Velocity Financial, Inc. Reports Fourth Quarter and Full-Year 2023 Results

Fourth Quarter Highlights:

• Net income of $17.4 million, up 105.1% from $8.5 million for 4Q22. Diluted EPS of $0.50, up $0.25 from $0.25 per share for 4Q22
• Core net income(1) of $16.2 million, up 77.2% from $9.1 million for 4Q22. Core diluted EPS(1) of $0.46, up $0.19 from $0.27 per share for 4Q22

• Loan production of $352.1 million in UPB, a 21.2% increase from 3Q23 and 26.8% from 4Q22
  • Year-to-date 2024 loan production through February 2024 totaled $254.4 million with an 11.1% weighted average coupon (WAC)

• Nonperforming loans as a percentage of Held for Investment (HFI) loans was 9.7%, a decrease from 10.1% as of September 30, 2023, and an increase from 8.3% as of December 31, 2022
• Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $70.9 million in UPB,
  • Realizing gains of $1.5 million or 102.2% of UPB resolved

• Portfolio net interest margin (NIM) of 3.52%, up 18 bps Q/Q and an increase of 68 bps from 2.84% for 4Q22
• Completed the VCC 2023-4 securitization totaling $202.9 million of securities issued
• Liquidity(2) of $63.2 million as of December 31, 2023
• Non-recourse debt to equity ratio of 1.2 times
• Book value per common share of $13.49 as of December 31, 2023, an increase from $13.00 as of September 30, 2023

Full-Year 2023 Highlights:

• Total loan portfolio of $4.1 billion in UPB, an increase of 16.0% from December 31, 2022
• Loan production volume of $1.1 billion in unpaid principal balance (UPB), a decrease from $1.8 billion for FY 2022
• Net income of $52.3 million, compared to $32.2 million for FY 2022. Diluted earnings per share (EPS) of $1.52 in 2023, compared to $0.94 per share for FY 2022
• Core Net Income(1) totaled $53.4 million in 2023, compared to $42.2 million for FY 2022. Core diluted EPS(1) of $1.54, compared to $1.24 per share for FY 2022
• Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
• Portfolio NIM of 3.34%, compared to 3.64% for FY 2022
• Pretax return on equity of 17.5%, an increase from 12.2% for FY 2022

 

Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $52.3 million and core net income of $53.4 million for full-year 2023, compared to net income of $32.2 million and core net income of $42.2 million for the full-year 2022. Earnings and core earnings per diluted share were $1.52 and $1.54, respectively, for the full-year 2023, compared to $0.94 and $1.24 for the full-year 2022.

“I am pleased to announce that Velocity delivered record earnings for the fourth quarter and full year 2023, driven by strategic portfolio growth and proactive asset management,” said Chris Farrar, President and CEO. “While higher interest rates and rising inflation presented significant challenges for the mortgage market last year, our dedicated and experienced team turned these challenges into opportunities and delivered strong financial and operational results. We successfully increased loan production each quarter in 2023, while also increasing mortgage coupons by 86 basis point from the average rate for 4Q22. As a result, our net interest margins increased 68 basis points from 4Q22, and our asset management team continued to enhance shareholder value with positive recovery rates. Recently, we announced a $75 million capital raise we are deploying into accretive investments to fuel additional growth and attain our “5X25” goal of a $5 billion loan portfolio by 2025.”

Fourth Quarter Operating Results

KEY PERFORMANCE INDICATORS

($ in thousands)

 

4Q 2023

 

 

4Q 2022

 

$ Variance

% Variance

Pretax income

$

22,307

 

$

11,692

 

$

10,615

91

%

Net income

$

17,355

 

$

8,462

 

$

8,892

105

%

Diluted earnings per share

$

0.50

 

$

0.25

 

$

0.25

100

%

Core net income(a)

$

16,161

 

$

9,118

 

$

7,043

77

%

Core diluted earnings per share(a)

$

0.46

 

$

0.27

 

$

0.19

73

%

Pretax return on equity

 

20.66

%

 

12.37

%

n.a.

67

%

Core pretax return on equity(a)

 

20.84

%

 

13.61

%

n.a.

53

%

Net interest margin - portfolio

 

3.52

%

 

2.84

%

n.a.

24

%

Net interest margin - total company

 

3.10

%

 

2.36

%

n.a.

