Velocity Financial(VEL) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter Highlights Velocity Financial, Inc. achieved significant 2Q25 financial growth, marked by record loan production, strong portfolio earnings, and improved net interest margin 2Q25 Financial Performance Highlights (YoY) | Metric | 2Q25 | 2Q24 | Change (Millions USD) | Change (%) | | :-------------------------------- | :----- | :----- | :-------------------- | :--------- | | Net Income | $26.0 million | $14.8 million | $11.2 million | 75.9% | | Diluted EPS | $0.69 | $0.42 | $0.27 | 64.3% | | Core Net Income | $27.5 million | $15.9 million | $11.6 million | 72.6% | | Core Diluted EPS | $0.73 | $0.45 | $0.28 | 62.2% | | Diluted Book Value per Common Share (as of June 30) | $15.62 | $13.29 | $2.33 | 17.5% | 2Q25 Portfolio & Operational Highlights | Metric | 2Q25 | 1Q25 | 2Q24 | Change (vs 1Q25) | Change (vs 2Q24) | | :------------------------------------ | :----- | :----- | :----- | :--------------- | :--------------- | | Portfolio Net Interest Margin (NIM) | 3.82% | 3.35% | 3.54% | +47 bps | +28 bps | | Record Loan Production (UPB) | $725.4 million | - | $422.2 million | +13.3% | +71.8% | | Nonperforming Loans (NPL) as % of HFI | 10.3% | 10.8% | 10.5% | -0.5% | -0.2% | | NPA Resolution (UPB) | $104.0 million | - | - | - | - | | Realized Gains from NPA Resolution | $3.6 million | - | - | - | - | | Recovery Rate on UPB Resolved | 103.5% | - | - | - | - | - NIM increase driven by higher cash interest received from resolved nonperforming loans and rate discipline on new loan production, with average loan coupons of 10.61% on loans produced over the last five quarters[5] - Completed four securitizations totaling $985.5 million of securities issued and collapsed/refinanced two securitizations totaling $68.0 million in debt outstanding, which released $53.5 million of cash to fund future growth[5] - Liquidity of $139.3 million, consisting of $79.6 million in unrestricted cash and $59.7 million in available borrowings from unpledged loans, with total available warehouse line capacity of $476.9 million[5] CEO Commentary CEO Chris Farrar highlighted record 2Q25 loan production and earnings, driven by increased net interest and noninterest income from strong financing demand - Achieved two record highs for quarterly loan production and earnings in 2Q25[6] - Results driven by higher portfolio net interest income and noninterest income from growing production volume[6] - Strong financing demand observed in both traditional commercial and 1-4 family residential rental property markets, as investors continued to see considerable value in smaller commercial properties[6] - Confident in Velocity's long-term growth prospects and ability to sustain profitable market share growth[6] Financial Performance Operating Results Velocity Financial's 2Q25 operating results showed robust growth in net income and EPS, driven by increased net interest income and other operating income Key Performance Indicators 2Q25 Key Performance Indicators (YoY) | Indicator | 2Q25 ($ in thousands) | 2Q24 ($ in thousands) | $ Variance | % Variance | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Income before income tax | $33,922 | $19,873 | $14,049 | 70.7% | | Net income | $25,997 | $14,778 | $11,219 | 75.9% | | Diluted earnings per share | $0.69 | $0.42 | $0.27 | 65.7% | | Core income before income tax | $35,777 | $21,507 | $14,270 | 66.4% | | Core net income | $27,470 | $15,918 | $11,552 | 72.6% | | Core diluted earnings per share | $0.73 | $0.45 | $0.28 | 61.5% | | Net interest margin — portfolio related | 3.82% | 3.54% | - | 8.0% | | Net interest margin — total company | 3.39% | 2.98% | - | 13.6% | | Average common equity | $588,814 | $469,071 | $119,743 | 25.5% | | Pre-tax return on average equity | 23.0% | 16.9% | - | 36.0% | | Core pre-tax return on average equity | 24.3% | 18.3% | - | 32.5% | Condensed Results of Operations 2Q25 Condensed Results of Operations (YoY) | Metric | 2Q25 ($ in thousands) | 2Q24 ($ in thousands) | $ Variance | % Variance | | :------------------------------------------ | :-------------------- | :-------------------- | :--------- | :--------- | | Net interest income | $47,586 | $32,417 | $15,169 | 46.8% | | Provision for credit losses | $1,598 | $218 | $1,380 | 633.0% | | Net interest income after provision for credit losses | $45,988 | $32,199 | $13,789 | 42.8% | | Other operating income | $39,847 | $22,561 | $17,286 | 76.6% | | Net revenue | $85,835 | $54,760 | $31,075 | 56.7% | | Operating expenses | $51,913 | $34,887 | $17,026 | 48.8% | | Income before income taxes | $33,922 | $19,873 | $14,049 | 70.7% | | Net income attributable to Velocity Financial, Inc. | $25,997 | $14,778 | $11,219 | 75.9% | - Net interest income after provision for credit losses increased 42.8% to $46.0 million, driven by strong recoveries of interest income from NPLs and growth in the total portfolio[8] - Other operating income increased 76.6% to $39.8 million, primarily due to fair value gains from record loan production during the quarter[8] - Origination fee income totaled $8.9 million, an increase of 76.2% from $5.1 million for 2Q24[9] - Net revenue increased 56.7% to $85.8 million, resulting from continued strong production-driven portfolio net interest income growth, net unrealized FV gains, and origination fee income[9] - Operating expenses totaled $51.9 million, an increase of 48.8% from 2Q24, primarily resulting from higher production-driven compensation expenses ($22.6 million vs. $16.6 million for 2Q24), securitization expenses ($11.5 million from four securitizations vs. $6.2 million for two in 2Q24), and loan servicing expense ($8.2 million vs. $5.2 million for 2Q24) driven by portfolio growth[11] Net Interest Margin Analysis Velocity Financial's 2Q25 net interest margin improved, with portfolio-related NIM at 3.82% and total company NIM at 3.39%, driven by higher portfolio yield 2Q25 Net Interest Margin Analysis (YoY) | Metric | 2Q25 | 2Q24 | Change (bps) | | :------------------------------------ | :----- | :----- | :----------- | | Net interest spread - portfolio related | 3.41% | 2.97% | +44 | | Net interest margin - portfolio related | 3.82% | 3.54% | +28 | | Net interest spread - total company | 3.29% | 2.80% | +49 | | Net interest margin - total company | 3.39% | 2.98% | +41 | | Total loans (Average Balance) | $5,620,763 (thousands) | $4,355,941 (thousands) | +$1,264,822 (thousands) | | Total portfolio yield | 9.65% | 8.98% | +67 | | Total debt - portfolio related (Average Balance) | $5,245,799 (thousands) | $3,941,507 (thousands) | +$1,304,292 (thousands) | | Portfolio-related debt cost | 6.24% | 6.01% | +23 | Loan Portfolio & Credit Quality Loan Portfolio Overview Velocity Financial's total loan portfolio grew 30.8% to $5.9 billion in 2Q25, driven by broad collateral growth, improved LTV, and increased portfolio yield Total Loans Outstanding by Collateral Type (as of June 30) | Loan Type | 2025 ($ in thousands) | 2024 ($ in thousands) | $ Variance | % Variance | | :-------------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Investor 1-4 | $2,951,750 | $2,424,554 | $527,196 | 21.7% | | Mixed use | $632,372 | $512,761 | $119,611 | 23.3% | | Retail | $569,053 | $397,488 | $171,565 | 43.2% | | Office | $459,036 | $336,447 | $122,589 | 36.4% | | Multifamily | $422,603 | $297,732 | $124,871 | 41.9% | | Warehouse | $392,734 | $302,363 | $90,371 | 29.9% | | Other | $432,105 | $208,556 | $223,549 | 107.2% | | Total loans | $5,859,653 | $4,479,901 | $1,379,752 | 30.8% | Key Loan Portfolio Metrics (as of June 30) | Metric | 2025 | 2024 | | :-------------------- | :----- | :----- | | Loan count | 14,854 | 11,582 | | Loan-to-value | 65.8% | 67.4% | | Coupon | 9.70% | 9.25% | | Total portfolio yield | 9.65% | 8.98% | | Portfolio cost of debt | 6.24% | 6.01% | - Total loan portfolio increased by 30.8% to $5.9 billion in UPB, driven by healthy growth across all types of collateral securing the loans[12] - Loan prepayments totaled $223.4 million in UPB, an increase of 14.0% from 1Q25 and 