Velocity Financial, Inc. Reports Fourth Quarter and Full-Year 2021 Results

Rhea-AI Summary

Velocity Financial, Inc. (NYSE: VEL) reported strong financial performance for 4Q21, with a net income of $8.4 million and diluted EPS of $0.24, reflecting a solid increase compared to 3Q21. The company achieved a record loan production volume of $497.8 million, a 46.1% quarter-over-quarter increase. Core net income rose 25.7% to $10.1 million, driven by growth in the held-for-investment loan portfolio, which increased 10.1% year-over-year to $2.5 billion. However, the portfolio net interest margin decreased to 4.27% from 4.97% in 3Q21, impacted by the collapse of higher-cost securitizations.

Positive

• Net income increased to $8.4 million in 4Q21, up from $8.0 million in 3Q21.
• Record loan production of $497.8 million in unpaid principal balance (UPB), a 46.1% increase from 3Q21.
• Core net income rose to $10.1 million, a 25.7% increase quarter-over-quarter.
• Held-for-investment loans increased to $2.5 billion, a 10.1% rise from 3Q21.
• Acquired a majority stake in Century Health & Housing Capital for $12.8 million, diversifying offerings.

Negative

• Net interest margin decreased to 4.27% from 4.97% in 3Q21, due to high-cost securitization collapses.
• Book value per common share dropped to $10.84 from $12.05 after preferred stock conversion.

Fourth Quarter Highlights:

• Net Income of $8.4 million and diluted earnings per share (EPS) of $0.24, an increase from $8.0 million and $0.23 per share, respectively, for 3Q21
• Core net income⁽¹⁾ of $10.1 million and core diluted EPS⁽¹⁾ of $0.29, an increase from $8.0 million and $0.23 per share, respectively, for 3Q21
• Loan production volume of $497.8 million in unpaid principal balance (UPB), a new quarterly record and an increase of 46.1% from 3Q21
• Loans held for investment (HFI) UPB of $2.50 billion as of December 31, 2021, an increase of 10.1% from September 30, 2021
• Nonaccrual loans as a percentage of HFI loans was 10.9% as of December 31, 2021, down from 12.7% as of September 30, 2021
• Resolutions of nonperforming loans (NPL) totaled $44.1 million in UPB, realizing 104.0% of UPB resolved
• Portfolio net interest margin (NIM) of 4.27%, down from 4.97% in 3Q21. Includes $1.5 million of deferred deal costs written-off along with the collapse of three higher-cost VCC securitizations during the quarter.
• Completed the conversion of all 45,000 outstanding shares of the Company’s Series A Convertible Preferred Stock into 11,688,310 shares of Velocity common stock
  
  ‒ Reclassed $90 million from mezzanine equity to permanent equity
• Acquired a majority stake in Century Health & Housing Capital, LLC (“Century”) for $12.8 million in cash
• Completed two new securitizations of Velocity’s business purpose loans:
  
  ‒ VCC 2021-3, totaling $204.2 million in UPB.
  
  ‒ VCC 2021-4, totaling $319.1 million in UPB, comprised of $233.1 million of recently originated investor real estate loans and $86.0 million of loans that were previously included in our VCC 2014-1, VCC 2016-2 and VCC 2017-1 securitizations, which were concurrently collapsed and will reduce our portfolio interest expense.
• Book value per common share of $10.84 as of December 31, 2021, a decrease from $12.05 per share as of September 30, 2021, driven by the increase in common shares outstanding resulting from the preferred stock conversion

Full-Year Highlights:

• Loan production in 2021 totaled $1.3 billion in UPB, an increase from $435.0 million in UPB in 2020
• Charge-offs in 2021 totaled $1.3 million, a 19.3% decrease from $1.6 million 2020
• Net income totaled $29.2 million in 2021, a 64.4% increase from $17.8 million in 2020
• Diluted EPS of $0.86 per share in 2021 compared to $(1.55) loss per diluted share in 2020
• Core net income⁽¹⁾ totaled $33.3 million, a 46.6% increase from $22.7 million in 2020
• Core diluted EPS of $0.98 per share in 2021 compared to $1.13 per diluted share in 2020

WESTLAKE VILLAGE, Calif--(BUSINESS WIRE)-- Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company) reported net income of $8.4 million and core net income of $10.1 million for 4Q21, compared to net income and core income of $8.0 million in 3Q21. Earnings and core earnings per diluted share were $0.24 and $0.29, respectively, in 4Q21, compared to $0.23, respectively, in 3Q21.

