false 0001692376 0001692376 2024-08-01 2024-08-01

 

 

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

of Incorporation)

  

(Commission

File Number)

  

(IRS Employer

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

Symbol(s)

  

Name of each exchange

on which registered

Common stock, par value $0.01 per share   VEL   The New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

Item 2.02

Results of Operations and Financial Condition.

On 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

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

Exhibit 99

 

LOGO

 

     

Investors and Media:

Chris Oltmann

(818) 532-3708

Velocity Financial, Inc. Reports

Second Quarter 2024 Results

Second Quarter 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 $0.36 per share for 2Q23

 

  •  

Core net income(1) of $15.9 million, an increase of 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

 

  •  

Nonperforming loans as a percentage of Held for Investment (HFI) loans was 10.5%, up slightly from 10.1% as of 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

 

  •  

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 2Q23

 

  •  

Completed the VCC 2024-2 and VCC 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 the quarter

 

  •  

Century Health & Housing Capital, LLC acquired $3.6 million in Mortgage Servicing Rights (MSRs) related to $227.6 million in UPB of commercial GNMA mortgages

 

  •  

Liquidity(2) of $83.8 million and total available 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 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 nonrecurring and unusual activities from GAAP net income.

(2) 

Liquidity includes unrestricted cash reserves of $47.4 million and available liquidity in unfinanced loans of $36.4 million.

LOGO   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     $ 3,049        18 % 

Net income

    $ 14,711     $ 12,183     $ 2,527        21 % 

Diluted earnings per share

    $ 0.42     $ 0.36     $ 0        16 % 

Core Pretax income

    $ 21,507     $ 17,811     $ 3,696        21 % 

Core net income(a)

    $ 15,918     $ 12,928     $ 2,990        23 % 

Core diluted earnings per share(a)

    $ 0.45     $ 0.38     $ 0.07        18 % 

Pretax return on equity

      16.95 %      16.81 %      n.a.        1 % 

Core pretax return on equity(a)

      18.34 %      17.79 %      n.a.        3 % 

Net interest margin - portfolio

      3.54 %      3.24 %      n.a.        9 % 

Net interest margin - total company

      2.98 %      2.78 %      n.a.        7 % 

Average common equity

    $ 469,071     $ 400,441     $ 68,630        17 % 

 

(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

 

  •  

Core net income(1) was $15.9 million, compared to $12.9 million for 2Q23

 

  •  

2Q24 core adjustments included incentive compensation expenses and costs related to the Company’s employee 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 and average loan coupons of more than 11.0% on recent loan production

 

 

2 | Page

LOGO   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     $ 409        20 % 

Mixed Use

      510       452       58        13 % 

Multi-Family

      336       304       33        11 % 

Retail

      385       322       63        20 % 

Warehouse

      288       235       53        23 % 

All Other

      535       391       144        37 % 
  

 

 

    

 

 

    

 

 

     

 

 

  

Total

    $ 4,480     $ 3,720     $ 760        20 % 
  

 

 

    

 

 

    

 

 

     

 

 

  

Held for Sale

          

Investor 1-4 Rental

    $ —      $ —      $ —         n.m.  

Multi-Family

      —       —       (17 )       n.m.  

Warehouse

      —       —       —        n.m.  

All Other

      —       —       —        n.m.  
  

 

 

    

 

 

    

 

 

     

 

 

  

Total Managed Loan Portfolio UPB

    $ 4,480     $ 3,720     $ 760        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 %      

 

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% from $3.7 billion in UPB as of June 30, 2023

 

  •  

Primarily driven by 20.3% Y/Y growth in loans collateralized by Investor 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 $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 June 30, 2024, an increase from $688.1 million in UPB or 18.5%, as of June 30, 2023

 

  •  

The weighted average portfolio 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%

 

  •  

The weighted average total portfolio yield was 8.98% as of June 30, 2024, an increase of 74 bps from 2Q23, 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, driven by higher interest rates on warehouse financing and recent securitizations

 

 

3 | Page

LOGO   Second Quarter 2024 Results

 

LOAN PRODUCTION VOLUMES                            

($ in millions)

    2Q 2024      2Q 2023      $ Variance      % Variance  

Investor 1-4 Rental

    $ 184      $ 163      $ 21        13 % 

Traditional Commercial

      175        73        101        138 % 

Short-term loans

      63        22        41        187 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total loan production

    $ 422      $ 259      $ 164        63 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

Acquisitions

    $ 3      $ —         
  

 

 

     

 

 

        

Discussion of results:

 

  •  

Loan production for 2Q24 totaled $422.2 million in UPB, a 63.2% increase from $258.6 million in UPB for 2Q23

 

  •  

Driven by continued strong demand for Traditional Commercial financing. On a Y/Y basis, traditional commercial production volume rose 137.6%.

