PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(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](index=3&type=section&id=Consolidated%20Balance%20Sheets) 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](index=5&type=section&id=Consolidated%20Statements%20of%20Income) 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](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) 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](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) 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)](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(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 value[36](index=36&type=chunk)[37](index=37&type=chunk) 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 2024[56](index=56&type=chunk) 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](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q2 2025 performance to loan portfolio growth, improved net interest margin, and increased originations [Portfolio and Asset Quality](index=47&type=section&id=Portfolio%20and%20Asset%20Quality) 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 activities[189](index=189&type=chunk) - The loan portfolio is geographically concentrated, with **20.9%** in California, **14.3%** in New York, and **12.6%** in Florida[193](index=193&type=chunk)[195](index=195&type=chunk) [Consolidated Results of Operations](index=58&type=section&id=Consolidated%20Results%20of%20Operations) 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 yields[230](index=230&type=chunk) - 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 2024[233](index=233&type=chunk) - Total operating expenses increased by **$17.0 million** year-over-year, primarily due to higher compensation and benefits, securitization expenses, and loan servicing costs[252](index=252&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) 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 million**[266](index=266&type=chunk) - 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, 2025[273](index=273&type=chunk)[294](index=294&type=chunk) - From May 2011 through June 2025, the company has completed **42 securitization transactions**, issuing **$9.3 billion** in securities[277](index=277&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) 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 requirements[300](index=300&type=chunk) [Item 4. Controls and Procedures](index=69&type=section&id=Item%204.%20Controls%20and%20Procedures) 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 period[302](index=302&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, such controls[303](index=303&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=71&type=section&id=Item%201.%20Legal%20Proceedings) 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 flows[306](index=306&type=chunk) [Item 1A. Risk Factors](index=71&type=section&id=Item%201A.%20Risk%20Factors) 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 requirements[307](index=307&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) 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 basis[308](index=308&type=chunk) - 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 awards[310](index=310&type=chunk)[311](index=311&type=chunk) [Item 5. Other Information](index=71&type=section&id=Item%205.%20Other%20Information) 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 shares**[314](index=314&type=chunk) - On March 20, 2025, CFO Mark R. Szczepaniak adopted a Rule 10b5-1 trading plan for the sale of up to **18,870 shares**[315](index=315&type=chunk) [Item 6. Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed or incorporated by reference into the Form 10-Q, including governance documents and certifications

Financial Data and Key Metrics Changes - The company reported a record quarterly net income increase of 76% and new loan production up 72% compared to Q2 2024 [5] - Revenue grew by $31 million, with pretax income increasing by $14 million, resulting in a core pretax return on equity of 24% [5][6] - The net interest margin (NIM) for the quarter increased to 3.82%, up 47 basis points from the previous quarter [9][17] Business Line Data and Key Metrics Changes - The total loan portfolio grew by 30.8% year over year, reaching $5.9 billion in UPB [16] - Record loan production in Q2 was just over $725 million, a 13.3% increase from Q1 [14] - The weighted average coupon on new held-for-investment originations was strong at 10.5% [15] Market Data and Key Metrics Changes - The company experienced a significant