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): August 1, 2024
Velocity Financial, Inc.
(Exact name of Registrant as Specified in Its Charter)
| Delaware | 001-39183 | 46-0659719 |
|---|---|---|
| (State or Other Jurisdiction<br> <br>of Incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
| 2945 Townsgate Road, Suite 110 | ||
| --- | --- | |
| Westlake Village, California | 91361 | |
| (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>Symbol(s) | Name of each exchange<br> <br>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 August 1, 2024, we issued a press release announcing financial results for the quarter ended June 30, 2024. 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 of 1934, as amended, 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 of 1933, as amended or the Securities Exchange Act of 1934, as amended.
| Item 9.01 | Exhibits. |
|---|---|
| Exhibit<br> <br>Number | Description |
| --- | --- |
| 99 | Press Release dated August 1, 2024 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Velocity Financial, Inc. | ||
|---|---|---|
| Date: August 2, 2024 | By: | /s/ Roland T. Kelly |
| Roland T. Kelly | ||
| Chief Legal Officer and General Counsel |
EX-99
Exhibit 99
| Investors and Media:<br> <br>Chris<br>Oltmann<br> <br>(818) 532-3708 |
|---|
Velocity Financial, Inc. Reports
Second Quarter 2024 Results
SecondQuarter Highlights:
| • | Net income of $14.7 million, up 21.3% from $12.2 million for 2Q23. Diluted EPS of $0.42, up $0.06 from<br>$0.36 per share for 2Q23 |
|---|---|
| • | Core net income^(1)^ of $15.9 million, an increase of<br>23.1% from $12.9 million for 2Q23. Core diluted EPS^(1)^ of $0.45, up from $0.38 per share for 2Q23 |
| --- | --- |
| • | Loan production of $422.2 million in UPB, an 11.5% and 63.2% increase from 1Q24 and 2Q23, respectively<br> |
| --- | --- |
| • | Nonperforming loans as a percentage of Held for Investment (HFI) loans was 10.5%, up slightly from 10.1% as of<br>March 31, 2024, and 10.0% as of June 30, 2023, respectively |
| --- | --- |
| • | Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $80.7 million in UPB<br> |
| --- | --- |
| • | Realized gains of $1.0 million or 101.3% of UPB resolved |
| --- | --- |
| • | Portfolio net interest margin (NIM) of 3.54%, an increase of 19 bps Q/Q and an increase of 30 bps from 3.24% for<br>2Q23 |
| --- | --- |
| • | Completed the VCC 2024-2 and VCC<br>2024-3 securitizations totaling $286.2 million and 204.6 million, respectively, of securities issued |
| --- | --- |
| • | Resulted in a $0.06 per share EPS reduction from additional issuance expenses from a second securitization during<br>the quarter |
| --- | --- |
| • | Century Health & Housing Capital, LLC acquired $3.6 million in Mortgage Servicing Rights (MSRs)<br>related to $227.6 million in UPB of commercial GNMA mortgages |
| --- | --- |
| • | Liquidity^(2)^ of $83.8 million and total available<br>warehouse line capacity of $646.5 million as of June 30, 2024 |
| --- | --- |
| • | Recourse debt to equity ratio of 1.1x |
| --- | --- |
| • | GAAP Book value per common share of $14.52 as of June 30, 2024, a 15.5% increase from $12.57 as of<br>June 30, 2023 |
| --- | --- |
Westlake Village, CA – August 1, 2024 – Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $14.7 million and core net income of $15.9 million for 2Q24, compared to net income of $12.2 million and core net income of $12.9 million for 2Q23. Earnings and core earnings per diluted share were $0.42 and $0.45, respectively, for 2Q24, compared to $0.36 and $0.38 for 2Q23.
| ^(1)^ | Core income and Core EPS are non-GAAP measures that exclude<br>nonrecurring and unusual activities from GAAP net income. |
|---|---|
| ^(2)^ | Liquidity includes unrestricted cash reserves of $47.4 million and available liquidity in unfinanced loans<br>of $36.4 million. |
| --- | --- |
| Second Quarter 2024 Results | |
| --- |
“Velocity continued to build on its strong momentum in the second quarter, delivering continued production volume and earnings growth,” said Chris Farrar, President and CEO. “During the quarter, we expanded our loan production team and realized the benefits of earlier investments through higher production volume and market share growth, which has been particularly robust in our traditional commercial product. We also saw continued strong investor demand for Velocity’s asset-backed securities, evidenced by improving economics on the $490.8 million of new issuance during the quarter. Our discipline in maintaining higher loan coupons while increasing production volume has driven our strong earnings results through stable net interest margin growth and solid net fair market value gains. Our team has positioned Velocity for continued success, and we remain on track to achieve our year-end 2024 portfolio target of $5 billion in UPB.”