31

%

Average common equity

$

431,891

 

$

378,007

 

$

53,884

14

%

 


(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 4Q23 was $17.4 million, compared to $8.5 million for 4Q22
  • Driven by FV gains on new production and a 48.9% increase in net interest income

• Core net income(1) was $16.2 million, compared to $9.1 million for 4Q22
  • 4Q23 Core adjustments include a California apportionment tax liability reduction, incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP)

• Portfolio NIM in 4Q23 was 3.52%, compared to 2.84% for 4Q22, a 24.0% Y/Y increase driven by an increased average portfolio yield from higher loan coupons on recent loan production and growth in NPL resolution gains, partially offset by higher funding costs
• The GAAP pretax return on equity was 20.7% for 4Q23, compared to 12.37% for 4Q22

TOTAL LOAN PORTFOLIO

($ of UPB in millions)

 

4Q 2023

 

 

4Q 2022

 

$ Variance

% Variance

Held for Investment

Investor 1-4 Rental

$

2,225

 

$

1,852

 

$

373

20

%

Mixed Use

 

475

 

 

443

 

 

32

7

%

Multi-Family

 

316

 

 

301

 

 

15

5

%

Retail

 

344

 

 

305

 

 

39

13

%

Warehouse

 

265

 

 

223

 

 

42

19

%

All Other

 

431

 

 

388

 

 

43

11

%

Total

$

4,056

 

$

3,512

 

$

543

15

%

Held for Sale

Investor 1-4 Rental

$

17

 

$

-

 

$

17

n.m.


Multi-Family

 

-

 

 

-

 

 

-

n.m.


Warehouse

 

-

 

 

-

 

 

-

n.m.


All Other

 

-

 

 

-

 

 

-

n.m.

Total Managed Loan Portfolio UPB

$

4,073

 

$

3,512

 

$

560

16

%

Key loan portfolio metrics:

Total loan count

 

10,477

 

 

8,893

 

Weighted average loan to value

 

67.8

%

 

68.2

%

Weighted average coupon

 

8.88

%

 

7.95

%

Weighted average total portfolio yield

 

8.70

%

 

7.51

%

Weighted average portfolio debt cost

 

5.75

%

 

5.23

%

n.m. - non meaningful

Discussion of results:

• Velocity’s total loan portfolio was $4.1 billion in UPB as of December 31, 2023, an increase of 16.0% from $3.5 billion in UPB as of December 31, 2022
  • Primarily driven by 20.2% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and a combined 15.2% Y/Y growth in loans collateralized by Retail and Warehouse properties

  • Loan prepayments totaled $118.0 million, an increase of 13.0% Q/Q and 35.7% Y/Y

• The UPB of Fair Value (FVO) loans was $1.27 billion, or 31.1% of total HFI loans, as of December 31, 2023, an increase from $268.6 million in UPB and 7.6%, as of December 31, 2022
  • The company elected fair value accounting treatment for new loan originations effective October 1, 2022

• The weighted average portfolio loan-to-value ratio was 67.8% as of December 31, 2023, down from 68.2% as of December 31, 2022, and consistent with the five-quarter trailing average of 68.8%
• The weighted average total portfolio yield was 8.70% for 4Q23, an increase of 119 bps from 4Q22, driven by a 93 bps increase in average loan coupons from 4Q22
• Portfolio-related debt cost for 4Q23 was 5.75%, an increase of 52 bps from 4Q22, driven by higher interest rates on 2023 securitizations and warehouse financing

LOAN PRODUCTION VOLUMES

($ in millions)

 

4Q 2023

 

4Q 2022

$ Variance

% Variance

Investor 1-4 Rental

$

183

$

169

$

14

9

%

Traditional Commercial

 

130

 

83

 

47

57

%

Short-term loans

 

39

 

26

 

13

49

%

Total loan production

$

352

$

278

$

74

27

%

 


Acquisitions

$

-

$

-

 


n.m. - non meaningful

Discussion of results:

• Loan production for 4Q23 totaled $352.1 million in UPB, a 26.8% increase from $277.8 million in UPB for 4Q22
  • Driven by continued strong demand for business-purpose loans. On a Q/Q basis, production volume rose 21.2% from 3Q23.

• The weighted average coupon (WAC) on 4Q23 HFI loan production was 11.2%, an increase of 86 bps from the WAC for 4Q22

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS

($ in thousands)

 

4Q 2023

 

 

4Q 2022

 

$ Variance

% Variance

Nonperforming loans(a)

$

394,562

 

$

292,789

 

$

101,773

 

35

%

Average Nonperforming Loans

$

332,971

 

$

279,224

 

$

53,748

 

19

%

Nonperforming loans % total HFI Loans

 

9.7

%

 

8.3

%

n.a.

17

%

Total Charge Offs

$

744

 

$

-

 

$

744

 

n.a.


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

 

0.89

%

 

0.00

%

n.a.

n.a.


Loan Loss Reserve

$

4,769

 

$

4,893

 

$

(124

)

(3

)%

 


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






(b) Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period.






n.a.- not applicable

Discussion of results:

• Nonperforming loans (NPL) totaled $394.6 million in UPB as of December 31, 2023, or 9.7% of loans HFI, compared to $279.2 million and 8.3% as of December 31, 2022
  • NPLs as a percentage of HFI loans decreased 32 bps from 10.1% as of September 30, 2023, driven by portfolio growth and a significant slowdown in the pace of loans transitioning to foreclosure

  • On a year-over-year basis, NPL growth was driven by the older, legacy amortized cost portfolio, and the Company’s collection philosophy that places loans in foreclosure quickly for early delinquencies

