Velocity Financial, Inc. Reports First Quarter 2024 Results

Rhea-AI Summary

Velocity Financial, Inc. reported strong financial results for the first quarter of 2024, with net income of $17.3 million, up 62% from the previous year. Core net income increased by 60.4% to $18.2 million. Loan production saw a significant growth of 74.5% from the previous year, reaching $378.7 million. The company remains focused on achieving its '5X25' goal of a $5 billion loan portfolio by 2025.

Positive

• Net income increased by 62% to $17.3 million compared to the previous year.

• Core net income rose by 60.4% to $18.2 million for the first quarter of 2024.

• Loan production surged by 74.5% to $378.7 million in the first quarter of 2024.

• The company remains on track to achieve its '5X25' goal of a $5 billion loan portfolio by 2025.

Negative

• None.

Insights

Financial Analyst

Velocity Financial, Inc.'s impressive year-over-year increase in net income and diluted EPS suggests efficient capital management and operational execution. A 62% surge in net income alongside significant loan portfolio growth speaks to a robust strategic positioning in the business purpose loan segment. This performance, particularly when viewed in the context of interest rate fluctuations and securitization market dynamics, indicates an effective risk management approach. The report's emphasis on the '5X25' goal signals a clear growth trajectory, which is important for investor confidence in the company's future performance. The increase in nonperforming loans, while slight, does warrant attention; it may reflect broader economic trends or specific portfolio vulnerabilities. Such financial fortitude, assuming continued prudent risk management, presents a potentially attractive opportunity for growth-oriented investors.

Real Estate Finance Analyst

The reported increase in loan production, particularly in traditional commercial properties, aligns with broader real estate market trends favoring diversification and responds to the shifting dynamics in commercial real estate demand. Velocity's strategic pivot to bolster this segment could capitalize on emerging opportunities as investor appetite adjusts to a post-pandemic landscape. The modest increase in the nonperforming loans percentage aligns with industry anticipations given the economic recovery's uneven nature. Notably, the company's securitization activities and their improved execution over the quarter highlight their capability to tap into investor demand for asset-backed securities, which is a testament to their market acumen.

Risk Management Analyst

Velocity Financial's disclosure of a slight uptick in nonperforming loans is a critical indicator of portfolio health to monitor, although it has not markedly derailed their financial performance. It's a reminder that even when a company is experiencing growth, there are underlying credit risks that investors should not overlook. The proactive efforts in loan resolutions, achieving over 100% of UPB resolved, demonstrate a commitment to mitigating the impact of these nonperforming assets. Furthermore, the company's strategic issuance of secured notes to support portfolio growth suggests a calculated move to leverage current market conditions without overextending their debt profile, showcasing a balanced approach to growth and risk.

First Quarter Highlights:

• Net income of $17.3 million, up 62.0% from $10.6 million for 1Q23. Diluted EPS of $0.49, up $0.18 from $0.31 per share for 1Q23
• Core net income⁽¹⁾ of $18.2 million, an increase of 60.4% from $11.4 million for 1Q23. Core diluted EPS⁽¹⁾ of $0.51, up from $0.33 per share for 1Q23

• Loan production of $378.7 million in UPB, a 7.5% increase from 4Q23 and 74.5% from 1Q23
  • Loan production in April 2024 totaled $129.0 million with an 11.0% weighted average coupon (WAC)

• Nonperforming loans as a percentage of Held for Investment (HFI) loans was 10.1%, up slightly from the 9.7% as of December 31, 2023, and an increase from 8.7% as of March 31, 2023
• Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled
  
  $54.5 million in UPB
  • Realized gains of $1.3 million or 102.3% of UPB resolved

• Portfolio net interest margin (NIM) of 3.35%, a decrease of 17 bps Q/Q and an increase of 12 bps from 3.23% for 1Q23
• Completed the VCC 2024-1 securitization totaling $209.9 million of securities issued
• Issued $75.0 million of senior secured notes to support ongoing investment portfolio growth
• Liquidity⁽²⁾ of $78.5 million as of March 31, 2024
• Recourse debt to equity ratio of 1.4x
• GAAP Book value per common share of $14.01 as of March 31, 2024, an increase from $13.49 as of December 31, 2023

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)-- Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $17.3 million and core net income of $18.2 million for 1Q24, compared to net income of $10.6 million and core net income of $11.4 million for 1Q23. Earnings and core earnings per diluted share were $0.49 and $0.51, respectively, for 1Q24, compared to $0.31 and $0.33 for 1Q23.