increase in transactions, particularly in commercial and residential properties, with a portfolio increase of approximately $1.4 billion [6] - Nonperforming loans slightly decreased to 10.3%, reflecting effective asset management and resolution efforts [9][19] Company Strategy and Development Direction - The company aims to leverage its unique business structure as a C Corp to retain earnings and grow book value [11][12] - There is a focus on technology improvements to enhance operational efficiency over the next 12 to 18 months [35][36] - The company is exploring opportunities for alternative financing sources, including private capital, to support portfolio growth [43][44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing healthy market conditions and a strong pipeline for new loans [22] - The target NIM is set at 3.5%, with expectations for sustainable growth in loan production [26][30] - The company believes it has not reached peak performance and sees room for improvement in efficiency [35][36] Other Important Information - The company completed four securitizations in Q2, issuing nearly $1 billion in securities, which provided significant liquidity [7][21] - Total liquidity at the end of Q2 was $139.2 million, with ample warehouse capacity to support growth [21] Q&A Session Summary Question: Can you discuss NIM expectations going into Q3 and loan growth for H2? - Management targets a consistent NIM of 3.5% and expects continued loan growth, although it may not be linear [26][30] Question: Are there opportunities for improvement or is this optimal performance? - Management believes there is room for improvement, particularly through technology enhancements to increase productivity [35][36] Question: How broad is the company's origination platform geographically? - The company operates in 48 states, with a strong presence in major MSAs, including a high-performing office in Miami [38][39] Question: Will the company consider incorporating loan sales into its financing strategy? - Management is open to exploring private credit sources and alternative financing structures to support growth [43][44] Question: What is driving the increase in prepayment rates? - Prepayment activity is driven by property sales and refinancing, with the company indifferent to the reasons due to prepayment penalty fees [45][46]

Financial Performance - Net income reached $26.0 million, a 75.9% increase compared to $14.8 million in 2Q24[7] - Core net income increased by 72.6% to $27.5 million from $15.9 million in 2Q24[7] - Portfolio net interest margin (NIM) increased to 3.82%, up 47 bps from 3.35% in 1Q25[7] - Diluted book value per share as of June 30, 2025, was $15.62, a 5.1% increase from $14.87 as of March 31, 2025[15] Loan Portfolio and Production - Loan production reached a record of $725.4 million in UPB, a 13.3% increase from 1Q25 and a 71.8% increase from 2Q24[7, 18] - The total loan portfolio was $5.9 billion in UPB as of June 30, 2025, a 30.8% increase from $4.5 billion in UPB as of June 30, 2024[7, 21] - The UPB of fair value option (FVO) loans was $3.6 billion, or 62.3% of total loans, as of June 30, 2025, an increase from 42.0% as of June 30, 2024[21] Capital and Financing - The company completed four securitizations totaling $985.5 million of securities issued[6] - The company collapsed and refinanced two securitizations totaling $68.0 million in debt outstanding, which released $53.5 million of capital[6] - Nonperforming loans (NPL) as a % of HFI loans decreased to 10.3%, down from 10.8% as of March 31, 2025[7]

Financial Performance - Net income for Q1 2025 was $18.9 million, a 9.5% increase from $17.3 million in Q1 2024, with diluted EPS rising to $0.51 from $0.49[4] - Core net income reached $20.3 million, up 11.0% from $18.2 million in Q1 2024, with core diluted EPS increasing to $0.55 from $0.51[4] - Net revenue for 1Q25 was $69.1 million, a 27.4% increase from $54.2 million in 1Q24, driven by strong portfolio net interest income growth and unrealized fair value gains[18] - Total net interest income was $35.6 million for 1Q25, up 25.2% from $28.5 million in 1Q24, with portfolio net interest income at $43.7 million, also a 25.2% increase[18] - Net income attributable to Velocity Financial, Inc. for the quarter was $18,887,000, compared to $17,251,000 in the same quarter last year, showing an increase of 9.5%[46] - Core net income for the quarter was $20,253,000, up from $18,249,000 in the same quarter last year, which is a growth of 11.0%[52] - Basic earnings per share for the quarter was $0.55, compared to $0.52 in the same quarter last year, reflecting an increase of 5.8%[46] Loan Production and Portfolio - Record loan production of $640.4 million in UPB, representing a 69.1% increase from $378.7 million in Q1 2024[4] - Total loan portfolio was $5.4 billion in UPB, a 27.3% increase from $4.3 billion in Q1 2024, driven by a 19.8% growth in Investor 1-4 Rental loans[12] - The average loan portfolio balance increased to $5,214,186,000 from $4,159,412,000 in the same quarter last year, representing a growth of 25.4%[48] Nonperforming Loans and Credit Quality - Nonperforming loans (NPL) as a percentage of Held for Investment (HFI) loans were 10.8%, slightly up from 10.1% in Q1 2024[4] - Nonperforming loans (NPL) reached $587.8 million as of March 31, 2025, representing 10.8% of loans held for investment (HFI), an increase from $432.6 million and 10.1% a year earlier[15] - The provision for credit losses was $1,872,000, compared to a reversal of $1,002,000 in the same quarter last year, indicating a shift in credit quality assessment[46] Operating Expenses - Operating expenses totaled $42.2 million for 1Q25, a 36.0% increase from $31.0 million in 1Q24, primarily due to higher production-driven compensation expenses[20] - Compensation expenses rose to $21.7 million in 1Q25, compared to $15.4 million in 1Q24, reflecting increased commission compensation on higher production volume[20] - Total operating expenses for the quarter were $42,190,000, up from $31,011,000 in the same quarter last year, indicating a rise of 36.0%[46] Liquidity and Capital - Liquidity as of March 31, 2025, was $75.6 million, with total available warehouse line capacity of $238.2 million[4] - Total assets as of March 31, 2025, were $5,971.53 million, an increase from $5,527.41 million as of December 31, 2024[42] - Total loans, net, increased to $5,614.21 million as of March 31, 2025, compared to $5,187.07 million as of December 31, 2024[42] - Cash and cash equivalents rose to $51.68 million as of March 31, 2025, up from $49.90 million as of December 31, 2024[42] - Book value per share increased to $16.19 as of March 31, 2025, compared to $15.70 as of December 31, 2024[42] - Stockholders' equity grew to $566.22 million as of March 31, 2025, from $520.22 million as of December 31, 2024[42] Securitization and Interest Rates - The weighted average loan-to-value ratio was 66.1% as of March 31, 2025, down from 67.6% in Q1 2024[12] - The weighted average rate on outstanding securitizations was 5.87% as of March 31, 2025, an increase of 44 basis points from the previous year[22] - The company completed one securitization in 1Q25 totaling $342.8 million with a weighted average rate of 6.7%, down from 7.9% in 1Q24[22] - The net interest margin - portfolio related for the quarter was 3.35%, consistent with the previous quarter, indicating stable performance[48] - The company reported a net interest spread - total company of 2.75%, an increase from 2.62% in the same quarter last year, showing improved efficiency[48] Future Outlook and Risks - The company expects solid investor loan demand to continue, driven by strong financing demand in both traditional commercial and residential rental property markets[6] - Forward-looking statements indicate potential risks including general economic conditions and regulatory changes that may impact future results[38]

Loan Portfolio and Performance - As of March 31, 2025, the company's loan portfolio totaled $5.4 billion, with an average loan balance of approximately $393.0 thousand[155]. - The annualized yield on the total portfolio for the three months ended March 31, 2025, was 9.11%[155]. - The portfolio-related net interest margin for both the three months ended March 31, 2025, and 2024, was 3.35%[157]. - Total loans increased from $4.28 billion as of March 31, 2024, to $5.45 billion as of March 31, 2025, representing a growth of approximately 27.3%[175]. - The weighted average loan-to-value (LTV) ratio at origination was 66.1% as of March 31, 2025, slightly down from 67.6% as of March 31, 2024[175]. - Total loan originations for the three months ended March 31, 2025, increased to $640.4 million, up $76.9 million from the previous quarter and $261.8 million from the same quarter last year[179]. - The weighted average loan-to-value (LTV) ratio for total loan originations was 62.3% for the three months ended March 31, 2025[179]. - The company’s portfolio of loans held for investment includes a significant portion (95.4%) maturing in more than five years as of March 31, 2025[180]. Nonperforming Loans