34.8% from 2Q24[12] - Weighted average portfolio loan-to-value ratio decreased to 65.8% as of June 30, 2025, down from 67.4% as of June 30, 2024, and below the five-quarter trailing average of 66.6%[12] - Weighted average total portfolio yield was 9.65%, an increase of 67 bps from 2Q24, primarily driven by the increase in weighted average loan coupons[12] - Portfolio-related debt cost was 6.24%, an increase of 23 bps from 2Q24, driven by higher warehouse financing utilization and securitized debt costs[12] Loan Production Volumes Velocity Financial achieved record 2Q25 loan production of $725.4 million UPB, a 71.8% YoY increase, driven by strong demand for commercial and residential rental loans 2Q25 Loan Originations by Type (YoY) | Origination Type | 2Q25 ($ in thousands) | 2Q24 ($ in thousands) | $ Variance | % Variance | | :-------------------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Investor 1-4 rental | $284,885 | $185,743 | $99,142 | 53.4% | | Traditional commercial | $350,495 | $181,505 | $168,990 | 93.1% | | Short-term | $49,085 | $54,978 | $(5,893) | (10.7)% | | Government insured multifamily | $40,922 | $0 | $40,922 | 100.0% | | Total | $725,387 | $422,226 | $303,161 | 71.8% | - Loan production totaled $725.4 million in UPB, an increase of 71.8% from $422.2 million for 2Q24, which is a new record for quarterly production volume in the Company's history[17] - 2Q25 production volume was driven by demand for Traditional commercial loans and Investor 1-4 rental loans, which increased 93.1% and 53.4%, respectively, from 2Q24[17] - Weighted average coupon on 2Q25 HFI loan production was 10.47%, a decrease of 56 bps from 11.03% for 2Q24, mirroring a similar reduction in shorter term interest rates[17] - Government insured multifamily loans are originated by the capital light subsidiary Century Health & Housing Capital and sold to investors for cash gains shortly after closing[17] Credit Performance Velocity Financial maintained stable 2Q25 credit performance, with NPLs slightly decreasing as a percentage of HFI loans, strong NPA recovery rates, and realized REO gains Total HFI Portfolio Credit Performance 2Q25 Total HFI Portfolio Credit Performance (YoY) | Metric | 2Q25 ($ in thousands) | 2Q24 ($ in thousands) | $ Variance | % Variance | | :-------------------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Nonperforming loans UPB | $601,757 | $470,648 | $131,109 | 27.9% | | Total UPB | $5,859,653 | $4,479,901 | $1,379,752 | 30.8% | | Nonperforming loans UPB / Total UPB | 10.3% | 10.5% | - | (2.2)% | - Nonperforming loans (NPL) totaled $601.8 million in UPB as of June 30, 2025, or 10.3% of total HFI loans, compared to $470.6 million and 10.5% as of June 30, 2024[14] CECL Portfolio Credit Performance 2Q25 CECL Portfolio Credit Performance (YoY) | Metric | 2Q25 ($ in thousands) | 2Q24 ($ in thousands) | $ Variance | % Variance | | :------------------------------------------ | :-------------------- | :-------------------- | :--------- | :--------- | | Allowance for credit losses (Ending balance) | $4,882 | $5,240 | $(358) | (6.8)% | | Provision for credit losses | $1,598 | $218 | $1,380 | 633.0% | | Charge-offs | $(1,733) | $(245) | $(1,488) | 607.3% | | Total UPB subject to CECL | $2,210,304 | $2,599,016 | $(388,712) | (15.0)% | | Nonperforming loans UPB subject to CECL | $283,227 | $324,018 | $(40,791) | (12.6)% | | NPL UPB subject to CECL / Total UPB subject to CECL | 12.8% | 12.5% | - | 2.8% | | Allowance for credit losses / Total UPB subject to CECL | 0.22% | 0.20% | - | 9.6% | | Charge-offs / Total UPB subject to CECL (Annualized) | 0.31% | 0.04% | - | 731.7% | - Charge-offs for 2Q25 totaled $1.7 million, compared to $0.2 million for 2Q24, with the trailing five-quarter charge-offs average at $0.8 million[18] Real Estate Owned 2Q25 Gain (Loss) on REO (YoY) | Metric | 2Q25 ($ in thousands) | 2Q24 ($ in thousands) | $ Variance | % Variance | | :-------------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Gain on transfer to REO | $5,141 | $2,914 | $2,227 | 76.4% | | REO valuation loss, net | $(2,150) | $(540) | $(1,610) | 298.1% | | Gain (loss) on sale of REO | $790 | $(37) | $827 | 2,235.1% | | Total gain on REO | $3,781 | $2,337 | $1,444 | 61.8% | - Total gain on REO was $3.8 million, compared to $2.3 million for 2Q24, driven by gain on foreclosed loans transferred to REO[19] Nonperforming Assets (NPA) Resolution 2Q25 Nonperforming Assets (NPA) Resolution (YoY) | Resolution Type | 2Q25 UPB ($ in thousands) | 2Q25 Gain / (Loss) ($ in thousands) | 2Q24 UPB ($ in thousands) | 2Q24 Gain / (Loss) ($ in thousands) | | :------------------------ | :------------------------ | :---------------------------------- | :------------------------ | :---------------------------------- | | Resolved — loans paid in full | $41,183 | $2,449 | $30,664 | $886 | | Resolved — loans paid current | $49,166 | $394 | $37,981 | $189 | | Resolved — REO sold | $13,607 | $791 | $12,035 | $(37) | | Total resolutions | $103,956 | $3,634 | $80,680 | $1,038 | | Recovery rate on resolved nonperforming assets | 103.5% | - | 101.3% | - | - NPA resolution totaled $104.0 million in UPB, realizing 103.5% of UPB resolved compared to $80.7 million in UPB and realization of 101.3% of UPB resolved for 2Q24[21] - UPB of NPA resolution for 2Q25 was above the recent five-quarter average of $81.8 million in UPB resolved and remained consistent with the average gains of 103.5% of UPB resolved[21] - Credit loss reserve totaled $4.9 million as of June 30, 2025, a decrease of 6.8% from $5.2 million as of June 30, 2024, driven by a decreasing loan portfolio subject to credit loss reserve[22] - CECL reserve rate of 0.22% (CECL reserve as % of HFI loans at amortized cost) was relatively consistent with the recent five-quarter average rate of 0.20%[22] Financial Statements Condensed Consolidated Balance Sheets Velocity Financial's June 30, 2025 balance sheet shows significant growth in total assets and loans, with increased liabilities from securitized debt and higher stockholders' equity Condensed Consolidated Balance Sheets (as of June 30, 2025 vs. December 31, 2024) | Asset/Liability/Equity | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------------------- | :----------------------------- | :--------------------------------- | | Cash, cash equivalents, and restricted cash | $97,189 | $70,830 | | Total loans, net | $6,053,225 | $5,187,067 | | Real estate owned, net | $93,387 | $68,000 | | Total assets | $6,475,880 | $5,527,408 | | Accounts payable and accrued expenses | $164,935 | $147,814 | | Secured financing, net | $285,756 | $284,833 | | Securitized debt | $5,092,519 | $4,226,464 | | Warehouse and repurchase facilities, net | $331,057 | $348,082 | | Total liabilities | $5,874,827 | $5,007,193 | | Stockholders' equity | $597,895 | $516,944 | | Total equity | $601,053 | $520,215 | | Diluted book value per share | $15.62 | $14.26 | | Diluted shares at period end | 38,475 | 36,469 | Condensed Consolidated Statements of Income Velocity Financial's 2Q25 consolidated income statements reflect strong performance, with net income reaching $26.0 million, driven by higher interest and other operating income Condensed Consolidated Statements of Income (Three Months Ended June 30) | Income Statement Item | 2025 ($ in thousands) | 2024 ($ in thousands) | | :------------------------------------------ | :-------------------- | :-------------------- | | Interest income | $135,567 | $97,760 | | Interest expense — portfolio related | $81,838 | $59,188 | | Net interest income — portfolio related | $53,729 | $38,572 | | Net interest income | $47,586 | $32,417 | | Provision for credit losses | $1,598 | $218 | | Net interest income after provision for credit losses | $45,988 | $32,199 | | Total other operating income | $39,847 | $22,561 | | Total operating expenses | $51,913 | $34,887 | | Income before income taxes | $33,922 | $19,873 | | Income tax expense | $7,752 | $5,162 | | Net income | $26,170 | $14,711 | | Net income attributable to Velocity Financial, Inc. | $25,997 | $14,778 | | Diluted