“Velocity began 2024 with another quarter of strong production and loan portfolio growth, resulting in the second highest quarterly net earnings in the Company’s history,” said Chris Farrar, President and CEO. “We saw strong demand for financing to purchase real estate assets, particularly in traditional commercial properties, which equaled our 1-4 Investor loan volume this quarter and drove our production volume growth. While base rates increased during the first quarter, we continued to see an improvement of spreads in the securitization markets and robust investor demand for asset-backed securities. We remain on track to attain our “5X25” goal of a $5 billion loan portfolio by 2025 and deliver another year of solid financial performance.”

First Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)		1Q 2024			1Q 2023			$ Variance			% Variance
Pretax income	$	23,236		$	14,757			$	8,479		57	%
Net income	$	17,251		$	10,649			$	6,602		62	%
Diluted earnings per share	$	0.49		$	0.31			$	0.18		56	%
Core Pretax income	$	24,525		$	15,681			$	8,844		56	%
Core net income(a)	$	18,249		$	11,376			$	6,873		60	%
Core diluted earnings per share(a)	$	0.51		$	0.33			$	0.18		54	%
Pretax return on equity		20.77	%		15.27	%		n.a.			36	%
Core pretax return on equity(a)		21.92	%		16.20	%		n.a.			35	%
Net interest margin - portfolio		3.35	%		3.23	%		n.a.			4	%
Net interest margin - total company		2.83	%		2.76	%		n.a.			3	%
Average common equity	$	447,613		$	386,935			$	60,678		16	%
(a) Core income, core diluted earnings per share and core pretax return on equity are non-GAAP measures. Please see the reconciliation to GAAP at the end of this release.
n.a.- not applicable

Discussion of results:

• Net income in 1Q24 was $17.3 million, compared to $10.6 million for 1Q23
  • Robust production volume with weighted average coupons of 11.1% drove strong fair market value gains

• Core net income⁽¹⁾ was $18.2 million, compared to $11.4 million for 1Q23
  • 1Q24 core adjustments include incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP)

• Portfolio NIM for 1Q24 was 3.35%, compared to 3.23% for 1Q23, a 4.0% Y/Y increase driven by 11.1% average loan coupons on recent loan production and continued NPL resolutions, partially offset by higher funding costs
• The GAAP pretax return on equity was 20.77% for 1Q24, compared to 15.27% for 1Q23

TOTAL LOAN PORTFOLIO
($ of UPB in millions)		1Q 2024			1Q 2023			$ Variance				% Variance
Held for Investment
Investor 1-4 Rental	$	2,337		$	1,905			$	432			23	%
Mixed Use		492			450				43			9	%
Multi-Family		323			304				19			6	%
Retail		364			308				56			18	%
Warehouse		276			221				55			25	%
All Other		489			391				98			25	%
Total	$	4,282		$	3,579			$	703			20	%
Held for Sale
Investor 1-4 Rental	$	-		$	-			$	-			n.m.
Multi-Family		-			17				(17	)		n.m.
Warehouse		-			-				-			n.m.
All Other		-			-				-			n.m.
Total Managed Loan Portfolio UPB	$	4,282		$	3,596			$	685			19	%
Key loan portfolio metrics:
Total loan count		11,013			9,147
Weighted average loan to value		67.6	%		68.1	%
Weighted average coupon		9.07	%		8.15	%
Weighted average total portfolio yield		8.71	%		8.00	%
Weighted average portfolio debt cost		5.93	%		5.33	%
n.m. - non meaningful

Discussion of results:

• Velocity’s total loan portfolio was $4.3 billion in UPB as of March 31, 2024, an increase of 19.1% from $3.6 billion in UPB as of March 31, 2023
  • Primarily driven by 22.7% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and 25.1% Y/Y growth in loans collateralized by “Other” commercial properties
  • Loan prepayments totaled $142.0 million, an increase of 20.9% Q/Q and 64.1% Y/Y

• The UPB of Fair Value (FVO) loans was $1.58 billion, or 36.9% of total HFI loans, as of March 31, 2024, an increase from $454.0 million in UPB and 12.6%, as of
  March 31, 2023
• The weighted average portfolio loan-to-value ratio was 67.6% as of March 31, 2024, down from 68.1% as of March 31, 2023, and consistent with the five-quarter trailing average of 67.9%
• The weighted average total portfolio yield was 8.71% for 1Q24, an increase of 71 bps from 1Q23, driven by a 93 bps increase in average loan coupons from 1Q23
• Portfolio-related debt cost for 1Q24 was 5.93%, an increase of 60 bps from 1Q23, driven by higher interest rates on warehouse financing and recent securitizations

LOAN PRODUCTION VOLUMES
($ in millions)		1Q 2024		1Q 2023		$ Variance			% Variance
Investor 1-4 Rental	$	167	$	116		$	51		44	%
Traditional Commercial		167		80			87		109	%
Short-term loans		45		21			24		115	%
Total loan production	$	379	$	217		$	162		75	%
Acquisitions	$	12	$	-
n.m. - non meaningful

Discussion of results:

• Loan production for 1Q24 totaled $378.7 million in UPB, a 74.5% increase from $217.0 million in UPB for 1Q23
  • Driven by growing demand for Traditional Commercial financing. On a Q/Q basis, production volume rose 7.5%.
• The weighted average coupon (WAC) on 1Q24 HFI loan production was 11.1%, essentially unchanged from 1Q23

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)		1Q 2024			1Q 2023			$ Variance			% Variance
Nonperforming loans(a)	$	432,560		$	309,937			$	122,623		40	%
Average Nonperforming Loans (b)	$	321,442		$	298,703			$	22,739		8	%
Average Loan HFI	$	4,149,750		$	3,512,133			$	637,617		18	%
Nonperforming loans % total HFI Loans		10.1	%		8.7	%		n.a.			17	%
Total Charge Offs	$	504		$	484			$	20		4	%
Charge-offs as a % of Avg. Nonperforming Loans(c)		0.63	%		0.65	%		n.a.			(3	)%
Loan Loss Reserve	$	5,267		$	5,045			$	221		4	%
(a) Total nonperforming/nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.
(b) Reflects monthly average nonperforming loans held for investment, excluding FVO loans, during the period.
(c) Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period.
n.a.- not applicable

Discussion of results:

• Nonperforming loans (NPL) totaled $432.6 million in UPB as of March 31, 2024, or 10.1% of loans HFI, compared to $309.9 million and 8.7% as of March 31, 2023
  • Driven by growth in loans transitioning to foreclosure

• Charge-offs for 4Q23 totaled $504.0 thousand, compared to $484.0 thousand for 1Q23
  • The trailing five-quarter charge-off average was $508.8 thousand

• The loan loss reserve totaled $5.3 million as of March 31, 2024, a 4.4% increase from
  $5.0 million as of March 31, 2023
  • Primarily resulting from an increase in the individually-assessed reserve component
  • Loans carried at fair value are not subject to a CECL reserve