• Charge-offs for 4Q23 totaled $744.0 thousand, compared to no charge-offs for 4Q22
  • The trailing five-quarter charge-off average was $408.0 thousand

• The loan loss reserve totaled $4.8 million as of December 31, 2023, a 2.5% decrease from $4.9 million as of December 31, 2022
  • Resulting from the continued run-off of the amortized cost HFI loan portfolio

  • Loans carried at fair value are not subject to a CECL reserve

NET REVENUES

($ in thousands)

 

4Q 2023

 

 

4Q 2022

 

$ Variance

% Variance

Interest income

$

86,269

 

$

65,632

 

$

20,638

 

31

%

Interest expense - portfolio related

 

(51,405

)

 

(40,854

)

 

(10,551

)

26

%

Net Interest Income - portfolio related

 

34,864

 

 

24,777

 

 

10,087

 

41

%

Interest expense - corporate debt

 

(4,140

)

 

(4,139

)

 

(1

)

0

%

Loan loss provision

 

(828

)

 

437

 

 

(1,264

)

(290

)%

Net interest income after provision for loan losses

$

29,897

 

$

21,076

 

$

8,821

 

42

%

Gain on disposition of loans

 

1,482

 

 

391

 

 

1,091

 

279

%

Unrealized (loss) gain on fair value loans

 

39,367

 

 

7,795

 

 

31,572

 

405

%

Unrealized gain (loss) on fair value of securitized debt

 

(24,085

)

 

-

 

 

(24,085

)

n.m.


Unrealized gain/(loss) on mortgage servicing rights

 

(1,208

)

 

(630

)

 

(578

)

92

%

Origination income

 

3,981

 

 

3,521

 

 

461

 

13

%

Bank interest income

 

1,716

 

 

-

 

 

1,716

 

n.m.


Other operating income (expense)

 

418

 

 

(288

)

 

706

 

(245

)%

Total Other operating income (expense)

$

21,670

 

$

10,789

 

$

10,881

 

101

%

Net Revenue

$

51,567

 

$

32,302

 

$

19,265

 

60

%

n.m. - non meaningful

Discussion of results:

• Net Revenue in 4Q23 was $51.6 million, an increase of 59.6% compared to $32.3 million for 4Q22
• Total net interest income, including corporate debt interest expense and loan loss provision, was $29.9 million for 4Q23, a 41.9% increase from $21.1 million for 4Q22
  • Portfolio net Interest income was $34.9 million for 4Q23, an increase of 40.7% from 4Q22 resulting from the increased size of our portfolio and a 68 bps increase in NIM

• Total other operating income was $21.7 million for 4Q23 as compared to $10.8 million for 4Q22 driven largely by the FVO gains from 4Q23 originations
  • Gain on disposition of loans totaled $1.5 million for 4Q23, primarily resulting from loans transferred to REO

  • Net FVO marks on loans and securitized debt were $15.3 million as a result of new 4Q23 loan production and the decrease in Treasury rates during 4Q23

  • Origination income totaled $4.0 million, resulting from fee income realized on loans originated in 4Q23

OPERATING EXPENSES

($ in thousands)

 

4Q 2023

 

4Q 2022

$ Variance

% Variance

Compensation and employee benefits

$

15,143

$

11,793

$

3,350

 

28

%

Origination (income)/expense

 

173

 

1,328

 

(1,156

)

(87

)%

Securitization expenses

 

2,709

 

-

 

2,709

 

n.m.


Rent and occupancy

 

551

 

435

 

116

 

27

%

Loan servicing

 

4,636

 

3,244

 

1,392

 

43

%

Professional fees

 

1,733

 

1,091

 

642

 

59

%

Real estate owned, net

 

2,068

 

552

 

1,516

 

275

%

Other expenses

 

2,248

 

2,360

 

(112

)

(5

)%

Total operating expenses

$

29,260

$

20,804

$

8,456

 

41

%

n.m. - non meaningful

Discussion of results:

• Operating expenses totaled $29.3 million for 4Q23, an increase of 40.7% from 4Q22, driven by higher compensation expenses from headcount growth and securitization expenses driven by impacts attributable to our fair value accounting election
  • Compensation expense totaled $15.1 million, compared to $11.8 million for 4Q22

    • Compensation growth was driven by hires of sales account executives and operational staff, in addition to commissions paid on higher loan production

  • Securitization expenses totaled $2.7 million, resulting from the issuance of the VCC 2023-4 securitization during the quarter. Securitization issuance costs are now expensed under fair value accounting and were deferred in 4Q22.

