 26,602 | 24,412 | 19,875 | ||||||||
| Interest expense - corporate debt | 17,140 | 4,462 | 4,488 | 4,309 | 7,350 | ||||||||
| Net interest income | 11,353 | 21,232 | 22,114 | 20,103 | 12,525 | ||||||||
| Provision for loan losses | 730 | 377 | 228 | (1,000 | ) | 105 | |||||||
| Net interest income after provision for loan losses | 10,623 | 20,855 | 21,886 | 21,103 | 12,420 | ||||||||
| Other operating income | |||||||||||||
| Gain on disposition of loans | 4,540 | 2,357 | 306 | 2,391 | 2,839 | ||||||||
| Unrealized gain/(loss) on fair value loans | 11 | 11 | 0 | 20 | (2 | ) | |||||||
| Other income (expense) | 1,097 | 249 | 33 | 21 | (36 | ) | |||||||
| Other operating income (expense) | 5,648 | 2,617 | 339 | 2,432 | 2,801 | ||||||||
| Total net revenues | 16,271 | 23,472 | 22,225 | 23,535 | 15,221 | ||||||||
| Operating expenses | |||||||||||||
| Compensation and employee benefits | 5,323 | 4,720 | 4,738 | 4,546 | 5,186 | ||||||||
| Rent and occupancy | 442 | 429 | 447 | 430 | 463 | ||||||||
| Loan servicing | 2,450 | 2,480 | 2,014 | 1,922 | 1,867 | ||||||||
| Professional fees | 1,362 | 1,716 | 736 | 795 | 533 | ||||||||
| Real estate owned, net | (175 | ) | 417 | 1,186 | 1,039 | 509 | |||||||
| Other operating expenses | 2,848 | 2,333 | 2,177 | 1,918 | 2,059 | ||||||||
| Total operating expenses | 12,250 | 12,095 | 11,298 | 10,650 | 10,617 | ||||||||
| Income before income taxes | 4,021 | 11,377 | 10,927 | 12,885 | 4,604 | ||||||||
| Income tax expense | 790 | 3,024 | 2,905 | 3,432 | 1,208 | ||||||||
| Net income | 3,231 | 8,353 | 8,022 | 9,453 | 3,396 | ||||||||
| Net income attributable to noncontrolling interest | 110 | - | - | - | - | ||||||||
| Net income attributable to Velocity Financial, Inc. | 3,121 | 8,353 | 8,022 | 9,453 | 3,396 | ||||||||
| Less undistributed earnings attributable to participating securities | 48 | 362 | 3,030 | 3,571 | 1,281 | ||||||||
| Net earnings attributable to common stockholders | $ | 3,073 | $ | 7,991 | $ | 4,992 | $ | 5,882 | $ | 2,115 | |||
| Basic earnings (loss) per share | $ | 0.10 | $ | 0.26 | $ | 0.25 | $ | 0.29 | $ | 0.11 | |||
| Diluted earnings (loss) per common share | $ | 0.09 | $ | 0.24 | $ | 0.23 | $ | 0.28 | $ | 0.10 | |||
| Basic weighted average common shares outstanding | 31,892 | 30,897 | 20,090 | 20,087 | 20,087 | ||||||||
| Diluted weighted average common shares outstanding | 34,204 | 34,257 | 34,212 | 33,960 | 33,407 |
| Velocity Financial, Inc.<br><br> <br>Net Interest Margin ‒ Portfolio Related and Total Company<br><br> <br>(Unaudited) | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter Ended March 31, 2022 | Quarter Ended December 31, 2021 | Quarter Ended March 31, 2021 | |||||||||||||||||
| 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 | $ | 69,092 | $ | 40,464 | $ | 8,904 | |||||||||||||
| Loans held for investment | 2,613,759 | 2,363,987 | 1,927,760 | ||||||||||||||||
| Total loans | $ | 2,682,851 | $ | 52,049 | 7.76 | % | $ | 2,404,451 | $ | 49,360 | 8.21 | % | $ | 1,936,664 | $ | 40,707 | 8.41 | % | |
| Debt: | |||||||||||||||||||
| Warehouse and repurchase facilities | $ | 338,247 | 3,764 | 4.45 | % | $ | 271,761 | 3,273 | 4.82 | % | $ | 113,528 | 1,705 | 6.01 | % | ||||
| Securitizations | 2,018,186 | 19,791 | 3.92 | % | 1,796,543 | 20,392 | 4.54 | % | 1,548,642 | 19,127 | 4.94 | % | |||||||