NET REVENUES
($ in thousands)		1Q 2024			1Q 2023			$ Variance				% Variance
Interest income	$	90,529		$	70,521			$	20,007			28	%
Interest expense - portfolio related		(55,675	)		(42,029	)			(13,645	)		32	%
Net Interest Income - portfolio related		34,854			28,492				6,362			22	%
Interest expense - corporate debt		(5,380	)		(4,139	)			(1,241	)		30	%
Loan loss provision		(1,002	)		(636	)			(366	)		58	%
Net interest income after provision for loan losses	$	28,472		$	23,717			$	4,755			20	%
Gain on disposition of loans		1,699			1,913				(214	)		(11	)%
Unrealized (loss) gain on fair value loans		18,925			7,354				11,571			157	%
Unrealized gain (loss) on fair value of securitized debt		(2,318	)		(170	)			(2,148	)		n.m.
Unrealized gain/(loss) on mortgage servicing rights		444			(95	)			539			(567	)%
Origination income(a)		4,986			2,411				2,575			107	%
Bank interest income		1,631			948				683			n.m.
Other operating income (expense)		408			481				(72	)		(15	)%
Total Other operating income (expense)	$	25,775		$	12,842			$	12,933			101	%
Net Revenue	$	54,247		$	36,560			$	17,687			48	%
(a) 1Q23 includes a reclass of production fees to expenses
n.m. - non meaningful

Discussion of results:

• Net Revenue for 1Q24 was $54.2 million, an increase of 48.4% compared to $36.6 million for 1Q23
  • Driven primarily by $12.9 million Y/Y growth in other operating income and continued strong loan portfolio performance from organically sourced production

• Total net interest income for 1Q24, including corporate debt interest expense and loan loss provision, was $28.5 million, a 20.0% increase from $23.7 million for 1Q23
  • Portfolio net Interest income was $34.9 million for 1Q24, an increase of 22.3% from 1Q23 resulting from portfolio growth and a 12bps increase in NIM

• Total other operating income was $25.8 million for 1Q24, an increase from $12.8 million for 1Q23, driven by net fair value gains and origination fees on higher 1Q24 loan production
  • Net FVO gains on loans and securitized debt were $16.6 million, resulting primarily from fair value gains on new 1Q24 loan production, partially offset by fair value losses on securitized debt
  • Origination income totaled $5.0 million, resulting from fee income realized on loans 1Q24 loan production
  • Gain on disposition of loans totaled $1.7 million for 1Q24, primarily driven by loans transferred to Real Estate Owned (REO)

OPERATING EXPENSES
($ in thousands)		1Q 2024		1Q 2023			$ Variance			% Variance
Compensation and employee benefits	$	15,357	$	10,008			$	5,349		53	%
Origination (income)/expense(a)		646		(50	)			696		n.m.
Securitization expenses		2,874		2,584				290		n.m.
Rent and occupancy		498		446				51		12	%
Loan servicing		4,824		3,828				996		26	%
Professional fees		2,115		955				1,160		121	%
Real estate owned, net		2,455		1,829				626		34	%
Other expenses		2,242		2,202				39		2	%
Total operating expenses	$	31,011	$	21,802			$	9,208		42	%
(a) 1Q23 includes a reclass of production fees to expenses
n.m. - non meaningful

Discussion of results:

• Operating expenses totaled $31.0 million for 1Q24, an increase of 42.2% from 1Q23, driven by our growth in originations and the portfolio
  • Compensation expense totaled $15.4 million, compared to $10.0 million for 1Q23
    • Compensation growth was driven by growth of the production team in addition to higher commissions expense from increased origination volumes
  • Securitization expenses totaled $2.9 million, resulting from the issuance of the VCC 2024-1 securitization during the quarter, in-line with securitization costs for 1Q23.
  • Loan servicing expense totaled $4.8 million, a 26.0% increase from $3.8 million for 1Q23, driven by portfolio growth and nonperforming loan resolution costs
  • REO expense increased totaled $2.5 million, an increase from $1.8 million for 1Q23, driven by increased valuation-related expenses