and Credit Losses - Nonperforming loans as a percentage of total loans were 10.8% as of March 31, 2025, compared to 10.1% as of March 31, 2024[175]. - Nonperforming loans amounted to $587.8 million, or 10.8% of the held for investment loan portfolio, compared to $539.4 million, or 10.7% as of December 31, 2024[190]. - The allowance for credit losses as of March 31, 2025, was $5.0 million, slightly higher than the expected range of 0.15% to 0.20% of loans held for investment[186]. - Charge-offs for the three months ended March 31, 2025, were $1.03 million, representing 1.38% of average nonperforming loans[182]. - The provision for credit losses for the three months ended March 31, 2025, was $1.87 million, compared to $22,000 for the previous quarter[188]. - Resolved $76.4 million of nonperforming assets for Q1 2025, down from $79.4 million in Q4 2024, but up from $54.5 million in Q1 2024[191]. - Recovery rate on resolved nonperforming assets was 103.1% in Q1 2025, compared to 109.2% in Q4 2024 and 102.5% in Q1 2024[192]. Financial Performance - For the three months ended March 31, 2025, the company generated pre-tax income of $26.9 million and net income of $18.6 million, compared to $23.2 million and $17.3 million for the same period in 2024[157]. - Net income attributable to Velocity Financial, Inc. for the three months ended March 31, 2025, was $18,887,000, compared to $17,251,000 in the same period in 2024, a growth of 9%[230]. - Total operating expenses for the three months ended March 31, 2025, were $42,190,000, an increase from $31,011,000 in the same period of 2024, indicating a 36% rise[230]. - The provision for credit losses for the three months ended March 31, 2025, was $1,872,000, compared to $1,002,000 for the same period in 2024, showing an increase of 87%[230]. - Interest income for the three months ended March 31, 2025, was $118,740,000, compared to $90,529,000 for the same period in 2024, representing a 31% increase[230]. - Net interest income after provision for credit losses for the three months ended March 31, 2025, was $35,638,000, up from $28,472,000 in the same period of 2024, reflecting a 25% increase[230]. - Total other operating income increased by $7.7 million to $33.4 million for the three months ended March 31, 2025, primarily driven by increased origination fee income and unrealized gains from fair value marks[238]. Debt and Financing - The company has executed 38 securitized debt transactions, resulting in over $8.3 billion in gross debt proceeds from May 2011 through March 2025[156]. - Total debt as of March 31, 2025, was $5,111,067,000, with a portfolio-related interest expense of $75,088,000[230]. - The outstanding bond balance increased to $4,429,240,000 as of March 31, 2025, compared to $4,269,008,000 on December 31, 2024, reflecting a growth of approximately 3.75%[271]. - A five-year $215.0 million syndicated corporate debt agreement was established on March 15, 2022, with a fixed interest rate of 7.125% maturing on March 15, 2027[275]. - A subsequent five-year $75.0 million syndicated corporate debt agreement was entered into on February 5, 2024, with an interest rate of 9.875% maturing on February 15, 2029[276]. Cash Flow and Liquidity - Total liquidity, including available warehouse capacity, was $313.8 million as of March 31, 2025, consisting of $238.2 million in available warehouse capacity and $51.7 million in cash[259]. - Cash provided by operating activities was $3.54 million for the three months ended March 31, 2025, down from $10.58 million in the previous year[260]. - Cash used in investing activities was $401.41 million for the three months ended March 31, 2025, compared to $212.44 million in the previous year[260]. - Cash provided by financing activities was $401.51 million for the three months ended March 31, 2025, up from $198.98 million in the previous year[260]. - As of March 31, 2025, borrowings under warehouse facilities amounted to $571.8 million, with $238.2 million of available capacity[265]. Forward-Looking Statements - The company acknowledges that forward-looking statements may not prove to be correct and actual results may differ materially from anticipated results[285]. - Forward-looking statements include expectations regarding loan originations and the resolution of non-performing loans[285]. - The company will not update any forward-looking statements after the date they are made, except as required by law[286]. - Important factors that could cause actual results to differ are detailed in the Quarterly Report and other filed documents[285].