  • Loan servicing expense totaled $4.6 million, a 42.9% increase from $3.2 million for 4Q22, driven by the increase in our portfolio balance and nonperforming loans

  • REO expense increased totaled $2.1, an increase from $0.6 million for 4Q22, driven by increased valuation-related expenses

SECURITIZATIONS

($ in thousands)

Securities

Balance at

Balance at

Trusts

Issued

12/31/2023

W.A. Rate

12/31/2022

W.A. Rate

2016-1 Trust

 

319,809

$

-

0.00

%

$

22,369

8.59

%

2017-2 Trust

 

245,601

 

45,869

3.97

%

 

59,183

3.92

%

2018-1 Trust

 

176,816

 

33,505

4.03

%

 

43,596

4.05

%

2018-2 Trust

 

307,988

 

76,871

4.48

%

 

93,792

4.46

%

2019-1 Trust

 

235,580

 

76,391

4.07

%

 

91,167

4.06

%

2019-2 Trust

 

207,020

 

66,340

3.42

%

 

82,508

3.46

%

2019-3 Trust

 

154,419

 

58,089

3.29

%

 

67,899

3.25

%

2020-1 Trust

 

248,700

 

106,976

2.85

%

 

136,643

2.89

%

2020-2 Trust

 

96,352

 

45,180

4.61

%

 

60,445

4.60

%

2021-1 Trust

 

251,301

 

171,748

1.76

%

 

196,969

1.73

%

2021-2 Trust

 

194,918

 

143,797

2.02

%

 

170,072

2.02

%

2021-3 Trust

 

204,205

 

158,043

2.46

%

 

178,038

2.44

%

2021-4 Trust

 

319,116

 

244,919

3.22

%

 

273,489

3.20

%

2022-1 Trust

 

273,594

 

236,358

3.93

%

 

256,667

3.93

%

2022-2 Trust

 

241,388

 

210,217

5.07

%

 

233,045

5.07

%

2022-MC1 Trust

 

84,967

 

31,508

6.90

%

 

54,528

6.91

%

2022-3 Trust

 

296,323

 

257,047

5.70

%

 

280,066

5.67

%

2022-4 Trust

 

308,357

 

274,419

6.24

%

 

301,856

6.23

%

2022-5 Trust

 

188,754

 

162,925

7.06

%

 

186,577

7.10

%

2023-1 Trust

 

198,715

 

177,250

7.02

%

2023-1R Trust

 

64,833

 

58,237

7.68

%

2023-2 Trust

 

202,210

 

188,805

7.19

%

2023-RTL1 Trust

 

81,608

 

81,608

8.24

%

2023-3 Trust

 

234,741

 

227,228

7.82

%

2023-4 Trust

 

202,890

 

201,813

8.38

%

$

5,340,205

$

3,335,143

5.22

%

$

2,788,909

4.27

%

Discussion of results

• The company completed one securitization during 4Q23 totaling $202.9 million of securities issued
• The weighted average rate on Velocity’s outstanding securitizations was 5.22% as of December 31, 2023, an increase of 94 bps from December 31, 2022

RESOLUTION ACTIVITIES

LONG-TERM LOANS

RESOLUTION ACTIVITY

FOURTH QUARTER 2023

FOURTH QUARTER 2022

($ in thousands)

UPB $

Gain / (Loss) $

UPB $

Gain / (Loss) $

Paid in full

$

22,342

$

826

 

$

8,188

$

329

 

Paid current

 

36,026

 

206

 

 

9,648

 

21

 

REO sold (a)

 

1,588

 

140

 

 

2,404

 

67

 

Total resolutions

$

59,956

$

1,172

 

$

20,240

$

417

 

 


Resolutions as a % of nonperforming UPB

 

102.0

%

 

102.1

%

SHORT-TERM AND FORBEARANCE LOANS

RESOLUTION ACTIVITY

FOURTH QUARTER 2023

FOURTH QUARTER 2022

($ in thousands)

UPB $

Gain / (Loss) $

UPB $

Gain / (Loss) $

Paid in full

$

2,770

$

37

 

$

4,092

$

82

 

Paid current

 

7,560

 

13

 

 

457

 

-

 

REO sold

 

604

 

316

 

 

529

 

74

 

Total resolutions

$

10,934

$

366

 

$

5,078

$

156

 

 


Resolutions as a % of nonperforming UPB

 

103.3

%

 

103.1

%

Grand total resolutions

$

70,890

$

1,538

 

$

25,318

$

572

 

 


Grand total resolutions as a % of nonperforming UPB

 

102.2

%

 

102.3

%

Discussion of results:

• NPL resolution totaled 70.9 million in UPB, realizing 102.2% of UPB resolved compared to $25.3 million in UPB and realization of 102.3% of UPB resolved for 4Q22
• 4Q23 NPL resolutions represented 18.3% of nonperforming loan UPB as of September 30, 2023
• The UPB of loan resolutions in 4Q23 was 41.4% higher than the recent five-quarter resolution average of $50.1 million in UPB

Full-Year 2023 Operating Results

FULL-YEAR OPERATING RESULTS

($ in thousands)

FY 2023

FY 2022

$ Variance

% Variance

Investor 1-4 Rental

$

617

 

$

994

 

$

(377

)

(38

)%

Traditional Commercial

 

381

 

 

652

 

 

(271

)

(42

)%

Short-term loans

 

120

 

 

116

 

 

4

 

4

%

Total Loan production

$

1,118

 

$

1,762

 

$

(644

)

(37

)%

Net Interest Margin - Portfolio

 

3.34

%

 

3.64

%

n.a.