“We delivered outstanding fourth quarter and full-year 2021 results that reflect strong operational execution from our production operations and investments in technology-driven efficiency gains,” said Chris Farrar, President and CEO. “Across the organization, our dedicated and hard-working team has done an outstanding job addressing the strong demand we’ve seen, evidenced by a new quarterly production record in 4Q21 and the impressive growth in our HFI loan portfolio in 2021. These results drove improved operating leverage as we effectively managed costs and increased core net income by 47% over the prior year.”

“We are optimistic that the strong momentum we developed in 2021 positions us well for 2022. The acquisition of Century Health and Housing Capital will allow us to access new markets and diversify our product offerings. We continue to seek opportunities to further optimize funding costs and diversify revenue streams to position the company for sustainable growth and strong returns across the business cycle.”

Fourth Quarter Operating Results
KEY PERFORMANCE INDICATORS
($ in thousands)	4Q 2021	3Q 2021		$ Variance		% Variance
Pretax income	$ 11,377	$ 10,927		$ 450		4.1%
Net income	$ 8,353	$ 8,022		$ 331		4.1%
Diluted earnings per share	$ 0.24	$ 0.23		$ 0.01		4.0%
Core net income(a)	$ 10,081	$ 8,022		$ 2,059		25.7%
Core diluted earnings per share(a)	$ 0.29	$ 0.23		$ 0.06		25.5%
Pretax return on equity(b)	13.77%	18.23%		n.a.		(24.5)%
Net interest margin - portfolio	4.27%	4.97%		n.a.		(14.0)%
Net interest margin - total company	3.63%	4.13%		n.a.		(12.1)%
Average common equity	$ 330,409	$ 239,790		$ 90,619		37.8%

(a) Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.

(b) 4Q21 pretax ROE reflects the conversion of Velocity’s preferred equity into common equity during the quarter.

Discussion of results:

• Higher net income in 4Q21 reflects strong growth in our HFI loan portfolio driven by record production volume in the second half of 2021, in addition to our special servicing team’s effective loan resolution activities that have resulted in many borrowers returning to performing status
• Core net income⁽¹⁾ was $10.1 million in 4Q21, a 25.7% quarter-over-quarter increase from the prior quarter. Core net income reflects after-tax adjustments of $1.1 million related to the write-off of unamortized deal costs resulting from the collapse of three VCC securitizations, and $0.6 million of deal costs associated with the Century acquisition

‒ Management uses Core Net Income⁽¹⁾ as a measure of normal, recurring operational performance

• Portfolio NIMin 4Q21 was 4.27%, a 70 bps decrease from 3Q21. The decrease was driven by the collapse of three higher-cost VCC securitizations and a lower weighted average rate on loans originated in 4Q21

‒ The portfolio weighted average coupon as of the end of 4Q21 was 7.88%, compared to 8.11% as of the end of 3Q21

• The pretax return on equity was 13.8% in 4Q21, down from 18.2% in 3Q21. The decrease resulted from the conversion of Velocity’s preferred equity into common equity in early October.

TOTAL LOAN PORTFOLIO
($ of UPB in millions)	4Q 2021	3Q 2021		$ Variance		% Variance
Held for Investment
Investor 1-4 Rental	$ 1,225	$ 1,150		$ 75		6.5%
Mixed Use	331	302		28		9.3%
Multi-Family	228	203		25		12.5%
Retail	234	197		37		18.8%
Warehouse	173	151		22		14.6%
All Other	309	268		41		15.4%
Total	$ 2,500	$ 2,271		$ 229		10.1%
Held for Sale
Investor 1-4 Rental	$ 87	$ -		$ 87		n.m.
Total Managed Loan Portfolio UPB	$ 2,587	$ 2,271		$ 316		13.9%
Key loan portfolio metrics:
Total loan count	6,964	6,430
Weighted average loan to value	67.7%	67.2%
Weighted average total portfolio yield	8.21%	8.77%
Weighted average portfolio debt cost (a)	4.58%	4.48%

(a) 4Q21 weighted average portfolio debt cost includes for one-time costs totaling $1.5 million related to the collapse of three VCC securitizations.