Financial Data and Key Metrics Changes - The company originated $640 million in new loans, a 69% increase year-over-year, driving a 27% increase in net revenue and a 17% increase in core pretax earnings [4][12] - Core earnings per share increased to $0.55 from $0.51 a year ago, marking the second-best quarterly earnings in company history [7] - The total loan portfolio reached just under $5.5 billion, a 7.8% increase from year-end 2024 and a 27.3% increase year-over-year [13][14] Business Line Data and Key Metrics Changes - The weighted average coupon on new held-for-investment originations was strong at 10.5%, with a five-quarter average trend of 10.8% [12] - The weighted average loan-to-value ratio for the quarter was just under 63%, indicating tight credit levels [13] - Non-performing loans remained stable at 10.8%, consistent with previous quarters [15][16] Market Data and Key Metrics Changes - The company reported strong demand across all property types, with a recent shift towards commercial loans [4] - The real estate markets are functioning well, with healthy investor demand and participation in offerings despite market volatility [5][21] Company Strategy and Development Direction - The company aims to grow its portfolio to $10 billion over the next five years, focusing on technology to scale the business without significantly increasing headcount [47][49] - The company has been active in capital markets, completing four successful debt transactions and issuing three new securitizations [5][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future, citing strong production and healthy demand in real estate markets [21] - The company does not anticipate material impacts from external factors such as tariff discussions [21] Other Important Information - The company has a total liquidity of $75.6 million, comprised of cash and available liquidity on unfinanced collateral [19] - The CECL loan loss reserve at the end of the quarter was $5 million, slightly above the expected normal range due to macroeconomic forecasts [17][18] Q&A Session Summary Question: Will the NIM remain stable in Q2? - Management indicated that the NIM is expected to be around 3.35% to 3.5%, which is considered normal [23] Question: What is the outlook for new origination yields? - Management expects yields to remain stable, with potential for a decrease later in the year if the Federal Reserve continues to cut rates [25][26] Question: Is the increase in commercial demand due to borrowers being shut out of other channels? - Management clarified that the increase is primarily due to the establishment of a small commercial division rather than a demand issue [30] Question: What will the raised capital be used for? - The raised capital will be used to continue making more loans, with a focus on growing the portfolio [34] Question: What is the current total headcount and office locations? - The company has a total headcount of 323 and operates from five office locations [43][45] Question: What is the long-term vision for the company? - The company aims to grow its portfolio to $10 billion in five years while leveraging technology to enhance productivity [47][49]

Financial Performance - Net income reached $189 million, a 95% increase compared to $173 million in 1Q24[7] - Core net income increased by 110% to $203 million from $182 million in 1Q24[7] - Diluted EPS increased to $055, up from $051 per share in 1Q24[7] - GAAP book value per share increased by 32% to $1619 from $1570 as of December 31, 2024[14] Loan Production and Portfolio - Loan production reached a record of $6404 million in UPB, a 137% increase from 4Q24 and a 691% increase from 1Q24[7] - The total loan portfolio was $54 billion in UPB, a 273% increase from $43 billion in UPB as of March 31, 2024[7] - The UPB of fair value option (FVO) loans was $31 billion, or 577% of total loans[21] Asset Quality and Resolution - Nonperforming loans (NPL) as a % of HFI loans were 108%, relatively consistent with 107% as of December 31, 2024, and 101% as of March 31, 2024[7] - 1Q25 NPA resolutions realized gains of $19 million, or 1024%, of UPB resolved[7] - NPA resolutions totaled $764 million in UPB, realizing 1024% of UPB resolved, compared to $545 million in UPB and realization of 1023% of UPB resolved for 1Q24[32] Financing and Capital - The company completed one securitization during 1Q25, totaling $3428 million of securities issued with a weighted average rate of 67%[7] - Collapsed VCC 2023-1R which released $526 million of marketable retained securities after paying off the associated debt[7] - Issued 16 million common shares, realizing net proceeds of $288 million through Velocity's ATM offering program at an accretive to book value WAP of $1835[7]

Core Insights - Velocity Financial (NYSE: VEL) has reported another strong quarter, although its shares remain within the same trading range [1] Company Overview - Velocity Financial continues to demonstrate robust performance in its quarterly results, indicating potential for growth despite the current trading limitations [1] Investment Strategy - The investment approach involves a buy and hold strategy with tranche purchases, focusing on small companies with high growth potential [2]