(8

)%

Average Nonperforming Loans

$

328,105

 

$

266,129

 

$

61,976

 

23

%

 


Total Net Interest Income(a)

 

105,836

 

 

81,996

 

$

23,840

 

29.1

%

Total Other Income

 

65,910

 

 

24,320

 

 

41,590

 

171.0

%

Total Expenses

 

119,472

 

 

74,106

 

 

45,365

 

61.2

%

Net Income

$

52,273

 

$

32,211

 

$

20,062

 

62

%

Diluted EPS

$

1.52

 

$

0.94

 

$

0.57

 

61

%

Core Income(b)

$

53,384

 

$

42,153

 

$

11,231

 

26.6

%

Core Diluted EPS(b)

$

1.54

 

$

1.24

 

$

0.30

 

24.5

%

Pretax Return on Equity

 

17.5

%

 

12.2

%

n.a.

42.8

%

(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.






n.a.- not applicable

CHARGE-OFFS, GAIN/(LOSS) ON REO

($ in thousands)

FY 2023

FY 2022

$ Variance

% Variance

Average nonperforming loans for the period (a)

$

328,105

 

$

266,129

 

$

61,976

 

23

%

Charge-offs

 

(2,039

)

 

(521

)

$

(1,518

)

291

%

Charge-offs / Average nonperforming loans for the period (1)

 

-0.62

%

 

-0.20

%

$

(0

)

217

%

Gain on transfer of REO

 

7,412

 

 

3,408

 

$

4,004

 

117

%

Gain on sale of REO

 

568

 

 

2,939

 

$

(2,371

)

(81

)%

REO valuations, net

 

(3,903

)

 

(364

)

$

(3,539

)

972

%

Total gain/(loss) on REO

$

2,038

 

$

5,462

 

$

(3,424

)

(63

)%

(a) Reflects the monthly average of nonperforming loans held for investment during the period.

Discussion of results:

• Loan production in FY 2023 totaled $1.1 billion in UPB, a 36.5% decrease from $1.8 billion in UPB for 2022
  • Driven by higher interest rates throughout most of FY 2023

• Net interest margin (NIM) was 3.34% for FY 2023, a 30 bps decrease from 3.64% for FY 2022
  • Driven by higher securitization and warehouse financing costs

  • Partially offset by a higher weighted average coupon on 2023 loan production of 11.1% compared to 8.0% for FY 2022

• Average NPLs were $328.1 million for FY 2023, an increase of 23.3% from the FY 2022 average of $266.1 million
  • Average NPLs as a percentage of average loans HFI were 8.7% for FY 2023, compared to 8.6% for FY 2022

• Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
• Net income totaled 52.3 million for FY 2023, a 62.3% increase from 32.2 million for FY 2022
  • Net interest income (after corporate interest expense and provision for loan losses) totaled $105.8 million, a 29.1% increase from $82.0 million in FY 2022, driven by HFI portfolio growth and higher coupons on FY 2023 loan production

  • Other income totaled $65.9 million, a 171.0% increase from $24.3 million in FY 2022, driven by the net impact of the Company’s fair value accounting election for loan production originated after October 1, 2022, and unrealized fair value losses on securitized debt

  • Expenses totaled $119.5 million, a 61.2% increase from $74.1 million in FY 2022, driven by an increase in compensation expense related to the Company’s fair value accounting election and securitization costs resulting from the issuance of six VCC securitizations in 2023. Under fair value accounting, securitization costs are expensed as incurred, whereas previously they were deferred and amortized over the life of the securitization.

• Core net income(1) totaled $53.4 million, a 26.6% increase from $42.2 million for FY 2022
  • Core income adjustments totaled $1.1 million, compared to $9.9 million for FY 2022

  • Core diluted EPS was $1.54 per share, a 24.5% increase from $1.24 per share for FY 2022

• Pretax return on equity was 17.5%, a 42.8% increase from 12.2% for FY 2022

Velocity’s executive management team will host a conference call and webcast to review 4Q23 and Full-Year 2023 financial results on March 7th, 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 March 14, 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 #7107943. 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 (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 Statements of Financial Condition

Quarter Ended

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Audited

Unaudited

Unaudited

Unaudited

Audited

(In thousands)

Assets

Cash and cash equivalents

$

40,566

 

$

29,393

 

$

33,987

 

$

39,397

 

$

45,248

 

Restricted cash

 

21,361

 

 

17,703

 

 

16,786

 

 

16,636

 

 

16,808

 

Loans held for sale, at fair value

 

17,590

 

 

19,536

 

 

-

 

 

18,081

 

 

-

 

Loans held for investment, at fair value

 

1,306,072

 

 

951,990

 

 

705,330

 

 

450,732

 

 

276,095

 

Loans held for investment

 

2,828,123

 

 

2,945,840

 

 

3,057,940

 

 