Second Quarter Operating Results
| KEY PERFORMANCE INDICATORS | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 2Q 2024 | 2Q 2023 | Variance | % Variance | ||||||
| Pretax income | $ | 19,873 | $ | 16,824 | 18 | % | ||||
| Net income | $ | 14,711 | $ | 12,183 | 21 | % | ||||
| Diluted earnings per share | $ | 0.42 | $ | 0.36 | 16 | % | ||||
| Core Pretax income | $ | 21,507 | $ | 17,811 | 21 | % | ||||
| Core net income^(a)^ | $ | 15,918 | $ | 12,928 | 23 | % | ||||
| Core diluted earnings per share^(a)^ | $ | 0.45 | $ | 0.38 | 18 | % | ||||
| Pretax return on equity | 16.95 | % | 16.81 | % | 1 | % | ||||
| Core pretax return on equity^(a)^ | 18.34 | % | 17.79 | % | 3 | % | ||||
| Net interest margin - portfolio | 3.54 | % | 3.24 | % | 9 | % | ||||
| Net interest margin - total company | 2.98 | % | 2.78 | % | 7 | % | ||||
| Average common equity | $ | 469,071 | $ | 400,441 | 17 | % |
All values are in US Dollars.
| ^(a)^ | Core income, core diluted earnings per share and core pretax return on equity are non-GAAP measures. Please see the reconciliation to GAAP net income at the end of this release. |
|---|---|
| n.a.- | not applicable |
| --- | --- |
Discussion of results:
| • | Net income in 2Q24 was $14.7 million, compared to $12.2 million for 2Q23 |
|---|---|
| • | Driven by higher production volume, net interest income growth, and continued strong loan resolution activity<br> |
| --- | --- |
| • | Core net income^(1)^ was $15.9 million, compared to<br>$12.9 million for 2Q23 |
| --- | --- |
| • | 2Q24 core adjustments included incentive compensation expenses and costs related to the Company’s employee<br>stock purchase plan (ESPP) |
| --- | --- |
| • | Portfolio NIM for 2Q24 was 3.54%, compared to 3.24% for 2Q23, a 9.4% Y/Y increase driven by HFI portfolio growth<br>and average loan coupons of more than 11.0% on recent loan production |
| --- | --- |
2 | Page
| Second Quarter 2024 Results | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| TOTAL LOAN PORTFOLIO | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ of UPB in millions) | 2Q 2024 | 2Q 2023 | Variance | % Variance | |||||||
| Held for Investment | |||||||||||
| Investor 1-4 Rental | $ | 2,425 | $ | 2,016 | 20 | % | |||||
| Mixed Use | 510 | 452 | 13 | % | |||||||
| Multi-Family | 336 | 304 | 11 | % | |||||||
| Retail | 385 | 322 | 20 | % | |||||||
| Warehouse | 288 | 235 | 23 | % | |||||||
| All Other | 535 | 391 | 37 | % | |||||||
| Total | $ | 4,480 | $ | 3,720 | 20 | % | |||||
| Held for Sale | |||||||||||
| Investor 1-4 Rental | $ | — | $ | — | n.m. | ||||||
| Multi-Family | — | — | ) | n.m. | |||||||
| Warehouse | — | — | n.m. | ||||||||
| All Other | — | — | n.m. | ||||||||
| Total Managed Loan Portfolio UPB | $ | 4,480 | **** | $ | 3,720 | **** | **** | **** | 20 | % | |
| Key loan portfolio metrics: | |||||||||||
| Total loan count | 11,582 | 9,541 | |||||||||
| Weighted average loan to value | 67.4 | % | 68.2 | % | |||||||
| Weighted average coupon | 9.25 | % | 8.40 | % | |||||||
| Weighted average total portfolio yield | 8.98 | % | 8.24 | % | |||||||
| Weighted average portfolio debt cost | 6.01 | % | 5.58 | % |
All values are in US Dollars.
| n.m. - | non meaningful |
|---|
Discussion of results:
| • | Velocity’s total loan portfolio was $4.5 billion in UPB as of June 30, 2024, an increase of 20.4%<br>from $3.7 billion in UPB as of June 30, 2023 |
|---|---|
| • | Primarily driven by 20.3% Y/Y growth in loans collateralized by Investor<br>1-4 Rental properties and 36.9% Y/Y growth in loans collateralized by “Other” commercial properties |
| --- | --- |
| • | Loan prepayments totaled $165.8 million in UPB, an increase from $142.0 million in UPB for 1Q24, and<br>$105.8 million in UPB for 2Q23 |
| --- | --- |
| • | The UPB of Fair Value Option (“FVO”) loans was $1.88 billion, or 42.0% of total HFI loans, as of<br>June 30, 2024, an increase from $688.1 million in UPB or 18.5%, as of June 30, 2023 |
| --- | --- |
| • | The weighted average portfolio<br>loan-to-value ratio was 67.4% as of June 30, 2024, down from 68.2% as of June 30, 2023, and consistent with the five-quarter trailing average of 67.8%<br> |
| --- | --- |
| • | The weighted average total portfolio yield was 8.98% as of June 30, 2024, an increase of 74 bps from 2Q23,<br>driven by an 85 bps increase in weighted average loan coupons from June 30, 2023 |
| --- | --- |
| • | Portfolio-related debt cost as of June 30, 2024, was 6.01%, an increase of 43 bps from June 30, 2023,<br>driven by higher interest rates on warehouse financing and recent securitizations |
| --- | --- |
3 | Page
| Second Quarter 2024 Results | ||||||||
|---|---|---|---|---|---|---|---|---|
| LOAN PRODUCTION VOLUMES | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in millions) | 2Q 2024 | 2Q 2023 | Variance | % Variance | ||||
| Investor 1-4 Rental | $ | 184 | $ | 163 | 13 | % | ||
| Traditional Commercial | 175 | 73 | 138 | % | ||||
| Short-term loans | 63 | 22 | 187 | % | ||||
| Total loan production | $ | 422 | $ | 259 | **** | 63 | % | |
| Acquisitions | $ | 3 | $ | — |
All values are in US Dollars.