SECURITIZATIONS
($ in thousands)	Securities			Balance at				Balance at
Trusts	Issued			3/31/2024		W.A. Rate		3/31/2023		W.A. Rate
2016-1 Trust		319,809		$	-	0.00%		$	19,896	8.85%
2017-2 Trust		245,601			41,610	4.06%			55,981	3.95%
2018-1 Trust		176,816			31,981	4.09%			41,239	4.01%
2018-2 Trust		307,988			74,490	4.51%			91,189	4.50%
2019-1 Trust		235,580			70,253	4.06%			87,832	4.08%
2019-2 Trust		207,020			62,467	3.44%			81,096	3.41%
2019-3 Trust		154,419			54,912	3.30%			65,757	3.28%
2020-1 Trust		248,700			101,991	2.89%			128,280	2.84%
2020-2 Trust		96,352			42,088	4.57%			57,239	4.60%
2021-1 Trust		251,301			165,657	1.77%			186,986	1.75%
2021-2 Trust		194,918			141,057	2.03%			161,511	2.01%
2021-3 Trust		204,205			153,438	2.46%			172,915	2.45%
2021-4 Trust		319,116			237,277	3.25%			266,076	3.19%
2022-1 Trust		273,594			233,429	3.94%			250,986	3.93%
2022-2 Trust		241,388			205,358	5.07%			231,171	5.09%
2022-MC1 Trust		84,967			27,519	6.92%			48,298	6.88%
2022-3 Trust		296,323			251,143	5.71%			277,038	5.67%
2022-4 Trust		308,357			263,336	6.22%			297,702	6.24%
2022-5 Trust		188,754			154,783	7.01%			184,213	7.08%
2023-1 Trust		198,715			169,107	7.04%			195,999	7.01%
2023-1R Trust		64,833			54,342	7.63%
2023-2 Trust		202,210			178,713	8.24%
2023-RTL1 Trust		81,608			81,608	7.22%
2023-3 Trust		234,741			220,689	7.87%
2023-4 Trust		202,890			215,821	8.32%
2024-1 Trust		209,862			207,855	7.91%
	$	5,550,067		$	3,440,924	5.43%		$	2,901,403	4.47%

Discussion of results

• The company completed one securitization during 1Q24 totaling $209.9 million of securities issued
  • The transaction execution improved significantly from the prior quarter

• The weighted average rate on Velocity’s outstanding securitizations was 5.43% as of March 31, 2024, an increase of 96 bps from March 31, 2023

RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY		FIRST QUARTER 2024						FIRST QUARTER 2023
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	16,563	$	798			$	11,274	$	632
Paid current			27,494		164				18,477		233
REO sold (a)			3,888		224				570		137
Total resolutions		$	47,945	$	1,186			$	30,321	$	1,002
Resolutions as a % of nonperforming UPB					102.5	%					103.3	%
SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY		FIRST QUARTER 2024						FIRST QUARTER 2023
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	2,496	$	-			$	5,560	$	348
Paid current			2,927		25				1,633		9
REO sold			1,161		62				1,209		(21	)
Total resolutions		$	6,584	$	87			$	8,402	$	336
Resolutions as a % of nonperforming UPB					101.3	%					104.0	%
Grand total resolutions		$	54,529	$	1,274			$	38,723	$	1,338
Grand total resolutions as a % of nonperforming UPB					102.3	%					103.5	%

Discussion of results:

• NPL resolution totaled $54.5 million in UPB, realizing 102.3% of UPB resolved compared to $38.7 million in UPB and realization of 103.5% of UPB resolved for 1Q23
• 1Q24 NPL resolutions represented 13.8% of nonperforming loan UPB as of
  December 31, 2023
• The UPB of loan resolutions in 1Q24 were in-line with the recent five-quarter resolution average of $55.9 million in UPB

Velocity’s executive management team will host a conference call and webcast to review 1Q24 financial results on May 2^nd, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.

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 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. conference call.

A replay of the call will be available through midnight on May 24, 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 #3912582. 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 19 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,” ”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.

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.