3,169,280

 

 

3,272,390

 

Total loans, net

 

4,151,785

 

 

3,917,366

 

 

3,763,270

 

 

3,638,093

 

 

3,548,485

 

Accrued interest receivables

 

27,028

 

 

24,756

 

 

22,602

 

 

20,931

 

 

20,463

 

Receivables due from servicers

 

85,077

 

 

70,139

 

 

63,896

 

 

64,133

 

 

65,644

 

Other receivables

 

8,763

 

 

236

 

 

1,306

 

 

2,188

 

 

1,075

 

Real estate owned, net

 

44,268

 

 

29,299

 

 

20,388

 

 

21,778

 

 

13,325

 

Property and equipment, net

 

2,785

 

 

2,861

 

 

3,023

 

 

3,209

 

 

3,356

 

Deferred tax asset

 

2,339

 

 

705

 

 

1,878

 

 

2,543

 

 

5,033

 

Mortgage Servicing Rights, at fair value

 

8,578

 

 

9,786

 

 

9,445

 

 

9,143

 

 

9,238

 

Derivative assets

 

-

 

 

1,261

 

 

-

 

 

-

 

 

-

 

Goodwill

 

6,775

 

 

6,775

 

 

6,775

 

 

6,775

 

 

6,775

 

Other assets

 

5,248

 

 

7,028

 

 

7,789

 

 

12,268

 

 

13,525

 

Total Assets

$

4,404,573

 

$

4,117,308

 

$

3,951,145

 

$

3,837,094

 

$

3,748,975

 

Liabilities and members' equity

Accounts payable and accrued expenses

$

121,969

 

$

97,869

 

$

95,344

 

$

84,976

 

$

91,525

 

Secured financing, net

 

211,083

 

 

210,774

 

 

210,464

 

 

210,155

 

 

209,846

 

Securitized debt, net

 

2,418,811

 

 

2,504,334

 

 

2,622,547

 

 

2,657,469

 

 

2,736,290

 

Securitized debt, at fair value

 

877,417

 

 

669,139

 

 

381,799

 

 

194,941

 

 

-

 

Warehouse & repurchase facilities

 

334,755

 

 

215,176

 

 

235,749

 

 

298,313

 

 

330,814

 

Derivative liability

 

3,665

 

 

-

 

 

-

 

 

-

 

 

-

 

Total Liabilities

 

3,967,700

 

 

3,697,292

 

 

3,545,903

 

 

3,445,854

 

 

3,368,475

 

Stockholders' Equity

Stockholders' equity

 

433,444

 

 

416,398

 

 

401,707

 

 

387,624

 

 

376,811

 

Noncontrolling interest in subsidiary

 

3,429

 

 

3,618

 

 

3,535

 

 

3,616

 

 

3,689

 

Total equity

 

436,873

 

 

420,016

 

 

405,242

 

 

391,240

 

 

380,500

 

Total Liabilities and members' equity

$

4,404,573

 

$

4,117,308

 

$

3,951,145

 

$

3,837,094

 

$

3,748,975

 

Book value per share

$

13.49

 

$

13.00

 

$

12.57

 

$

12.18

 

$

11.89

 

Shares outstanding

 

32,395(1)

 

32,314(2)

 

32,239(3)

 

32,112(4)

 

31,996(5)

(1) 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.


(2) 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.


(3) 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.


(4) 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.


(5) Based on 31,955,730 common shares outstanding as of December 31, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 494,139..

Velocity Financial, Inc.

Consolidated Statements of Income (Quarters)

Quarter Ended

($ in thousands)

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Revenues

Interest income

$

86,269

 

$

79,088

 

$

74,897

$

70,521

 

$

65,632

 

Interest expense - portfolio related

 

51,405

 

 

47,583

 

 

45,451

 

42,029

 

 

40,854

 

Net interest income - portfolio related

 

34,864

 

 

31,505

 

 

29,446

 

28,492

 

 

24,778

 

Interest expense - corporate debt

 

4,140

 

 

4,138

 

 

4,139

 

4,139

 

 

4,139

 

Net interest income

 

30,724

 

 

27,367

 

 

25,307

 

24,353

 

 

20,639

 

Provision for loan losses

 

828

 

 

154

 

 

298

 

636

 

 

(437

)

Net interest income after provision for loan losses

 

29,897

 

 

27,213

 

 

25,009

 

23,717

 

 

21,076

 

Other operating income











Gain on disposition of loans

 

1,482

 

 

3,606

 

 

1,237

 

1,913

 

 

391

 

Unrealized gain (loss) on fair value loans

 

39,367

 

 

(1,284

)

 

2,413

 

7,354

 

 

7,795

 

Unrealized gain (loss) on fair value securitized debt

 

(24,085

)

 

9,692

 

 

5,560

 

(170

)

 

-

 

Origination income

 

3,981

 

 

3,323

 

 

2,735

 

2,411

 

 

3,521

 

Bank interest income

 

1,716

 

 

1,342

 

 

1,188

 