Adjusted for these costs, the 4Q21 weighted average cost of funds was 4.29%.

n.m. - non meaningful

Discussion of results:

• Velocity’s total loan portfolio was $2.6 billion in UPB as of December 31, 2021, an increase of 13.9% from $2.3 billion in UPB as of September 30, 2021

‒ Portfolio growth was driven by another quarter of record-setting production volume, partially offset by a 15.3% quarter-over-quarter increase in loan payoffs

• The weighted average loan-to-value of the portfolio was 67.7% as of December 31, 2021, consistent with 67.2% as of September 30, 2021
• The weighted average total portfolio yield was 8.21% in 4Q21, a decrease of 56 bps from 3Q21, driven by lower rates on recent production and a decrease in default income as the population of nonperforming loans continued to decrease
• Portfolio related debt cost in 4Q21 was 4.58%, an increase of 10 bps from 3Q21 driven by the one-time write-off of unamortized deal costs resulting from the collapse of VCC securitizations

LOAN PRODUCTION VOLUMES
($ in millions)	4Q 2021	3Q 2021		$ Variance		% Variance
Investor 1-4 Rental	$ 267.2	$ 184.2		$ 83.0		45.0%
Traditional Commercial	$ 203.4	$ 131.0		$ 72.4		55.3%
Short-term loans	$ 27.2	$ 25.4		$ 1.8		7.1%
Total loan production	$ 497.8	$ 340.7		$ 157		46.1%

Discussion of results:

• Loan production in 4Q21 totaled $497.8 million in UPB, a new quarterly production record and a 46.1% increase from $340.7 million in UPB in 3Q21, driven by continued strong demand and targeted strategies to grow broker relationships

‒ Investor 1-4 Rental production was up $83.0 million in UPB from 3Q21, a 45.0% quarter-over-quarter increase from 3Q21

‒ Traditional Commercial production was up $72.4 million in UPB from 3Q21, a 55.3% quarter-over-quarter increase from 3Q21

• Loan origination volume for the two months ended February 28, 2022, totaled $358.8 million in UPB, 51.5% of which was Investor 1-4 Rental loans, 47.1% Traditional Commercial and 1.5% Short-term loans

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)	4Q 2021	3Q 2021		$ Variance		% Variance
Nonperforming loans(a)	$ 273,099	$ 288,436		$ (15,337)		(5.3)%
Nonperforming loans % total HFI Loans	10.9%	12.7%		n.a.		(14.0)%
Total Charge Offs	$ 142.71	$ 162.08		$ (19)		(11.9)%
Charge-offs as a % of Avg. Loans HFI(b)	0.024%	0.030%		n.a.		(20.7)%
Loan Loss Reserve	$ 4,262	$ 4,028		$ 234		5.8%

(a) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.

(b) Annualized

Discussion of results:

• Nonperforming loans totaled $273.1 million in UPB as of December 31, 2021, or 10.9% of loans HFI, compared to $288.4 million and 12.7%, respectively, as of September 30, 2021

‒ Credit performance improvements resulted in NPL loans 90+ days past due (not in foreclosure) decreasing by $12.6 million in UPB, or 26.0% from September 30, 2021, and NPL loans less than 90 days past due decreasing by $3.7 million in UPB, or 15.8%.

• Charge-offs in 4Q21 totaled $142.7 thousand compared to $162.1 thousand in 3Q21

‒ Lower charge-offs in 4Q21 reflect improved loan performance and strong property price appreciation. Charge-offs levels in 4Q21 were well below the trailing eight quarter average of $361.4 thousand per quarter

• The loan loss reserve totaled $4.3 million as of December 31, 2021, a 5.8% increase from $4.0 million as of September 30, 2021, driven primarily by portfolio growth
• Capitalized interest recovered on COVID forbearance loans granted a deferral totaled $2.4 million since inception of the program in April 2020, with a remaining balance of $7.7 million as of December 31, 2021. None of the capitalized interest has been forgiven

NET REVENUES
($ in thousands)	4Q 2021	3Q 2021		$ Variance		% Variance
Interest income	$ 49,360	$ 46,923		$ 2,437		5.2%
Interest expense - portfolio related(a)	(23,666)	(20,321)		(3,345)		16.5%
Interest expense - corporate debt	(4,462)	(4,488)		26		(0.6)%
Net Interest Income	$ 21,232	$ 22,114		$ (882)		(4.0)%
Loan loss provision	(377)	(228)		(149)		65.4%
Gain on disposition of loans	2,357	306		2,051		670.3%
Other operating income (expense)	260	33		227		687.9%
Total Net Revenues	$ 23,472	$ 22,225		$ 1,247		5.6%