Financial Data and Key Metrics Changes - Velocity Financial, Inc. reported a 64% increase in originations for 2024, leading to a 37% increase in net revenue [8][9] - The Q4 pretax return on equity (ROE) was 26.8%, with core earnings of $0.60 per share for Q4 and $2.03 per share for the full year [13][14] - The total loan portfolio reached $5.1 billion, marking a 6.4% increase from Q3 and over 24% year-over-year growth [22][23] - The non-performing loan (NPL) rate was stable at 10.7%, consistent with the previous quarter [25] Business Line Data and Key Metrics Changes - Total loan production for Q4 was $563.5 million, an 18.2% increase from Q3 [19] - The weighted average coupon on the total portfolio was 9.53%, a 16 basis points increase from Q3 [23] - The net interest margin (NIM) for Q4 was 3.70%, reflecting a 10 basis points increase quarter-over-quarter [24] Market Data and Key Metrics Changes - The company experienced strong demand from borrowers, particularly in larger, more liquid metropolitan statistical areas (MSAs) [10] - The securitization market showed significant improvement post-presidential election, leading to tighter spreads and increased investor participation [11] Company Strategy and Development Direction - The company aims to continue capturing market share by lending to both residential and commercial real estate investors, addressing unmet needs in the market [7] - The strategy includes retaining earnings and building book value, with an adjusted book value estimated at $18.73 per share [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth for 2025, citing strong borrower demand and a favorable capital market environment [34] - The company remains less sensitive to interest rate fluctuations compared to other mortgage segments, focusing on delivering capital to underserved borrowers [12] Other Important Information - The company reported $96 million in liquidity at the end of Q4, with a maximum line capacity of $785 million [31][32] - Non-performing loan resolution gains for Q4 were $5.6 million, with a total of $10.2 million for the year [27][28] Q&A Session Summary Question: Production expectations for 2025 - Management indicated that the current run rate is a good forecast for the year, with potential for upward growth due to increasing demand [39] Question: Average loan balance increase - The increase in average loan balance is attributed to a higher commercial component rather than entering new markets [41][43] Question: Capital needs for growth - Current retained earnings and ATM issuance are sufficient for growth, but additional capital may be needed if growth accelerates significantly [45] Question: Borrower mindset amidst rate volatility - Borrowers focus on property management and acquisition rather than interest rates, valuing certainty of execution [55] Question: NPL resolutions process - Most NPL resolutions involve borrowers paying current or refinancing, with only a small percentage leading to foreclosure [66] Question: CMBS market response to volatility - The company has not seen significant volatility in its securitizations, which are more comparable to non-QM RMBS executions [73] Question: Visibility into NPL resolution pipeline - NPL resolutions are unpredictable and can vary significantly, but historical trends suggest a durable source of returns [75] Question: Composition of the portfolio - The portfolio is nearly evenly split between one to four rental properties and small commercial assets, with a focus on liquid and easily sellable REO [80]

Financial Performance - Net income for 4Q24 was $206 million, an increase of 186% compared to $174 million in 4Q23[7] - Core net income for 4Q24 increased by 346% to $218 million from $162 million in 4Q23[7] - Full year diluted EPS increased by $039 to $191, up from $152 in 2023[7] - GAAP book value per share as of December 31, 2024, was $1570, a 53% increase from September 30, 2024[13] - Adjusted book value per share as of December 31, 2024, was $1873[13] Loan Production and Portfolio - Loan production in 4Q24 reached $5635 million in UPB, an 182% increase from 3Q24 and a 600% increase from 4Q23[7, 15] - The total loan portfolio reached $51 billion in UPB as of December 31, 2024, a 241% increase from $41 billion in UPB as of December 31, 2023[7, 18] - The WAC of the portfolio was 953% as of December 31, 2024, an increase from 888% as of December 31, 2023[18] Asset Quality and Resolution - Nonperforming Loans (NPL) were 107% of HFI loans as of December 31, 2024[7, 25] - 4Q24 NPL resolutions realized gains of $56 million, or 1070%, of UPB resolved[7] - NPL resolution totaled $794 million in UPB, realizing 1070% of UPB resolved compared to $701 million in UPB and realization of 1022% of UPB resolved for 4Q23[30] Financing and Liquidity - Completed securitizations totaling $2929 million and $2939 million, respectively, of securities issued in 4Q24[7] - Liquidity of $959 million and total available warehouse line capacity of $4350 million as of December 31, 2024[8] - Two securitization completed during 4Q24, totaling $5868 million of securities issued with a weighted average rate of 60%[39]