 

  •  

The weighted average coupon (WAC) on 2Q24 HFI loan production was 11.0%, essentially unchanged from 2Q23

 

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS                          

($ in thousands)

    2Q 2024     2Q 2023     $ Variance      % Variance  

Nonperforming loans(a)

    $ 470,649     $ 371,154     $ 99,495        27 % 

Average Nonperforming Loans (b)

    $ 319,342     $ 328,897     $ (9,555 )       (3 )% 

Average Loans HFI

    $ 4,345,962     $ 3,634,093.1     $ 711,869        20 % 

Nonperforming loans % total HFI Loans

      10.5 %      10.0 %      n.a.        5 % 

Total Charge Offs

    $ 245     $ 717     $ (472 )       (66 )% 

Charge-offs as a % of Avg. Nonperforming Loans(c)

      0.31 %      0.87 %      n.a.        (65 )% 

Loan Loss Reserve

    $ 5,240     $ 4,626     $ 614        13 % 

 

(a) 

Total HFI 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 $470.6 million in UPB as of June 30, 2024, or 10.5% of loans HFI, 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

 

  •  

The trailing five-quarter charge-off average was $461.0 thousand

 

  •  

The loan loss reserve totaled $5.2 million as of June 30, 2024, a 13.3% increase from $4.6 million as of June 30, 2023

 

 

4 | Page

LOGO   Second Quarter 2024 Results

 

  •  

Primarily resulting from an increase in the individually assessed component of the CECL reserve

 

  •  

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      $ 22,863        31 % 

Interest expense - portfolio related

      (59,188 )       (45,451 )       (13,737 )       30 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

Net Interest Income - portfolio related

      38,572        29,446        9,126        31 % 

Interest expense - corporate debt

      (6,155 )       (4,139 )       (2,016 )       49 % 

Loan loss provision

      (218 )       (298 )       80        (27 )% 
  

 

 

     

 

 

     

 

 

     

 

 

  

Net interest income after provision for loan losses

    $ 32,199      $ 25,009      $ 7,190        29 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

Gain on disposition of loans

      3,168        1,237        1,931        156 % 

Unrealized (loss) gain on fair value loans

      17,123        2,413        14,710        610 % 

Unrealized gain (loss) on fair value of securitized debt

      (4,643 )       5,560        (10,203 )       (184 )% 

Unrealized gain/(loss) on mortgage servicing rights

      (373 )       302        (675 )       (223 )% 

Origination income(a)

      5,072        2,735        2,337        85 % 

Bank interest income

      1,731        1,189        542        46 % 

Other operating income (expense)

      483        601        (118 )       (20 )% 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Other operating income (expense)

    $ 22,561      $ 14,037      $ 8,524        61 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

Net Revenue

    $ 54,760      $ 38,749      $ 16,011        41 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(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

 

  •  

Driven by increased production volume and disciplined focus on maintaining spreads with 11.0% rates on loan originations since 2Q23

 

  •  

Total net interest income for 2Q24, including corporate debt interest expense and loan loss provision, was $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 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

 

  •  

Net unrealized FVO gains on loans and securitized debt were $12.4 million, resulting from fair value gains 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

 

 

5 | Page

LOGO   Second Quarter 2024 Results

 

  •  

Gain on disposition of loans totaled $3.2 million for 2Q24, driven by loans transferred to Real Estate Owned (REO)

 

OPERATING EXPENSES                            

($ in thousands)

    2Q 2024      2Q 2023      $ Variance      % Variance  

Compensation and employee benefits

    $ 16,562      $ 10,670      $ 5,892        55 % 

Origination (income)/expense(a)

      749        123        626        510 % 

Securitization expenses

      6,232        2,699        3,533        131 % 

Rent and occupancy

      617        458        159        35 % 

Loan servicing

      5,160        4,267        893        21 % 

Professional fees

      1,718        1,056        662        63 % 

Real estate owned, net

      1,355        1,018        337        33 % 

Other expenses

      2,494        1,931        563        29 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total operating expenses