(a) Includes $1.5 million of one-time costs related to the collapse of our higher-cost securitizations

Discussion of results:

• Total net interest income, including corporate debt interest expense, decreased by $0.9 million, or 4.0% from 3Q21, driven by higher portfolio-related interest expense due to one-time costs from the collapse of VCC securitizations

‒ Excluding these costs, portfolio net interest income was $27.2 million, a 2.1% increase from 3Q21

• Total net revenues increased by $1.25 million quarter-over-quarter, driven by strong interest income growth and gains of $2.1 million from the sale of loans totaling $34.3 million in UPB

OPERATING EXPENSES
($ in thousands)	4Q 2021	3Q 2021		$ Variance		% Variance
Compensation and employee benefits	$ 4,720	$ 4,738		$ (18)		-0.4%
Rent and occupancy	429	447		(18)		-4.0%
Loan servicing	2,480	2,014		466		23.1%
Professional fees	1,716	736		980		133.2%
Real estate owned, net	417	1,186		(769)		-64.8%
Other expenses	2,333	2,177		156		7.2%
Total operating expenses	$ 12,095	$ 11,298		$ 797		7.1%

Discussion of results:

• Operating expenses totaled $12.1 million in 4Q21, an increase of 7.1% from 3Q21, driven by legal fees from the Century acquisition and consulting services related to Sarbanes-Oxley (SOX) implementation

SECURITIZATIONS
	Securities		Balance at			Balance at
Trusts	Issued		12/31/2021	W.A. Rate		9/30/2021	W.A. Rate
2014-1 Trust	$ 161,076		$ -	-		$ 18,910	8.12%
2015-1 Trust	285,457		17,536	7.22%		21,161	7.57%
2016-1 Trust	319,809		36,401	8.22%		40,354	8.25%
2016-2 Trust	166,853		-	-		29,207	7.54%
2017-1 Trust	211,910		-	-		50,258	6.34%
2017-2 Trust	245,601		86,497	3.37%		94,486	3.45%
2018-1 Trust	176,816		62,375	4.04%		72,219	4.02%
2018-2 Trust	307,988		143,152	4.39%		156,587	4.34%
2019-1 Trust	235,580		132,306	4.02%		146,086	4.08%
2019-2 Trust	207,020		122,205	3.44%		130,198	3.44%
2019-3 Trust	154,419		95,521	3.26%		105,570	3.26%
2020-1 Trust	248,700		174,550	2.82%		186,400	2.86%
2020-2 Trust	96,352		80,676	4.45%		88,695	4.51%
2020-MC1 Trust	179,371		35,711	4.42%		57,111	4.51%
2021-1 Trust	251,301		236,190	1.73%		245,423	1.72%
2021-2 Trust	194,918		197,744	2.28%		203,743	1.77%
2021-3 Trust	204,205		202,793	2.45%
2021-4 Trust	319,116		315,489	3.11%
	$ 3,966,493		$ 1,939,146	3.20%		$ 1,646,408	3.55%

Discussion of results:

• The weighted average rate on Velocity’s outstanding securitizations decreased 25bps from 3Q21, primarily resulting from the issuance of the VCC 2021-3 and VCC 2021-4 securitizations with a combined balance of $518.3 million as of December 31, 2021, and total weighted average rate of 2.85%

‒ The VCC 2014 securitization included $86.0 million in UPB of loans that were previously included in our higher cost securitizations, VCC 2014-1, VCC 2016-2 and VCC 2017-1, which were concurrently collapsed, and drove the quarter-over-quarter decrease in the total weighted average securitization rate

• We are continuing to explore opportunities to further optimize our financing costs by refinancing other VCC securitizations with exercisable call rights

RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY		FOURTH QUARTER 2021			THIRD QUARTER 2021
($ in thousands)		UPB $	Gain / (Loss) $		UPB $	Gain / (Loss) $
Paid in full		$ 11,464	$ 614		$ 13,353	$ 1,251
Paid current		12,209	290		7,722	79
REO sold(a)		1,770	121.0		4,680	31
Total resolutions		$ 25,443	$ 1,025		$ 25,755	$ 1,361
Resolutions as a % of nonperforming UPB			104.0%			105.3%

(a) There was an REO property held since January 2019 that was sold during the quarter ended September 30, 2021, with a total lifetime loss of $1.7 million, all of which was recognized in prior periods.

SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY		FOURTH QUARTER 2021			THIRD QUARTER 2021
($ in thousands)		UPB $	Gain / (Loss) $		UPB $	Gain / (Loss) $
Paid in full		$ 12,567	$ 623		$ 8,960	$ 664
Paid current		5,837	67		25,141	29
REO sold		266	48		104	47
Total resolutions		$ 18,670	$ 738		$ 34,205	$ 740
Resolutions as a % of nonperforming UPB			104.0%			102.2%
Grand total resolutions		$ 44,113	$ 1,763		$ 59,960	$ 2,101
Grand total resolutions as a % of nonperforming UPB			104.0%			103.5%

Discussion of results:

• Resolution activities in 4Q21 totaled $44.1 million in UPB and realized net gains of $1.8 million, or 104.0% of UPB resolved
• The volume of loans resolved per quarter will vary due to a variety of factors but is expected to trend lower as portfolio performance continues to improve
• Long-term loan resolutions totaled $25.4 million in UPB and realized gains of $1.0 million

‒ Paid in full UPB resolved and the related gains decreased 14.1% and 50.9% quarter-over-quarter, respectively

‒ Paid current UPB resolved increased 58.1% quarter-over-quarter and gains increased 267%

‒ REO sold in 4Q21 had a carrying value of $1.8 million and realized gains of $0.12 million

• Short-term loan resolutions totaled $18.7 million in UPB and realized gains of $0.74 million

‒ Paid in full UPB resolved increased 40.3% and gains decreased 6.2% quarter-over-quarter

‒ Paid current UPB resolved decreased 76.8% quarter-over-quarter and gains increased 131%

‒ REO sold in 4Q21 had a carrying value of $266 thousand and realized gains of $48 thousand

Full-Year 2021 Operating Results
FULL-YEAR OPERATING RESULTS
($ in thousands)	FY 2021	FY2020		$ Variance		% Variance
Investor 1-4 Rental	$ 746	$ 201		$ 546		272.1%
Traditional Commercial	512	138		374		270.6%
Short-term loans	67	96		(29)		(30.1)%
Total Loan production	$ 1,326	$ 435		$ 891		204.8%
Net Interest Margin - Portfolio	4.54%	3.89%		n.a.		16.7%
Charge-offs as a % of Avg. Loans HFI	0.060%	0.083%		n.a.		(27.2)%
Total charge-offs	$ 1,291	$ 1,600		$ (309)		(19.3)%
Total Net Interest Income(a)	76,265	62,379		13,886		22.3%
Total Other Income	8,188	6,320		1,868		29.6%
Total Expenses	55,229	50,922		4,307		8.5%
Net Income	$ 29,224	$ 17,777		$ 11,447		64.4%
Less deemed dividends on preferred stock	-	48,955		n.a.		n.a.
Net loss allocated to shareholders	-	(31,178)		n.a.		n.a.
Diluted EPS	$ 0.86	$ (1.55)		n.a.		n.a.
Core Income(b)	$ 33,278	$ 22,701		$ 10,577		46.6%
Core Diluted EPS(b)	$ 0.98	$ 1.13		n.a.		(13.3)%

(a) After provision for loan losses.

(b) Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.

Discussion of results:

• Loan production in 2021 totaled $1.3 billion in UPB, a 204.8% increase from $435.0 million in UPB in 2020

‒ Driven by strong demand for financing and impacts to loan production activities in 2020 from the COVID-19 pandemic

• Net interest margin (NIM) was 4.54% in 2021, a 65 bps increase from 3.89% in 2020

‒ Resulting from strong HFI portfolio growth driven by record production volumes, the additional yield from elevated levels of NPL resolutions and significant improvement in securitized funding costs as market conditions normalized in 2021

• Charge-offs in 2021 totaled $1.3 million, a 19.3% decrease from $1.6 million in 2020

‒ As a percentage of average loans HFI, charge-offs were 0.060% in 2021, down from 0.083% in 2020. The decrease reflects improvement in the macroeconomic environment and effective loss mitigation strategies by Velocity’s special servicing team.