earnings per share | $0.69 | $0.42 | | Diluted weighted average common shares outstanding | 37,790 | 35,600 | Additional Information Non-GAAP Financial Measures Velocity Financial uses non-GAAP core net income and diluted EPS to provide a clearer view of underlying operating performance by adjusting for non-recurring expenses - Non-GAAP core net income and core diluted EPS are used to supplement GAAP financial statements[26] - These measures adjust net income/loss and diluted EPS to eliminate the effect of certain costs, non-recurring operating expenses, and acquisition costs[27] - Management uses these measures to evaluate operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources[28] - They provide useful information to investors and others in understanding and evaluating operating results in the same manner as management and board of directors, and for period-to-period comparisons by removing nonrecurring items[29] - Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP, and are not necessarily comparable to similarly titled measures presented by other companies[30] Adjusted Financial Metric Reconciliation to GAAP Net Income (Three Months Ended June 30) | Metric | 2025 ($ in thousands) | 2024 ($ in thousands) | | :------------------------------------------ | :-------------------- | :-------------------- | | Net income | $25,997 | $14,778 | | Equity award & ESPP expenses | $1,473 | $1,140 | | Core net income | $27,470 | $15,918 | | Diluted weighted average common shares outstanding | 37,790 | 35,600 | | Core diluted earnings per share | $0.73 | $0.45 | Forward-Looking Statements This section disclaims forward-looking statements, which are subject to numerous risks and uncertainties, including economic conditions, regulatory changes, and geopolitical conflicts - 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[32] - Identifiable by terms 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[32] - Reflect 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[33] - While forward-looking statements reflect good faith projections, assumptions, and expectations, they are not guarantees of future results; the company disclaims any obligation to publicly update or revise them, except as required by applicable law[33] - Factors that could cause material differences include changes in federal government fiscal and monetary policies, general economic and real estate market conditions (including the risk of recession), regulatory and/or legislative changes, customer interest in loans and doing business with the company, market conditions and investor interest in future securitizations, and geopolitical conflicts[33] Company Information & Investor Relations Velocity Financial, Inc. is a real estate finance company specializing in business purpose loans, providing details for its 2Q25 earnings conference call and webcast - Velocity Financial, Inc. is a vertically integrated real estate finance company based in Westlake Village, California, that primarily originates and manages business purpose loans secured by 1-4 unit residential rental and small commercial properties[23] - The company originates loans nationwide across an extensive network of independent mortgage brokers built and refined over 21 years[23] - A conference call and webcast for 2Q25 financial results will be hosted on August 7, 2025, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time[24] - Webcast accessible live in listen-only mode through the Events and Presentations section of the Velocity Financial Investor Relations website: https://www.velfinance.com/events-and-presentations[24](index=24&type=chunk) - To participate by phone, dial 1-833-316-0544 (U.S. and Canada) or 1-412-317-5725 (international) and ask to join the Velocity Financial, Inc. conference call[25] - A replay of the call will be available through midnight on August 30, 2025, by dialing 1-877-344-7529 (U.S.), 855-669-9658 (Canada), or 1-412-317-0088 (internationally) with passcode 6718651, and also on the Investor Relations website[25]