| Total debt - portfolio related | 2,356,433 | 23,555 | 4.00 | % | 2,068,304 | 23,665 | 4.58 | % | 1,662,170 | 20,832 | 5.01 | % | |||||||
| Corporate debt | 178,915 | 17,141 | 38.32 | % | ^(4)^ | 171,926 | 4,463 | 10.38 | % | 108,365 | 7,350 | 27.13 | % | ||||||
| Total debt | $ | 2,535,348 | $ | 40,696 | 6.42 | % | $ | 2,240,230 | $ | 28,128 | 5.02 | % | $ | 1,770,535 | $ | 28,182 | 6.37 | % | |
| Net interest spread - portfolio related^(2)^ | 3.76 | % | 3.63 | % | 3.39 | % | |||||||||||||
| Net interest margin - portfolio related | 4.25 | % | 4.27 | % | 4.10 | % | |||||||||||||
| Net interest spread - total company^(3)^ | 1.34 | % | 3.19 | % | 2.04 | % | |||||||||||||
| Net interest margin - total company | 1.69 | % | 3.53 | % | 2.59 | % | |||||||||||||
| (1) | Annualized. | ||||||||||||||||||
| --- | --- | ||||||||||||||||||
| (2) | 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. | ||||||||||||||||||
| (3) | Net interest spread — total company is the difference between the rate earned on our loan portfolio and the interest rates paid on our total debt. | ||||||||||||||||||
| (4) | Excluding the one-time debt issuance cost write-off of $7.7 million and prepayment penalties of $5.1 million associated with the $170.8 million payoff of our corporate<br> debt in March 2022, the corporate debt average rate would have been 9.70%; net interest spread — total company would have been 3.36%; and net interest margin — total company would have been 3.60% for the three months ended March 31,<br> 2022. | ||||||||||||||||||
| (5) | The debt issuance cost amortization was higher for the three months ended March 31, 2021, as a result of a lower average outstanding borrowing balance from a new<br> financing facility. | ||||||||||||||||||
| (6) | Excluding the one-time debt issuance cost write-off of $2.9 million and prepayment penalties of $1.6 million associated with the $78.0 million payoff of our corporate<br> debt in February 2021, the corporate debt average rate would have been 10.49%; net interest spread — total company would have been 3.06%; and net interest margin — total company would have been 3.52% for the three months ended March<br> 31, 2021. | ||||||||||||||||||
| Velocity Financial, Inc.<br><br> <br>Adjusted Financial Metric Reconciliation to GAAP Net Income<br><br> <br>(Unaudited) | |||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||
| Core Income | |||||||||||||||||||
| Quarter Ended | |||||||||||||||||||
| ($ in thousands) | 3/31/2022 | 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | ||||||||||||||
| Net Income | $ | 3,121 | $ | 8,353 | $ | 8,022 | $ | 9,453 | $ | 3,396 | |||||||||
| Deal cost write-off - collapsed securitizations | $ | 1,104 | - | - | - | ||||||||||||||
| One-time Century Health & Housing Capital deal costs | $ | 624 | - | - | - | ||||||||||||||
| Recovery of Loan Loss Provision | - | - | $ | (1,000 | ) | - | |||||||||||||
| Corporate debt refinancing costs | $ | 9,286 | - | - | - | 3,326 | |||||||||||||
| Core Income | $ | 12,407 | $ | 10,081 | $ | 8,022 | $ | 8,453 | $ | 6,722 | |||||||||
| Diluted weighted average common shares outstanding | $ | 34,204 | $ | 34,257 | $ | 34,212 | $ | 33,960 | $ | 33,407 | |||||||||
| Core diluted earnings per share | $ | 0.36 | $ | 0.29 | $ | 0.23 | $ | 0.25 | $ | 0.20 |
Contacts
Investors and Media:
Chris Oltmann
\(818\) 532-3708