• Net income totaled 29.2 million in 2021, a 64.4% increase from 17.8 million in 2020

‒ Net interest income (after provision for loan losses) totaled $76.3 million, a 22.3% increase from $62.4 million in 2020, driven by 29.4% year-over-year HFI portfolio growth

‒ Other income totaled $8.2 million, a 29.6% increase from $6.3 million in 2020, driven by gains on the sale of loans

‒ Expenses totaled $55.2 million, an 8.5% increase from $50.9 million in 2020

• Core net income⁽¹⁾ totaled $33.3 million, a 46.6% increase from $22.7 million in 2020
• Core diluted EPS was $0.98 per share, a 13.3% decrease from $1.13 per share in 2020, driven by the issuance of 11.7 million shares of common stock as a result of the preferred stock conversion in 4Q21

^{______________________________________________________}

⁽¹⁾ “Core” income is a non-GAAP measure that excludes non-recurring 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 March 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 #7444168. 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 17 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 share 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 non-recurring.

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, Inc. Consolidated Statements of Financial Condition
	Quarter Ended
	12/31/2021		9/30/2021		6/30/2021		3/31/2021		12/31/2020
	Unaudited		Unaudited		Unaudited		Unaudited		Audited
(In thousands)
Assets
Cash and cash equivalents	$ 35,965		$ 35,497		$ 27,741		$ 20,434		$ 13,273
Restricted cash	11,639		9,586		7,921		6,808		7,020
Loans held for sale, net	87,908		0		7,916		0		13,106
Loans held for investment, at fair value	1,359		1,360		1,370		1,364		1,539
Loans held for investment	2,494,204		2,265,922		2,057,046		1,983,435		1,924,489
Net deferred loan costs	33,360		29,775		26,707		25,070		23,600
Total loans, net	2,616,831		2,297,057		2,093,039		2,009,869		1,962,734
Accrued interest receivables	13,159		11,974		11,094		11,169		11,373
Receivables due from servicers	74,330		57,058		73,517		77,731		71,044
Other receivables	1,812		870		10,169		3,879		4,085
Real estate owned, net	17,557		17,905		20,046		14,487		15,767
Property and equipment, net	3,830		3,348		3,625		3,891		4,145
Deferred tax asset	16,604		17,026		13,196		9,246		6,654
Mortgage Servicing Rights	7,152		-		-		-		-
Goodwill	6,775		-		-		-		-
Other assets	6,824		6,843		7,257		7,325		6,779
Total Assets	$ 2,812,478		$ 2,457,164		$ 2,267,605		$ 2,164,839		$ 2,102,874
Liabilities and members' equity
Accounts payable and accrued expenses	$ 92,195		$ 79,360		$ 70,049		$ 65,003		$ 63,361
Secured financing, net	162,845		163,449		164,053		129,666		74,982
Securitizations, net	1,911,879		1,623,674		1,558,163		1,453,386		1,579,019
Warehouse & repurchase facilities	301,069		258,491		151,872		203,314		75,923
Total Liabilities	2,467,988		2,124,974		1,944,137		1,851,369		1,793,285
Mezzanine Equity
Series A Convertible preferred stock	-		90,000		90,000		90,000		90,000
Stockholders' Equity
Stockholders' equity	344,490		242,190		233,468		223,470		219,589
Total Liabilities and members' equity	$ 2,812,478		$ 2,457,164		$ 2,267,605		$ 2,164,839		$ 2,102,874
Book value per share	$ 10.84		$ 12.05		$ 11.62		$ 11.12		$ 10.93
Shares outstanding	31,787		20,098		20,087		20,087		20,087