Discussion of results:
| • | Loan production for 2Q24 totaled $422.2 million in UPB, a 63.2% increase from $258.6 million in UPB for<br>2Q23 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| • | Driven by continued strong demand for Traditional Commercial financing. On a Y/Y basis, traditional commercial<br>production volume rose 137.6%. | ||||||||||
| --- | --- | ||||||||||
| • | The weighted average coupon (WAC) on 2Q24 HFI loan production was 11.0%, essentially unchanged from 2Q23<br> | ||||||||||
| --- | --- | ||||||||||
| HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | 2Q 2024 | 2Q 2023 | Variance | % Variance | |||||||
| Nonperforming loans^(a)^ | $ | 470,649 | $ | 371,154 | 27 | % | |||||
| Average Nonperforming Loans ^(b)^ | $ | 319,342 | $ | 328,897 | ) | (3 | )% | ||||
| Average Loans HFI | $ | 4,345,962 | $ | 3,634,093.1 | 20 | % | |||||
| Nonperforming loans % total HFI Loans | 10.5 | % | 10.0 | % | 5 | % | |||||
| Total Charge Offs | $ | 245 | $ | 717 | ) | (66 | )% | ||||
| Charge-offs as a % of Avg. Nonperforming<br>Loans^(c)^ | 0.31 | % | 0.87 | % | (65 | )% | |||||
| Loan Loss Reserve | $ | 5,240 | $ | 4,626 | 13 | % |
All values are in US Dollars.
| ^(a)^ | Total HFI nonperforming/nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and<br>on nonaccrual. |
|---|---|
| ^(b)^ | Reflects monthly average nonperforming loans held for investment, excluding FVO loans, during the<br>period. |
| --- | --- |
| ^(c)^ | Reflects the annualized<br>quarter-to-date charge-offs to average nonperforming loans for the period. |
| --- | --- |
| n.a.- | not applicable |
| --- | --- |
Discussion of results:
| • | Nonperforming loans (NPL) totaled $470.6 million in UPB as of June 30, 2024, or 10.5% of loans HFI,<br>compared to $371.2 million and 10.0% as of June 30, 2023 |
|---|---|
| • | Driven by the growth of loans in foreclosure |
| --- | --- |
| • | Charge-offs for 2Q24 totaled $244.6 thousand, compared to $716.6 thousand for 2Q23<br> |
| --- | --- |
| • | The trailing five-quarter charge-off average was $461.0 thousand<br> |
| --- | --- |
| • | The loan loss reserve totaled $5.2 million as of June 30, 2024, a 13.3% increase from $4.6 million<br>as of June 30, 2023 |
| --- | --- |
4 | Page
| Second Quarter 2024 Results | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| • | Primarily resulting from an increase in the individually assessed component of the CECL reserve<br> | ||||||||||
| --- | --- | ||||||||||
| • | Loans carried at fair value or held for sale are not subject to a CECL reserve | ||||||||||
| --- | --- | ||||||||||
| NET REVENUES | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | 2Q 2024 | 2Q 2023 | Variance | % Variance | |||||||
| Interest income | $ | 97,760 | $ | 74,897 | 31 | % | |||||
| Interest expense - portfolio related | (59,188 | ) | (45,451 | ) | ) | 30 | % | ||||
| Net Interest Income - portfolio related | 38,572 | 29,446 | 31 | % | |||||||
| Interest expense - corporate debt | (6,155 | ) | (4,139 | ) | ) | 49 | % | ||||
| Loan loss provision | (218 | ) | (298 | ) | (27 | )% | |||||
| Net interest income after provision for loan losses | $ | 32,199 | **** | $ | 25,009 | **** | **** | **** | 29 | % | |
| Gain on disposition of loans | 3,168 | 1,237 | 156 | % | |||||||
| Unrealized (loss) gain on fair value loans | 17,123 | 2,413 | 610 | % | |||||||
| Unrealized gain (loss) on fair value of securitized debt | (4,643 | ) | 5,560 | ) | (184 | )% | |||||
| Unrealized gain/(loss) on mortgage servicing rights | (373 | ) | 302 | ) | (223 | )% | |||||
| Origination income^(a)^ | 5,072 | 2,735 | 85 | % | |||||||
| Bank interest income | 1,731 | 1,189 | 46 | % | |||||||
| Other operating income (expense) | 483 | 601 | ) | (20 | )% | ||||||
| Total Other operating income (expense) | $ | 22,561 | **** | $ | 14,037 | **** | **** | 61 | % | ||
| Net Revenue | $ | 54,760 | **** | $ | 38,749 | **** | **** | **** | 41 | % |
All values are in US Dollars.
