Velocity Financial(VEL) - 2024 Q4 - Annual Report

Loan Originations and Portfolio Growth - The company originated 4,532 loans totaling $1.8 billion for investment in 2024, compared to 2,955 loans totaling$ 1.1 billion in 2023, indicating significant growth in loan originations[45]. - As of December 31, 2024, the company's portfolio of loans held for investment totaled $5.1 billion in unpaid principal balance, with 99.5% attributed to loan origination[45]. - The primary product, a 30-year fixed-rate amortizing term loan, comprised 85.2% of loan originations in 2024, reflecting strong market demand[42]. - The company funded 4,328 loans sourced by 1,415 different mortgage brokers in 2024, indicating a broad network and market penetration[41]. - The company aims to expand its network of mortgage brokers, with approximately 89% of loan originators having originated five or fewer loans, presenting growth opportunities[39]. - Total loans increased to$ 5,055,937 thousand as of December 31, 2024, up from $4,072,890 thousand in 2023, representing a growth of 24.2%[118]. - Loan originations for the year ended December 31, 2024, reached$ 1,817,600 thousand, an increase of $723,300 thousand or 64.7% from$ 1,094,300 thousand in 2023[122]. - Total loans held for investment, net, increased to $5,187,067 thousand in 2024 from$ 4,134,195 thousand in 2023[123]. Financial Performance - The company generated $159.6 million in portfolio-related net interest income for the year ended December 31, 2024, representing a net interest margin of 3.56%[34]. - For the year ended December 31, 2024, the yield on the total portfolio was 9.06% and the portfolio-related net interest margin was 3.56%[80]. - The company generated pre-tax income of$ 96.4 million and net income of $68.5 million for the year ended December 31, 2024, with a pre-tax return on average equity of 20.3%[80]. - Portfolio related net interest income increased by$ 35.3 million or 28.4% to $159.6 million for the year ended December 31, 2024, compared to$ 124.3 million for the year ended December 31, 2023[109]. - Net income for the year ended December 31, 2024 was $68,466 thousand, up from$ 52,293 thousand in 2023 and $32,519 thousand in 2022[159]. - Income before income taxes increased to$ 96,391 thousand for the year ended December 31, 2024, compared to $71,127 thousand in 2023 and$ 44,552 thousand in 2022[159]. Loan Quality and Credit Losses - The weighted average loan-to-value (LTV) ratio at origination for loans held for investment was 66.6%, providing a buffer against credit losses[47]. - Approximately 91.4% of loans held for investment were fully-amortizing over 30 years, which reduces the risk of default compared to balloon loans[46]. - Nonperforming loans as a percentage of total loans rose to 10.67% as of December 31, 2024, compared to 9.69% in 2023[118]. - The allowance for credit losses is maintained at a level deemed adequate by management to provide for expected losses in the portfolio at the balance sheet date[98]. - The allowance for credit losses decreased to $4,174 thousand as of December 31, 2024, from$ 4,769 thousand in 2023[128]. - Charge-offs for the year ended December 31, 2024, were $1,768 thousand, resulting in a charge-off rate of 0.55% of average nonperforming loans[127]. - The recovery rate on resolved nonperforming loans was 103.9% in 2024, compared to 102.3% in 2023 and 106.7% in 2022[137]. Operating Expenses and Income - Total operating expenses increased by 38.8%, or$ 39.0 million, to $139.6 million for the year ended December 31, 2024, from$ 100.6 million in 2023[195]. - Compensation and employee benefits rose to $69.6 million for the year ended December 31, 2024, from$ 48.3 million in 2023, primarily due to higher commissions[196]. - Income tax expense was $27.9 million for the year ended December 31, 2024, up from$ 18.8 million in 2023, with an effective tax rate of 29.0% compared to 25.2% in the prior year[202]. Securitization and Debt - The company has executed 37 securitizations of investor real estate loans, issuing $8.0 billion in principal amount of securities since 2011[30]. - In August 2023, the company completed its first securitization collateralized by a short-term loan product, issuing$ 81.6 million in securities[50]. - The company plans to finance its loan portfolio primarily through equity and financing arrangements, including warehouse lines and securitizations[53]. - Interest expenses related to corporate debt were $23.8 million,$ 16.6 million, and $29.5 million for the years ended December 31, 2024, 2023, and 2022, respectively[87]. - Total debt related to the portfolio increased to$ 4,076,596 thousand for the year ended December 31, 2024, compared to $3,341,411 thousand in 2023 and$ 2,750,822 thousand in 2022[155]. Market Conditions and Future Outlook - The investor real estate loan market is highly competitive, which could affect profitability and growth[111]. - Macroeconomic conditions, including interest rates and unemployment rates, may impact the investor real estate loan market[116]. - The company anticipates that future performance will depend on growing origination/acquisition volume, leveraging a large and fragmented core market[109].