948

 

 

-

 

Other income (expense)

 

418

 

 

340

 

 

601

 

482

 

 

(288

)

Total other operating income

 

21,670

 

 

17,360

 

 

14,036

 

12,842

 

 

11,419

 

Net revenue

 

51,567

 

 

44,573

 

 

39,046

 

36,560

 

 

32,495

 

Operating expenses

Compensation and employee benefits

 

15,143

 

 

12,523

 

 

10,670

 

10,008

 

 

11,793

 

Origination expenses

 

173

 

 

273

 

 

123

 

(50

)

 

1,328

 

Securitizations expenses

 

2,709

 

 

4,930

 

 

2,699

 

2,584

 

 

-

 

Rent and occupancy

 

551

 

 

472

 

 

458

 

446

 

 

435

 

Loan servicing

 

4,636

 

 

4,901

 

 

4,267

 

3,828

 

 

3,244

 

Professional fees

 

1,733

 

 

854

 

 

1,056

 

955

 

 

1,091

 

Real estate owned, net

 

2,068

 

 

1,239

 

 

1,018

 

1,829

 

 

552

 

Other operating expenses

 

2,248

 

 

2,142

 

 

1,931

 

2,202

 

 

2,360

 

Total operating expenses

 

29,260

 

 

27,334

 

 

22,222

 

21,802

 

 

20,804

 

Income before income taxes

 

22,307

 

 

17,239

 

 

16,824

 

14,757

 

 

11,692

 

Income tax expense

 

5,141

 

 

5,070

 

 

4,602

 

4,021

 

 

3,465

 

Net income

 

17,166

 

 

12,169

 

 

12,222

 

10,736

 

 

8,227

 

Net income attributable to noncontrolling interest

 

(189

)

 

83

 

 

39

 

87

 

 

(235

)

Net income attributable to Velocity Financial, Inc.

 

17,355

 

 

12,086

 

 

12,183

 

10,649

 

 

8,462

 

Less undistributed earnings attributable to participating securities

 

225

 

 

183

 

 

185

 

160

 

 

127

 

Net earnings attributable to common shareholders

$

17,130

 

$

11,903

 

$

11,998

$

10,489

 

$

8,335

 

Basic earnings (loss) per share

$

0.53

 

$

0.37

 

$

0.37

$

0.33

 

$

0.26

 

Diluted earnings (loss) per common share

$

0.50

 

$

0.35

 

$

0.36

$

0.31

 

$

0.25

 

 


Basic weighted average common shares outstanding

 

32,326

 

 

32,275

 

 

32,122

 

32,098

 

 

31,923

 

 


Diluted weighted average common shares outstanding

 

34,991

 

 

34,731

 

 

34,140

 

34,052

 

 

34,063

 

Velocity Financial, Inc.

Consolidated Statements of Income (Years)

Year Ended

($ in thousands)

12/31/2023

12/31/2022

Audited

Audited

Revenues

Interest income

$

310,776

 

$

240,343

 

Interest expense - portfolio related

 

186,468

 

 

127,723

 

Net interest income - portfolio related

 

124,308

 

 

112,620

 

Interest expense - corporate debt

 

16,556

 

 

29,472

 

Net interest income

 

107,750

 

 

83,148

 

Provision for loan losses

 

1,915

 

 

1,152

 

Net interest income after provision for loan losses

 

105,836

 

 

81,996

 

Other operating income





Gain on disposition of loans

 

8,238

 

 

7,107

 

Unrealized gain (loss) on fair value loans

 

47,850

 

 

8,265

 

Unrealized gain (loss) on fair value securitized debt

 

(9,002

)

 

-

 

Origination income

 

12,450

 

 

5,225

 

Bank interest income

 

5,194

 

 

-

 

Other income (expense)

 

1,840

 

 

1,637

 

Total other operating income

 

65,910

 

 

24,320

 

Net revenue

 

171,745

 

 

106,316

 

Operating expenses

Compensation and employee benefits

 

48,344

 

 

30,458

 

Origination expenses

 

518

 

 

3,985

 

Securitizations expenses

 

12,923

 

 

-

 

Rent and occupancy

 

1,927

 

 

1,748

 

Loan servicing

 

17,631

 

 

12,298

 

Professional fees

 

4,599

 

 

4,179

 

Real estate owned, net

 

6,153

 

 

(70

)

Other operating expenses

 

8,524

 

 

9,166

 

Total operating expenses

 

100,618

 

 

61,764

 

Income before income taxes

 

71,127

 

 

44,553

 

Income tax expense

 

18,834

 

 

12,033

 

Net income

 

52,293

 

 

32,519

 

Net income attributable to noncontrolling interest

 

19

 

 

308

 

Net income attributable to Velocity Financial, Inc.