| ^(a)^ | 2Q23 includes a reclass of production fees to expenses |
|---|
Discussion of results:
| • | Net Revenue for 2Q24 was $54.8 million, an increase of 41.3% compared to $38.7 million for 2Q23<br> |
|---|---|
| • | Driven by increased production volume and disciplined focus on maintaining spreads with 11.0% rates on loan<br>originations since 2Q23 |
| --- | --- |
| • | Total net interest income for 2Q24, including corporate debt interest expense and loan loss provision, was<br>$32.2 million, a 28.7% increase from $25.0 million for 2Q23 |
| --- | --- |
| • | Portfolio net Interest income was $38.6 million for 2Q24, an increase of 31.0% from 2Q23 resulting from<br>portfolio growth and a 30bps increase in NIM |
| --- | --- |
| • | Total other operating income was $22.6 million for 2Q24, an increase from $14.0 million for 2Q23<br> |
| --- | --- |
| • | Net unrealized FVO gains on loans and securitized debt were $12.4 million, resulting from fair value gains<br>on new 2Q24 loan production, partially offset by fair value losses on securitized debt |
| --- | --- |
| • | Origination income totaled $5.1 million, resulting from fee income realized from 2Q24 new loan production<br> |
| --- | --- |
5 | Page
| Second Quarter 2024 Results | ||||||||
|---|---|---|---|---|---|---|---|---|
| • | Gain on disposition of loans totaled $3.2 million for 2Q24, driven by loans transferred to Real Estate Owned<br>(REO) | |||||||
| --- | --- | |||||||
| OPERATING EXPENSES | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | 2Q 2024 | 2Q 2023 | Variance | % Variance | ||||
| Compensation and employee benefits | $ | 16,562 | $ | 10,670 | 55 | % | ||
| Origination (income)/expense^(a)^ | 749 | 123 | 510 | % | ||||
| Securitization expenses | 6,232 | 2,699 | 131 | % | ||||
| Rent and occupancy | 617 | 458 | 35 | % | ||||
| Loan servicing | 5,160 | 4,267 | 21 | % | ||||
| Professional fees | 1,718 | 1,056 | 63 | % | ||||
| Real estate owned, net | 1,355 | 1,018 | 33 | % | ||||
| Other expenses | 2,494 | 1,931 | 29 | % | ||||
| Total operating expenses | $ | 34,887 | $ | 22,222 | **** | 57 | % |
All values are in US Dollars.
| ^(a)^ | 2Q23 includes a reclass of production fees to expenses |
|---|
Discussion of results:
| • | Operating expenses totaled $34.9 million for 2Q24, an increase of 57.0% from 2Q23, primarily driven by the<br>continued growth of our origination platform and increased securitization expenses from issuing two transactions in the quarter |
|---|---|
| • | Compensation expense totaled $16.6 million, compared to $10.7 million for 2Q23 |
| --- | --- |
| • | Primarily driven by higher commissions on increased production volume and growth of the production team<br> |
| --- | --- |
| • | Securitization expenses totaled $6.2 million, resulting from issuance of the VCC 2024-2 and 2024-3 securitizations during the quarter, compared to costs of $2.7 million for one securitization during 2Q23. |
| --- | --- |
| • | Loan servicing expense totaled $5.2 million, a 20.9% increase from $4.3 million for 2Q23, driven by the<br>growth in our portfolio |
| --- | --- |
| • | Professional fees totaled $1.7 million, a 62.7% increase from $1.1 million for 2Q23, driven by growth<br>in accounting and legal fees necessary to support the Company’s growth |
| --- | --- |
| • | REO expenses totaled $1.4 million, a 33.1% increase from $1.0 million for 2Q23, driven by higher asset<br>preservation expenses |
| --- | --- |
6 | Page
| Second Quarter 2024 Results | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SECURITIZATIONS | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | Securities | Balance at | Balance at | |||||||||
| Trusts | Issued | 6/30/2024 | W.A. Rate | 6/30/2023 | W.A. Rate | |||||||
| 2016-1 Trust | 319,809 | $ | 17,704 | 9.29 | % | |||||||
| 2017-2 Trust | 245,601 | 39,444 | 4.08 | % | 51,930 | 3.95 | % | |||||