Velocity Financial, Inc. Consolidated Balance Sheet
	Quarter Ended
	3/31/2024			12/31/2023			9/30/2023			6/30/2023			3/31/2023
	Unaudited			Audited			Unaudited			Unaudited			Unaudited
(In thousands)
Assets
Cash and cash equivalents	$	34,829		$	40,566		$	29,393		$	33,987		$	39,397
Restricted cash		24,216			21,361			17,703			16,786			16,636
Loans held for sale, at fair value		-			17,590			19,536			-			18,081
Loans held for investment, at fair value		1,649,540			1,306,072			951,990			705,330			450,732
Loans held for investment		2,727,518			2,828,123			2,945,840			3,057,940			3,169,280
Total loans, net		4,377,058			4,151,785			3,917,366			3,763,270			3,638,093
Accrued interest receivables		29,374			27,028			24,756			22,602			20,931
Receivables due from servicers		87,523			85,077			70,139			63,896			64,133
Other receivables		2,113			8,763			236			1,306			2,188
Real estate owned, net		46,280			44,268			29,299			20,388			21,778
Property and equipment, net		2,013			2,785			2,861			3,023			3,209
Deferred tax asset		1,580			2,339			705			1,878			2,543
Mortgage Servicing Rights, at fair value		9,022			8,578			9,786			9,445			9,143
Derivative assets		1,967			-			1,261			-			-
Goodwill		6,775			6,775			6,775			6,775			6,775
Other assets		5,468			5,248			7,028			7,789			12,268
Total Assets	$	4,628,218		$	4,404,573		$	4,117,308		$	3,951,145		$	3,837,094
Liabilities and members' equity
Accounts payable and accrued expenses	$	123,988		$	121,969		$	97,869		$	95,344		$	84,976
Secured financing, net		283,813			211,083			210,774			210,464			210,155
Securitized debt, net		2,329,906			2,418,811			2,504,334			2,622,547			2,657,469
Securitized debt, at fair value		1,073,843			877,417			669,139			381,799			194,941
Warehouse & repurchase facilities		360,216			334,755			215,176			235,749			298,313
Derivative liability		-			3,665			-			-			-
Total Liabilities		4,171,766			3,967,700			3,697,292			3,545,903			3,445,854
Stockholders' Equity
Stockholders' equity		452,941			433,444			416,398			401,707			387,624
Noncontrolling interest in subsidiary		3,511			3,429			3,618			3,535			3,616
Total equity		456,452			436,873			420,016			405,242			391,240
Total Liabilities and members' equity	$	4,628,218		$	4,404,573		$	4,117,308		$	3,951,145		$	3,837,094
Book value per share	$	14.01		$	13.49		$	13.00		$	12.57		$	12.18
Shares outstanding		32,574(1)			32,395(2)			32,314(3)			32,239(4)			32,112(5)

(1)		Based on 32,574,498 common shares outstanding as of March 31, 2024, and excludes unvested shares of common stock authorized for incentive compensation totaling 411,296.
(2)		Based on 32,395,423 common shares outstanding as of December 31, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 470,413.
(3)		Based on 32,313,744 common shares outstanding as of September 30, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 589,634.
(4)		Based on 32,238,715 common shares outstanding as of June 30, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 502,913.
(5)		Based on 32,111,906 common shares outstanding as of March 31, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 490,526.