Velocity Financial, Inc. Consolidated Statements of Income (Quarterly)
	Quarter Ended
($ in thousands)	12/31/2021		9/30/2021		6/30/2021		3/31/2021		12/31/2020
	Unaudited		Unaudited		Unaudited		Unaudited		Unaudited
Revenues
Interest income	$ 49,360		$ 46,923		$ 44,978		$ 40,707		$ 41,556
Interest expense - portfolio related	23,666		20,321		20,566		20,832		21,442
Net interest income - portfolio related	25,694		26,602		24,412		19,875		20,114
Interest expense - corporate debt	4,462		4,488		4,309		7,350		1,900
Net interest income	21,232		22,114		20,103		12,525		18,214
Provision for loan losses	377		228		(1,000)		105		406
Net interest income after provision for loan losses	20,855		21,886		21,103		12,420		17,808
Other operating income (expense)	2,617		339		2,432		2,801		4,691
Total net revenues	23,472		22,225		23,535		15,221		22,499
Operating expenses
Compensation and employee benefits	4,720		4,738		4,546		5,186		4,135
Rent and occupancy	429		447		430		463		424
Loan servicing	2,480		2,014		1,922		1,867		1,977
Professional fees	1,716		736		795		533		1,415
Real estate owned, net	417		1,186		1,039		509		217
Other operating expenses	2,333		2,177		1,918		2,059		2,578
Total operating expenses	12,095		11,298		10,650		10,617		10,746
Income before income taxes	11,377		10,927		12,885		4,604		11,753
Income tax expense	3,024		2,905		3,432		1,208		2,177
Net income	$ 8,353		$ 8,022		$ 9,453		$ 3,396		$ 9,576
Less: Deemed dividends on preferred stock	-		-		-		-		-
Less: Undistributed earnings allocated to participating securities	362		3,030		$ 3,571		$ 1,281		n.a.
Net income (loss) allocated to common shareholders	$ 7,991		$ 4,992		$ 5,882		$ 2,115		$ 9,576
Basic earnings (loss) per share	$ 0.26		$ 0.25		$ 0.29		$ 0.11		$ 0.48
Diluted earnings (loss) per common share	$ 0.24		$ 0.23		$ 0.28		$ 0.10		$ 0.29
Basic weighted average common shares outstanding	30,897		20,090		20,087		20,087		20,087
Diluted weighted average common shares outstanding	34,257		34,212		33,960		33,407		32,793

Velocity Financial, Inc. Consolidated Statements of Income (Annual)
	Year Ended
($ in thousands)	12/31/2021		12/31/2020
	Audited		Audited
Revenues
Interest income	$ 181,968		$ 167,322
Interest expense - portfolio related	85,386		87,826
Net interest income - portfolio related	96,582		79,496
Interest expense - corporate debt	20,609		12,049
Net interest income	75,973		67,447
Provision for loan losses	(292)		5,068
Net interest income after provision for loan losses	76,265		62,379
Other operating income (expense)	8,188		6,320
Total net revenues	84,453		68,699
Operating expenses
Compensation and employee benefits	19,190		20,731
Rent and occupancy	1,769		1,743
Loan servicing	8,282		7,802
Professional fees	3,781		4,238
Real estate owned, net	3,150		2,656
Other operating expenses	8,488		8,400
Total operating expenses	44,660		45,570
Income before income taxes	39,793		23,129
Income tax expense	10,569		5,352
Net income	$ 29,224		$ 17,777
Less: Deemed dividends on preferred stock	-		$ 48,955
Less: Undistributed earnings allocated to participating securities	$ 8,589		-
Net income (loss) allocated to common shareholders	$ 20,635		$ (31,178)
Basic earnings (loss) per share	$ 0.90		$ (1.55)
Diluted earnings (loss) per common share	$ 0.86		$ (1.55)
Basic weighted average common shares outstanding	22,813		20,087
Diluted weighted average common shares outstanding	33,982		20,087

Velocity Financial, Inc. Net Interest Margin ‒ Portfolio Related and Total Company (Unaudited)
Quarterly:
	Quarter Ended December 31, 2021						Quarter Ended September 30, 2021						Quarter Ended December 31, 2020
			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	$ 40,463						$ 2,284						$ 20,719
Loans held for investment	2,363,987						2,137,505						1,958,436
Total loans	$ 2,404,451		$ 49,360		8.21%		$ 2,139,789		$ 46,923		8.77%		$ 1,979,155		$ 41,557		8.40%
Debt:
Warehouse and repurchase facilities	$ 271,761		3,273		4.82%		$ 182,383		2,365		5.19%		$ 60,065		717		4.78%
Securitizations	1,796,543		20,392		4.54%		1,633,059		17,956		4.40%		1,666,180		20,726		4.98%
Total debt - portfolio related	2,068,304		23,665		4.58%		1,815,442		20,322		4.48%		1,726,245		21,443		4.98%
Corporate debt	171,926		4,463		10.38%		172,934		4,488		10.38%		78,000		1,900		9.74%
Total debt	$ 2,240,230		$ 28,128		5.02%		$ 1,988,376		$ 24,810		4.99%		$ 1,804,245		$ 23,343		5.18%
Net interest spread - portfolio related (2)					3.63%						4.29%						3.43%
Net interest margin - portfolio related					4.27%						4.97%						4.07%
Net interest spread - total company (3)					3.19%						3.78%						3.22%
Net interest margin - total company					3.53%						4.13%						3.68%

(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.