| 2018-1 Trust | 176,816 | 29,170 | 4.09 | % | 36,882 | 4.07 | % | |||||
| 2018-2 Trust | 307,988 | 67,437 | 4.41 | % | 87,984 | 4.51 | % | |||||
| 2019-1 Trust | 235,580 | 69,189 | 4.09 | % | 83,435 | 4.04 | % | |||||
| 2019-2 Trust | 207,020 | 54,005 | 3.40 | % | 76,284 | 3.45 | % | |||||
| 2019-3 Trust | 154,419 | 53,431 | 3.32 | % | 63,278 | 3.29 | % | |||||
| 2020-1 Trust | 248,700 | 99,102 | 2.87 | % | 121,074 | 2.86 | % | |||||
| 2020-2 Trust | 96,352 | 40,293 | 4.67 | % | 53,309 | 4.61 | % | |||||
| 2021-1 Trust | 251,301 | 160,668 | 1.76 | % | 183,089 | 1.76 | % | |||||
| 2021-2 Trust | 194,918 | 133,508 | 2.02 | % | 156,681 | 2.03 | % | |||||
| 2021-3 Trust | 204,205 | 146,569 | 2.47 | % | 167,652 | 2.46 | % | |||||
| 2021-4 Trust | 319,116 | 223,950 | 3.26 | % | 257,369 | 3.22 | % | |||||
| 2022-1 Trust | 273,594 | 227,222 | 3.93 | % | 246,883 | 3.93 | % | |||||
| 2022-2 Trust | 241,388 | 200,677 | 5.06 | % | 226,763 | 5.10 | % | |||||
| 2022-MC1 Trust | 84,967 | 20,213 | 6.87 | % | 39,862 | 6.90 | % | |||||
| 2022-3 Trust | 296,323 | 244,398 | 5.73 | % | 268,008 | 5.69 | % | |||||
| 2022-4 Trust | 308,357 | 255,922 | 6.25 | % | 289,929 | 6.25 | % | |||||
| 2022-5 Trust | 188,754 | 147,377 | 7.05 | % | 177,075 | 7.07 | % | |||||
| 2023-1 Trust | 198,715 | 161,344 | 7.01 | % | 189,763 | 7.02 | % | |||||
| 2023-1R Trust | 64,833 | 51,383 | 7.61 | % | 63,390 | 7.73 | % | |||||
| 2023-2 Trust | 202,210 | 162,932 | 7.25 | % | 199,864 | 7.17 | % | |||||
| 2023-RTL1 Trust | 81,608 | 81,608 | 8.24 | % | ||||||||
| 2023-3 Trust | 234,741 | 213,787 | 7.86 | % | ||||||||
| 2023-4 Trust | 202,890 | 208,449 | 8.35 | % | ||||||||
| 2024-1 Trust | 209,862 | 195,460 | 7.64 | % | ||||||||
| 2024-2 Trust | 286,235 | 280,139 | 7.15 | % | ||||||||
| 2024-3 Trust | 204,599 | 203,662 | 7.24 | % | ||||||||
| $ | 6,040,901 | $ | 3,771,339 | **** | 5.62 | % | $ | 3,058,208 | **** | 4.72 | % |
Discussion of results
| • | The company completed two securitizations during 2Q24 totaling $490.8 million of securities issued<br> |
|---|---|
| • | The 2024-2 securitization was completed in April and totaled<br>$286.2 million of securities issued with a weighted average rate of 7.15% |
| --- | --- |
| • | The 2024-3 securitization was completed in June and totaled<br>$204.6 million of securities issued with a weighted average rate of 7.24% |
| --- | --- |
| • | The weighted average rate on Velocity’s outstanding securitizations was 5.62% as of June 30, 2024, an<br>increase of 90 bps from June 30, 2023 |
| --- | --- |
7 | Page
| Second Quarter 2024 Results | ||||||
|---|---|---|---|---|---|---|
| RESOLUTION ACTIVITIES | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| LONG-TERM LOANS | ||||||
| RESOLUTION ACTIVITY | SECOND QUARTER 2024 | SECOND QUARTER 2023 | ||||
| ($ 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 | SECOND QUARTER 2024 | SECOND QUARTER 2023 | ||||
| ($ 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 nonperforming UPB | % | % |
All values are in US Dollars.
Discussion of results:
| • | NPL resolution totaled $80.7 million in UPB, realizing 101.3% of UPB resolved compared to $50.1 million<br>in UPB and realization of 103.0% of UPB resolved for 2Q23 |
|---|---|
| • | 2Q24 NPL resolutions represented 18.7% of nonperforming loan UPB as of March 31, 2024 |
| --- | --- |
| • | The UPB of loan resolutions in 2Q24 was in line with the recent five-quarter resolution average of<br>$64.4 million in UPB, and the realization of 102.0% of UPB resolved |
| --- | --- |
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| Second Quarter 2024 Results |
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Velocity’s executive management team will host a conference call and webcast on August 1st, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to review 2Q24 financial results.