Velocity Financial, Inc. Consolidated Statements of Income (Quarters)
	Quarter Ended
($ in thousands)	3/31/2024				12/31/2023				9/30/2023				6/30/2023			3/31/2023
	Unaudited				Unaudited				Unaudited				Unaudited			Unaudited
Revenues
Interest income	$	90,529			$	86,269			$	79,088			$	74,897		$	70,521
Interest expense - portfolio related		55,675				51,405				47,583				45,451			42,029
Net interest income - portfolio related		34,854				34,864				31,505				29,446			28,492
Interest expense - corporate debt		5,380				4,140				4,138				4,139			4,139
Net interest income		29,473				30,724				27,367				25,307			24,353
Provision for loan losses		1,002				828				154				298			636
Net interest income after provision for loan losses		28,472				29,897				27,213				25,009			23,717
Other operating income
Gain on disposition of loans		1,699				1,482				3,606				1,237			1,913
Unrealized gain (loss) on fair value loans		18,925				39,367				(1,284	)			2,413			7,354
Unrealized gain (loss) on fair value securitized debt		(2,318	)			(24,085	)			9,692				5,560			(170	)
Unrealized gain/(loss) on mortgage servicing rights		444				(1,208	)			341				302			(95	)
Origination income		4,986				3,981				3,323				2,735			2,411
Bank interest income		1,631				1,716				1,342				1,188			948
Other income (expense)		408				418				340				601			481
Total other operating income		25,775				21,670				17,360				14,036			12,842
Net revenue		54,247				51,567				44,573				39,046			36,560
Operating expenses
Compensation and employee benefits		15,357				15,143				12,523				10,670			10,008
Origination expenses		646				173				273				123			(50	)
Securitizations expenses		2,874				2,709				4,930				2,699			2,584
Rent and occupancy		498				551				472				458			446
Loan servicing		4,824				4,636				4,901				4,267			3,828
Professional fees		2,115				1,733				854				1,056			955
Real estate owned, net		2,455				2,068				1,239				1,018			1,829
Other operating expenses		2,242				2,248				2,142				1,931			2,202
Total operating expenses		31,011				29,260				27,334				22,222			21,802
Income before income taxes		23,236				22,307				17,239				16,824			14,757
Income tax expense		5,903				5,141				5,070				4,602			4,021
Net income		17,333				17,166				12,169				12,222			10,736
Net income attributable to noncontrolling interest		82				(189	)			83				39			87
Net income attributable to Velocity Financial, Inc.		17,251				17,355				12,086				12,183			10,649
Less undistributed earnings attributable to participating securities		217				225				183				185			160
Net earnings attributable to common shareholders	$	17,034			$	17,130			$	11,903			$	11,998		$	10,489
Basic earnings (loss) per share	$	0.52			$	0.53			$	0.37			$	0.37		$	0.33
Diluted earnings (loss) per common share	$	0.49			$	0.50			$	0.35			$	0.36		$	0.31
Basic weighted average common shares outstanding		32,541				32,326				32,275				32,122			32,098
Diluted weighted average common shares outstanding		35,439				34,991				34,731				34,140			34,052

Velocity Financial, Inc. Net Interest Margin ‒ Portfolio Related and Total Company (Unaudited)
Quarters:
	Quarter Ended March 31, 2024									Quarter Ended March 31, 2023
				Interest			Average						Interest			Average
	Average			Income /			Yield /			Average			Income /			Yield /
($ in thousands)	Balance			Expense			Rate(1)			Balance			Expense			Rate(1)
Loan portfolio:
Loans held for sale	$	9,661								$	12,896
Loans held for investment		4,149,750									3,512,133
Total loans	$	4,159,412		$	90,529		8.71	%		$	3,525,029		$	70,521		8.00	%
Debt:
Warehouse and repurchase facilities	$	267,559			6,392		9.56	%		$	225,497			4,833		8.57	%
Securitizations		3,486,173			49,283		5.65	%			2,926,153			37,196		5.08	%
Total debt - portfolio related		3,753,732			55,675		5.93	%			3,151,650			42,029		5.33	%
Corporate debt		261,552			5,380		8.23	%			215,000			4,139		7.70	%
Total debt	$	4,015,284		$	61,055		6.08	%		$	3,366,650		$	46,168		5.49	%
Net interest spread - portfolio related (2)							2.77	%								2.67	%
Net interest margin - portfolio related							3.35	%								3.23	%
Net interest spread - total company (3)							2.62	%								2.52	%
Net interest margin - total company							2.83	%								2.76	%
(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.

Velocity Financial, Inc. Adjusted Financial Metric Reconciliation to GAAP Net Income (Unaudited)
Quarters:
Core Net Income
	Quarter Ended
	3/31/2024			12/31/2023				9/30/2023			6/30/2023			3/31/2023
Net Income	$	17,251		$	17,355			$	12,086		$	12,183		$	10,649
Corporate debt refinancing costs		-			-				-			-			-
Tax liability reduction		-			(1,866	)			-			-			-
Equity award & ESPP costs		998			673				832			745			728
Core Net Income	$	18,249		$	16,161			$	12,918		$	12,928		$	11,376
Core diluted earnings per share	$	0.51		$	0.46			$	0.37		$	0.38		$	0.33
	$	0.51		$	0.46			$	0.37		$	0.38		$	0.33

 

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Investors and Media:

Chris Oltmann

(818) 532-3708

Source: Velocity Financial, Inc.