    $ 34,887      $ 22,222      $ 12,665        57 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(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 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

 

  •  

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 growth in our portfolio

 

  •  

Professional fees totaled $1.7 million, a 62.7% increase from $1.1 million for 2Q23, driven by growth 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 preservation expenses

 

 

6 | Page

LOGO   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

 

  •  

The 2024-2 securitization was completed in April and totaled $286.2 million of securities issued with a weighted average rate of 7.15%

 

  •  

The 2024-3 securitization was completed in June and totaled $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 increase of 90 bps from June 30, 2023

 

 

7 | Page

LOGO   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

    $ 26,119      $ 793     $ 13,485      $ 965  

Paid current

      35,292        188       19,771        280  

REO sold (a)

      7,859        (202 )      4,836        (382 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Total resolutions

    $ 69,270      $ 779     $ 38,092      $ 863  
  

 

 

     

 

 

    

 

 

     

 

 

  

Resolutions as a % of nonperforming UPB

         101.1 %         102.3 % 

SHORT-TERM AND FORBEARANCE LOANS

                      

RESOLUTION ACTIVITY

    SECOND QUARTER 2024     SECOND QUARTER 2023  

($ in thousands)

    UPB $      Gain /
(Loss) $		     UPB $      Gain /
(Loss) $		  

Paid in full

    $ 4,545      $ 93     $ 7,004      $ 318  

Paid current

      2,689        1       3,290        89  

REO sold

      4,176        165       1,672        222  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total resolutions

    $ 11,410      $ 259     $ 11,966      $ 629  
  

 

 

     

 

 

    

 

 

     

 

 

  

Resolutions as a % of nonperforming UPB

         102.3 %         105.3 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

Grand total resolutions

    $ 80,680      $ 1,037     $ 50,058      $ 1,492  
  

 

 

     

 

 

    

 

 

     

 

 

  

Grand total resolutions as a % of nonperforming UPB

         101.3 %         103.0 % 

Discussion of results:

 

  •  

NPL resolution totaled $80.7 million in UPB, realizing 101.3% of UPB resolved compared to $50.1 million 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 $64.4 million in UPB, and the realization of 102.0% of UPB resolved

 

 

8 | Page

LOGO   Second Quarter 2024 Results

 

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.

 

 

9 | Page

LOGO   Second Quarter 2024 Results

 

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.

 

 

10 | Page

LOGO   Second Quarter 2024 Results

 

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.

 

 

11 | Page

LOGO   Second Quarter 2024 Results

 

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 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 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 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 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 stock authorized for incentive compensation totaling 502,913.

 

 

12 | Page

LOGO   Second Quarter 2024 Results

 

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  

 

 

13 | Page

LOGO   Second Quarter 2024 Results

 

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)    Average
Balance		      Interest
Income /
Expense		      Average
Yield /
Rate(1)		     Average
Balance		      Interest
Income /
Expense		      Average
Yield /
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 related(2)

            2.97 %            2.66 % 

Net interest margin - portfolio related

            3.54 %            3.24 % 

Net interest spread - total 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 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.

 

 

14 | Page

LOGO   Second Quarter 2024 Results

 

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  

 

 

15 | Page

v3.24.2.u1
Document and Entity Information
Aug. 01, 2024
Cover [Abstract]  
Amendment Flag false
Entity Central Index Key 0001692376
Document Type 8-K
Document Period End Date Aug. 01, 2024
Entity Registrant Name Velocity Financial, Inc.
Entity Incorporation State Country Code DE
Entity File Number 001-39183
Entity Tax Identification Number 46-0659719
Entity Address, Address Line One 2945 Townsgate Road
Entity Address, Address Line Two Suite 110
Entity Address, City or Town Westlake Village
Entity Address, State or Province CA
Entity Address, Postal Zip Code 91361
City Area Code (818)
Local Phone Number 532-3700
Written Communications false
Soliciting Material false
Pre Commencement Tender Offer false
Pre Commencement Issuer Tender Offer false
Security 12b Title Common stock, par value $0.01 per share
Trading Symbol VEL
Security Exchange Name NYSE
Entity Emerging Growth Company false
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