Webcast Information
The conference call will be webcast live in listen-only mode and can be accessed through the Events and Presentations section of the Velocity Financial Investor Relations website: https://www.velfinance.com/events-and-presentations. To listen to the webcast, please visit 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 after the conference call is completed.
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. conference call.
A replay of the call will be available through midnight on August 30, 2024, 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 #8011693. 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 business purpose 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 20 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.
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| Second Quarter 2024 Results |
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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,” ”position,” 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, including the risk of recession (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 future securitizations, and (6) the continued conflict in Ukraine and Israel and (7) changes in federal government fiscal and monetary policies.
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| Second Quarter 2024 Results |
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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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| Second Quarter 2024 Results |
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Velocity Financial, Inc.
Consolidated Balance Sheet
| Quarter Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 6/30/2024 | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | |||||||||||
| (In thousands) | Unaudited | Unaudited | Audited | Unaudited | Unaudited | ||||||||||
| Assets | |||||||||||||||
| Cash and cash equivalents | $ | 47,366 | $ | 34,829 | $ | 40,566 | $ | 29,393 | $ | 33,987 | |||||
| Restricted cash | 32,293 | 24,216 | 21,361 | 17,703 | 16,786 | ||||||||||
| Loans held for sale, net | — | — | — | — | — | ||||||||||
| Loans held for sale, at fair value | — | — | 17,590 | 19,536 | — | ||||||||||
| Loans held for investment, at fair value | 1,971,683 | 1,649,540 | 1,306,072 | 951,990 | 705,330 | ||||||||||
| Loans held for investment | 2,619,619 | 2,727,518 | 2,828,123 | 2,945,840 | 3,057,940 | ||||||||||
| Total loans, net | 4,591,302 | 4,377,058 | 4,151,785 | 3,917,366 | 3,763,270 | ||||||||||
| Accrued interest receivables | 31,124 | 29,374 | 27,028 | 24,756 | 22,602 | ||||||||||
| Receivables due from servicers | 82,359 | 87,523 | 85,077 | 70,139 | 63,896 | ||||||||||
| Other receivables | 6,566 | 2,113 | 8,763 | 236 | 1,306 | ||||||||||
| Real estate owned, net | 50,757 | 46,280 | 44,268 | 29,299 | 20,388 | ||||||||||
| Property and equipment, net | 1,912 | 2,013 | 2,785 | 2,861 | 3,023 | ||||||||||
| Deferred tax asset | 1,144 | 1,580 | 2,339 | 705 | 1,878 | ||||||||||
| Mortgage Servicing Rights, at fair value | 12,229 | 9,022 | 8,578 | 9,786 | 9,445 | ||||||||||
| Derivative assets | — | 1,967 | — | 1,261 | — | ||||||||||
| Goodwill | 6,775 | 6,775 | 6,775 | 6,775 | 6,775 | ||||||||||
| Other assets | 9,566 | 5,468 | 5,248 | 7,028 | 7,789 | ||||||||||
| Total Assets | $ | 4,873,393 | **** | $ | 4,628,218 | **** | $ | 4,404,573 | **** | $ | 4,117,308 | **** | $ | 3,951,145 | **** |
| Liabilities and members’ equity | |||||||||||||||
| Accounts payable and accrued expenses | $ | 138,032 | $ | 123,988 | $ | 121,969 | $ | 97,869 | $ | 95,344 | |||||
| Secured financing, net | 283,909 | 283,813 | 211,083 | 210,774 | 210,464 | ||||||||||
| Securitized debt, net | 2,228,941 | 2,329,906 | 2,418,811 | 2,504,334 | 2,622,547 | ||||||||||
| Securitized debt, at fair value | 1,509,952 | 1,073,843 | 877,417 | 669,139 | 381,799 | ||||||||||
| Warehouse & repurchase facilities | 237,437 | 360,216 | 334,755 | 215,176 | 235,749 | ||||||||||
| Derivative liability | 374 | — | 3,665 | 0 | 0 | ||||||||||
| Total Liabilities | 4,398,646 | 4,171,766 | 3,967,700 | 3,697,292 | 3,545,903 | ||||||||||
| Stockholders’ Equity | |||||||||||||||
| Stockholders’ equity | 471,323 | 452,941 | 433,444 | 416,398 | 401,707 | ||||||||||