Annual:
	Year Ended December 31, 2021						Year Ended December 31, 2020
			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	$ 15,794						$ 110,810
Loans held for investment	$ 2,110,054						1,932,855
Total loans	$ 2,125,847		$ 181,968		8.56%		$ 2,043,665		$ 167,322		8.19%
Debt:
Warehouse and repurchase facilities	$ 183,663		9,706		5.28%		$ 168,099		8,352		4.97%
Securitizations	1,630,385		75,680		4.64%		1,635,089		79,474		4.86%
Total debt - portfolio related	1,814,048		85,386		4.71%		1,803,189		87,826		4.87%
Corporate debt	154,890		20,609		13.31%		82,117		12,050		14.67%
Total debt	$ 1,968,938		$ 105,995		5.38%		$ 1,885,306		$ 99,876		5.30%
Net interest spread - portfolio related (2)					3.85%						3.32%
Net interest margin - portfolio related					4.54%						3.89%
Net interest spread - total company (3)					3.18%						2.89%
Net interest margin - total company					3.57%						3.30%

(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)
Quarterly:
Core Income
	Quarter Ended
($ in thousands)	12/31/2021		9/30/2021		6/30/2021		3/31/2021		12/31/2020
Net Income	$ 8,353		$ 8,022		$ 9,453		$ 3,396		$ 9,576
Deal cost write-off - collapsed securitizations	$ 1,104		-		-		-		-
One-time Century Health & Housing Capital deal costs	$ 624		-		-		-		-
Recovery of Loan Loss Provision	-		-		$ (1,000)		-		-
Nonrecurring debt amortization	-		-		-		3,326		-
COVID-19 Impact	-		-		-		-		-
Workforce reduction costs			-		-		-		-
Core Income	$ 10,081		$ 8,022		$ 8,453		$ 6,722		$ 9,576
Diluted weighted average common shares outstanding	$ 34,257		$ 34,212		$ 33,960		$ 33,407		$ 32,793
Core diluted earnings per share	$ 0.29		$ 0.23		$ 0.25		$ 0.20		$ 0.29

Annual:
Core Income
	Year Ended
($ in thousands)	12/31/2021		12/31/2020
Net Income	$ 29,224		$ 17,777
Deal cost write-off - collapsed securitizations	1,104		-
One-time Century Health & Housing Capital deal costs	624		-
Recovery of Loan Loss Provision	(1,000)		-
Nonrecurring debt amortization	3,326		2,610
COVID-19 Impact	-		1,882
Workforce reduction costs	-		432
Core Income	$ 33,278		$ 22,701
Diluted weighted average common shares outstanding	$ 33,982		$ 20,087
Core diluted earnings per share	$ 0.98		$ 1.13

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220310005787/en/

Investors and Media:

Chris Oltmann

(818) 532-3708

Source: Velocity Financial, Inc.

FAQ

What were Velocity Financial's earnings for 4Q21?

Velocity Financial reported a net income of $8.4 million and diluted EPS of $0.24 for 4Q21.

How much loan production did Velocity Financial achieve in 4Q21?

Velocity Financial achieved a record loan production volume of $497.8 million in UPB in 4Q21.

What was the core net income for Velocity Financial in 4Q21?

The core net income for Velocity Financial in 4Q21 was $10.1 million, a 25.7% increase from the prior quarter.

What are the loan portfolio metrics for Velocity Financial as of 12/31/21?

As of 12/31/21, Velocity Financial's held-for-investment loan portfolio was $2.5 billion, an increase of 10.1% from 3Q21.

How did the net interest margin change for Velocity Financial in 4Q21?

The net interest margin for Velocity Financial decreased to 4.27% in 4Q21, down from 4.97% in 3Q21.