Velocity Financial(US:VEL)2025-08-07 23:43PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Unaudited consolidated financial statements for Q2 2025 reflect significant growth in assets, liabilities, and equity, with net income reaching $26.0 million Consolidated Balance Sheets Total assets reached $6.48 billion by June 30, 2025, primarily from fair value loans, leading to total equity of $601.1 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $6,475,880 | $5,527,408 | | Total loans, net | $6,053,225 | $5,187,067 | | Cash and cash equivalents | $79,559 | $49,901 | | Total Liabilities | $5,874,827 | $5,007,193 | | Securitized debt (amortized + fair value) | $5,092,519 | $4,226,464 | | Warehouse and repurchase facilities, net | $331,057 | $348,082 | | Total Equity | $601,053 | $520,215 | Consolidated Statements of Income Net income for Q2 2025 surged 76% to $26.0 million, driven by a 47% rise in net interest income and increased other operating income Key Income Statement Data (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $47,586 | $32,417 | $85,096 | $61,891 | | Total Other Operating Income | $39,847 | $22,561 | $73,293 | $48,336 | | Income Before Income Taxes | $33,922 | $19,873 | $60,816 | $43,110 | | Net Income Attributable to Velocity | $25,997 | $14,778 | $44,884 | $32,029 | | Diluted EPS | $0.69 | $0.42 | $1.20 | $0.90 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q2 2025 increased to $24.6 million, including net income and an other comprehensive loss from hedges Comprehensive Income Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income Attributable to Velocity | $25,997 | $14,778 | $44,884 | $32,029 | | Other Comprehensive Income (Loss) | $(1,408) | $804 | $(2,402) | $2,808 | | Total Comprehensive Income | $24,589 | $15,582 | $42,482 | $34,837 | Consolidated Statements of Cash Flows Net cash from operations was $11.2 million, with significant investing in loans funded by securitizations and warehouse borrowings Net Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $11,198 | $22,053 | | Net Cash used in Investing Activities | $(842,611) | $(409,281) | | Net Cash from Financing Activities | $857,772 | $404,960 | | Net Increase in Cash | $26,359 | $17,732 | Notes to Consolidated Financial Statements (Unaudited) Notes detail accounting policies, loan portfolio composition, debt structure, and credit quality, including fair value option application - The company elected to apply fair value option (FVO) accounting to mortgage loans originated effective October 1, 2022, and to securitized debt issued effective January 1, 2023, when the underlying collateral is also at fair value3637 Loan Portfolio Breakdown (in thousands) | Loan Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Loans Held for Investment, at Amortized Cost | $2,226,720 | $2,420,116 | | Loans Held for Investment, at Fair Value | $3,826,505 | $2,766,951 | | Total Loans Held for Investment | $6,053,225 | $5,187,067 | - As of June 30, 2025, the amortized cost basis of nonperforming loans on nonaccrual status was $286.3 million, a decrease from $313.3 million at year-end 202456 Debt Summary (in thousands) | Debt Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Securitized Debt, at Amortized Cost | $1,859,750 | $2,019,056 | | Securitized Debt, at Fair Value | $3,232,769 | $2,207,408 | | Warehouse and Repurchase Facilities, net | $331,057 | $348,082 | | Secured Financing (Corporate Debt), net | $285,756 | $284,833 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2025 performance to loan portfolio growth, improved net interest margin, and increased originations Portfolio and Asset Quality The loan portfolio grew to $5.9 billion UPB, with improved LTV and stable nonperforming loan percentages, alongside increased originations Key Portfolio Statistics | Metric | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Loans (UPB) | $5,859,653 thousand | $4,479,901 thousand | | Weighted Average LTV | 65.8% | 67.4% | | Weighted Average Coupon | 9.7% | 9.3% | | Nonperforming Loans (% of total) | 10.3% | 10.5% | - The company resolved $104.0 million of nonperforming assets during Q2 2025, realizing net gains of $3.6 million from these activities189 - The loan portfolio is geographically concentrated, with 20.9% in California, 14.3% in New York, and 12.6% in Florida193195 Consolidated Results of Operations Net interest income after provision for credit losses increased 43% in Q2 2025, driven by higher interest income and other operating income - Portfolio-related net interest income increased 39.3% to $53.7 million in Q2 2025 from $38.6 million in Q2 2024, driven by higher average loan balances and yields230 - The increase in interest income for Q2 2025 was primarily due to a $1.26 billion increase in average loan volume and a 67 basis point increase in average yield compared to Q2 2024233 - Total operating expenses increased by $17.0 million year-over-year, primarily due to higher compensation and benefits, securitization expenses, and loan servicing costs252 Liquidity and Capital Resources Total liquidity was $139.3 million as of June 30, 2025, supported by warehouse facilities and an ATM equity offering program - Total liquidity was $139.3 million as of June 30, 2025, with total liquidity plus available warehouse capacity reaching $556.5 million266 - The company has five non-mark-to-market, one mark-to-market, and one modified mark-to-market warehouse facility with $333.1 million in outstanding borrowings and $476.9 million of available capacity as of June 30, 2025273294 - From May 2011 through June 2025, the company has completed 42 securitization transactions, issuing $9.3 billion in securities277 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is omitted as permitted under reduced disclosure requirements for a smaller reporting company - The company has omitted this section pursuant to smaller reporting company reduced disclosure requirements300 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period302 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, such controls303 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its financial condition - Management does not expect any currently pending or threatened legal matters to have a material adverse effect on the company's business, financial position, or cash flows306 Item 1A. Risk Factors This section is omitted as permitted under reduced disclosure requirements for a smaller reporting company - The company has omitted this section pursuant to smaller reporting company reduced disclosure requirements307 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Warrants for 3,013,124 shares were exercised in Q2 2025, with the company repurchasing 267,582 shares related to exercises and tax obligations - In Q2 2025, warrants to purchase an aggregate of 3,013,124 shares were exercised, with the March 2025 exercise of 1,339,166 warrants done on a net settlement basis308 - The company purchased 267,582 shares of its common stock during the three months ended June 30, 2025, primarily through shares withheld from warrant exercises and vested stock awards310311 Item 5. Other Information Two executives adopted Rule 10b5-1 trading plans in March 2025 for potential sales of their common stock - On March 18, 2025, EVP Jeffrey T. Taylor adopted a Rule 10b5-1 trading plan for the sale of up to 21,250 shares314 - On March 20, 2025, CFO Mark R. Szczepaniak adopted a Rule 10b5-1 trading plan for the sale of up to 18,870 shares315 Item 6. Exhibits This section lists all exhibits filed or incorporated by reference into the Form 10-Q, including governance documents and certifications