| Noncontrolling interest in subsidiary | 3,424 | 3,511 | 3,429 | 3,618 | 3,535 | ||||||||||
| Total equity | 474,747 | 456,452 | 436,873 | 420,016 | 405,242 | ||||||||||
| Total Liabilities and members’ equity | $ | 4,873,393 | **** | $ | 4,628,218 | **** | $ | 4,404,573 | **** | $ | 4,117,308 | **** | $ | 3,951,145 | **** |
| Book value per share | $ | 14.52 | **** | $ | 14.01 | **** | $ | 13.49 | **** | $ | 13.00 | **** | $ | 12.57 | **** |
| Shares outstanding | 32,701 | ^(1)^ | 32,574 | ^(2)^ | 32,395 | ^(3)^ | 32,314 | ^(4)^ | 32,239 | ^(5)^ | |||||
| ^(1)^ | Based on 32,701,185 common shares outstanding as of June 30, 2024, and excludes unvested shares of common<br>stock authorized for incentive compensation totaling 397,450. | ||||||||||||||
| --- | --- | ||||||||||||||
| ^(2)^ | Based on 32,574,498 common shares outstanding as of March 31, 2024, and excludes unvested shares of common<br>stock authorized for incentive compensation totaling 411,296. | ||||||||||||||
| --- | --- | ||||||||||||||
| ^(3)^ | Based on 32,395,423 common shares outstanding as of December 31, 2023, and excludes unvested shares of<br>common stock authorized for incentive compensation totaling 470,413. | ||||||||||||||
| --- | --- | ||||||||||||||
| ^(4)^ | Based on 32,313,744 common shares outstanding as of September 30, 2023, and excludes unvested shares of<br>common stock authorized for incentive compensation totaling 589,634. | ||||||||||||||
| --- | --- | ||||||||||||||
| ^(5)^ | Based on 32,238,715 common shares outstanding as of June 30, 2023, and excludes unvested shares of common<br>stock authorized for incentive compensation totaling 502,913. | ||||||||||||||
| --- | --- |
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| Second Quarter 2024 Results |
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Velocity Financial, Inc.
Consolidated Statements of Income (Quarters)
| Quarter Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 6/30/2024 | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | |||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | Unaudited | ||||||||||
| Revenues | ||||||||||||||
| Interest income | $ | 97,760 | $ | 90,529 | $ | 86,269 | $ | 79,088 | $ | 74,897 | ||||
| Interest expense - portfolio related | 59,188 | 55,675 | 51,405 | 47,583 | 45,451 | |||||||||
| Net interest income - portfolio related | 38,572 | 34,854 | 34,864 | 31,505 | 29,446 | |||||||||
| Interest expense - corporate debt | 6,155 | 5,380 | 4,140 | 4,138 | 4,139 | |||||||||
| Net interest income | 32,417 | 29,474 | 30,724 | 27,367 | 25,307 | |||||||||
| Provision for loan losses | 218 | 1,002 | 827 | 154 | 298 | |||||||||
| Net interest income after provision for loan losses | 32,199 | 28,472 | 29,897 | 27,213 | 25,009 | |||||||||
| Other operating income | ||||||||||||||
| Gain on disposition of loans | 3,168 | 1,699 | 1,482 | 3,606 | 1,237 | |||||||||
| Unrealized gain (loss) on fair value loans | 17,123 | 18,925 | 39,367 | (1,284 | ) | 2,413 | ||||||||
| Unrealized gain (loss) on fair value securitized debt | (4,643 | ) | (2,318 | ) | (24,085 | ) | 9,692 | 5,560 | ||||||
| Unrealized gain/(loss) on mortgage servicing rights | (373 | ) | 444 | (1,208 | ) | 341 | 302 | |||||||
| Origination income | 5,072 | 4,986 | 3,981 | 3,323 | 2,735 | |||||||||
| Bank interest income | 1,731 | 1,631 | 1,716 | 1,342 | 1,189 | |||||||||
| Other income (expense) | 483 | 408 | 418 | 340 | 601 | |||||||||
| Total other operating income | 22,561 | 25,775 | 21,670 | 17,360 | 14,037 | |||||||||
| Net revenue | 54,760 | 54,247 | 51,567 | 44,573 | 39,047 | |||||||||
| Operating expenses | ||||||||||||||
| Compensation and employee benefits | 16,562 | 15,357 | 15,143 | 12,523 | 10,670 | |||||||||
| Origination expenses | 749 | 646 | 173 | 273 | 123 | |||||||||
| Securitizations expenses | 6,232 | 2,874 | 2,709 | 4,930 | 2,699 | |||||||||
| Rent and occupancy | 617 | 498 | 551 | 472 | 458 | |||||||||
| Loan servicing | 5,160 | 4,824 | 4,636 | 4,901 | 4,267 | |||||||||
| Professional fees | 1,718 | 2,115 | 1,733 | 854 | 1,056 | |||||||||
| Real estate owned, net | 1,355 | 2,455 | 2,068 | 1,239 | 1,018 | |||||||||
| Other operating expenses | 2,494 | 2,242 | 2,248 | 2,142 | 1,931 | |||||||||