 

52,273

 

 

32,211

 

Less undistributed earnings attributable to participating securities

 

753

 

 

491

 

Net earnings attributable to common shareholders

$

51,520

 

$

31,720

 

Basic earnings (loss) per share

$

1.60

 

$

0.99

 

Diluted earnings (loss) per common share

$

1.52

 

$

0.94

 

 


Basic weighted average common shares outstanding

 

32,206

 

 

31,913

 

 


Diluted weighted average common shares outstanding

 

34,484

 

 

34,131

 

Velocity Financial, Inc.

Net Interest Margin ‒ Portfolio Related and Total Company

(Unaudited)

Quarters:

Quarter Ended December 31, 2023

Quarter Ended September 30, 2023

Quarter Ended December 31, 2022

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

$

14,918

$

3,170

$

64,699

Loans held for investment

 

3,949,642

 

3,770,460

 

3,430,296

Total loans

$

3,964,560

$

86,268

8.70

%

$

3,773,631

$

79,088

8.38

%

$

3,494,995

$

65,632

7.51

%

Debt:

Warehouse and repurchase facilities

$

255,266

 

6,040

9.46

%

$

192,855

 

4,943

10.25

%

$

286,094

 

5,776

8.08

%

Securitizations

 

3,320,467

 

45,365

5.46

%

 

3,186,756

 

42,640

5.35

%

 

2,838,315

 

35,078

4.94

%

Total debt - portfolio related

 

3,575,733

 

51,405

5.75

%

 

3,379,610

 

47,583

5.63

%

 

3,124,409

 

40,854

5.23

%

Corporate debt

 

215,000

 

4,138

7.70

%

 

215,000

 

4,138

7.70

%

 

215,000

 

4,139

7.70

%

Total debt

$

3,790,733

$

55,543

5.86

%

$

3,594,610

$

51,721

5.76

%

$

3,339,409

$

44,993

5.39

%

 


Net interest spread - portfolio related (2)

2.95

%

2.75

%

2.28

%

Net interest margin - portfolio related

3.52

%

3.34

%

2.84

%

 


Net interest spread - total company (3)

2.84

%

2.63

%

2.11

%

Net interest margin - total company

3.10

%

2.90

%

2.36

%

 


(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.

Years:

Year Ended December 31, 2023

Year Ended December 31, 2022

Year Ended December 31, 2021

Interest

Average

Interest

Average

Interest

Average

Average

Income /

Yield /

Average

Income /

Yield /

Average

Income /

Yield /

($ in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Balance

Expense

Rate

Loan portfolio:

Loans held for sale

$

8,615

$

49,194

$

15,794

Loans held for investment

 

3,716,582

 

3,043,003

 

2,110,053

Total loans

$

3,725,197

$

310,775

8.34

%

$

3,092,198

$

240,343

7.77

%

$

2,125,847

$

181,968

8.56

%

Debt:

Warehouse and repurchase facilities

$

227,911

 

21,726

9.53

%

$

292,490

 

17,454

5.97

%

$

183,663

 

9,706

5.28

%

Securitizations

 

3,113,500

 

164,742

5.29

%

 

2,458,332

 

110,269

4.49

%

 

1,630,385

 

75,680

4.64

%

Total debt - portfolio related

 

3,341,411

 

186,468

5.58

%

 

2,750,822

 

127,723

4.64

%

 

1,814,048

 

85,386

4.71

%

Corporate debt

 

215,000

 

16,556

7.70

%

 

205,979

 

29,472

14.31

%

 

154,890

 

20,609

13.31

%

Total debt

$

3,556,411

$

203,024

5.71

%

$

2,956,801

$

157,195

5.32

%

$

1,968,938

$

105,995

5.38

%

 


Net interest spread - portfolio related (1)

2.76

%

3.13

%

3.85

%

Net interest margin - portfolio related

3.34

%

3.64

%

4.54

%

 


Net interest spread - total company (2)

2.63

%

2.46

%

3.18

%

Net interest margin - total company

2.89

%

2.69

%

3.57

%

 


(1) 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.


(2) 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

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Net Income

$

17,355

 

$

12,086

$

12,183

$

10,649

$

8,462

Tax liability reduction

 

(1,866

)

 

-

 

-

 

-

 

-

Equity award & ESPP costs

 

673

 

 

832

 

745

 

728

 

656

Core Net Income

$

16,161

 

$

12,918

$

12,928

$

11,376

$

9,118

 


Diluted weighted average common shares outstanding

 

34,991

 

 

34,731

 

34,140

 

34,052

 

34,063

Core diluted earnings per share

$

0.46

 

$

0.37

$

0.38

$

0.33

$

0.27

Years:

Core Net Income

Year Ended

12/31/2023

12/31/2022

Net Income

$

52,273

 

$

32,211

Corporate debt refinancing costs

-

$

 9,286

Tax liability reduction

 

(1,866

)

 

-

Equity award & ESPP costs

 

2,977

 

 

656

Core Net Income

$

53,384

 

$

42,153

 


Diluted weighted average common shares outstanding

$

34,484

 

$

34,131

Core diluted earnings per share

$

1.54

 

$

1.24

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240307284451/en/

Investors and Media: Chris Oltmann [phone]