| Total operating expenses | 34,887 | 31,011 | 29,260 | 27,334 | 22,222 | |||||||||
| Income before income taxes | 19,873 | 23,236 | 22,307 | 17,239 | 16,824 | |||||||||
| Income tax expense | 5,162 | 5,903 | 5,141 | 5,070 | 4,602 | |||||||||
| Net income | 14,711 | 17,333 | 17,166 | 12,169 | 12,222 | |||||||||
| Net income attributable to noncontrolling interest | (67 | ) | 82 | (189 | ) | 83 | 39 | |||||||
| Net income attributable to Velocity Financial, Inc. | 14,778 | 17,251 | 17,355 | 12,086 | 12,183 | |||||||||
| Less undistributed earnings attributable to participating securities | 182 | 217 | 225 | 183 | 185 | |||||||||
| Net earnings attributable to common shareholders | $ | 14,596 | **** | $ | 17,034 | **** | $ | 17,130 | **** | $ | 11,903 | **** | $ | 11,998 |
| Basic earnings (loss) per share | $ | 0.45 | **** | $ | 0.52 | **** | $ | 0.53 | **** | $ | 0.37 | **** | $ | 0.37 |
| Diluted earnings (loss) per common share | $ | 0.42 | **** | $ | 0.49 | **** | $ | 0.50 | **** | $ | 0.35 | **** | $ | 0.36 |
| Basic weighted average common shares outstanding | 32,585 | 32,541 | 32,326 | 32,275 | 32,122 | |||||||||
| Diluted weighted average common shares outstanding | 35,600 | 35,439 | 34,991 | 34,731 | 34,140 |
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| Second Quarter 2024 Results |
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Velocity Financial, Inc.
Net Interest Margin – Portfolio Related and Total Company
(Unaudited)
Quarters:
| Quarter Ended June 30, 2024 | Quarter Ended June 30, 2023 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | AverageBalance | InterestIncome /Expense | AverageYield /Rate^(1)^ | AverageBalance | InterestIncome /Expense | AverageYield /Rate^(1)^ | ||||||||
| Loan portfolio: | ||||||||||||||
| Loans held for sale | $ | 9,979 | $ | 3,477 | ||||||||||
| Loans held for investment | 4,345,962 | 3,634,093 | ||||||||||||
| Total loans | $ | 4,355,942 | $ | 97,760 | 8.98 | % | $ | 3,637,570 | $ | 74,897 | 8.24 | % | ||
| Debt: | ||||||||||||||
| Warehouse and repurchase facilities | $ | 263,029 | 6,116 | 9.30 | % | $ | 238,027 | 5,910 | 9.93 | % | ||||
| Securitizations | 3,678,478 | 53,072 | 5.77 | % | 3,020,624 | 39,541 | 5.24 | % | ||||||
| Total debt - portfolio related | 3,941,506 | 59,188 | 6.01 | % | 3,258,651 | 45,451 | 5.58 | % | ||||||
| Corporate debt | 290,000 | 6,155 | 8.49 | % | 215,000 | 4,139 | 7.70 | % | ||||||
| Total debt | $ | 4,231,506 | $ | 65,343 | 6.18 | % | $ | 3,473,651 | $ | 49,590 | 5.71 | % | ||
| Net interest spread - portfolio<br>related^(2)^ | 2.97 | % | 2.66 | % | ||||||||||
| Net interest margin - portfolio related | 3.54 | % | 3.24 | % | ||||||||||
| Net interest spread - total<br>company^(3)^ | 2.80 | % | 2.53 | % | ||||||||||
| Net interest margin - total company | 2.98 | % | 2.78 | % | ||||||||||
| ^(1)^ | Annualized. | |||||||||||||
| --- | --- | |||||||||||||
| ^(2)^ | Net interest spread - portfolio related is the difference between the rate earned on our loan portfolio and the<br>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<br>interest rates paid on our total debt. | |||||||||||||
| --- | --- |
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| Second Quarter 2024 Results |
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Velocity Financial, Inc.
Adjusted Financial Metric Reconciliation to GAAP Net Income
(Unaudited)
Quarters:
| Core Net Income | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter Ended | |||||||||||
| 6/30/2024 | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | |||||||
| Net Income | $ | 14,778 | $ | 17,251 | $ | 17,355 | **** | $ | 12,086 | $ | 12,183 |
| Corporate debt refinancing costs | — | — | — | — | — | ||||||
| Tax liability reduction | — | — | (1,866 | ) | — | — | |||||
| Equity award & ESPP costs | 1,140 | 998 | 673 | 832 | 745 | ||||||
| Core Net Income | $ | 15,918 | $ | 18,249 | $ | 16,161 | **** | $ | 12,918 | $ | 12,928 |
| Diluted weighted average common shares outstanding | **** | 35,600 | **** | 35,439 | **** | 34,991 | **** | **** | 34,731 | **** | 34,140 |
| Core diluted earnings per share | $ | 0.45 | $ | 0.51 | $ | 0.46 | **** | $ | 0.37 | $ | 0.38 |
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